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EVERY SPOKEN WORD
40 min read · 7,504 words- 0:00 – 2:30
Introduction
- CPCarl Pei
There's a lot of people like us who are tech fans out there and who remember being Apple fanboys and fangirls, and now just feeling like the magic is lost and just wanting to recreate the magic.
- SSSteph Smith
People often say that building a hardware company is like building on hard mode. Well, building a hardware company during a global pandemic with the unpredictability of supply chains and markets, that's harder than hard. And trying to penetrate the phone market in particular, where there's only a few players who own almost all the market share, that's really freaking hard. I mean, just take a look at your phone. If you're living in the US, there's an eighty-five percent chance that your phone is from Apple or Samsung. Well, in today's episode, we talk to Carl Pei. He's the founder of Nothing, the company of course. I'm not the first person to make that joke, but he's done so much more than nothing. He previously co-founded OnePlus, and between Nothing and OnePlus, Carl has twice managed to do what so many others have failed: enter one of the most demanding markets. In just over two years, Nothing has sold over one million units and built a team of over four hundred. And in today's episode, Carl chats with us about why he's at it again, what it takes to successfully build hardware, and how he thinks about making technology fun again. And by the way, if you hear us talk about the glyph interface throughout this conversation, a defining feature of the Nothing phone, this is what I'm talking about. You can see in addition to the transparent back, there are these LED lights on the back of the phone, which are used to notify you of different things, but also I think are becoming increasingly programmable. So very cool to see. Also very different to what we've seen on other phones. So the question becomes: Do you think what Nothing has created here is enough to become something? I'd love to hear your thoughts in the comments below. As a reminder, the content here is for informational purposes only, should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any a16z fund. For more details, please see a16z.com/disclosures. [upbeat music]
- 2:30 – 3:12
The hardware market
- SSSteph Smith
All right, Carl, welcome to the show.
- CPCarl Pei
Thanks for having me.
- SSSteph Smith
All right, so I like to start out with statistics. I feel like this really sets the tone for where we're at in the hardware market. And so within the phone market specifically, it sounds like there's two companies really with fifty percent of market share, and in the US it's eighty-five percent. What is going on there?
- CPCarl Pei
It's a very difficult industry to break into for a startup company, so the big companies just keep accumulating market share. So that, that's what's going on. In the last ten years, there's been a couple of teams who tried to break into our space, well-funded and less well-funded, and everybody's failed. So it's not a route that a lot of entrepreneurs are taking these
- 3:12 – 5:42
Breaking into the phone market
- CPCarl Pei
days anymore.
- SSSteph Smith
It's definitely not. I mean, people say hardware is hard mode. And to your point, it's not just these new startups, it's large incumbents too. I mean, if you look at the companies who do have strong market share in the phone market, you've got Apple, Samsung, Motorola, Google. Those were founded in nineteen seventy-six, nineteen thirty-eight, nineteen twenty-eight, and nineteen ninety-eight. You also worked at OnePlus before this, so that's one company that's entered the market in the last decade, and now you're working on Nothing. Why are you doing this? Why are you the founder who is stepping up and saying, "You know what? Actually, there's a lot of these incumbents, but I think I've got what it takes to reshape this market"?
- CPCarl Pei
Hmm. I think it might sound a little bit pretentious, but I think if I don't do this, and if we don't do this, then nobody will. Um, and by this I mean try and take on the incumbents in our industry. So I know it's gonna be hard, and I know there's a chance we're not gonna be successful. But looking around at all the teams in the world, if we don't attempt this, then I don't think anybody else will. A- a- and we brought together a lot of people from the industry-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... with a lot of experience, and all-- we all feel a little bit guilty that we contributed to creating such a boring state of things, and we just wanna do something about it. It'll be really stressful and really hard.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
So if everything is hard, why not just do something big or attempt something big?
- SSSteph Smith
It's true. Why not make your mark? But I mean, a lot of these companies, like even Meta, Snapchat, they have so much money, and they've struggled with hardware. And then we've also talked about some of the smaller companies trying to disrupt. What are these companies not seeing? Like, what is causing them all to fail?
- CPCarl Pei
If you're a company who's already making a lot of money on non-hardware stuff, then hardware ki- kinda becomes like a side hustle for you, and you might not be that rigorous in how you run it. For us, if we're not successful on our products, if every single product does not become a hit, then we're not gonna be around anymore. But for some larger companies, you know, they can spend years, um, burning cash on their hardware initiatives, and they can afford to do so. So maybe that's, that's the reason. Maybe we just cannot afford to fail.
