Aerotronic with Chris Chance

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In this episode, I talk with Chris Chance, Co-Founder and CEO of Aerotronic, which focuses on power line inspection and predictive maintenance with manned helicopters, AI. They also design and manufacture our own single-rotor autonomous helicopter. Chris and his co-founder had a very unique journey with creating Aerotronic. He is a helicopter pilot and aerospace engineer who had knowledge about drones and saw a huge gap in the market for hardware with the mission of inspecting power lines.

Chris shares the impact being in Tech Stars has had for Aerotronic and what they learned from that experience. He also discusses the roadmap for the company, and how future expansion both geographically and technologically will shape their growth.

Topics In This Episode

  • Revenue Metrics

  • Different categories of customers

  • Creating a successful business model around an idea or product

  • How future expansions will factor into growth of the company

  • Emerging technologies and their effects on the market

  • Expansion plans and the geographic impact on their value proposition

Contact Info

Twitter: @_chris_chance

https://aerotronic.co/


Transcript

Mike Kelly:
All right. Welcome to the Startup Competitors podcast. Today I have Chris Chance who's the founder and CEO of Aerotronic. Chris, welcome to the show.

Chris Chance:
Thanks for having me.

Mike Kelly:
All right. Let's start off with a pitch for Aerotronic.

Chris Chance:
So Aerotronic, we do power line inspection and predictive maintenance with manned helicopters, AI, and we also design and manufacture our own single rotor autonomous helicopter.

Mike Kelly:
Which I'm looking at an early prototype of one of those right now, right?

Chris Chance:
That's correct.

Mike Kelly:
I would say that's four feet?

Chris Chance:
It's about six and a half.

Mike Kelly:
Oh. Six and a half. I'm that far off. Okay. Wow. So a six and a half foot, red, drone-looking thing. Power supply has been taken out of it, or I'm guessing the whole drive train has been taken out of it?

Chris Chance:
Yeah. For the most part. I mean, it's a static display for the office.

Mike Kelly:
And then, so when that thing is operational, what, is that battery powered? Is it gas powered?

Chris Chance:
There's a hybrid drive train that we developed specifically for this aircraft. It's single cylinder gas and electric. It allows it to fly one way for 500 miles, but really, we're not a drone company. Nobody pays us to fly their drones, it's just a means to an end.

Mike Kelly:
Right. So you said today you're still doing that with manned flights.

Chris Chance:
Yeah. We use regular manned helicopters.

Mike Kelly:
Talk a little bit about that. When you're selling, you're calling a power company like Duke or somebody like that?

Chris Chance:
Right. Our customers are the power companies themselves.

Mike Kelly:
Okay. Then do you own helicopters? Do you rent helicopters? How does that work?

Chris Chance:
Right now we've been renting the helicopters. There is one customer we're talking to where they have some unique requirements that might cause us to lease a helicopter so that we have dedicated access to one aircraft. But, no. Typically we rent.

Mike Kelly:
And then you have to rig these up with special equipment, I'm assuming camera equipment and stuff like that.

Chris Chance:
Yeah. We have some special camera equipment that we make the sensor packages of visual camera, UV camera, infrared and we also have LiDAR, like a big laser scanner thing. So we package that all together and stick it on the helicopter.

Mike Kelly:
All right. For somebody who is listening, paint a picture, use whatever vanity metrics you're happy to use to maybe tell a story of where you guys are on the journey as a company.

Chris Chance:
My favorite one is when the helicopters are actually flying, the company currently today is generating revenue at $25,000 an hour. And then when that, we get fully progressed in our technical roadmap, that will go up to about $50,000 an hour.

Mike Kelly:
And what is the primary driver of that efficiency?

Chris Chance:
We get paid per mile, but our costs are per hour, so if we can fly the helicopter fast enough then we get an arbitrary amount of revenue per hour.

Mike Kelly:
So the faster those sensors are working and you can process the images and...

Chris Chance:
Absolutely.

Mike Kelly:
Right.

Chris Chance:
Yeah.

Mike Kelly:
Got it. Which is, it's in that, I'm assuming this, correct me if I'm wrong, I'm assuming the machine learning pieces in that image processing?

