Welcome to Speedwell Research’s Newsletter. We write about business and investing. Our paid research product can be found at SpeedwellResearch.com. You can learn more about us here.
There is a podcast of this memo available if you prefer listening to it. You can find it on our podcast feed here (Apple, Spotify).
We also will release a company-focused podcast episode on Axon in the future, so be sure to follow it! (Apple, Spotify)
Founding History.
They say one man’s misfortune is another man’s opportunity. In 1974, Jack Cover, a NASA researcher, read a newspaper article about a man who got stuck climbing a fence that happened to be electrified from a downed powerline. The man survived despite being in contact with the electricity for hours. The electricity immobilized him, but didn’t seem to cause any lasting damage. This gave Jack an idea for a weapon that could use electricity to incapacitate an aggravator without the use of excessive force—something that perfectly fit President Lyndon Johnson’s almost decade-earlier declaration that police officers should have a “non-lethal” means of incapacitating subjects.
The name of this device came from a childhood sci-fi book called “Tom Swift and His Electric Rifle”, which he shortened to T.S.E.R. and later added an “A” to make it easier to say.
The TASER was created.
Early prototypes shot two wired darts with gunpowder which would then unload electricity into the assailant’s body, immobilizing them. (The general idea of requiring at least two dart hits spread out across the body in order to deliver an electric shock remains unchanged today).
Jack teamed up with a private investor and founded Taser Systems to manufacture and distribute the product, but early efforts to popularize the product hit several walls. First, in 1975, the US Consumer Products Safety Commission halted sales of TASERs for safety concerns. As the ban was being lifted, the Bureau of Alcohol, Tobacco, and Firearms (ATF) classified TASERs as firearms since they relied on gunpowder to fire the darts. They might have survived this designation as many people regularly purchase guns, but the ATF classified the TASER as a Title II firearm. This classification put the TASER in the same company as rocket launchers and machine guns, and effectively destroyed their chances of going after the consumer market.
Even worse, the devices sold didn’t have the required serial numbers that firearms must carry, and had to be recalled and destroyed. On top of all of that, the State Department put the TASER on the Munitions Control Act list for fear it would be used in overseas torture, thus limiting the chance that an overseas market could save them. Needless to say, these actions strangled the budding business, resulting in insurmountable losses before inevitably going bankrupt.
A second attempt at commercializing the TASER was made in the mid-80s when a lawyer, Barnet Resnick, struck a deal with Jack Cover to license his IP and founded Electronic Medical Research Laboratories, which did business as Tasertron. Tasertron focused on selling to law enforcement, and for some period of time they were the only seller of TASER technology. They struggled to make it a common tool of policing, but did manage a few big deployments in police departments, primarily in Southern California.

A Times Magazine article noted that these era TASERs were only effective 56% of the time. Even though 1,100 of the field officers in San Diego had TASERs issued to them, they rarely used them because “they [weren’t] real confident with them”. Tasertron’s TASER would also infamously be used against Rodey King, but fail to incapacitate him. This very public—and consequential—failure of the device marred its reputation for years.
Unfortunately for Jack Cover, this second attempt to partner with a businessman also wasn’t that successful. Lucky for Jack though, his invention would draw the interest of someone else, an MBA student who was contemplating what job to accept after graduating Chicago’s Booth School of Business.
In 1993, Patrick Smith, who goes by Rick, was on the path of accepting a corporate job, but it didn’t feel right to him. He was stuck ruminating on an event that happened a couple years earlier in 1991. After a road rage incident, two friends from his high school were followed into a hotel parking lot and then shot dead. He was not just “shocked by the sheer waste, but the wrongness of it. How in the hell did something like this happen, in Scottsdale and, of all places, in a hotel parking lot? What possessed someone… to carry a pistol? Shooting metal projectiles at more than a thousand feet per second to rip and tear flesh, inflicting gruesome injury or death in the name of self-protection, or in this case, road rage?”
With these thoughts percolating in the background, his mother heard about a murder not far from their Arizona home and wanted to buy a gun. Rick had heard about the TASER and suggested she buy that instead, feeling that it was safer for her to use. To Rick’s disappointment, his mom bought a .38 revolver. However, he was surprised to hear that she couldn’t buy a TASER.
