Drone technology is rapidly changing, with the big players putting out new drones about once a year (and sometimes more than that). Experts have suggested that DJI’s rapid growth may even be cannibalizing itself.
But should you go into debt in your own drone business just to keep up with the latest drone technology?
Mark Taylor, CEO of Arizona-based drone company Extreme Aerial Productions founded his company in 2014, amassing a drone collection over the years. He shared his thoughts on the upsides to investing in new tech, vs. the downsides of steep prices that might even compel you to take on debt.
So with that, enjoy this guest post from Mark Taylor:
When going into debt for new drones can be a smart bet:
Debt doesn’t have to be a bad thing. Take on “good debt” and it can lead to more money in the long-run.
“The key to successful borrowing is simple: Borrow money to buy assets that will gain value or produce income,” said Michele Cagan, a certified public accountant and author of “Debt 101.”
For drone pilots, here are instances where you can take on “good debt”:
When technology helps open you up to new market segments:
If you’re investing in a drone to offer new services and open yourself up to new markets, consider debt. For example, let’s say you want to break into agriculture and have the opportunity to purchase a DJI Agras T16. If you had five of them, you’d have the ability to cover over 100 acres a day. The potential savings you’d offer to the farm you’re servicing would be incredible, and you’d have access to a brand new market, all while recouping the investment back quickly.
If you frequently work with private entities:
Private entities, such as farmers (to continue the example from above) may be able to front you the money for new technology and partner with you on capital investments. If you’ve been in business for a few years and have a strong local presence that allows you to access cash flow or to leverage with financial agreements for larger multi-year deals, debt may not be a bad option.
When it’s a bad idea to take on debt to buy new drone tech:
But be cautious when taking on debt. Unless you’re able to take advantage of something like a credit card 0% APR offer, you’ll likely end up owing your lender (whether it’s a credit card company or a business loan provider) money in interest, making the pricey drone you bought even more expensive.
And the higher your debt, the higher your credit utilization ratio, which can hurt your credit scores.
Especially for drone pilots, here are some factors to pay attention to that might make debt more harmful than helpful:
When the upgrade isn’t substantial and it won’t help your bottom line:
If you’re considering upgrading from a DJI Inspire 2 to a DJI Inspire 3 (due out sometime in 2020) just because you want, say, a slightly higher resolution camera or longer battery life, in most cases it’s better to save your money unless you’re certain your clients will pay you more for your slightly upgraded tech. Rather than get caught up on small improvements like battery life, for most people it’s better to just buy an additional battery.
When it’s an early version and the tech has yet to be proven:
The rapid rate of change of going from a Volkswagen to a Lamborghini doesn’t happen anymore. Tech, whether it’s drones or cars or computers, has evolved to the point where companies are making moderate updates based on what the original version should have been.
In tech, the latest trend has been to put out the v.1 and wait for customers’ feedback. But if you’re on a budget, don’t be that guinea pig. Instead, wait for the later iterations because outside of the marketing hype, the v.1’s and v.2’s rarely perform as advertised. The Skydio 2 illustrated that, suckering thousands of drone enthusiasts into the hype of what it could do around construction sites and how it could navigate around objects with ease. Many have found that its actual functionality is nothing like what was promised.
If you currently work with (or want to work with) government contracts, but you’re early in your career:
Typically, the government won’t give a contract to a business if it doesn’t have positive cash flow and if it hasn’t been in business for at least two years, Bridget Bean, a district director at the Small Business Administration told the New York Times.
And if you go into contracts, you need to have the equipment you say you have when you pitch.
You should also keep in mind that your paycheck could take months to arrive, so the job might not be worth it anyway if you don’t have the reserves to wait.
Bottom line: is debt worth it for drone entrepreneurs?
For most drone operators and drone small business owners, it’s not worth going into debt to improve your gear. Besides the exceptions listed above, grow your tech slowly. The excitement around the drone industry and new tech can be intoxicating. But never make a business decision based on emotion or marketing hype. Unless the technology is almost guaranteed to open up market segments or you’ve been working with private entities for a few years, avoid debt and stay patient. There will always be new tech to look forward to in the future.
-By Mark Taylor, CEO of Extreme Aerial Productions
Have you ever taken on debt for your drone business? Did it pan out as you expected? Did it help or hurt your business? Share your story below!