On this episode of the IoT For All Podcast, Ryan Chacon sits down with the CEO and Founder of Particle, Zach Supalla, to discuss the value of all-in-one hardware, software, and connectivity. Zach begins by discussing his company and founding story before jumping into how he has seen his company grow in recent years. He then talks about what is an integrated platform, the challenges he's seen in the industry, and advice for companies looking to adopt IoT.

About Zach

Zach Supalla built an IoT product from scratch and delivered it to thousands of customers in 6 months. Did it again four or five times. Helped enterprise customers like Jacuzzi, Keurig, and Watsco do the same. He built a global team of 100+ and a company serving hundreds of enterprises and thousands of IoT engineers, and raised $80M in venture capital from Spark Capital, Root Ventures, OATV, and others. San Francisco Business Times 40 Under 40. IDC listed the particle as a Major Player in Worldwide IoT Platforms. It was one of Fast Company's Top 10 Most Innovative Companies in the Internet of Things in 2015, Business Insider's Enterprise Start-ups to Bet Your Career On in 2017, and Forbes' Top 25 IoT Startups to Watch in 2019.

Interested in connecting with Zach? Reach out on Linkedin!

About Particle

Particle is an all-in-one (hardware+software+connectivity) platform for IoT products and connected devices. Zach and his team help manufacturers bring their physical products online. The main verticals the company operates in include light electric vehicles, smart energy, HVAC, emissions monitoring, and industrial equipment monitoring.

Key Questions and Topics from this Episode:

(01:32) Introduction to Zach and Particle

(02:36) Founding of Particle

(05:32) How the company has grown

(11:33) Integrated IoT platform

(14:30) Biggest challenges

(24:50) What separates IoT hardware businesses

(27:57) Advice for adopters

Transcript:

- [Zach] Particle is an IoT platform as a service. So we provide a technology platform to allow manufacturers and businesses who deliver physical products to connect those products to the internet and make them more intelligent.

- [Ryan] Hello everyone, and welcome to our episode of the IoT For All Podcast, the number one publication and resource for the Internet of Things, I'm your host, Ryan Chacon. If you're watching this on YouTube, please give us video a thumbs up and subscribe to the channel. If you are listening to on podcast directory like Apple Podcast, please feel free to subscribe to the latest episodes as soon as they are out. All right, on today's episode we have Zach Supalla, the founder and CEO of Particle. They are an all-in-one hardware, software connectivity platform for IoT products and connect devices. Very good conversation today, we talk about what separates a good hardware and software businesses from bad hardware and software businesses. We talk about what people can look for and look out for when they're sourcing a company to work with. We talk about a very interesting BMW use case midway through the episode, so check out that. As well as challenges navigating the hardware and software business model, and why it is something that Zach is very passionate about helping companies do better. So all in all, very good conversation, can get a lot of value out of it, but before we get into it. If you out there are looking to enter the fast growing and profitable IoT market, but don't know where to start, check out our sponsor, Leverege. Leverege's IoT solutions development platform provides everything you need to create turnkey IoT products that you can white label and resell under your own brand. To learn more, go to iotchangeseverything.com. That's iotchangeseverything.com. And without further ado, please enjoy this episode of the IoT For All Podcast. Welcome, Zach, to the "IoT For All Podcast", thanks for being here this week.

- [Zach] Yeah, absolutely, thanks for having me.

- [Ryan] Absolutely, so I wanna kick this off by having you give a quick introduction about yourself to our audience, you wouldn't mind.

- [Zach] Sure, so my name is Zach Supalla, I'm the CEO and founder of Particle. Particle is an IoT platform as a service. So we provide a technology platform to allow manufacturers and businesses who deliver physical products to connect those products to the internet and make them more intelligent. We've been around since 2013, 2014. When we got off the ground, we're originally called Spark and rebranded to particle in 2015. And we power products wide ranging from air conditioners, to methane emissions monitoring systems, to bikes and scooters, to logistics products, to monitoring medical equipment and operatory equipment, everything in between. So huge variety of customers, and yeah, that's our story.

- [Ryan] Fantastic, anytime I have a founder on the podcast, I always love to hear about kinda the story behind the company coming into existence. And back in 2014-ish, when you started the company, what opportunity did you see in the market? What was kind of the, I guess, aha moment of this is kind of the direction we should go in? And then how has that kind of evolved as the industry has evolved over the last eight years or so?

