SaaS Interviews with CEOs, Startups, Founders
EP 590 :Particle.io Raises $14M, Passes $5M In Revenue, Helping Usher in IoT Connecting Keurigs to Internet with CEO Zach Supalla
06 Mar 2017
Chapter 1: What is the main topic discussed in this episode?
This is The Top, where I interview entrepreneurs who are number one or number two in their industry in terms of revenue or customer base. You'll learn how much revenue they're making, what their marketing funnel looks like, and how many customers they have. I'm now at $20,000 per top. Five and six million.
He is hell-bent on global domination.
Chapter 2: What is Particle and what does it aim to achieve?
We just broke our 100,000-unit soul mark.
And I'm your host, Nathan Latka. Okay, Top Tribe, this week's winner of the $100 is Zach Ferron. He's a 22-year-old Apple employee, and he's listening to the show and loving it. For your chance to win $100 every Monday, simply subscribe to the podcast on iTunes now, and then text the word NATHAN to 33444 to prove that you did it to enter. Top Tribe, you know I don't have a lot of time to waste.
That's why I use FreshBooks to send out invoices and make sure I'm collecting my money. To get your free month, go to nathanlatka.com forward slash FreshBooks and enter the top in the How Did You Hear About Us section. Nathan Latka here. This is episode 590.
And coming up tomorrow morning, you'll learn from Magnus Astrom, who runs Now Interact, which just closed their announcing their $5 million round on an $18 million pre-money valuation. Now, you'll have to listen tomorrow to hear how much revenue they're doing and see for yourself. You tell me if you think an $18 million pre-money valuation is fair.
He's helping enterprises with omnichannel data collection. Good morning, folks. Nathan Latke here. Our guest this morning is Zach Supala. He is the CEO and co-founder of Particle, a venture-backed startup that's making it easier to build internet-connected hardware or Internet of Things.
Particle is the most widely used IoT platform with a developer community of 100,000 users and was listed as one of Fast Company's top 10 most innovative companies of 2015 in the Internet of Things. Zach's been featured on CNN, in the Wall Street Journal, TechCrunch, Fast Company, Forbes, Fortune, Mashable, and more. Zach, are you ready to Take us to the top. I am. All right. Very cool.
So you started off in sales at Groupon and now you're doing something that sounds very technical. Walk me through that. How did that happen?
Sure. So actually, my background, if you go back even further, starts at McKinsey. So I used to be a management consultant. And while I was there, actually, even in college, I sort of realized too late I should have been an engineer and decided that I would sort of over time make my way diagonally towards the technical side of the world. So, you know, I started at McKinsey.
I was doing operations work, a lot of supply chain work. So that's where I got to know engineering and in particular how products get designed and made. Um, and then, uh, while I was getting my MBA, I did an internship at Groupon working in sales operations.
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Chapter 3: How does Particle generate revenue from its IoT platform?
you know, a system that detects methane leaks on oil and gas rigs.
Exactly. My audience will know Keurig. When you tell the story, can you actually just specifically use the Keurig story?
Yeah, absolutely. So, so our company helps, Our company helps manufacturers who make physical products connect those products to the internet. And that ranges from companies who make consumer appliances like Keurig's coffee makers to industrial manufacturers who make their irrigation systems or industrial equipment used in manufacturing facilities.
And we help them connect those products to the Internet. What that means is we give them a cloud platform those devices can connect to. We give them the physical hardware that will actually go into the device. So like a Wi-Fi module or a cellular modem. If it's cellular, we give them SIM cards and data plans. And then we do the whole communication stack in between the physical device and the web.
So that is sort of everything you need to build and deploy an IoT product.
I want to chat more about kind of the story, the founding of this company. I also want to chat about security concerns. I imagine you're playing a role in that as well, along with some other things. Before we get to that, though, you guys recently raised capital, right? At Particle, what did you raise? We raised about $10 million late last year.
Okay, and what is the, I assume you're post-revenue, right? What's the business model? How do you generate revenue?
Yeah.
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Chapter 4: What security challenges does Particle face in IoT?