This sparked Rick’s interest, and he began researching the TASER—not just the history, but the technical aspects of the device as well. He’d eventually even write a TASER-inspired business plan for his entrepreneurship class final paper. At one point, Rick decided to call the man whose name he saw on every TASER patent, Jack Cover.
After driving down to meet Jack, he’d convinced them to work together. With Jack, Rick worked to make some changes to the device to make it more effective. Notably, they eliminated the use of gunpowder in the device, replacing it with compressed nitrogen so it would no longer be classified a firearm. In 1993, Rick Smith, together with his brother Tom, founded ICER Corp. to sell the devices to the consumer market. The name was short for incapacitating electronic restraints, but quickly they realized that “sounded like something that killed people”, so they changed their name to Air Taser.
Business History.
Finding Product Market Fit.
By 1995, Air Taser was successful in changing the firearm classification, which opened up the door to the consumer market. At first, they focused exclusively on the consumer market. While initially they were optimistic on the consumer market, thinking the millions of guns owners would be happier with a non-lethal alternative, sales proved to be hard.
They sold through a variety of retailers like Sharper Image, but struggled because there wasn’t a great natural outlet for them. The newness and novelty of the device meant that most people would need to be taught what it was, but most distributors or retailers wouldn’t give the device the display space nor would they train their employees on selling it.
Getting law enforcement to use their TASER would be an important proof point to winning the consumer market. But when they tried to sell to law enforcement, Tasertron threatened legal action. They claimed they had exclusive rights to sell to North American law enforcement, which Air Taser disputed but couldn’t afford to fight in court. Instead, they reached an agreement that Air Taser wouldn’t enter the North American law enforcement market until 1998, forcing them to slog it out in the consumer market.

Perhaps there was a silver lining to this. Their TASER at the time wasn’t very effective and it could have sabotaged efforts to sell to U.S. law enforcement altogether had they demoed with that device. Case in point, in an overseas demo in 1995, Rick showcased the device to the Czech National Police Academy in Prague. Even though the Air TASER was successfully shot and delivered electricity, it failed to incapacitate the volunteer who proceeded to put him in a wrestling lock.
The device still needed work before it could reliably incapacitate an assailant. They redesigned the electricity load to make it more powerful so the device would physically contract a subject’s muscles. So no matter how determined an assailant was, it would stop them as they would lose voluntary control of their muscles. While they worked on researching an upgraded TASER device, they also released another device all together called “Auto Taser”.
As consumer sales floundered, Air Taser tried to launch a new product line aimed at protecting vehicles, with a vindictive twist. The Auto Taser was a club-like device that attached to the steering wheel and would give a 50k volt charge to anyone who touched it.
The device gained a good amount of attention for its novelty, but was never a big seller. It also was plagued with defections and a particularly high return rate. They would quickly discontinue the product and instead start to focus on the U.S. law enforcement market, as Tasertron’s exclusivity rights expired.
At this point, Air Taser had racked up cumulative losses of over $5mn, mostly funded by loans from Smith’s father and friends. However, with a new and improved TASER, plus the ability to now sell to law enforcement, their luck would start to change.

Police could see the virtues in the device more easily than consumers. If a cop didn’t want to reach for their gun to subdue someone, which would often kill them, they were stuck with either pepper spraying them or beating them with their baton. Neither were great options as pepper spray may blind someone, but it can also aggravate them more and doesn’t prevent them from continuing to charge at you. Beating someone into submission is very gruesome, looks awful, and similarly puts the officer at risk as well. The TASER allowed a police officer to totally incapacitate someone with no risk to the officer while also not inflicting permanent damage or death to the subject.
A prime example where the TASER shines is when someone is trying to commit suicide by cop. A person may purposefully act crazy, swinging a gun or knife around saying they are going to kill people in order to get the police called on them. When the police arrive, the person will try to draw their fire in order to get themselves killed. Again, the police are traditionally stuck with bad options: they can’t let the person wield a weapon and continue to threaten to kill people, but the police also can’t get near them without risking their own lives. In the past this was usually solved with several warnings and then eventually gun shots, which no one would have considered a good outcome as the person is usually mentally ill or going through a very rough circumstance. Now though, after warnings, the police can pull out their TASER and incapacitate them, grab the weapon, and restrain them with minimal risk to themselves and saving the life of the person.
