How do you make a billion dollar nest? It took Tony Fadell just 3 years to do it, and in the wake of his success will come another 1,000 millionaires. Will you be one of them?
This week, Tony’s 3 year old company, Nest Labs, raised $150m at a value of $2 billion. He is riding a new wave – “The Internet of Things” – where smart, connected devices (from fitness trackers to robot cars) will create a new economy bigger than the “Internet of Information” has created so far.
Cisco forecasts there will be 50 billion internet-connected things by 2020, compared to a predicted 8 billion humans on the planet (of which 3 billion are connected today). The businesses that will dominate this space haven’t even started yet. One may be yours. If you have any such plans, what can we learn from Tony’s success?
Tony has created a $2 billion business with just one product: A smart thermostat. Here are 3 of his biggest steps in getting there:
1. TO BE AN ENTREPRENEUR, FIRST WORK FOR YOUR HEROES
Tony launched two companies in college. Both failed. Then he worked out the magic formula – go work for someone you can learn from. He went to work for General Magic, a team of Apple alumni that led to a job at Apple.
As he says: “To say ‘I’m entrepreneurial, I’ll never work for anyone’ is a little naïve. Don’t see going to work for somebody that you really respect and admire as a job. It’s getting your Master’s and Ph.D. in doing what you really want to do in your life,”
From 2006 to 2008, Tony worked on the iPod team and became known as “The Podfather”. Finally, at age 39, he felt ready to launch his own company and quit to start it. He just didn’t know what it was yet…
2. DOING GOOD IS MORE IMPORTANT THAN LOOKING GOOD
After leaving Apple, while renovating a house, Tony came across a real-life problem: “I discovered there was your thermostat that controls 50-60% of your energy costs every year – and no one knows how to use them and they’re ugly and frustrating.”
“I was like: this is a problem that’s looking to be solved! And when I looked at all the competition, there was no real competition to do the class of product that we set out to build. It just fell in my lap and I was like: I have to do this.”
The problem was, everyone hated the idea. As Tony says, “My wife’s first reaction was: Are you nuts? How can the iPod guy be doing something so cool and go into thermostats? They’re never going to be cool.”
Everyone agreed with his wife. What was he thinking? But Tony’s focus was on the future and a world where conserving energy (and reducing energy bills) in smart ways was a billion dollar market.
3. CUT OUT THE MIDDLE MAN
In three short years, Tony has gotten over 1% of American Households (over 1 million of the 100 million homes) to buy the Nest Thermostat. As it learns your energy use patterns, it can save 50% or more of your energy use. The biggest shift, though, was the shift he made from thermostats being a building product to a consumer product.
“With the thermostat, we revolutionized the product… but we also revolutionized the sale of it. Most thermostats were only purchased by contractors and installed by contractors: what we did was a radically different approach.”
“We took a risk saying: maybe the consumer will actually install it. It turns out — because we focused so much attention on getting the installation experience right and making it so easy to install — that over 95% of them are actually installed by users themselves. Which you wouldn’t believe: I thought it was going to be more like 50-60% but that’s not the case. We have 80-year-olds posting videos on the web of them putting it in.”
Tony cut out the middle man – the slow moving building industry – and went straight for the consumer. This is the same strategy we are seeing for every company disrupting an industry – from media, to communications, travel, trading, retail, education and now home appliances.
WHAT’S YOUR NEXT BIG SMALL THING?
Today, Nest has over 300 staff. Over half are from Apple. Tony has just raised $150 million and Nest is just beginning. In the next 5 years, everything around you is going to be getting smart and connected faster than we humans have. From your appliances to your clothes to your bike to your car.
“The Internet of Things” is not just a new wave that will change the way we live. It’s also a wave that can change the world. Like when a small thermostat can cut home energy use in half.
When asked whether the ipod or his nest thermostat is the more important product, Tony replies, “It’s nice to have music everywhere and movies everywhere, but it’s not exactly helping to save the world.”
What’s the big small thing you can do? Create it, connect it, change the world – and make your own million dollar nest.