So we make money essentially in four different ways. When we work with a large company, we sell them a subscription to our cloud platform. We sell them SIM cards and data plans. And both of those are like recurring recurring revenue. We sell the hardware that goes in the device. And so that ranges from, you know, a couple bucks for a Wi-Fi module to tens of dollars for a cellular modem.
And then we'll often participate in some kind of professional services or implementation to get their product up and running.
And of those four revenue streams, can you break them down in terms of percentages?
Yeah, these days, most of our money comes from selling hardware. Because of where we are and sort of how long we've been around, most companies start by buying a bunch of hardware up front, and then the recurring stuff kicks in later. So right now, most of our revenue is hardware. I don't know the percentages off the top of my head. Looking forward to years out, it becomes mostly software.
Got it. And you said the hardware stuff, that's ranging from a dollar per unit to $10 per unit, depending on what industry you're in.
More like, you know, $5 to $50.
And so just to make this and really bring this down to earth for Keurig, what's in a Keurig coffee maker and does it cost $5 or $10 specifically tied to your hardware model?
Yeah. So for, for a company like Curie, what they actually did was not design a new coffee maker that's connected, but something that plugs into the back of the coffee maker and they use it for consumer testing. So you sign up, it's like a Nielsen reporting kind of thing. So you sort of volunteer to participate in this program and get free coffee.
And then they send you a thing that connects your brewery to the internet so they can understand how people actually consume coffee, which they don't. didn't really know before. Um, and so that was, you know, something in the, uh, somewhere in the range of five to 10, I don't actually know the number.
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Chapter 5: What lessons did Zach learn from his unsuccessful Kickstarter campaign?
And then, and then what volume are you typically doing on these things? I mean, are we talking a hundred of these tests out there in the open or are they talking to sample size of a thousand or 10,000 or what?
You know, for them it's in the thousands, but, uh, our customers range from, uh, you know, one, two, three at a time to hundreds of thousands of devices. And we have come customers who will be deploying millions in, uh, 2018.
So, uh,
talked i imagine i mean this is obviously the top of everyone's mind with china and russia and i'm sure we do this to other countries as well but you're sitting in a space where you know people are fearful the classic examples oh my gosh if if all these self-driving cars on the internet and and someone hacks it you know crashes happen immediately all over the place it sounds like are you am i right in in saying you're kind of playing in that space in between and how much your business is security related
Absolutely. Security is a huge part of our story and is a huge concern for a lot of our customers, especially with are you familiar with the Mirai botnet, the webcam botnet? No, tell us about that. So I guess it was probably November, December of last year. There was a botnet of like 10 million webcams that took down one of the DNS servers.
So you may remember a day, I think, mid-November when a lot of websites weren't working. That was basically because a lot of webcams were had been hijacked. and we're attacking the DNS servers that help our computers figure out Uh, yeah, exactly. Ah, okay. Um, uh, so I believe the worm is called Mirai, which is why it's referred to as the Mirai botnet.
The Mirai botnet also took down the entire internet of Liberia, which was less widely broadcast in the U S but that's a huge deal. Um, and so that's a big concern. It's not only, um, how do I keep my devices from getting hacked, but how do I keep my devices from getting hacked and participating in attacks, right? Actually becoming malicious. So, um, There's a huge range of security here.
We do a lot of work to secure everything from the device specifically to the connection between the device in the cloud and the cloud and like all these different layers. We're trying to secure each one of them separately and together, which is what provides a really complete secure solution.
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Chapter 6: How did Particle pivot after their initial product failure?
A lot of existing devices that are already out there, if you buy a cheap webcam from a Chinese manufacturer off of Amazon, that might not be secure at all. Or I think actually the issue with the webcams in Mirai was that they were like Linux boxes that had the password set to admin. Yeah. And so... That's like the worst case security. And there's a lot of devices out there like that.
Now, these days, most manufacturers are intelligent enough to realize they have to secure their products. And so they look to companies like us to help them. But these devices that are already out there that are insecure, they're not going anywhere. People aren't necessarily unplugging these things. And so there's going to continue to be security concerns. Lag time.
I mean, for, it could be decades, who knows how long these things are still going to be out there and malicious. Yeah.
