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Product and Design Lessons from iPod Father and Nest Inventor Tony Fadell

Tony Fadell is your prototypical engineer. He’s a constant tinkerer and builder, working at places like General Magic and Apple. He worked closely with Steve Jobs on the iPod and the first three generations of the iPhone. Most recently, he launched Nest Labs, which was acquired by Google for $3.2 billion in January 2014.

In this post, we’ll learn from Tony Fadell and his years of experience building world class products. This will serve as part biography and part advice on product design.

tony fadell

The Man Who Got Tony Fadell Started

When he was a young boy, Fadell’s grandfather taught him all of the “handy man” tasks. Things like how to change electrical sockets, how to build go-karts and a soapbox racer, how to fix bikes, repair lawn mowers, how to paint, how to saw, etc. Fadell learned how to work with his hands, how to be engaged with physical things, and how many things in the world work. Learning the tasks made him even more curious about other products and how they were built.

“As I evolved and moved forward, there were all kinds of things in the world that I wanted to learn how they were manufactured, how they were built, [and] how they were designed. So I took that curiosity and I learned about everything around me. Not everything, but everything I was curious about – music, art, architecture, and obviously products.

“And so, through that, I was able to then look at various products, various things…and I’d go ‘I think I know how they built that. I think I know how they designed it.’ And you start to ask more questions and learn more and more about it and get more and more curious about even deeper and deeper technologies inside of those products.”

There were three things Fadell’s grandfather taught him:

  1. Whatever the problem is, look at it, break it down into its components, rebuild it, think about ways of bringing new things in, and make it better than it was.
  2. If you’re going to do it, do it right.
  3. Don’t be afraid. Don’t be afraid to take on tough challenges you’ve never seen before. Why? Because humans built these things. And if they can build these things, you can, too. Just rely on yourself, rely on your skills, break down the problem, and bring it back together so it’s better than it was.

What his grandfather taught him is the foundation for his work. Fadell says that instead of looking at products as a black magic box, you can tear them down into their component pieces. Then you can see which pieces work, which don’t, and reassemble them in a new way.

Fadell now has two young boys and has begun teaching them the same things his grandfather taught him.

Formal Education and an Entrepreneurial Career

Fadell started his first company with a friend while they were still in high school. The company, Quality Computers, was headquartered out of his friend’s parents’ basement. The business resold Apple II hardware and wrote software.

He attended The University of Michigan and earned a bachelor’s degree in computer engineering. He started two companies in college. The first was an educational software company and the other company designed processors for Apple’s IIGS product.

Learning from Heroes and Building the iPod

After graduating from college in the early 90s, Fadell decided that he wasn’t challenging himself enough. He had reached a plateau, thinking he had learned everything but knowing there was more to learn.

Fadell moved to Silicon Valley and worked for General Magic, his first Valley-based employer. (The people at General Magic are the same people who created the Macintosh.) At General Magic, Fadell learned from those he calls “his heroes.” At General Magic, he developed hardware and software for handheld devices like the Magic Link.

It wasn’t until after working at General Magic that Fadell understood how to build things correctly.

He went on to work at Philips Electronics, where he led the team that developed the Velo and Nino. He later held a top position at Philips, where he managed digital music strategy and investment. He wasn’t into the corporate thing and left to start Fuse Systems in 1999. His vision for the company was the “Dell of the consumer electronics.” One idea he had was to build a hard drive-based music player. He had 12 employees, but the company went under in 2001 when the Internet bubble burst.

That same year, Apple called him. Fadell was skiing in Vail, and just as he got on the chairlift, he got a “special phone call” from Apple. Apple wanted to hire Fadell as a consultant, and he obliged.

Eight weeks later, Fadell presented the original iPod concept (which was weighted with his grandfather’s fishing tackle) to Jobs. Everything on the inside of the iPod was designed. The exterior had yet to be touched. He was still a contractor when he presented the iPod. Jobs approved of it on the spot. A few weeks after the project got approval from Jobs, Fadell joined as an employee.

After several months, Apple finalized the design for the first generation iPod.

Lightmatter ipod 1G

Fadell initially questioned how Apple, with $150 million in the bank and $500 million in debt, could compete with a company like Sony in the MP3 device market. According to Fadell, Jobs said, “You make it. Trust me we’re going to put every marketing dollar we have behind it. We’re going to make this happen.”

Working at Apple

Fadell eventually became Vice President of iPod engineering in 2004, and became Senior Vice President of the iPod division in 2006. During his time at Apple, he oversaw 18 generations of the iPod and the first three generations of the iPhone. The only iPod Fadell didn’t work on was the iPod Nano Touch.

