'We exist to fail': FirstBuild president André Zdanow on building an innovation arm out of GE Appliances

0:28Hello, everyone, and welcome to the Modern Retail Podcast. the history of this program, because it's been around for a little while, and also just the history, a little bit of how, because GE Appliances is such a big company. It was formerly from GE. We're going to get into just all of this different stuff. But first, Andre, how are you doing? I'm doing great, Kale. Great to be with you today. Yeah, it's great to have you on. So first, whenever I talk with someone who's from a big company, it's always good to make sure we understand the nomenclature. But GE Appliances is not the same as GE, if that's correct.

0:57And that was a while ago. Can you just give a little bit of history of that and then also how First Build came into being? All right. Yeah. And interrupt me at any point. So GE Appliances was divested from the GE of yesteryear. June 2016, they closed the deal. We were sold to Haier, the appliance giant out of China. So our new parents or my parents' parent, because I'm speaking from First Build, so my grandparents, so to speak, is the largest appliance company in the world. And you're right. First Build was incubated in 2013, 2014. It started at Appliance Park, as they call the headquarters of GE Appliances here in Louisville, Kentucky.

1:38And then we opened a physical space on University of Louisville's campus. And I am sitting in the doldrums of one of our new offices as we've expanded here today. Got it. Got it. And when did you move into the campus? So the campus move was 2014. It was really exciting. You know, we care a lot about innovation and bringing along the next generation of not just engineers, but product developers. So we thought it was a great opportunity to partner with our local university and their speed school of engineering. And so we were just fortunate to find a great partnership, not just in all the ways we could work together and with the students, but also a physical space where we could co-locate with the university.

2:17Yeah, it makes a lot of sense. Can you just give a little bit of background about FirstBuild as an arm of GE Appliances? So what was the initial idea with it? How has it grown? Where are we now? All that. So, I mean, I would say there were really two main kind of drivers to why First Build was created. So it was really the brainchild of the current CEO of GE Appliances, Kevin Nolan. At the time, he was the chief product and technology officer. But the idea was really twofold. To extricate ourselves, get away from the bureaucracy of a large corporate. There are a lot of things that are great about the scale you get when you become our size or near our size.

2:57And one of those things is not speed. And the second one is being actually close to the consumer and really being at the leading edge of innovation. So between bureaucracy and relegating yourself to corporate research and large insights panels and not at all what startups do who are making all the cool products today. So the idea was, let's flip this on its head. Let's take the good things about GE Appliances. We make great products. We know a lot about mechanical engineering, electrical engineering. Let's bring those processes with us and jettison everything else. Was just the idea we're going to be sort of an insulated silo of idea creation and product creation.

3:37That's pretty much it. Insulated from GE, but not from the world at large. Really, that was it. So like, I don't have an ERP. I don't have huge elaborate systems. I don't have a SAP or Oracle implementation. Like we jettisoned all that. Like I have a Shopify site. Like we started with, we started with, we started with QuickBooks, right? So we brought in amazing talent, but we just got rid of all the other fancy stuff, all the big systems, all the things that with scale make you efficient. But when you're small would just slow you down and become cumbersome. Got it. So let's, let's back up a little bit and talk about you.

4:14Cause I know you've been in, in technology and products for a while now. I was looking at your LinkedIn. There's a company you used to work at that I covered way, way back in the day called Quirky. And can you give us a little bit of background about what you were doing before and how you ended up at First Build? Yeah. So I am a recovering entrepreneur and finance guy. So I opened my own business, ended up investing in and advising startups. And I just ended up in the tech retail space. So probably the first one that most people would know would be Mophie. Mophie, so I was the first investor in Mophie way back in the day.

4:51It's been sold many times since then. The same person founded Quirky. That's the thread that brings me here, right? So I was an investor and advisor in Quirky going back to 2008, worked there in 2013, 2014. And admittedly, and Kevin will tell you this, the CEO of GE Appliance is a huge part of the inspiration for FirstBuild. I would say we're more maker studio, more hands-on, more micro factory. But the idea that the true product experts of the world were just consumers and that we should interact with them around what we make, that was salient. That was a key inspiration into what we do. That was my thought when I saw the quirky.

