Almost immediately, Semmelhack says the firm had its first WTF moment: Bug Labs could not find vendors for even basic parts, including critical Wi-Fi chips. "It was like being a software coder and being unable to buy if/then statements," he said. "A big company like an Apple ( APPL) would come in and completely wipe out the supply of critical parts," Semmelhack explained. Bug Labs was always making due with older gear that offered lower performance. "Our C-level producers would do the molds, and it would look like %^$#," he said. "But we were the low man on the totem pole, so what could we do?" Next, Bug Labs saw that even if it could get the chips, it could not find the software needed to run them. The firm always seemed to be reacting to one crisis or another. The financial meltdown in 2008 froze inventory in a factory shuttered by defaulted lender Wachovia. Bug Labs' gear failed a regulatory certification exam when radio frequency parts somehow malfunctioned. And there were endless issues of shipping, lab testing, support and managing inventory. When I challenged him that tools such as 3-D printers and low-cost chips are supposed to change that core dynamic, he chuckled. "These tools are cool. We use them. But what you learn is, 3-D printers will never replace manufacturing basics like injection-mold plastics, rapid metal-fab and mass-produced computer chips," he said.
By 2009, Semmelhack realized that Bug Labs was going to have to shed its original shell -- and fast. Its first product run aimed at consumers was a flop. But he noticed small amounts of product sold to early adopters with engineering backgrounds who, of all things, were carrying his Bug Labs gear into the office. "We began to a see a slow trickle of sales into big operations like the Defense Advanced Research Projects Agency and Accenture ( ACN)," he said. Bug Labs figured out that these large enterprises were buying his kits as development tools for their own products. "They figured out if you take our parts and have a weekend and pay us for some of our time," he said. "You can have you a product in a few days. That saved them millions. And that turned out to be our business." Bug Labs sells its hardware modules and support service to operations including Ford ( F), Comcast ( CMCSA), Pitney Bowes ( PBI) and many others. Revenue is growing at 20% or so per year. And there are actually ... gasp, profits. "Let's be honest. We are hardware. We live in a physical world. Somebody has to step up and improve physical stuff," he said. "But there are so many impediments in moving at the speed you need to, in a world of atoms," he said. "Most people don't understand just how hard hardware is."