Next Little Thing 2010

By Chris Taylor

(Fortune Small Business) -- It's 8 a.m. in a San Diego hotel ballroom, and the annual DEMOfall conference is under way. VCs and journalists stifle yawns and peck at laptops. After a morning of scripted pitches by startups that promise to "integrate smartphone remote mobile applications" or "monetize social networks by enabling live social interaction around content," the coffee break can't come soon enough.

Then Jason Carlson of Emo Labs, a last-minute addition to the schedule, wheels a TV and a set of giant speakers onto the stage. They're playing the Beach Boys. Carlson whips the speaker box off to expose a sheet of clear plastic, which is producing the sound.

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Suddenly no caffeine is required, no jargon necessary. Emo has invented invisible speakers. There are audible gasps. Dozens of digital cameras flash at once. Those same jaded observers start cheering.

"I didn't think I could give a good presentation that wasn't one-on-one," Carlson tells me later. "I was worried I was going to be a failure." Emo goes on to win $500,000 and the conference's DEMOgod title.

By some measures, these are lean years for commercial innovation. In a recent Fortune Small Business/Zogby International poll, just 19% of small business owners said they aimed to introduce a new product or service in 2010; that's an 8% decline from a year earlier. Among those looking to launch, a sizable majority -- 77% -- described their product as an "incremental improvement" rather than "game changing." Like those scripted startups at DEMO, most entrepreneurs seem to be playing it safe.

But look closely at the few who are innovating -- and at the products that make you go ooh -- and another narrative emerges.

Hardware is back with a vengeance. Most successful products coming out of small tech companies in the early 2000s were Internet plays, like Google (GOOG, Fortune 500), Facebook or (CRM). That territory has now been thoroughly mined. The most exciting products of 2010 will look a lot more like ... well, like the breathtaking science-fiction stuff we always expected from the 21st century.

This, our sixth annual Next Little Thing feature, examines four companies whose products have the potential to revolutionize how we work and play. Apart from Emo Labs, there's WiTricity, which is making electricity as wireless as Wi-Fi; Plastic Logic, whose flexible electronic reader is a generation beyond Amazon's Kindle; and Emotiv, whose headset reads your brain, letting you control a computer without touching it.

Despite the diversity of their products, these companies have much in common. All were founded by scientists who did groundbreaking research during the 2000s. In all four cases, the founders recruited business leaders with the chops to commercialize their ideas. All are ambitious, yet modest enough to know they can't grow without hundreds of developers and equipmentmakers. And all have one major hurdle to overcome: mass skepticism.

As Eric Giler, CEO of WiTricity, says of being headhunted by the company: "I thought, 'Well, this is impossible. But if it's true, the world will change.'"

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