Transcript.

Erik: Welcome to the Industrial IoT Spotlight, your number one spot for insight from industrial IoT thought leaders who are transforming businesses today with your host, Erik Walenza.

Welcome back to the Industrial IoT Spotlight podcast. I'm your host, Erik Walenza, CEO of IoT ONE. And our guest today will be Gabe Grifoni, CEO of Rufus Labs. Rufus Labs provides an integrated portfolio of wearable hardware, software and services for warehouse operators. Together we discuss the evolution of the warehouse in reaction to rapid growth and competitive pressure created by the rise in ecommerce. We explored how modern solutions and flexible service based business models can help warehouse operators stay ahead of change. And we discussed the first iteration of the cybernetic worker, and the roadmap ahead as people begin to operate collaboratively with robots and drones and shared environments.

I hope you found our conversation valuable. And I look forward to your thoughts and comments. Gabe, thank you so much for taking the time to speak with me today.

Gabe: Thanks very much for having me. I appreciate the opportunity. And I'm looking forward to a great discussion.

Erik: I'm really looking forward to actually digging into the company Rufus Labs, your business model, your technology, and also the larger category that you're part of. But before we get into the nuts and bolts there, I'm actually interested in understanding a little bit about you yourself, as an entrepreneur. I couldn't help but notice on your bio that you have quite an interesting background. So you really were a writer for the first maybe almost 15 years or so of your career. So you worked with MGM and Disney and Comedy Central, a lot of the big names and then you pivoted into setting up industrial tech company. Can you just give a little bit of background on how that came about?

Gabe: My background is pretty diverse. I'll go back a little bit further than my career out here, because that's probably a good indication of a ramp up to why I got to where I am. My earliest days, my great grandfather had opened a hardware store, it was around for 100 years in New York. And probably before the age, I was legally allowed to even work, I was restocking and taking inventory from all the major delivery companies and all of our inbound inventory and I would break that down and put that out on shelves. So my early background was in logistics.

When I went to college, I was a computer engineer for about a year and a half. So I actually shifted my focus to business and economics with a shift with a focus in marketing. So my degree in college even was half in computer engineering really where I spent my time and the other half with a focus on brand and marketing. I moved out to California got involved in the entertainment industry, which is a far cry from engineering or marketing, I guess not a far cry from marketing. But that's where I landed out here after college. I'd gone to school on the East Coast, I grew up back in New York, and went to school back in Pennsylvania.

So when I moved out here, I got involved in that industry. What I love about being out here and my past in the entertainment industry is building teams for a creative standpoint to build something that didn't really exist before is very similar when you're building a company from the ground up and bringing teams together of smart people who hopefully are smarter than you. So there's a lot of similarities. You work long hours. You have people who are dedicated to a mission that aren't really there for the pay because that's not there to start up, especially in the beginning days.

And it was a great town to be in as well out here because we had tons of resources to pull from, whether it be Cal Poly Pomona, Cal Tech, UCLA, USC, there's a lot of engineering resources out here. And my shift personally when I was writing, like you mentioned, I worked with Sony with Comedy Central, MGM, Disney a bunch of places, and I had begun shifting my writing back to a tech focus. And that's where I started to understand a little bit more about wearables and what didn't really exist in that world and tech. So, my writing started to have more of a tech focus. And that got me into the Consumer Electronics Show, CES in January years.

Erik: I've only been to the one here in Shanghai.

Gabe: Okay. I'm guessing that's pretty large as well. I haven't been there. So I was at CES out here focused on writing and learning more about the tech industry. And what I saw was something that was missing in the wearable world. Now, originally, the conception for things was on the consumer side, how do we build something wearable that isn't just an accessory? Apple Watch didn't exist yet at the time when we were first thinking about this. And Pebble was the only thing around. How do we make something that eventually replaces what's in our pockets? And I went from entertainment back to tech, and that tech writing took me back to, I think, we can build this better just no one's doing it the right way, which is how all these insane journeys start. A lot of times, it's like, oh, I have a better idea on how to do this.

That's where your life basically changed and you spend every minute living and breathing this. And this is where we saw this other pivot was had gotten a lot of attention from large retailers, anyone from Walmart to Boeing. We had conversations of, hey, we have an idea of how this wearable technology built larger and for purpose, and meant to have a real utilitarian aspect to it. We see how we could use that in better ways to improve our workforce in our operations. And that's where we had an even bigger aha moment of it's not really consumer, as much as we love that, and it's cool, those other guys, Apple and Samsung, and everyone else is going to be in their racing their way to the bottom.

I have an Apple Watch, as a consumer, it's great. But when you're in a warehouse working, you need tools that make your life easier, they keep you safer on the job, that allow you to do your job better so you don't have repeat strain and so that you can have a higher throughput and hopefully, get a bonus and continue to blow past your performance numbers. So we saw a real opportunity there and that's where we really started focusing all the business hardware was the first thing we built out. And then we started building a whole platform around that based on years and months spent in warehouses.

Erik: I think the MOBIKE, which is one of the big Chinese unicorns over the past years, their founder was actually a writer who, you're in a great position, you're exposed to a lot of ideas, you're also exposed to a lot of investors and so I think she was able to raise something like $50 million before they even had the first bike on the road just by networking through and putting together a team. So sometimes that can be really a powerful position.

