Feature

By Peter Longini, Managing Editor 

Throughout most of its first fifteen years in business, RedZone, a Pittsburgh-based robotics company founded by legendary CMU roboticist Red Whittaker and co-founder Todd Simonds, amassed a customer list that anyone would envy.  Boeing, Lockheed-Martin, Bechtel, the U.S. Departments of Defense and Energy were all among its blue-ribbon clients clamoring for the company's high-end development services.  

"At one point they grew to $9 million in annual revenues and more than 50 employees," CEO Eric Close recalled.  The company's specialty robots regularly grabbed headlines with their bold forays deep into the bowels of Chernobyl, Three Mile Island, and Hanford's nuclear reactors.  And local business associations touted RedZone's daring achievements as proof of the technology's soaring future.  But eventually its web of partnerships in dozens of one-of-a-kind robotic projects, compounded by changes in government procurement procedures in 1997, steered it down a slippery slope to bankruptcy in 2002.

"After all that press, and after all that world-class engineering, we acquired the business for a nominal amount which we paid out over five years," Close explained at a recent forum with Product Strategy Network members.  "We acquired it out of bankruptcy."  The problem, as Gertrude Stein might have put it, was that there was no there there. 

One-offs

"Old RedZone participated in a long series of specialty one-off projects," Close observed.  "They designed and built more than 25 robotic designs over 45 different customer projects in a 15-year period.  And at the end, when they were in bankruptcy, I found there was little commercializable intellectual capital residing in the company.  So to avoid the mistakes of the Old RedZone, I felt we had to focus on building a business with sustainable advantages and real barriers to entry - not just a time-and-material consulting business, but a business that generated and retained intellectual property.  And that's what the New RedZone is doing."

The first step was to choose a direction.  "We had to pick a market," Close told his colleagues.  "We had a whole bunch of verticals that RedZone was involved with.  It's important to start with a market focus.  If you start with the product, or if you start with the technology, it's much, much harder to get to the right answer.  So we started with the market." 

Eventually, the company identified 30 markets and was able to narrow it down to a handful of pipeline inspection product and service opportunities.  "Why did we choose this?  It's more an art than a science," he acknowledged.  "We were weighing lots of things:  what's technically feasible?  What are the dynamics of the business?  And who are your customers?  But at the end of the day, it's a gut decision."

However for robotics applications, pipeline inspection proved to be highly scalable.  "What we found out is that, from a robotic perspective, if you can clean, inspect, or rehabilitate three feet of pipe, you can do all 600,000 miles," he said.  "If you could just build a good pipe robot, you could really scale the business.  We wanted to transition the industry from customized contractor-based services to scalable centralized services.  Our vision was to be able to remotely monitor and perform services via thousands of robots in the field rather than having numerous contractors out there providing one-off services.  We realized that we could write programs, build hardware, make it consistent, and scale the business.  And every year we're getting closer and closer to that vision."

Huge opportunity

There's a compelling reason for doing so.  Forecasts for mobile robotics range from $25 to $50 billion dollars by 2030, according to Close.  "The mobile robotics market will increase to over $25 billion in annual sales over the next 10 or 15 years," he said.  "My goal is to focus on the really big opportunities within this growing market sector.  To date, most mobile robotic sales have been government-driven for the Department of Defense.  So we looked at a large cross section of robotics research to understand each robot implementation and how well it was actually operating and meeting the work task objectives in the field.  Then we looked at the clients to get a feel as to whether this solution was really addressing the customer's needs.  What we found was that most mobile robotic implementations to date were actually research motivated and technology-driven inventions rather than market-driven innovations."

Getting RedZone to the point of becoming marked-focused required a series of steps - some fairly draconian.  "The way we were able to do it at RedZone was that we had to let go a number of Old RedZone employees to rapidly reset the culture," he acknowledged.  "At one point RedZone had 50 people; we kept just three, which enabled us to quickly generate a whole new attitude and approach while retaining some of the engineering expertise and know-how from the old company.  Changing the culture is hard.  It takes several years to make a difference.  I've always believed that it's better to go in and make rapid change; start fresh with something new, rather than trying to slowly change culture incrementally over time."

"Additionally we made sure to recruit people from different backgrounds to provide an integrated design approach to the development of the products," he said. 

It was important to include people from sales.  "Good salespeople can be taught to sell a new product or service if they understand how to innately sell.  If you are selling a strategic product or service, it's the sales process they bring with them," Close said.  "But you need to be aware of the pitfalls that some of the most talented salespeople fall into.  They love to sell what the company doesn't have.  The salesperson's job is to make the customer happy and bridge the gap between the customer's needs and the company's offerings.  Especially at the beginning of a venture, many times the customer wants what you cannot immediately offer.  So the salesperson has to bridge the needs gap by not making promises that are either hard or not strategic for the company to keep.  We have our engineers help develop the sales message and literature and we involve them in the initial sales so that everyone is on the same page as to features, capabilities, and customer commitments.   If you left it up to your sales and marketing folks exclusively, they'd say, ‘Oh, we can do all these things.'  But you really can't at this phase - you're just getting started.  So you need to nail down the minimum customer requirements and say: ‘This is what we're going to sell.'  If you start making promises to build non-core technology, you're done.  You've just messed everything up, and you'll forever be servicing special one-off non-core customer needs.

