Carl Pei, CEO at Nothing: Building a smartphone company is nearly impossible ant Nothing did it

0:00Scaling Europe:Hello and welcome back to the Scaling Europe show. I'm Seb Johnson. Thank you for following along. Today we've got a great conversation from our time at Slush and the conversation is supported by Databricks, whose unified platform power source on everyone's FY2026 target, becoming a truly AI-driven company, and Harmonic. Harmonic is the startup discovery engine used by leading VCs across the world to find their fun returners. Check them both out. Thank you. Hello and welcome back to Scaling Europe show. We're here in Helsinki. I'm here with Carl from Nothing. Nothing has had a phenomenal year.

0:31Scaling Europe:You've had an amazing journey. I want to go straight in the deep end. Europe doesn't have enough consumer hardware companies. You are probably this generation's, or certainly for several generations, the only amazing, successful consumer hardware company to come out of Europe. Why do you think that is? Yeah. I think the last one is Dyson. Are there any other ones? I think that's it, right? I was trying to put a list together. Dyson is well known and they've done a great job, but other than that... I think consumer hardware is just tough in general. Even in the US, what's the last successful case?

1:09I don't think there's a lot of them. I think fundamentally it's just like, it's a very different beast to running a software company. The CapEx investment is huge and the risk tolerance is very low. like if you make a software feature that doesn't work you can just pivot and ship something else and change the change the product but in hardware if you already bought all the inventory like what are you going to do you sort of think you know we have a saying in our industry that most companies they don't die of starvation starvation being lack of growth or lack of demand they die of indigestion meaning they have too much inventory they overestimated their demand for instance and the only thing you can do then is to heavily discount the product and lose a ton of money.

1:53So I think, you know, when we found it, we looked at all the other failure cases before us because in the last 15 years, nobody has made a smartphone company anywhere in the world, not just in Europe. And my conclusion was that people didn't approach it from a full stack perspective, meaning think about like for us going from an idea to a product and then after having the product doing the gtm marketing and customer service across the world yeah like that machinery is pretty complicated yeah from product concept to manufacturing to quality control to sourcing to industrial design to industrial engineering to software engineering software does like the stack is very long.

2:46I think that's the key difference. So if you run an app company, you might have a couple of plates to spend, like product management, GTM, software development, design. That's probably the bulk of it. But if you run a company like this, you probably have to spend 20 plates at the same time. I think that's the main reason.

3:07Scaling Europe:And how do you balance that? Like, how do you balance being an incredibly design-led, innovative company with the manufacturing, the capex, and also trying to build an affordable smartphone, which is as good as any other on the market? You know, I think there's a lot of pragmatism that's needed. When we went out into the market end of 2020 or early 2021, we said that we're going to change the industry. And recently people have been asking hey you're gonna change industry but you haven't changed industry like you're still shipping earbuds and smartphones but I think the key difference is the time horizon yeah for hardware like we want to change industry but let's be pragmatic about it if we don't even have the basic infrastructure how can we change industry so the first couple of years we were just building the foundations all those skill sets that I talked about.

4:04Sure, we got a lot of kind of criticism. Hey, you're not doing the next new form factor. You're not doing future stuff, but just be very pragmatic. So when it comes to design, we are good at design by design. It's not an accident because you think about our context, we entered very mature product categories. We didn't invent the smartphone. We didn't invent wireless earbuds, they were already big categories. So the only way for us to break in is through differentiation on design. Or we could have done technology differentiation, but that takes years to play out. Design is the fastest way to at least carve out a niche for ourselves.

4:47Some people might love our design, and maybe 90 % are indifferent, or some people might hate it. It's fine. Just find our tribe, start from there, build one of the strongest industrial design teams in the world, and expand from there. When you ask about the trade-offs, there's a ton of trade-offs.

5:06So first of all, we have to have differentiated design for us to survive. But secondly, it costs a lot of money. Our products are transparent. If we made a non-transparent product, the manufacturing is a lot easier because if there's dust or imperfections, you can't see it. So in the early days, when we're still ramping up our supply chain and our manufacturing, some of our products had dust and it's an instant return, right? Because customers are buying it for the design the see-through design they can't have dust in the design so we had to reconfigure our manufacturing, like now it's clean rooms, anti-static anti-dust every station on the production line is a self-contained station and there's a fan on top of every station that blows the dust down, and on the floor there's a mesh net that you stand on but under the net it's water so the dust gets stuck to the ground like wow it costs a lot to do yeah yeah so that's amazing and it's a balance but it's a hard

6:09Scaling Europe:balance and it must make it harder to scale right if every time you want to expand manufacturing yeah you've got to build this almost like bespoke like line that you've built which is and think about it like and we're small compared to the bigger players in the industry so we already pay more for the components because our procurement volume is lower than having to invest in differentiated design and differentiated manufacturing processes. It all adds to cost. Yeah. If you hadn't done it, I would have said it sounds impossible, right? To have great design, to have an affordable product, to do things differently, to be a small player, which is dominated by trillion dollar companies, but you don't have the buying power.

