July 27, 2015
Written by Special Guest Blogger Jon Melnick, Senior Analyst, Lux Research
Picking start-up winners is no easy task as only 7% to 10% of all start-up companies succeed. However, the Lux Research methodology of assessing start-ups though combining primary research, analysts with domain expertise, and a consistent process of quantitative and qualitative factors has been shown to increase the rate of picking successful start-ups to 50% (see Figure 1). As wearable devices are a hyped technology segment, full of start-ups hocking the next revolutionary device, it is a ripe field to apply the Lux methodology to identify which new companies will be tomorrow’s giants – and which should just be ignored.
Wearables have the potential to provide fresh new solutions in uses ranging from clinical vital signs monitoring to industrial worker assistance to personal virtual and augmented reality. However, across the breadth of wearable developers, technologies, and applications, there are no obvious winning developers, applications, and business models. To further understand success in wearables, we evaluated 62 wearable developers profiled using the Lux Research methodology and plotted them in a framework called the Lux Innovation Grid (see Figure 2). The Lux Innovation Grid rates each company’s Technical Value, Business Execution, and Maturity, based on Lux’s proprietary Company Scorecard ratings (see Figure 3) on a 1 to 5 scale and includes the overall Lux Take for each of the 62 companies.
Health Focused Wearables Populate the Dominant Quadrant
The Lux Innovation Grid paints the picture of a crowded, immature space: 43 companies have maturity scores less than 3, and 22 companies have yet to generate any revenue. The upper-right Dominant quadrant of this Lux Innovation Grid, with strong technical value and strong business execution, contains 19 wearables developers, and of these companies, eight address health-related applications, eight focus primarily on developing enabling technologies, and only three solely develop consumer wearables. Three companies stand out in the Dominant quadrant:
- SleepMed designs wearables narrowly targeted to address clinical sleep monitoring. However, the company’s built-in expertise, ownership of sleep study infrastructure, and multiple development partners earned SleepMed high scores for management team, barriers to growth, and partnerships. The company’s similarly high scores for technology/solution value and competitive landscape sealed SleepMed’s status as the only wearables developer to earn a “Strong Positive” Lux Take to date.
- Ekso Bionics’ lower-body load assistance exoskeletons claimed the fourth highest technical value score and third highest business execution score, making it the company closest to the top-right corner of the Lux Innovation Grid. The company received a rating of 5 for its technology/solution value and momentum scorecard metrics, and ratings of 4 in all other metrics, giving it the highest average scorecard value (4.2), tied with wearable vital signs developer Sotera Wireless. However, the company’s relatively low score for revenue per employee held the company back from joining SleepMed as the second wearables developer with a “Strong Positive” rating.
- Thalmic Labs and its electromyography (EMG) armband stood apart from similar consumer-focused developers on business execution thanks to strong scores for revenue per employee and momentum, thanks to its successfully executed crowdfunding/pre-sales campaign. The company’s strong IP portfolio, centered around its novel EMG sensor array design, also sets it apart from many hard-to-protect, camera-based gesture control solutions.
Although the top-right quadrant dominates today’s wearables market, the top-left high-potential quadrant has 19 of the most promising companies on the horizon. Ten high-potential companies focus on health wearables, six develop consumer devices, and three work on enabling technologies. The two companies below exemplify the variety of needs and partnership opportunities in this quadrant:
- The multi-modal wearable sensor platform developed by Biovotion nears best-in-class status for clinical wearable vital signs monitoring solutions thanks to the company’s focus on noise reduction for its seven (and counting) sensor modalities. The company claims the third-highest technical solution rating thanks to its high scores for technology/solution value and IP position, but falls short on business execution rating largely because it has yet to earn revenue on device sales, and because of its partnerships score of only 2. This combination makes the company an optimal partnership opportunity for those that have built-in distribution and sales expertise but lack novel technologies to set themselves apart from others in the wearables space.
- Switch Embassy presents a unique aesthetic value with its textile-integrated light-emitting diodes (LEDs) that could further expand wearables’ role in the fashion world. The company earns an IP position score of 4 thanks to its 13 patent filings around LED-textile and PCB-textile integration technologies. However, the relatively small addressable market, high solution cost, low-scale production capabilities, and a lack of partnerships result in a low business execution rating.
The long-shot quadrant includes 16 companies with low technology and business execution scores. This category includes many undifferentiated early-stage startups that have yet to prove their technology and their business chops, as well as over-hyped firms failing to deliver on technical claims and struggling to remain commercially relevant. In this group, Healbe’s calorie intake tracking wristband and the “snap bracelet”-like flexible smartwatch under development by SnapWatch both offer unsubstantiated solutions lacking credible commercial timelines, earning them the only two “Strong Caution” Lux Takes. Companies interested in entering the nascent wearables space through collaborations must choose their partners wisely. Hype is not a reliable partnership indicator, as “hyped” companies exist in nearly every Lux Innovation Grid quadrant, but strong partnership candidates do exist, in areas ranging from vital signs monitoring to augmented reality. The challenge in wearables lies in separating the reality from the grandiose claims, and a consistent and objective methodology for doing so is essential for companies to make smart business decisions.
Jon Melnick is a Senior Analyst who leads Lux Research’s Wearable and Flexible Electronics team. Lux Research provides strategic advice and ongoing intelligence for emerging technologies. Leaders in business, finance and government rely on Lux to help them make informed strategic decisions. Through their unique research approach focused on primary research and their extensive global network, they deliver insight, connections and competitive advantage to their clients.
