Perspective On IIoT: How To Scale An IIoT Predictive Maintenance Startup

Published on:

Serial entrepreneur and author of more than 40 publications, Dr. David Almagor, shares his expert advice on what it takes to successfully scale your IIoT Predictive Maintenance startup!

Although my day job is Chairman of Presenso, I spend considerable time mentoring young startups. I’ve been an entrepreneur for most of my professional life and I commonly hear questions about whether there is a secret path to startup success that is not shared in the myriad of books and articles on the topic. Beyond the standard answers (founding team, market understanding, etc.), there is one ingredient that is often overlooked. I call it “think like your customer’s CFO”.

Many startups underestimate the role of the customer’s Chief Financial Officer. They assume that great technology, Unique Selling Point, and aggressive sales & marketing will win over the enterprise customer. They are often correct, especially with early adopters.

At the same time, when startups seek broader market penetration and start to scale, they are more likely to encounter the same challenges as established technology vendors. Many startups do not realize that as they migrate from relatively low-cost PoC’s initiatives to enterprise-wide sales, they will need the buy-in of stakeholders that view technology from a purely financial perspective.

The customer’s CFO may be impervious to your startup’s “cutting-edge”, “disruptive” and “breakthrough technology”. For him or her, these are clichés that don’t invite curiosity.

So, what does “thinking like a CFO” mean? It does not mean adapting your marketing collateral to make it more CFO-friendly. Also, if you expect a CFO to be impressed with your complex ROI calculation, you may be disappointed.

Let’s put aside everything to do with your market, product and even value proposition. Recognize that one day, you will need the sign-off of someone who considers themselves the custodian of the balance sheet, cash flow, and Profit & Loss (P&L) Statements.

Most startups think that they are on safe ground when they can demonstrate the impact of Return on Investment on the P&L. The logic is that the financial return from their solution will outweigh the costs. For many CFO’s, predictability is a far more important factor than a one-time ROI calculation.

Here are some CFO considerations that every Predictive Maintenance startup should understand:

#1 A Healthy Balance Sheet

When an investment is categorized as Opex instead of Capex, there is no balance sheet impact. If feasible, most CFOs prefer to limit balance sheet exposure. How is this relevant to the IIoT Predictive Maintenance startup? Let’s consider Hardware as a Service or HaaS. As hardware vendors consider ways to monetize the data that is generated by sensors embedded within their machinery, HaaS becomes a compelling service offering. This provides new opportunities for startups to partner with OEM’s. HaaS is also an opportunity for the CFO to account for off-balance sheet asset acquisition, which may be a decisive factor in the procurement process.

#2 Predictable Cash Flows

From a pricing perspective, a Software as a Service (SaaS) model is more attractive to the customer’s CFO. This is because the predictability of payments can be matched to the expected return. A SaaS pricing structure makes the job of modeling financial returns much easier for the CFO, especially if all cost elements can be identified upfront.

#3 Lower Borrowing Costs

One overlooked benefit of IIoT Predictive Maintenance is the impact on the Cost of Capital. It has been noted that Boiler and Maintenance Insurance (BM) and Business Interruption Insurance (BI) are affected by a company’s asset maintenance performance. To the extent that IIoT can improve plant disruption, this can lower insurance premiums. From a CFO’s perspective, lower insurance premiums and lower Cost of Capital are of a significant importance which they are measured on.

#4 Direct Access To Operational Insights

CFOs typically lack access to operational reporting systems. With IIoT Predictive Maintenance, startups can address this issue by providing dashboard and BI tools of an industrial plant’s asset health directly to the CFO. The ability for the CFO to gain insights and a filtered view of a plant’s operations should be considered in the design of end-user reporting.

The customer CFO is not directly involved in every transaction and may not even engage directly with the startup. Nevertheless, the CFO is an important stakeholder whose views should be considered. “Thinking like a CFO” means designing and pricing an IIoT Predictive Maintenance solution that improves the performance of both physical as well as financial assets.

More in Perspective on IIoT: Is Industry 4.0 the Dotcom Bubble of the 2010’s?



Sharing is caring!