6:49Scaling Europe:It sounds impossible. Yeah, it's a tough business. Yeah. I don't recommend others to do this as their first startup. And can we talk about what's next, right? You know, you are building the phones of the future. You're kind of integrating AI into the operating systems. Can you talk a bit about what that will look and feel like as a user? Yeah, I think there's like two work streams that we have. One is about feature parity with industry, because if Apple starts talking about Apple intelligence, consumers are going to start asking, hey, what are you doing? What do you have? Yeah. So that part I'm less excited about, but we just got to do it to remain parity and competitiveness in the industry.

7:30What I'm more excited about is like the future of operating systems, because fundamentally it hasn't really changed for a very long time. It's not just since the first iPhone, because the first iPhone is fundamentally, from a UX perspective, the same as the Palm. Tompilot back in the day. It's icons, it's apps, it's installing apps, it's having a lock screen and a home screen, but I think that can fundamentally change in the future because I believe that apps are gonna completely go away over time. There will only be one app on your phone and that's the operating system. It knows you very well, it predicts what you want and it agentically handles what you want to do so that you can focus on the things that you're most passionate about in your life spend time on those things but all the admin stuff gets taken care of by the

8:20Scaling Europe:care of by the system and you know you've built a hardware company right that's kind of you know you're still very early in your hardware journey and now you're having to build software how are you finding that it's like um playing super mario so you just you have a new challenge yeah and you just beat the new level but the levels keep getting harder and harder but we had to learn a lot of tricks just to get to where we are today. Like, for instance, when we just started, I had never raised money before. Like, that was a new thing we had to learn. We had never built our own supply chain before.

8:52That was a new thing. So, it's just about, I've heard other people say it in different ways, but as the founder, you just got to keep becoming better because your level or your ability is the cap for the company. So, if you can't upgrade yourself, you can't upgrade the company.

9:10Scaling Europe:You're limiting the company. Yeah, that's pretty interesting. Can we talk a bit about the funding journey that you've been on? How difficult was it in the early days to get investors, especially building in Europe, to kind of buy into this vision when there hasn't been a new iPhone, phone maker, consumer tech company out of Europe for a long time? I think I'm pretty fortunate because this is my second startup. So the early rounds were easy. Seed round, very easy. Series A, very quick. We got some warm intros. But over time it gets harder and harder because you need to raise more money and the pool of potential investors who want to invest in something like this gets more and more limited but at the same time they look more at the numbers, right?

9:52So I think we're really fortunate that our team is very commercial as well and our numbers are pretty positive. So I would say, like, the vision we have, it's still non-consensus. Yeah. But you can't ignore the numbers. So the numbers are the reason why we were able to raise money.

10:16Scaling Europe:And can you share, I think last year, I think you were put like half a billion in revenue, I think it was. Can you share anything about this year or vision for future years about where you think you'll be at? I think revenue is not that interesting, but this year we're almost doubling compared to last year. For me, it's all about can we deliver breakthrough products that consumers love? Because revenue or profit or fundraising, that's only an output of a good input. And the key input for us is great products. And I think you're aiming to launch the new operating system next year, right? Or AI-embedded devices.

10:50So we will start doing more AI-native stuff starting next year. But for the full operating system vision, I think we need some more time.

10:58Scaling Europe:Yeah, and so what opportunity do you see with the first AI native device? How transformative do you think that could be for nothing? Yeah, I think to explain this, maybe we take a step back and explain our vision for the future of how humans and computers interact. I think context will be really important. You know, for me personally, I only use Chachiputino, but a year ago I was using like three or four different apps all the time. Yes. Once they launched memory, I found the answers to get better and better for myself. Yes. So that's why I only use it. I think that's where the future is going.

11:39The core of the ecosystem of our lives will be around context. So all the devices will just flow around context. So either they're there to capture context, because the more context, the better the output. Or they're there for us to give it a command so it can action on the context it already has on us. Now, if you think about the smartphone, it's still going to be one of the most context-rich devices. We do a lot on our phones and we carry it around. But sometimes it's in our pocket. Sometimes we're walking around in the city. We need a different form factor to help us capture context. This is what we believe now.

