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So, You Want to be a Start-Up Company in Automation?

POSTED 02/21/2024  | By: Emmet Cole, A3 Contributing Editor

Learn from 3 industry experts about what it takes to succeed as a start-up in automation. 

Navigating the start-up experience can be a daunting prospect, especially in the automation sector. From acquiring funding to dealing with rejection, the challenges are complex and will test you — and your team — to the limit. A3 spoke with three experts that have been through the start-up experience to better understand the challenges involved and to get some advice on how to improve your chances of success.

Find a Product Fit

Founders have to understand their customers’ needs, says Tom Kelly, CEO at Automation Alley, a Michigan-based nonprofit technology business accelerator and Industry 4.0 knowledge center.  

Tom Kelly, Executive Director and CEO at Automation Alley. Credit: Automation Alley. “It's a little bit like the difference between solving a problem that's an interesting problem to have solved versus having a commercially useful product, which is way more impressive. You need to know why what you've created with a prototype is so compelling that customers and investors will want to pay attention to it,” says Kelly. 

Start-ups are not just in the product development business, says Kelly, they are in the storytelling business too. That’s because start-ups with a prototype and no money, have just two currencies —momentum and buzz.

“Momentum means that when people hear what you're doing, they want to get involved with you, even if they don't want to fund you at that moment. Buzz means that when journalists and magazine editors hear your story, they want to write about it.”

Founders might assume that the product should tell the story itself, Kelly adds, but that “doesn't happen in the real world where you have to convince people that you have the secret sauce to get to where you need to go.”  

Make sure Florian Pestoni, CEO and Co-founder, InOrbit Credit: InOrbit that you are in love with the technology rather than the problem, says Florian Pestoni, CEO and co-founder at InOrbit, co-founder of the Robot Operations Group, and an investor, advisor, board member, and mentor to young start-up founders. 

“It sounds like one of those inspirational posters that everyone rolls their eyes at. But that doesn’t make it any less true. As a recovering engineer myself, I know that solving a difficult technical challenge is deeply satisfying, especially if other engineers told you it wouldn’t work. Fine, you showed them your superior technical prowess. But does that mean you have a viable company?”

The best way to avoid this pitfall, says Pestoni, is to engage customers early and often.

“Don’t tell them, show them. Overcome their skepticism and objections. Get them to try it, even if it’s really lame or incomplete. Don’t listen to what they tell you to build. Pay attention to what they’re trying to solve.”

Juan Aparicio, Founder & CEO of Reshape Automation: Credit Reshape Automation Find the specific application best-suited to your solution and remain very focused on your value proposition, advises Juan Aparicio, founder and CEO of Reshape Automation, an automation solutions marketplace, powered by an AI assistant that simplifies the discovery, design, purchasing, deployment, and support of industrial robotic solutions. 

“The developers behind the Roomba didn’t start out trying to develop a robot that could cook, do laundry, and vacuum your room. They focused on one task and aimed it first at the college student market. By breaking the vision into achievable milestones — instead of building a product forever until it’s perfect — the company was able to get to market quickly and gain traction by solving a simple problem.”

Aparicio stresses the importance of having a line to profitability and going “stage by stage” while keeping in mind that the quicker you can generate revenue the better. 

“That said, the culture of ‘minimum viable product’ is not a good fit for the automation sector. It has to be a product that is well rounded and cohesive and ideally is a product focused on specific market segment.”

To VC or Not to VC

The venture capital (VC) community is well calibrated to software as a service and enterprise sales offerings, but it’s not necessarily well calibrated to the robotics industry — at least, not yet, says Aparicio.  

“Automation is almost in its infancy as an industry from the perspective of the VC world. A few years ago, money was cheap, and the mantra was ‘grow, grow, grow at any cost.’ That time is over. We are back to fundamentals.”

Not all startups need to follow the VC path, notes Aparicio. U.S. government programs such as Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) provide grants to support R&D with potential for commercialization. Additionally, the Advanced Robotics for Manufacturing (ARM) Institute puts proposals out on a regular basis for funding to develop automation technology.

