Wednesday, October 1, 2014

The evolution of the Pebble watch: From student project in Canada to beating Apple to market

Where it began for the entrepreneurial spirit
behind the Pebble smart watch 
In the early 2000s Eric Migicovsky was a kid with a vision. Not to change the world with wearable technologies -- that would come a few years later – but, instead, to unseat the monopoly of his high school cafeteria. Why should they be the only ones able to sell food to a thousand plus hungry teenagers, he thought? So he did what any young entrepreneurial spirit would do: he set up an unofficial cafeteria in his locker. There, between classes, he hawked items he’d bought at Costco. Better selection, more convenient location, and the kids got to deal with one of their friends as opposed to the hairnetted people in the caf. “And it was a cash only business”, remembers Migicovsky. Things were going so well that another student cottoned on to the scheme and started up a rival cafeteria in his locker. The unusual congregating around the two lockers in between classes eventually caught the attention of school administration and the market solution to limited food choices in the high school hallways was over.  

But for Migicovsky it was really just the beginning. After graduating from Sir Winston Churchill Secondary in Vancouver he hit the road for the University of Waterloo, in Southern  Ontario. The school is sometimes referred to as the MIT of Canada and is perhaps best known as the home of the Blackberry, which, in the first decade of the 2000s, was the company leading the global mobile revolution. While in the Systems Design Engineering program at Waterloo, Migicovsky started a just for the heck of it project, something that would help him not miss any emails or text messages while he was riding his bike. The project eventually turned into the Pebble watch, ended up beating the Apple’s iWatch to market by several years, has since sold hundreds of thousands of units, and got there by raising a record-breaking $10 million on the crowdsourcing site Kickstarter.

Eric Migicovsky came to speak at Toronto’s tech/innovation hub MaRS recently and shared his story of getting from the earliest days in the smartwatch trenches – before the term smartwatch was really even used – to now, where he finds himself and his now Palo-Alto based company at the crossroads of the next revolution in personal computing, wearable technology.  

Not actually my hand scribbling,
 but close enough
Eric’s talk was just over an hour long and the story was so captivating that I barely stopped scribbling the entire time. Now you get the story here, from this self-appointed reporter’s notebook, direct to your screen. 

On the first version of the smartwatch he created:

We started a company, Allerta, and we called the watch inPulse…it was our first attempt at creating an actual product, and at product naming, obviously. There were Sony/Ericsson and Microsoft products out there already (Ed. Note: Microsoft's smart watch came out in 2004, pre apps and pre smart phones), but we wanted to build something better. We bought components from China and we put the watches together in a garage in Waterloo, 10 at a time. And it’s a good thing we did 10 at a time because the first 10 broke during shipping. I had to borrow $2000 from my parents to ship the first thousand watches.

Pebble inventor Eric Migicovsky, rehydrating during his recent talk in Toronto.
(Is that a Pebble on his wrist?)

“It was done for fun. I never really thought of it as a business, but as a ridiculously cool product that I wanted to use.

From University of Waterloo to Y Combinator

We got accepted to the Y Combinator program, a business incubator based in Silicon Valley. We were only the third hardware company in the program and wearables were still a very new thing. Y Combi-nator saw that this was the next phase of computers, which started with mainframes, then moved to the desktop, then to laptops, then to phones, and now to wearables.

Opening up the platform to other developers

An early version of the Pebble watch
While at Y Combinator one of the founders, Paul Graham, gave us a suggestion. Why not open up your platform and do an SDK? (SDK stands for software developer’s kit, which provides documentation that enables any programmer with the kit to develop additional software for the program). We weren’t so sure at first. After 7 years in Waterloo we had Blackberry goggles on and it was really Paul that made us realize the iPhone and Android were also big, and that outside developers were going to be key as well. So we spent maybe 2 weeks and did a really simple SDK. The result: in 6 months we had hundreds of apps developed by the community, and that then turned into thousands. And you have to remember we only had a few thousand watches out there at the time, this was around late 2011 or so.

VC investors didn’t come on board, but regular people did

The original "Pebble 5", with Eric Migicovsky in the middle
In early 2012 I must have pitched about 30 investors on the product. I did the whole Silicon valley circuit, but got turned down several dozen times. And there was this new thing called Kickstarter that people were talking about at the time, where you could put your idea out to people and they would fund it with their own dollars by essentially pre-ordering the product if it got them excited enough. At this point we had 5 people at the company and 2 interns. 