Chris Chance:
A good chunk of it is. Yeah. There's actually some additional things that have to go on for contextual awareness or a comparison between different sensor platforms. You never want to rely on just one sensor to get data. It's far more accurate if you can have multiple sensors with different approaches to the analysis and then you use statistics to amalgamate that all back together. Some are robust.

Mike Kelly:
And what types of things are you looking for? I mean, so in my mind an obvious thing is a broken line, something stupid simple like that. But that's, I'm, that's not what you're looking for, right? What are the types of things that you're trying to catch?

Chris Chance:
Right. So features are always reflective of the market. That's kind of really a market question. The customers have two different groups that we interface with. One is the Vegetation Management Group and the other is the Pole Top Maintenance Group.

Chris Chance:
So the vegetation piece, they're looking for trees, their clearances to the lines, and speciation, what kind of trees so they can forecast when they're going to need to take some sort of management action, on which tree and that really helps them get their cost down.

Mike Kelly:
Okay.

Chris Chance:
That's one data product. The other data product that we have is geared towards the Pole Top Maintenance Group. They're concerned about keeping the lights on. The pole top components, there's a whole host of stuff when you look up at a power pole and we give them a report of exactly what's broken and where it is so that they can easily digest that and plan when they need to go work on things.

Mike Kelly:
Because it's such a redundant system, you can have broken stuff and it's not necessarily going to cause a blackout or a loss of power?

Chris Chance:
I think a better way to think of it is graceful failure. These components are designed to go from working to not working in a slow, gradual process. Because you don't have a lot of redundancy, that's really important and they do a good job of it. What we do is we help them forecast when it is that they need to pay attention to what.

Mike Kelly:
Okay. Got it. Before we get into the competition stuff, how, how, how did you end up here? This feels so niche.

Chris Chance:
It was a very unusual journey. My first company, we made a hardware, software stack drones for precision agriculture and like most first-time entrepreneurs, I think I made every mistake that there was and may have invented a couple. It was terrible, but I managed to give it to an acqui-hire which also was a little shaky. The company that acquired us went out of business for unrelated reasons shortly thereafter. It was just a disaster.

Chris Chance:
But, I really liked entrepreneurship, so I went back and I started Aerotronic with my confounder and I said, "Hey. So I'm a helicopter pilot and an aerospace engineer and I know a little bit about drones. There's a huge gap in the market that I see coming for hardware that looks exactly like this for this kind of mission." That was correct. I got that part right. We built the solution for that gap and totally nailed it. What we didn't see coming was no one was going to buy it. Selling individual airframes is a terrible business model and none of that worked.

Mike Kelly:
So you originally built these to sell to the power company themselves? Or to other contractors? Whoever.

Chris Chance:
Or to anybody. Anybody. Right. We built it to be a flying pickup truck that's as general purpose as possible, provided there's some limitations if you're inspecting a linear asset of some kind.

Mike Kelly:
Got it. Okay.

Chris Chance:
So that didn't work. We realized that we needed some fresh thinking and some coaching so we applied to Techstars and were very fortunate. We got in. It's got less than a 1% acceptance rate, but somehow they picked us.

Mike Kelly:
Because you're the cool red drone, dude.

Chris Chance:
Well, hopefully that's part of it. Yeah. So Techstars was amazing. We had amazing...

Mike Kelly:
Did you do that up in Chicago?

Chris Chance:
We did that in Detroit.

Mike Kelly:
In Detroit. Okay.

Chris Chance:
That was Ted Serbinksi's program. He's amazing guy and we had tons of access to really, really smart people to help us iterate and work through business models and a lot of the zeitgeist that Techstars has developed about how startups should work and what makes them not work. That process really transformed us and out of that came, hey, we need to be a service business. We need to focus on one thing. That one thing needs to obviously have good unit economics and have a huge market and it needs to allow us to use our existing work in a way that's going to give us a big competitive advantage and will allow us to jump off into other markets in a few years after we've really started to gain significant market traction in that space. The thing that fit all of those criteria was power line inspection.

