Monday, February 20, 2017

Deciding what NOT to do is as important as deciding what TO do

Posted on 01/29/17 by Frank Tobe

Business maturity is what startups often need when they ask for an 'adult' to come and manage their company. That was certainly the case with Danish startup Universal Robots as they sought funds and a new CEO in 2008.

Universal Robots

Esben Østergaard (pictured), Kasper Støy and Kristian Kassow, two young PhD's and a civil engineer, all from the University of Southern Denmark (USD) located in Odense, came together in 2005 to make flexible robots. Kassow had a vision of running a robot manufacturing business, Støy and Østergaard, were to focus on the software, engineering and other practicalities. Østergaard also had a vision: he wanted to make robot technology accessible to all by developing small, user-friendly, reasonably priced, flexible industrial robots that were safe to work with and easy to program. Kassow created a business plan and secured their initial seed/startup round of funding from Syddansk Innovation, a state-funded investor and incubator for Danish technology startups. They named their new company Universal Robots A/S (UR).

The startup was located at the USD where Kassow and Østergaard worked and Støy taught. They planned to spend 2005 and 2006 developing and building prototypes which would then be used to demonstrate their proof of concept and help secure a scale-up funding round. After a while Støy opted to teach full time rather than continue to work on the project and, because construction materials were more costly than planned, and the development phase was taking longer than expected, the two remaining founders took on some paid research to sustain their efforts.

Making their robot easy to program was a major focus and they developed an intuitive touch screen and graphical user interface which made it surprisingly simple for users to program. Safety was the other major concern and they enlisted the Danish Technological Institute (DTI) to test their new robot. DTI confirmed that it would function in a safe manner without needing to be caged in; thus enabling an important sales feature for the new robot. But their robot remained unfinished as they worked on accomodating all the uses it could be put to.

In 2008 they installed and customized their first robot on the packaging line of a nearby nursery... and then ran out of money and into serious debt.

A representative of the Danish Growth Fund observed their situation as he met with the two. Nevertheless he became convinced of the viability of the robot as a product, and urged his board to fund the startup -- but also to help find an adult to take over and bring some concise direction to the company.

Enrico Krog Iversen

Krog Iversen worked for many years with Denmark's largest company, Moeller/Maersk in Copenhagen and the U.S., secured an MBA from USD, and was a partner and Sales Director at Krog Iversen, the largest manufacturer of heating stoves in Denmark, a business he and his family sold in 2006. He was 10+ years senior in age to the two partners in UR in 2008 when, with funding from The Danish Growth Fund, Krog Iversen, and his family, he joined the company as CEO.

Shortly thereafter he ran up against Kassow's business plan: to help UR customers customize their robots for their particular applications and to create a secondary profit center similar to the Apple App Store for the necessary accessories (grippers, covers, cameras, sensors, stands, etc.) and to provide comprehensive service and repair. Krog Iversen, on the other hand, believed in letting distributors do the hands-on work with the end users and having the company concentrate on the fewest number of products with the fewest, if any, options. Further, he thought it important that UR focus on making their robot arms without grippers or accessories; a formula which made for efficient manufacturing and required a network of integrator-type distributors. Under Krog Iversen's insistence, the partners reluctantly reworked their business plan to reflect those changes, to finalize their first six-axis robot, the UR5, to work on a UR10, and to develop a network of distributor integrators which would market directly to customers. This revised plan by Krog Iversen was a key transition point for UR: to decide to NOT be involved in how their robots would be configured to meet end-user needs and instead focus on the efficient manufacture of only two or three robots which shared components, design and software. This focus on manufacturing efficiencies and product testing carried forward as unit sales increased from hundreds to thousands per year to their present run-rate of approximately 1,500 robots per month!

Krog Iversen cultivated the distributor-integrator scheme while encouraging Kassow to transform the company into an efficient manufacturing operation. 52 robots were sold and produced in 2009 and the distributor network was taking hold and promised a much bigger 2010. But Kassow became disgruntled with the direction of the company and the discipline that Krog Iversen brought to company operations.

Kassow chose to leave at about the same time as the global financial crisis of 2008 was having its effect on UR: although there was excitement about the product, there was resistance to spending money until the economy stabilized. To carry the company through the slowdown, Krog Iversen and the Danish Growth Fund injected an additional $1.5 million of equity funding which was sufficient to weather the storm and carry them through 2010. Late in 2010, after only three rounds of funding, UR became profitable and was self-funded thereafter.

Marketing and PR

Krog Iversen conceived marketing the UR robots as collaborative robots with two primary audiences: end users and distributor/integrators. He understood the need to educate the end user and sell distributors and integrators on the concept that UR co-bots weren't a technology play but rather one that reduced production costs, had a very short return on investment (ROI), augmented workers, and offered a high profit margin on the robots and accessories involved in a typical sale.