This was not at all a farfetched scenario. At the time, around 10-15% of all police shootings were the result of a suicide by cop. And early cases of exactly this happening helped sell the TASER to more police forces.
There were many other cases though where a TASER would be preferred, and the longer they were out on the field, the more stories were generated and shared with police captains, which helped sell more TASERs.
Beyond savings lives, there were other benefits too. The lower risk of injury from using a TASER versus other non-lethal means meant fewer police would end up with worker’s compensation from injuries sustained on the job. Additionally, many police officers leave the force if they are involved in a deadly incident, so reducing those incidents increases force retention.
In 1998, Air Taser renamed itself TASER International, and the following year they got permission to sell TASERs in Canada, where they were previously outlawed. By 2000, more than 500 law enforcement agencies were using or testing the product. Despite still being a small company, they prepared for an IPO.
Taser International went public in 2001 under the symbol TASR, raising ~$8mn, half of which was used to fund inventory growth and sales & marketing. Despite the increased investment in sales though, they primarily sold through police equipment distributors, who they relied on to market their products. While this arrangement would eventually be suboptimal, their small size and desire to quickly penetrate the large police market left them little choice.
At the time, they noted that there were over 740k full-time law enforcement officers, 450k correctional officers, and 44mn gun owners, all in the United States alone. Despite the large gun population though, they continued to focus primarily on law enforcement, which drove their sales in the consumer market to drop from 88% in 1999 to 32% in 2000. There still was plenty of room to grow: 2000 sales were just $3.4mn, +55% y/y.
While law enforcement adoption was saving their business, 9/11 and the reverberating fears of another attack put safety top of mind. United Airlines bought 1,300 TASERs for their air fleet and consumer interest sparked up again. This, together with increasing law enforcement orders, put the company on solid footing. As Rick’s brother Tom Smith noted in a 2002 LA Times article, “From 1993 to 2001, we only had two months where we had the end-of-the-month payroll covered at the start of the month… I can tell you that is a tough way to live”.
By the end of 2002, more than 2,000 law enforcement agencies were testing TASERs and 134 police departments had made the TASER standard issue equipment for all of their field officers.

In 2003, they bought out Tasertron (technically then Taser Industries). Taser International noted that Tasertron had fewer than 5,000 devices in the field across less than 200 police departments. This was down from their 2001 estimate of Tasertron being deployed in 400 police departments. While Tasertron was shrinking, Taser International continued to proliferate, with devices in more than 4,300 police departments and 57k devices out on the field.
Whereas Taser International continued to innovate on the design, most recently with the X26 model that was released in 2003, Tasertron essentially sold the same device as originally designed in the 70s. However, they still did retain several patents, which was the primary impetuous of the acquisition, as well as to clear the air on any future potential litigation.

TASER International was seeing incredible growth. In 2004, their revenue growth accelerated to +180% y/y, which was on the back of an already strong year of +140% y/y growth. Whereas in 2002 they were barely profitable, in 2004 they generated ~$19mn in net income. In a very short amount of time, from the beginning of 2003 to its peak in 2004, the stock increased an unbelievable ~75x. However, their good fortune didn’t last long.
In 2005, revenues fell 30% as a flood of bad publicity targeting TASER floated around. Stories that TASER, the “nonlethal” option, was in fact lethal were abound. While the TASER did not kill in the vast majority of situations it was deployed in, if there were other factors—like an assailant on methamphetamine or other drugs—then it could be a contributor to a cardiac event. Additionally, there were incidents where the use of a TASER was questioned after the fact and the police had to constantly defend their actions.
All of this resulted in a growing pile of litigation. They had 49 lawsuits that alleged either wrongful death or personal injury “in situations in which the TASER device was used (or present) by law enforcement officers or during training exercises.” The 49 cases did not include a further 11 that had been recently dismissed.
The increase in litigation and negative press led to police agencies deferring TASER purchase commitments. This meant as their litigation expenses were spiking, revenues were falling. 2005 net income was -95% y/y. To make matters worse, alongside all of this came a shareholder lawsuit that claimed executives misstated the safety of the product, which was settled for $21mn. The stock would drop ~80% from its peak.
Instead of retreating, conserving resources, and settling cases, Rick made the decision to fight every case where they felt they were not at fault. This was key to creating legitimacy with TASERs in various policing situations and to establish the precedence that would deter future litigation. At the same time, Rick doubled the R&D budget to create a product feature that would help end the litigation and defend the officers’ actions: the TASER Camera.
