• Is Tony Fadell in Nest’s Way?

    Screen Shot 2016-03-30 at 12.05.13 AMLast week, we witnessed something fairly remarkable. A major Alphabet executive — Nest Labs CEO Tony Fadell — publicly shamed the cofounder and employees of Dropcam, the connected camera company that Nest had acquired in 2014 for $555 million.

    In an article in The Information, Fadell said that he didn’t think Dropcam cofounder and CEO Greg Duffy had “earned” the right to report to him directly. Fadell also explained away an exodus of Dropcam staffers by suggesting they were subpar. “A lot of the employees were not as good as we hoped,” he told The Information. It was “a very small team and unfortunately it wasn’t a very experienced team.”

    Fadell may have been reacting to comments by Duffy, who painted a highly unflattering portrait of Fadell in the same article. However, Fadell’s comments and his poor performance underscore what an ill fit Fadell is for Alphabet and why Alphabet needs new leadership at Nest.

    It wasn’t supposed to be like this, of course. Nest was acquired by Google for $3.2 billion in January 2014, a feat that earned Fadell plenty of accolades. Worried about competition and in awe of Fadell, who’d created the iPod as an Apple SVP, Duffy concluded that selling was his smartest play when Nest came knocking that spring.

    Despite what seemed like a handsome payday for everyone involved with Dropcam, the bet soon looked like a poor one.

    As we’d reported here in November 2014, not only did Duffy’s beloved VP of marketing almost immediately leave Nest over an apparent culture clash, but numerous employees we interviewed, along with scathing write-ups by former employees on Glassdoor, pointed surprisingly to trouble.

    “Everything revolves around the CEO,” wrote one Glassdoor reviewer at the time. “It’s a dangerous mix of cult of personality and Stockholm syndrome. Comments like ‘[Fadell is] the next Steve Jobs are not uncommon, while people proudly say things like ‘I’m used to Tony screaming at me.’”

    It wasn’t just the different management styles of Fadell and Duffy, whose organization was one-eighth the size of Nest and who was well-liked by his employees. There was suddenly an inability to get anything meaningful done. One Nest employee described to me a “huge meeting culture, to the point where anyone at the director level or up spends their entire day in meetings, many of them duplicative meetings about the same subject, over and over to the point where a lot of people have complained.”

    Things remain much the same 16 months later, suggests The Information, whose report says Nest’s culture of micromanagement has more recently led the firm to plaster its offices with the phrase “Step Up” to ostensibly encourage lower-level employees to take more initiative.

    More here.

  • For Nest Investor Shasta Ventures, Persistence Pays

    coneybeerGoogle’s plans to acquire the smart home appliance maker Nest Labs for $3.2 billion in cash should translate into a tidy return for the half dozen firms that invested $80 million in the three-year-old company. Kleiner Perkins may have the most reason to kick up its heels, having led Nest’s Series A round in early 2011. (The deal, rumored to give Kleiner a 20x gross return, might well convince its limited partners that Kleiner has recovered its mojo.)

    But the deal is also a personal victory for venture capitalist Rob Coneybeer of 10-year-old Shasta Ventures, who was introduced to Nest founder Tony Fadell eight years ago by fellow VC Stewart Alsop. (“He thought we’d like each other,” explains Coneybeer, who is a mechanical engineer by training and shares Fadell’s love of gadgets.)

    Once acquainted with Fadell, Coneybeer spent as much time with him as he could in the hope that one day they could work together. Last night, I talked with a clearly elated Coneybeer about his relationship with Fadell and his subsequent investment in Nest; what follows is a lightly edited transcript.

    Where does your story with Fadell start?

    I’ve been interested in mobile and hardware and investing in the Internet of things for a while, and when Tony left Apple, I kept in touch with him as he was investigating different ideas, including devices that use batteries to get recharged and what happens to those devices if you connect them to the Internet. So he’d been thinking about things, and we’d get together every two to four weeks to talk.

    When did it turn into more than that?

