Nest Labs: Is Innovation Your Company’s DNA?

Matt Rogers may be one of the most successful innovators on the planet. While at Apple, he helped lead the team that created the iPod and the iPhone. In 2011 he founded Nest, which invented and manufactures the world’s first mass-produced smart thermostats.

As a keynote speaker at the recent Cleantech Group Forum in San Francisco, Rogers laid out his thought process for how to avoid stagnation and keep innovating. That effort is helped by the company’s latest round of funding, reportedly led by Google Ventures and including Venrock, which raised $80 million and gave the company a valuation of $800 million. That follows earlier estimates that Nest initially raised between $50 and $80 million million in 2011 and 2012 from investors including Kleiner Perkins, Lightspeed Ventures, Intertrust, Shasta Ventures and Generation Investment Management.

First comes the difficult process of finding a market area ripe for innovation in the first place. The vacuum cleaner business had stagnated for decades until James Dyson invented his new models in the 1990s. In the mid-2000s the smartphone category was dominated by BlackBerry, which ruled in the professional world but had not gained wide acceptance among consumers.

“If you look at why companies don’t change or what causes stagnation, you think how hard is it to reinvent yourself,” Rogers said. “When all your business and all your revenue and your entire team is focused on delivering this, as they’ve done for years, how do you do that?”

So for Rogers, the process starts internally, with radical self-reinvention. In the case of the iPhone, Rogers’ team started with their iPod design. It made sense, since the iPod was hugely successful, and Apple already had all the technology and expertise to build it.

The only problem: It didn’t work.

“It turns out it’s really hard to use,” Rogers said. “Imagine trying to dial a number with a scroll wheel. It’s kinds like the 1940s.”

Some companies might have tried to force it. The scroll wheel was more than a financial success—it quickly became a cultural icon in its own right, catapulting Apple to the forefront of Americans’ brand consciousness. But for Rogers and his team, creating a device that was simple and intuitive to operate was more important than extending a brand. So they scrapped the wheel, a thing they loved, and started over.

In hindsight, given the success of the iPhone, the choice seems like it should have been obvious. It wasn’t.

“It was one of those moments where we had to out-innovate ourselves. We had to break our own cycle. It was really hard to do,” Rogers said. “Everyone’s emotionally invested in the company, the team was all-in, we had a multi-billion-dollar business with the iPod, and we realized, ‘You know what? This is not the direction we need to go with this product.’”

The phone that resulted was a joy to use, simple and intuitive in ways that no predecessor had been. Which pointed to another lesson from Rogers’ success: Never let them see you sweat. For consumer products, and even many commercial products, the end goal is to create something that is easy for the customer to use, even if that makes the process incredibly more complicated for your company.

The Nest thermostat is built on the same principle. The device looks simple enough, just a stainless-steel circle with a digital temperature dial in the middle. But the devices are able to learn the heating and cooling schedules of their users over time to adjust temperatures on their own. They send the data back to Nest, which uses it to send wireless software updates and improve the devices’ efficiency.

The latest version of Nest senses when a homeowner leaves the house, and automatically shuts off the home’s heating and cooling systems.

“It’s really simple, but in the end it was really complicated to build,” Rogers said. “But the end user, they don’t need to worry about all the complexity. They just know that when they’re gone, they don’t need to worry about their home saving energy.”

You’d think the world’s first large-scale manufacturer of digital thermostats wouldn’t need to improve its product less than two years after its introduction. To date, Nest has no major competitors. This gets at another key to innovation for Rogers: Fear.

“Because if we stop, someone else will come and eat our lunch,” Rogers said. “We are a very, very hungry startup company. That’s part of our DNA; it’s core to the company. You have to continue to go.”

The company’s innovation continues with its sales effort. As a new product that has significantly higher upfront costs than traditional thermostats, Nest must reach customers directly to explain how quickly it can recoup its own cost by way of energy savings.

So the company started by designing a packaging container made of environmentally friendly bamboo pulp, and included everything a consumer needs to install a Nest inside the box. And it used aggressive store placements to get its product in front of consumers, including large displays right inside the front door of Lowe’s home improvement stores, as well as inside Apple stores.

“We want to be everywhere people are shopping for thermostats, and everywhere people are not shopping for thermostats,” Rogers said, “so that as you’re walking by, you see a thermostat in the Apple store you wonder, ‘Why is there a thermostat in the Apple store?’”

Once it saves millions of consumers big money on their heating and air conditioning bills, how much more can a smart thermostat possibly do? Rogers didn’t tip his hand on exactly what Nest plans to do next, but he made clear that his process of innovation will continue. As he put it, “This is a learning curve, and we’re 10% of the way there, and we can solve it. We can solve it on a massive scale.”



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