Called TASER CAM, the idea was that every time a TASER was pulled out, a video camera would record what was happening, which would allow an officer to defend themselves and reduce frivolous litigation. This was important as police are regularly involved in excessive use-of-force litigation. While the TASER device was created to reduce excessive force (and had since been proven to do so), with no eyewitnesses, an unscrupulous assailant could claim he was cooperating and then was needlessly tasered. In such a circumstance, a police agency is forced to either defend themselves or settle. Litigation is costly, but settling denigrates the officer’s honor. Videos help solve both issues.
Generally speaking, TASER International was very successful in defending themselves against litigation. While they still endured negative press, anyone who looked at the actual statistics saw that the number of deaths caused by police were much less when the department had TASERs deployed. The TASERs were at most one of several contributing factors that led to an assailant’s death. While still unfortunate, it is a vastly better solution than bullets and batons, and law enforcement agencies usually arrived at the same conclusion. One police department found that more than 80% of the time when the TASER was pulled out and they put the laser sight on the assailant, they gave up.
By 2007, sales reached a new high of $100mn, and they swung back into the green with $15mn of net income for the year. A few years later, Rick Smith recalled this challenging time for the company:
He continued by noting what they learned from partnering with police in litigation defense and concluded that he now sees TASER International’s mission as broader than he previously conceived.
Pioneering a New Industry.
Far beyond just helping them sell TASERs, the camera turned out to open up entirely new doors for them. But it took some improvements first.
They realized that while the TASER CAM gave important video evidence of a situation, it was missing what led the police to pull out their TASER in the first place. That context was often critical in defending an officer. So, they created “AXON”, which was a video and audio system that mounted to an officer’s head so they could record everything they see and hear.
While this ultimately proved to not be the popular form factor, it allowed them to start building their competency in integrating hardware and software. More important than the camera though was the software ecosystem that enables the police departments to easily offload video and store it. Alongside the release of AXON, came EVIDENCE.com.
EVIDENCE.com is a cloud-based service that allows officers to automatically download and store their videos whenever they plugged the device into the dock to charge. It could verify that the videos were untampered and also allowed for easy sharing with litigation teams. Whereas before videos would have to be stored on DVDs in warehouses and require physical pick-up, chain of custody signatures, and had to be hand-delivered, EVIDENCE.com did it all virtually.
Rick Smith would describe the two products in 1Q09 as “EVIDENCE.com is to AXON as iTunes is to the iPod in the consumer world… we believe that AXON and EVIDENCE.com will revolutionize the way law enforcement securely captures, stores, analyzes, collaborates, and manages digital multimedia evidence collected by officers in the field.”
In contrast to how other companies approached video (video cameras were common in police cars at this point, but not body cameras), Rick notes that competitors approached the problem from a hardware company’s perspective with software as an afterthought. Rick knew the software component was integral to not just creating a differentiated product, but getting police departments to adopt the full system in the first place...
This concludes the free excerpt of our report, to read the rest of the 77-page report, become a full Speedwell Research Member today or you can purchase a single report!
Axon Report Table of Contents
Founding History.
Business History.
Finding Product-Market Fit
Pioneering a New Industry
Policing Paradigm Shift
Business
Industry
Competition
Why Axon Wins
ROIC, Capital Allocation, & Incentives
Valuation
Risks
Summary Model
Conclusion.
(Please reach out to info@speedwellresearch.com if you have any issues or need to speak to us to become an approved vendor in order to expense the membership).
To read more on Axon, check out this memo on 10 Lessons from Rick Smith.
The Synopsis Podcast.
Follow our Podcast below. We have four episode formats: “company” episodes that breakdown in-depth each business we write a report on, “dialogue” episodes that cover various business and investing topics, “article” episodes where we read our memos, and “interviews”.
We will release a multi-hour company-focused episode just on Axon in the future!
Speedwell Research Reports.
Become a Speedwell Research Member to receive all of our in-depth research reports, shorter exploratory reports, updates, and Members Plus also receive Excels.
(Many members have gotten their memberships expensed. If you need us to talk with your compliance department to become an approved vendor, please reach out at info@speedwellresearch.com).