"We're racing to put in the people, capital and equipment we need," says Phononic's Tony Atti.
Evan Kafka for ForbesNear the end of last year, Phononic’s Tony Atti set up a strategic plan for the year 2020, which involved three areas of expansion for his company’s unique thermoelectric cooling technology. Like many companies, the Covid-19 pandemic changed Phononic’s plans. Unlike many companies, it didn’t change its plans because they were thrown into disarray, but rather because they were kicked into high gear.
The Durham, North Carolina-based company, which last year pulled in revenue that Forbes estimates around $10 million, is on track to nearly double in 2020. That’s in large part because the pandemic has accelerated the growth of three markets that use Phononic’s products: 5G telecommunications, grocery delivery and healthcare.
Atti, a former NASA scientist, founded Phononic in 2009 to upend the traditional technologies powering heating and cooling everywhere: the bulky compressors that can be found in refrigerators, freezers, air conditioners and more. Its solution replaces those mechanical parts with small chips that use the movement of electric current to transfer heat and cold. Not only do the chips use less power, they can more precisely and reliably control temperatures, making them vital in areas that can’t tolerate big swings in temperature.
One of those areas is telecommunications. The communications equipment that delivers data across the globe has to be kept from overheating, but traditional cooling systems powered by compressors and fans are often difficult to use in compact areas. That’s provided a good window for Phononic, which is seeing growth across the globe as more 5G equipment is being rolled out.
“We have already been uniquely positioned in Asia, because that’s driving the global adoption of the 5G solution,” says Atti, 46, the company’s CEO and cofounder. The Covid-19 pandemic, he adds, “accelerated, if not turbocharged, the underlying trends.”
Additionally, working with its Asian partners and customers gave the company a leg up in understanding the potential impact of Covid-19 as it spread across the globe. “We had a unique window into the accelerated 5G trend based on the fact we were already doing business there, and we have investors who were feeling the adverse effects of Covid months before it hit North America,” he says.
Similarly, by the end of 2019, Phononic was working hard to complete development of a portable, thermoelectric powered tote system, with an eye to taking advantage of increased consumer demand for grocery delivery. One of its partners, he explains, wanted to “optimize their warehouse for curbside pickup and home delivery.” Using these small totes to store food, Atti explains, provides greater flexibility for grocers and warehouses. “Instead of refrigerating or freezing major parts of the warehouse, which is a significant infrastructure cost,” he says, “we could refrigerate and freeze individual totes, which gives tremendous warehouse storage flexibility and opens the door for curbside and home delivery while protecting food and perishables.”
The increased demand for delivery caused by stay at home orders and consumers’ general reluctance to go shopping, Atti says, has accelerated the company’s timetable for its tote solution. It had originally planned to have warehouse deployment for curbside pickups by 2021, and totes for grocery delivery by 2022. Now Phononic plans to complete both rollouts by next year.
“It is with an ounce of humility that we grow this year and next,” says Phononic’s Tony Atti. “All entrepreneurs need that because, man, the worm can turn on you pretty quickly.”
One of Phononic’s first markets was healthcare, where it offered thermoelectric refrigerators for laboratories and healthcare systems that were both competitively priced and offered technological advantages in terms of precision and reliability. In 2018, the company signed an agreement with Thermo Fisher Scientific to use its chips in two refrigerator lines, but the company also kept producing its own solution.
By the end of 2019, though, Atti says the company was ready to move out of the refrigerator building market to focus on simply producing heating and cooling units that could be installed in existing healthcare refrigeration systems. As Covid-19 accelerated demand for refrigeration systems to handle medicines and vaccines, Phononic put its plans on fast-forward. And the pandemic, he said, made it easier for its partners to accept a licensing arrangement.
“Normally when you engage someone who's been buying a product from you, and you say, you know what, I'm avoiding the manufacturing of that particular product and I now want to license it—that can sometimes be a difficult conversation,” Atti says. “But when that conversation is done in the face of increasing demand, it makes it a much more palatable one.”
Though Atti says he’s immensely proud of his company’s growth over the past few months, he also knows how lucky he’s been. A lot of talented entrepreneurs, he says, are “getting pretty hammered” by the pandemic and the economic uncertainty surrounding it.
“It is with an ounce of humility that we grow this year and next,” he says. “All entrepreneurs need that because, man, the worm can turn on you pretty quickly.”
