From The Garage To 200 Employees In 3 Years: How Nest Thermostats Were Born

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Editor’s note: Derek Andersen is the founder of Startup Grind, a 40-city community bringing the global startup world together while educating, inspiring, and connecting entrepreneurs.

I remember when the press first hit about Nest Labs. The guys behind the iPod/iPhone were taking on thermostats everywhere! A collective “huh?” went through the industry. It felt like the tech version of the Avengers got together to build an office park, not save the world. After sitting down with Nest co-founder Matt Rogers at Google For Entrepreneurs‘ office a few weeks ago, I learned the backstory and vision of a company on a mission to build one of the world’s only great hardware/software companies.

There are hard workers, there are really hard workers, and then there are the Matt Rogers of the world. If you think you work hard, please watch our entire interview and think again. Matt had an early start with his first Mac product interactions at age three. When asked as a child growing up in Gainesville Florida what he wanted to be someday, Matt would respond, “I want to work at Apple.” At 16 he was building robots and entering them into competitions with his classmates. As a sophomore at Carnegie Mellon he agreed to basically do anything (anything being to help draw bones in CAD for a robotics hand project) to get a chance to work with the robotics lab. His Junior year he applied for an intership at Apple via Monster.com, and pestered employees until he got accepted. That summer he took on the worst grunt work project imaginable (he rewrote all the software for manufacturing for iPod), and had three months for what he described as a “one year project.” Seven days a week, 20-hour days, and “basically not sleeping.” How did it pay off? Apple awarded him a cash bonus as an intern, something VP of iPod at the time and eventual Nest co-founder Tony Fadell said, “He had never done before.”

Apple

After school he returned to Apple and spent the next few years working on the firmware for iPod nano and iPod classic. After his first weekend back at Apple, and spending Saturday and Sunday getting moved in and buying furniture, his manager approached him saying, “Where have you been?” Matt responded, “I went to buy furniture.” He replied, “You should have been here.” He responded, “Oh. I didn’t even know!” Matt said this, “Set the pace for how iPod would be for the next five years.”

In December 2005, Matt and a small team started working on the first iPhone concepts in a project called “Purple.” At the time no one in the company knew what was going on, not even some of their own managers. They built the initial prototype in four months. It wasn’t good enough so they started again.  The next version was the one Steve Jobs would unveil on stage at MacWorld in January 2007. Four weeks previous to that, 25-members of the team went to China to assemble each of the first 200-devices to be shown at MacWorld. The team was divided into a day and night shift to hit the deadlines, working through Christmas and returning after New Year’s Day.

The Founding of Nest

After shipping the iPhone, Matt led work on products like iPod nano and shuffle, parts of the iPhone, iPad, and Apple TV. By late 2009 he had hired 40 people and managed these teams while still just in his twenties. That fall he had a two-hour lunch with Tony Fadell, his former boss at Apple who had left in 2008. Matt told Tony he wanted to start a company. “What do you want to do?” Tony replied. “I want to build a smart home company.” Tony’s response? “You’re an idiot. No one wants to buy a smart home. They’re for geeks.” But it turned out Tony was already building a smart home in Tahoe, with solar panels, geothermal heat pumps, and more. Tony honed in and focused on a single idea. “Why don’t you just build me a thermostat?” Matt replied, “Why not? We could build an iPod?” Tony responded, “We’ll do it in six months.”

Tony and Matt have what appears to be the ideal co-founder relationship stemming from Matt’s early internship days at Apple. “We think very much alike, to the point where we complete each other’s sentences. I don’t know if I would be able to do it without him.”

But was this the idea to risk his promising future at Apple? Matt had elevated from intern to Senior Manager in a few short years. “The more we dug, the more we realized, this is a company we must go start. We could save 10 percent of energy, solve an epic problem, no innovation (in the industry), multibillion dollar market. Why would we not do this?”

Matt quit his job in spring 2010, rented a garage in Palo Alto, and started cranking in secret. Matt would visit with old colleagues and tell them, “Will you quit your job? Will you come work (for free) with us on a new project I can’t tell you about?” The first ten hires worked for free for six months before finally raising money in October 2010. They bootstrapped with money from Tony and some from Matt. “We were all working basically severn days a week, twelve hours a day, it was crazy. Not everyone was living in the office – people have families, so they’d go home for dinner and then come back. It was craziness.” Everyone worked on Thanksgiving only taking a few hours off. Matt assured me no one got divorced adding, “All the wives are happy now.”

Still no one knew that Tony was even involved. “In the early days when we were fully stealth. “We had no website, no LinkedIn, we had nothing. Zero outbound communication. I wouldn’t even tell people that (Tony was involved). For all they knew, I was the only founder. To get people in the door the first time meant I did a lot of lunches, a lot of coffees to get people excited. I wouldn’t tell people on the first date – I’d show a little leg, but I wouldn’t go all the way.”

Even with limited funding Nest still managing to assemble a killer engineering team in the midst of a talent war exploding all across Silicon Valley. “It was a mixture of my old team at Apple, my old professor from CMU and a few folks from Tony’s early days at General Magic twenty years earlier. One guy was a VP at Twitter, one was running Microsoft User Experience. Unlike most startup teams the average age of our team was about 40. I think I was the youngest.”

A year after raising Series A capital from Kleiner Perkins, Google Ventures, Lightspeed, and Shasta, they shipped their first product. This past spring Nest was rumored to have raised $80MM at an $800MM valuation and shipping 50,000 thermostats each month. This company that was in a garage in 2010 now has 200 employees, and selling its products at Lowe’s, Apple Stores, and Best Buy. About half their inventory is sold online. Like most great companies in the Valley it is not without controversy. They were recently sued by Honeywell for patient infringement and as one friend in the home automation industry recently told me, “Everyone is watching Nest.” They also recently acquired venture backed energy dashboard MyEnergy.

Building HARD-ware

Nest shipped its first product 18-months after their inception, with 75-employees and having spent $10MM. “That’s with a team of extremely senior guys who have all done this a dozen times before. The difference between doing it a dozen times before at Apple, Samsung or Google and doing it on your own is that there is no backup. At Apple we worked on the project for a year, got it ready and hand it over to the operations team to go scale and shoot to the moon with. We all had roles we played at previous companies and that all went out the window at Startup Land. You have an HR hat, facilities hat, and janitor hat. Doesn’t matter, you have do it.”

Is it any surprise that there are so few hardware startups the Valley? Or that most entrepreneurs choose an app or a website over a hardware device? Entrepreneurship is hard enough not to have to layer in these additional complications. Matt adds, “I don’t believe I could build Nest if Tony and I didn’t have all that experience at Apple. It’s really hard to pull off fully integrated consumer electronic devices. It’s also really expensive to build a consumer electronic product. You have to build prototypes but you have to build tools. You have to get a manufacturing line set up. You have to front inventory costs. It’s crazy expensive.”

When our interview finished a few weeks ago, I walked Matt out to his car. It was 9pm, and he was cheerfully headed back to work for yet another late night at Nest. After hearing about the culture and work ethic at Nest, his attitude simply reminded me of how he described working a holiday a few years previously. “That’s what it takes,” he casually said.