- [Zach] Yeah, so when we started, IoT was, I think in its early days. And what we saw, I was inspired by essentially two things. One; companies like Nest were sort of becoming popular, and showcasing this new set of ideas about how products, machines, equipment could be connected and more intelligent, and could deliver a better service essentially. And the way I think about it is every machine has a job to do. Many machines can do their jobs better if they're a little smarter and a little bit more connected. Nest is really the, I think the ones that showed the world what this could look like in its best form. And there were a lot of entrepreneurs who popped up in that 2012 to 2015 era of the sort of hardware startup heyday that were building Nest for X. And that's how Particle started, we're originally a sort of Nest kind of consumer product for lighting. And I was into lighting because my dad is deaf, I wanted to make his lights flash when my mom sent him a text message. And I wanted lights to have an API. If lights had an API, then I could create an app to do that and other people could create apps to do different things. We started as essentially a Kickstarter campaign for a connected lighting product that failed. We didn't hit our fundraising goal, and so we were forced to go back to the drawing board and then figure out what to do. And we had discovered in the creation of that product how challenging and complicated the technology stack was for building something like that. And found ourselves surrounded by other entrepreneurs who were struggling with the same kinds of challenges. And so we said, "Well, we built a bunch of this tech, what if we sold the tech instead of selling the product?" And we relaunched six months later with a development kit for building an IoT product that was called the Spark Core, that we launched on Kickstarter in 2013. We had a $10,000 fundraising goal, we raised $600,000 and had 5,000 customers who used this to build first prototypes of IoT products. And that really kicked off what would eventually become one of the largest developer communities in the industry, of 250,000 developers developing IoT products on our platform that has now turned into a business selling our platform to companies operating IoT products at scale. Many of whom started as an engineer with a dev kit.

- [Ryan] Wow, that's fantastic, that's very cool story. Kind of having the $10,000 goal, and then exceeding it exponentially. What have you kind of seen over the last number of years? How has the company grown over the last number of years from what you were doing then to now, and kind of your offering? Is it really evolved due to different technologies being available, use cases being more kind of adopt across industries? Or has there been any one key that's kind of helped you all kinda evolve into the company or today?

- [Zach] The nice thing about starting as a company that sort of formed out of a developer community and people essentially prototyping is we got a lot of visibility into what people were working on. And in the early days when we first started, in that 2013, 2014 era, there's a lot of consumer stuff, right? Everybody was looking around their house and trying to figure out, like, "Okay, my lock is gonna be connected, and the thermostats, and lights and things like that. And I think a lot of those companies struggled, right? I think Nest was an exception in that case, not the rule. Which is that the thermostat happens to be a particularly valuable thing that controls a valuable, really, the biggest consumer of energy in your house behind it, right? That's sort of what made that product work. And there were some wins, right? Security systems, cameras, door locks, I think have been some of the winning categories in that space, whereas a ton of other things came and went. And what has come to replace it in the last few years has really been much more of an enterprise and commercial industrial business. And so we find ourselves in things like methane emissions, monitoring systems for oil and gas. Which are, in many cases, less visible. A lot of the stuff that we do is municipal infrastructure kind of stuff, right? And so it's not as sexy as consumer electronics, but it's great business. And at the end of the day, unlike consumer electronics, where a lot of those solutions ended up being kind of gimmicky. In these spaces, it's much more, there's real value, there's safety problems to solve. There's climate problems to solve, there's economic problems to solve. And so those businesses, whether they're traditional manufacturers, many of our customers are big companies that have been making widgets for decades. Or it's entrepreneurial folks that are kicking off something new, there's a lot of opportunities to chase in that space.

- [Ryan] Yeah, it's interesting to kind of see the evolution of industries like IoT, and kind of seeing a similar path with VR as well, where it's kind of heavily led with consumer applications. These are more forward facing, that's more where it's getting the press, what people are really focused on. But there's this whole industrial, commercial, enterprise application of the technology that kind of comes second, at least to the masses, to really understand the value of the technologies and to be more widely adopted. But it seems like there is a lot more opportunity. When we started "IoT For All" back in 2016, we were kind of in a similar spot. Where consumer was leading the way, IoT was still trying to be well understood by companies and how it could be applied to their businesses, what's the value of adopting IoT and so forth? But as that continued to grow, IoT, really, the market side of it from a commercial enterprise side just grew immensely because the technologies were getting more mature, the costs were coming down, people were seeing successes of these implementations and starting to really understand how IoT can benefit businesses. And we're seeing that in these other industries with kind of more future kind of forward leaning tech. Like VRs, it's very similar kind of path, but it's always interesting to kind of hear somebody talk about seeing something very similar, where consumer was kinda leading the way, but as you got into the industrial side, the opportunities just continue to grow, and it really good business from there.