- SSSteph Smith
Yeah. I mean, you've seen tons of startups succeed for that very reason. So I guess if you're convinced you should do this and you're the one to do this, it's worth doing,
- 5:42 – 8:08
Securing factories and stakeholders
- SSSteph Smith
how do you even start to approach that problem? Like, how do you decide what products to build first, how to approach the problem, how you're gonna differentiate? I know there's a lot baked into that, but, like, once you have that seed, you wake up one day, and you're saying, "I wanna tackle this," what are your first steps?
- CPCarl Pei
Yeah. I think a mental model that I use is, like, um, a iceberg model. I think we're always misunderstood, and that's fine because we're only showing kind of a little tip of the iceberg to the market and to external stakeholders. So in the very beginning, we know we gotta prove ourselves, right? Because if you look at the smartphone industry, all the startups who tried to make smartphones have failed, and as a result, they lost the factories, the, the ODMs a lot of money in the process. So now the ODMs are like, "Hey, we're not gonna do this anymore. We worked with XYZ. They all had great vision. They all had great investors. They all m- caused us to lose money, so why, why should we support you? It's the same thing all over again." So I think the, the bar was a lot higher this time. So we had to pick a easier product to start out with, and that's why we picked the, the audio product, the earbuds. It was still a fast-growing category. Uh, it was a mass category, and we felt we could differentiate there. So using the, the earbuds that we released in 2021, we kind of proved ourselves, proved our team abilities in terms of designing something iconic looking, manufacturing that at scale, and also selling it at scale, and then to take those, um, credentials to then convince the next set of stakeholders, be it supply chain or investors, to support us on the smartphone. So in a way, the iceberg revealed a little bit more of itself. So if you were watching us in 2021, okay, this is like a cool, kind of hip audio company. And then last year, oh, they also made a smartphone. It's like a smartphone company, 'cause smartphone companies also make, uh, earphones. Makes sense. But I think over time, we will reveal more and more as our team gets stronger, as our capabilities get stronger. I think ultimately we cannot be a smartphone company, and we cannot be an audio company. We need to push into the future.
- SSSteph Smith
Oh, well I wanna hear more about that future, but I like that you mentioned that you started with the Nothing Ear.
- CPCarl Pei
Mm-hmm.
- SSSteph Smith
But even that industry is pretty big. There's a lot of competitors in it, and I think people are always shocked to hear just how big the AirPod industry is or, or how big of a company that would be if they were on
- 8:08 – 11:14
Differentiating products
- SSSteph Smith
their own. I think it'd be a top 100 company, which is crazy when you really think about that. And so when you ventured into this, how did you think about differentiating amongst the already existing products? Like, you mentioned that you wanted to create something cool.
- CPCarl Pei
Mm-hmm.
- SSSteph Smith
What does that mean? Like, what is the calculus in actually producing something that people resonate with?
- CPCarl Pei
I think as a startup company, you, you have no resources anywhere. Your capabilities are weak everywhere.
- SSSteph Smith
Yeah.
- CPCarl Pei
So you just gotta pick the lowest hanging fruit or the easiest thing that might give you an opportunity to break through. So we started off with differentiating our products in terms of hardware design.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
And the way we approached it was, first we looked at the entire industry, and we, we saw that there were very few brands that tried to build a family of devices that had a coherent design language. I think Apple today is one of those companies that still do it. If you look at the Apple product design, they've started introducing a much sharper edges on their products. So the iPhone is much boxier than before, but it also cascades into their other products, the iMac, the iPad-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... et cetera. So you can see that there's one coherent design vision being brought to life, and even if y- you don't see the Apple logo, you know it's a Apple product. It's very hard to find a second company like that today. But some of these, the, the most respected tech companies of the past, uh, stayed true to this. So the Sony of the past or the Bang & Olufsen of the past, they all had very distinct design languages. So that's, like one of the first principles we decided that we had to pursue. Like, when we have more products on the market in different categories, even when the consumer don't see our logo, they sh- should still know it's a product, uh, made by Nothing. And then we started just taking inspiration from, uh, different creative fields, from architecture design to fashion design-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... to movies, to, to electronics, et cetera. And then we, we kind of landed on this concept of having all our products be transparent in some way.
- SSSteph Smith
Yeah.
- CPCarl Pei
Strategically, I think these big brands, they're not gonna create a transparent product anymore.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
Apple used to. A lot of the Apple iMacs of the past-
- SSSteph Smith
Yeah, I remember those
- CPCarl Pei
... were transparent. Right? Uh, some of the Nintendo Game Boys were transparent. But I think when you're a niche player, you can be more differentiated in your hardware design.
- SSSteph Smith
Yeah.
