Robotics capital intensive?! What are you smoking? Don’t believe it.

Robotic manufacturing is not capital intensive, contrary to the popular wisdom.  (Looking at you HBS.)

Unless someone can bring data to the contrary, we should treat this issue as thoroughly decided against the  conventional wisdom.  As we saw previously, robotics companies do not need a lot of fixed assets.  Now, we will see why people who blithely repeat the conventional wisdom that robotics companies are capital intensive are wrong–even if they claim robotics companies are hiding their true use of capital.

First off, robotics companies’ balance sheets look like technology companies’–the internet kind, not the aerospace/industrial kind.  Robotics companies have lots of cash and relatively little else.

Second, robotics companies have gross margins that even companies that don’t make stuff would envy.  The robotics gross margin would probably be even higher if iRobot and Aerovironment were not defense contractors.   There is a lot of pressure to bury as much expense as allowed into the cost of goods due to defense contract rules.   Intuitive and Cognex’s margins are around 75%.  They are even beating Google on gross margin!

Although, it does appear that robotics companies have a bit longer cash conversion cycle than the basket chosen for comparison here, their cash cycle appears to be in line with other complex manufacturers.  Plus, the robotics companies are holding so much cash their management may just not really care to push the conversion cycle down.

Look at the cash required to sell aircraft though!  Manned or unmanned it looks like it takes forever to get paid for making planes.

Although robotics companies have physical products, the value of a robot is in the knowledge and information used to create it and operate it.  The materials are nothing special.  Consequently, these companies look like part of the knowledge economy–few real assets, lots of cash, and huge attention to their workforce.   Next time someone tells you robotics companies are capital intensive, ask them to share what they’re smoking–it’s probably the good stuff–because they aren’t using data.

One thing that a venture capitalist may mean when he says that robotics is capital intensive is that it generally takes a long time and lots of money to develop a viable product in robotics.  This may be true, but it is not really the same thing as being capital intensive.   This observation should cause a lot of soul-searching within our industry.  What the venture capitalist is telling us is that we–as an industry–cannot reliably manage our engineering, product development, and business structures to produce financial results.

This is why the conventional wisdom is dangerous.  It suggests that the lack of investors, money, and talent flowing into our industry isn’t our fault and there’s not much we can do about it.  That is what needs to change in robotics.  We need to get better at management.  We need to start building companies quicker and producing returns for our investors.  If we do that the money, talent, and creativity will start pouring into industry.  Then robotics can change the world.

Notes on Data and Method
Data Source: Last 10-k

Method:

Accounts Receivable = All balance sheet accounts that seem to be related to a past sale and future cash, so accounts receivable plus things like LinkedIn’s deferred commissions.

Cash + Investments = All balance sheets I could identify as being financial investments not required to operate.   Assume all companies require zero cash to operate.

Did not account for advances in cash conversion cycle.

U.S. Robotic Stocks: Speculators Wanted (the real kind, not the financial kind)

The first part of the robotic stock tracker is up.  The index is coming!

First observation:  It is amazing how volatile robotic stocks are and how much idiosyncratic behavior each stock has exhibited since the start of the year.   With this much volatility, one would expect robotic stocks to produce market beating performance over the long run, but they certainly haven’t done it so far this year.  In the short run, it is very difficult to value real assets that have uncertain financial prospects.  In the long run, I’m banking on an extremely bright future, powered by robots.

A response to Singer

I must be an Aristotelian active soul, because I have no patience for those who hold themselves up as philosophers but suggest no way to actually live in the world.  I have a new post up on Hizook taking the leading intellectual on drones to task for sloppy reasoning–then I suggest a realistic path forward.

http://www.hizook.com/blog/2012/07/23/pw-singer-wastes-opportunity-atlantic

Hizook 2011 Notes

Be on the look out for a forthcoming analysis of the Hizook 2011 VC in Robotic List on Hizook about the funds that invest in robotics.   I’m publishing my research notes here so they don’t foul up the article.  Most of this was sourced from company websites, CrunchBase, local media, or whatever I could find using Google with my limited attention span, I think I even remembered to cite a few as I was making this.

