How to disrupt

In the early 1990s, at an Apple spinoff called General Magic, a band of prodigies set out to make “small, intimate life support systems.”

They meant ‘life’ in the day-to-day sense, rather than the opposite-of-death sense. This life support wasn’t intended to keep people breathing. But to the engineers at General Magic, who were thinking on societal scales, the idea seemed almost as profound.

“We have a dream of improving the lives of many millions of people by means of small, intimate life support systems that people carry with them everywhere,” read the company’s mission statement. “These systems will help people to organize their lives, to communicate with other people, and to access information of all kinds.

“They will change the way people live and communicate.”

This was about a decade after the launch of IBM’s first PC and eight years after Apple introduced the Macintosh. Personal computers had established themselves in American homes and offices. But robust handheld devices and smartphones were somewhere between a prototype and a glimmer in an engineer’s eye.

Sometimes you have to trust your gut and go with it even when everything rational says no.

Tony Fadell

In 1991, Tony Fadell finished his computer engineering degree at Michigan. With three startups already under his belt, the 22-year-old headed west to find work with his heroes – the “magicians” of Mountain View. Among them were the creators of Apple’s storied 1984 Mac, the first computer to give its users the desktop metaphor and graphical interface we now take for granted.

“I knocked on their door until they hired me later that year,” Fadell wrote in the New York Times in 2013.

General Magic was a blazing startup. It was backed by some of the time’s largest electronics firms: Sony, Motorola, Philips and AT&T. Analysts predicted that its programming language and operating system could become the standards of the burgeoning PDA industry.

“I was working with the team that created the Mac – that had changed the world,” Fadell said. “We were all dead set on changing the world again. And everyone told us we could, so we just poured everything into it.”

The team worked 18-hour days. Some built tented bunk beds over their desks. Despite the pet rabbits that hopped around headquarters to spark creativity, it took them years longer than they expected to ship their first products. But 1994 brought the release of the Sony MagicLink and the Motorola Envoy, both of which were hosted on a custom network by AT&T. The much-anticipated devices had mobile email, downloadable games and shopping options, among many other new and noteworthy features.

But the world wasn’t ready for them. They flopped.

The experience shook Fadell. “Everything you thought you believed didn’t come true,” he said. “You have to process that and learn from it.”

In time, he and the team did. Many members went on to be highly influential in the tech sector. Forbes later dubbed General Magic “the most important dead company in Silicon Valley.” And when Fadell found himself leading Apple’s effort to build a smartphone in 2004, not only did he have a head start, he knew how to fill out the roster.

“At General Magic, we were making the predecessor to the iPhone 15 years too early,” Fadell said. “Sometimes you’ve got to go through a spectacular failure and turn it into a learning experience to be the phoenix from the ashes.”

Fadell is the iPod inventor, iPhone creator, and founder of Nest, the company that designed an iconic smart thermostat that’s at the core of the Internet of Things smart home revolution. When he came back to campus last fall, he opened up about what it takes to change the trajectory of an industry. Fadell spent time with the next generation of tech upstarts in the Center for Entrepreneurship and a software design course taught by one of his former instructors and business partners, Professor Elliot Soloway. Fadell was encouraging and candid as he divulged some of the lessons he’s learned in his 25-year career. We’ll focus on five.

01. /UNDERSTAND THAT YOU WILL FAIL.

Twenty undergrads sat around a conference table smiling in swiveling chairs. They were part of an elite program in Michigan Engineering’s Entrepreneurs Leadership Program. They all plan to start companies when they graduate, and they had prepared for this 10 a.m. meeting with a man who once stood in their shoes and went on to shake up Silicon Valley. Their heads were full of good questions.

“Sorry,” Fadell said before he called on anyone, “but you’re all going to fail.” He gave them an earnest smile.

“We didn’t learn to speak and talk without first failing. But you’ve got to just keep going. You’re either growing or you’re dying.”

As he described in his tale of General Magic, failure is often at the heart of eventual success. It’s an idea that might seem cliche, but Fadell breaks it open with an existential twinge:

“People give up because they don’t believe in their ability to adapt and change and take what they’ve learned and bet on themselves again. But you have to understand that that’s how the world works. Either you’re evolving or the system is evolving around you and you’re stagnant. That’s the difference between growth and death.”

Failures may look like low points in a career, he said. One of the most important character traits of a successful entrepreneur, though, is resilience – the ability to turn one into a springboard.

02./GET COMFORTABLE BEING UNCOMFORTABLE.

