For high-tech businesses, Europe is interesting not just as a sales market. According to DroneUA founder, the EU became a platform for joint research and development. This is not just a mere statement; his company launched ambitious projects jointly with the Europeans.
Over four years, DroneUA went a long way from a hardware manufacturer to a supplier of science-intensive services that use UAVs. According to the company’s cofounder Valerii Yakovenko, its evolution was driven, in particular, by the European Union market.
In his interview to BiznEC Together, a special project implemented jointly with the EU Delegation to Ukraine, the Ukrainian entrepreneur spoke about why DroneUA decided not to fight for a mass consumer and how it found its science-intensive niche.
Do you think that your project “took off” because of luck or thanks to a precise analysis?
When we started in 2013, the drone market was in its infancy. There were selective projects, but no mass production and deliveries.
We studied trends in robotics and drones and agricultural forecasts (as we wanted to apply our technologies in the agricultural sector), and realized that this is an opportunity.
Along with that came the realization that we won’t be able to compete in the segment of drones for mass consumers.
Today, by the way, China has completely occupied this niche. Drones for manufacturing industry is a smaller-capacity niche, but competition is less intense there, too, because one has to be on his toes in this industry and constantly work with consumers.
Nevertheless, any forecast is still just a forecast. There is always a chance that it’s a wrong one. But I would say that our forecast was quite prudent. The probability of our project not “taking off” was about 20%. And it wasn’t even about the project itself but that our technology simply might not have caught on.
There is a meme in our company: “If Valera has a feeling, we should do it”. So, I had the feeling that it could “take off”.
How much time has lapsed until you made first money on drones?
Me and my partner Fevzi spent some 8-10 months on studying the technology, registration of trademarks and legal paperwork. During the first year, we kept investing in our project without knowing whether it would pay off or not, but it was a romantic period. Our team consisted of two people. We didn’t want to bring in more people until we knew that our business is going to work.
The two of us were learning to do everything ourselves: soldering, putting together aircraft, flying, working out ICs, radio control systems and frequencies, programming microcontrollers for radio controlled aircraft. These were totally new subjects for me.
After making first $200, we knew that we have to sell. I still remember this project in all details: who the first customer was, how our talks went, what the contract amount was.
Who paid you these first $200?
Vasyl Khmelnytskyi’s Ukrainian Development Partners (UDP). This company was a customer of my another business venture (a digital communication agency — editor’s note), so that was how we reached it.
What did you sell to UDP, the drone itself?
Drones help gather precise metric data and digitalize the actual situation on the construction site. What we sold to UDP was the possibility to control all construction phases using a drone. The company would have had 3D models showing precise contours of buildings and availability of equipment on the site.
We offered them a “smart” tool that could strengthen control over construction crews. Drones perform this function much better than humans. We borrowed this technology from the United States.
But they wound’t budge. Instead, UDP bought an aerial photography of their projects for the advertising department. That, of course, wasn’t the service we wanted to develop, but it was the first money.
How much time went by until you sold a technology?
Everything happened very fast, two days after the deal with UDP. And one week afterwards, we got another customer, from the agricultural sector.
Please, explain how this technology works? How it makes life simpler for agricultural companies and farmers using it?
Our product consists of four blocks. These are the drone itself, camera and sensors, software that processes information gathered by sensors, and software that analyzes this information.
In agriculture, there is a number of functions that drones perform. Humans can do it, too, but technologies do a better job and at a lesser cost.
Cameras installed on drones are different from regular ones. We use them in the earth remote sensing technology that has appeared back in the 1970s. The idea is that different plants and soils with different physicochemical properties have different electromagnetic reflection properties. In other words, light reflected off the earth or plants can provide information about their characteristics. Everything’s as simple as ABC.
In the end, we receive information about the condition of plants and whether or not they are in a stressful state. Thanks to this technology, we were able to forecast whether a particular field would turn yellow in two weeks’ time.
For farmers, it was the chance to save harvest. One saved hectare of harvest is a thousand dollars. An average field has 70 hectares, and a drone would definitely find some 3-5 hectares there, which could be saved or where the crop yield could be increased.
When our project kicked off, our technology simply provided an answer to the question of whether a plant is in a stressful condition. In the beginning, we could not tell a farmer why his plants are in stress and how he could save the harvest. But we have improved our technology, and today, we are able to tell what micro- and macro-elements and what fertilizers a plant needs. That was the pitch that won over farmers, for they could now solve the problem way before it was becoming visible. It was the opportunity to make timely decisions.
Here’s how it worked without drones: one agronomist oversaw 10 fields 70 hectares each, but it was physically impossible for him to even visit all of them. All problems were discovered only at the time of harvesting. The agronomist blamed machinery and weather – the latter could provide a useful excuse for almost everything. Our technology helps save resources, both financial and human.
I cannot say that we are unique of some kind and that we do something nobody else in this world does. An idea could come across the mind of several people, but the one who makes it come true ahead of others wins.
