So Close.
By: Sam Jadallah
Tags: Entrepreneurship, Venture Capital, Hardware, Founders

We were driven to build a product that people would fall in love with.

On a warm summer evening, I’m at a dinner with a small group invited to meet David Candaux, a top Swiss watch maker. Normally, I wouldn’t find much interest in discussing the engineering and design effort behind creating the finest of watches, but my engineering team at Otto had been hard at work innovating a gear mechanism for our digital lock and I was learning a thing or two about the elegance of an intelligent and well designed gearing system.

David Candaux is a mastermind of elite Swiss watch making and I wanted his immense engineering talent with intertwined gears and minuscule drivetrains to vet the design of the innovative transmission system at the heart of the hardware that became the Otto digital home lock. The next morning, David, looking properly science fiction with his watchmaking magnifier glasses, is surrounded by our team of mechanical engineering guru’s in Otto’s hardware lab. We’re deep in stealth mode and this is the first time that we’ve exposed our gearing system to an outsider.

Time ceases to exist. Laughter erupts as his first reaction is “Wow, it’s so big”. He rocked our perspective that this is the smallest sophisticated motorized gearing system we’ve seen in a lock. The lab goes quiet as the only sound is the turning of the Otto drivetrain in David’s precise hands. Turn, turn, turn and stop. Repeat. Stillness, thinking, calculating reviewing…this continues with slight turns and then quiet. Ten minutes feels like hours as the turning stops and David peers up from his speciality glasses. There’s a collective pause in breath, waiting for his verdict. David Candaux’s words are as meticulous as his manner, “May I use this design?”

Otto Lock : A digital experience for home access

That was one of our many “Oh shit, we are on to something” moments at Otto. To deliver the consumer experience we envisioned, we had to invent a sophisticated and precise yet durable gearing system. Imagine if a Swiss watch and a Volvo had a ‘love’ child. Creating a new user experience meant we had to innovate at every level, including display, power, materials, bolt, battery, gearing and UX. We knew we could deliver the most secure lock on the market with the best user experience. Creating a new, exciting and addictive user experience guided our actions and decision making. It cost us time and money, but we understood that we couldn’t cut corners on reliability, durability or safety. We faced barriers that seemed unsurmountable and yet were able to stare them down .We plowed ahead, believing in our creativity and the perseverance of our team to find a way. And we always did. And I was so impressed by it. Every. Single. Time.

But there was a final barrier that did stop us. It is with great sorrow to say we have suspended operations at Otto. I have never experienced greater professional pain than I have in the past two weeks. Especially since this post was intended to tell the exact opposite story. I will explain what happened, but to be clear, the main point is to reflect on the story of Otto and honor the very ambitious team that set out to create an entirely new experience of accessing and sharing your home.

The team’s commitment to this was profound. Many individuals spent multiple weeks, multiple times, living in China working with our suppliers. They were creating precision parts and designing a manufacturing line that would assemble, test, and package Otto units at scale. After a long day at the office, a dozen or so people would get on a nightly call to support the team in Asia. They then worked to provide fixes, updates or additional support so their colleagues would not be slowed. During our builds, standard work weeks became 6 days a week with often scheduled company-wide calls nightly and over holidays, vacations and weekends.

Building Otto has been a triumph of engineering deeply interwoven with design. We created a culture of innovation and challenged ourselves to do the right thing. No company, large or small, had transformed the standard deadbolt lock into a fully intelligent, secure and reliable device and service for the home. It demanded breakthrough engineering work — from the initial design to working with our suppliers to create very precise components that could be built at scale and ultimately creating and managing a supply chain with dozens of suppliers.

Behind the hardware was the most secure, reliable and scalable service platform ever created for home access — and likely for any access system. Not to be outdone, the software team challenged themselves to complete the full user experience so that our customers would fall in love with the way they engaged the product and actually experience joy as they used it. The software team’s dedication to fast and guaranteed reliability at every level — firmware, app, cloud, connectivity and data provided the foundation for a magical experience in which Otto recognizes you as you approach. We were committed to doing a few things really well which we viewed as more valuable than having a lock experience work most of the time. It was a moment of celebration to see Press To Unlock, a signature experience, come to life as all the pieces executed to perfection.

The most thrilling part of the team experience was that we needed our team to be as integrated as our product. Job titles were irrelevant as people filled gaps as needed. Marketing, engineering, operations and software worked as one team to debug, solve problems and harden the product so it would be reliable and work as it should every time. Nearly every person told me how they grew, learned and experienced interdisciplinary teamwork at the highest level.

When we introduced Otto to the world, we struck a happy chord with the marketplace. Concerns about the $699 price point melted away as homeowners valued the security, design and performance of a new generation of home access that Otto represented. Our beta users raved as the product spoke for itself, and it was rapidly maturing. More importantly, it stood for what was possible and what we could deliver in the future. We could see people falling in love with our product and that couldn’t motivate us more.