Apple had less than 1 percent market share when the company brought Fadell in to make a portable music player in 2001. The firm still had “computer” in its name. It was not in the business of making portable music players.

Fruit-colored iMacs had pulled the company back from the brink of insolvency, but it was still more than $500 million in debt. Its newest strategy, as Walter Isaacson detailed in his Steve Jobs biography, was to think of the personal computer as the digital hub of the home – a place to store and edit photos and videos, and to make the most of this information superhighway called the internet. The new iTunes application let users rip music and make mixes. But if you wanted to play the mixes from anything other than a burned CD or the computer itself, the mp3 players of the time left much to be desired. They could hold roughly one album and their tiny buttons were a pain to use with adult-sized fingers. Apple’s leadership noticed this void.

Fadell had come to the same conclusion on his own. A deejay in his off hours, he hated lugging around hundreds of CDs. “I started thinking there’s got to be a better way,” he said.

By this time he’d been working on handhelds for more than a decade. Since his days at General Magic, he had developed critically acclaimed palmtops for Philips Electronics called the Nino and the Velo – arguably two more iPhone predecessors that matured before their time. More recently, he had launched his own startup, Fuse Systems, to improve upon the status quo in mp3 players. He was excited to be going out on his own, following his heart. But while he was able to secure initial investments, soon the money dried up. This was just after the dot-com bubble burst.

Then he got a call from Apple. Would he work with the company as a consultant to develop a music player to support iTunes? Fadell thought, “Why not?” It might buy him time and help pay some bills. That’s not how the story ends.

Fadell’s Fuse would eventually become the iPod – the technology that set Apple on a course to become Fortune 500’s top tech company in 2016, with $233 billion in revenue. But turning the crazy idea into a successful product took years of dealing with naysayers, sticking his neck out and even standing up to Steve Jobs.

He told the music player’s origin story to a small class of computer science students in Professor Elliot Soloway’s software design course.

We go through these habitual routines that we don’t even realize we’re doing. Break that down and ask why, why, why.

Tony Fadell

It was a course Fadell himself had taken from Soloway more than 25 years previously, and one that taught him a lot about life in addition to engineering, he said. He and his professor went on to launch a company, working just down the hall from the spot Fadell stood that afternoon.

Though the students were mostly too young to have owned an iPod, the iPhone has been ubiquitous since they were in middle school. They listened intently.

After two months working as a consultant, Apple required Fadell to become a full-time employee if he wanted to stay on the project. He agreed to, and set out to build a team. In an inconvenient twist, the project had to stay secret to potential new employees until they were hired.

“I had to ask them to come to a company that was failing and just trust me. I couldn’t tell them what they’d be building. And then I had to trust that Steve would have the money to finish and properly market the product,” Fadell said.

He managed to pull together a team of 25 – many from his previous endeavors. They worked feverishly. “I knew if we didn’t ship as fast as possible, our product would be killed. There were a lot of factors working against us.”

They shipped on schedule just ahead of the 2001 holiday season. “We got an initial sales spike in the first quarter, but then no sales increases for two years because it didn’t work with the PC.”

Fadell knew he needed to confront Jobs about that. He had tried early on, but Jobs’ response was something like, “Over my dead body.” The Apple founder had envisioned that the iPod could drive Mac sales.

“This is the way you’re going to sell more Macs?” Fadell remembers asking. “To use it you have to buy a $2,300 machine? You think that’s what’s going to convert people?” Jobs didn’t budge.

“So I built a Skunkworks team,” Fadell said.

He disregarded his boss and pushed ahead moving the iPod to PC, in secret.

“We didn’t know if Apple was going to live or die,” Fadell said. “Sometimes you have to trust your gut and go with it even when everything rational says no.”

He and his colleagues eventually convinced Jobs to reconsider. (They had to involve then-Wall Street Journal tech columnist Walt Mossberg.) Soon after the iPod was available for the PC, it was bringing in half of the company’s revenue. Then Mac sales started rising.

“Put yourself where you’re uncomfortable,” Fadell told the class. “If you are not uncomfortable every day you’re either not trying hard enough or you’re not listening and learning. Always have those butterflies in your stomach.”

As protection against one particular type of discomfort, innovators need thick skins, clarified Soloway, an Arthur F. Thurnau Professor of computer science and engineering.

“You have to be able to do things that people aren’t necessarily going to like,” Soloway said. “See, I like people to like me, so it’s hard for me to do that. But when you’re creating something absolutely new, you have to be prepared for that.”