In other words, you sell not drones themselves but services and information?
I would put it differently. What we sell is not the process, not software and not the drone as such but the niche knowledge of applying technologies. The format of our relationship with a customer may differ depending on the customer’s needs. Large companies, such as Kernel or Myronivskyi Hliboprodukt, want to buy a drone with software and train their own specialists. Small farmers want us to come over and provide a turnkey service. We have even established a separate enterprise for them, Drone Agroservice, that has its own vehicles, drones and people.
In the beginning, we were taking on any job. But over time, we analyzed the situation and cut off the unnecessary “table legs” — non-science-intensive and non-marginal areas.
You said that there was no super-uniqueness. But what was your pitch, then? What’s the advantage of DroneUA?
What worked out for us from the very start was the competitive advantage I don’t like — price. Our customers had three offers on the table: from an American, a Swiss and a Ukrainian company. While the price of the two former ones was 25 thousand euros, ours was 2.5 thousand euros.
Why you were able to offer a price 10 times lower?
Had you been developing a technology using drones some 10 years ago, you would have had to spend 1.5-2 million euros. When you’re a pioneer, rest assured that you would step on all possible rakes and the invested money would need to be returned somehow, hence the high price.
When we started to work, the world has already had some experience; there were places that we could “borrow” from. We saved on many stages, and were able to bypass many rakes.
We work with an open code and do not hide it; on the contrary, we’re proud of it. After all, we saved on development and could focus attention upon application of the functional, upon gaining expertise in this field and communicating with customers.
What other areas do you plan to develop?
Underwater drones are going to arrive soon. They could be used, for example, to inspect underwater communication systems. We will test them – that’s the only way to find out whether it’s going to work.
How many specialists do you have right now?
About 30. These are pilots (drone operators), engineers, data processing specialists, sales managers and project heads.
Project heads have a very responsible job. Working with personnel of Ukrainian companies, especially agricultural ones, requires constant attention: they need to be congratulated with holidays, and we need to remember their wives’ birthdays.
Is your company paying itself off already?
The thing is that we have been profitable from the very first day. We simply disregarded those (mostly temporary) expenses for the year of studying the technology. We made a precise calculation of our expenses and profit margin, because we’re a business, not a startup.
Are you considering the option of selling your company, even if in some distant future?
Never and to no one. I won’t sell even a stake in it. We have the room for growth, and not just in Ukraine.
Where else does DroneUA operate besides Ukraine?
During the first two years, we had selective sales only. Our operations became systemic only with the launch of exports, when we opened our company in Riga in the winter of 2016. Although it turned out for us to be a long sequence of rakes and tries. We wanted to completely duplicate the business model that worked in Ukraine and found partners, but unfortunately, they weren’t as competent in agricultural business as we were. On top of that, the market in Europe is different.
Our technologies for agriculture didn’t catch on in Europe, and therefore, we had to quickly change the business model.
We switched to geodesy and topography. Our equipment is quite suitable for these tasks as well – all we needed to do is to install different sensors on the drone.
What business has eventually become your customer in Europe?
These are extractive companies, such as small sand quarries. In fact, we help companies control how much sand they produce a day.
Today, we have about 20 active customer companies in Europe. These are the businesses from Germany, Poland and Moldova.
By the way, we had talks with Ukrainian extractive companies as well, but in Europe, it took less time.
From the viewpoint of money, what’s the share generated by your customers in Europe?
Last year, our turnover amounted to some $3.5 million, of which $600 thousand was brought by European customers. In other words, the EU is one-fifth.
Do the Europeans buy the drones per se?
In the past, yes, but in the last half-year, no. Again, everything comes down to price. While in the beginning, drones from competitors cost about 20 thousand euros, today, you can find offers on the market at less than a thousand euros. During four years, we delivered 350 drones to the European Union.
By making hardware only, its’ very easy to fall out of business, for there will be always someone out there who would ship cheaper. Therefore, we are competitive only where there are science-intensive processes, where there is data analysis and interpretation. We accumulate knowledge and create added value.
For us, the EU market is not so much a sales market as it is interesting for us from the viewpoint of finding partners, joint research and development of niche products.
Currently, we are working with several Swiss companies on joint projects. Also, we’re developing solar battery-powered drones jointly with the European Space Agency. This project is now in the pilot operation phase: we’re testing drones and making changes to scale the solution.
Recently, we have received research financing from National Geographic. We have already finished gathering information, and are now doing research.
In addition, we are a subcontractor for the EU’s Horizon 2020 program. I believe that research programs like this are very important for Ukrainian high-tech businesses. I really want our companies to directly participate in these programs. We do not have direct contact yet, and that’s a big drawback. In the future, I plan to submit applications directly.
Our personal evolution from making hardware to a “smart” service was influenced, in particular, by the EU market. Had we confined ourselves to the Ukrainian market only, we would have never achieved what we did achieve.
By Iryna Gudz
The article was originally published on Delo