Gabe: I have just add to that, it's not so much even just a writer, a creative person, or someone in that space, but having someone from a perspective who me maybe hasn't been involved in that industry forever, sometimes you look at things from a different way that you haven't looked at for the last 20 or 30 years. So it was interesting for me to learn this whole new industry and look at it from a different way of here's how I would approach it, not knowing the older ways as well, which I think sometimes it's a good thing too, why there might be an interesting startup and entrepreneurs in that space, who come in with ideas and looking at things from ways that aren't from an insider's view.

Erik: So when you were setting up this company, when were you having these conversations? It sounds like it was before you'd made the firm decision to go into industrial as a focus. But you were already talking to Boeing, and they were at that point already willing to have a conversation with you as a company that was pre-product?

Gabe: The steps you take, and the things that come at you, part luck and part keeping your eyes open for opportunity. So when Walmart and Boeing came to us, and they were open to conversations based on what we had built, it was a great opportunity to have a conversation with these big companies that could give us a peek behind the curtain with information and stuff that would allow us to build a better platform for our customer.

So they were willing to have these conversations when we had our first iterations of hardware. I remember, Walmart, we had talked to, and they were like, oh, we're going to be at CES. This was a year or two later after we had started building the company from sketches. They said, hey, can we see what you've built? Can we meet up? And we met them in person there. They shared some details back with their team. And we were invited to go visit their headquarters and checkout operations and, and see where we might be able to help find efficiencies with our solution.

So those customers, especially big names, they're under pressure right now to improve their logistics operations to get stuff out the door faster. When you have the likes of Amazon going to logistics space and dominating it from their first foray into it, everyone else has to really compete. So they're looking for these things and open to talking to a lot of startups that may be doing things differently.

So we were really lucky to have those inbounds and that allowed us to see what was really there and we took advantage of all those opportunities and continue to.

Erik: I think the industrial wearable space is very interesting. But the industrial space is likely to be very fragmented and you can make very clear value propositions. Let's say warehouses makes a lot of sense, I like this phrase on your website, “From the warehouse to the battlefield”. So I can see that you're also and, I guess, being in LA, it makes sense that you're also focused to some extent on the military. But how do you go through the process of identifying which specific customer groups you want to be addressing, what specific problems you want to solve? Because this is a technology that could be very broadly applicable, but then every application or every group of customers has their own particular needs that are going to drive your R&D agenda. So how did you walk through that process of saying, here's the three or the five problems that we're going to focus on?

Gabe: I would say that it really again was the customers that needed it most came to us and told us what would be very helpful. So we've really focused on listening to every customer that comes in. We mentioned on our website, like you just said, “From the warehouse to the battlefield”, 95% of our customers are in some form of warehousing or logistics type of environment where there are barcodes and skews that have to be moved.

It doesn't necessarily mean a retailer that you as a consumer are buying baby clothes from that have to be shipped out to you in an order. It means companies like Bosch and other manufacturing companies, even Honda and auto manufacturers that have to move their internal components to facility so they can manufacture more efficiently and faster. They're moving parts around. So really, the focus is on logistics. And that's where we built up hardware, software and services.

Our hardware gets us in the door and it's rugged and better than anything out there. But the data and the visibility we provide into the whole warehouse with our wearables and with a dashboard is really built around warehousing. So I would say that we've focused our industry expertise and our solutions around logistics and moving packages because that's where the most customers have come in. We've had a lot of conversations with manufacturing, where there's an interesting use case for assembly manufacturing. We've talked to a lot of big airlines.

There's some areas that are interesting to us in the future. But right now, this is really the most critical vertical. Military was a side that came to us that had a need for rugged wearables for some particular tasks and we were up to the challenge. And we actually have a separate skew that's only for military. And we just started a couple other conversations in that space. But it's a different use case and you can imagine there's a need for rugged tools that can be worn out in the field and with long battery life in the military as well as in the warehouse. Just the software solutions are really built around warehousing.

So we landed on this as where we need to be because that's where all of our customers have come to us and said how can you help us? And these are the areas that we figured where we can make a big difference. One is the hardware. I go to shop for groceries at 6am or 7am because they're empty, but that's when everyone's restocking, so I get to do part of my job, which is watch workers and how they do things and see if there's ways we can find areas for improvement. And one of them is the technology. Everyone is using Zebra or Honeywell or Panasonic or Data Logic, all these old Windows CE style four pound handheld devices that they're pushing around in shopping carts, and they were four or five pounds.

So right away, if you can empower workers and give them tools that way six or seven ounces versus four pounds, there's actually days lost on the job due to arm strain from carrying around devices, two to three days a year. So there's a lot of things from the tools themselves, freeing up their hands, making them wearable. Their job is to pick things up, scan them and put them down. But they have tools they have to hold too.

So that's a big pain point where there's just legacy technology that hasn't changed for 5 or 10 years. It costs $3,000-5,000 to buy just a piece of old hardware that's going to be useless to you in three or four years. That was a big pain point we could address right away with the hardware.

The other big pain point that we saw was visibility. There's a lot of companies that now we have to understand exactly what it costs for me to pick every item. And what this worker does in terms of steps and picks per hour and what their labor cost is because that's where I'll start to find more of my efficiencies. It's not going to be in selling a gallon of milk because my retail margins are slim, but my labor cost is high. We have 30 to 60% improvements in efficiency with our platform, if we can do that we can cut labor costs in half and do the same amount of work.

So that visibility into understanding was another big pain point. The hardware was one, understanding the workers performance was another big area that we really focused on addressing with our solution in the warehousing space.