You have to ask the hard questions, Fadell said. Understand that to be a leader, you’ll have to take some steps alone. And you might upset people along the way, including people who outrank you.

“Most successful entrepreneurs are unmanageable,” Fadell said. “They’re always cutting against the grain and stirring the pot. They have a good story for what they’re trying to change. Some might consider them disagreeable, but how they see it is the status quo isn’t good enough.”

03./PEOPLE MATTER A LOT.

For all Fadell’s talk of entrepreneurs being difficult, his friends describe him as kind and loyal, with palpable enthusiasm and sincere and wide-ranging curiosity. (He once watched a brain surgeon perform an 8-hour operation, standing so close he got blood on his shoes, he told the London Telegraph in 2013).

He has 8,000 people on his contacts list. And he can attest to the importance of a deep and broad network that can carry you through the low points and help you to the high ones.

He mentioned this idea to every group of students he spoke with during his campus visit. He told students to connect with their peers starting right then and there, because they’re going to need each other.

“The best thing you can do is get people to know who you are and get to know them. You have to spend 50 percent of your career networking,” he said.

The bonds that matter most are the ones that form in the worst of times.

“When things aren’t going so well, you see the character of a person and how much they’re dedicated to the mission,” Fadell said. “You want to work with them for the rest of your life.”

An example: Brian Sander was an engineer at General Magic in the 1990s. He was involved in hiring Fadell, whom he remembers as “one of the most dynamic kids just out of college” that he’d ever met. Fadell returned the favor a decade later when he recruited Sander to the iPod team.

“We had a great working relationship,” Sander said. “He is very much a vision person. He understands how to synthesize vision toward products. People like myself like to focus on execution. So I could take what he was conceiving and make it happen. … It was one of the best times of my life.”

He speaks of an adrenaline high that lasted years as the team churned out successful product after successful product.

By the mid-2000s, the iPod’s success made it clear that consumers liked carrying a lot of music around with them. Pockets were getting fat with devices as mobile phones had become popular. It was time to combine the two. Jobs put Fadell in charge of developing the iPhone in 2004.

On his team were colleagues from General Magic and Fuse, and people with whom he’d created the iPod. Sander was involved for a while, and he helped Fadell build the iPhone squad. Sander had worked on cell phones at a startup.

“I knew some really great people,” Sander said. “In particular there was one guy I had to spend a lot of time recruiting. He was a phone guy, but I couldn’t tell him we were working on a phone. I told him: Trust me, this is the greatest thing you’re ever going to work on in your entire life.”

Together the iPhone troops built and scrapped three versions before they settled on a concept.

“First we said let’s put a phone inside of an iPod,” Fadell recalled. “It was an iPod phone. But we quickly realized the rotary dial is not a very efficient way of making phone calls.”

Apple was working at the time on a touchscreen Mac, as well as a way to watch videos on an iPod, Fadell told Venturebeat in 2016. They coalesced when the multi-touch screen interface emerged and Apple acquired the Cornell University spinout company that invented it.

Multi-touch allows a touchscreen to recognize more than one point of contact on its surface. It’s what enables swiping, pinching and the virtual keyboard, which were critical to the big screen that set the iPhone apart from its competition. Though the first multi-touch screen built at Apple was the size of a ping-pong table, when Jobs showed it to Fadell, he agreed that it was the answer.

“In the end it was clear that we needed to build a phone, and we needed to build a touchscreen company on top of it,” Fadell told VentureBeat. “That’s exactly what we did. We created a touchscreen company to build the multi-touch display. Then we needed a better operating system, so we brought a bunch of pieces of the Mac, a bunch of pieces of the iPod, and bolted them together.”

This was the second generation proto-iPhone.

“It was like Frankenstein,” Fadell said. “Not everything hung together. It had the basics, but it didn’t have the magic.”

The third try charmed.

It had taken the team almost three years to ship. That’s a long time to work on one project, Fadell says. Stretches like that can test trust and patience. Members of the iPhone group had succeeded together before, though, and that mattered.

“The team had been to hell and back many times. We had learned to deeply trust and push each other through harrowing and galvanizing, tough projects.”

04./ TUNE IN TO PROBLEMS.

In some ways, the iPhone and the iPod solved problems consumers didn’t know they had. With the advent of digital music, ripping CDs or stealing songs from Napster seemed to many like a fine way to procure mp3s. But then came iTunes + iPod. Music lovers no longer had to fumble with discs or worry about being sued. A clunky process became easy, nearly instantaneous and economical.