We modified the pitch from the one given to investors. We made it all about the benefits to consumers. A friend in Amsterdam gave me some feedback on our Kickstarter page before we went live with it. He said: “This is the coolest thing I’ve ever seen. I can’t wait to use this with Runkeeper. I can’t wait to buy it.” We hoped, of course, that this meant we were onto something.  Before we went live with the Kickstarter page the people on the team started placing bets about how much we would raise.  I said we’d get $2000 in 24 hours. One of the interns said $5000, and if this was The Price is Right  he would have won….because we ended up raising $500,000 in 24 hours.  See the Pebble Kickstarter video here.

Kickstarter mania kicks in

We then realized something bigger was happening and that we needed to come up with some sort of press strategy. So as a group we started to go over all the blogs we read, looked at that list, and decided  that we would pitch to Engadget, because it’s a blog we all really like, and we offered them an exclusive, which is what bloggers love.

We also learned from the feedback that there were 3 things that were really resonating with people:

1.     That you could get the display notices of emails and texts
2.     That you could control music from your watch
3.     That you could download customizable watch faces

The Kickstarter ran for a month and we ended up getting just over $10 million from 69,000 people, which set a record for the most funding to date. We then had to go from 5 people living in the same house and working in the living room to turning into a company making thousands of units of the watch. It was the perfect storm of being early in crowdfunding and early in smartwatches.

From 5 people working out of the same living room to becoming a ‘real company’

We now needed everything. We needed developers for Android, for iOS, for firmware. We needed to think about marketing, we needed to think about customer service, we needed to figure out how we were going to ship the completed product to the 150 countries the Kickstarter investors came from. So we had to make some big decisions. And rather than go big at first we opted to build the smallest possible team to ship the product to the 69,000 people who had given us their money up front. Plus, now that the idea was out there and if we didn’t move quickly, someone would steal it. I remember my mom used to call me and say “Eric, how do you sleep at night with 70,000 people who have paid you for a product you don’t have yet?”

I hired 7 of my buddies from Waterloo, and brought them to California to work with us. We decided we were going to build the product, not the team. We now had 10 people (plus 2 interns) and those 10 people got their hands dirty in every aspect of the company and that’s now the culture of the company.

Shipping the first 15,000

We shipped our first 15,000 units and we were profitable. With Kickstarter we were backed for the production of 85,000 watches but we were very careful and were able to build 110,000, and the extras had a high profit margin. But…hardware companies have a unique problem: cash flow for inventory. It would have helped me to have a CFO at the time, which we didn’t. And I’m a terrible fundraiser. Luckily I met George Zachary from Charles River Ventures around this time and he ended up investing $15 million in the company.

The many faces of the Pebble smartwatch

Lessons learned along the way

Today the company is 100 people, based in Palo Alto. There are 20,000 developers building apps for the Pebble watch. I’ve made a ton of mistakes, but just a few short of totally sinking the company. I’ve learned that it’s not competitors that kill the company, it’s you. I had to loan the company my last $5000 to make payroll. I’ve learned that whatever you’re doing it has to be simple, it has to mesh with people’s lives. It needs to help people get more done on a regular basis. You really can’t underestimate the value of making something people want. And we listen to what people want.

Just a few of the Pebble's customizable watch faces

Apple at the core?

September 2014: First look at Apple's iWatch
On September 9th, 2014 the Pebble team in Palo Alto was doing what most tech watchers were doing all over the world, i.e. sitting in front of screen as Apple CEO Tim Cook unveiled Apple's volley into the smart watch game, the iWatch. Eric Migicovsky supplied the popcorn for the crew.

And in the days that followed his phone rang a lot, with reporters wanting to hear his thoughts on the iWatch and how this announcement from one of the world's largest companies would affect his 100 person company's early mover position? Migicovsky responded with his trademark quiet confidence, stating that he's not competing with Apple or Google but, rather, with the habits of a generation that has grown up not wearing anything on its wrist.

Pebble recently dropped its prices to approximately one third of what the iWatch will sell for, and Pebble is available now, working with iOS and Android, and with a prolific developer community cranking out new apps for it every day. More than a watch, it's a platform, which means yes, it can catch your emails and texts, it can control your music, and it can even replace those Fitbit clip-on things or Nike Fuel bracelets....and pretty much anything else that people in the ecosystem of software developers come up with. So yes, conceivably, it could also open and close your garage door and start your dishwasher remotely.

Still, the questions about a larger company, with deeper pockets, international relationships, and an ecosystem already in place linger. Will Apple or Google be able to capture the 'second mover advantage' in this market? As a small company Pebble has had agility, flexibility, and speed on its side. It's sort of a combination David-Goliath-hare-tortoise story, as so many on this blog are, and for that reason we watch with great interest as the small and sparky competes in the same arena as the big and bulky.

December 2016 update: Pebble sold, essentially for parts (software and patents) to Fitbit, for a reported $40 million, after turning down $740 million from Citizen in 2015 and $70 million from Intel. It's hard to be first. Full story here.