He was involved in the development of the original iPhone, the iPhone 3G, and the 3GS. He left the company in 2008, but stayed on as strategic advisor to Jobs. In 2010, he left Apple completely to retire and build his environmentally conscious home in Lake Tahoe with his wife and children.

Making the World a Better Place

Fadell changed when he had his young boys. He really wanted to leave the world a better place, and was particularly concerned with environmental issues. At the time of his departure from Apple, Fadell said:

“My primary focus will be helping the environment by working with consumer green-tech companies. I’m determined to tell my kids and grandkids amazing stories beyond my iPod and iPhone ones.”

During his time away from Apple, Fadell and his wife planned to travel the world and build a home “that was going to be the greenest, most connected home that I knew of in the world,” Fadell says. The iPhone and smart phones were going to be at the center of how his home worked. He would use his home as the research facility for understanding how current products work and what future products could look like. He wanted to know how these new products could be reinvented and be very different from the incumbent products.

Fadell became frustrated with thermostats. He points out that everything else in the home has evolved and become more energy efficient, but thermostats have remained the same as they were decades ago. There are “smart thermostats,” but only 10% of them are programmed to save any energy. Fadell believes this is because it is difficult to program a thermostat. The thermostat was, as he says, ripe for innovation and disruption.

The Founding of Nest Labs

In May 2010, Fadell co-founded Nest Labs with former iPod software developer Matt Rogers. Fast forward to November 2011, and the first Nest thermostat was available for sale for $249.

nest thermostat

They sold out 5 months of inventory in 3 days. Why did it sell so quickly? Fadell humorously says, “People have been suffering in silence for years with these devices.” He believes that Nest touched a nerve with many people who were frustrated with their thermostats and high energy bills.

Do you think thermostats aren’t a big deal? Think again. On average, about 50% of the energy in a home is controlled by one device – the thermostat. According to Fadell, the average Nest thermostat can save about 15-20% energy (but there’s a big range from individual to individual).

From October 2011 to April 2014, Nest users combined saved nearly 2 billion kilowatt hours of energy. To give you some perspective, that is enough energy to power the U.S. for 30 minutes. Add in the fact that Nest is in fewer than 10% of homes. So, it’s a relatively small number of users saving a ton of energy.

In October 2013, Nest announced a smoke and carbon monoxide detector. The product went on sale for $129. In early April 2014 it became unavailable for sale due to a safety issue.

The Google Acquisition

On January 14, 2014 Google announced the acquisition of Nest for $3.2 billion. According to Fadell, talks were ongoing with Google long before the acquisition was announced.

A couple of years from now, if not already, this will seem like a small but worthy acquisition by Google (think of their $1 billion YouTube acquisition). Nest undoubtedly will unveil new products in the coming years, each with their own differentiation from those you commonly see in a home. It’s what we’ll come to expect from them, much like there are certain products we expect from Apple.

Would you like to learn more from this innovative thinker? Let’s start by looking at his source of creativity for new products.

Frustration is the Source of Creativity

Tony Fadell’s creativity is caused by frustration with products, or in some cases, the absence of products altogether. He gets frustrated wondering why a product wasn’t built differently, or why a product hasn’t been built at all. He says:

“Today [my source of creativity] is all about frustration. I look at the world, I peer into different products, and I say, ‘What’s wrong with this product?’ or ‘Why doesn’t this product exist?’ I keep getting frustrated. But how is that frustration born? How do you tune into that frustration?”

He explains his frustration with smoke detectors:

“I started looking at the smoke detectors that were on the ceilings, and I started going ‘Is this thing working? I don’t even know if it works. I don’t know if it’s going to wake me up tonight. I don’t have any clue what these things do.’ They’ve been around us, for me, you know, 40 years, they haven’t changed. They’re exactly the same as they’ve been since we were kids…

“I look at my TV, I look at my phone, and I look at everything around us that’s changed. Now the thermostat is changed too. But you just go ‘Why hasn’t this been changed? Why don’t we know what’s going on? Why don’t we get information instead of beeps? Why do we get woken up in the middle of the night for the battery? It’s always in the middle of the night, right?

“There’s three quarters of a billion smoke detectors, smoke alarms, and CO alarms in the US alone in residences and commercial. Three quarters of a billion! Forty million are sold annually. How come we can’t get something better? That’s more than washers, dryers, refrigerators, stoves, cars, TVs, almost as much as tablets. Why can’t we get a better product? And so that’s how it all started. And so I was like ‘Let’s totally rethink this whole thing’.”

