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Rick Kriss of KLATU: “You do not need venture capital (VC) to start a business”

I also like talking with customers, business partners and vendors. I especially like it when they express appreciation for our products and how different they are. Truth be known, most all of the ideas I have, many of which are now protected by U.S. and International patents, were inspired when I learned about how people […]

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I also like talking with customers, business partners and vendors. I especially like it when they express appreciation for our products and how different they are. Truth be known, most all of the ideas I have, many of which are now protected by U.S. and International patents, were inspired when I learned about how people do their job and where the points of pain, cost and opportunity were. As a former bean-counter, a product which reduces costs and has “payback” is so much easier to sell.


As a part of our series about cutting edge technological breakthroughs I had the pleasure of interviewing Rick Kriss, CEO and co-founder of KLATU.

Rick Kriss and his team first discovered reliability issues in deep-frozen temps (-80°) when they developed a simple temperature monitoring system for a major pharmaceutical company. They found that about 50 percent of biopharma cold-storage systems were showing signs of mechanical stress, some showing signs of imminent failure. They soon learned that refrigeration failures are a common and dark industry secret affecting more than 500,000 cold-storage freezers and one million refrigerators used to store the nations precious biopharma research and life-sustaining products such as blood, cancer therapies, vaccines and invitro fertilization materials. He brought to KLATU 25 years of prior experience in the field of IT networks and he was an early participant in the development of international standards for wireless sensor networks.


Thank you so much for doing this with us! Can you tell us a story about what brought you to this specific career path?

It was a while ago, but I did not think about college until two years after I graduated high school. When I got into college, I was told I needed to choose a major. I picked business because it seemed that was the only degree that connected with a decent job.

Once in business school I majored in finance and accounting. The work was hard and I always struggled with where I was going. But looking out the window, I saw the computer science center and it seemed like a palace reserved only for those with acuities and skills conferred by god.

In my junior year I took a class in statistics. It gave me the idea that you could explain the future if you liked math, and it provided me a good reason to spend time in the computer center. That is my earliest recollection of what became a life-long interest in computers and what is now fashionably called machine learning (ML) in the Internet of Things (IoT). I mention “fashionably” because most artificial intelligence (AI) and IoT startups you read about, that claim to have invented a new quantitative model to print money, fail to mention that most machine learning models in use today were invented over 200 years ago by gents named Gauss and Legendre.

So, I graduated college intent on changing the world –but got distracted starting a shoe company named AVIA. That made no sense, except at the time I was living in the running capital of the world, Eugene, Ore. — and running was pretty much what everyone was doing. In those days, NIKE did not make women’s shoes and they sold exclusively to sporting goods stores. We figured out that women also like to run, their feet do not fit well into a men’s shoe and they prefer to shop at Nordstrom’s. The company sold to Reebok after a few years, but I moved on to work for Sage Computer Technology, one of the first micro-computer startups. Sales doubled every four months; it was like riding a rocket.

As time moved on, my career turned towards embedded wireless sensor networks (now IoT) for monitoring equipment — initially relating to water quality. That is how I learned about industrial automation systems, closed-loop process control, boilers, building management systems and the like. I became a pilot and aircraft owner and I learned how major airlines apply maintenance on aircraft engines based on measured condition instead of schedule; but 95 percent of the industry today still applies maintenance based on schedule — it makes no sense.

The idea of monitoring high-tech refrigeration systems in life science companies came in 2003 when a major drug company in San Diego needed a cold-storage temperature monitoring system and was willing to help fund the project.

About three years after the system was deployed, we learned that cold-storage equipment failures are frequent and expensive events in terms of operational efficiency and maintenance costs. But we also learned that with the addition of a few more inexpensive sensors we could detect changes in equipment performance which indicate the onset of mechanical stress and equipment failure–days, weeks and often months before equipment failures actually occur.

