Tony Fadell on "If you’re not solving for pain, then what the hell are you doing?"

Tony Fadell:
I'm nervous.

Peter Hébert:
Never done this before.

Tony Fadell:
Yeah, really nervous. Yeah, absolutely. My first one. First one with Luxe. So I don't know what to expect. It could be very difficult.

Peter Hébert:
These guys are pros. All right, 3, 2, 1.

Danny Crichton:
Hello and welcome to Securities by Luxe Capital, a newsletter and podcast that explores science, technology, finance in the human condition. I'm your host, Danny Crichton. Today I'm joined by two folks. First up is Peter Herbert. Peter, welcome to the show.

Peter Hébert:
Thank you for having me, Danny.

Danny Crichton:
Peter, you joined the firm, what, a couple of weeks ago as our newest intern, if I get it correctly.

Peter Hébert:
Just about 22 years today. Pretty close.

Danny Crichton:
Well, in that case, we probably should promote you into a full-time role nonetheless. And then we also have a special guest joining us today. Tony Fidel is the maker of the iPod, iPhone and invented and co-founded Smart Thermostat and Home Hardware Company, Nest. He's most recently the author of the new book, Build: An Unorthodox Guide to Making Things Worth Making, out earlier this month by Harper Business. Tony, welcome to the show.

Tony Fadell:
Oh, thanks Danny, and it's great to be here.

Danny Crichton:
Absolutely. So I read through the book and one thing that struck me is that this sheer panorama of experiences you've had, you're obviously most associated with Apple and then with Nest. But you've actually been attached to a number of other startups in Silicon Valley lore. And I wanted to start with a very short experience that you had back at the height of the dotcom bubble, which was Real Networks, a company that you had joined literally, I guess, for two weeks and it plays a little bit of a prominent role in the book. So I want to hear the story of how you joined what became a very notable company and you sort of walked out the door a couple of days later.

Tony Fadell:
So Real Networks, how did I get there? Well, I was at Phillips at the time, so Phillips Electronics from the Netherlands. I started a team there. I started a whole business group called the Phillips Mobile Computing Group. We were doing handhelds. It turned into be Windows C handhelds that were mobile computing based. One would look like a palm and the other one had a keyboard. And so I was doing that for a while and then I shifted gears and moved into the ventures and strategies arms of Phillips. So I learned all about digital media because we actually on the Phillips Velo and Nino, we were the first devices to have Audible, literally audible back in the day. We were the first device to put Audible on there.

And I was thinking all the time, I was like, "Oh, what if this was music?" Because I was a DJ at the time. So I was DJing and I was like, "Oh my God, I'm sick and tired of carrying all these heavy CDs, a thousand CDs to each gig." I was like, "Wow, if this is doing audio books, these devices one day could be doing music." I was like, "That would be really cool." So I switched to Philips Strategy and Ventures because it was the dotcom craziness. We remember this, right? Oh my God, you got to be in there. And I was watching all of these companies getting started and funded and I didn't know anything about it because I was always deep inside whether it was General Magic or at Phillips. So I was like, I want to go learn about this because I see all of my friends go doing this.

So I go and start learning about venturing at that time and we were investing in companies like TiVo and Audible and all that stuff. So I'm watching this digital transition happen. So I came up with this idea, I was like, wouldn't it be wonderful Phillips makes all this hardware? Real Networks at the time was making this thing called Real Player. And what Real Player was all about was getting audio. So it was Real did audio streaming? But they also had music files, MP3s were coming on and they had the Real Player. It was the same time around Winamp. And so you could listen to music and I was like, "Oh my God, this is perfect." Philips could make the hardware and Real could supply the software and let's put these two things together and create this whole line of consumer electronics for music.

So I got the CEO of Phillips together with the CEO of Real Networks. I set up this meeting and said, "We're going to have a big tete-a-tete and see what can go on here. And so what happened was the CEO of Phillips was about three hours late to the meeting. So I sat there with Rob Glaser for three hours telling him the vision that I had for this thing. And then literally, and he was getting all anxious and, "Wow, this is cool." And so fast forward, literally 24 hours later, the CEO came and they had a little thing, but it was very short because they had to get onto their next things to do. 24 hours later I get a call, an email from them saying, "I want you to join Real Networks and I want you to build what you want to build. We'll let you build a team in Silicon Valley, build this hardware and put our software on it and we're going to have these real devices and we'll license them out to people so all the consumer electronics companies could do that."