Mike Kelly:
That's a great jumping point. When you look at the power market inspection market, who are your competitors?

Chris Chance:
There's really two camps that are related to us. There is traditional aerial inspection, which I would say probably has 10-20% market share right now. Numbers are a little fuzzy. They're manned helicopters and you're either doing vegetation patrols with aerial LiDAR or they're doing pole top inspections with a dude with binoculars. Sometimes they're a little more sophisticated about that and they have big fancy cameras and stuff. But, overall, it's a pretty manual, clunky way to do it and the technology is all from the early '90's. It's okay. It works. But it's not amazing.

Chris Chance:
The other class is slick tech startups and they're trying to use drones for this stuff. Blah, blah blah. They don't use manned helicopters, which there's a lot of power lines. It's like using a drone for power lines is like trying to mow a golf course with a weed eater. It's just you have a fundamental scale problem.

Mike Kelly:
I like that. Okay.

Chris Chance:
And by that, I mean little quad copters or something or even fixed wing drones, it's like... And then they have, there's regulation problems and there's... I could go on, but those are the two groups. So we fit... we kind of have pulled successful elements from both clusters of competitors and try to make like a best of album with our company and that seems to be working.

Mike Kelly:
Before we turn on the mics, we were talking about your prototype that's in here with us and I had asked if someday you guys would move to that down the road. Is that still part of the plan?

Chris Chance:
Yeah. Absolutely. So just to be clear, because the messaging can get a little weird. Right now we do not use drones commercially, we use manned helicopters. When we do switch to drones, we will use ours and only ours. We purpose-built it specifically for this and it has a lot of capabilities that do not exist in other aircraft. The interesting point, the reason that we would do that is, it's not so much for the cost structure. A lot of people assume, hey, so these drones are going to improve your cost structure and that's what's going to move the needle. Totally not true. If you sit down and you really derive, we only pay $10 a mile for the helicopter, right, but our retail rates are $1,000 a mile, so there's not a lot there to be saved.

Chris Chance:
Where that makes a big difference is it allows you to do things massively in parallel. We could have a hundred, we call this dauntless, we could have a hundred and each collecting at 50 miles an hour. That allows us to hypothetically collect at 5,000 miles an hour, so you can do large customers very quickly. Also because all of our processing is done in the cloud and it's autonomous, it's easy to split that up, parallelize it so that you can get lots of work done very quickly. That's really the reason for the drone.

Mike Kelly:
Which you could not spin up 500 heli... very likely, you couldn't spin up 500 helicopters on command.

Chris Chance:
No. I mean... and that's another reason why we rent is that's going to be half a million to a million bucks just parked on the ground before you even turn it on. Storage, maintenance, training, blah, blah, blah. You do not want to have 100 of these. That really defines the maximum size of companies that rely on manned aviation is you get to a point where your fixed costs get really high in order to get your capability up and your capacity up, but the only way you can make money is on these massive jobs. You're really missing, when you chart this out on a piece of paper, you can see visually you're missing a huge chunk of the market that way and you just paint yourself in this corner to where most of the market is no longer profitable to access. You need the capacity that you get from manned helicopters, but you need the costs of drones. And that lets you go anywhere in the market and make money.

Mike Kelly:
How big of a player are you today in the market?

Chris Chance:
Tiny.

Mike Kelly:
Tiny? Okay.

Chris Chance:
I'm the captain of the S.S. Driftwood. But we're getting bigger quickly.

Mike Kelly:
Talk a little bit about that journey. At what point, so you took, I guess I'll go directly to one of the things that you said in your outline of Techstars. Did good at the one market, become, get significant market penetration there before you start to look at how do you apply that technology in other markets, right? I guess, the question that I'm interested in is how long do you think it takes you to get to big enough market penetration in utility, specifically for you to then say... or line inspection, maybe that's even the right way to think about it is just line inspection. Where would you go next and how different would that be?

Chris Chance:
Yeah. There's two directions that that could go. One is you just keep your foot completely on the gas and focus exclusively on one thing until you just can't grow anymore and then you start to worry about expansion. That's a totally valid strategy. Not the one that we're going to take.