- CPCarl Pei
But when you're mass, you gotta sell to everybody, from the youngest person to the oldest person, all types of different professions, so you cannot take a lot of risk with your design anymore. If you take too much risk, that's gonna reduce your market share.
- SSSteph Smith
Yeah.
- CPCarl Pei
But for us as a small company, that's exactly what we need to do. So Apple used to have this positioning on the design side that they abandoned because they, they grew out of it.
- SSSteph Smith
Yeah, I mean every startup has to find their wedge, and to your point, Apple itself, the iPhone used to be a more niche phone catering to a more niche audience, and now they have to cater to literally everyone. And so there are many ways that a company, let alone a hardware company, can differentiate.
- 11:14 – 12:37
Hardware design
- SSSteph Smith
But what you've, it at least sounds like, chosen to differentiate with is design.
- CPCarl Pei
Yeah, I think in this stage of the company's development, we can only differentiate on design, and the insight that we drew upon is very simply that all product categories start off functional. Like even w- imagine when clothing was just, uh, invented as a concept. We just needed to keep ourselves warm and shelter ourselves from the, the, the weather conditions. But now we wanna express ourselves, our, our personality, our individuality through the types of clothes that we wear. We knew there were people out there who just didn't want to have the same white wireless earbuds as everybody else, and we thought there would be a market for that. But having said that, it's, it's a, it's not a very strong moat, design differentiation. So as the company grows and we start generating more and more free cash flow- That needs to be reinvested into technology. Technology is the only real moat for a tech company.
- SSSteph Smith
It's true. Today it's this really beautiful, really cool looking transparent phone with your glyph interface. If people aren't familiar, it's got all these lights in the back. It looks cool. I can see why people would be like, "I wanna walk around with this phone." Your Twitter even says, like, "Let's make tech fun again." I, I get this, but as you're talking about the next phase, what do you mean by evolving that technology?
- 12:37 – 17:04
Strengthening software proposition
- SSSteph Smith
Like, w- what do you see as the future of the phone, or maybe what you're alluding to is another device altogether.
- CPCarl Pei
So if we started off with hardware design differentiation, I think this year we can take the leap into software design differentiation. When we ask our users why-- like, what's the number one reason you buy our products? Design is number one. So how can we strengthen that design proposition even further by introducing it on the other side of the phone, the screen, the software? I think that's another step. Um, it's a little bit stronger of a moat, but not super strong. I think the step after that is to work on the user experience, because the mobile user experience has not really changed for the last, I don't know how many years, twenty years. Even with-
- SSSteph Smith
So true
- CPCarl Pei
... even with Symbian, right? Even with pre-Symbian devices, there were icons for apps.
- SSSteph Smith
Yep.
- CPCarl Pei
And when you, when you click through the icons, you got like a full screen app, and then you went back to your home screen. That existed in the Nokia Navigator of the 1990s, and now like thirty years later, we're still on that same UI, UX. It's just that everything is smoother, prettier, faster, there's more apps available. But fundamentally, the human, uh, and mobile device interaction hasn't changed. So I think after design is UX, how can we make that interaction simpler? How can you accomplish more faster?
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
I think that innovation is gonna be the next step. And then, as we said in the beginning, we wanna build an ecosystem of devices that talk to each other and that work well with each other. So how do we build that interdevice connectivity? Like when you're in the Apple ecosystem, all the Apple products work really well or somewhat well with each other. And then as we scale, I think the, the opportunities to invest in deeper and deeper moats will, will emerge. Uh, we're looking a lot at AI happening right now, but we're, we're in no rush because I think people are still trying to find the product market fit, and I think us, uh, having a hardware component to what we do puts us in a really good spot because we have the users, we have the distribution, and we can create more u- meaningful interactions if we own both the hardware and the software for how humans interact with AI in the future. So I think we're not in a rush. We're in a lot stronger a position than a lot of startups that are pure software in this space, but w- we sh- just need to be patient and find the right product market fit before we go all in.
- SSSteph Smith
Yeah. I love that you mentioned this symbiotic relationship between hardware and software. If you think about, you know, using the iPhone as an example, like when the iPhone 4 came out and it had an HD camera, that empowered this wave of photo sharing apps like Instagram. And then once GPS was integrated, you see all these maps apps. And so, yes, the hardware is not disjointed from the software. It actually empowers what can come with software. And you mentioned AI, but I'm just curious about, you know, you're talking about this like future user experience. It's so true. Apple, if you think about, like the iPhone that I own today has pretty much the same interface as the iPod Touch I had when I was like ten. [laughs] That's crazy, right? Um, maybe some people could argue that's like just the best user interface, but like, what are you thinking there? Is it-- Do, do we see a fundamental shift because now we have better voice technology? You mentioned AI. Like, what might that look like with the introduction of the technologies that have risen in the last, you know, like five, ten years?