Erik: What are the sensors? So, there's the scanner, or they're also then location sensors? Maybe you can just explain the suite of hardware in a bit more detail. I know you have a few different products, and perhaps you also build customized products for specific customers.

Gabe: The whole platform is hardware, software and services. Our main piece of hardware is the roof is cuff. That's a wearable ruggedized terminal. Think of it like a large smartwatch or a miniaturized tablet that has the battery life to be able to last 8-12 hour shifts on full throughput so you don't even have to replace battery during a shift, which is 90 seconds of downtime, which is we focus on every second we can gain everywhere, so the batteries and stuff. So the hardware itself is meant to work with a lot of existing customers already in use WMS, or Warehouse Management Systems, or ERP are pretty using. And we just allow it to run our system, and we build a suite of analytics and software tools around it.

The other two pieces of hardware that we offer right now are a ring scanner or a glove scanner. Those are scanning  like you would see a red laser barcode scanner, those are wearable on the opposing arm, actually helps speed up some of the efficiency and the pic speed by having a different hand than the tablet. And those two customers can pick which version of hardware workers prefer. Some prefer ring. Some prefer a glove. Being able to reach into narrow bins for pick speed, sometimes the glove is actually more streamlined.

So from a hardware perspective, it's a scanner and a tablet. In the future, we've got some other hardware that will roll out as part of the platform that'll help us with some future software that's related to location. But those will be beacons that will roll out to customers and will just be installed in their facility as part of our platform. We're very fluid platform. We don't expect customers to buy hardware from us. That's not really the model that that makes sense for us and for them in the future.

They just pay us a monthly fee for the best productivity tools and we provide all those. And as they get better, we continue to roll them out and brings out new features.

Erik: Actually, I see a lot of larger companies talking about moving towards a service based model around integrated hardware-software solutions. Very few actually doing it because of course, they have a lot of pushback from their sales teams, and so a lot of internal pushback from the legacy organization. How did you decide? Was this from day one, you said this is the model, or did this evolve? Did you begin first by trying to sell hardware and then eventually align on this service base model as the right business?

Gabe: We originally were selling hardware. Our customers are used to spending three to five grand for a piece of hardware. We can come in way under that from a hardware standpoint alone. But it was still making customers buy hardware that they're used to buying and using for 5 years to 10 years. And that's not really fair to them going forward, as we see the consumerization of hardware. Even in the industrial space, every two to three years, you're not going to be able to have the improvements and abilities you're going to want if you've got old hardware, and you have to have a new capital expense every few years to do that.

So we originally started doing that and it was what customers were used to. We had a few conversations and we decided internally it made more sense to bundle our services together into a platform because hardware alone, it does make some improvements, but it's not what we're about and not what the most important thing should be to our customers. It should be understanding how they're working and how to make it better. So we pushed for that model.

And then what was interesting is, the beginning of this year we started to see a shift in our customers even requesting that. We had a large Fortune 500 company come to us and we had been in discussions with pricing before and said, hey, look, you know, we're much more interested in an OpEx model than a CapEx. And we said, well, that's actually how we prefer to do thing. We call it a platform as a service, not a software as a service.

But that's what we prefer. So when we saw that customers of that stature were interested in it, we knew that there was a possibility to push that agenda on customers and sell the value prop of hey, instead of $5,000 a worker, you could spend under $100 a worker a month and have all of these services and upgraded hardware nonstop. We eliminate your RFQ process. There was so many selling points we could get in there. And when we saw customers were interested in it, that's when we really made the full shift and said if customers ask us to buy hardware, we're going to say no. And that's what we decided this year. It was a really tough decision. But we stuck to our guns and it's worked. And it's been more beneficial.

We're in the process of just finalizing a rollout with a large Fortune 150 biomed company. The OpEx model is faster to rollout, and it's more favored than a CapEx. It's less red tape, less signatures. So for us, it's been great. And I think because we're small, and we're startup, we can be nimble and move with customers and make these decisions quickly. Companies are looking to shift to this model. It's hard to move 800 pound gorilla, whereas we can move for our customers pretty quickly. So, it's been a great decision. And it was influenced by our customers.

Erik: And it really solves the pilot project problem. So a lot of companies say, well, we want to start with a pilot, well, if I'm starting with a pilot with some expensive hardware, I buy five units of the hardware, but it doesn't really solve a problem because it's only being used by one team in one store. And then if I decide not to use it, I'm stuck with these five uses pieces of hardware. And with you, you could basically say, hey, let's roll this out on one store or one warehouse or multiple warehouses; and if you don't like it, then next month I suppose you can cancel. It makes it much easier to actually roll out a pilot at a scale that makes sense that's comparable to a full scale deployment. But the customer still retains the flexibility of deciding in the longer term, whether this is the right solution are not for them. And we see this as a big issue with a lot of younger companies trying to figure out how to actually convince a larger enterprise to scale their solution.

Gabe: Yeah, that's definitely helpful to us as well. And even for a trial, we have 14 and 30 day POC trials we do with customers. So, their processes are usually so down path. They'll know in two to three weeks, if they're testing for solutions, which is the right one, and they can go into demo with our devices right away. And then when they want to go to rollout, they can easily roll out like you mentioned to one facility and test it longer and then eventually spread out to other divisions of the company. Right now, we're going to be rolling out to one of 21 divisions of this one company, and it'll be fairly decent sized rollout for one. But there's a lot of other opportunity there too. And they did a four or five week POC with a couple of our devices comparing to some of the legacy players and we were super excited to beat out some of the legacy people in the game.