Chris Chance:
Our thinking is is when we develop technology and we have self-sustaining business unit built around power lines and it in no way impacts future sales on our core business, then we can repackage that technology, set up a separate team, and go shop it around.

Chris Chance:
The likely place that we'll go will be forestry due to the technology that we've had developed for the vegetation management. That may not prove to be profitable, I don't know. Frankly, that's far enough off I haven't done a ton of diligence.

Chris Chance:
There's one other are that I find really interesting and that's mining prospecting. One of my family members owns a copper mine so I know a bit about how the mining industry works and it's really fascinating.

Mike Kelly:
Wait. One of your family members owns a copper mine? That's not real.

Chris Chance:
Yeah. That's a real thing.

Mike Kelly:
People still own copper... that, okay. All right. Somebody owns a copper mine.

Chris Chance:
Yeah. Well, I'm from Alaska. That's a lot more normal.

Mike Kelly:
Oh. Okay. Now that actually feels believable. All right. Right on.

Chris Chance:
Yeah. There's a lot of inefficiency. Because mining is so fundamental to the economy that really influences GDP, I think if you're like me and you want to make money, but you also want to make a difference in the world, paying attention to the utilities and the things underneath them like mining and just basic industrial activity is really a good place to drive improvements for everybody.

Mike Kelly:
Yeah. So when you look at emerging technologies, you're, I mean, you're kind of already on the bleeding edge in a number of ways, what are the things that you see that are just emerging right now that are kind of exciting to you that you think will have, that you'll be able to apply in the work that you're doing?

Chris Chance:
One thing that I think is really interesting is the shift in how technology is developed and implemented. You used to have this cycle where you'd have close source development that would stay in one company and then eventually the patents would expire and everybody would get their hands on it. Or occasionally you'd have something that went through DARPA and the same thing would happen on in just a shorter time scale.

Chris Chance:
The technology that really is driving a lot of growth right now is in the machine learning space and because it's all powered by universities and they publish all their training data and weights and stuff, commercial enterprises are able to incorporate advances in ML and robotics way, way faster than every would have been possible before. I think that's a subtle but very important shift in how things get done that I don't know if everyone full appreciates.

Mike Kelly:
Anything else on the, I guess, around bleeding edge technology or things that are coming up that you look to and you're kind of excited by because you think you'll be able to leverage it?

Chris Chance:
Yeah. Some specific technologies that I find really interesting. Self driving cars are developing a lot of unique solutions for their problems. They need to do a real-time analysis of spacial data. They need to have really high resolution sensors. They need to coordinate between each other. These are novel problems that have never been solved maybe outside of a research lab, but even then not really. There's going to be a lot of spillover of that technology into adjacent industries.

Chris Chance:
Case in point, we use our LiDAR sensors are developed by a company called Ouster and they do self-driving car LiDAR sensors and they have a bunch of unique features specific for feeding into a machine learning workflow. Whereas Legacy sensors, good luck, right? There's just, fundamentally, the data was never structured that way and doing anything with it is going to be a tremendous pain in the ass.

Mike Kelly:
That totally makes sense. Nice. When you're selling Aerotronic, when you're in the room pitching, do they care that you're technology enabled or do they just look at capability and track record and say, "Well, you're roughly the same cost or a little bit cheaper than the way we typically do it."?

Chris Chance:
Yeah. That's a really interesting dynamic where you have us, we're tech-enabled services and then we're talking to utilities. One is to stay in the realm of generalisms than, "Oh. Wow. That's going to get clunky." Reality's more nuanced than that. You actually talk to 12 different people in that company. So depending on who I'm talking to and what group they're from, there's a wide range of narrative options...

Mike Kelly:
Great point.

Chris Chance:
... for me to pick from.

Mike Kelly:
Yeah. Yeah. Because it's an enterprise sale. So you're... yeah. Yeah. You're bringing along a bunch of people on that journey.

Chris Chance:
Yeah.

Mike Kelly:
How long is the sales cycle?

Chris Chance:
About six months.

Mike Kelly:
That's good. That's, so, I'm specifically thinking of one of our portfolio companies where we have a pretty long enterprise sales cycle. We've, I feel like we've been able to get it done a little bit, but it's still just, it's just a process each and every time.