- [Zach] Yeah, what we see is, I think that IoT is a technology that can be applied in a lot of different industries. And the right way to apply it is very different, depending on what is the thing, what is the asset, what is the problem you're trying to solve? Usually it takes some smart people a little while figure out what's the right problem to solve here. And then once somebody figures it out, you get this kind of S-curve of adoption, right? Where the IoT goes, starts with the early adopters, it becomes mass market and then it starts to become ubiquitous. And I think that IoT as an industry, really, I mean it's not an industry, it's 750 industries all rolled up together. And that means that there's 750 different S-curves, right? So if we think about some of the consumer categories that we know well, like thermostats are baked, right? If you buy a new home, it's almost definitely gonna have a smart thermostat in it now, whereas it wouldn't have 10 years ago, right? The category didn't exist. And so the S-curve is complete, and I think things like cars for instance are maybe halfway through that, right? Which is a lot of cars that you buy right now are connected, not all of them, but probably most, if you're buying a new car. And then there's other categories that are just starting to get off the ground, or haven't even started yet, right? I think that a bunch of industrial categories are barely just getting started. Like one of our big categories is methane emissions, and it's a really good example of the legislation now, to enforce reduction of methane escapes from oil and gas. And how's that gonna get enforced, it's gonna get enforced with sensors. And so that industry is just about to get revolutionized, where all of a sudden there's gonna be a massive explosion of sensors in oil and gas that weren't there before. And that's gonna take a few years to roll out, and then that industry's gonna be totally turned upside down.

- [Ryan] No, totally agree. So obviously when we're talking about, IoT solutions, you have the hardware component, the software component, the connectivity component. And a lot of companies focus on them individually. What has been your all's approach to that? Are you kind of doing that all in house? Are you working with partners to kind of bring it all together, so that when someone is looking to work with you, or kinda everything's handled in one place? Or what is the approach or the view you have kind of on that?

- [Zach] Yeah, so Particle is what we call an integrated IoT platform, which is that we provide to our customers a cloud service that provides device management, over the year software updates, data pipeline for managing processing data flowing through your devices. We provide connectivity, so in the case of wifi, that's sort of networking stack and setup process to get provision to a network for cellular, that's SIM cards and data plans. And then we provide the modules that are embedded inside our customers products, and so we go all the way from the cloud into the device. And I think that's important because a lot of the technical challenges of creating an IT product live in the kind of surface area in between these things. And so if you take a sort of point solution of a widget, and you throw in a SIM card, and you sort of take a generic cloud service, a entry point that you can connect to, and you try and hook 'em all up together, there's this ton of technical challenge in that integration process. And so we can eliminate that by providing this system that's end to end. That really means a customer can look and say, "Look, my IoT product needs to be secure, scalable, reliable, robust, and it needs to produce data that generates insight for my business. We can deliver that whole thing, and be one threat to choke. And say, "Look, if it's working, cool, if it's not working, call us." We're in a position to fix the problem. And so that is, I think a... That sort of integrated hardware software business is, I think, a lot of what... At the end of the day, it means that we're very similar to our customers, right? Which is that all of our customers who are creating IoT products have a sensor, a machine, a piece of equipment, a device, whatever you wanna call it. And then a web service that is the entry point for how people interact with that thing. And they are hardware, software businesses. And so I think there's a lot of nuance to how you create a business that is sort of integrated product, also an integrated business model, right? The way that you charge for your product has to accommodate you're selling a widget, and also a service attached to it, and what does that mean? And so I recently started a newsletter called "Atoms and Bits", to discuss specifically the sort of issues that arise in hardware, software businesses that are still pretty new. And there hasn't been a lot of conversation exploring how these things work.

- [Ryan] And what would you say are some of the biggest issues or challenges kind of in from a hardware, software business standpoint that maybe it's kind of worth educating our audience on?