- CPCarl Pei
I think the first question to ask is like, in, in, in all of humanity's future history, is this the final state of human computer interaction?
- SSSteph Smith
[laughs] Yeah.
- CPCarl Pei
And if no, then I mean, surely there's a better way and, and then we just gotta keep exploring what that better way is. But fundamentally, I think we, we want our devices to deliver intent.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
Like let's say, uh, uh, we wanna go for a dinner, but-
- SSSteph Smith
Yep
- CPCarl Pei
... actually organizing dinner is quite, quite a burdensome thing on a mobile device. There's so many steps to go through. There's some kind of messaging app we have to use to message each other, some Yelp-like app to find the restaurant, gotta book the restaurant, gotta put something in people's calendars. On the day, we have to, uh, get an Uber or, or whatnot to, to, to get there.
- SSSteph Smith
Yeah.
- CPCarl Pei
There's so many different apps. Like why, why is it so complicated, and shouldn't there be an easier way?
- SSSteph Smith
Mm-hmm. Well, let's take a step back. So you started building the Nothing Ear. You've also launched the Nothing Phone. Um, and you do seem to have this large community of people who are listening, who are like, "What are you building next?" And who are buying your products.
- 17:04 – 19:01
Table stakes
- SSSteph Smith
But taking a step back from even those individuals, how did you get people interested in the first place?
- CPCarl Pei
First of all, I don't want people, uh, watching this or listening to, to this to think that there's an hack. I don't think there's a real hack. It's, it's based on a track record, and because of what I did before, I think some people were excited about, uh, what we're gonna do on, in the future. And then I think the second step is to have a really clear vision of what you're gonna do and bring people along the story. And I think a lot about Tesla, right?
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
Tesla, they always com-- uh, especially in their early days, they always communicate beyond just the next product cycle. They communicate, you know, how the world will be different-
- SSSteph Smith
Yeah
- CPCarl Pei
... if Tesla is successful. And I think people, consumers these days, they buy into these causes or these missions versus the individual products. I remember a couple of years ago, uh, Tesla opened up the, the patents to some of their technology-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... with the rationale that if more people use this technology and leverages this to create electric vehicles, then we can make our vision happen faster. It doesn't have to be us. So I think that-
- SSSteph Smith
Yeah
- CPCarl Pei
... that made a lot of sense to me. So we've always been trying to tell people The problems we see in the world, in the industry, and how we could potentially make things better with our involvement. I think that, um, played a big role. But obviously launching products that consumers are satisfied with, it's kind of like tables, uh, stakes.
- SSSteph Smith
Table stakes, yeah.
- CPCarl Pei
Yeah. If we don't do that, then people are n- are not gonna believe in us for the future.
- SSSteph Smith
Totally. I mean, like you said, it's table stakes to create a great product, but you've also had, I think, a, a track record of being a good marketer. Like, you've built up a huge YouTube channel with Nothing, but also you've, you've launched things on StockX, you've done things with OnePlus that, you know, drummed up a lot of interest as well, like smashing your phone in order to, to get a new phone. So, like, what, what goes into those?
- 19:01 – 20:51
Marketing and Youtube
- SSSteph Smith
And also, is there any marketing, as you said, there's no hacks, but marketing techniques or things that you've done that you see some sort of through line with?
- CPCarl Pei
So in terms of marketing, I'm, I'm not a pro, and we're currently recruiting for a VP marketing, so... But personally, I think marketing is arbitrage. So one example to make it clear is, like, when Facebook just launched their ads product-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... the first couple of individuals or first couple of companies who learned how to really leverage the ads product, they made a lot of money because there were not, not a lot of people who bought the ad product, so the price was low. But over time, as ad agencies started learning and as big companies started deploying their budgets on digital and on Facebook, then the price got really high. So now the ROI on doing, doing TV advertising and doing Facebook advertising, there's no real difference. For me, it's always about finding what's next, uh, what's the next arbitrage opportunity so that we can have an unfair advantage compared to the, the bigger companies. B- because if we don't, then as a startup, like, what, what's our reason of being? Like, how... If our marketing cannot be higher ROI than the big companies, we're, we're not gonna be able to compete. So on, on the topic of YouTube, um, that's just something we've been experimenting with for the last three months. Uh, I think now we have four videos, uh, over a million views.
- SSSteph Smith
Yeah, that's huge.
