This article was originally published by Hardware Club on December 7, 2017.
David Gengler is the co-founder of Nokē, an advanced smart lock maker and Hardware Club portfolio company. We caught up him with shortly after his appearance at ATOMS where he shared the insider story of how they pivoted from B2C to B2B.
This interview has been edited for clarity.
How did your journey with Nokē begin?
David Gengler (DG): When my Co-founder Cameron Gibbs and I left ZAGG, we had a lot of Bluetooth experience and we were looking for our next product in the smart lock space. Kevo was out, it was clear we were a few years behind them. Throughout my product development career I’ve learned that you either need to be first or you need to be a lot better than the existing technology. We certainly weren’t first but when we started to look at portable padlocks, they were completely ignored.
“This notion that connected devices all had to be home-based was kinda the killer app at the time. We thought let’s do it differently.”
This notion that connected devices all had to be home-based was kinda the killer app at the time. We thought let’s do it differently. Let’s solve this problem of locking things up but in the outdoor and mobile space. At the time, I didn’t realize how useful for business the product would be.
Then we got a phone call from Assa Abloy. There was a silence on the phone and their guy said “Do you know who we are? Google us.” So we did and discovered that they’re the largest locking company in the entire world. I had literally never heard about them, embarrassing (Laughs).
How did you build up traction at first, and where did you find your first B2B customers?
DG: Kickstarter was the obvious first step for the money but also to raise awareness.
Initially, we went to consumer trade shows, but still weren’t being introduced to the people who are our customers today. We discovered that we had to go to their trade shows. We had a lot of biz-dev discussions with lock companies along the lines of “hey maybe we should buy you guys,” which was really flattering. But at the end of the day, those guys loved the product but said “let’s wait to see if the market loves it as much as us.” We realized that if the shipping or cell tower industry were going to be our biggest customers then we had to go to them.
“Initially, we went to consumer trade shows, but still weren’t being introduced to the people who are our customers today. We discovered that we had to go to their trade shows.”
How did the leap towards those verticals first occur to you?
DG: The reality is that you get phone calls and the early-adopters of the business world google search you. Pragmatically, if we’re receiving the vast majority of our calls from those few verticals then we focus on those. Although, there are some areas where people aren’t even doing google searches because they’re so far behind technologically. Self-storage has been one of our biggest home runs to date. Shipping and trucking containers? Same thing. But ⅔ of our verticals have been coming to us.
What advice do you have for other hardware entrepreneurs chasing B2B leads?
DG: Introductions are so valuable, that’s a huge part of having a successful business. Big things happen even when attending a small event. I dropped into a Hardware Club get-together in San Francisco a while ago. I got talking and after a few minutes was invited to speak at your ATOMS event in Paris. In France, I got introduced to the third largest shipping company in the world based in Marseille. And all these different things happened because I went to that thing in San Francisco.
How else has the Hardware Club community helped you out?
DG: The fact was when we finished Kickstarter we had to Google how shipping products, logistics, everything. If someone becomes a member they’ve got access on Slack to people who have been through all that right away. I’m really looking forward to the relationships you guys are setting up on the B2B side. If an open-minded bizdev guy reaches out it makes it a much simpler conversation to say hey, we’re legit, Hardware Club has backed us.
For B2B-oriented startups how important is it to have someone fighting in your corner within a business?
DG: When our lock is integrated into a system entirely, their desire to back out of that system is almost nil. That’s the good part, they become very sticky (Laughs). The bad part is that it does require some work. If I’m a shipping company, I want a smart lock that integrates with our entire system. The opportunity comes from us being more flexible, eager, capable of creating this API or providing the necessary help. The pain that comes with this opportunity is weathering that sales cycle.
What allowed you to survive the longer sales cycles?
DG: We were fortunate to get a customer for whom we developed a solution so fast that we sold them the entire vertical. They had an amazing sales channel that would have taken us 10 years to develop ourselves. So we convinced them to write us a check upfront! That allowed us to go to these other verticals and say we can help; we now have the resources and a road map that we can duplicate in your organisation or in your entire industry.
How do you balance your manufacturing and scaling process with the uncertainty of what the next vertical might bring?
DG: I was very fortunate, when designing something before Nokē I put out an email on Alibaba. I vaguely described my product idea with a few firm details here and there to see if the person I was corresponding with was capable. There was this one guy who took the time to take what I was describing in words, throw a model together and ask “is this what you wanted?” Since then, he’s really been a development partner for lack of a better term.
For the Nokē padlock we originally thought let’s find a factory that makes locks and have this guy coordinate it. That was a nightmare for a few reasons. Those guys made 1.2 million locks per month, so capacity wasn’t an issue. But they were not used to moving quickly since all the locks they’re making now they’ve been making for over a decade. Coming from consumer electronics, if you’re not getting that product to market in 2–5 months you’ve missed your window.
Our takeaway was to find another consumer electronics factory to deal with directly. They too were still slow, methodical and deliberate. They could handle volume, were legitimate but we still stumbled, with them saying when you have a perfectly good DFM file we’re good to go. Going back to our guy, I said I care about quality, legal regulations all of that but I don’t care where it’s assembled. I don’t care that if it’s assembled in the same place every time. That requires a simple, robust design.
It’s unorthodox, and not right for everybody but it has worked so well for me. He will source a PCP, plastic, metal or silicone factory that he’s used for years. None of whom know about the other components and they will ship to another factory solely for assembly. We control the firmware and send him the compiled file at the end and say “OK let’s put this sucker together.” We control the important parts and we allow him some flexibility in how it all gets put together. If I ring him up tomorrow and say I need 10,000 units, I’ll have those in my hands in less than a month.
That’s an incredibly personal way of doing business!
DG: It is, it’s like a marriage!
Where do you see your company in 5 years?
DG: I’m a hardware guy but in terms of numbers of employees we’re software-based, neither one on its own is nearly as good as the combination. I’m not interested in separating the two, Apple figured this out a long time ago.
One of the things we’ve done, is look at the business differently. Most people look at something and think about how to make it smart. They rarely ask; is that the right form factor?
It’s great to work with a client to identify the perfect product for their vertical. Then we take our skills at creating and combining software and hardware and then re-envision it. Consider a shipping container, for example. If you were to design one today you wouldn’t have a padlock dangling from it with saltwater washing against it. Nokē is going to own the new design. So when a competitor comes in with another smart padlock the industry will say “nice try but no.”
“Most people look at something and think about how to make it smart. They rarely ask; is that the right form factor?”
I’m starting from a blank sheet of paper, that’s a huge competitive advantage. I’m not stuck with factory tooling for dumb-locks, so the speed at which we can launch new designs is a huge competitive advantage.
That is how we can continue to stay ahead of the established lock players. If I’m already moving away from that form factor, I win. Our space is starting to get a little more frothy but we’re building a business that’s sustainable. We can still be here in 5 years under the Nokē name.
Finally, what inspired you to get into hardware in the first place?
DG: For every product I’ve done I’ve asked myself “What problem is there? How can I make things better?” I didn’t discover that there was a way to make a living doing that until I was 35 years old.