Predictive failure analytics quickly became the number one feature of TRAXXEKG™ and remains the centerpiece of our strategy today — TRAXX™ is the brand name, and “EKG” (like the heart health test that detects heart attacks and rhythm problems) is how we describe the analytical features which differentiate us from our competitors.

When this all started 12 years ago, KLATU was 100 percent a contract software development company working for cold-chain companies who today have multi-billion-dollar market values and trade on NASDAQ. Today, TRAXX product revenue for KLATU is approaching 70 percent, the remaining 30 percent is strategic software development for our original equipment manufacturing (OEM) partners.

In short, my career-path followed an interest in wireless sensor networks and software analytics, and I just got lucky with the decision to target refrigeration in life science applications.

Can you share the most interesting story that happened to you since you began your career?

Back in the day, the president of a well-known computer company, I will call him Mike, wanted to buy a computer company I was working for as the chief financial officer. We flew east to a major airport and at the gate we were greeted by a gentleman in a black uniform, dark glasses and a hat with wings on it. All fine except that it was 1:00 a.m. and the dark glasses made no sense.

He said, “follow me.”

We turned around and went down the stairs on the jetway to a large helicopter adjacent to our 737 with engines running. Within minutes of landing, we were flying off into the dark of night in a six-passenger helicopter. Thirty minutes later we landed on the helipad of a private residence which seemed larger than and better landscaped than a botanical garden.

We were escorted to the front door. Upon entering and doing my best to show no signs of shock or amazement, I noticed that I was standing on a glass floor — with a large bonsai garden of immaculate design underneath. It had carefully crafted mountains, streams and rocks depicting a Japanese landscape which I still vividly recall today.

In the morning, I woke up with a view of a private lake with no “other side.” I got dressed and my boss and I walked down a hall past the indoor racquetball courts and game room filled with pin-ball machines, then upstairs to breakfast. Upon our arrival, a chef said, “what would you gentlemen like for breakfast?” My boss said, “what do you have” to which she replied, “everything.”

As we enjoyed breakfast with Mike, my boss and I did our best to act like this was a routine day for us. Then a thundering sound was heard in the distance, but no clouds were in view. In a minute we noticed another jet helicopter. It landed, and a team of “suits” clutching their briefcases exited the aircraft. All fine, but at that moment my boss and I had no clue who they were.

We had a great meeting and were given a proposal for a merger/acquisition to consider. The meeting lasted three hours. When it ended, Mike offered to fly the helicopter to a nearby airport and he flew us 500 miles west in his Citation because he “was headed west anyway.”

A week later we declined the offer because we thought it was not enough money. I would realize later that it would be among the worst decisions I would make in my entire career. As a seller, the hard lesson learned is that when deciding on enterprise value, do not forget to consider what the buyer thinks it is worth and why.

I learned from a Googled WSJ article that Mike, a fine and honest man, died a number of years ago. But the memories will never be forgotten — especially the miscalculated decision we made about the acquisition.

Can you tell us about the Cutting-edge technological breakthroughs that you are working on? How do you think that will help people?

We have invested several million dollars to design and develop battery-powered “EKG” sensor devices, but our passion is predictive failure analytics. Analytics are what the customer sees value in.

We target high-value mission critical refrigeration and incubation equipment in biopharma and life science companies — their unplanned failure is very disruptive to operations and multi-million-dollar losses are not uncommon. Anything we can do to prevent downtime through reliability improvements counts. So, while our near-term mission is to continue to develop our predictive failure algorithms and see them deployed throughout a wider range of refrigeration applications, we are looking into the future to add prescriptive features which provide a diagnosis to the prediction to show what is causing the problem.

For example, if we predict a refrigeration failure and attribute it to increasing compressor on-time, we would look for certain patterns in the compressor cycles which are correlated with a refrigerant leak. With that information, a service provider could be dispatched knowing what maintenance issue is affecting the asset, and what tools and supplies he will need to bring.

There is a big problem in the industry with asset utilization, so we are also interested in asset location tracking, answering the questions “where is the equipment located” and “how often is it being used?” Lots of new chip and software technology is coming into the market to change the game here.

