One of the best pieces of advice a financial advisor can offer is to diversify risk. For example, look at the difference between investing in an index (such as S&P 500), and cherry-picking a stock. Since S&P 500 comprises the 500 largest US companies, if one of these companies goes bankrupt, a new company will replace it. On the other hand, cherry-picking a company can be far more rewarding if your gamble is accurate – yet the opposite is also true, and is much more painful.

Using this logic, it is unsurprising that corporates fight shy of working directly with start-ups, preferring to go through a middle man – or in other words, an Integrator.

What is an Integrator?

An integrator consults on designing, implementing and collaborating on the development of smart solutions. They are highly familiar with the various solutions the market has to offer, as well as the best practices for adopting technology. Their aim is to help (generally speaking) manufacturers and OEMs implement innovative technologies and new work methodology to increase profits, using platform players (see below) and new technology vendors as suppliers, offering a range of technologies that solve specific customer issues.

In a sense, working with an integrator is like risk diversifying for corporates. Rather than taking a big risk by investing in one start-up (cherry-picking a stock), corporates can work with the integrator, who assumes the risk of the start-up failing, in which case they replace it with another technology.   

So, Who Does An Integrator Work With in the Industrial Ecosystem?

Broadly, we can divide industrial players into four types, in which each player has different needs and roles regarding Industry 4.0 (I4):

  • New Technology Vendors are usually start-ups which provide solutions to specific problems, or develop and improve such new I4 technologies as deep learning, sensors, machine learning, and so on.
  • Original Equipment Manufacturers (OEMs) are true to their name, manufacturing and selling production equipment. Their demand for I4 technology is twofold:
    – Implementing I4 technology into their own manufacturing facilities, to create new and smarter products.
    – Creating new business models by also being a service provider to other manufacturers.
  • Manufacturers produce the end products, who constantly seek improvement in quality, time to market, efficiency and cost reduction.
  • Platform Players offer products that facilitate communication between digital and physical infrastructures, often analyzing accumulated data, and providing users with actionable insights.

Additionally, certain companies have more than one role. For example, Siemens act as both Platform Players and Manufacturers. OEMs can also act as integrators, when incorporating start-up technology with their own manufacturing equipment.

Who is Likely to be More Risk Averse?

Here we return to our initial comparison. The two major likelihoods for risk aversity are those uninformed investors who have no information on any given stock, and those investors who require a more stable cashflow, since they have much to lose, and are unable to afford volatile prices. The same can be applied to corporates operating in different verticals which are risk averse due to both of the above possibilities.

Utility companies are a prime example of a risk averse player. Being capital-intense, and highly regulated, these companies often finance themselves with debt. Furthermore, their operations are mission critical and under a lot of scrutiny, which makes them very cautious and protective. They therefore cannot afford instability in their cashflow or operations, and as a result will usually prefer to work with a reliable integrator rather than a start-up.

For a Start-Up, Why Work With an Integrator?

The most obvious advantage is the more extensive reach to customers, which a good integrator has to clients in their domain and geographical market.

Corporates are at times suspicious of working with start-ups. However, companies have a tendency to trust a good integrator, and will therefore be more willing to listen to them, and assimilate new start-up technologies.

Integrators also offer help in solving legacy problems, specializing in combing silo systems into one complete operating system, and matching client needs with existing products. A good integrator understands how to incorporate these systems with current machines and IT systems, making the assimilation of technology much easier for the start-ups.

Integrators also can help broaden a start-up’s horizons. Marketing and selling a product overseas often relies heavily on personal connections as a strategy. A good integrator can offer more than this, by providing personal knowledge of the different players, unique cultures and work processes in a specific place.

Many start-ups require prerequisites from their clients to implement their technology, which they sometimes do not have. In such a case, an integrator can help fill this gap for a start-up. For example, if a start-up collects data as part of their solution, it requires specific hardware, which the manufacturer may not have – however an integrator has the knowledge and ability to integrate the hardware with the start-up solution.

If Integrators are so Magical, Why are They Not Often Used as a Sales Channel for Start-Ups?

When the sales are made via an integrator rather than through a direct channel, the technology is often presented as a “white label”. This means that the potential exposure for the start-up is far lower, as well as the likelihood of gaining a strategic client.

Integrators can also be costly and time-consuming. The process of finding and convincing an integrator to add a particular start-up technology to their arsenal can be exhausting. Training for the product is usually complicated and takes time. Added to this, integrators sometimes request the start-up to pay for system training , with no clear prospect of future sales.

Quality control is another issue. Even if a start-up passes the ordeal of initiating an integrator into a corporation, the next stage in the process is to ensure that installation and use of the product is as it should be done.

There is also the ever-delicate subject of IP infringement. Start-ups are often cautious of sharing too much information with a third party.

It All Comes Down to the Bottom Line

Despite the reasons given in the previous section, start-ups are still likely to be willing to work with integrators if the bottom line looks appealing, and helps expand their customer base, and revenue stream. The white label issue tends to bother start-ups less, if the extended reach of the integrator is considerable.

Furthermore, if the integrator has enough specialized knowledge, and a strong professional team, the risk of low implementation quality is negligible. Similarly regarding IP infringement – start-ups know how to protect their core value and only expose what is absolutely necessary, particularly with software companies for whom most of their computing happens in the cloud.

Tips: How Start-Ups Can Make Working with an Integrator Worthwhile

  • Offer a modular approach – the smaller pill to swallow strategy. Rather than offering the entire range of features, make it easier for the integrator to sell your product by providing a condensed version of the product.
  • Go with a commission-based module, by paying only for sales, rather than the full integrator service.
  • Ensure that you work with integrators who have an established footprint in your target market.
  • Use a third party who assumes part of the costs. For example,  Start-up Nation Central, various government entities and many more.

Many thanks for sharing their experiences and insights:

Yuval Engelstein is the Industry 4.0 sector analyst at Start-Up Nation Central, responsible for researching Israeli innovation and world market activity relating to the strategic development of the Industry 4.0 and Smart Mobility industries. In close and continuous contact with innovators and entrepreneurs of these industries, Mr. Engelstein supplies the organization with knowledge and insights regarding both the technologies and the corporate or socio-economic challenges they could help to alleviate. Previously, Mr. Engelstein served as an analyst in the Research Divisions of the Central Bank of Israel, and of the Ministry of Transport. He holds a Master’s Degree in Financial Economics and a BA in Philosophy, Political Science and Economy, both from the Hebrew University of Jerusalem.