In the case of smartphones, those that came before the iPhone had small screens and smaller keyboards. It wasn’t fashionable to complain about their shortcomings, though. After all, they were computers that fit in your pocket. The iPhone and its clones made the experience of using such a small machine more pleasant and therefore more useful.

“It’s about always asking: Why can’t it be better? And not just living with the status quo,” Fadell said. “Then solution becomes so obvious – so simple and yet no one saw it.”

So how do you spot these opportunities? One of the students in the Center for Entrepreneurship asked Fadell point blank for the secret.

“It’s literally through experience,” Fadell said. “We go through these habitual routines that we don’t even realize we’re doing. Break that down and ask why, why, why. Why do I have to use this door handle? Why do I have to unlock the door? How can this system be improved? Tune into it.”

And as you tune in, let your curiosity carry you.

Fadell left Apple in 2010 to spend more time with his family. After traveling for several months, they came back to Silicon Valley and set to work making their new home more intelligent. Energy efficiency was important to Fadell, so he went looking for a smart thermostat. That’s when he found his next venture. Later that year, Fadell founded Nest Labs – a home automation company whose first product would be a thermostat.

“I realized there was a problem there that no one else was focusing on,” he said.

Lots of programmable thermostats existed, but they required, well – programming, and then reprogramming as the seasons changed or your schedule did. What if a thermostat could learn your preferred temperature? What if it could gather data to help you set and meet energy efficiency goals? What if you could control it with your smartphone?

Fadell’s wife thought he was crazy. Who would buy a $250 thermostat?

He felt those uncomfortable butterflies that tell him he’s onto something. The thermostat would be his entry into the connected home future that could automate and improve our living spaces. He trusted his gut, and he braced for the future.

“When is it the most fun at the amusement park?” he quipped. “On the scariest ride, cause if it ain’t scary it’s not fun.”

Step one would be to talk to some experts, he figured.

“Someone’s gotta know thermostats really well,” he reasoned. “Turns out all the expertise was gone. There were no experts. They were all retired.”

So he and his team had to teach themselves. That can be common in a new domain, he cautioned.

After months of development, the company released its spartan disk whose aesthetic once again belied its sophistication. The first thermostat powered by machine learning, it was designed to conserve energy by learning users’ schedules and temperature preferences, and detecting when a house was empty. It could be controlled remotely, and it kept users informed of how much energy they were saving.

Google acquired Nest in 2014 and the company now employs more than 1,000 people. A 2016 study by IoT Analytics found that the global smart thermostat market grew by 123 percent in 2015, and in the U.S. Nest was one of two dominating companies. (Fadell stepped down last year as CEO.)

05./ MARKET, AND WAIT.

Fadell’s work has shifted entire industries. The iPod enabled a music market that was mutually beneficial to consumers, artists and record labels. And it led to the iPhone, which grew up to be that “life support” device Fadell cut his career on.

Ten iPhone generations later, more than half of all internet traffic comes from mobile devices. More than 2 billion people in the world have smartphones. That growth has spawned new industries and new ways of communicating. On the industry side, there’s the app store and everything in it. Go a step farther and think about the industries within the apps, like Uber.

On the communications side, this is about more than making it easier to pick someone up at the airport. Smartphones and the citizen journalism they enable have been found to be key in disseminating information about rapidly unfolding events. That’s the role they played in the Middle Eastern uprisings that became known as the Arab Spring, according to a 2012 U.S. Institute for Peace report. Protesters used their smartphones to tweet updates to the world. All this attention may have led to increased international pressure and helped to solidify regime change.

Now Nest is on the cutting edge of the burgeoning Internet of Things, a network that will connect the physical world with the virtual to continue down the path of logistical life support.

These successes are built on more than great, problem-solving products made by resilient, loyal teams. A Michigan Engineering student asked Fadell whether he preferred building things or marketing them.

“They’re fundamentally the same,” Fadell answered. “If you don’t know how you’re going to market what you’re building, then you don’t know what you’re building because you don’t know what it’s for.

“Most people create the press release right before they ship it. One thing I learned from Steve was you make it at the start of the project. And the executive has to know the product upside-down. You live it. You breathe it. You see people’s eyes light up while you’re building it.
You know it resonates.”

Once the product hits the market, and even beyond, you need to have patience. The iPod took two years to catch on. Now it’s essentially defunct, cannibalized by the iPhone. The iPhone’s arc is still rising.

Fadell knows his work has made a difference in the world, but he also says he’s not done.

“It’s success when you’ve created a culture that lives past you,” he said. “A legacy.”