How do you think this might change the world?

There are several ways to answer this question, but I will start by saying that I am always interested in new markets which have not changed in a long time. Jeff Bezos essentially said the same thing when he changed the game in retailing, Elon Musk did a similar thing with Tesla, and KLATU will change the game in refrigeration — one of the last big industries which has not changed in 50 years.

Why should we care? Depending on how you define it and where you get the data, the commercial, industrial and consumer refrigeration market is about a 200 billion dollars industry. Compare that with the TV set market in the USA, about a 33 billion dollars market which everyone thinks of as a big market and you realize it is only one-sixth the size of the refrigeration market.

The world will change when refrigeration failures are rare, product losses due to failures are rarer, and energy efficiency goes up by 20 percent.

Keeping “Black Mirror” in mind can you see any potential drawbacks about this technology that people should think more deeply about?

It is probably connected to the debate about privacy issues when technology is employed in an application deemed to be for public good. IoT has enormous potential to better manage the physical world we live in, but it can be abused. For example, facial recognition is used extensively in China for control over citizen behavior, Wi-Fi and Bluetooth beacons are used in the USA to infer your identity through digital fingerprinting — an identification technique that can identify you and your location without your knowledge.

I like the business we are in because there is no privacy issue associated with refrigeration data, yet there is a significant social benefit when we provide technology which improves the reliability of drug and food storage systems. So, I do not see any constraints in what we can do with analytics, we do not have the problems Facebook, Google and Twitter do.

Was there a “tipping point” that led you to this breakthrough? Can you tell us that story?

The one invention which has made the biggest difference in KLATU is TRAXXScore™. It involves proprietary analytics to calculate and apply a health score through collection and analysis of sensor data such as temperature, amps, door openings and other “EKG” probes. The idea came from my background and interest in inferential statistics which I studied in college, now referred to by startups as AI or machine learning. I have had the idea for many years that benchmark scoring techniques like FICO® credit-scoring could also be applied to machines: compressors, pumps and motors — any machine which consumes energy and produces work.

I have always been intrigued by the miracle that a bank will lend someone 50,000 dollars to buy a car without ever having talked with them or receiving a financial statement. They do this just based on comparing their model for credit derived from analyzing millions of people with varying levels of financial responsibility, against their history of credit-card purchases and payments, utility bills, house value and location, estimates of household income and cars owned. In statistics, FICO simply compares an individual to a reference model to determine a score.

I figured we could do the same thing with machinery.

So, like FICO, we gather data from each asset by make and model against our master profile for a normalized or digital twin, which we constructed by analyzing hundreds of its peers in our database. From that, we can immediately apply a benchmark score to the asset relative to its peers and make a decision to apply or defer maintenance based on need and condition.

We have three U.S. and International patents for benchmark scoring of refrigeration equipment and everyone who hears how it works has an “ah-ha” moment. It makes a lot of sense.

What do you need to lead this technology to widespread adoption?

I think we have what we need to do well in the life science domain, it’s a well-defined market of high-value application opportunities in a community of about 6,000 companies.

In comparison, there are tens of thousands of companies servicing the commercial refrigeration industry, and a lot more manufacturers. I think our expansion strategy into this market will require new channels of distribution and relationships with key refrigeration equipment manufacturers who serve unique vertical markets and have a bias to IoT and analytical software for service enablement or management of large fleets. Fast food franchises come to mind. For example, ice machines, deli cases, reach-in coolers in convenience stores and the like.

What have you been doing to publicize this idea? Have you been using any innovative marketing strategies?

Because we have many large customers with a lot of expansion opportunity, we have not organized KLATU as a high-volume new customer acquisition organization. We have instead been focused on building our technology portfolio and helping customers use TRAXX to transform their business. Doing nothing more than that, our customer base grew about 40 percent per year, mainly due to word-of-mouth in the industry.