I was like, "Oh, that sounds really cool. I can do this at scale in a different way." So I was like, "That sounds awesome." I joined up Real. When I got there, the CEO goes, "Well, we have a change of heart. And not change of heart, we just changed our strategy. You're going to need to move to Seattle now." And I'm like, "What do you mean?" I was like, "No way. We already agreed that I'm building this thing down here." We even knew kind of the general area. It's like, "Well, I changed my mind."

Peter Hébert:
This is day one?

Tony Fadell:
This is day one or two. Strategy change. I was like, "Oh, fuck." Right? And so I go up to Seattle to go kind of look at it and I'm sitting in Seattle and I'm going, "Wait a second. I just left my whole community that I was building in Silicon Valley from General Magic and what have you for 10 years and I'm going to Seattle." I wasn't really a Microsoft fan as you could imagine. And I was like, "I want to be in Silicon Valley where all the action's happening." Because Microsoft wasn't even really embracing the internet yet. It's like, "Shit. Down here." And Amazon was still too tiny at that point. So I was like, "Fuck that, I'm not doing this."

So over those two weeks I was like, "This is not going to work for me." And I was like, "I'm done." And that's how it really went down. And then I stayed on for about three, four weeks later to say kind of thank you. And I created those business plans and then handed them off to them and said, "Hey, if you want them, here you go and you can have somebody else implement it." But literally two weeks in, I just knew that wasn't for me and I had to be back or I started everything in Silicon Valley.

And then I subsequently, from that, created my own company called Fuse to then take some of those ideas and change them up a bit. At the time it was all about home theaters, but home theaters you had to assemble it with different brands of speakers and TV and different home audio and video components and everything to get this digital experience. So I was like, "Okay, you're going to make the [inaudible 00:06:29] and we're going to make one box." That was a software driven box where you could put CDs in, it would rip to MP3 files and you could have this digital jukebox of all your music on it.
And then of course the internet crunch happened, kind of what we're experiencing now. And then people didn't want hardware companies as you can imagine. So that's kind of the Real Network story, the beginning and the bookend of Fuse.

Peter Hébert:
So then you joined a fruit company.

Tony Fadell:
Sort of joined the fruit company. Right. I was trying to raise capital for Fuse and this was over the latter half of 2000. And so I went on 80 pitches and I went just me and I had our FUSE team, which was about 12 people or so, and I'm trying to raise money after the disaster that was 2000. I got 80 nos and it was really difficult, very difficult. And so I took a week off in the beginning of January and I went to go find myself, I guess. And I went to lunch with a guy, his name was Aaliyah Lasti. And we worked together at General Magic. And I told him, we get together all the time. And he said, "What are you up to?" And I told him about the disaster that's going on and he said, "Okay, I'm sorry to hear that," and everything else.

The next day he had a lunch with a guy from Apple that he worked with at Nest, and his name's John Rubinstein. John said, "Who do you know does digital devices and might know some things?" And he goes, "Very interestingly enough, this guy is trying to raise money. He's not doing it. You should go talk to him. This guy's named Tony. I've known him for 10 years." It was over 10 years at the time. "You should talk to him." And I literally got a call days later and that's the beginning of my contracting assignment with Apple, which was to create an Apple version of an MP3 player.

And so over six weeks I envisioned that, put together the different options, the bill of materials, what the architecture would look like, all these things, who would be all the suppliers and then presented to Steve in March of 2001, end of March of 2001. So that's how I got to the fruit company.

Peter Hébert:
There's a number of really interesting storylines throughout this book. One thing that's kind of interesting that it's almost implicit in the book and you don't really call out specifically and that's the serendipity of Silicon Valley,

Tony Fadell:
There's actually a chapter in the book, it's called Death of a Salesman, but it's really not, it's a bunch of stuff about sales in there, but it's really not about transactions, it's about relationships. And in the serendipity of Silicon Valley, and that's what happened going to Apple, which was keeping up a relationship with people. I just remember in the 90s and I still do today, is we would work together with somebody and you would build a relationship. And it wasn't about the company you were at or the deal you're trying to get done. You met on a human level.