The only thing I’d really like to call your attention to, dear reader, is the complete lack of transparency in the private markets.  You’ll see that there are places I could find a round, or an amount, or fund but nothing else.  A lot of the poor citation is me trying to find a better source.  Private transactions have no organized data so if this can be the faintest candle for finding funding for robotics, then I’ve done my job.

As always, I’d love feedback.  I’m hungry for data!

More Hacker Spaces! Techshop coming to Pittsburgh

Techshop is coming to Pittsburgh.  This will be a great addition to Pittsburgh’s DIY / Hacker culture–which has a slightly different flavor in Pittsburgh because-unlike the big coastal cities that are ‘rediscovering’ the idea of building stuff-Pittsburgh is a city that never stopped thinking of itself as working, industrial city.   On a personal level, I’m excited that Techshop is coming to Pittsburgh with a focus on veterans.

I’m not sure how we should view these kinds of DIY/Hacker spaces in terms of the robotics ecosystem.  Off the top of my head, I can’t think of any successful start-ups that got their start in these kinds spaces.  If you look at the hacker space websites, the kinds of projects that they tout as commercial successes are more in the consumer device space (e.g. artistic iPhone docks)  as opposed to commercial robotics.  On the other hand, they seem to be a good marker of the kind of culture that builds robots.  So whether this is indicative or causative of a great robotics scene, welcome to Pittsburgh, Techshop.

As an aside: I’ve updated the cluster comparison with a few of these developments and more DIY/Hackerspaces.  There are links in the cluster comparison to several resources in this arena.

Pittsburgh Robotics: Who is missing?

Our AUVSI chapter finally has a mini-directory of the companies and institutions (both AUVSI members and not) who participate in the Pittsburgh robotics community.  Who is missing?  Any institutions left out?

http://www.auvsi.org/Pittsburgh/PittsburghRobotics/

Where are the Ops Companies?

Really where are they?  Given how many companies are  building some form of robot it seems like there should be some proportionally greater number of companies out there forming to implement, service, and operate these robots.  Where are they?

Frank Tobe isn’t finding a lot of them forming in his start-up list.  Even the RIA seems to have fewer integrators than suppliers.  AUVSI has many more Lockheeds and Insitus than VT Services.  One could make a case that this is characteristic of the peculiar industries that we’re looking at.  The robotic counter example is perhaps the ROV industry which routinely provides the ROV as a packaged service to the off-shore oil and gas industry.  But most consumer robotics are still selling to early adopters.  Our consumer customers are all people who want tech for tech’s sake, not to mainstream customers that are just looking to solve a problem.

Think about other complex goods in our economy.  Computers have a vast cottage industry associated with servicing and maintaining them which is probably as big or bigger than the software industry proper.  All vehicle industries whether air, ground, or sea have vastly more businesses in the business of selling the services than engaged in construction of the vehicles–even if constructors do manage to capture a large share of the total revenues of the industry.

I think our industry has a problem.  I’ve talked to people at the oil and gas majors and heard straight out that robotics companies are producing robots which have a business case to be used several applications, but they will never be used until a credible organization to is there to provide the robot as a service.   It is a bit of chicken and egg, but I think this applies as you go down the chain, not just in large capital projects.

When doing sampling or reconnaissance, customers want actionable data not a fleet of robots or new employees.  I know from experience that infantry brigade commanders love having drone imagery of the battlefield, but don’t want to worry about having to support the drone unit, they just want to see the battle.  This is equally true in forestry, agriculture, infrastructure, and minerals.

Do I really want to own a cleaning robot? No, I would much rather have a business that comes to my house every week and keeps the place clean whether that business uses humans, robots, or both.

Even in medicine, if I were a hospital operator I’d love to be able to push the risk of owning the robot back onto someone else.  If I can pay per procedure and not worry about utilization, maintenance, or obsolescence–I’m much more game to adopt something new.

To date, our industry has done a relatively poor job of making robotics accessible to people and organizations who aren’t willing to organize around robotics and develop organizational competence in robotics.  Providing robotics as a service could greatly expand the number of potential customers.  I think when we see these businesses start cropping up, we will know that our industry is no longer in its infancy.