Just recently we have been experimenting with LinkedIn with good results. We see LinkedIn as providing KLATU with more targeting tools so we can get our message out to the right people.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

That would be a boss I worked for a long time ago. At the time I worked for him we had a close relationship but would later lose our friendship which some friends we share in common would probably attribute to our egos.

He is the smartest man I have ever met, an engineer and technology genius who sold the company that I helped build in some very small context to a big company. What was remarkable about this man was his ability to extract from a complex technical discussion about a problem or situation, just the one or two essential details which unlocked a simple course of correction that no one else had thought about — and he was right 99 percent of the time when nobody else had a clue what was going on.

But the most amazing part was to watch him engage with the engineering team. Watching him, I was glad I was not a software or hardware engineer because if you were an engineer and did not know what you were talking about or had done something wrong, you were toast. Only the best and most talented wanted to work for him; those who could not keep up did not last long.

How have you used your success to bring goodness to the world?

There can be no greater satisfaction than working in the life science industry knowing that the IoT devices and analytical software we have developed to monitor thousands of cold-storage systems protect priceless life-saving research or biopharmaceuticals.

I will also share that sometimes a customer will call us for advice when TRAXX makes a prediction of a failure, or in gratitude for a prediction which avoided a catastrophe. When I am lucky to be invited to the conversation, I often ask what catastrophe was avoided and what was in the cold-storage unit? The number-one answer is: “priceless and irreplaceable research which would take years to replace,” and the number-two answer is: “biologics worth millions of dollars.” In 10 years, I have never heard, “just some low-value stuff.”

So, I guess my answer is that it feels good to have a job working with leading-edge technology in the life science industry, but that the technology eventually connects with a result or outcome involving someone’s mother, father, child, relative or neighbor. I like thinking about it that way.

What are your “5 Things I Wish Someone Told Me Before I Started” and why. (Please share a story or example for each.)

Most of the hard lessons I needed to learn before starting KLATU I knew. For those unforeseeable lessons, it helped that KLATU started without venture capital allowing us more time to figure things out while running the business as a profitable software development company. So, there were no big mistakes and most lessons learned were not serious failures. That would not be true of hardware. We made good money early on when we were buying Wi-Fi sensors from third parties, when we invented “EKG,” we had to design and manufacture it ourselves because it was not available in the market. Profits went down, risks went up and my belief that it is difficult to make money in the hardware business remains today. We want to get out of the hardware business so we can focus on asset analytics, networking and the cloud.

That said, there are repeating experiences which are reminders of previous lessons learned that are still difficult to manage. A few examples are mentioned below:

Equations with two unknowns. It often happens in technical engineering discussions that a decision becomes impossible to make because too many variables are being discussed at the same time. For example, trying to fix a product problem which could either be a hardware or software problem. Pick or guess if you have to, then test, test, test until you know what it is, then move on with the win or loss.

“Must have” detailed product requirements. Traditional engineering processes usually begin with the gathering of requirements which are based on past experiences and incremental improvements to existing products. Truly innovative products do not come from this approach, breakthrough ideas can only come from instincts about how broad themes are converging in the market or how new technologies which might seem inconsequential may change the market in a big way.

Cloud computing is a good example. Most CIO’s never saw it coming, never asked for it and when it first arrived they wanted nothing to do with it. New virtual machine architectures (100 percent software) which came out of nowhere made the impossible, possible. You could not have planned for it using traditional product development thinking.

Think about strategies as if they were a big picture puzzle. I sometimes think of a business strategy as a picture puzzle, each puzzle piece is either a small or important contribution to see the big picture. If I feel the puzzle has too many pieces, I move on because it’s too much work. If the puzzle has too few pieces its simple enough for a competitor to also see, so I move on because it does not provide a sustainable competitive advantage. But somewhere in the middle is my comfort zone — a good idea with manageable risks, which my competitors will not see until it is too late.