Erik: So I'm curious whether you've had discussions with customers around results-based pricing. So, certainly one of the capabilities that you're bringing is the ability to measure productivity and so forth. Have you had discussions where you say we have a flat monthly fee and we expect you to have a 30% productivity improvement; if you have greater than 20%, then we will receive a bonus or a percentage of that improvement? Has that ever been a discussion?

Gabe: No, but I like it a lot. I haven't heard that model actually, or that idea before. But it's very interesting. If we talk about how we can perform 30 40, even 60% for one of our customers better, it's interesting, I haven't heard that. But I'd be open to talking to my sales team about it.

Erik: I think the challenge with that model is, let's say you have to have a first clear benchmark up front, let's say the first year, you get a 50% improvement, and they're very happy and maybe there's a significant bonus attached to that, well, then the second year, can you continue to improve upon that? Maybe you can then make an incremental 5% improvement the second year, but you've already had the big step.

But yeah, I think it's a topic that comes up fairly often, but I think everybody's still thinking through how to actually make this work and what the right structure is. And then there's a big educational component because then you have procurement and legal and you have other departments that are not accustomed to this type of model.

Gabe: Yeah, it's something that I think if we were to consider to have to be down the line, one of the areas that we love to focus on is just how simple it is. You can pay one monthly flat rate per worker and you'll have all the hardware software and services you need to get going, no matter how big your team is and how much you flex and scale them. So we try to minimize the amount of skews, minimize the confusion. So that may add another layer of things. But it's interesting to think about down the line when we have more benchmarks with the customers in in bigger rollouts.

Erik: Do you have concern about Honeywell or Zebra copying you once you start winning contracts from them? Is this something that you're racing to stay ahead of? Or do you think you have a pretty healthy buffer of time just based on their operating structure and their ability to pivot?

Gabe: I think it's a bit of all the above. I think anyone coming into a space where there's legacy players which is pretty much everywhere, that's what startups do they come in with a different look at things, should be worried about the legacy players in another competition because you don't want to become complacent. So I think where we have a head start is on our hardware: it's very different than what exists. Lease companies like Honeywell, Zebra, well, because of their lifecycle for development and the size of those companies to make big capital expenditure decisions to change product lines will take some time to get there.

But in the meantime, because we focus so much on visibility, data collection, and our software, when we're rolling out to companies, and we're in a facility with 100, or 200 workers, we'll have two years of historical data on that facility, then 200 times those 20 facilities, so we'll be pretty ingrained and have a lot of ability to lock our customers in. So I'm not as concerned about it, because our system is much more than just hardware. If we were building hardware, someone would build the same stuff and catch up. Hardware becomes a commodity, and these are the best tools right now and they don't exist, so we had to make them.

And in three years, they may be great AR glasses that make sense; right now from a hardware standpoint, they just not right. Our customers have tried them, and they've ditched them, they don't work. But we might bring that into the fold too and those might become commoditized. So we're worried about him, we have a big, you know, first mover advantage with our hardware, and the fact that we're taking these contracts and these customers, they won't have to RFQ again. If we do things, right, they'll just keep paying a monthly fee, and always have new services and new features.

So I think the more likely thing is a company like that is going to understand we've done something pretty cool and maybe we find a way to collaborate work together. And who knows, that's an acquisition later. But we're in a good spot right now and I'm sure they know what we're doing, and we know what they're doing from what we can publicly say.

Erik: So let me ask you a few uncomfortable questions here and feel free to withhold as much information as you need to. How many customers roughly do you have today? Can you give me just kind of an indication of your scale now or more maybe deployments?

Gabe: So deployments are smaller, obviously. We have customers that start in a demo, then go to a POC, and then go into deployment. That's kind of our trajectory. So I'd say we probably have, a top of my head, I can think of at least three to four customers there in some form of deployment and results have been really good. And then we probably have about a dozen or so it's some form of evaluation or POC that will hopefully be moving into rollout.

The full platform, we launched a lot of the dashboard about three to four months ago and that was a big key to the visibility part. So we really have been kind of cranking the customer POC and rollout in the last three to six months.

Erik: Sounds like you're in that stage of your company where you've gone through the learning cycles, and you've figured out the model that works right now, so you're probably then more focused on scaling growth. Are you expecting double every year, or do you have an expectation for what the growth rate might look like for the next year or two for you?

Gabe: I would say in the first few years, we should 3x-4x our users. Because of the size of the customers were working with one deployment in one facility of 200-300 users on platforms, they have 28 facilities. We know once it's in one, the rollout will be much faster in the second and third years. So right now we're at a phase where this year in the beginning, and next will be the first 1-3 or 4 warehouses have some marquee customers that we're rolling out to. And that'll scale up pretty quickly without even considering the other customers that will be moving into POC and roll out next year. So I'd say the first couple years, anywhere from 3x-4x, and then I think we'll still see a 2x.

The reason we see that is the ecommerce industry is growing so fast: people are going to the store less. There's more last mile delivery and less of I want to go get it than more of bring it to me. So, there's more and more workers needing to fulfill more and more deliveries that have to go out the door. And Amazon's ability to do it in two hours or less with Amazon Prime has made Walmart, Target, DHL, FedEx, UPS, everyone take heed and realize, Amazon having just entered the logistics space officially a year ago is already the biggest player in the space shipping more of their own packages than anyone else.