Similar programs are available in other regions, but availability can be ad hoc and is highly dependent on geographical location. In Europe, for example, the EIC Accelerator program provides funding of EUR 1.13 billion (USD 1.21 bn) for start-ups and SMEs to develop and scale up high impact innovations with the potential to create new markets or disrupt existing ones. Participation is limited to companies in EU member countries.

Fortunately, there is a renewed interest in the VC community with hard tech startups, says Aparicio.

“The recent investments in humanoid robot companies are testimony to that.  But it is important to understand that to be investable, your company needs to have the potential to become a $1B, or these days even a $10B dollar company.”

VCs won’t invest unless it’s a “sure thing” and nine out of ten sure things fail, says Automation Alley’s Kelly.  

“When you're seeking funding, you're asking somebody else to invest their hard-earned winnings, if you will. You have to understand that people will not necessarily get what you're trying to do. And even if they get it, they may not be willing to come along with you at the speed that you want. The world is littered with good ideas.”  

This can result in a predicament that founders know too well.

“Investors only want to invest when you're at the very inflection point of the hockey stick curve. But you need investment way back when you're at the early part of the curve. Tell an investor that you plan to go for four years bouncing along the bottom before inflection and the investor will ask you to come back for growth capital when you're actually inflecting. It’s a huge challenge.”

Don’t raise money from VCs, says InOrbit’s Pestoni.

“This may seem counter-intuitive, especially coming from a deep tech venture scout who has raised VC funding. Here’s the thing: you will sink an incredible amount of time and effort into fundraising, and the outcome is far from guaranteed, especially in the current climate.”  

Instead, founders should sell to real customers, ideally in person. Avoiding the VC route in the early stages will build validation, cash, and traction, making it easier to raise money later, explains Pestoni.  

“If you’re solving a massive problem, you have a great story for why you’re the right company to solve it and you have an awesome prototype — even if it’s far from a finished product — and you can get customers to pay you to develop your product.”  

Team Building

It’s important to have a balanced start-up with both technical and business acumen, says Reshape Automation’s Aparicio. Traditional set-ups with strict lines between the technology and business sides are not as effective as they used to be.

“Obviously, people can focus on different areas, but what works best is a synergy, when both sides work together. The technical side understands the business model and why we’re building this product, and the business side understands the capabilities, product roadmap, and risks.”  

Scalable startups are a team sport, says InOrbit’s Pestoni, and founders should build a team with complementary skills.

“That doesn’t mean technical founders should disregard the business aspects, however, whether it’s sales, marketing, or ‘boring’ administrative stuff. This will make you a stronger leader, will improve mutual understanding amongst the team, and will allow you to pitch the company more confidently, whether to an investor, a customer, or a potential engineering hire.”  

Character Building

All our experts agreed: Creating a start-up in the automation sector will test your patience and self-belief to their limits.

For Automation Alley CEO Kelly, self-doubt is always in the back of your mind as a start-up, requiring founders to do some soul-searching.

“If you feel like you’re doing this because there might be money in it but it's more of an investment mechanism than a passion, you run the risk of experiencing severe disappointment. You have to be totally committed. You have to think ‘I was put on this earth to make this happen.’”

Founders in deep tech face persistent skepticism about their startups, says InOrbit CEO Pestoni, who advises founders to build a strong support team both inside and outside the company to make the highs and lows of the start-up experience more manageable.  

“Many of these companies are pushing the limit of what’s possible. The hallmark of innovation in this space is that people haven't seen it work before, so they're right to question whether it will work.” 

Building a start-up is a marathon without an endline, says Reshape Automation’s CEO, Aparicio. 

“It’s important to have grit and patience. You’re going to be told ‘no’ a thousand times or more and you have to live with that.”

In fact, being a little irrational probably helps.  

“The rational decision would be not to develop a start-up and try to change the world, but the world is changed by irrational people who ignore that advice and decide to make a difference. Ultimately, those are the people that mold the world to their views.”