Wow. I knew the Internet of Things (IoT) was enormous, but I'm catching on to a few trends after having meaningful conversations with 99 active financial leaders for companies from $20 million in revenue up to $1.6 billion.
Going into a CFO search for any of our corporate clients in private equity requires a lot of studying and education around the portfolio company's industry. Since the second week of January, we've been actively searching for a Chief Financial Officer for a Machine 2 Machine connectivity solutions company based just outside of Chicago.
What is machine to machine (M2M) connectivity? M2M could be unlocking the front door of your house from your smartphone or watering your lawn remotely. It's just one machine communicating with another. The CFOs and VPs of Finance whom I've been calling have all been involved in companies with some type of connected device capability, from wearables to traffic management systems. Here are three trends I've become aware of after 99 conversations with these financial leaders:
1) Very few companies have concrete plans on how to develop in this area. This shouldn't come as a surprise to anyone, but I can't over-exaggerate: A lot of companies know they need to expand into this space, but their ideas aren't that great.
LIGHT BULB: There is a massive difference between products/devices which provide INFORMATION and ones which provide SOLUTIONS. If you own a snow blower, you can now connect that to your smartphone. It gives you the make and the model, and informs you that your spark plugs will fire at 700 degrees right now. That product will fail because it is not providing a solution to anything. You're not a snow-blower expert.
Alternatively, let’s say your snow blower is connected to your smartphone, and your phone is connected to snow-blower experts who say you have a major chance of the plugs misfiring at 700 degrees. Result? You won't be able to start your snow blower to clear your driveway this weekend. However, your phone is also connected with Lowe's, for instance, and Lowe’s has a virtual button you can press to purchase the exact spark plugs you need and even a spec sheet showing you how to change them. Now this M2M connection becomes a SOLUTION to keep your family safe and your driveway clear – it is not just a PRODUCT.
2) Companies which are purely an M2M or IoT focused organization have a huge advantage. Companies with an existing product not currently in the connected devices (not-so-smart snow blower) space but hope to expand into it (i.e., sort-of-smart snow blower) are NOT appropriating the amount of resources they need to be. What is the No. 1 resource to get into this space? New inventory? New products? Nope. It’s their people. You have to have the right people on the team to do this. Out of 99 CFO conversations, it is amazing how many are now being asked to 'learn about this IoT and M2M thing' and somehow are expected to become experts within a few articles and conferences. That's a mistake. Hire people who have a few wins in this area already. That is rare for being so early in this exciting new phase for the global economy, but it is your best chance at not being late to the party.
LIGHT BULB: If you are an active CFO without any knowledge or experience in this space, you need to find some. Do it on your own if you have to. In five years, I'll call you for a CFO/CEO role and without any experience in IoT or connected devices, you’ll become obsolete for the best roles out there. It will basically be the equivalent of being a CFO/CEO in the year 2006 who doesn't know how to write an email.
3) This is the future of the global economy. No question about it. Just the M2M space, not including the overall IoT space, grew by 20% from 2013 to 2014, and it is expected to be at $41 billion overall by 2020. This feels like watching Steve Jobs and Steve Wozniak working in their garage while sipping on a Starbucks coffee delivered via drone ordered from an iWatch.
LIGHT BULB: I've officially decided I am an IoT nerd! Thinking about the white spaces in this area and the innovative pathways our clients are and will be taking in the coming two to five years is mind-blowing! I want to be part of it. Will you be?
BIG QUESTION: Are you awake? What are you doing today to set yourself up for success in this area in the next two to five years? In my humble (but probably accurate) opinion, if you aren't rethinking how your current company might provide you with the appropriate experiences in this space, your company may be my client soon in finding your replacement! Don't stay ahead of the game ... REINVENT IT!