Even the iPod was born out of frustration. Fadell used to be a DJ and got frustrated when he had to carry around all of his CDs from place to place (hoping to not lose any). He wanted to be able to take all of his music with him without carrying around a bunch of CDs. Because of that, they built the iPod.

Prototype the Hard Things, Not the Easy Things

“In anything you build, or anything you design, there is differentiation. There is something you’re going for that you’re truly trying to differentiate. The reason you’re doing this project is to do something special, something different. So you need to prototype that differentiation. You need to go and look at that in detail. In really, really hard detail.

“However, sometimes people don’t know what the hard things are and what some of the easy things are to prototype…. Too many times people go for the flash and the easy thing to prototype. They don’t go for the hard thing. The hard thing is what sets your schedule. It sets your budget. It sets whether or not it’s doable. And you need to prototype it.”

When prototyping, Fadell emphasizes it’s important to look deeply at the thing that makes your product special, the thing that differentiates it. Through that, he says, “You’re going to find your schedule, your budget, the team you need, and the challenges you’re going to face.”

Know When to Prototype and When to Iterate

“There are two different ways of looking at this. One is you’re experienced in the field of where you’re going at it, where you’re going for. You’ve done something similar to it. So you have a feel for what is supposed to happen and how it’s going to work. Then there is another place where you’re prototyping where you don’t even know what’s going on. You’re just starting to learn about it.

“In the first case, you can usually sense it. It’s a gut, you have experience you know how far you can take it.

“In the second case, you need to have ‘experts’ around you. You don’t have to listen to them all the time, but enough that you can start to learn from them. Start to learn about what I am trying to build and figure out whether or not it is attainable. So you have to use your own intellect, you can’t listen to the experts all the time. Sometimes the experts will tell you ‘no.'”

Fadell gives the example of when he made the prototype for the iPod. There was something he was struggling with, so he called in an expert from another part of Apple. This expert had never heard of the project Fadell was working on, and immediately dismissed it. The expert said there was no way it would work, and stormed out of the room. A few months later, Apple shipped the iPod.

Fadell says, “Sometimes you bring in the experts to help test things…[but] when you actually make [an expert] really upset, you might be on the right track.”

Experts can be the ones who have been around the block the most and have supposedly seen it all. They claim to know what is possible and what is not. Sometimes, however, they should be ignored. It’s analogous to a big company that is an incumbent in a space. They’ve been doing the same things for a long time and claim to have the most advanced thinking. That is, until a small disruptive company comes into their space and changes the industry. Use experts wisely.

Set Constraints on Project Time Length

“You have to always set up constraints for yourself. You have to be able to learn, and the only way you learn is by actually getting to a milestone sooner than you think. You can have a long term vision. You can have a 3, a 5, or a 10 year vision, and there is nothing wrong with that. You should have one.

“But you need to set near-term milestones. Maybe if it’s atoms it’s 9 months or 12 months. If it’s electrons it’s 3 months. But you need some near-term milestone where you actually understand what you’re trying to build. Put the assumptions down on paper, get to that milestone, and then reassess once you’re there whether or not you’re going to make it to your vision or to your ultimate product. You need to continue to do this.

“And why do you need to do that? Two reasons, one is for your team. Your team has to understand where they’re going. They have to understand in detail. Your partners need to understand in detail where you’re going. Sometimes when you get to that milestone, it didn’t work out like you thought. So you can go back and look at your assumptions, you can see what you did wrong. But, everybody, together as a team understands that. And they can try to figure out what’s the next milestone.

“It’s very important that you always keep everybody on the team learning and understanding why failure happened or why success happened. So that you can continually learn for the next milestone. When you look at short term, you have to remember that you’re always going to, at least in my case [with Nest], make another product, hopefully, build off that last product.

“You don’t need everything in your first product. It’s usually too complicated. It may be because the engineer wants everything in there, so you need to make sure you set those milestones, set those constraints so that you can actually ship, because you must ship.

“Why must you ship? You must ship because the people on your team need to put something on their resume. They need to see the results. What happens if you never ship? Or you never shipped something that everyone believes in? They go to the next job [and the employer says], ‘What did you do the last two years?’

“As a leader of a team, you must, you absolutely must get your team to ship. Ship whatever that is to learn and to acknowledge the people on the team that they did something. Whether it was right or wrong, but they did something. And so they can show other people they did something and they learned from it.”

Getting support from the company for small projects and ensuring they get shipped also are important for employee retention. “You must ship every year or so because otherwise you can’t keep your engineers engaged,” Fadell says.

