The authors say much of the wireless communications and sensor technology needed to implement their vision is available today. Indeed, much of it can already be purchased from AeroVironment. The future is also electric.
Think Big, Move Fast, Stay Small
Small is a recurring theme with AeroVironment. With fiscal 2012 revenues of $325 million, it is dwarfed by competitors like Lockheed Martin, Boeing, and Northrop Grumman on the defense side, and by General Electric and Siemens in electric vehicle charging. Although AV maintains a modest presence in Washington, DC—and briefs lawmakers and staffers when it gets the chance—it has nothing like the resources of the large aerospace or technology companies. And it doesn’t intend to acquire them.
Instead, the firm plans to continue to use its organizational compactness as a benefit—in much the same way that it has seized small product size as a competitive advantage in the drone market—while remaining agile and opportunistic. AeroVironment has established a way to play that is easy to describe, difficult to emulate, and nearly impossible to duplicate. It is a serial innovator, with a broad and deep portfolio of successful inventions and the intellectual property to back them up. It is also a value player, devoted, in its founder’s words, to doing “more with less.”
Central to AV’s strategy is its practice of fast prototyping, that is, building a full-scale working model of a proposed product as early as possible in the R&D phase. “We try to move into a customer dialogue sooner rather than later, as we’re trying to discern what’s [just] interesting and cute [versus] what’s going to change the world,” said Conver.
AeroVironment’s approach to outsourcing is a critical component of its ability to scale the business without sacrificing agility. “In both of our businesses, we develop the products initially internally, and when we can’t buy things, we invent them,” Conver said. “But when we transition to production, we outsource everything, with internal quality control and testing. As the product matures and the market grows, we push even more of that out. We think of our strategic intent as market-leading growth doing important work. We’re arrogant enough to think we can be successful in lots of different things, so we choose to focus on things where we can achieve both of those goals simultaneously.”
Conver and his team understand that although they can influence the future, they can’t control it. Many of the factors governing when their technologies reach their full potential—or determining whether they ever will—are well beyond AeroVironment’s reach (see “Factors beyond Their Control”). So they have built a company that can pursue multiple moon-shot prospects without putting its immediate survival at risk.
The firm has grown steadily and profitably, and is likely to continue doing so. It has no debt and has about $200 million in cash and investments. It finances its more outlandish projects with other people’s money, so the company is buffered should those projects fail, but reaps the upside when they succeed.
Wall Street is a believer—at least in the unmanned aircraft systems. “They have an enviable market position with high barriers to entry [and] extremely strong past performance with their military customers, and they also happen to be in an extremely well-defined niche in the military budget,” said Jeremy W. Devaney, a senior equity analyst with BB&T Capital Markets.
The electric vehicle charging business may be more difficult to defend. Although AV has had most of the market to itself for the last 20 years, if electric cars are fully embraced in the mainstream, chargers will become more of a consumer electronics product. AeroVironment is adapting to new realities—it already offers one of its electric vehicle charging units on Amazon—but it is not clear that the company can compete effectively in a higher-volume, lower-profit-margin business. In addition to electronics giants like GE and Siemens, it faces competition from fast-moving, aggressive startups, such as Coulomb Technologies, which has already installed thousands of its ChargePoint public charging stations around the world.