So I think it's going to grow a lot. And there's a huge need right now. So the next three years are going to be really big. And there aren't really other tools out there. And we've talked to a lot of the big players and we know what they're looking at and we know what's out there. So I think the next two years are going to be really big. Hopefully, that's going to be a big challenge for us to meet scaling demand. We've got customers with big wallets and lots of workers and we have a small team that provides a level of service. The touchpoint we have with our customers is way higher than most of our customers have now with any of their providers in this space because they're used to just buying stuff out of a catalogue from Uline, a distributor. They don't work with the provider like they do with us. And that's been one of the areas that that we've gotten so much good feedback on too.

So I think there's a lot of growth over the next few years from what I see out there. And the industry itself is undergoing this transformational upgrade to keep up right now. And the next two years are going to be really big.

Erik: On the pricing side, I know on your website, you're already fairly transparent starting it at $50 a month. I know prices are always a bit sensitive, but are you able to give a little bit of an indication of what this might look like for a medium sized deployment?

Gabe: Yeah. So, the pricing we have on our website is our optimal pricing. So the way the platform works is you have a full platform, which would encompass all the hardware. So you'll have a Rufus cuff, you'll have a glove scanner and then you'll have all the software that comes along with it which is Rufus Work Hero that lives on the Android tablet that you wear the Rufus cup, and it lives on the dashboard that you as a manager can log into.

And then you also get all the services, which is break them as much as you want, we replaced them, we leave redundancies on site so you don't even have any downtime. And most of our customers 50-100%, they double their workforce during the holidays because it's a peak season, but they can't afford to buy hardware for 1,000 extra workers. But we flex and then pull back during those seasons too. So those services are full platform.

Then you might have three eight hour shifts. So you don't need three pieces of hardware. You need one hardware that three workers can use over shift. So if you have 300 workers over three shifts, you have 100 full platforms, and then 200 additional user accounts. So the model is $100 for a full platform and then 20 for additional users. So if you're dividing that over the cost per user, if you've got a full three shifts of users, you're at about 40, some odd $50 a platform per person, now provides everyone have their own user accounts. All their own metrics accounted for so that you can see every workers performance, and all the hardware unlimited break and replace units on site, and hopefully don't break a ton of them. But what happens, we've had a customer run over the forklift, and that broke.

But otherwise, they're pretty sturdy, and since they're not handheld, they don't get dropped as much a forklift. And believe it or not, two separate customers have told us that workers are moving so fast to pack boxes, they've dropped scanners in boxes and pack them and ship $3,000 scanners to customers and orders by accident. It was wearables if that doesn't happen. But yeah, our pricing is pretty competitive. If you consider, you might spend the same amount as our service costs for three or four years on a worker on hardware up front that'll be garbage in those three or four years and we'll have new hardware and that time for you too.

Erik: Yeah, I saw this line on your website, “All the hardware, all the software, all the services”, and I thought this was kind of a slogan. But I can see now that this is actually the offer that you're basically yeah, packaging everything together.

Gabe: Yeah. It's so much easier for customers than having to piece together all sorts of different things. They should focus on their job of getting goods to consumers and we'll make sure they have the right tools to do that from a productivity standpoint.

Erik: Investment, I imagine that if you're building with hardware, you've certainly gotten some investment at some point. Can you share a little bit about where you are in terms of your funding cycle?

Gabe: Sure. I mean, I can't go into specific details in terms of what we've raised and all that. But we do have a few great investors on our cap table, and we've had some good support over the years. We operate as a fairly lean startup. We have a lot of sweat equity and a great team here. So, obviously, right now as we're closing, the large deals, we’ll be scaling up. So we are going ahead with a raise right now. We're in some conversations with a few funds. But it's a more sensitive topic, if anyone's interested in, we're happy to have a conversation.

Erik: Are you open to strategic investment from one of these companies that we've mentioned, the Honeywell, somebody like that, or are you really more focused on just venture capital and keeping it a little bit clean for the next race?

Gabe: I think on this raise, we're open to it. I think that may be something that on our next raise is more likely. We've had a few conversations with people, either at those companies or tied to those venture Wings of those companies. So, like I said, we know who each other are, and those conversations, you keep them at arm's length. But someone they like could be a really great partner down the line, but you also want to be a little wary of now. So I'm not sure if it's the right time. We're open to it. Strategics are great. And there are other strategics aside from a legacy player in the space that to us brings a lot of value. So obviously, just money on the table helps keep the lights on and the team going. But we really want to grow the business and we want smart people to help give us good ideas. The people we have in there now we lean on and we rely on, so we like having those people on board, they’re strategic.

Erik: A couple of questions on the technology side. So I think the environment here it sounds like you're very US-centric at that present. In China, I think, the technology landscape is a little bit different so people rely on RFID probably more heavily. There's a lot of interest now in also video so or visual inspection, for example, for retail environments, not so much for warehousing, but for like a retail environment to determine whether a particular shelf is low on stock using video instead. Do you have a technology roadmap where you're looking at different sensors or different solutions down the line? Do you see this change happening in the industry? Or do you feel like the industry is fairly stable in terms of use of barcode and other technologies in the US?