Set Constraints on Input from Third Parties

“If you don’t have constraints, make up some constraints. The first and foremost thing [when designing products], is [to] pick your window for shipping. Whether it’s three months, six weeks, three years, find a time, but typically no more than a year. That’s been my rule. You have to ship within a year because you cannot hold on to the emotional team spirit for more than a year. People’s lives change. People cannot commit more than a year. That’s the first thing.

“Second, there are two different types of decisions when making a product. One is opinion-based decisions and the other one is fact-based decisions. Fact-based decisions are really easy as long as everyone is looking for the facts and everyone’s arguing over the facts and we make decisions over the facts.

“But the other one…making decisions based on opinions is really hard, is very hard. People will say ‘Oh, well let’s go get a third-party opinion. Let’s go get customers to tell us what they want. Let’s go take data…. In my 20 years, I’ve never seen that ever work. You can take data after the fact, but you can’t take data before you ship it. People don’t understand what you’re trying to do. They’ll give you false data.

“So what do we do in the case of opinion-based decisions? Very simply, you must have a leader who can make those decisions. Who cannot just make those decisions, but also can articulate why they’re making those decisions. You want to be able to understand, if you’re not the leader, why the leader is choosing this, and not that. What is it? Is it about the market, or is it about the customer, or is it about the manufacturing? Why are we going this way instead of that? And why is that? To build DNA inside the team [so they] understand why it is we do what we do in the absence of data.”

Work with Your Heroes

“Go work with your business heroes or your technology heroes. Why? Because they’ve seen a lot. You can learn a lot, much faster than you can learn in school. You can’t just…through osmosis…come to [school, conferences, etc.] and learn everything. How do you build an organization? How do you build a DNA in your culture, in your company?”

Fadell believes in going to school, getting the basics down with a bachelor’s degree in whatever is interesting to you.

“But if you want to perform at a real level, go get your ‘masters’ and ‘PhD’ with your heroes. Because if they did something that you think is really wonderful, you should go and learn from them. You see all these 20-somethings [saying] ‘I can do it just like them.’

“I did it. I tried to make my own company when I was 19 and 20. And back then there was no Internet so it was even harder. It’s really difficult. I invest in a lot of these startup companies…and you get a lot of these young guys [and gals too] and they’re really all full of emotion and passion and they want to succeed and it’s great. And then their first question is ‘What does it take. How do you structure engineering? How do you structure marketing? How do you structure HR? What do I need?’

“If you’re in some smaller companies where you can learn some of those things, you can learn how they do those things. And you can bootstrap your way into a new venture. But it’s hard to have a VC give you money if you have very little experience. Today [you need traction] before [they] give you tons of money. But you need experience, usually, to get some kinds of traction.”

Fadell believes working with heroes when you’re young (in your 20s) is beneficial and should be done before you start a company. Heroes understand the whole picture of a business and all of its processes. They know more than just differentiation. They know how to get it done in a repeatable fashion and how to build a team. This ultimately leads you along the right path so you feel more confident when you’re ready to start a company.

The Three Things You Need to Get Projects Approved

When looking to get projects approved by your boss (or possibly land an investment for your company), Fadell says you need three things:

1. Passion

“The passion of you, the passion of your team members. It’s a thoughtful passion. It’s not an egotistical passion. It’s a passion where you’re really…thoughtful, introspective about what you’re trying to do, and can communicate it to those people who you’re trying to get to join your team or [get approval].”

2. Presentation

“You need to make sure that you’ve looked at all of the details. You want the person on the other side of the table to go ‘Hmm, they don’t just understand what it’s going to take to build the product or project. They understand the risks that they’re going to face.’ You make them a part of the project and say ‘Look, here are our challenges that we’re going to face along the way. These are the ways that we’re going to do to mitigate those risks.’ When they see that you’re looking at those, they start going ‘Wait a second, this team is different, they think about the problem differently. It’s not all just sunny, happy days and it’s all just going to happen.’ Because if you’re doing something differentiated, it will be tough, it will be difficult. You need to bring them along. You need to tell them what your challenges are.”

3. Partnership

“Make sure you’re talking to the right people. The absolute right people, the decision makers who can actually help you, and they’re not just thinking about the rational numbers, the figures. When are we going to ship? How many are we going to ship? How much money are we going to make? What’s the ROI? If they’re starting with those kinds of conversations, you have the wrong people. You need to literally think about the people you’re talking to, and make sure they’re the right ones. They also can [be more than] just emotionally engaged with you and rationally engaged. They can help you when the other teams around you may be jealous of what you’re doing, or want your funding, or want to be able to stop it in some way. [The partners can] go in and take that team out and help you. The other thing that I’ve experienced is that while you might have a partnership that will say yes, you have to look at their track record.”

