Wednesday, 26 August 2015

The slow race to roll-out 15 million smartlocks in hotels across the globe

In last weeks post, we discussed how we spent about a year trying to raise investment capital to build a smart lock that hotels wanted with our digital check-in/digital key system. In mid 2012 we went through an accelerator program in our home town in South Australia where we met hundreds of potential investors/VC's, but no matter how hard we tried, we couldn't land an investment.

There were probably many reasons for this, but we don't want to go into it here, other than to say, "Australian investors and hardware products aren't exactly the best mix".

So by the end of 2012 we gave up on trying to raise a capital investment and we began 2013 with a new focus on lock manufacturers helping us build a smartlock to work with our digital key/digital check-in system.

At the end of the accelerator program, we appointed the former CEO/President of the world's leading manufacturer/supplier of furniture fittings and architectural hardware to our Advisory Board. Immediately he began introducing us to lock manufacturers from all across the globe. One of the great things about being part of accelerator programs, no matter where in the world you do them, is that you meet such brilliant, successful entrepreneurs and business people called 'mentors'. And these mentors are usually connected to other successful entrepreneurs and business people all across the globe. So one of the mentors in the accelerator program we went through introduced us to the former CEO/President for 13 years of the world's biggest architectural hardware company (which also has a large lock manufacturing arm). And our crash course in the world of security and lock manufacturing had begun.

Every week for a couple of months in early 2013, we had skype meetings and teleconferences with the owners and directors of dozens of lock manufacturers from all over the world. Our new adviser was clearly well connected in the world of lock manufacturing. We also had weekly mentoring sessions with our adviser and we learned so much.

Our co-founding team were recent University graduates in IT engineering, marketing, and Business Administration - we had no idea about the world of lock manufacturing. But what better way to learn about an industry than from people who had been immersed in it for the last 40 years, rather than through learning from books and lectures which we were so accustomed to at University.

We met owners/directors of lock manufacturing companies from all over the world, from Germany, to USA, to Switzerland, the UK, and Australia. The companies ranged in size with employees from 50-300, with revenues between US$5 million to $100 million a year. Many had been in business for over 50 years.

After all these meetings we began to notice some similar themes emerging. The lock manufacturers could see the trends and opportunities in the hospitality industry and in the smart home space (like we had seen) but they were not well resourced enough to take advantage of this. They all could see that a revolution in locking and security was just around the corner. They knew mag-stripe keycard locks were breaking down. They knew a massive change was coming, just like they saw 30 years ago before the mag-stripe keycard revolution began. Most of the people we met were integral parts of the 15 million keycard electronic lock rollout in hotels all across the globe in the 1990's.

The failing mag-stripe keycard locks were rolled out in around 15 million hotel rooms in the 1990's

We showed the key decision makers from the lock manufacturers our digital key system we had built and trialed in Australia hotels. As good University graduates, we also referenced all the market research surveys carried out by the leading travel brands demonstrating that guests wanted digital check-in/digital keys.

But unlike pitching to investors in Australia, we were now preaching to the converted. All the people we spoke to in the world of lock manufacturing got us immediately. They were interested in what we had built. They understood what we wanted to build too, and where we wanted to go with it all. But the thing was, there was not much they could do about it. That's because we were talking with a bottom tier of lock manufacturers and they did not have the money or resources to help us build our smart lock product.

Our adviser had explained that the middle tier of lock manufacturers had been bought out by the top 5 lock manufacturers in the last fifteen years or so, and it left this bottom tier struggling (for example see the list of companies the world's number one lock manufacturer has bought out in the last 15 years here).
The bottom tier of lock manufacturers had their place in the security and hospitality industry. But they were stuck in this place and they couldn't get out as they were under-resourced in the areas of R&D, software development, electronic engineering, smartphone apps, systems engineering. And they didn't have much spare cash lying around either.

Not only were the bottom tier lock manufacturers stuck not being able to capitalise on all the opportunities they knew were coming, but we were stuck too (remember at this time mid 2013, we were still over a year away from the Starwood and Hilton Hotels digital keys rollout announcements - see article here)

So as the expression goes, we were stuck in between a rock (Australian investors) and a hard place (bottom tier lock manufacturers). It was mid 2013, and we had spent the last one and half years trying to build a smart lock the hotels liked to work with our digital key/digital check-in system, but still weren't any closer to building it.

We could have given up at this time, and done something else.  But we did what any start-up would do when found in this place - we got the hell out of there. We began applying to US accelerator programs and within a month we had got into one. We got interviewed for two out of the three we applied to in a week, and we got accepted into the 10xelerator program in Columbus Ohio, and so we packed our bags in August 2013, and we were off to the USA - the land of opportunity.

Although we couldn't find the support from the bottom tier lock manufacturers to build a smartlock to work with our digital key/digital check-in system, we learnt that they would not be a threat. We learnt  the middle tier was gone - snapped up by the top five lock manufacturers, and the bottom tier were under-resourced and incapable. So the only competitors to us would therefore be the top tier, that is 5 lock manufacturers, and other start-ups like us. The other start-ups like us in mid 2013, such as Unikey (which would later be Kwisket Kevo) and Lockitron, and a couple of others, were focused on residential sales. So in other words, we were competing with only 5 companies, to try and sell 15 million smartlocks in hotels over the next few years. Sure maybe the market was bigger in residential sales for smartlocks, around 1 billion sales opportunities there, but we kept the focus on our mission - to digital check-in and use digital keys in hotels.

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