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14 Jul, Tuesday
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Utah Business

Owlet

Baby Knows Best

One chilly February morning in 2014, five men met in a late 1970s diner called George in the heart of Queens, New York. The five young cofounders of hi-tech Utah start-up Owlet, ordered their eggs and pancakes and then listened somberly to CEO Kurt Workman as he broke down the nightmare their business had become.

“We’re basically out of money,” Mr. Workman said.

They had spent a year and a half developing a smart sock that would alert sleeping parents that their newborn was having difficulty breathing. But in their rush to market, they’d made some fundamental mistakes and the prototype didn’t work. They’d burned through the $100,000 start-up accelerator Techstars had given them and pre-order sales revenues. Now they had to tell customers they didn’t know when they could ship what they’d paid for.

“How long can everyone go without a paycheck?” Mr. Workman asked.

He was most concerned about Zack Bomsta, his chief technology officer. “If we lose Zack, this is never going to come together,” Mr. Workman thought.

He needn’t have worried. Mr. Bomsta and his wife were die-hard adherents to the wearable baby monitor. That’s because they had experienced a night of their two-month-old vomiting and struggling to breathe. Shortly after that painful night, Mr. Workman pitched the concept to Mr. Bomsta of a consumer wireless version of a pulse oximeter―hospital equipment that monitors your vital signs. “The second he mentioned it, a big light went on in my head,” Mr. Bomsta says.

Everybody wanted to keep going, to keep working. One chipped in two months, another six months. Three weeks later they returned to Utah County to work on a new prototype. By then their luck had changed, Owlet secured $2 million from investors.  

Four and a half years later, the company is worth $100 million-plus and in 2017, it was named one of Forbes’ 25 next billion-dollar startups. It outstripped its own growth expectations thanks to a passionate consumer demand that has thrived in the face of technical teething problems and medical naysayers. And in part it has Utah, with its Mormon-driven culture of large families, to thank for its success.

Utah leads the nation when it comes to new ideas for infant-care businesses and Beehive customers have got to be the biggest purchaser of the Owlet on a per capita basis, Mr. Bomsta says. “What better place to start a baby business than in a state that’s a trendsetter for all things baby?”

Such success, however, hasn’t come without a price. Even while the criticism the company has faced from doctors and media has led to Lehi-based Owlet spending “hundreds of thousands if not millions,” gathering data to support its central claims of helping parents, Mr. Workman struggles with anger each time he feels personally accused by company critics, he says, of leveraging parents’ fears for financial gain. Those accusations, “really come from people who don’t know me, they don’t know why I started Owlet, they don’t know who I am, but yes, you feel like you’ve been unfairly judged.”

 

An Expensive Failure

The genesis of Owlet was when Mr. Workman’s cousin lost a baby to Sudden Infant Death Syndrome (SIDS). The loss caused both he and his wife to be concerned about the healthcare needs of their then yet to be born children. When a male-nurse friend and future Owlet cofounder explained to him how a pulse oximeter measures oxygen level and other health conditions, Mr. Workman wondered why parents didn’t have access to something similar. And so Owlet took its first breath.

“Our concept was proactive: tell parents when to check on baby,” Mr. Workman says.  

The core group of founders, Jordan Monroe, Mr. Workman, and Mr. Bomsta, met at Brigham Young University. After they won the late 2013 BYU Student Innovator of the Year award with their sock concept, Owlet was picked up by multiple media outlets, including Mashable, Gizzmoddle, and the BBC News, which led to Techstars inviting them to New York.

Towards the end of their stay, they thought they had a market-ready prototype and ordered 2,000 circuit boards. But when they got them they found the traces—flexible copper wiring that was supposed to mold around the baby’s foot and conduct vital signs—quickly broke.  

Mr. Bomsta told Mr. Workman that wasn’t the only design flaw. The Bluetooth range was much shorter than they had thought. Testing through Utah homes made of wood and drywall was not the same as New York apartments of brick and steel. Mr. Workman refused to believe the screw-ups, so they redid the tests.

Retesting the product equated to a shivering Mr. Workman and Mr. Bomsta standing out on a New York street near Time Square facing each other, then taking steps back as if about to draw. Mr. Bomsta held the base station, Mr. Workman the circuit board, watching the flashing light on the board register Bluetooth connection—until it stopped at a woefully inadequate 10 feet.

“I don’t think I paid any attention to anyone on the street,” Mr. Workman says. “Just this little circuit board my life hinged on.”

The 2,000 units were discarded, some ending up as coasters in their current offices. “Expensive coasters,” Mr. Workman says with a wince.