Fadell says that at Philips Electronics, while he was able to get projects approved, many of them died (about 9 out of 10 projects would die). These were late stage deaths. Not in the early stages, but weeks before launch.

“It was very easy to say yes to get it going, but it was very hard to get it launched. Whereas contrast that with Apple, less than…2% of projects ever died…why? Because we always learned from whatever we were doing and it morphed into something else and it continued until it actually saw success. You need to make sure you understand who you’re partnered with, and if the project is approved, what is their track record?”

You Need Self-Doubt

“If you’re not having doubt, you’re not pushing the boundaries far enough. It’s too easy. Or you’re not looking at the details enough and understanding the real risks involved. Because if you are really differentiating, you’re going to be able to experience that doubt [as] when people on my team [would] come to me and say ‘Wow, it was a dramatic day here’ or ‘It has been a roller coaster ride.’ If it doesn’t feel like a roller coaster ride, and in the morning you come in, it’s a wonderful day, and by the end of the day, it’s a disaster, you’re not doing something right. You need to be feeling that doubt every single day, pushing, pushing, pushing in whatever vector you’re looking at in that moment.

What Tony Fadell Learned from Steve Jobs

“I learned the power of ‘no.’ ‘No’ is really, really important. Entrepreneurs are always told to say, ‘Yes, yes, more, more, yes, of course, I’ll grow faster,’ but to help you focus, to really understand what you’re doing, you really have to say ‘no’ a lot. And when you say ‘no’ a lot, that narrows in exactly what you need to do and you know when you’re successful or not because you focus solely on this one thing or these two things. When you say ‘yes’ a lot to everything, you get distracted. ‘So when this things not going right, I’m going to go focus on this thing for a while and then I move to this one and then [when you start focusing you say], oh yeah, I don’t need to work on those now. I’m going to work on this.’ When you say ‘no’ to a lot of things, you have to get the one thing you’re doing really right. Because that’s it. And so ‘no’ was a really, really big influence [on me].

“[The word ‘no’ applies] whether it’s projects, or user interface, or buttons, or colors…absolutely [this plays a role in how simple Nest products are today] the power of just simplification. Just saying ‘Yeah maybe we’ll get around to that another day, but right now we’re just focusing on this’…that’s how you get that Occam’s Razor so to speak. [You want] just enough, just enough.”

Fadell points out that Jobs taught him how important it is for consumers to have a great experience at every touchpoint.

“At Apple, Steve [taught] us that every single consumer touchpoint was incredibly powerful. Not just the usage, but the unboxing, the selling, the customer support, the retail experience. All of these things were absolutely essential [for] a great product. So taking the consumer product design, taking the frustration of a product that you have and being curious about it, combining it with a product experience, all of those things then flowed from our experiences there into the Nest.”

Think beyond the product, to the entire experience. The Nest thermostat tells people when they are saving money, and tells them when they can actually earn money.

Fadell says that Steve Jobs taught him about product experience:

“Steve really showed me what it means to make a product experience. An experience is not just using the product and making sure it’s beautiful, I learned that before because I worked with the Mac team pre-Apple and they taught me how to make great products. It’s about making great experiences. Experiences are all about the very first time you ever learn about the company, whether [it’s a video], or the first time you saw it in a retail shop, or the first time you heard it from a friend who said, ‘This is something you should really take a look at.’

“It’s starting from that very first customer touchpoint and looking at every single touchpoint and [creating] emotional, positive momentum all the way through that experience. So your first contact with it, your second contact with it, when you take it out of the box, how you might configure or install it, how it’s used, how it’s serviced. All of those things need to be taken into account to create an amazing experience. So if you look at something like what they’re doing with the retail and all of those other things, you’ll see that customer touchpoints throughout every single area, and making sure the brand comes to light, the product comes to light through that.”

Fadell notes that Jobs taught him the importance of emotion in products and why companies need to back their products:

“One thing that Steve taught me really well is if you put emotion in the product, just don’t make it rational, if you put emotion in it and really touch people, no matter what product it is, and you tell them and you’re committed and you’re behind it and you show that you’re behind it and you’re passionate about it, they’ll feel it, they’re going to respond. And there’s going to be those people, those early adopters [who say] ‘I’m going to try this thing’ and that’s also with engineers.”

This goes along with what he says he learned at Apple:

“[I learned] editing – editing with a clear point of view. Who is the consumer? What do they like? What don’t they like? Understanding that, not understanding it through data, not understanding it through surveys, understanding it through yourself. Really having that visceral feel, that emotive feel to know that ‘this is right and this is wrong,’ and you’re not going to do every single feature. You’re going to only do the ones that count the most for you.”