Gabe: So most of our customers are in North America and Europe. We have Germany, UK, Scotland right now, and they're fairly barcode centric there too. We have had a few conversations about RFID, but it's under 10% of the customers that have come inbound to us. So I think we haven't had a lot of conversations in China.

For us, it's not on the roadmap right now as a high priority, but it is on the roadmap, the more conversations we have; and if we see a shift towards that, we want to be able to offer solutions, obviously that work with it as well. So that's something that isn't our mindset. Another area for us is going to be two areas, I guess. One is, you mentioned, robots kind of going around and inspecting a shelf visually maybe with a camera and understanding what's low. So we do have customers that are bringing in automation or robots are part of the operation. And that's where we see an even increased need for the types of stuff we bring. Because we look at the connected operator as the next 10, 20, 30 years, humans and robots are going to have to evolve the way they work together and know where each other are.

So we see a shift happening. But we see this coordinated dance needing to happen essentially between humans and machines for the next couple decades. So that I think is changing and I think the way that humans will do jobs and what they do, maybe less heavy lifting and robots will do more of that. I think that is changing in our AI is always on that. So how do we help with that half of the equation of the human, the connected operator match with the other side of the robot?

So that may mean new parts of hardware they come in with more sensors. One of them for us is going to be micro location beacons. So we already have alpha beacons in our facility. We've got about 28 in our lab right now that we use for understanding breadcrumb trails of workers as they're moving around in real time. That'll be rolled out to customers with a combination of a software upgrade and beacons, as you mentioned slogan: all the hardware, all the software, all the services, that will roll out and that will be really integral to really coordinating the humans and robots over the next 5-10 years. So we do have a roadmap and it's really about the connected operator. How do we understand where they are, and how to move them around better around the floor and make them work with machines better? That's kind of where our roadmap is focused on for the most part.

Erik: There's going to be a lot of change here, certainly, robots, but also, use of drones and logistics. So I imagine that we'll certainly need coordination mechanisms in these cases as well. And I don't know exactly what that will look like. But some sort of wearable seems like a viable option.

Gabe: Yeah. I mean, augmenting humans with technology. Cyborg is the scary term that people use, but bringing humans and machines together so that they can work better together and stay safer and help each other coordinate, that is the future of most industries, this connected operator. We're just focused on it in logistics, but every industry is going to have a need for this. And wearables, because we can understand so much of the operator with the sensors we have on them is the most logical way to do that.

Erik: It would be great if we can dive into a specific case study, just go end to end from the initial discussions identifying the pain points, addressing customer concerns, all the way up towards the deployment and then tracking results after the deployment. Is there a specific case that you'd be able to walk us through in detail?

Gabe: Yeah, I can walk you through customer. I won't go into their name, but they're a Fortune 150 biomed company. They're global, and we're going to be rolling out to a bunch of their facilities both in the States and Europe. So I can start at the beginning of how that customer call began and how it evolved and where we got to roll out. Does that make sense?

Erik: Yeah, perfect.

Gabe: If you go to our website, we have a lot of inbound lead generation tools. We have a lot of information there, which you can click and request a demo fill out forms, and that generates about 80% of our customers are looking for solutions like us. And we do a really good job with SEO of coming out ahead of our competitors on search results bringing them in. So that's how this customer came into us from an inbound lead. And we take them through a process essentially, where they'll get one email welcoming them, they'll get a follow up where we have ton of questions about their operations, the size, what they're looking to do, what their pain points are.

And before we even have that first call with them, we have a whole write up for our bizdev and sales team and me to look at to understand what we can do for this customer, if it makes sense. Because we don't want to waste their time and ours, if it's not the right match, then we say, hey, we'd love to sell you things, but if they're not going to work, you should look for something else. So that's the first stage of vetting.

And they had a use case in their biomed plants where they ship out tons of medicine and other goods. And obviously, the faster they can get it out the door to facilities, the faster they can service people who need it. So they were using old legacy technology from one of the players, Zebra or Datalogic or Intermec, one of those scanner tools. And they were having an issue with the speed of pic and the technology being old and then visibility. So the areas for them were really important to improve upon were reduce the labor cost. How do I improve my pic speed? How do I gain some visibility into my operations without spending?

They had a manager at each facility that spends an hour and a half at the end of every day taking information from their warehouse management system, and information from their payroll system and combining to make a spreadsheet every day of reports of how many seconds per pick, what the labor cost was for each worker, and whatever metrics they can gather. Our dashboard provides all of that data right away. That was another big pain point where they wanted to save the labor costs and this calculation time that managers were wasting time on doing every day.

So those were the big areas where we saw we could we could make a difference in why they came to us. So the first step for us was okay, let's have a phone call. Let's understand what warehouse management system are you using. And is it compatible to just run out of the box on our system? We don't look at integration because that's kind of scares customers. We look at compatibility. Can you just run your system on ours, and we wrapped around it and provide a bunch of benefit?

Because most of our customers, day one, when they receive our hardware and software can start picking and packing and demoing with their workers on the first or second day. It's really fairly simple out of the box. So the first call is what are you using? Let's test it on our devices and then let's get you a trial letter that shows you what our 14 day or 30 day demo looks like what our touch points are and what we're looking to achieve. What deltas are we trying to change? What are your initial baseline parameters? And then where are we at the end of it?

So we take them through three different phone calls along the process and we'll send them that so they understand what the process is like because we want to make sure they're testing it the right way and getting results and knowing from a numerical and granular level is this really a benefit or there has to be some concrete numbers behind it.

