Pasha Khordorkovskiy wanted to get his hardware business off the ground a few years ago, but the timing was wrong. The financial downturn made hardware unattractive to investors, the path to market unreachable. Fast-forward to four years later, and he and his cofounder have found themselves embraced by a vibrant hardware startup community, ready to launch their product.
“Hardware is sexy again.” Khordorkovskiy says.
Khordorkovskiy’s startup, Enertiv, was part of the first class of the New York-based R/GA Accelerator this past year, along with nine other hardware startups. All of the companies that presented at the accelerator’s demo days at SXSW this spring met or exceeded their funding goals. One participant, Grove Labs, secured $2 million and the first versions of its hydroponic grove are already operating in users’ homes.
The projects in R/GA’s first class all centered on connected devices, from Grove Labs’ indoor hydroponic grove to Enertiv’s energy-efficiency monitoring system. They gained access to technical and product mentors, as well as the accelerator’s machine shop thanks to a partnership with MakerBot. In many cases the founders already had enough technical know-how to move their idea into a product, but R/GA’s branding and commercial resources pushed them from dorm-room startups to funded business.
Now the R/GA Accelerator is getting ready to welcome the second group of startups to its accelerator on Monday, and this time around software and data will be getting more attention.
The R/GA Accelerator is the product of the New York-based interactive agency R/GA and the global seed-stage investment program Techstars. The accelerator’s affiliation with Techstars created a lot of inbound interest for the first class of participants, and R/GA’s reputation in the connected devices world as a powerful branding force has given the accelerator its commercial edge–R/GA counts the Nike+ FuelBand and the Beats Music services among its prized projects.
“We think that our point of differentiation is really with the go-to-market strategy, whereas other programs focus a lot on building products,” says Jenny Fielding, the accelerator’s new managing director. “It’s nice to have products, but if you can’t get the products into the hands of consumers, that’s half the battle there.”
Knowing that the marketing pitch is they key to attracting investors, the first thing R/GA did was sit down with Khordorkovskiy and the Enertiv team to help them analyze their market presence and potential. Since Khordorkovskiy and his cofounder already had live versions of their energy-efficiency system in place with a few customers, R/GA helped refine their story for these existing markets as well as identify new types of target clients for future growth.
“They’re experts at a few things and not all the things that are necessary to bring a brand to market,” says Daniel Diez, global chief marketing officer of R/GA. But with R/GA’s full scope of capabilities on the table, the accelerator’s startups could build both the brand and the business.
In the end, Khordorkovskiy says the program completely turned Enertiv’s business model upside down, for the better. In its early years, Enertiv charged the customer high initial fees for its energy-monitoring hardware. But after lowering its upfront costs, on R/GA’s suggestion, the company saw its sales pick up. And along with targeting new customer types, Enertiv upped its revenue by implementing a payment scheme for access to its hardware’s acquired data.
“The value that you deliver is the data. It’s in the recommendations. It’s in real-time dashboards that people have in their facilities, and for that, they pay on a monthly basis,” says Khordorkovskiy.
Now, Enertiv’s brand of managing home energy efficiency leverages the Internet of Things in a way that older and established companies in the same space do not. The company has an API that can interface with existing hardware in its customers’ buildings, as well as provide data streams to other companies, like real estate firms. Enertiv’s software transformed its product from solely a consumer solution to one that also caters to other businesses.
Keen Home, another startup in the R/GA Accelerator’s first class, came into the program with a working prototype of its smart vent that opened and closed depending on the conditions of the room it was installed in. Ryan Fant, its cofounder and co-CEO, says R/GA really understood his vision that Keen Home was more than just a vent company. He was interested in intelligent automation but didn’t know where to grow his business from that idea.
“When we came in, we knew we were more than a smart vent company, but we didn’t know how to say that; we didn’t know how to portray that. And I don’t think we fully believed we could be more than that,” says Fant.
With R/GA’s help, Keen Home developed an identity that it could easily pitch to investors. Its product is a complement to other smart devices in the home. Rather than being the central nervous system of an HVAC system, like Nest is, it’s the respiratory system, leveraging information from other datasets in the home. Now, the home improvement store Lowe’s is embedding Keen Home’s app into its smart home platform.
Marketing tactics aside, working with the other startups on their products in the lab turned into a good give-and-take for Keen Home. One of Keen Home’s cofounders was even known as the 3-D printing guru among the class members, known for helping the other teams refine their designs for a couple of hours at a time. In return, one of the other teams’ standout software developers helped Keen Home finish out its app.
“We have different challenges than traditional software platforms or app companies do. And if there’s anything we can do to help each other get over that hump, there’s a real willingness to do that,” says Fant.
Focusing the second batch of accelerator startups more clearly on software and data is a recognition of just how quickly the connected devices world is evolving.
“In the future, we’ll be able to link multiple devices on a platform,” says Fielding. New hardware solutions, she says, will need to demonstrate how they connect to other solutions and devices. Software does that.
And with prototyping costs going down and the open-source hardware movement catching on, Fielding and Diez realize that the key to differentiation is in services. The market is bound to see copycats of smart security and energy-monitoring systems that new hardware startups tend to turn out because hardware products are getting increasingly easy to build.
“At some point, we’re going to reach a critical mass of devices,” says Diez. “And I think the thing that’s really going to differentiate a lot of them is going to be the service layer that people start to create in addition to having the device.”
So when sifting through this year’s applications to its accelerator, R/GA looked for companies that had potential in its software and data products, while the hardware component took a backseat. The accelerator will announce the new class members this coming Monday, October 20th.