One of the hottest startups in Silicon Valley is not what you’d expect. It doesn’t make iPhone apps or a new kind of database technology.It’s called Nest and it makes thermostats.
Cofounders Matt Rogers and Tony Fadell used to work at Apple on the iPod.
A couple of years ago, they came up with the idea that the thermostat on your wall is too hard to use, and doesn’t provide enough easy ways to save money on energy. So they spent two years building and designing a new breed of thermostat—beautiful to look at, and easy to control from your mobile phone.
Best of all, Nest learns your energy usage habits and adjusts so you aren’t blowing hot air throughout the house when nobody is home.
Nest launched last fall, and sales have been way higher than expected—the company has been continually selling out of all stock—and Nest has attracted fans like Google’s Marissa Mayer.
It has also attracted the attention of the big guys. Last week, giant Honeywell sued Nest for patent infringement.
We caught up with cofounder Matt Rogers a couple days ago. He couldn’t talk about the Honeywell suit for legal reasons, but here’s what we learned:
- Peers scoffed at the idea, but investors got it right away. “When we first did our first pitch, Randy Komisar at KP said ‘we have been looking for a company to do this forever. and I am so glad you’re here.'”
- It’s not just for homeowners—renters are installing Nest, too. “It is not like you are getting a meter installed or a big piece of infrastructure. You take the one off the wall you have today, you plug a few wires into Nest, and you are good to go. Most customers are really very much able to do it themselves.”
- They have no plans to work with utilities—they want customers to WANT this thing. “One of the things that are very core to us is being a trusted ally of the consumer and building a product that they want to invite into their homes.”
- It’s not intended to be a “green tech” product. “I don’t really think it is a green tech revolution kind of product. We are building a great product for everybody, not just greenies. Everyone likes to save energy and money in their home.”
- Working at Apple helped prepare them for Nest. “At Apple we would go to the moon and back for saving one millimetre off of the thinness on a device, and that kind of stuff definitely prepared us for Nest … Everyone says they want to build beautiful products and products like Apple but very few are willing to put that time and energy, that focus in to do it.”
- But there’s no backup at a startup. “Apple is this gigantic company with a lot of resources and whenever we had something very difficult we always could invest our way out of it. We could put really fancy laser cutting equipment to make our metals and plastics or we could hire another engineer to help get the product to completion. In a startup you have it all, you have to do it. You can’t just go hire and build a bigger team.”
Business Insider: So you guys sold out on your first run. Did you expect that?
Matt Rogers: No we didn’t actually. Once we launched it, announced it and started shipping, I think we struck a nerve with consumers and they saw the ugly thing on their wall today and the opportunity they had to get a better product and we have actually been, we have been continually selling out. So within three days we … were taking reservations. And the last few months we have basically been filing off those reservation lists. It has been actually incredible, like how many people have been excited in buying the thermostat.
BI: What do you credit that to, is it design? And how did you get your message out across all the noise that’s out there?
MR: So I mean, part of what gets people excited is design and usability and having a great interface that’s easy. You shouldn’t have to read a manual to figure out how to program your thermostat or use it. And in terms of how we got the word out, we did a lot of direct consumer conversations on social media. We did a lot of outreach in terms of PR. We talked to basically a lot of people and the more people we talked to the more the word got out. It was very much a grassroots type of campaign. We didn’t do any advertising.
BI: How did you and Tony Fadell (the other cofounder) ever decide that thermostats were a ripe area for innovation?
MR: Tony and I, we met over lunch a long time ago, probably almost 2 1/2 years ago at this point, and were talking about what’s to come, what’s next. He had been building a very eco-friendly house in Tahoe and we were talking about some of the things going on there and the lack of innovation in the thermostat space. It got us really excited and we said hey, we built the iPod, what if we applied some of the great technology and design principles to the thermostat? And we spent a few months doing research and thinking about what that process would be and we went off and did it and we spent about 18 months with an amazing team building the product that we now have.
BI: Where do you even find people to work on that technology? This isn’t your typical Silicon Valley startup.
MR: We hired folks from all around the Valley; from Apple, Microsoft, Google, from Twitter. People were excited to leave their jobs, basically their dream jobs, to work on this thermostat. It’s a very impactful (sic) kind of product. Thermostats are responsible for about half of energy use so it is a huge amount of impact you could have.
BI: Was there a learning curve for these people?
MR: For those that are working on, I would say, the core thermostat part of the product, absolutely there was a learning curve and we spent quite a bit of time basically getting educated. We have an advisory board of heating and cooling experts from all around the country who basically educated us about this industry and about how the heating and cooling actually works.
But most of us don’t work on the heating and cooling part of the product. We work on the mobile apps or the back-end servers or the algorithms or the UI [user interface] and that’s the kind of techniques and technology that we used at Apple or at Google. It’s just like building a phone.