So this customer came in and had a really good phone call. They wanted to test devices. So we got them a demo platform wearable with a ring scanner paired with it, and they were testing it in their facility, where they were going to do essentially across three shifts. Every worker, I think was going to be using it one hour at a time all the different platforms they were testing. They had a rigorous, POC Proof of Concept kind of trial. They were testing some legacy stuff and all us as the new players in the space.

So we got them devices. Along the way, they had a two week plan. They asked for any help along the way if we can give it to them. And basically, what we did was one of the items they had requested, they had said, hey, we need to be able to pair essentially devices with a tablet and a ring scanner. If we've got them all sitting in a back room and they're not prepared, you're grabbing two devices, it takes time for a worker to pull down a Bluetooth pairing menu and pair a Bluetooth connected device with this. Could you build us a software that will automatically pair the two? And these are the kind of things we get and we learn from and customers in POC.

We made a really cool solution where they can scan a barcode on the screen of their Rufus cuff and in 10 beeps, the devices are automatically connected. So it saves workers two minutes of Bluetooth pairing every morning if they're trying to get devices that aren't prepared. That was one of the things that they came along with that trial.

The other element that came up was, hey, the ring scanner for our purposes is actually not fitting into some of the narrow bins we have to pick. Do you have a glove? We were actually working on a glove solution, it wasn't quite finished yet. And we wanted this customer to be the first to trial it. So within a week and a half, as we already had a head start, we got them a version of a glove. That even had a more incremental improvement than what they were seeing before.

And just to give you some concrete numbers, so they were picking about 12-13 seconds per item was their pick speed. When they were using our Rufus cuff and our glove, once we had shipped that out to them, they were picking at about five seconds per item. So we were able to have over 50% improvement in just the pic speed, then we were also able to reduce that hour and a half of manager hours every day. At a 2,000 labor hours, they're doing it now 800 labor hours across the same workforce. We didn't even expect those kind of results. We had seen 30 to 50% improvement from other customers.

They sent us really cool body cam footage of workers using our solutions with a body cam on and it was amazing to see how fast they were able to do stuff. And then obviously the login no dashboard and see all that data there without having to calculate it was something that for them, they told us it's a value add that you bring that we can't even compare to any other vendors we're considering because it just doesn't exist. So that case study was great for us, and obviously, we're going to go into rollout. So they like what they were testing.

That was from end to end, the customer comes in, is looking for something, it makes sense, they test it out and we have the data right there to show them what they're seeing. And it makes for a really happy customer. And we're very responsive. If we have anything during the demo, our engineering team is pretty much available all the time to make those kinds of requests and changes, which again, they don't get with someone like a legacy player because you're buying through a distributor, you're not working with a solution provider.

Erik: Yeah, I suppose everything right now for you is direct sales today?

Gabe: Yeah. And that's where we like to be. I mean, we wouldn't have built the platform the way we did if we didn't spend so much time in direct sales to customers and in their warehouses. If we were selling through a channel, which I think is a big negative for legacy players, they don't know what the customer wants. So we prefer that model. The other way we work with customers is we collaborate a lot with other companies that work in the same space. If there's a warehouse management software provider like Oracle, or SAP, Deposco, any of those warehouse software providers, they live on our system. We have synergistic tools to sell our customers.

So we work together with them. So I wouldn't really call them a channel, but they're more of a distribution partner. And we can help each of our customers have better results with our solutions together. So we work with a lot of third party providers in that way. But we still have a direct touch point to customers at all times.

Erik: I do think that the distributors are going to have to shift their proposition to some extent here because customers need help addressing the complexity of integrated solutions. It's quite different from selling just a standalone hardware component. And your value proposition is just I deliver this on time at a good price. Is cloud a concern for any of your customers? And in China, this is a big headache. And a lot of the legacy companies here are just not comfortable with it. They'd even rather have a solution in a box, just put all the code, store all the data in a box, hold this on site somewhere and tell me that I paid a million dollars for that and then I'm comfortable which is a terrible solution. But do you have any headache convincing customers that it's safe to move everything to the cloud? Or do you have to offer on-premise solutions to any of your existing customers?

Gabe: I'd say it's probably a smaller percentage of customers aware it's a concern. A lot of our customers are already at least using something in the cloud where their whole skew system of hundreds of thousands of skews is already in the cloud back end that Oracle or Deposco or someone is managing. Some customers like to have stuff on site on a server. We use Amazon Web Service Cloud in the background that's very secure and more secure than a cloud we would be able to build.

If customers have a specific need to point it elsewhere, keep it internal, we did have one customer in the UK. They couldn't have any outside connectivity. It crippled some of the features because obviously, an MDM, or being able to read data, if it's not going to the internet, we can't do. So that was the only case where we've had to do that and build more stuff in the box for them. But it's more rare, I would say, but it's a concern, and we can always shift the point to internal servers, and the data would just be stored there.

But the cloud connectivity, at least from a reporting and dashboard and MDM control standpoint needs to be there. And like the shift to a platform as a service model versus an upfront capex, I think we're seeing this shift to where a lot of things are living in the cloud anyway. And because people are consumers, and they know that, they're becoming more comfortable on the enterprise side. We just have to go through risk assessment, both on hardware and software and cloud with their IT teams. We've done that with Fortune companies before, and it's different levels of risk assessment. And once you get cleared, then you're okay. So we can kind of be fluid and flexible if we need to.