We were still had a relationship even as the companies changed or the technology changes, and maybe in some cases we were competitors. But that spirit kept going and that relationship kept going. If you invested in it, other people would invest as well in relationships, not just the transactions. And so that's a real key piece of what Silicon Valley was and is now those same kind of networks are growing up all around the world about building relationships. Because you don't know if it's today that something's going to hit or it's going to be months or years later when all of a sudden all that serendipity comes together and you can actually do something amazing.

Danny Crichton:
Well, I think what's interesting, you talk in the book about the importance, even at a large company like Phillips or Apple, to not just build relationships internally but to get out of those walls. Because it's very easy, particularly if you stay five, 10 years to basically only know folks inside the building and never have the opportunity to leave.

Tony Fadell:
You have to get outside. Even if you're at a big company, you have to get outside because, one, you have to understand what's going on in the markets. You have to understand what's going on with your customers or your consumers or whatever it is. What you have to do is you have to build the relationships inside the organization, but maintain those relationships from the companies you were at because you never know what's going to happen. Maybe the companies can be partnered together at some point or maybe you're going to want to, they might recruit you, you might recruit them.

Peter Hébert:
You're very overt about your appreciation of kind of an old school approach, keeping it gritty, working incredibly hard. I'd be curious, having obviously been in many ways a product of that 2000 crash that forged you, those are very impressionable moments, whether it was what happened at General Magic before 2000 or some of the frustration in being an early entrepreneur. What do you think about this current environment? Do you think that some of the last decade of what we've seen where these companies have become large and bloated now will change and create those kind of grittier, more focused entrepreneurs because of those constraints and scarcity?

Tony Fadell:
It's the best time to invest. It's the best time to get great teams when the markets are down. Those people who know how to do a lot with little, those are the people you want on your teams, not the ones who have to be surrounded by more of teams of people and they phone it in for a little bit of work and then everyone else does a little bit of work and it all comes together. You're going to see those cultures that got fat, dumb, and lazy, even if they didn't have revenue. There's some companies that are fat, dumb and lazy. They didn't have it because they had too much capital, free capital coming in because they're like, "Oh my God, I got these huge valuations."

You're going to see massive layoffs. You're going to see the culture change and the employees are like, "Oh, you mean I have to work now? What are you talking about?" It's when you always stay tight, when you stay gritty, you can go when it's up and to the right and the markets are doing great, stay that way because it eventually turns. It always turns. This is a sinusoid. It isn't a straight line. So if you always keep that grittiness, when the downturn comes you don't have to worry about changing your culture or changing the mindset because people have always lived in that. And they go, "That's the way you live." I think about that as how we live on the planet now. All of a sudden climate change is here, it's real, and all of a sudden we have to change our wasteful behaviors.

If you've always lived that way, it's not hard. But when you like over-exuberant and I have my two yachts and whatever, all of a sudden, "I got to change my lifestyle and oh my God, that's a sacrifice." You got to just remember to stay grounded in your companies personally and all those stuff because you can get through those tough times. And you actually, all those perks and everything, they will go away eventually. They have to go away because that's not reality.

Peter Hébert:
Would you have been the same entrepreneur, have achieved the same level of success had you not had some of those early failures? If you were to play the counterfactual and just go back and imagine that General Magic would've been this extraordinary success or that you'd have gone out in 2000 and raised that capital, how would you imagine your life would've played out differently even if you had started a business later on?

Tony Fadell:
Well, for me, General Magic was gritty as well. It was pretty gritty. We had lunches from time to time, but we didn't have perks. We had lunches. Oh, that's interesting, and we had free drinks, but that was it. There was not massages and shit and there's a chapter called Fuck Massages in the book, right? No, you know where I learned that actually? I learned it from my grandfather, in the garage because he grew up in the Depression. He would sell you every nut bolt, screw, nail, every gear, whatever it was, and if it broke, and the piece of equipment broke, he would tear it down to the component pieces and put them in little cigar boxes all around the garage, so if he ever needed it again, it would be there as a resource to him, not just throw it away and buy new.