- CPCarl Pei
And maybe this is the new way of arbitrage because, like, we can pull aside the curtains and show people how it is to build a company like this. So one of the videos that we made is, um, phone reviews, right?
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
There's already people making phone reviews on YouTube, but there's no phone maker making phone reviews on YouTube. So there's a lot more insight behind the curtain stuff that we can share-
- SSSteph Smith
Yeah
- CPCarl Pei
... that might be really interesting to, to the viewers.
- 20:51 – 23:15
Underestimating the value chain
- SSSteph Smith
Yeah, you talked about behind the curtain. What do you think, given your experience at both Nothing and OnePlus, what do you think people misunderstand about hardware? Like, if a new founder is like, "You know what? I agree, Carl. Hardware is not innovating the way it used to be. I want to be part of this change," what do you think they might not know?
- CPCarl Pei
I think it's very easy to make mistakes that are very, very costly when you're making hardware, because I've seen it many times, people with a software background making hardware, they might underestimate the, the length of the value chain. Like 10 different teams from supply chain to manufacturing to industrial design to hardware engineering to software engineering to sales to marketing to after sales, everything kind of has to work for the project to work. If, if one chain breaks, then the entire thing breaks. And on top of that, cash flow is really, really difficult to manage. It's very, very difficult to manage, especially as a young company. Actually, that's, that's one of the big learnings for us because at OnePlus, we actually had a big company behind us, so we could leverage their supply chain, we could leverage their working capital.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
But starting from scratch, supply chain and working capital have been our biggest headaches because without a track record going to the suppliers, they're not gonna give you the, the best payment terms.
- SSSteph Smith
Yeah.
- CPCarl Pei
Like, if you're a big company, you can pay, let's say, uh, two months after getting the product. You can pay the factory, but you get paid within one month, so you still have 30 days of kind of buffer time, so you don't even have to use your own working capital to grow your-
- SSSteph Smith
Uh-huh
- CPCarl Pei
... top line. But for a small company, because the suppliers, they're not-- they don't know if you're gonna be around, so you need to prepay.
- SSSteph Smith
They want their money now. [laughs]
- CPCarl Pei
Yeah.
- SSSteph Smith
Yeah.
- CPCarl Pei
Or even in a- in advance, like sometimes months in a- in advance.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
So if you're planning to scale something, and you have to pay them the money many months in advance, I think that's, like, a really hard thing to manage. That's on the production side, and then if your sales don't come fast enough, your cash flow might break. Might not have cash, you might need to find other ways of making payroll. And the second one is supply chain, like the s- supply chain doesn't make a lot of money either. They're usually squeezed by the brands to make the minimum amount of money.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
So if your project is not successful, they're also gonna lose money, so convincing them to work with you is almost like pitching investors. Like, they need to believe that this is gonna work, and they're gonna make their money back.
- 23:15 – 24:56
Manufacturing
- SSSteph Smith
Yeah. Didn't you work with a factory that ended up shutting down?
- CPCarl Pei
Yeah, it was the only factory that wanted to work with us. It wasn't the best run factory-
- SSSteph Smith
[laughs]
- CPCarl Pei
... but, you know, you gotta fight with the army you have. So we, we worked with them, launched our first product. Very quickly after we began manufacturing with them, we saw that there were, there were big management issues on their production line. So then we deployed our own engineers onto the line. So every station of the line was supervised by our people.
- SSSteph Smith
Yeah.
- CPCarl Pei
Kind of micromanaged them, so they couldn't make mistakes.
- SSSteph Smith
And what kind of mistakes are you talking about there? Like a broken product, or?
- CPCarl Pei
First, we start off with the industrial design, how the product looks, right? And then-
- SSSteph Smith
Yeah
- CPCarl Pei
... we'll do the mechanical design, how the parts all fit into the product. And then we would kind of design for manufacturing. So we would design the production line, what each person in each stage of the process has to do in order to go from components to finished good in a package. And then we give that scheme to the factory, and they just have to replicate that. So for instance, if we define that there needs to be a certain strength Between the pogo pin, so the metallic connector, and the, on the case, and the part on the earbud so that-
- SSSteph Smith
Yeah
- CPCarl Pei
... the earbuds can get the charge. We designed it with a certain, like, strength requirement, but then the factory couldn't source the right type of spring, I think. So the strength was less than required. So there were some earbuds that came out of the line that couldn't get charged because of that error in the production, but similar issues all over the place.
- SSSteph Smith
And so that wasn't working out for you. This factory shuts
- 24:56 – 27:24
Supply chain
- SSSteph Smith
down. What other complications have you run into? I mean, you also built this during the pandemic, which introduces its own complications.