Chris Chance:
Yeah. We are just wrapping up with our first sales cycle. We're in the very final, final stages of contract negotiation. I can't really talk about with who just right this second, but we should have a contract in place in the next two weeks. That's great. We've been doing around $50,000 a month in revenue since December on pilots, demos, studies, these sorts of things. That's expected to continue or grow.

Mike Kelly:
So this will be your first long-term, locked in...

Chris Chance:
Right. Yeah.

Mike Kelly:
Congrats, man.

Chris Chance:
Yeah. Thank you.

Mike Kelly:
That's awesome.

Chris Chance:
It's cool to make the jump from, this is like dating and then now we're moving in together, so it's really exciting.

Mike Kelly:
That is cool. Can I ask how, and your answer could be it totally depends, but is that, is there a typical lengths for that kind of contract? Is that like a two year commitment, a six month commitment? What does that look like?

Chris Chance:
Yeah. It looks like we're going to be on a three year commitment. We've kind of gone out of our way to incentivize that because one contract is brittle, so you want to make sure that you have predictable revenue for a long enough period of time that you could go build up the sales engine and get multiple contracts simultaneously.

Mike Kelly:
Nice. And then when you think about expansion, is that, because I'm thinking about the physical assets that it takes in your business, I'm assuming you do that regionally and you slowly start to spiral out from a geographical region or could your next deal be in California and that's cool, let's do it?

Chris Chance:
Yeah. California is fine.

Mike Kelly:
Okay. So you don't... it doesn't matter because you're renting helicopters, not buying, it doesn't matter where you're going.

Chris Chance:
Right. Yeah. The economics support... I don't want to talk about how thick our margins are in case there's any customers listening, but ... the economics really support global deployment.

Mike Kelly:
Wait, so it's interesting, you replied really quick California is fine. Is there a state I could have said that wouldn't have been just because you know that this is not as big of a problem in that state. Like Kansas doesn't have a lot of tree encroachment, in my mind anyway. Maybe that's not true. So just less of a problem there?

Chris Chance:
Arizona doesn't have a lot of vegetation and that equipment doesn't... there's not as much weathering that goes on.

Mike Kelly:
Interesting. So there are markets where it's just not as...

Chris Chance:
Yeah. There's... the value proposition is stronger in some places and weaker in others. That's just a function of the geography of wherever you're talking about. But, no. I mean, our... as we've calculated our TAM is about 2 billion annually.

Mike Kelly:
Does your cost of goods sold change by geography? Specifically what I'm thinking about there is whether it's to fly in certain mountainous regions you need better trained pilots who cost more or different... Is there anything like that that is significant or the margins are big enough it's all a wash?

Chris Chance:
Definitely nothing that's going to make its way to the bottom line, but there is the technical challenges with different regions are somewhat interesting and I think it speaks to a broader point about how automation gets proliferated through the economy. You start off with basic automation that's only robust enough for simple environments where everything is very structured.

Chris Chance:
Like Arizona, you can see all the poles, flat ground, good visibility, nothing crazy. And then you've got someplace like Vermont where there's tons of hills, tons of trees, tiny old lines that are super broken, winds and weather and all this stuff. There's a whole spectrum in between there. As we develop new technology, which we subscribe to the agile development method, of course, so we're constantly coming out with new features and then as we iterate them, they're able to penetrate into more and more complex environments. So the more complex environments require a little more hands-on supervision to make sure that everything goes smoothly. That does increase our costs a little bit but not enough to matter.

Mike Kelly:
You started 2015?

Chris Chance:
Yeah.

Mike Kelly:
Or you started your first company in 2015?

Chris Chance:
No. I started my first company in 2012.

Mike Kelly:
Okay. So 2015, when you started this company, what would you say are the biggest one or two things that you've learned between then and now? Specifically in scaling this business.