Working with Steve Jobs on Design

When Tony Fadell worked with Steve Jobs on design decisions, he often received a lot of push back from Jobs, and he explains it this way:

“There are two different types of design decisions. Some are fact based and others are opinion based. And so with facts, usually over time, if you got the right facts [and] he believed how you created the data or found out the data, he would go ‘Okay, I understand, we’re going to go that way.’ But then on the opinion-based pieces, you know, what color was it going to be or exactly that shape or exactly that color, he would go ‘Oh it’s going to jab in your hand’ or ‘It’s going to scratch.’…I could have an argument with him, but he’d always win.

“We’d have to come as an army, so it would have to be a bunch of us together and we’d all go ‘Yes this is not the right thing’ [or] ‘No no this is not [right].’ And then we’d get in a room and then [all come to him] and we’d go at him. And then sometimes he would relent. Other times [he would firmly say] ‘No, that’s the way it’s going to be.’ But we didn’t always win, by any means. But it was a wonderful experience because he really pushed you in every different dimension, whether it was the UI or a pixel or a color or a shape or what have you. So it was an incredible learning experience and I wouldn’t change that for the world.

“[There were these techniques] where we literally would say, ‘Okay there’s going to be these three models with these options, we’re going to make sure it’s perfectly right.’ And Steve would say ‘Just show it to me.’ [And I’d reply] ‘No, Steve, we’re going to do it this way.'”

What Tony Fadell Looks for in Entrepreneurs

Fadell is an angel investor and has done around 70 investments. He knows entrepreneurs pretty well. Here is what he looks for in entrepreneurs:

“I ask entrepreneurs ‘How did you find this idea?’ Typically, if they came from their hobby or something they were passionate about doing [then I like them]. If they were like ‘Oh well I looked at this market and it’s a really big market and I found this slice of uncovered territory and I found this crack and here is this [opportunity],’ no I don’t really like those. That’s usually an execution play, they’ve contrived a scenario where they think they’ll be successful and they found a vein of gold to mine. No, I look at it the other way. The [ones who] found some interesting new way of looking at technology and applying it. So that’s really, really cool for me.”

Fadell funds “groundbreaking technologies that most people won’t fund. The stuff that is dramatically different.” He says that he likes the “deep, technical stuff where there is great minds working on something that I can see that if they hit it right, a whole class of things can be disrupted. It could be algorithms, it could be chips, it could be communications protocols, stuff that you really need to know how to be very technical to evaluate. Stuff that really gets me out of my element every day that gets my juices flowing so I can understand where Nest could be in 10 years from now, because I can see these technologies.”

Disruptive Products Need Disruptive Marketing

Nest products are mass market products that need to get to the mainstream consumer. Tech people hear about Nest products because they live in a bubble reading TechCrunch, The Verge, Hacker News, etc. But in order to cross the chasm, they need distribution that will get them in front of mainstream consumers. Today, Nest products are sold at Amazon and in physical stores such as Best Buy, Home Depot, Lowe’s, and the Apple store.

Fadell discusses marketing disruptive products:

“What you have to do when you have a differentiated product is you also have to have disruptive marketing. You have to look at it very, very differently and make sure you communicate to your audience what the problem is, what the benefits of your solution are, and make sure they see [the product] the way they see [those in] the wonderful marketing for smart phones or TVs or other consumer products.

“You also have to allow them to purchase [the product] where they would normally purchase those types of products. You didn’t see a smoke and CO alarm or a thermostat at a John Lewis store. Or maybe an Apple store. It’s [a] very, very different way. You go into a dark corner of some large big box something or other with dust on the products themselves and you’d go and find it only when you really needed it. As opposed to exploring it and maybe possibly upgrading your home for those things and you’re going to do it where you typically shop. So disruptive marketing, disruptive product, and disruptive retail are all essential in bringing these kinds of innovations to the market in hopefully a successful way.”

Products Need Magical Moments

Fadell believes that product development needs a blend of rational and emotional thinking. He says they’ve incorporated that at Nest and they keep “magical moments” throughout the time the customer uses a Nest product:

“At the beginning when you’re starting to do product design like we did with the thermostat or even Nest Protect, you start with the right balance of rational and emotional features….and you have to blend [rational, emotional thinking] in your product when you come out. And so those magical moments… You’re trying to find a couple of those, as well as the rational pieces, to get people to want to purchase. So if you look at something like the thermostat and the interface, or you look at Nest Protect and how it speaks to you, and path like functionality… Those things were really thought through at the beginning when we were doing the product.

