Here's what we can learn from the recent slew of IoT startup layoffs

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Startups face a difficult path to success no matter their field, but IoT startups wading into the hardware market often confront an especially challenging environment.

In a pair of illustrative examples, IoT startups Sphero and Tile recently announced cost-cutting measures, including layoffs and hiring freezes, on the back of a poor holiday season.

Sphero, a consumer robotics and connected toy company, is laying off about 45 employees, according to TechCrunch. The company offers a number of small consumer robots that users can control through their smartphones, with many of its products based on popular movie franchises like "Star Wars" and "Spiderman." It introduced a number of new products in 2017 and had an aggressive roadmap for 2018 that led it to bring on new personnel. However, after an apparently disappointing holiday season, the company is pivoting away from toys and consumer robotics, and will instead focus on the education sector.
Item-tracking company Tile will let around 30 employees go and is ending the hiring process for another 10. The company sells Bluetooth trackers that can be attached to items like keys or placed into backpacks or wallets, and has raised $59 million in total venture funding, with a $25 million Series B round that closed in May 2017. The company also reported lower-than-expected holiday sales, prompting the layoffs and a potential shift from a consumer-hardware company to more of an integrated tracking platform, heralded by the company’s CES announcements.

There are a couple of lessons companies can take away from the experiences of Sphero and Tile:

Selling to the consumer market can be volatile. Consumer-focused companies rely on dramatic sales spikes around the holiday season, and while larger companies in the IoT can weather lower-than-expected demand for their devices, or even offer discounts to rejuvenate interest, a startup usually doesn’t have that luxury. Instead, these companies are often left with lackluster top lines and excess inventory that costs money to store.
Offering IoT solutions as a service, rather than discrete products, may be more sustainable. The companies described above are transitioning from a business-to-consumer (B2C) model to a business-to-business (B2B) or business-to-government (B2G) model. This will enable them to shift to marketing their devices to the larger players, while perhaps assuaging potential consumer concerns about privacy and security via association with better-known or more-trusted entities. These sorts of decisions can mean companies end up with continuing revenue streams to support their businesses, allowing them to maintain personnel and consistently ship devices. For those without the scale of a giant like Amazon or an established name in the consumer IoT like Nest, the service model can be more sustainable than a B2C approach.

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