- CPCarl Pei
When we were gonna develop our first phone, the Phone (1) -
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... it was the pandemic, but because of the pandemic, there was a semiconductor shortage all over the world.
- SSSteph Smith
Yes. Yep.
- CPCarl Pei
And when suppliers cannot even s- supply their big partners that they already have commitments to, they're very reluctant to take on a small company. Like, why would they do that? I already owe these, these big guys a lot of components. Why would I give you anything?
- SSSteph Smith
Yeah.
- CPCarl Pei
And some of these big companies, they had bought supply for the, for these components, for some components for up to six years. So they have-
- SSSteph Smith
Wow
- CPCarl Pei
... a guaranteed supply for six years. As a small company, you don't have anything. We really had to swallow our pride in the beginning, and just, like, with our tails between our legs, just go and beg, just beg everywhere. From the, the execution level to the, to the board chairman level, just try and find introductions-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... to map out the supplier, like, who makes decisions, how does the decisions get made within their organizations, and try and just pitch everybody. Every, every single angle. Will it be big angle? I'm just a kid with a dream angle. You know, just-
- SSSteph Smith
[laughs]
- CPCarl Pei
... until it works. Um, I, I spoke to most of our competitors' CEOs as well. I know the-
- SSSteph Smith
Yep
- CPCarl Pei
... percentage chance would be quite small that they would help us because, you know, we're competitors, but everything that had, like, a 1% chance of working, we tried until we finally got all the components together. It caused some delay to our product development process, but in the end, we made it happen.
- SSSteph Smith
You made it happen. Would you say there were any mistakes? I mean, we've talked about this already, but you brought this level of experience into this company. So you're starting at a great foundation, but it still is a new company, new products, new challenges, like the pandemic that we just talked about. Do you think that you've, yeah, you've made any mistakes along the way? Like, anything that would help other founders who are thinking of venturing into this very difficult space?
- CPCarl Pei
I think another big, uh, mistake we made was not introducing enough flexibility in our supply chain. So I think the best way of running supply chain is to delay every decision to the last moment, 'cause then you have time to get more data to look at the demand and to look at other-
- SSSteph Smith
Got it
- CPCarl Pei
... market factors.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
I think sometimes we ordered components in bulk, in chunks, instead of the minimum amount at the last possible
- 27:24 – 29:19
Remote work
- CPCarl Pei
time.
- SSSteph Smith
I'm just curious to know this as someone who's, like, a, a big remote work advocate. Do you think hardware can be built remotely? You're talking about these factories. I see your Instagram too. You're flying around. You've taken Zoom calls, um-
- CPCarl Pei
Mm-hmm
- SSSteph Smith
... in different places around the world. You also are someone who's lived around the world, right? So you grew up in Sweden, you're originally from China, you now live in London. Do you think this stuff eventually can be done with a remote team? You know, I've heard tons of people say the iPhone could never have been built without people being in the same room at the same time. What are your thoughts?
- CPCarl Pei
There's definitely a place for remote for some companies, but probably not our company because, first of all, being a young company-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... a very young team, to build that initial culture and those initial relationships, I think face-to-face is much more efficient.
- SSSteph Smith
Yeah.
- CPCarl Pei
Maybe for more mature companies with very, uh... where people already kind of have established relationships and mature processes in how things work, um, th- there's a place for remote. I think secondly, our industry is one of the most difficult industries in the world. We talked about, a couple of minutes ago, that everybody who tried in the last 10 years to break in has failed.
- SSSteph Smith
Yeah.
- CPCarl Pei
And there's a higher chance that we'll succeed if we work together. And then third, if, I think if you work in a creative field or a strategic field, being remote is also gonna be more challenging. If your work is more kind of just do the same thing over and over again, then it's easier to be remote and not coordinate too much with other people, but if it's strategic, if it's creative, I find it much easier to work in, in an office. If you look at our design team, they kind of print things out on a big, big wall, and then they just discuss. Sometimes they make physical mock-ups, and they discuss the mock-ups. It's ve- it's very hard to do this in a remote setting.
- SSSteph Smith
What gets you jazzed? Like, you started this company. You had this vision. Like, where would you love to be spending your
- 29:19 – 32:39
The future of hardware
- SSSteph Smith
time? What about this potential future of the hardware that you can build gets you just, like, truly excited?