One good example is my decision to stop working with the international standards committee on the Zigbee protocol. At the time, Zigbee (which is used in your TV remote and likely your utility meter), was heavily promoted by Honeywell, Johnson Controls, Emerson and others as the new de-facto standard for wireless IoT devices. Their biggest argument was that Wi-Fi was too complex and would never run off a battery. What these companies and others failed to realize is that IoT would have a greater impact in consumer and commercial markets, and CIO’s hate any wireless standard which is not Wi-Fi. KLATU adopted Wi-Fi for its IoT “EKG” devices in 2010 and it was the best technical decision we ever made. We are years ahead of our competitors for wireless in enterprise-scale deployments.

You do not need venture capital (VC) to start a business. The traditional startup begins with a VC investment, giving away most of the company in the process. What most entrepreneurs do not realize is how VC portfolio theory works: you are a company in a portfolio. VC’s accept that 50 percent will fail, 25 percent will barely return their original investment and less than 25 percent return anything above their investment. So even if you have a good business, you only have a one-in-four chance of winning. In contrast, KLATU has a multi-million-dollar investment in its technology, but only 25 percent from investors. The rest is from cash generated through profitable operations. The point is that when you have time to build your business and make a few mistakes along the way without the worry of being liquidated, there is a greater chance of success; but it also requires that you figure out how to fund the startup phase of the business without VC.

Don’t drink your own Kool-Aid®. Guys like me sometimes rely on invincibility — or the belief that we have more information and insight than everyone else, and we can see things more clearly than others can.

Years ago, I learned the value of a board of directors. I am always intrigued when people I respect, having skills equal to or better than my own, see a different explanation from the same set of facts and information.

I also like talking with customers, business partners and vendors. I especially like it when they express appreciation for our products and how different they are. Truth be known, most all of the ideas I have, many of which are now protected by U.S. and International patents, were inspired when I learned about how people do their job and where the points of pain, cost and opportunity were. As a former bean-counter, a product which reduces costs and has “payback” is so much easier to sell.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂

A few things I have learned working in the life science industry is that there is no limit to what people will spend to stay alive, and diseases detected late in life are difficult and extremely expensive to treat and rarely effective beyond a few years.

I have always been fascinated with the Apple watch; it could be an amazing IoT platform. It is body-worn and already has the ability to analyze and communicate. It could be a device to gather asset performance data “while walking around,” and it is already used today to detect certain heart problems.

There are existing technologies which enable the delivery of drugs through a transdermal patch. How hard would it be to periodically sample blood or perspiration using a transdermal patch and using TRAXX Scoring technology, detect changes in body chemistry more easily unearthed over time than in a test in a doctor’s office? This information could then serve as a benchmark and correlate the results with disease categories like we do with TRAXX.

The early detection of disease could save billions of dollars, and we could start with the easiest problems to solve, which have the highest incident and mortality. A diabetes sensor packaged as a patch is just one example of what might be possible in the near future using an Apple watch as a data acquisition device.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on.” Steve Jobs

I have been an entrepreneur all my life, and I think I have a pretty good track record. But my best ideas have not come from pre-planning or requirements gathering. They have come from a sense about something new and innovation which I see that others cannot yet see, but which is game-changing in some way.

I have not read a book in 30 years, but I read an average of 10 technical articles per day — some dealing with new software or wireless technologies, others with a new chip or algorithm which might give me a new feature in a new product. So, I agree with Jobs, no amount of VC or product planning will assure the finding of a great idea. Either you have the sense or you do not.

Some very well-known VCs read this column. If you had 60 seconds to make a pitch to a VC, what would you say? He or she might just see this if we tag them :-).

KLATU™’s TRAXXEKG™ next-gen monitoring solution can predict and prevent cold storage failures before they occur and is trusted by nine of the United States’ top 10 largest life science companies. We have a seasoned team that has worked together for more than a decade; we have protectable IP and wide-moat with well-thought-out plans to scale the business to the next level.

How can our readers follow you on social media?

They can follow me on LinkedIn at: linkedin.com/in/rkriss, they can also follow and learn more about KLATU at https://www.linkedin.com/company/klatu-networks.

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