Pre-IPOs you should know: SST Wireless’ ugly tech has beautiful potential

First the Internet brought people together across the globe and revolutionized the way we communicate, socialize and carry out business, now the Internet of Things (IoT) will do the same for machines and devices. Don’t worry; your washing machine won’t be opening a Facebook account and letting your friends know how many holes you have in your underwear, but it will now have the ability to contact you or even the repair service and set up an appointment when it needs maintenance. This hands-off machine-to-machine communication is expected to turn the world on its ear with the global IoT market expected to hit $7.1 trillion by 2020.

Click to enlargeOn the one side of IoT you have the sexy world of wearables, uniting fun, fashion and utility in pretty little gadgets like the Apple Watch, fitness devices like iHeartalive and trendy connected sport glasses with heads up display and social sharing features. On the other side, you have the ugly; devices not meant to be admired for appearance, not to be worn as jewellery or as a ridiculously hyped status symbol. Despite this apparent lack of sex appeal, however, the utilitarian segment of the IoT will be the driving force behind the next ‘industrial’ revolution. SST Wireless, a small company based out of Delta, B.C., Canada, has embraced wearables ugly cousin and hopes to capitalize on this globally transformative trend.

 

Click to enlargeFor this reason I spoke with Christopher Chong, SST Wireless CEO, regarding the company, its current progress and future hopes as it moves from start-up to possible public market contender.SST Wireless saw its start in Vernon, BC, sometime back in 2006 when the founders of the company and Kal Tire, Canada’s largest independent tire dealer, got together and decided that they needed a technology for the mining trucks currently being serviced by the Kal Tire Mining Tire Group, which operates in 17 countries across five continents. Why would mining companies be so concerned about something as small as tires? Probably because tires for the big haul trucks used in open pit mining come at an average of $80,000 each and there are six on each of those trucks.

Click to enlargeThe result of the aforementioned partnership was a tire pressure monitoring system comprised of wireless pressure and temperature sensors in the tires communicating back to a controller which then fed the information back to the customer’s operational staff for action.

This relationship with Kal Tire was double-edged sword as the benefit of having such a large patron as a customer provided a solid backbone from which the company could operate, but it also threw in a challenge as Chris explained, “As a small company based out of Vernon with a small engineering team in Delta, BC, initially they just didn’t have enough muscle to be able to move into other markets they saw as a potential for them.”

What made their journey more challenging was the sad fact of IoT as Chris illustrated, “Our products are not the polished glassy things you wear on your wrist or clip on your waist. This is stuff you stick in the mud, expose to extreme temperatures, submerse in oil, or whatever, but even though it’s the less visible component of the Internet of Things or Machine to Machine, it is the vital driver of the market. The trick is making those products visible for the investor in a way that they understand their worth despite the lack of expected sex appeal. As I said in a recent wearables conference, it’s the dirty end of Machine to machine or as more popularly known, the Internet of Things.”

The wearables space and the tech sector in general have ridden to the forefront of investors’ minds creating a funding feeding frenzy with over-valuation becoming a serious problem within the marketplace. With so many start-ups selling a dream, this bubble trading environment is especially problematic for the potential investor. In this, SST Wireless has differentiated itself from the competition as Christopher outlines, “We are a company that actually has working products generating revenues. We have large customers and channel partners signing agreements with us. And we are pushing our products internationally. In fact, we have embarked on trade missions including one to Asia with BC Premier Christy Clark and to South America and Europe with the assistance of Wavefront, a venture acceleration program based out of B.C.”

 

Click to enlargeSST Wireless has actively moved ahead into new markets after having gone through a year-long technology evaluation with New Flyer, a leading North American heavy-duty bus manufacturer, which resulted in SST Wireless being assigned as an OEM provider to New Flyer. This designation now makes SST Wireless’ tire pressure monitoring system an option that can be ordered with every new bus from New Flyer.This is a strategic move for SST when you consider that the MAP-21 Act passed in 2012 by President Obama calls for the use of Tire Pressure Monitoring on motor coaches operating in the US. SST believes that it can establish dominance in transit and fleet vehicle market prior to a deadline for mandatory use, similar to the TREAD Act of 2000 which made TPMS on passenger vehicles mandatory by 2007.Despite the very clear ROI in regards to fuel economy and tire life, budgets have become tight and companies are less apt to invest in an extra cost. However, this potential integration with New Flyer will allow customers to include the company’s tire pressure monitoring system within the initial capital cost of the bus, making the decision more palatable to the committees determining the purchasing budgets and giving SST Wireless a dominant footprint in the massive public transit sector.
 