BI: How big is the company?
MR: We’re about 100.
BI: Wow. Not exactly a lean startup.
MR: It takes a lot to build this kind of product. To build just a great thermostat it was tough and then when you add in all of the things in the ecosystem, it is the whole company. We have to have manufacturing, we have a whole team that does apps, we have a web presence. It takes quite a bit.
BI: As you were planning the product and raising money, did you ever get any pushback from the investment community or your peers saying, “why are you making such an un-sexy product?”
MR: Different answers to your two questions. From friends or industry insiders, people that Tony and I know and trust, we did get the question, “A thermostat? Really?” But once we told them the story they got it.
Investors on the other hand totally got it. They had already been looking for companies to innovate in this area when we started and when we first did our first pitch, Randy Komisar at KP said “we have been looking for a company to do this forever. and I am so glad you’re here.”
BI: What do you guys do next? Are you planning on improving the core product and what kinds of areas do you look at to improve in?
MR: So there are a lot of areas where the product that we ship today could be a lot better … Immediately we are looking next to “how do we better educate consumers about energy use and what things could we do there?” Today we are building a product that is a great tool to help consumers conserve energy. If you teach Nest well, you will save energy but how can we make that experience even better.
BI: Are you working at all with utilities?
MR: We have taken a different approach and we have decided to go basically on our own. One of the things that are very core to us is being a trusted ally of the consumer and building a product that they want to invite us into their homes. This is a product that they are going to hang on their wall and interact with every day so the path we have gone down is 100 per cent consumer product.
BI: What do you do about renters? There is a sizable community, particularly in big cities, that don’t own their home. Do they install Nest?
MR: We have actually seen quite a few renters buy Nest. They basically leave their thermostat on the wall and find that if they are compatible that they can buy it and install it there. It is a pretty low cost product that is helping them save energy, especially if they are a long-term renter and they are renting that house for years. I mean they will definitely see their savings.
BI: So it is not a real problem for them talking to the landlord.
MR: Exactly. It is not like you are getting a meter installed or a big piece of infrastructure. You take the one off the wall you have today, you plug a few wires into Nest, and you are good to go. Most customers are really very much able to do it themselves. The installations. We have online videos and all of those kinds of things.
BI: What about other products for the home? Or other energy-saving products?
MR: Today we are very much focused on the thermostat, improving that experience. Of course we are building a company and companies are more than about one product but today we are focused on the thermostat and doing that product really well.
BI: Do you see a resurgence in green tech and clean tech driven by consumers rather than the government and subsidies?
MR: I don’t really think it is a green tech revolution kind of product. We are building a great product for everybody, not just greenies. Everyone likes to save energy and money in their home … I don’t know in terms of greater trends. I don’t see too many other companies doing things like we are doing.
BI: You worked at Apple for almost 5 years. How did working at Apple prepare you to work at a startup? And specifically did it prepare you at all for working on this totally new kind of startup?
MR: Apple is a unique kind of place in that there is an exceptional amount of focus on the design and details. At Apple we would go to the moon and back for saving one millimetre off of the thinness on a device, and that kind of stuff definitely prepared us for Nest. Those kinds of design principles and diligence don’t really exist anywhere else, and that core focus I think is what helped Tony and I basically design this thermostat. Everyone says they want to build beautiful products and products like Apple but very few are willing to put that time and energy, that focus in to do it.
BI: Do you see any other startups with the same kind of focus on design?
MR: The guys at Path have done an exceptional job in reinventing the user experience. I have been playing with that app recently and they really have built an amazingly easy to use beautiful UI and a great example of what a modern app can be.
BI: What about supply chain? That must be a big deal for you guys, and Tim Cook is heralded as a genius on that stuff.
MR: Absolutely, we have learned a ton from Apple in terms of operations, supply chain management and how to get a product built at high quality and at high volumes. That has been a continual focus for us and where we spend a lot of our time today is exactly on that.
BI: What did working at Apple not prepare you for? What were the surprises?
MR: Apple is this gigantic company with a lot of resources and whenever we had something very difficult we always could invest our way out of it. We could put really fancy laser cutting equipment to make our metals and plastics or we could hire another engineer to help get the product to completion. In a startup you have it all, you have to do it. You can’t just go hire and build a bigger team. We have to be much more fiscally responsible. Also there is no backup, whereas at Apple you always could go call your buddies at the Mac team or in operations to help out a project. At a startup you’re on your own. You do your own backup.
BI: What is the weirdest thing you have had to do? Any emergencies?
MR: We have had to do anything and everything to the point. At one point I was even vacuuming the floor after we have had some stuff spill. When it comes down to it, everyone, the team here at Nest is willing to do anything it takes to get this product done and to build it.