Erik: Well, I imagine over the next five years or so this will become more of a nonissue.

Gabe: Yeah, exactly.

Erik: I have just a few wrap up questions or bonus questions here. Number one, and this is maybe a little bit outside of the scope of your business, but I know that you're also as an individual passionate about technology more broadly, so are there any technologies that are not yet widely adopted but that you really have an eye on as being potential disruptors in the next 5 to 10 years?

Gabe: You're saying hardware or technology itself in our space or in general?

Erik: Let's say technologies more generally, anything that you think is people are maybe not paying as much attention to it as they should, but you see could really have an impact on a space?

Gabe: I think AR is really interesting, from a manufacturing and worker standpoint. I think, technology wise, from a hardware standpoint to be able to visually display that is not quite there yet. You've got battery life issues, peripheral distraction issues with things in front your eyes in the manufacturing space. But when it's ready, the AR world in being able to overlay things and help people augment their ability to see, I think that has a big possibility. But I still think maybe 10, probably years away before, it can really be used in a real way. We've seen customers play around within, there's just the stuffs not ready from both a software and a hardware side to have a real world use.

AR to me is interesting in the manufacturing space, especially because to be able to see what you're doing and have the instructions in front of you, that to me is a pretty big game changer. It's like a doctor being able to have the surgery manual in front of…

Erik: Is that a technology that is on your more long term roadmap? Or would you see this as something that's interesting in your space, but not something that you would anticipate actually building and integrating into your portfolio in the medium term?

Gabe: It's interesting to us. So we definitely are looking at it. The first thing to us is the needs to get there is going to be the hardware and the battery life. And the form factor and feel of these devices, because the feedback we get from employees is so important that positive employee uptake, that if it's not a good tool, and they rejected, you're going to be putting yourself five steps back. So I think it's going to get there. And it's interesting to us. So it may be part of our platform in a few years, it needs to be there. But AR is definitely interesting.

Erik: Is there a company that, again, is maybe a bit under the radar that you personally are very interested? It could be a startup, could be a larger company that's maybe rolling out a new project? But is there anything that you've come across where you're just checking the status of this company and you personally have an interest in?

Gabe: I used to be so much more of a tech explorer and what was out there. Now I'm so lasered in on like everything in this logistics space. But that's mostly where, where my excitement and my focus comes from. I think, that to me, sensors, and the commoditization of sensors and having more ability to read the environment around you, those are technologies that excite me because when I go to CES with our CTO and our team, I'm always looking for new ways that we can take technology that exists and help our customers.

So if temperature sensors or certain sensors matter to our grocers, so they understand in real time temperature fluctuations as humans are walking through cold storage for their food pics and stuff, that might be interesting. So I get really excited about sensors and technologies that we can bring in to our offerings that will open up things that the customers have never even really seen before. So I get excited about microscopic sensors a lot of times.

So there's always ways that when those Excel gyro understanding motion used to be technology that was cost prohibitive and impossible for anyone but an Apple to put in, now, now anyone can do that and it can bring value to customers. So for me, those types of technologies as they come out and become more commoditized and available to us are always exciting. So I'm most of the time at CES and in those weird sections of new kinds of things seeing what's on the horizon. Those things excite me a lot.

Erik: Any last points that we didn't touch on that you'd like to make sure that you get across to our listeners?

Gabe: Yeah. I would say, if you're in the warehousing, or logistic space, you're seeing a lot of this already. But the merger of humans and machines over the next couple of decades is going to be the predominant technological change. How do we make our humans faster and better? And how do we make them work with the robots better?

So I would say, if you're in this space, there is now a line being drawn of you will be able to compete and make it. Or if you don't make these changes, there are going to be the Amazons of the world will take it out those people that don't compete and move fast enough. So if you're in this space, whether it's our solutions, or whatever you're looking to do, improving that efficiency of your team is going to be critical. So I think that's the most important takeaway, I would say is that like, logistics is no longer the game it was 10 years ago, 5 years ago, and looking at it from the same lens going to be detrimental, I think, to your business so definitely, if you're in that space, get moving on ways to improve your efficiency.

Erik: I can see you have a big thanks to Amazon for putting pressure: they're certainly instigating change in the industry.

Gabe: Oh, for sure.

Erik: Gabe, really appreciate your time today. Thank you so much for taking the time to explain your business to us. How can people reach out to you what's the best way, either to get in touch with you personally or more generally, to get in touch with your company?

Gabe: Sure. And thanks again for having me on today. It's always cool to talk to people in the space who understand IoT, you can speak the same language. I appreciate the questions in the conversation. You can find out a lot more about what we offer at Rufus Labs. And if it's something that might be a good solution for your business, you can go to getrufus.com. You can also send us an email at enterprise@rufuslabs.com. But if you go to getrufus.com, you'll have tons of ways to be able to request a demo and request more information and that'll get funneled to our team and hopefully get you to demo quickly.

Erik: Awesome. And we'll put all those in the show notes. Gabe, thanks so much. Have a great rest of your day.

Gabe: Awesome. Thanks a lot, Erik, you too. Appreciate it.

Erik: Thanks for tuning in to another edition of the industrial IoT spotlight. Don't forget to follow us on Twitter at IotoneHQ, and to check out our database of case studies on IoTONE.com. If you have unique insight or a project deployment story to share, we'd love to feature you on a future edition. Write us at erik.walenza@IoTone.com.