That's interesting. Um, talk to us a little bit more about the history, what year did you launch the company in?
We started in 2012. Um, and we were, we're definitely the result of a pivot. So when we first launched, we weren't doing a platform like we do today. We were doing a connected lighting product and we were also under a different name called spark. Um, so we launched a product on Kickstarter called the spark socket and it was a
a connected lighting product, kind of like Philips Hue, LIFX kinds of products. That Kickstarter campaign was unsuccessful. We had a $250,000 goal. We raised 125,000, but Kickstarter's all or nothing, so that means we raised zero.
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Chapter 7: What inspired Zach to create his first product?
And that product never came to be. Now that was frustrating at the time. It turned out to be a huge benefit because we were released from the obligation of making that product that really didn't have a strong enough market. And, but we learned a lot along the way.
And so we saw this opportunity where the technology we'd built for our own product was clearly relevant to a lot of other entrepreneurs and engineers who were trying to do the same thing. So we basically ripped the guts out of our product and refactored it to make it an easy development path for engineers building IoT products. And then we relaunched it with a second Kickstarter campaign in 2013.
And that was for a development kit, like a Wi-Fi development kit, Arduino-y kind of thing called the Spark Core. And that launched in May 2013 with a $10,000 goal on Kickstarter, and we raised almost $600,000. So we really realized that we had scratched an itch, and that put us on the path that we're on today.
Tell us how... your dad kind of inspired the launch of this?
Yeah. So my dad is deaf and my mom has always complained that she was hearing. She's always complained that she can't get a hold of my dad because he has a cell phone that she texts him on and he doesn't keep it in his pocket. So you know, he can't hear the ring, so there's no way for her to communicate with him. And so I was trying to make his lights flash when my mom sent him a text message.
Now, texting is obviously a wireless communication, so it's not like I have something I can jack into, so I needed to bring the lights online wirelessly. And that's what inspired that first product.
And guys, I think that story is important because it ties back to the idea of solve a problem for yourself first. And then what Zach has done is just been super smart about pivoting and reading the market. Now, Zach, talking about reading the market, you have experienced successful and unsuccessful Kickstarter. Is it truly just luck and chance?
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Chapter 8: What is the significance of the Mirai botnet incident for IoT security?
I mean, or did you do things different marketing wise to drive and hit that $600,000 target in the seconds campaign?
So that's a really good question. And that's something that we thought was really important to figure out when we did our Kickstarter campaign in the first place. I look at a Kickstarter campaign or really any crowdfunding campaign as an experiment.
And so what we wanted to do is make sure that we really nailed the marketing of our first launch so that if it was unsuccessful, we couldn't blame it on poor marketing.
we did that we actually did a great job with marketing we got tons of coverage we were in wired we were in fast company and despite that we didn't hit our goal so we came out really confident that it was actually pure product market fit that this just wasn't a good product we surveyed our customers and we realized the big problem was that it was too expensive i think it was 60 bucks per light bulb that you'd connect and 60 bucks is a reasonable amount to pay
for a connected experience, but not when you actually need to connect a whole bunch of light bulbs. So very quickly it turns into thousands of dollars. The average house has like 50 light bulbs in it. So, um, so people said, yeah, it's too expensive and it's interesting and cool, but it's just not worth the money. Um, and so looking back on it,
I think it was a successful experiment in that we tried something. We didn't spend a ton of money to get there. I think we probably spent like 15 grand to get from idea to launch Kickstarter campaign. And then we probably spent another 20 grand to get from there to the second Kickstarter campaign. So we're definitely advocates of the lean startup mentality. And that's exactly what we did.
Small experiments, failed fast, pivoted, found something new, identified a new opportunity and really pursued it hard.
And so, guys, this is Spark Core, which, you know, on the Kickstarter page, over 5500 backers pledging over five hundred sixty seven thousand bucks. You know, it's you can think of it almost like this graphic Wi-Fi in the front, Arduino in the back, combined with some wireless programming, a REST API and ARM Cortex M3. And that's kind of obviously what took off.
Now, have you shipped all those already to the 5500 backers?
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