12:20In the coming two, three years, I think consumers will also warm up to this idea that, oh, wow, I gave it more context, I get better returns. So therefore, that's what's going to drive the formation and the scale of new form factors. What is it going to be? Nobody knows, right? So if nobody knows and we can't guarantee that whatever we ship is going to be a breakthrough success, then we should take a software development approach to the problem. ship fast, iterate fast listen to feedback and have great taste

12:51Scaling Europe:and how are you thinking about the future of physical AI there's OpenAI and Johnny Ive supposedly developing a new device we saw the Humane AI pin what's your view on that world of physical AI especially from OpenAI is particularly interesting as a front-end model do you think they're well positioned as a model company to move into hardware or do you think you actually got a better advantage going from hardware to software and AI? I think the key input to build the future is data and scale. We're talking about consumer here, and also consumer-based, three things. So who has that? Smartphone companies, they have it, right?

13:36Smartphones, scale, data, consumer. Consumer-focused AI companies have that as well. yes open ai huge consumer business yeah right a lot of data um and great models and i think social media companies interesting also have a great play so meta by dance yeah um so they're all well positioned yeah okay interesting and why do you think you can win you know with the ai

14:04Scaling Europe:devices what advantages do you think you have over especially a lot of the incumbents people like Apple who are huge market share, trillion dollar companies, but potentially, yeah, well positioned, but arguably not as innovative as they once were. I think Apple has a very high chance of winning, actually, because the moat they built allows them to be slow and considered and let other people make experiments that fail and then do the things that are successful. They've earned the right to do so. I don't really agree with their some other lock-in decisions yeah they've like they have monopoly over a lot of things now yeah even iMessage it's like text messages one company shouldn't own it yeah maybe in Europe people don't have the context but in the US it's all iMessage yeah yeah so if you don't have iMessage you cannot sell a phone to a US consumer why do we have an opportunity I think we are not too big and we're not too small.

15:04It kind of sucks to be both. If you're too small, even if you have a great vision, it's hard to have the infrastructure to really ship a high quality product. Because when you're doing consumer products, there's no tolerance for prototypes. Like I'm paying money to buy a product that works on day one. So we've seen some startups have great ideas. maybe they're early, exciting ideas, but they just didn't have the infrastructure to create a high quality user experience. Now, if you're too big, you're already very successful, you're profitable, you might be public, most likely the founder is not driving the ship anymore.

15:46Then you have a lot of vested interests. Like take Apple, for instance, they have a huge developer ecosystem. If Apple were to say the future is just the OS with no apps, it's going to be a revolt, right? Yeah, yeah, yeah. They're too entrenched. Developer ecosystem is already very profitable for them, so they wouldn't do that. So I think, you know, when there's a new technological breakthrough, usually the cards in an industry will reshuffle. And usually, not always, the incumbents don't become super successful in the next cycle.

16:20Scaling Europe:And it seems like because, to your point there, unwilling to sacrifice the core businesses that they've already built that are amazingly successful. Like when we were younger, when I was younger, you were probably younger than me, Nokia and Blackberry were the top smartphone companies or phone companies. I never imagined when I was a kid that Nokia wouldn't be around. Yeah, and just like that. I always want to ask quickly, why Europe? You're building an incredibly hard business to build. Why have you chosen to build your business in Europe? My initial thesis was, it's been like a roller coaster.

16:57Initially very bullish. Great creativity in Europe. We do our designs out of London. Europe also has great marketeers because there's a lot of great brands out of Europe, especially in the fashion space. So great talent pool for those locations. But then it kind of went down. For me, like, there's no ambition. Yeah. Like, it's very hard to find people who want to build the next generational consumer tech company here. Yeah. Like, we're not a, we need to build a culture of high ambition. Yes. We need to find people who want to be on this journey. Like, you can also work for Tesco if you don't want to do this.

17:36Like, this is not Tesco. It's different. Right? But then I'm now bullish again because as I've been in the ecosystem for longer, we know how to select people much better and something i'm particularly excited about is investing in the youth in the next generation because europe has some of the best universities in the world yeah so maybe when these really smart and competitive kids they join bigger companies they get taught a lot of bad habits and we don't want to hire them anymore but if we get them fresh out of school we can train them ourselves yeah we can train the ambition we

18:11Scaling Europe:can like select for the best yeah and even younger than that you know we're seeing younger and younger founders who like skipping university and building something at 18 and it's it's this new generation of i don't know yeah young people are much more willing to take risks than i think my generation were and it's amazing to see and we're seeing in the news that big companies are hiring less young people i don't know why they think ai can automate all this stuff or so then it's even easier for us to get the best talent. Yeah, but it's interesting that in the world that I, you know, people who are like me starting their own business from scratch, small, everybody wants to hire young people.

18:46Scaling Europe:It's like, I'll take a young, ambitious, hardworking person over anyone with five years of experience who's sort of like, I don't know, indoctrinated with low ambition and low drive, which I think is an amazing trend to see. Yeah, we're going to be more aggressive on this. Let's do it. Well, Carl, thank you so much for joining me. It's been great to chat. Thank you for having me. Love it. Thank you.