Ok, so what happened? This past summer, we began fundraising for our next financing round. In early September, we were approached by a public company who understood the product we built, the engineering behind it, and the opportunity it represented. Initially they proposed investing, but quickly shifted the conversation to an acquisition. It wasn’t our desire to be acquired so early, but they helped convince us that the best path forward was to marry our innovation with their scale and distribution. We would focus our energy on accelerating product development as a global opportunity. This would be as transformational to them as it would be to us.

Our signed agreement restricted our ability to solicit other bids or fundraise and targeted a close on December 11th, 2017. The interim period was consumed with meetings, trips, lawyers, planning and intensive due diligence. While a tedious process, we built a close working relationship and shared their enthusiasm about our future together.

On December 11th, they called me and stated they would not complete the acquisition nor revisit the investment proposal. I was stunned. The reason is still not understood. We had extended our cash to get to the closing date, and now were left without alternatives. Rather than telling our dedicated team that we were accelerating our growth plans and their equity ownership might provide them some financial stability, I had to tell them we could not continue operations.

I define startups as companies that don’t have control of their own destiny because they rely on investor cash infusions to operate. When asked, “How’s business?”, I always replied “I don’t have a business yet, we’re still a startup.” Startups are vulnerable to market financing conditions and events such as what we experienced. This year, 2017, was a particularly harsh year for hardware startups. Additionally each day carried the potential of a new existential threat, from product to supplier to market to financing to people to regulatory to competitive. We learned to breathe through each one, stare it down and tackle it head-on. But even if we dodged a hundred bullets along the way, it only takes one to end it. I know these risks. They can be exhilarating. But in this moment, they are crushing. That phone call, and its timing, was the bullet we couldn’t deflect.

Otto assembled a stunning team of expert and talented individuals. We were proud of our diversity and our belief in each other. Each person had an important impact on our product, yet they could not have done it without their commitment to teamwork and mutual support. They faced every obstacle with resilience, grit and mental toughness. We had moments of joy and overwhelming challenges and we accomplished something that no one else had done, with a team that rose together on every occasion. Our culture was grounded with a great deal of personal responsibility and empowerment allowing each team member to shine. Team Otto was supported by investors that backed our audacious and ambitious plans. For their belief in us, we are forever grateful.

Service Day for Team Otto on December 11, 2017

To our beta users, pre-order customers, suppliers and partners, I’m so very saddened that we can’t deliver Otto, which was planned for first revenue in just four weeks. Seeing Otto light up as it welcomes me home and unlocks with a simple press, is a moment of joy that is now coupled with deep sadness. Otto will not ship next month and it may never ship. We will evaluate our options in the coming weeks and see what is open to us.

Team Otto created a product that is exciting, innovative and category defining. It wasn’t an easy or predictable journey, but it was incredibly rewarding. The teamwork, the friendships, the highs and lows, the sense of accomplishment that came from the opportunity to work with dedicated and determined team-players is something that I will carry forward. I hope the entire team feels this as well. The only comfort I can find at this moment is to believe that Team Otto and the technology and product we created, will serve as seeds to grow and change industries in new and exciting directions. And in that way, products that bring joy can see the light of day.

AFTERWORD (Jan 13, 2018)

I wrote the “So Close” post to honor the team, entrepreneurship and the courage of startup teams to go for it. Creating a category defining product requires risk taking — often at very uncomfortable levels. I love that spirit.

I anticipated readers would bring a wide variety of perspectives. I didn’t write the post to deflect blame, fall on my sword, or even as an epitaph. As CEO, I know my role and the responsibility for the company rests with me. I own that. I made decisions every day, some solo, and many with the support of a very talented and empowered team.

I’ve spent time reflecting on those decisions. Hindsight would guide different decisions, but I have a strong opinion that it is the wrong framework to reflect and learn. If we operated such that we couldn’t trust anyone, or any business deal, we’d never get shit done. Several of our most important business partnerships were based on trust relationships. The “One Percent Doctrine”, which states that even a 1% chance of occurrence must be treated as a certainty, would be a terrible way to run a company. Risk assessment is far more practical. As a hardware company, we had more than our fair share of risk. Did we misestimate the risks we faced? Did we manage risk in a reasonable way? Our reflections focus on our risk awareness and risk mitigation.

I’ve received dozens of supportive calls and notes from CEOs and founders expressing their understanding and sharing their stories. Product leaders of hardware companies recognized the uniqueness of the Otto lock. Founders, who completed successful acquisitions, shared stories about running close to the edge and operating without a safety net. They privately shared how easily their outcome could have been very different. None of it erases the disappointment but the conversations were incredibly helpful and provided important context to the risks and challenges of a startup.

I shared my experience to honor my team and because I felt it might be useful to others. Especially because it was painful and imperfect and real. I hope other entrepreneurs understand this stuff is really hard, bad shit happens all the time and that others are watching, but you can’t play scared or freeze up. It may not work out as planned, but the outcome isn’t final unless you let it be.

But entrepreneurs get it. They really get it. They reached out to help, share, support, and problem solve. We learn and grow together. We pay forward. And for this, I am truly humbled and appreciative.