- [Zach] I think a couple of the challenges, the way that you operate a pure hardware business and the way you operate a pure software business are very different. And so I think just coming back to organization and sort of operating model. Hardware businesses operate on metrics like inventory turns, lead times, very heavy focus on gross margin, right? Sort of profitability of each, the individual hardware unit, bill of materials optimization, the development process for hardware is sort of the stage gate NPI, new product introduction process that goes through these major stages over a long period of time. Because if you ship a bad piece of hardware to your customers, you're screwed. There's nothing you can do, right, except take it back and fix it. Whereas software operates on an entirely different cadence, right? It's move fast and break things. It's you can always fix it later. You can rapidly deploy iteration, it's agile, it's you're shipping new updates every week. And so it's a dramatically different way of operating. So I think first challenge is how do you operate these things together, right? How do you create a product where you're very carefully delivering robust hardware solutions that work, and then pushing as much of the complexity into the software side so that you can rapidly iterate on it, and make changes and make improvements to your product over time. And what is sort of this agile development of a hardware, software product look like? This is one challenge. Second is, I think business model, which is how do you charge for the thing right? And there's a variety of ways you can charge for it, ranging from a traditional hardware sale. Where you basically say, "Look, I'm selling you a widget the same way widgets have always been sold. You buy them for more than it costs me to sell it to you." Traditional hardware sale, where I'm going to incur, I'm gonna take the cost of running the web and cloud services that power the thing, and it's just gonna erode my margin over time. Versus a full subscription model where you say, "Look, hardware's free, here's the device, you don't have to pay me for it." What you're paying me for is a service that it provides. If you stop using the service, you just send back the hardware. And that's a much more sort of SaaS like model, how hardware is a service, and there's a ton of versions in between. And I think that the figuring out where you fit, and at the end of the day, the closer you are to hardware as a service, the more robust your business is. It's hard to do it. And so I wrote an issue in my newsletter recently about BMW charging for heated seats as a service. A subscription for the ability to turn on the heated seats. And it's just like, well, that's the wrong way to do it. 'cause it pissed everybody off, right.

- [Ryan] What was the reasoning behind that? I didn't really read into it much, but I saw kind of a headline about it. What was the justification for thinking that's a good idea? So I'll tell you what I think they thought they were doing. They were taking a feature... The typical way that features like that are sold in cars, right, is that--

- [Ryan] Yeah, you buy at the, yeah, exactly.

- [Zach] You buy the premium package that costs three grand more, that includes the heated seats and a bunch of other stuff. And so they're basically saying, "Look, instead of spending three grand, you can spend $15 a month, doesn't that seem better?" And so I can see why they thought that would land, right? But the problem is that you're not replacing $3,000 with $13 a month. The thing that people really struggled with was this idea of being nickled and dimed, or like micro-transactions.

- [Ryan] And so it probably felt that way, right?

- [Zach] Yeah, it's not just the 13, it's $13 a month for a tiny little feature. And so you sort of imagine this world, and they honestly have created this world 'cause there's like 25 things you can subscribe to. Where it's like, "Well, I'm paying $13 a month for my seats, and $5 a month for my heated steering wheel, and $10 a month for the fog lights." Then you can imagine the bill that you get, looks like a CVS receipt, right? And that's, yeah.

- [Ryan] I wonder also, you live in certain regions of the world, and for me, I don't need, well, you're on the east coast also, but we don't need heated seats and heated steering wheel for a certain amount of months outta the year. So is that maybe part of their right reasoning too, it's like, "Look, you can turn this off when you don't need it. You don't need it for an X number of months, why are you paying for it?" But when you do buy a car, assume you're not paying cash for it. You can bake all of that cost for the premium features and stuff into the loan that you get. You're done with it once you're paying it for it monthly.

- [Zach] So what you just said is, I think what the correct way to do it is, in my issue of the newsletter I presented as sort of alternative solution, which is imagine the winter package, right? And the winter package is heated seats, heated steering wheel, some steering features that make it easier to drive on ice. A bunch of stuff that is for winter cars. And if you live in California, you never buy this, it's not relevant. If you live somewhere cold, you can subscribe to it for the number of months that it's gonna be cold in the place that you live, which depends on where you are. And every year you can sign up for your winter package and pay a couple hundred bucks for the season to have it, or not if you're not driving or you're not gonna be using that much. But that's a better packaging. I think the issue with BMW, and this is really where it comes down to, is it matters a lot how you present this to the customer. And you can screw it up very easily, but if you package it well, that makes the customer feel like, "This is in my benefit, this is better for me," then this stuff totally works.

- [Ryan] Yeah, the interesting thing too is a lot of these technologies, I wonder. And I don't know enough about car manufacturing for this, but in order to have the ability to have a feature to turn on and off, it has to be installed in the car. So for if I, for instance, my car, I was a winter or cold package, heating steering wheel, heated seats, bunch a couple other things. But if I didn't get that, I don't know if my car didn't have the capabilities then. So it wasn't built into the cost. So if you buy a BMW and you say no to all this stuff, they still had to build and put the tech into the car in case you do wanna turn it on one day. Is that cost then somehow hidden in the price of the car, because it's not free for a BMW to do that?

