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.
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TLDR
Today’s Topic: Social Home Robots
Scaled: Sphero; Pivoted into the education market, where it could add real value and carve out its niche rather than double down on consumer toys.
Failed: Anki; Wanted to do more than just toys but only developed toys with the promise of incremental buildup to far more beyond that. Financing fell through and the company had to shut down.
Lessons Learned: Focus on adding value in each product iteration rather than just using them as stepping stones towards a final product that delivers value. Viable business models are built on value from Day 1, even if it’s just a piece of what’s envisioned. Don’t bet on capital continuing to pour in to support a long-term vision.
Today’s Topic: Social Home Robots
I remember for many years in childhood I feared a robot revolution after watching the Will Smith movie I, Robot. I refused to even look at robotic toys until I finally faced my fears with Lego’s programmable Mindstorms robots. It’ll be a few more years until machines have the capability to be completely conscious, autonomous killing machines. Until then, robots remain a pillar of the future and progress, and startups in the space continue to boom to make life easier for everyone. From the household Roomba to Boston Dynamic’s Spot, robots are slowly becoming ubiquitous.
This article gives a succinct introduction to the history of robotics and the technology powering current advancements. Things really kicked off in 1961 with Unimate, the first industrial robot that joined General Motor’s assembly line that year. From there, robots of many different kinds for numerous industries started being developed, from Boston Dynamic’s Spot to Honda’s Asimo. Robotics is heavily reliant on three types of technology: sensors (give the robot senses), actuators (motors used for movement in robots), and artificial intelligence (the brains). As these three advance, so too do robots. Along with the plethora of functional robots that are being developed to help out, plenty of robot toys have entered the consumer market as well. Anki was a startup that raised over $200M developing these toys and a vision for more, though these dreams came to an end in 2019 as the company shut down. Sphero began in the same space, gaining traction and eventually releasing several Disney-themed robot toys after licensing deals. However, Sphero has since pivoted to education and ceased focus on the consumer market.
Scale: Sphero
Founded in 2010, Sphero has gone through its share of ups and downs to get to where it is now. Its initial spherical toy robot was a hit and it had several licensing deals with Disney to produce numerous toys based on several media franchises. While it saw initial traction of its BB-8 droid toy with the release of the first movie in the Star Wars sequel trilogy, as it deepened its Disney product line it became evident in 2017 that this wasn’t the right move. As a result, the company had to lay off numerous staff going into 2018 and pivot in order to find new ground to grow in. This was when it decided to turn its attention to the education market and discontinued the production of all these licensed toys. Since then, it has maintained a fairly lean product lineup focused solely on STEAM education applications. Robots like the BOLT and SPRK+ call back to Sphero’s original spherical toy with many more features for educational applications, while the RVR is a crowdfunded all-terrain vehicle that is programmable with Scratch or JavaScript, stuffed with sensors, and integrates with other hardware like Arduino and Raspberry Pi. The increased focus on education is evident in the development of the RVR, and it seems this path is more fruitful for Sphero. They have raised plenty of funding following the pivot to further expand into education and show no signs of stopping.
Sphero had a great robotics platform built out, but toys weren’t cutting it as a business. The pivot into education, though into a crowded space, was the right move for survival. Many other consumer robotics companies that built products with hefty price tags and little practical functionality have gone belly-up, including big names like Jibo and Mayfield Robotics. Hardware is a tough space, and robotics hardware is no exception. Targeting a market segment where value can be added and maintained is a necessity for longer-term viability, and there is an increasing amount of research demonstrating the benefits of educational robots. By capitalizing on the technology and platform it had already built out, it had an edge over many startups that were focused on the space but only recently founded. Even when other opportunities for Sphero’s technology presented themselves, new startups were spun out rather than new products and lines of business developed within Sphero. This is how Company Six and Misty Robotics got their starts in first-responder and personal robots respectively. To support its educational endeavors, Sphero has also acquired littleBits and Specdrums to round out the entire spectrum of STEAM. I’m a big believer in the singular focus described by this quote:
Focus. Do one thing incredibly well. Don’t spread your resources on too many priorities. That way you have a chance to win.
-Jeremy Liew, Partner at Lightspeed Venture Partners
Sphero is definitely living up to that wisdom so far.
Fail: Anki
Anki’s failure came as a surprise to many; its Cozmo robot was the best-selling toy on Amazon by revenue in 2017, and it was supposed to be near $100M in revenue across its products for that year. Beginning with AI race cars, Anki aimed to develop more functional home robots, leading it to the Cozmo and later the Vector, both robots filled with personality and more functionality. The Vector in particular was a great demonstration of AI with an organic personality; the robot was very reactive with gestures and seemed to demonstrate proper emotional responses to different stimuli, and by design, it had imperfections to seem more human. Despite all this, at its core it remained not much more than a toy; its digital assistant features were far outclassed by Amazon and Google’s systems, and there wasn’t that much entertainment value. While being competitively priced for home robots ($180 and $249 for the Cozmo and Vector respectively), they were far more expensive than many toys. I could get an Xbox 360 at launch for not much more than the Vector and get a lot more bang for my buck. Though the value could be great for someone extremely passionate about robotics, for most consumers there wasn’t much bang for your buck.
Anki was meant to be a "robotics and AI” company, not a toy company. Ultimately, all they brought to the market were toys regardless of how innovative the technology behind them was. A round of financing fell through at the last minute, forcing the company into shutting down. The toys were meant to be just the beginning, with each product iteration becoming more advanced and functional, like stepping stones. However, this sets a company on the track of the “cascading miracles” pattern of startup failure, with a lot of things having to all go well over a long period of time. Financing keeps having to come in to extend the runway, each product iteration has to add enough incremental value to convince everyone the next one will be even better and more useful, market conditions need to remain favorable, competitors need to be kept from leaping ahead, and a million other factors all need to align to keep the company going. Once the financing fell through, Anki had no way to support its long-term vision and crashed because it wasn’t packaging the technology it had developed in a way that added enough value to justify the investment. The danger of hopping across stepping stones is that the more there are and the wider the body of water, the higher the chance of slipping in and washing out.
Lessons Learned
The differing trajectories of Sphero and Anki were in part because of Sphero pivoting into a segment it could add significant value to with the technology it had developed. Even if it was using educational robotics as a launch point for something grander, it is delivering clear value in that space. Perhaps if Anki had built things besides toys that could provide more value to customers in whatever space they chose and focused on stepping stones of value, not just technology, they could have justified the runway they needed and taken their vision further.
It’s better to have a barebones MVP that delivers just a small part of the envisioned value than being fancy and complex but not executing on what it should deliver. This philosophy should be extended to products and companies overall; deliver function and do the job over anything else. That’s not to say things like design and experience should suffer in exchange for more features, as those are both critical to functionality. However, each product iteration should iterate on value for customers too, not just contribute to the development of background technology or bells and whistles that the customer doesn’t get a tangible benefit from. If it takes significant capital to finance a technological advance or design overhaul but your customers don’t see the benefit, that capital isn’t contributing to growth. That’s VC money down the drain and suddenly your chance at more runway looks a lot bleaker when it looks like you used up a round and accomplished nothing. Research is great, but it needs to have a clear business application if your startup is the one doing it. Do it incrementally and incorporate it into your product in a way that can make you more money, and pivot if the technology can do a better job in another space.
More Reads and Info
Thanks for reading! I’d love to hear your thoughts on the consumer robotics space and where you think it’s going in the comments. If you found this interesting, consider sharing it with friends and subscribing if you haven’t already!
Cheers,
Amil