"So under-promise.  Expect almost no revenue from the initial phase.  Because if you start saying, ‘I want to get revenue like everybody else' - it's a disease.  You have to take your hard medicine and say, ‘We are going to stick to the market, we're going to stick to the vision, we're going to build to this vision and that's it.'"

Learning curve

"Most market disruption comes from outside an industry," he noted.  "At RedZone, none of us were sewer specialists.  None of us were wastewater people.  We were robot experts.  When we entered the market, our approach was a real disruptive force to that market.  Our approach was not ‘me too' and it took the competitors by surprise.  It was a six- or nine-month process for us to become immersed in the industry because it was so new to us.  We spoke with everybody we could.  The more information you dig up and the more people you speak to, the more you can start putting together the right plan." 

The great danger, Close came to realize, was that customers don't always provide 100% accurate facts.  "When you talk to a customer, the customer will say, ‘This is my biggest problem.'  But what they're really saying is ‘This is my biggest problem today'," he said.  "We made a mistake because we listened to customers who said ‘this is a big problem, we're willing to pay lots of money if you fix it.'  However it became very clear after we started doing some customer deployments that we were overestimating the urgency of the customer need and the value they were willing to pay to solve their problem.  What they wanted was not what they were saying they wanted.  Yes, customers are king.  But they also don't have a perfect understanding of their own needs.  So you've got to be very sensitive to what problems they're looking to solve and be ready to read in-between the lines."

The five stages

To ease its transition into the pipeline market, RedZone broke its product development process into five stages.  The first, what is often called ‘the fuzzy front end,' is where the goal is to develop something out of nothing.  "What you're really doing here is developing a product thesis and market requirements document," he said.  "This is a living, breathing document which at this stage is extremely fluid.  You're trying to talk to a lot of customers, you're trying to sift through all the different information you're getting, you're trying to understand what you think you need to build and what you think the market is really demanding."

The next step is the Alpha phase.  "Here we start rapidly prototyping - testing some of the engineering concepts and determining if we can actually make them work," he said.  "What's really important about this phase is to test your technical assumptions and see if they meet your market requirements.  You'll have a wish list of market requirements.  But they are not validated with what you can build, how much it's going to cost, or what the operations and maintenance plans are for the product.  You're checking to make sure your technical ideas are in fact valid and will work."

Third is the Beta phase.  "This phase may not exist in your business," he cautioned.  "This is a template we use in our industry because, after we build the robot, we still don't know what we have until we deploy it reliably.  The challenge with mobile field robotics is that even though you think you understand all the challenges of making your robots work, you have a highly uncertain deployment phase where the robots need to operate in a variety of conditions.  A lot of what RedZone does is to take operational risks out of the product development and specification in the early stages to get clarity about what the real challenges are - what assumptions did we originally make that were wrong?  What assumptions do we need to revise?"

Stage four is the Product Rollout phase, typically lasting nine months to two years.  "This is where you really start validating some of your business thesis fundamentals," he said.  "Can I really commercialize this?  Is this really a big business?  How fast can I scale it?  And what is the real ROI I'm realizing from my clients?"

"We immediately start lining up clients, doing projects with them and then helping them figure out the ROI that we save for them.  And then you price your product or service relative to the ROI you're providing.  That helps drive you to your real value and what the truly important products or features are that you need to bring to market." 

Sometimes you'll discover, as RedZone did, that your actual business may not be what it seems.  "We're not a robot company," Close learned.  "We are actually a data service company.  We sell data to our clients.  We provide a number of products and services to our customers, but these are all provided via a standard hardware and software platform that gives our business scalability.  You have to look at all the different ways you can generate revenue with a product or service.  You can't just say, ‘I've got a product; I'm going to sell it and customers will come.'  Instead, ask what are all the different ways - either through spare parts, through generating data, through consulting, or whatever - that you can monetize the value you are bringing to the customer through a profit platform approach?"

The final stage is the product rollout phase.  "This is where you start scaling the business and executing on all your well-laid plans," he said.  "In our case, we dramatically increased the quantity of robots we build and sell, scaling our products business and continuing to scale out the service component.  What's nice about this stage for us on the service side is that we're also starting to throw off cash.  But, on the other hand, the manufacturing ramp starts to consume cash.  In our case the service component actually offsets much of that upfront cash drain which is fantastic for an early stage commercialization effort."

About the Author:

Peter Longini is the Managing Editor for Inside Product Strategy™. He can be reached at   .