Investors are always trying to predict which trends are next. It is a challenging endeavor. The differences between short-term fads driven by hype and long-term trends driven by fundamental technological advances or structural changes in markets are often only apparent once it is too late.
Generative AI is today at – or perhaps just past – the peak of the hype cycle. Until recently, a founder writing ‘Gen AI’ on their pitch deck would immediately 2x or 3x the valuation. There are discerning investors writing cheques to Gen AI companies, but many have succumbed to short-term thinking, denying the reality that commoditization of the technology is a certainty. Businesses risk being left with no competitive differentiation and a tricky path ahead.
Robotics is one sector with all the hallmarks of a sustainable long-term trend. Entrepreneurs and investors increasingly recognize that software will not solve the world’s most challenging problems alone. And these problems are in markets where it is possible to build multi-billion dollar companies.
There are five key reasons that robotics is the next multi-decade trend to watch.
Advances In Hardware
The costs of producing or buying robots have fallen significantly in the past decade. At the same time, functionality and reliability have improved. This creates opportunities for entrepreneurs to develop solutions that answer customers’ problems at an economical price. Once operating, increased reliability means that ongoing servicing costs do not threaten unit economics. Modern robotics companies can deliver rapid payback of the upfront hardware cost and attractive margins.
Advances In Software
The performance of a robot is only as good as the software onboard. Advances in various underlying technologies, notably Computer Vision, mean that human-level accuracy is more easily achieved and, in many cases, exceeded. This is in addition to the inbuilt benefits robots bring – they operate 24/7/365, deliver consistent performance, and do not get sick or quit their jobs.
Chronic Labor Shortages
There are not enough workers to do the jobs companies need. The latest EURES Report on labor shortages and surpluses 2022 reveals significant shortages in the EU27 across over 400 occupations. Rather than threatening a healthy employment market, robots are solving the problems created by a lack of available humans to do many critical jobs. Without robots, labor shortages represent a significant threat to individual companies and the global economy.
Sustained Wage Inflation
Companies struggle to find workers. When they do, they need to pay increasing amounts to secure them. This upward pressure on wages hurts company margins, which either means companies putting up their prices – risking an inflationary spiral – or closing down. Layering robots into the workforce that complement humans’ roles allows companies to reduce their overall cost base and improve their margins. Those companies that embrace robotics will have a significant edge, able to win and service more customers, while those that do not will struggle.
More Accepting Attitudes
Facing the reality of labor shortages and wage inflation, business owners are more open to considering technology that can solve these existential challenges. It becomes a no-brainer when they discover that robots are affordable, reliable, and easily integrated into their business. On the shop or factory floor, robots doing tedious, dirty, repetitive tasks are not considered a threat but a welcome addition to the team as they free up humans to do more exciting jobs.
In the past, robotics startups promised a lot but were often unable to deliver, leading to disappointed customers and limited expansion opportunities. Burdened by high sunk costs in robots unfit for purpose, growth has stalled.
This current ‘second wave’ of entrepreneurs has learned from those problematic early stories. They have recognized that technological advances in the past few years, alongside changes in the labor market and attitudes, have created the ideal environment to build multi-billion dollar companies. Investors too are starting to catch up with many dropping their ‘software only’ approaches.
The term robot was coined in 1920. In 2023, over 100 years later, we are finally seeing conditions supporting their widespread adoption.