That's how I was raised, in garages in Detroit with a depression era grandfather who said, "All of this stuff is precious. Use it to the best of your... And save it because you never know when you need it. That was the mindset that I was raised in. And that's why I've always respected the environment and tried to recycle in the 80s. And you're worried about solar panels in nature in 1982, all that stuff. It was just how I was raised.

Danny Crichton:
That was one of the surprises I had for the book. Obviously, I identify you with these iconic products, iPod, iPhone, Apple, and I didn't know that you would quit Apple three times. That you would actually left the walls, came back, then left the walls, came back. That was a surprise to me. And I'm curious about some of the stories there. Was that just philosophical differences on product? Was that organizational? When did you know that you needed to go and when did you know needed to come back?

Tony Fadell:
Okay, so first, let's be clear. When I say I quit, I said I quit but the process didn't complete.

Danny Crichton:
Oh, there you go.

Tony Fadell:
So two of the three times I said, "I quit," I was walking out the door. In one case, I actually had my stuff loaded in a box and I was walking out the door and I was loading into a thing and I was having a thank you party for the team that night. And everyone was like, "Oh, Tony's leaving." And then in a subsequent four hours it got fixed and I had, say, a Tony's staying party, not a thank you party, but Tony's staying party that you changed literally in four hours. So that time it was really about the necessary conditions that weren't satisfied when I first joined the company. That was the first time.

The second time was really about a fundamental decision that had no reason for being, except it was political, and I always said, "This is bullshit." The third time was really personal. It was a real personal thing about our family and that kind of stuff. So each of those times was for real reasons. After I tried all kinds of positive and constructive ways of trying to fix the problem, sooner or later, if you really believe it and you want that to change, you walk out the door because people are not going to protect you. They're not defending you, you have to defend yourself, and I had to say, "No, this is bullshit. I'm not going to take this." And I walked out the door and they're like, "Oh, no, no. Okay, okay." And then you really know what your value is too."

Maybe you have no value and maybe that you shouldn't be there and maybe your idea doesn't make sense. If you aren't listening. It can't just be ego driven. You have to be listening and open. But no one was giving me any good reasons, real factual reasons why what they were doing should be done. It's like, "You haven't convinced me. No, I'm out." I'm a troublemaker. I am not easy to get along with and there's a whole chapter. Well, I'm sure we're going to get into it because you guys are always smiling about it, but you got to stir the pot if you're going to make change. You got to break eggs to make an omelet. I've learned that trust my gut, trust my intuition, because that's always has benefited me and the things I do, not just me,

Peter Hébert:
You are now a successful investor. When you look at entrepreneurs and you're meeting with a founder and you just are captivated, you are all of a sudden whatever that message that they're delivering, whatever their story that they're telling resonates with you, what is it, what moment, what kind of characteristic of the entrepreneur... And then also in your mind as you're evaluating opportunities to invest in, are you attributing kind of points for extra difficulty beyond the idea, the value of the idea? If you think this is hard, this is complex and this is challenging, does that create greater affinity for you?

Tony Fadell:
Absolutely, but we're not investors. We're in mentors with money. The reason why we do what we do is because I tried to be retired and it really sucked. And I was like, "Okay. Well, can I work with teams that are doing really hard things?" Because you want to work. And I'm also curious about them. I think they're doing something that's going to fix the planet, fix societies or fix our health. That's what we really go for, and we are looking for disruptive deep technology. That's what we care about. When you're doing something hard, that is really challenging, you need to have a great set of people around you. That's why writing the book, I had mentors around me to help me. We want to try to help those companies we go in because they're trying to do something that is so against the grain, something that most investors won't invest until it becomes the fashion.

When the LPs say, "Oh, that's cool that you're investing in it." We do it well before LPs say, "Okay, I'll put my capital in it." And you have to convince them. We do it with our own time and money and we don't care about anybody else's things because we believe in the trajectory of where the planet's going or what have you and they are on that same trajectory. If there are things that they're doing that are really hard, that's the first step in us saying, "Oh, that's interesting." We have to be curious about it. We have to believe it's along the same mission of how we invest as well. And then there's all the other details that normally come into investing.