Chris Chance:
The biggest thing is I think a lesson that all business owners continuously has to learn is figure out what you're not good at and then find somebody who is good at that to fill that gap. Especially young business owners, you tend to think, "I'm good at everything and if not, I'm going to get there." Maybe you will get there, but in the meantime, it's going to be a lot easier and you'll get there a lot faster if you find somebody to tell you what you're not good at and how to do it. Super important. That's the biggest thing.

Mike Kelly:
Did you get a lot of that out of Techstars?

Chris Chance:
Oh. God, yes. Definitely.

Mike Kelly:
Okay. Because I'm trying to think where most people would that kind of direct feedback, right? Most, my experience has been most people are shy to give an entrepreneur that kind of direct feedback, right? Where in a program like Techstars they're not going to be shy at all.

Chris Chance:
No. No. And you're going to listen, too, because the guy who's telling it to you had an exit and he personally walked out with 100 million bucks and he's 30 and he understands exactly how all this works. If you don't listen to him it's because you're an idiot, right?

Mike Kelly:
Right. All right. And then number two... sorry. Didn't mean to cut you off.

Chris Chance:
Yeah. No, I... the other thing that I've learned is an appreciation for this test hypothesized test cycle. It's one thing to understand in the abstract. I'm like, "Oh, yeah. Of course I need to guess and check because that's how the universe works." It's another to actually learn that skill in an operational fashion and, okay. How do I actually apply this right this second and figure out what we need to know. Maybe what we think we know is wrong or maybe there's a better way or whatever. How do you operationalize that? That's the biggest, other big thing I learned.

Mike Kelly:
Do you have an example of you doing that?

Chris Chance:
Yeah. There was a lot of that when how we arrived at our current business model. When you first come up with a new model, your initial guesses about what people care about and how the industry at large works are just crap. They're always wrong. So you need to get out of that very quickly. We were able to deploy some, basically, scientific method to figure out, okay, what do people care about? It's not what we thought, but we were able to confirm it with a high degree of confidence because, yeah, basically we used the scientific method explicitly complete with statistics and everything. Just there's a pre-existing body of thought on how to discover things and be confident about them.

Mike Kelly:
This is for line inspection in particular, right? When you were trying to... for this business model?

Chris Chance:
Yeah. Mm-hmm (affirmative).

Mike Kelly:
Most people would tell a story of I just went out and talked to X number of utility customers, they told me this, and I know I discount that until they actually sign a contract and blah, blah, blah. Did you do something different than that? Was it not just going out and talking to potential customers?

Chris Chance:
Yeah, we did. I'm a really big fan of a movement called Bayesian rationality, which is Bayes law, which is I think is a crowning achievement of statistics, personally, and how to apply it to real life situations. Because often times it's computationally attractable to sit down and try and like, "Okay. Uh." You get stuck immediately. You can't do it. But there's a whole philosophy around it. And yeah. Maybe it's not fully rigorous in the scientific sense, but you can definitely take pieces of information and assign bits of confidence and cluster things together and assign some weights. You can get a little mathy with it if you want to.

Mike Kelly:
All right. Right on. What's the biggest thing you're working on now, personally, that you want to level up in from a business perspective?

Chris Chance:
The short game I think everybody has by default just from being in the entrepreneurship game. The long game, everybody is like they have their pet mission that they want. It's the middle game, the six months out window and so much of that is just on operational proficiency and having solid execution, documenting things, making sure that your project management is done, make sure your budgets are super tight. Just being a good middle manager is a really underrated skill. So that's something that I am putting a lot of energy into right now.

Mike Kelly:
I love that answer. That is a very surprising answer. And it's very timely. I want to say either this morning or last night, I can't remember when I saw this, but The Wall Street Journal, maybe The Wall Street Journal, I can't remember who even the publication was, but it was something like America's going to be saved by heroic middle managers. Something like that. It's like that task focus, that mid-game task focus is a really powerful thing. That's cool.

Mike Kelly:
All right. If people want to get in touch with you and learn more, how do they do that?

Chris Chance:
I'm on twitter @_chris_chance. Leading underscore, great trick if you're trying to get something that's taken. And then of course I'm on LinkedIn and our website is aerotronic.com.

Mike Kelly:
Awesome. Thank you so much, Chris, I appreciate it.

Chris Chance:
No sweat.