Krog Iversen sought out a dynamic marketing manager and ambitious PR partners to help convey both of UR's target audiences. He hired Thomas Visti (pictured) to develop the international distributor network and Malene Grouleff and Mette McCall were contracted to spearhead publicity and PR in Europe and the U.S. respectively.

Krog Iversen brought his discipline to their marketing and PR decisions as well. He encouraged the production and promotion of video use cases that emphasized ROI, efficiency and ease of operation. Safety was implied but ROI, ease of use and productivity were the key selling points. Videos were made and distributed that showed how easy it was to set up and program the robot. And he encouraged an open-door quick-response policy for all types of media while promising to always be available to the media.

Said McCall of some of her experiences on behalf of UR:

My agency helped spread the word of the distributors’ excitement taking on this new line of UR robots and by the Spring of 2013, we were able to produce our first U.S. case study. Traveling around North America telling the stories of the many varied and surprising ways UR robots are being deployed has been the most fun, creative and rewarding assignment. This is where journalism and the “good story” concept is leveraged. The robots lend themselves so well to video storytelling; when a line operator laughingly tells you that they named their new UR robots “Thelma" and "Louise” because they thought they were going to drive them over a cliff and they would all lose their jobs (which they didn’t, they got better jobs after the robot took over their ergonomically unfavorable tasks), or when the first automation engineers started to wheel the robots around between tasks - something unthinkable with traditional industrial robots that stay bolted down in a cage.

Enrico always encouraged us to position UR through these case studies and he was always the first to grab a robot arm and give a demo. We had fun doing a press tour in New York taking a UR5 in two cardboard boxes, wheeling it on a hand truck in and out of Manhattan offices presenting the robot directly to the editors – that was the first time they ever had a live demo of an industrial robot right at their desk!

The Collaborative Robot Movement

UR's two PR firms weren't the only groups promoting collaborative robotics. In Europe the SMErobotics Project, funded by the EU, produced some widely viewed videos about how small and medium-sized enterprises (SME's) could benefit from the use of low-cost flexible robots so long as they were safe and easy to program. The SMErobotics Project promoted that it was time to incorporate “smart” and “intuitive” technologies into the robot programming process. The big pitch was that the robot must be plug and play AND easy to program AND safe -- the very features that UR was promoting. The concept was that if you empowered shop employees with robotic tools that improved their combined productivity, the SME would become more cost efficient and competitive and therefore not have to move offshore.

In the U.S., Rodney Brooks, an eloquent MIT professor and co-founder of iRobot, was on the road promoting his new startup, Rethink Robotics and their two-armed collaborative robot Baxter. He spoke at every event, everywhere, and described an SME marketplace ripe for collaborative robotics such as his Baxter (and UR's UR robots). He made similar points as the European SME movement but described how, through the use of co-bots such as Baxter, SME workers could become more productive, happier with their jobs, and their increased productivity more cost efficient for their company.

The global SME marketplace is huge – 6 million companies worldwide and almost 70% of the world’s manufacturing. A few low-cost plug and play robotic tools -- like the robots sold by Rethink and UR -- could easily fit into the manufacturing process of most of these companies which is why most business executives became excited at the prospect of testing them out in their shops and factories. But the Baxter robot didn't live up to those expectations at the time whereas the UR robots did. Brooks' marketing inadvertently helped UR more than it did his own company. Thus UR sales grew throughout Europe and the U.S.

The exit plan

From the initial business plan developed by Krog Iversen in 2008, an exit strategy was included that called for raising market value ten times and growing revenue by at least 60% to 70% each year. When those criteria were reached, then it would be time to consider offers from companies that would benefit from combining URs activities with theirs. As that time became evident, Krog Iversen found that his time was being taken up reviewing and responding to too many offers. Enrico didn't want to go public nor did he want to sell to a private equity fund. Instead, he and the board set up an Exit Committee and hired a UK investment bank to spread the word, handle the offers and cull out and recommend the very best strategic offers. Teradyne was their primary recommendation.

Teradyne had purchased some UR robots and had firsthand knowledge of their value within their factories. And they were willing to pay what Krog Iversen thought as a fair price. A deal was consummated in May of 2015 for $285 million in cash and an additional $65 million if certain performance targets were met through 2018 thereby bringing the overall sales price to $350 million. From Teradyne's point of view, this was a win-win transaction: Teradyne becomes a player in the collaborative robotics space and the inventors and entrepreneurs of Universal got a serious strategic partner, one that could help them with marketing, manufacturing, management and engineering. In Krog Iversen's case, the deal offered the ability to move on to his next big thing. In March, 2016, UR and Teradyne announced that Jürgen von Hollen would become the new CEO while Krog Iversen was beginning his new career as investor.

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About the author: Frank Tobe

Frank Tobe is the owner and publisher of The Robot Report and co-founder of ROBO Global which has developed a tracking index for the robotics industry, the ROBO Global™ Robotics & Automation Index. The index of 82 companies in 13 subsectors tracks and captures the entire economic value of this global opportunity in robotics, automation and enabling technologies.

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