- CPCarl Pei
I think two things. One is community, and two is product innovation.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
On community, I think the world is a very different place to when Apple started more than 40 years ago. Everybody's so connected these days, so that in the past, you might have had to be in Silicon Valley to get all the latest information and become an expert at something related to technology. But today, because of the internet, you can be anywhere in the world and be an expert on, on whatever topic you're passionate about. You can be on a remote island if you want to.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
So there's an explosion of talent, um, a- and kind of passion all over the world. I think the exciting thing for community is, you know, how do we erase the difference between employee and community member-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... so that every stakeholder can contribute to building the company and its products. We allowed our community to also become shareholders in our company.
- SSSteph Smith
Okay.
- CPCarl Pei
And our community has an elected board observer on our board to keep us honest and give us feedback from- Uh, from the users. So even if we become a big company, we still don't forget what, what our intentions are. And then we've seen a lot of cool creation now from our community. We see a lot of interesting, uh, ideas for future product designs made by our community, and some of the renders are really good. So that's really cool. Um, we have a very unique font, like it's like a dot matrix font.
- SSSteph Smith
Yeah, I love it. Mm-hmm.
- CPCarl Pei
It didn't support some languages like Cyrillic or, uh, Arabic. Our users have made those adaptations themselves, and it's very-
- SSSteph Smith
Wow
- CPCarl Pei
... professionally made.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
And we're thinking about whether we can integrate those into our products. We have users who've made PC and Mac versions of the control app to control our earbuds. That's-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... it's, it's not made by us. So this is-
- SSSteph Smith
That's amazing
- CPCarl Pei
... this is just the beginning, but how can we over time just become the collective that builds this company and builds these awesome products together? And it's a big contrast if you're a collective versus the, the behemoth, uh, Apple, who-- which is more like the I company. It's like command and control, top-down, ivory tower style.
- SSSteph Smith
Yeah.
- CPCarl Pei
iPad, iPhone, iMac, I everything, and this is the collective-
- SSSteph Smith
[laughs]
- CPCarl Pei
... versus the I. So I think that's kind of community. I would love to spend more time to figure out how to make that part happen. And then second on product innovation, like I think Apple, they, they kind of stabilized their business using the personal computer. That wasn't their breakthrough moment. I think their breakthrough moment was with the iPod. That's when they really built a mass consumer brand. I think, you know, we're at the tail end of the smartphone innovation curve. Um, actually, the total size of the smartphone market is actually decreasing.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
Which is okay for us. We're very small, so we still have a lot of upside in the market. I think this is the market where we kind of have the opportunity to build a stable company, but it's not our breakthrough category. So we need to invent a breakthrough category over time. It doesn't have to be this year or next year or the following couple of years, but in the next ten years, we have to create a breakthrough category, and I would love to spend more time there as well.
- SSSteph Smith
Yeah. Let's return to community, but I have to ask you about this, this breakthrough category.
- 32:39 – 34:42
Breakthrough hardware
- SSSteph Smith
The phone really has been the hardware device of the last decade, you could say even longer than that, and if you think about the last few years, and I might be missing certain pieces of hardware, but like what has, what has come to be in that time period? I guess drones have been something that, that have become popular, but that's not as much of a consumer device, um, although consumers are adopting it. But it's hard for me to think of what this new hardware device might be. I mean, some people might say it might be ARVR. That's been pending for a while, I know. The Oculus has sold a record number of headsets in the last few years, but where do you think this is going?
- CPCarl Pei
There's been a lot of, uh, this is the next thing, like dr- drones, as you said-
- SSSteph Smith
Yeah
- CPCarl Pei
... ARVR, uh, Web3 for a while.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
Uh, and those technologies might make... all make like really big impact in the future. Um, but I think the, the thing that has the highest po-potential of changing our habits, because ARVR hasn't changed the way we live our lives-
- SSSteph Smith
Yeah
- CPCarl Pei
... but the smartphone has, right?
- SSSteph Smith
Correct.
- CPCarl Pei
So I think the next product that has the opportunity to change our habits, I don't know exactly what the product is, but it-- I think it's most likely in the intersection of hardware, software, and AI.
- SSSteph Smith
Mm-hmm.
- CPCarl Pei
Um, I think just software and AI is not enough. It's very n-- it's, it's niche if it's, if it's in a browser. I think the form factor has to be related to the utility.
- SSSteph Smith
Yeah, I think about the phone, like most people, as you said, inter-- face with a screen, but there's also so many other modalities to a phone. There's the ability to connect to Wi-Fi, but there's also sound, right? Like, uh, AirPods as an example. Like I-
- CPCarl Pei
Yeah
- SSSteph Smith
... can't wait till there's a better set of applications that actually integrates with the AirPods. So maybe that's also on the roadmap for, um, Nothing. Let's quickly return back to the community because I think that ties into what you're saying, which is you're doing a lot of this with a, with a small team, but you have this community behind you, people who are building apps for your products. And so what do you think
- 34:42 – 39:22
Making tech fun again
- SSSteph Smith
is driving that? Like, what about the Nothing journey is resonating with people?