Danny Crichton:
You have this quote in the book that, "If you're not solving a real problem, you can't start a revolution." And one of the things I think is interesting across both your own work as well as the companies you've been investing in is a lot of them solve real problems. They're real products, their physical products, oftentimes not pure software. And I'm curious, that has to be intentional, but I'm curious.

Tony Fadell:
Absolutely.

Danny Crichton:
About the metaverse, virtual reality, virtual experiences and these sorts of things because my sense is you have an opinion on those.

Tony Fadell:
Your sense is? Your sense is? Look, if you're not solving for pain, then what the hell are you doing? I learned this so clearly at General Magic. General Magic wasn't solving for pain. We were trying to impress the geek next to us. We were just doing it. We were making the iPhone 15 years too soon, right? The technology wasn't ready, the market wasn't ready. Society didn't even have the problems we were trying to solve, which were like email, almost no people... Mobile email, most people didn't have even email. We were doing downloadable games. What is that? We were doing ticketing, e-ticketing for travel. What? This was before the internet, before wifi, before data networks and mobile phones, and for the most part.

Of course, you could say, "Well, General Magic had to exist for the iPhone to exist in a way." Sure. But at the same time, we could have used a lot of that talent to solve other problems that could have been solved along the route to get to the iPhone in a much smarter way. I look at things like the metaverse. I'm saying, "What pain are you solving?" I'm all for AR and VR and XR technologies in service of a pain point to create a new tool, a new superpower that can leap us forward into some new thing just like the iPhone was.

When I'm getting pitched the metaverse, which is I'm going to make social connection in the metaverse, I'm going to go dancing in the metaverse, I'm going to have meetings, business meetings in the metaverse. I'm like, "What the fuck? What problem are we solving?" I can't make human connection right now, even with you on Zoom or you right across from me, we can make human connection, we can look in each other's eyes. In the metaverse, you can't fucking look into anybody's eyes. How am I going to make human connection if I can't look into your face and you can start to build trust and we can start to really interact?

It's just a further evolution of what we started with comments on blogs. We have anonymous people writing whatever they want, unmoderated and it becomes toxic. We did the same thing with pictures. Then we did the same thing with videos. We're doing it with tweets and all these other things. We still can't get the content moderation right there. Why? Because we're not making human connections. If we had human connections in those trolls on the net, actually we're sitting across from each other, you think they're going to say that stuff to your face? No, they wouldn't. They wouldn't dare. The reason why they wouldn't dare is because they're human.

But they think you're a video game or something, a video game character across the way, and they can say whatever they want to get attention. You think it's going to get better in the metaverse, especially when no one's addressing the content moderation issues? We're already seeing groping in the metaverse. We're seeing all kinds of shit going on. What pain are we solving, especially when we have existential crises like the climate around us. There's so many things we can fix where there are problems, why the hell are we putting all this capital to work in the metaverse?

Peter Hébert:
You seem to appreciate the global distribution of talent. You have enabled through your products that you've gritted throughout your life, the explosion of entrepreneurship, the ability for people to create new businesses and companies based upon Apple tools and others. And yet you also have an old-school fundamental view that human nature is fairly constant. You're starting Nest or another business in 2022 remote first, or all of those first five to 10 employees are in the same physical location day in, day out.

Tony Fadell:
It's got to be hybrid. It absolutely needs to be hybrid you. It can't be all virtual. You have to have that human connection, even if with this way. But there's spending time together and really getting to know people as opposed to it's scheduled every time, every day at a certain time. You still have to have those getting together things. It doesn't mean it's five days a week, it could be two days a week, and it doesn't mean all the team has to be together at the same time. But I do think hybrid makes a lot of sense because those people who are in the other regions, they learn about those problems, they see the communities. They can get out there just like getting outside of the big corporation and you can start to integrate that staff.

It builds a diverse workforce, but you still have to be able to bring that with diverse experiences, but you still have to get them together from time to time to really have that human connection and those brainstorms and that serendipity of an unscheduled event as opposed to always going by Google Calendar or whatever your thing is, and that's the only time you interact and maybe on Slack or something like that. You need to have that informal time as well together. But it doesn't have to be five days a week. And then if you're doing atoms, some people, when you're doing atoms, you need to be there. You need to have labs and things, and you need to get together on maybe a more regular basis. But again, it may not be five days a week.