- [Zach] Well, so that's a good question, and I think this is where, I think the consumer idea. Let's say I'm buying an oven and there's three models, there's the good, better, best model. And the good ones goes to 450, and the better one goes to 500 degrees and the best one goes to 550, right. And I'm gonna pay a little bit more. I think that we have the assumption that the design of these three ovens is very different. And so when I'm spending extra money for the one that goes up to be higher, there's some cost in the machine, that may or may not be true. A lot of times, the way that companies create these good, better, best tiers is with a chip that's handicapped, right? And so it's in software, right? And that's been true for a long time, that precedes IoT, right? And so, but we just don't know that. And so when, I think, the thing that pisses off a consumer is when you say, well, you can activate with a subscription, and the consumer's like, "But it's in there."

- [Ryan] Yeah, right, I think I've seen this, and again, I could be completely wrong, but I believe I remember reading about this with the new Apple MacBooks, that they have with their new chips and their new processing power and everything, they have the full system in there for you to use, but if you do not pay for the upgraded version, it is not basically accessible to you. So it's a very interesting kind of model, and when I first read it, I was like, "Yes, but it's there, why can't I just use it?" But it's like, no, you need to basically have bought that upgrade when you bought the computer. It just seemed very interesting.

- [Zach] Silicon has worked that way forever, because at the end of the day, silicon starts with a binning process. Which is like if you're making a processor with a certain ability to compute, the manufacturing process leads to some errors that mean that you will end up with some processors that can run at 2.4 gigahertz, and some that can run at 2.2 gigahertz and some that. And so silicon has always been one manufacturing process that produces multiple variants, and so that idea has been there forever in silicon. Again, we're often not aware of it, right. We become aware of it when people start to over-clock this stuff, right, and sort of hack it to open up these features. I think that that's been true in silicon for a while. The fact that it's now happening in other areas starts to freak people out. But at the end of the day, this is where I think it's ideas that come from software, right? Like SaaS subscriptions, it does not. If you are using Slack, and you're on the free tier or the tier that gives you 30 days of history of your messages or whatever, you can pay more for infinite history. It's like, doesn't really cost Slack that much more money to generate the infinite history. They might be storing that data either way, and so it might not cost them anything at all. They're just differentiating pricing for different people who are willing to pay different amounts. And I think that makes people uncomfortable. I honestly think it's something that people will just get used to as it becomes more common because it's-- We've gotten used to it in software, right? I think that the same thing will happen in hardware.

- [Ryan] Yeah, I think there's elements of it that do frustrate people, because everyone judges those features as... Puts a value on those features, and some people are like, "Well, I feel like this should just be part of it." Versus people who are like, "Oh, I understand why there's an upcharge for accessing these features and things like that." So I think we're always gonna have that battle, but again, like you mentioned earlier, it's all about how you package and how it's sold to the end user, to whether it's successful or not.

- [Zach] Totally, I think there's a way to do it that makes a consumer, the end user feel like, "I really like that they did it this way 'cause this fits, I get exactly what I want, right." And there's another way to do it, which is you, it's positioned in a way that feels like it's designed to make the company make more money. And you can definitely get it really right, and you can get it really wrong.

- [Ryan] Yeah, no, I totally agree. I did wanna kind of go back to a part of the conversation we had before we got into this, the BMW use case and then down this road. We were talking about the kinda the hardware, software businesses. And there are a lot of companies out there who kind of find themselves as this. If someone who's listening to this is out there trying to find a company to work with in the IoT space, what do you feel separates kind of the good versus, and I don't wanna say bad, but just the not as good hardware, software businesses from each other, and how should people, or what should people be looking out for or looking for when it comes to kind of sourcing these organizations to decide who's the best to kinda move forward with for whatever it is that they're working on?

- [Zach] Yeah, do you mean on the sort of platform technology side, or in terms of final end products that are delivered to the customer?

- [Ryan] Either-or, I mean it's, it's more so like, let's say you're starting your IoT journey and you're kind of out there looking, and there's hardware, software businesses out there. Just what should they be taking into consideration during that search?

- [Zach] Yeah, yeah, I mean, I think that if we look at, I think the sort of the good companies in this space, right, treat their products as an integrated holistic solution, where the technology is just like a means to an end, right? And what the hardware does versus what the software does, it's irrelevant, righ