 

A Second Chance

Shortly after they returned from New York, Mr. Workman witnessed Owlet’s first breakthrough using his first-born son, Ashton as his beta tester. When the boy was six months old, he put the sock on his foot and sat outside the room, with his back to the door, watching on his phone as his sleeping son’s heart rate slowed and his skin temperature cooled. Finally, they were close.

When the company launched the sock online in October 2015, its cofounders were robustly confident that consumers would be eager to shell out $250 (subsequently $299) for the three socks needed to cover a baby’s first year.

After all, when they’d surveyed moms and dads in a Target or at a mall, describing how the sock would monitor the baby while they slept, they’d heard a chorus of overwhelming enthusiasm—at least until store security kicked them out.

But even they were surprised by how powerful the consumer need for the sock would prove to be. “There’s always been this intense pull from the market,” Mr. Workman says. “We haven’t had to push.”

The trick was how to reach parents-to-be at just the right moment. “There’s a three-month window of purchase and then they stop buying products,” Mr. Workman says. “It’s a hard market to reach and you spend those dollars to prepare for baby to come.”

The answer, Owlet’s advertising team figured out, was Facebook. A simple video, launched in fall 2015, on how to use the product got 50 million views.

In their first year, they sold 80,000 units, three times their projections, earning revenues of $18 million. In 2017, they sold 120,000 units and project sales of over $200,000 in 2018.

 

Backlash From The Medical Community

If consumers fell head-over-heels for the product, the international medical establishment was not so easily persuaded. University of Sheffield pediatrician Dr. David King was driving when he heard a BBC radio news story about Owlet. He marveled at the lack of criticism of the product’s concept, particularly of its implicit message that it could be a solution to SIDS.  “All sorts of things get flogged to parents that don’t have an evidence base,” he says. “It’s not been shown that a [pulse oximeter] is effective to reduce the threat of SIDS.”

Dr. King called the company and talked to Mr. Workman, as well as other US baby monitor manufacturers, then wrote a paper published by the British Medical Journal in November 2014.

He cited Owlet and two other wearable products that made similar claims of alerting parents when their children were unwell. “No published data support any of these claims, and because the devices are being sold as consumer rather than medical devices such data are not required.”

Dr. King’s criticism grated on Mr. Workman. He and Dr. King were similar ages and it irked him, he says, that because Dr. King had an MD after his name, it made his criticism credible.

A Time headline was reflective of the tone of stories reporting on Dr. King’s paper: “Don’t count on smart baby monitors to prevent SIDS.”

Mr. Workman sought to be clear to both critics and parents about what Owlet’s sock could do. “We try to be very clear that we are not making a claim that the product will prevent SIDS, but we focus on the information that allows parents to act when they may otherwise be unaware,” he says.

Owlet’s response to the criticism was developing a data-driven study by doctors on its own payroll that showed their product reduces parental anxiety rather than increases it.

“It’s illogical to think that not sleeping well or checking randomly at night on baby has a better outcome than knowing exactly when the heart rate or oxygen level change and going to check on baby,” Mr. Workman says.

What proved to be the cavalry as far as defending the smart sock were its customers, who have inundated the company since its product’s launch with what Mr. Workman calls, “positive parental experiences.” Parents reported 370 cases where Owlet had notified them in life-threatening circumstances that their baby needed attention. “We don’t have a case yet where Owlet’s failed to alert,” he says.

 

Baby Steps

In order to win over unconvinced doctors, Owlet knew from the beginning that Food and Drug Administration (FDA) approval would be its holy grail.

The FDA has yet to clear or approve “a baby product to prevent or reduce the risk of SIDS,” it states on its website. Mr. Workman says there are two categories of pulse oximeters currently recognized by the FDA, those used in hospitals and those used for hiking and high altitude climbing. In 2017, Mr. Bomsta applied for FDA clearance for a wireless monitor that parents can take home from the NICU with a high-risk infant. They got feedback and reapplied in late 2018. With 500,000 babies annually in the NICU and the PICU, that’s a potentially lucrative market.

Even the medical establishment is starting to come around. Neonatology Today published a review in August 2018 entitled “A new way of monitoring infants at home.” The report, by a pediatrics professor without links to Owlet, Mr. Workman says, looked at three cases where parents reported the product helped save their baby’s life.

When Mr. Workman read the story, relief washed through him. The report answered many of his critics, he says, particularly in the way it addressed long-standing and ill-informed prejudices against baby monitors. Yet, to his frustration, it generated no press. Mr. Workman had to make do with what he could. “It was a great validation of how we think about the potential for home monitoring,” he says.