Danny Crichton:
I know we're getting towards the end here. One of the questions I have is actually around the profession of product and design. Obviously 30 years ago, not a lot of product designers out there. Now, huge profession, the D schools at Stanford, very prominent, massively endowed. I'm curious, when you look forward into the 2020s, what's going to change for the folks who are working in product, in design in the coming years?

Tony Fadell:
I think we're finding more and more that learning by doing's it. That's the way you do it. And so you're going to see more, how can I say it, apprenticing or more internship, getting in and learning with the teams in the environment that they're in, not just learning in the schools. The best schools that we ever hired from were the one semester in school and the other semester in a workplace, and that was Waterloo. That's what we need. Is that semi-permeable membrane. There's not just this jump over the wall and then all of a sudden now the companies need to train them.

You want them to have some working knowledge. Today, more and more universities are starting to do this learning by doing or more project-based learning. The more you can share with the corporate world or the startup world, the better when they're younger, because that's how I learned. I learned by building my own companies and going back and forth between schools, high school, I had my own startup in the high school, had three startups in college back in the late 80s and 90s, and I would go back and forth from school to my own job and learn about these things.

And so I think that's a much more powerful workforce and a much powerful way of educating people. There's so many different specialties now that you have to go and learn about those and you don't get taught them in school. You go learn them in these various organizations so that you can do more and more specialized training and education when you go back. The only way you learn what you want to do is by learning what you don't want to do first.

Peter Hébert:
Well, I will give you the one last question. There's a volume of guidance that's in this book, but if there's one thing that some aspiring entrepreneur who's the Tony Fidel of today, scrappy, wants to build something meaningful, have an impact, could take away from either this book or from literally the elevator ride with you, what would that be?

Tony Fadell:
Learn how to tell a non-fictional story. Tell a story that matters, that is solving pain and hopefully also giving a superpower to somebody. And make sure it's an incredible story about that and you can deliver it. It's not a Theranos, okay? Have a great story and a way to show that you can implement it and it's meaningful. It's large enough market and all that stuff. But most people talk about the what, what, what. Not why, why, why. That is the most important from an entrepreneurial perspective. If you're an entrepreneurial, you better get that. What we've done, and you've lived through this and it's still happening today with many of our things, we get entrepreneurs in and they go, "Oh, look at this cool thing, blah, blah, blah." And then they bring in marketing at the end and marketing now tell the story of this. If you didn't create the story at the beginning, you're not going to be able to tell the story at the end.

A great movie, you know the difference between a great movie and not a great movie is when the story's really great. It doesn't have to have all the CGI and all the shitty Marvel movies that have no good story, it's just all action, right? Well, that's just the technological version of a bad story. But those academy award-winning movies started with a treatment, a really narrowly focused on what that story's going to be, and then it has a script. And then you use that script as the backbone of what you're building. You might modulate it and change it over time, and then you add the music and you add the other effects, but you just don't have the wiz all the way through and then think it's a great story.

You got to think differently. You got to think about the why and create that story while you're creating the technology and the prototypes. Create that marketing and the messaging so that you actually have a really great cohesive thing at the end. It's not just marketing. Marketing is marketing. Product marketing and marketing gets such disrespect by most engineers, researchers, scientists. And if they do that, I don't want to work with them. I don't want to work with them. We won't invest in them. They have to understand this is a band, it's a symphony. And if one thing's out of tune or one thing's missing, you can feel it because it is not a one leader thing and it's a engineering-led thing. It is a symphony. There's many parts. All of those parts have to work together and they have to create together along that journey.

Danny Crichton:
Tony Fidel, thank you so much for joining us. Tony is the author of the new book, Build" An Unorthodox Guide to Making Things Worth Making, out from Harbor Business last week, and you should get it soon because it's the best seller. And I tried to grab a copy and the shelves were empty, so make sure to grab them as soon as you can.

Tony Fadell:
And one other thing, all net proceeds from the book are matched five times by me and they go into a climate crisis focused fund. All profits from that go directly into climate charities as well and philanthropic entities. So this book is all about giving back and hopefully trying to help save the planet or save humans on the planet, I should say.

Danny Crichton:
Fantastic. Well, thank you so much for joining us, Tony.

Tony Fadell:
Thanks so much.