    Tony had gotten to know myself and some of my partners, and he’d developed relationships with a couple of different firms … When Tony became difficult to reach, I realized he might be starting something, and I basically pursued him and said, “I’d love to find out what you’re up to,” and I offered to sign an NDA. And he said, “You’d do that?” And I said, “Yeah, I never sign NDAs, but to learn what you’re up to, I would, absolutely.” A week or two later, he walked me through what he was up to, and I met the core team he’d pulled together.

    He went with us and with Kleiner [for Nest’s A round]. He’d known [Kleiner partner] Randy [Komisar] for a long time, and Randy has great experience in bringing consumer electronics to market [including as a founding director at Tivo].

    What was Shasta’s value-add to the company?

    It was a good personal fit. And having built [Shasta] around consumer and expertise around hardware companies, we were able to make great introductions, including to Best Buy and Lowe’s and other channel partners. We also helped with recruiting, in closing key candidates. Beyond that, it’s hard to provide a laundry list; Nest has such an accomplished team.

    Kleiner led the Series A round, but you say Shasta was a “significant participant.” Can you talk about what kind of return you’ll see from Nest’s sale? TechCrunch sources say it will return “almost all” of your second, $250 million fund, closed in 2008.

    I can only tell you that [the return will be] very, very, significant. I’m sorry I can’t be more specific, but you can write “very” three times.

    Is Nest your biggest exit personally? I recall that before Shasta, as a partner at New Enterprise Associates, you led an investment in the fiber optic switching company Xros, acquired by Nortel.

    That was $3.25 billion, so this is my second three-billion-dollar outcome. It does feel really good to build something from scratch [Shasta] and work really hard for 10 years to build a brand and to [be a part of] a product and outcome that people are really excited about. It feels like things are finally coming together.

    Are you even a teeny bit disappointed? I know you thought Nest could become a formidable standalone hardware business.

    I’ll just say that Google is acquiring the best hardware team on the planet. In terms of designing high-quality, durable, consumer hardware, you can’t name a better team.

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  • Tony Fadell: Patent the Hell Out of Everything

    Nest Labs CEO Tony Fadell InterviewEarlier this week, at the Le Web Paris conference, Nest Labs founder Tony Fadell shared his unambiguous advice when it comes to patents. File for them early. File for them often. Then file some more.

    As a longtime exec at Apple, where Fadell was instrumental in creating both the iPod and iPad, Fadell is accustomed to both filing for patents and getting sued by other patent holders. Indeed, faced with a patent infringement suit from Honeywell last year relating to Nest’s first product, a smart thermostat, Fadell hired Apple’s former chief patent counsel Richard Lutton as Nest’s own VP and general counsel.

    Now fending off a second lawsuit relating to newest product, a smart smoke alarm, Fadell seems both incensed and ready for battle. (He says Nest already has 100 patents, 200 on file, and “another 200 that are going to be on file.”)

    Fadell’s patent-related recommendations for other entrepreneurs (and their investors) includes:

    1.) Expect to be sued. It will happen. As Fadell noted, companies “don’t like some little upstart coming in [and] disturbing some business that they’ve had for 40 years … Instead of innovating, they litigate.”

    2.) Expect unscrupulous tactics by incumbents. “We’ve had all kinds of weird things thrown at us — very dirty tactics, very dirty, because they’re trying to keep us out,” he said. (As one small example, he mentioned “plants” paid to give Nest’s products terrible customer review online.)

    3.) Plan a very long time in advance for these lawsuits and other maneuvers. “When you see a lot of these Kickstarter and IndieGogo projects,” said Fadell, “there are passionate people behind them, but they don’t always necessarily understand what they’re getting themselves into. They’ll say, ‘Okay, I’m going to get in [to X market] and build [this one product].’ Well, you can build one of anything. To manufacture something and make 100,000 [exact replicas] is a whole other scale of problems you have to face.”

    More, once you “get to market, you have all kinds of litigation issues and other competitive issues. You really have to plan a year or two in advance for what really could be coming,” said Fadell. “Most people are like, “Whoa, we got there, we made the goal!” [once their product is out the door]. No, you’re just getting started…and if you didn’t plant those seed early enough to protect yourself [from legal threats etc.], you’re going to [face] a whole world of hurt.”

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