Click to enlargeSST Wireless isn’t just about tires; they have critical technology for industrial heat sensing used by such companies as Pinnacle Renewable Energy, the largest pellet manufacturer in Canada, to monitor the extreme temperatures of their massive rollers without having to halt operations. This gives the operators the power of predictive analysis allowing them to work longer hours faster with improved safety to keep up with the climbing global demand for Canadian wood products. SST Wireless is currently working with ANDRITZ Group, the world’s largest pellet machine manufacturer to integrate an inbuilt solution with their product lines.Success in this venture also attracted the attention of others in forestry as Chong explains, “Sawmills started seeing applications of it. Companies like Canfor and Interfor said they had places where this heat sensing technology would benefit their operations. So we’re working with companies like enCompass, to integrate our product into the automated production process for these sawmills for what they call programmable logic controllers. With this relationship we’ll eventually seek Rockwell Automation certification, which will then make our device globally available to any Rockwell automated plant. Once we do that, it will no longer be about pellet plants or pulp mills, but almost any manufacturing process that generates heat that needs to be measured that can’t be monitored with a wired sensor.”SST Wireless’ sensors are rated for 125° Celsius, but there are issues with higher temperatures as there are technical limitations with wireless and batteries tend to suffer in environments of extreme heat, in order to break through this ceiling, SST Wireless is working on methods of harvesting energy from movement and vibration. Once these factors have been worked out, it opens up the devices to new lucrative markets such as automotive manufacturing.So what’s it like operating a start-up high-tech hardware manufacturer in Canada? Christopher outlined three major issues that SST Wireless currently faces, “As you can imagine, we don’t make every component that goes into our system. It takes a lot of money to fabricate a chip for example and so it doesn’t make financial sense for us to take on that responsibility. So we go to people like Texas Instruments, but they may only have a certain runway when it comes to that product. So we have to make decisions that if we must use a single chip in our manufacture, what is the lifespan of that particular product – next five years, next ten years? So we have to remain cognisant of this factor during engineering design phase.”

“Next part we have to consider is how much of it do we want to stock? Especially if we know that some critical component is nearing the end of its life, because we still need to have enough room to transition to a new component if we have to and we don’t want to get caught short if we don’t have enough components.”

Click to enlarge“The third part is where do you have it manufactured? Some of the items we use in our assembly are in some ways close to military spec. They’re not just readily available. Some parts may come from Europe and some parts may come from the U.S. We need to ensure component quality. So right now, we do some offshore manufacturing and I’m sitting here wondering if that is in our best interests for several reasons. We’re not a mass consumer product. We don’t deal in millions of volumes as yet, so do we get the scales of economy by having these shorter production runs? When I look at the outsource model, it’s based on volume – the more you produce, the more you save. You also have to have your own person or people on the ground to supervise in these places and since we cannot make that happen due to our size, would it not be better to bring production back home even if it costs a little more? That way, we can assure quality and accuracy, which our products, our clients and our future depends on.”

Next up, I asked Christopher how SST Wireless fit into the financing scene in Canada, “From a private capital point of view, Canada has always been a bit of a challenge. We’re at a point where early-stage investment is not applicable to us, because the money costs too much in terms of what we would have to give up getting it. When you talk about Venture Capital firms in Canada, most of them are looking for much larger plays. Our challenge in Canada is finding an investor or group of investors with the money we require and the interest in both our company’s size and the sector we play in. We have tremendous potential world-wide, a healthy margin and hardly any competition in the marketplace, so why are we having such a hard time? This is a question I see a lot of Canadian tech companies asking. When I talk to my U.S. friends, they say, move your company south, we’ll get you financing down here.”“I think this is an issue for a lot of Canadian manufacturers where moving operations below the 49th parallel can be far more attractive in terms of funding. As far as SST Wireless is concerned, there is a definite draw south to be closer to our largest market.”What about the public markets as a source of financing?“Absolutely, there’s trade-offs to everything, like becoming a public company through something like an RTO, which many Canadian companies have done. It is a useful tool as long as your entire organization is structured toward doing that. We definitely will look at it, but my thinking may be different from our shareholders. However, it does provide them with an opportunity to exit without having to wait down the road for another type of transaction. SST Wireless is at that tipping point where we see progress and success, and I thank our shareholders for being so patient during our journey.”

Click to enlargeAs SST Wireless moves ahead, Christopher envisions setting up the company for an initial financing round with a boutique capital firm possessing the same drive and vision. He doesn’t preclude bigger firms from participation; in fact he envisions future financing rounds with larger capital entities both domestic and international. Now is the time to move. SST Wireless has been at this wheel for eight years now. It’s been an active 18 month turnaround with serious business development and revenue growth and few competitors in marketplaces with immense potential, but it is time for SST Wireless to take the baton and run in order to push its vision into reality or it faces the unfortunate prospect of becoming an also-ran. I will be keeping my eye on this one.