“But then fast forward just a year or a year and a half ago when we were starting to design our energy services. We started seeing all kinds of data coming though the thermostat and we started learning [about] some people [and] how they’re interacting with it. We understood that we could also help them start to save more money by doing certain things. And by doing that we created more magical moments and gave that to them in a software update for free and marketed and what have you.

“So again you’re always looking, because I believe that connected products like these are not like cell phones that are going to be replaced every 18 months or what have you. They’re going to be in your home much, much longer, multiple years, you know, 7-10 years, that kind of a thing. When you have that [kind of a product], you have to think about creating magical moments during that entire lifetime and you’re always mining the data, you’re seeing customer usage patterns, you’re seeing other ways, because it’s not just a thermostat and it’s not just a smoke alarm. It’s about the time [when] you put that product on the wall to the time you replace it many, many years later.

“So we want people, if they use it right, if they use the thermostat correctly, they get paid for their experience and they never even thought they were going to get paid when they first [bought it]. But we have tens of thousands of customers now who are getting paid when they use the thermostat because utilities are incentivizing them to use it correctly. So that to me is another magical moment that is something that builds and reinforces the brand message that we’re there to create magical moments for you. You may not know it at day one, but we’re there to do it subsequently.”

Fadell adds that in the case of Instagram, their initial “wow factor” (or “wow effect”) was filters. Everyone copied them afterward, but it was the initial magical moment that launched Instagram. Fadell says that “wow effect” is essentially a break from the ordinary. People see photo after photo after photo on the web, but when you add filters, it’s like “wow.” Or in the case of smoke alarms, people are used to hearing beeps when there is a fire or when the battery is dying. These are things people have grown up with and have been used to. But when they hear a smoke alarm that speaks and is more intelligent, it makes the user of that product feel more creative because they understand the product and its differentiation.

Timing and Secrecy Are Keys to Product Success

“A lot of startup companies love to come out and they love to tell everyone about what they’re going to work on and what’s their key competitive advantage and that they raise this much money and they raised all these things. I think that runs counter to the way you build a startup. A startup is about being fast, stealthy, and hitting a market. Right when you’re ready to sell it, people are ready to buy it.

“If you start two years early and you start announcing this and that and all these things, by the time it actually ships, people go ‘Finally, it shipped! We’ve been hearing about it for two years.’ It makes no sense, right?

“So why not continue to make it special, keep it special, keep it in-house, make sure you’re working on the right things because things change over time. We worked on this for a year and a half before we shipped it, things [changed]. People are expecting a cool thing, they don’t know anything. So that secrecy makes people more excited when it comes out, especially when it comes to a thermostat. You’ve got to make people excited, and luckily we did that.”

Nest quietly received funding and the product development was kept quiet until launch. It wasn’t until the product was available for sale when Nest became more known. And, clearly, the timing for a reinvented thermostat couldn’t have been better.

It Shouldn’t Be Easy to Be an Entrepreneur

Fadell gives this advice to entrepreneurs:

“Trust your gut. If it feels too easy, you’re not trying hard enough. If you’re not scared about at least one or two aspects of what you’re trying to do, you’re not trying hard enough and therefore there will be competition. It’s okay to be uneasy, uncomfortable. That’s the way it is to be entrepreneurial.”

He says that even if you’re scared, you still should try. “Exactly, absolutely try, absolutely. Just as long as you have enough of the risks mitigated. Don’t do something totally crazy, but enough of the risk mitigated. But there has to be risks if you’re going to actually have reward.”

Tony Fadell Nuggets

Nest has been sued a few times. Fadell says the incumbents don’t like an upstart coming in and disturbing a business they’ve had for years where they did the same thing over and over again. Instead of innovating, [incumbents] litigate. If you can’t innovate, litigate is the mantra of many of Fadell’s large corporate competitors. He says,

“If you’re a startup trying to go after a revenue stream that has been established, trust me [the incumbents] will throw everything under the sun at you and a lot of it is not cool. You’ve seen customer reviews, you look at the customer reviews for our products and you go ‘This seems really weird’ when you read the review. One star! And we’ve been able to trace it back to plants. Literally, these are the kinds of things [incumbents] do. You have to be very cognizant of when you go into these markets [of] what can happen.”

