Scaled and Failed #2 – DroneDeploy and Airware

Flying High and Falling Low

Jan 29, 2021

Welcome to Scaled and Failed! My name’s Amil Naik and I’m an aspiring VC and founder at The University of Texas at Austin. I write about startups that scaled and startups that failed to draw insights about the patterns of startup failure and how to avoid them. Everything is clearer in hindsight, so it’s worth looking back.

If you haven’t subscribed already, do it here:

TLDR

Today’s Topic: Drones and Data
Scaled: DroneDeploy; Great product development in collaboration with partners and customers along with a focus from founding on the right drone market segment has led to great growth.
Failed: Airware; Pivoting into drone hardware because of presence in drone software too early led to losing to competitors in both the hardware and software spaces.
Lessons Learned: Do your homework on dependencies and don’t rush to be the first if you can’t execute faster and better than competitors that follow. If you are aware of limitations beforehand, make sure you raise the capital to tackle them and make the business model viable. Ideally, don’t chase unripe opportunities.

Today’s Topic: Drones and Data

Drones have been a rollercoaster in the startup ecosystem. The possibilities widened for drones in 2006 when the FAA began issuing commercial drone permits. Drones had long been used in the military for things like precision strikes and intelligence, but increasingly many companies saw an opportunity to use the same technology for consumer and enterprise applications. In 2010, Parrot showed off its iPhone-controlled “AR.Drone” quadcopter at the Consumer Electronics Show, having successfully integrated military technology for autopilot and wind compensation. In the following years, drones soared in popularity as DJI became the juggernaut capturing over 70% of the consumer marketplace, various companies began envisioning drone deliveries, and soon drones had a plethora of bells and whistles that enhanced their functionality, from high-quality cameras and sensors to computer vision and artificial intelligence. Drones have made a buzz becoming far more than simple toys.

Despite the high potential and many uses for drone technology, the space hasn’t been sunshine and rainbows lately. According to Bloomberg, the drone bubble has burst and many startups are having to face the music. Airware, a drone software and analytics company, was one of the casualties of the turbulent period. With $118M raised and its own fund for investing and acquiring other drone startups in the heyday, this major drone player shut down late in 2018. DroneDeploy, another drone software and analytics company, has raised $90M to date and in 2019 hit some impressive milestones: over 5,000 companies as customers and more than 400,000 job sites covering 100 million acres in 180 countries. Both companies offered similar products (at some point in time) that allowed for flight automation, measurement data via image processing using machine learning, inspection routines, and much more for various enterprise customers in different industries, but Airware had a very sudden shutdown while DroneDeploy has been able to keep raising and continue to scale.

Scale: DroneDeploy

DroneDeploy has become an all-in-one platform for enterprise drones in recent years: capture, map, automate, and dissect data all in one place. The company has been busy keeping its analytics and area capture offerings at the forefront of commercial applications by continuous improvement, especially in dangerous industries that benefit from drone labor. In 2019, they launched a single cloud enterprise platform bringing together all of their solutions to make it easy to manage operations, workflows, analytics, and much more for entire commercial drone fleets. One of its most recent innovations is the 360 Walkthrough, the first single solution for image capture processing from any angle, from aerial and external to on the ground and internal. This allows total digital reconstructions of worksites and was tested in a collaboration with Boston Dynamic’s robots and Brasfield and Gorrie’s construction sites. Additionally, the workflow can be entirely autonomous. 360 Walkthrough is a great way for dangerous industries to keep workers out of harm’s way and make data capture efficient and accessible to entire teams easily. With product development resulting from collaboration with partners and customers as was done for 360 Walkthrough, DroneDeploy will have no trouble staying in line with market needs. Staying on top of the technology and building for the market will only ramp up in importance as the commercial drone space increases in size and players like PrecisionHawk continue to advance.

Besides very strong product development and collaborative efforts with partners and customers, DroneDeploy has been successful in part because it hasn’t had to undergo numerous pivots as many drone startups did before they failed (just as Airware did). Founded in 2013, it has been an enterprise drone software company since the start. Many companies like Parrot, which has halted production of many of its drones, and GoPro, which exited the drone market entirely, found that consumer drone hardware was a tough, tough space. DJI has a stranglehold on that market and not many can compete. DroneDeploy has stayed out of hardware and has been focused on software from the beginning, giving it a head start over many startups like Delair that began in hardware and shifted focus to software later on. The drone market has seen massive transitions and shakeups that pushed the wave from consumer and hardware to enterprise and software, but DroneDeploy has been on the right course from the start. Rather than following initial hype, the need being filled by DroneDeploy was a far more stable and reliable source of income for the long-term, especially as the FAA has made it easier for commercial drones to be used in more places in recent years. Things could change in the unstable drone market, but for now it seems DroneDeploy is on the right track.

Fail: Airware

Airware made a key mistake that led to its failure: it pivoted into hardware. Starting as a company for drone autopilot software with ambitions to become a full solution for drone data capture and analytics, the company was ahead of its time in terms of the software it wanted to bring to the market. The current hardware offerings just weren’t enough to support these ambitions. Being early to the space brought no benefit, as Airware made the decision to develop its own drones that were quickly outmatched by DJI and others. The company pivoted back to focusing on software and analytics as it was forced out of the hardware space. Of course, all the capital and engineering time invested into the hardware were resources that weren’t put into their software offerings. Airware fell behind companies like DroneDeploy in the software and data space too, leaving the startup between a rock and a hard place. Although it had acquired the drone analytics startup Redbird in 2016 to draw insight from models built by drone image processing, this wasn’t enough to beef up its software offerings. From that point, it was a spiral downwards towards shutdown.

Airware was caught in a difficult Catch-22 because of its early ambitions. Trying to brute-force the hardware necessary for its software didn’t work out and put the company behind in both spaces, but it couldn’t sit around and twiddle its thumbs while burning investor capital either. It would’ve taken significantly higher amounts of capital and engineering talent to have had even a chance of competing against DJI or to catch up to software competitors after being pushed out of hardware. Timing was against Airware, and being a pioneer in the space did it no favors. Airware represented many of the characteristics of the “speed trap” pattern of failure in its effort to find a solution as fast as possible.

Lessons Learned

It’s tough to pull applicable insight about how to avoid Airware’s mistakes once a company is already in motion, as a lot of these factors only become clear in hindsight. Few founders launch a company with the perfect foresight to know exactly when technologies they rely on will become viable to use, and it’s tough to make the right calls when no decision seems like the right one. Being early to a space can lead to a competitive edge or be the reason a startup dies, and if the founders of Airware knew in advance they’d be bottlenecked by hardware they may have waited a few years to launch and raise. Being scrappy and extending your runway can only take you so far, so prevention of being in this situation in the first place is the best strategy to avoid failure. And remember, it’s called hardware for a reason. The space is really, really hard to succeed in.

When faced with launching a company in a tumultuous marketplace, invest a lot of time into good research on where you will fit into the landscape and what dependencies you will have. Make sure that overcoming limitations is a part of the plan from the start and the capital raised corresponds to this. If you can’t execute on your business model quickly and let others see your mistakes, being early will be a death sentence as competitors swoop in with more funding and better knowledge of the market. Don’t chase an opportunity that isn’t ripe yet regardless of how tempting it seems, as you will be doomed from the start. And if you’ve already plucked it, extend your runway as much as possible and make your pivots count, as you likely won’t get many other chances.

Scaled and Failed