Autonomy will Revolutionize the Next Decade of Innovation in Physical Industries

As an investor and history major, I’ve always believed one of the most powerful data sources for due diligence are history books. If you study the past closely enough, it will paint a picture for where exactly the market is going and therefore, where the next big opportunity is for new capital and innovation. For instance, the seed was planted decades ago for today’s cloud computing world. It started with personal computing in the late 1970s. Personal computing evolved to networking, which further led to widespread adoption of the internet, the cloud, and finally the explosion of mobile. I see a similar pattern unfolding within physical industries — we’re in the early innings of a new computing revolution that is reminiscent of previous computing shifts. Just as cloud computing is now ubiquitous, the same will become true for automation in physical industries — intelligent compute systems that sense the world, compute their understanding, and take action or inform action will proliferate through every physical world sector. Many have criticized manufacturing and supply chain automation as being mostly hypothetical, stalled in the research phase. But significant progress is being made. While investors have largely been distracted in recent years by increasingly niche SaaS companies, there is an entire ecosystem of startups productionalizing automation in industries that are critical to how we operate as a society. I believe there are three forces that will drive increased adoption of autonomous systems across many industries over the next decade. Increased Emphasis on Deglobalization The last several years shed a spotlight on just how fragile our economy is as a result of decades of globalization. The pandemic exposed the vulnerability of supply chains and the possibility that they could crumble almost overnight, leaving manufacturers struggling to source raw materials and retailers with inventories well below demand. One McKinsey survey found that despite initially recognizing the need to diversify supply chains, companies were much more likely to focus their efforts over the last year on increasing inventories, rather than actually solving the root problem. Increasing geopolitical tensions with China and Russia have magnified the U.S.’ reliance on other countries for offshore manufacturing and imports of raw materials. While the concept of deglobalization is not new, there is a renewed push to reduce our dependence on international supply chains as a result of these macro factors — and fast. However, corporations face the reality that it’s more economical to build factories and pay for labor in places like China than it is in the U.S. Even companies like Apple, which is pledging to bring factories back to America, will struggle to find people who want to do highly-manual assembly work. Automation can and will solve this problem. The industries responsible for the development and movement of people and goods are worth trillions of dollars, and automating some percentage of the workflow — even if small at first — offers enormous value to both the companies running the operations, as well as the end consumers. The best way to introduce automation is to start with the “low-hanging fruit.” Identify individual applications that offer high value, such as labor-intensive activities like visual inspections and assembly line production. From there, corporations can incorporate automation processes that offer longer-term impact. Evolution of the Tech Talent Market The talent market is at an interesting juncture. On one hand, there’s a growing talent shortage, particularly as it relates to physical industries. According to a study from Deloitte, the manufacturing industry lost approximately 1.4 million jobs at the start of the pandemic and since then has greatly struggled to bring on entry-level and skilled talent. The report indicates there could be a shortage of more than two million American manufacturing workers by 2030, which equates to trillions of dollars in opportunity cost. On the other hand, the tightening economy has led to over 1,000 tech companies conducting layoffs in 2022 and already ~400 tech companies in 2023. This means the market is experiencing a sudden influx of talent. These two seemingly dissimilar scenarios — a major manufacturing talent shortage and a fresh pool of job-seeking tech professionals — present an obvious solution to a critical problem: brilliant minds are available to solve hard problems in physical industries. In fact, many are bored of pursuing the long tail of SaaS innovation and are looking for new ways to challenge themselves and have a real impact on the world. While the majority of this newly available tech talent may not have industry-specific experience in manufacturing or transportation, they do offer relevant, transferable skills. We saw the same pattern play out when the world went from web 1.0 to 2.0 — people reskilled themselves. Today’s tech talent has seen scale, developed world class products, and understands what it takes to achieve operational excellence. While the smartest engineers can build state-of-the-art machine learning perception models, they know nothing about the infrastructure needed to deploy those models efficiently across a fleet of systems. That’s why I see a labor market migration toward industries like manufacturing, supply chain, and transportation — not only because as a society we need talent in these industries, but also because it presents a massive professional opportunity for career growth and leadership experience for those individuals if they get in on the ground floor. Increased Evidence of Real Business Outcomes The market is proving the criticism wrong that technology innovation within physical industries is unable to translate into tangible solutions, as evidence shows emerging technologies in this space are beginning to abound. Robotics is a great example — according to the McKinsey Global Industrial Robotics Survey, industrial companies are set to spend 25% of capital spending over the next five years on robotics and automation (figure 1). A decade from now, we’ll look back and reflect on how we are currently in the area of the market curve where there’s imperceptible growth, but rest assured it’s coming. Figure 1. Automation will account for 25 percent of industrial companies’ capital spending over the next five years

The most prominent proof of business outcomes as a result of automation within physical industries is Amazon. They are the pinnacle of automation and applied robotics within the logistics category. Ten years ago, Amazon acquired Kiva Systems, a provider of automated and robotic warehouse solutions to enable the company to increase efficiency across warehouse activities. A decade later, Amazon has more than 520,000 robotic drive units and has even added more than one million jobs globally. Other major players like Target, Walmart, and Best Buy are scrambling to catch up, each at varying stages in their digital transformation journeys and employing different strategies. One thing is clear though: automation within operations is a pillar of how these companies will measure the future success of business outcomes. Automation is no longer hypothetical — real businesses are being built and growing rapidly. For those paying attention, the entrepreneurial playing field is wide open and the investment opportunity is enormous. The time for automation in physical industries is now Global economic and geopolitical events combined with the evolution of the tech talent market will propel autonomous innovation forward in 2023 and beyond. Besides market forces, underscoring this movement is the fact that technology in this space is coming of age. It’s now possible to develop and integrate systems that meet performance, reliability, and safety metrics within industries like manufacturing, supply chain, transportation, healthcare, and more. Autonomous systems will ultimately be the driving force behind physical industries, and there has never been more opportunity or access for those looking to build new solutions that will power the New Economy. The timing is impeccable — in part because the market is set up for it, and in part because we have no choice.
Follow Eclipse on LinkedIn for the latest on the Industrial Evolution.