This past September, Airware surprised everyone by suddenly closing. The surprise was heightened by the fact that, only a few days prior, they had announced the opening of their Tokyo office and a partnership with Mitsubishi.
When I first heard of Unmanned Innovation, later to be known as Airware, they were just one of a continuous flow of UAV autopilot companies that start, hang around for a few years, and then disappear. However, it wasn’t long before they started to stand out from the rest. First, they raised a couple million, then they were up over fifteen million and then, almost overnight, over seventy million. All of this money from high profile VCs with reputations for success. Suddenly, Airware was everyone’s darling with investors, directors, and customers from a variety of fortune 500 companies such as GE, Intel, State Farm, Google, Caterpllar AT&T, and others.
Being a direct competitor of Airware, this was unsettling. You can really do something with seventy million dollars and Airware claimed they were going to re-invent the UAV autopilot. Sure, they called it a drone operating system but this was just another name for an autopilot with GCS software.
For a few years, I lost sleep over this new competitor. We even lost one or two potential customers – it’s hard to compete against free and free was their initial price point. Then, surprisingly, nothing happened. Sure, there was a regular stream of high-profile press releases and media appearances but after their first customer announcements we never ran into them when competing for customers. They had a big, expensive booth at Xponential but other than that, nothing.
After a year or two they pivoted into cloud processing, bought redbird and their founder, Jonathan Downey, was replaced as CEO. Here we are, a year or so later, and they’re gone.
They claim that they simply ran out of money; however, this doesn’t ring true. If they had decent revenue and revenue growth, then another round of financing would have been easy. It is hard to imagine that with their backers and all of their connections to fortune 500 companies they didn’t know how to find customers for their offering. The problem, I suspect, is that there weren’t customers to be found. That the post-processing services they were providing did not add enough value to customers to bring in enough revenue to continue operation.
This does not bode well for those predicting unlimited growth for the industry. It’s a sign that the predictions about the size of the drone market are exaggerated. The air will not be black with drones any time soon or even any time ever. Outside of the office, I can go a year without seeing a drone in the wild. Sure, everyone is talking about them, but it’s rare to see one operating. Drones will certainly fill useful specialized niches but they are not going to be ubiquitous. People will make money selling drones but it will be a specialist market not a mass market, like electronic test equipment or other professional devices.
This begs the question, what additional lessons are there to learn from Airware’s failure?
The first is focus, focus, focus. Airware started with autopilots before switching to UAVs and then to post processing. They were all over the map. Autopilots, aerial operating systems, post-processing, fleet management, and even airframes. They bit off a lot; obviously, more than they could chew. Had they focused on just one area, such as fleet management or post processing, they could have been a leader in this niche. Instead, they spread their focus and ended up with nothing.
Second, is beware the pivot. Despite being the current business fashion, pivoting is dangerous. It throws away a lot of hard work and hard-won capital. Success often builds slowly and if you pivot too soon you may miss the fruits of this labour. It’s also an admission that your initial business plan was a mistake. Better to get the business plan right in the first place than have to change directions halfway through. Airware pivoted twice: once from autopilots to UAVs and then again to post processing software. If one pivot is bad, then two is much, much worse.
‘Not invented here’ will kill you! This industry is rampant with ‘not invented here syndrome.’ I guess that’s true of all startup industries centered on engineering product development. I am sure that all those smart MIT educated engineers thought they could do better. They could have easily private labeled an autopilot from us or one of the other established manufacturers. If they wanted to make airframes, the industry is lousy with small, specialized airframe manufacturers. I’m sure their egos wouldn’t allow them to license or private label anything. Why would they? They can do better. They’re from Silicon Valley and MIT. Except, they couldn’t do better and they burned up a good chunk of their initial capital learning this lesson. Good make versus buy processes are critical to any business – especially startups. In fact, a good make versus buy process might be the most important process for a startup.
It’s easy to spend a lot of money in a little time if you’re in a hurry and you’re in Silicon Valley. Seventy million may sound like a lot but when you have to pay sky high engineering salaries, rent, and directors and management fees (big name directors don’t come cheap). And let’s not forget that when you are in a hurry, everything is more expensive. You don’t have time to carefully consider decisions. Problems have to be solved the quick way – not the good way. You can’t think on anything. Everything is right now. I can’t count the number of times that we found a good simple solution to a problem after thinking about it for a while. Many challenges can wait months or years and often the best solution doesn’t present itself right away. When you are in a hurry because your investors can’t wait, you have to choose the right now solution. Often, this is a poor solution.
The veneer of success is available for hire. Right up until the minute Airware ceased operations they appeared to be a successful company. Until they pivoted away from autopilots, they appeared to be a successful autopilot manufacturer. All their PR, social media presence, big names, and videos were essentially fake. There was no success at Airware, only failure upon failure and there was no evidence of these compounding failures outside the company. A corollary to this is choose your suppliers carefully, especially for critical components like an autopilot. If you were one of the companies that chose Airware autopilots when it appeared they were a successful autopilot manufacturer, then you would have made a very bad choice.
It’s hard to beat the discipline of having to earn a profit. We’ve never taken any investor’s money at MicroPilot. We spend what we earn and nothing more. This means we have to think carefully over each decision we make. We just can’t throw a bucket of money at every opportunity. This doesn’t mean we don’t make mistakes, but the mistakes are smaller and we are much more motivated to learn from those mistakes.
No doubt Airware won’t be the only company that shakes out of the industry. There are others that are burning through the money they raised in their rounds A, B and C.