- CPCarl Pei
I think just wanting to, to make the industry more fun, because I think there's a lot of people like us who are tech fans out there and who remember being Apple fanboys and fangirls, and now just feeling like the magic is lost and just wanting to recreate the magic. Certainly, when we talk to investors, when we talk to sales partners, when we talk to consumers, community members, there's a lot-- like, this message really resonates. It's really what we wanna do, and I think when you're doing something as exciting, like, the-- as this, then, uh, it's hard to not find people who, who wanna be a part of the journey.
- SSSteph Smith
Yeah. What experiences from your past remind you of tech being fun? Like, you mentioned your first interactions with Apple products, but, like, what else from your childhood makes you think, "Oh, wow, that was like-- That was fun when I interacted with that device"?
- CPCarl Pei
So a lot of Apple products, a lot of, uh, dumb phones of the past as well. There were really active online communities that were kind of modding the phones, modding the software, making themes-
- SSSteph Smith
Mm-hmm
- CPCarl Pei
... skins. I used to be a part of those. I think the early, uh, consumer internet boom was also really fun. So all of a sudden, there was this concept called Web 2.0, and you could contribute content to the internet through blogging, through YouTube, through Facebook. You could poke people on Facebook. You could tag people-
- SSSteph Smith
Yeah
- CPCarl Pei
... on photos.
- SSSteph Smith
[laughs]
- CPCarl Pei
Um, s- there was so much positivity and innovation, and I think society as a whole just, just really thought that, that technology would help make the future better. There was a lot of optim-optimism around technology back then, but today I think the opposite is true. Like- Governments, consumers, um, they see tech companies as the old oil companies. There's, there's antitrust issues, user privacy issues. People don't trust tech companies anymore, and, you know, I think that's really sad.
- SSSteph Smith
I think it's sad, too. I think, um, at a16z, we're definitely tech optimists. What do you see today that makes you still an optimist about technology, given that we're not in the, the era of Facebook pokes and, you know, some of the things from the past, Game Boy Colors? Like, what, what gets you excited about tech today?
- CPCarl Pei
I think AI is really exciting. Um, I d- I don't have enough time to think about it yet, but I've played around with it. It's really fun, the potential of it, and I think what we're doing is really fun. But I think we just gotta get stronger as a company before we can do all the really fun things. We just gotta do the survival things first. Yeah, I, I think AI and-
- SSSteph Smith
[laughs]
- CPCarl Pei
... and Nothing. [laughs]
- SSSteph Smith
Well, Carl, this has been amazing. Anything else you wanna add for, yeah, just people who are, who are thinking of hardware? This extremely difficult industry to break into.
- CPCarl Pei
Yeah, I think it could be really helpful to work at a hardware company if you, if you wanna make hardware, to learn all the ins and outs. I also think it's really rewarding when you see somebody out in the wild wearing your product or using your product. You know, that kind of satisfaction, I think, is hard to get, uh, if you're just building an app or, or software, and especially if they don't recognize you as the maker. That's when you know you've, you've started to break through and reach new consumers.
- SSSteph Smith
Is that what drives you? Is that the thing that lights you up when you see someone using a Nothing product, knowing that you produced it?
- CPCarl Pei
It's one of the things. I-- before this podcast, I had a AMA with our community as well on Discord. I think that's also really exciting to see that there's so much passion, um, and support for, for this cause.
- SSSteph Smith
Yeah. I was actually, months ago, walking down the street, and I saw a bunch of Teslas, and I had the same thought. The same way that, like, a music artist, when they're driving a car, and they hear their song on the radio, and it's like, it's like for the first time, that is so incredible. I was thinking about Elon or, or really anyone who's innovative, when they see their product, in this case, on the street, that must just be like the absolute coolest thing.
- CPCarl Pei
Yeah. It's a great feeling.
- SSSteph Smith
All right. Well, Carl, thank you so much for doing this. Thank you for what you're building. Thank you for taking on a challenge that many people are, A, not willing to take on, or B, have failed to take on. As you said, this is a long road ahead, but thank you for, for building.
- CPCarl Pei
Thank you for having me. [upbeat music]
- SSSteph Smith
Thanks for listening to the a16z podcast. If you like this episode, don't forget to subscribe here on YouTube to get our exclusive video content. We'll see you next time.
Episode duration: 39:32
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Transcript of episode NFz56GabsO8
