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Is Your Legacy Industry About to be Disrupted?

Alexa, set a timer for six minutes.

That’s the amount of time it’ll probably take you to read this article, and if you’re one of the 100 million households or offices equipped with the artificially intelligent personal assistant, you can ask Alexa to hold me to it.

Clearly, the Internet of Things (IoT) is no longer the stuff of science fiction. Voice-command AI devices and smart appliances are regular staples of our households. Our phones can transmit millions of data points every minute, using them to send a taxi to our offices or a freshly made meal to our doorsteps.

So what’s next for entrepreneurs, now that the commoditization of consumer-facing IoT has made such incredible progress and hardware is readily and cheaply available? Here’s a hint: it’s not simply about building the next layer of the tech stack.

The Barriers to IoT Entrepreneurship are Much Lower

Twenty years ago, most tech entrepreneurs hoping to disrupt entire industries fit a certain profile: a little bit nerdy, highly clever and incredibly technical. To make their magic happen, they had to be intimately familiar with the fundamentals of computer architecture and hardware, and well-versed in networking, program design and multiple programming languages. More likely than not, they called Silicon Valley home.

Even just a decade ago, when IoT was still in its infancy, successful entrepreneurship centered on high-level expertise in hardware design and system communications. When it came to developing new technology, the barriers to entry were incredibly high: you needed to design and attach expensive custom sensors, collect and store massive amounts of raw data and be able to parse the data into something useful.

Today, would-be disruptors have it much easier. The cost component of IoT hardware continues to plummet as the technology continues to be commoditized, and many off-the-shelf solutions are available to give entrepreneurs a head start. Additionally, processing billions of data transactions in real time used to be quite a feat. Now it’s the norm.

Examples of low-cost “plug and play” devices that entrepreneurs can use to get their ideas off the ground quickly include IoT sensors that monitor activity, temperature, pressure, light, sound and more. Those sensors can then be used as a gateway to explore big ideas, from revolutionizing waste management by tracking dumpster fill levels to tracking and monitoring individual fitness levels.

To paraphrase Newton, IoT entrepreneurs are standing on the shoulders of giants, and so they can see further. Helped by the low cost and wide availability of both IoT hardware and data processing solutions, any domain expert is just one big idea away from disrupting an entire industry.

Successful IoT Startups Must Facilitate New Business Models

While these conditions make it easier for tech-curious professionals by lowering the barrier to exploring innovation, they also raise the bar to success. Under these new market conditions, IoT startups need to offer something different. They can no longer entice enterprises with the lure of huge amounts of data alone, and even data analysis isn’t enough to get an IoT startup noticed today.

Instead, for a startup to be successful, entrepreneurs need to devise pieces of hardware that collect data in a way that can facilitate new business models for existing industries. They must build purpose-driven products with a clear business use case that people care about.

Understory, for example, is a company that uses weather-sensing hardware to gather forecasting information. Then, it makes real-time suggestions to insurance and agriculture companies to help directly improve performance. If a natural disaster is coming, an insurance company will be well-prepared and know exactly where to deploy additional resources to help triage customer claims. If weather conditions differ slightly from field to field and crop to crop, as they often do, hyper-local sensors will inform farmers on how to act accordingly.

If a startup can gather data that is difficult to replicate and then use that data to provide specific recommendations to the end customer, like in the cases above, their product will be easy to market. If a company’s IoT product doesn’t solve a clear problem, however, it will ultimately struggle to be successful.

The “New Entrepreneur” is Someone with Substantial Industry Expertise

While the consumer-facing IoT world is rich with folklore about fresh-faced tech graduates changing our lives, the B2B world often requires a richer depth of professional experience.

Anecdotally, I’ve seen the most success from people with five to 15 years of experience; it’s the sweet spot that gives them enough time to understand their industry’s challenges yet not so much time that they’ve internalized the defeatist attitude that the way things are is the way they must be.

The era of the tech specialist is out and the era of the domain expert is in.

An Opportunity for “Middle America”

This shift in entrepreneur profiles presents an exciting opportunity for Middle America. As domain expertise becomes more important to creating the next generation of enterprise-facing IoT solutions, venture capital and private equity money will naturally begin to branch out from their traditional coastal, tech-focused hubs and into the center of the country.

Rather than pursue second-tier markets on the West Coast, Middle America offers more opportunity and a type of blue ocean strategy for big names that are excited to dabble in uncharted waters. Large companies that are part of such legacy industries as healthcare, agriculture and technology all call Middle America home, and they are ready to join the tech revolution. Combined with quality of life factors drawing people away from crowded and expensive cities, Middle America may just be the future of big money.

As domain expertise and problem-solving skills emerge as the key assets needed to thrive, you might even say that the tech industry itself has been disrupted. Well, it’s about time.

About the Author

Greg Robinson is Managing Director for 4490 Ventures. He has a blend of venture capital investing and startup operational experience. Greg was a Managing Director at Palo Alto based Peninsula Ventures, and a cofounder and COO of Cogent Technologies, an enterprise software company that successfully exited via acquisition to a publicly traded company. Greg has invested in approximately 20 early-stage startups over his career. He has a Master of Business Administration from the Tuck School of Business at Dartmouth and a Bachelor of Science in Economics from Arizona State University.

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