Don’t count on Nest creating futuristic, new age home products you may have seen in Minority Report. Fadell says,

“I hate this Internet of things term. I hate the ‘connected home’ term. Nobody buys ‘connected home.’ They buy products. They don’t buy visions of [pressing] one button and the shades come down and the lights go down and the TV comes on. That’s [for] single geeky guys. That’s not families. When you have families and you have kids, you learn [that] people use the house in different ways…

“Everyone’s like ‘Well you should just remove every thermostat and every switch off every wall because I have it all here on the phone.’ … What about your four-year-old? What about your five-year-old? Come on, give me a break. You know you typically talk to single guys and those are the ones who want these kinds of things… Luckily I’m older now and so I have a family and I understand this stuff. I probably would want that 20 years ago, too. So, no, I don’t think every product needs to be connected. Just because it can be, doesn’t mean it should be. You gotta reinvent each product and make sure it stands alone, and then if you win and you do a great job, you can survive and go to the next stage and make another great product. And over time, yeah, sure there might be great things that these things can do together, but they have to stand on their own.”

Fadell says the number one cause of carbon monoxide leaks in a home is a faulty furnace. He gives the example: If you use Nest’s CO alarm and it detects CO, it will tell the thermostat, and the thermostat will shut off the furnace. The homeowner then gets a message on their phone (via the Nest app) notifying them of the CO leak and what they should do. Fadell says, “These are the simple things I think of [as] ‘connected home,’ not the shades and the lights and all that other stuff. To me, that’s useless stuff and people don’t want all that. They just want to remove the annoyance and frustration.”

Fadell has advice for entrepreneurs thinking about international expansion:

“Be methodical, utterly methodical. Don’t just rush [to the U.K. or elsewhere], think you can come in, and you’re going to dominate just like you did where you were. Think about your steps. Think about your true differentiation. Every country is different. If it’s a hardware company, you can use the web and you can set up one shop and sell online. But to really truly go into retail or do marketing or those kinds of things, those are very heavy weight and you need partnerships. You need to have good friends who can help get you started, just like you did wherever your home country is.”

The one characteristic every leader must possess:

“The ability to listen. It is important to create a smart and capable team around you and actually listen to them. Success is a team effort, so a good leader should listen to the team they’ve built, take all points of view into account, and then create their own point of view. And a very wise man told me, ‘Never take a vote, make a decision!’ Once it has been made, it is also important to have the team understand how and why you got to the particular outcome so they can learn from it.”

Apple did three different variations of the iPhone before they shipped the first one. It was not the case where Jobs told engineers “I want a phone and this is how it should look.” There were many different variations of it, as Fadell says. There was, as Fadell describes it, an “iPod plus phone,” then the “iPhone,” and the “next generation iPhone,” which was the one that shipped. There was never any version that had a physical keyboard, although there were discussions. Fadell described it as a “heated topic,” with people for it and people against it. Fadell was on the side of trying the touch screen keyboard. He says, “The biggest problem with the iPod plus phone was that we had a little screen and we had this hardware wheel. And we were stuck with that.” On his experience with bad keyboard ideas, Fadell says, “Sometimes you have to try things before you throw it away.”

On starting with consumers and individuals and, through that, getting enterprise clients:

“We want to go into hotels as well. It’s really a challenge when you have hotel management or office management. You have to convince the landlord, the property manager, the tenant, so it’s a big, big deal to try to get these larger systems to adopt Nest. So that’s why we start with the consumer first. Because what I learned at Apple was you can do a lot [with consumer products]. Every single person at an enterprise is a consumer, and if you can reach the consumer, you can reach the enterprise, like why the iPhones were really able to take over and why the iPads were able to take over. We think the same thing is going to happen in cruise ships, hotels, light office. But it’s going to be the consumerization into the enterprise through this.”

  • Fun fact: Phil Schiller was the person who invented the iPod “wheel.”
  • Over 200 patents are in Tony Fadell’s name and the products he helped invent.
  • Many Nest people came from Apple. Some estimates have said about 80 of Nest’s 300+ employees are from Apple.
  • You can follow Tony Fadell on Twitter.

Hardware startups are uncommon and difficult. Fadell has done a marvelous job developing the Nest brand and their products. He has shared a lot of his knowledge in many different interviews, and I’ve done my best to document it all. I hope you’ve found this post useful and inspiring.

About the Author: Zach Bulygo is a blogger for KISSmetrics, you can find him on Twitter here. You can also follow him on Google+.

  1. Thanks for sharing with this information. Any news are useful in bussines.

    • Kinkley, glad we could help. Thanks for the feedback. We look forward to hearing more from you :)

  2. Dennis Santos Jun 02, 2014 at 9:30 am

    Great article, I’ll use it constantly, the information provided, specially coming from Tony Fadell own experience it’s invaluable.

    It would be great to have the interview on audio like a podcast to listen at anytime.

    Ty for providing us with this information, and keep on going this real experience articles.

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