1Mby1M Deal Radar 2013: Finish Line PDS, Hudson, New Hampshire

Finish Line PDS is a product development service company that develops technology products for small companies in the down hole tool and machine-to-machine (M2M) technology markets, including the Internet-of-Things (IoT). Its main value proposition is that without the fixed cost of having a team of engineers, it helps companies develop products faster and at a lower cost.

Founder Steve Owens is a serial entrepreneur. During his multiple start-up experiences, he was often frustrated by the problems in bringing technology products to the market. It not only took time to recruit good engineers but also to set up labs and processes. Even after putting the development infrastructure in place, it took quite a while before the development resources started working together as a team. Sometimes, the fixed cost for all this would not be justified, even with a great product launch. This was what led Steve to start Finish Line in 2002.

Since then, the company has completed more than 1,000 projects for more than 200 small companies. This list includes two startups that it had incubated – WellTronics and EnerTrac. WellTronics was sold to National Oilwell Varco (NYSE:NOV). EnerTrac has raised more than $8 million from three VCs and is the leading low cost/low bandwidth M2M supplier, with revenue in excess of $2 million a year.

Small companies outsource their product ideas to Finish Line, which converts them into innovative, cost-effective products and solutions. Finish Line caters to product development challenges in a wide range of industries including oil & gas, industrial and manufacturing, electronics and controllers, and healthcare and life sciences.

Its top target segments are the down hole tool market and the M2M market. In the down hole tool market, it targets power control products. In the M2M space, it targets water meter, gas meter, and soil moister companies. In addition to these segments, it also offers specialized services in niche technology areas like low-cost RF communications, remote monitoring, industrial controls, and Internet connectivity.

Finish Line does not have a clear direct competitor. Though there are several other product development companies, unlike Finish Line, they are restricted to narrower technologies and platforms thus restricting their reach. According to Steve, their major competition today is from potential clients setting up their own development teams.

In a pricing model suitable for small businesses, Finish Line charges only for the hours that its engineers work on a project and estimates are provided for each phase of the project. In 2013, Finish Line generated $1 million in revenues at a healthy PBT of 10%.

On the business strategy front, the company actively looks to match client needs with Finish Line’s existing expertise and reference designs. This strategy allows it to develop the product for a significantly lower cost than what its customers would be able to develop in-house. Owens says this focused marketing effort will be the key to growing revenues and profitability.

In its target segment of down hole tool market, there are about 30 small down hole tool companies that spend roughly $25 million a year on electronic product development. The M2M/IoT market for small companies is estimated to be about $100 million.

Finish Line has been bootstrapped and has never had an investment round. Ideally, the company would like to scale the business through strategic acquisitions of other product development businesses. The ideal investor would be another product development company. Combining businesses would give it geographical and technological diversity and greatly improve efficiency in sales, marketing, and operations.

Owens says they have no plans to exit as he believes that the business will continue to reward shareholders with consistently growing dividends.

This segment is a part in the series : 1Mby1M Deal Radar 2013