The Hardware Hustle: Driving Digital Change in Traditional Industries

At Nido, we invest in B2B companies that are transforming traditional industries.?

We are thesis-driven investors – as much as one can be at the earliest stages of a company – and we have spent the last few months researching some of the legacy industries we are most interested in. Thus far, our focus has been Supply Chains, Logistics, Agriculture, Automotive, Healthcare, and Energy. This research has revealed many potential needs that software can address, but it has also highlighted a significant opportunity and need for hardware-enabled solutions in these industries. Hardware-enabled solutions use physical devices like sensors, machines, or robotics to collect and process data directly where it’s needed, allowing for faster decision-making and improved efficiency.?

I'm not going to lie; I've always been a little scared of hardware. The immediate thought that comes to my mind is that hardware is just "not capital efficient." And it's true that hardware takes more time to develop and is often more complicated to implement, but it's also true that without hardware, none of us could be doing what we're doing right now: reading an article in a state of the art smartphone or on a computer more powerful than those that put humans on the moon back in the sixties. And what's even more important when it comes to legacy industries is that they are inherently physical.

Traditional industries like manufacturing, agriculture, and logistics are rooted in the physical world. They deal with tangible goods, machinery, and processes that can't be entirely digitized. This is where the true potential of hardware-enabled solutions comes into play. By bridging the gap between the physical and digital, hardware can unlock new efficiencies, gather crucial data, and enable automation in ways that pure software solutions cannot. And it's also an area ripe for innovation.

Recent research has shown that AI is being deployed across various core business departments within these industries, particularly in technology and process development, product or service deployment, and operations, underscoring the growing importance of hardware integration in optimizing these traditionally physical sectors. (more on OMDIA)

Consider the agricultural sector, for instance. While farm management software can help with planning and data analysis, it's hardware solutions like soil sensors, autonomous tractors, and drone-based imaging systems that are revolutionizing how farms operate. These physical devices collect real-time data, perform tasks with precision, and provide insights that were previously impossible to obtain.

And it really goes beyond niche solutions. One of the most exciting developments in the hardware space has been the rise of affordable, versatile computing platforms like Raspberry Pi. These devices have democratized hardware development and prototyping, making it easier for startups and innovators to create hardware-enabled solutions without massive upfront investments. Computers made more accessible to all.

Just last month, Raspberry Pi introduced a groundbreaking $70 AI Camera (more on Techcrunch). This innovative product showcases how advances in hardware can make artificial intelligence more practical and accessible for various industries. The AI Camera is designed to capture high-quality images and process them using AI techniques right on the device itself, without needing to send data to remote servers.? As we think about how Artificial Intelligence will revolutionize legacy industries, data collection is top mind. In the industrial context AI is nothing without relevant data. Affordable hardware solutions like the new Raspberry Pi AI camera can change the game for data collection.?

When we at Nido ponder about the hardware opportunity in traditional industries, we’ve come to believe it is a twofold phenomenon. First, there's immense potential in implementing existing hardware solutions with innovative software layers. This approach can breathe new life into legacy equipment, enhancing its capabilities and extending its useful life. For example, retrofitting existing manufacturing machinery with IoT sensors and AI-powered predictive maintenance software can significantly improve operational efficiency without the need for complete equipment overhaul.

Secondly, there's a growing opportunity for developing entirely new hardware solutions tailored to the specific needs of these industries. As technology advances, we're seeing the emergence of specialized hardware designed to address unique challenges in traditional sectors. These can range from advanced robotics for warehouse automation to custom-designed wearables for improving worker safety in heavy industries. These opportunities, if deployed properly can have a gross profit-margin upwards for 50% (more on Emerson Electric).?

The key to success in both these approaches lies in understanding the intricate physical realities of the target industries. It's not just about creating cutting-edge technology; it's about developing solutions that seamlessly integrate into existing workflows and provide tangible, measurable benefits.

At Nido, we're excited about the possibilities that hardware-enabled solutions present. We believe that the most successful B2B companies of the future will be those that can effectively bridge the physical and digital worlds, creating comprehensive solutions that address the unique challenges of legacy industries.

As we continue our research and investment activities, we'll be looking for founders who have the vision to see beyond the software-hardware divide. We're interested in teams who understand the physical realities of their target industries and can detect when a hardware-enabled solution is needed.

We're standing at the beginning of a new era in industrial technology. The convergence of affordable hardware, advanced AI, and deep industry knowledge is opening up possibilities that were unimaginable just a few years ago. For entrepreneurs willing to tackle the challenges of hardware development and navigate the complexities of traditional industries, the opportunities are vast. So, to all the entrepreneurs out there who are dreaming up new ways to bring cutting-edge technology to age-old industries: we're here, we're listening, and we're excited to see what you'll build!?

Written by Ana Carolina Mexia Ponce