5:32I was like, they seem to have similar vibes, I guess you could say. Definitely related. Definitely related. and that was my first chance working with some of these folks. So when I was at Quirky, I got to work with GE. GE was an investor, right? Old GE. Appliances was still part of GE. Lighting was still part of it. So at Quirky, we made the connected light bulbs for GE lighting. We made the world's first Wi-Fi integrated air conditioner for GE appliances. So that was my first opportunity to kind of collaborate with that open innovation concept, but with the scale and backing and supply chain of a large corporate.

6:10And there's some there there. Got it. And so can you talk about the first, I guess, year or two at first build? I'm sure if you talk to any large company like a GE Appliances or even smaller, they would say we would love to have an organization that has none of the bureaucratic red tape that they're completely, you know, they don't have to deal with all of that. But then when push comes to shove, that's very difficult to implement when you are a company of tens of thousands, if not hundreds of thousands of people. So how did you make it so that that actually worked? And there was still the ability for you to operate underneath the umbrella of the overall company?

6:46So it's a few things. So I'll give, you know, quick credit. There was plenty of work in terms of figuring out what's separate and what's part of GE before I showed up. So just to shout that out, but like, you know, HR, right? Like stuff that you, you know, There are 17 ,000 people-ish working for GE Appliances in the U.S. So we share, you know, some of the HR systems when you get onboarded, your security information around email, all that. So we have some of that basic infrastructure. But it was really a matter of, like, what keeps us safe and keeps consumers safe? Those systems are probably required.

7:23But literally everything else, like I said, ERP, like massive planning operations. we don't have huge robotics and automation in our factory we we have like old bowling lanes on moving tables that we can reconfigure right so so we didn't need all that process and automation that you would have from a manufacturing standpoint so that's kind of how we went through the decision tree right so i don't use the same website infrastructure or cart that ge appliances would but i have the same standards for pii right so like how i think about people's security is the same, but like we're very nimbly running our own Shopify instance.

8:02And that's kind of how we thought about those trade-offs is we may be a wholly owned subsidiary of GE Appliances, but people still know we're a wholly owned subsidiary of GE Appliances. So some things just have to be sacrosanct. Those are usually quality and safety areas, whether they're people's safety with a product or safety with their data. And so those are kind of some of the, I would call them more policies and procedures than actually having to share a system. So some of the HR stuff is probably some of the only stuff, you know, expense reporting and concur. Those are some of the things we share and pretty much nothing else.

8:38Is there any, like when you talk to other people who work at GE appliances who have to deal with other stuff, are they, you know, a little bit angry that you get so much freedom in this regard? I think that there was some of that earlier, but I think, you know, we've had an opportunity to collaborate with some of the businesses at GE Appliances, whether it's, you know, running a hackathon or, and we'll talk more about FirstBuild, I'm sure, you know, we've got product development skills. We also have, you know, we make content, we put out marketing, we get data about the marketing we do. And so, you know, they've come to us and say, hey, we don't want to go through a comprehensive brand review just to get some information about this idea.

9:16Can we work with you on it? So I think we've broken through that wall for the most part. That's great. It's rare when you hear about a big company doing these little sort of smaller things where the intention is to have general freedom and they actually work. So it's very heartening to hear this story, to be completely honest. But let's actually get back to First Build as an organization. Can you just give, I think maybe the best way would be to describe the first couple of years in terms of what it was that you set out to do, what were the types of products that created, and yeah, Just all that.

9:50So the first couple of years of first build were a bit the Wild West, right? So we've evolved. We've got some KPIs. I'll shout out, we fund ourselves now. But when we started, we were this cool little cutout in the R &D department trying to figure out what we should work on. And we probably had a few too many things going on at once at some points. We probably worked on things too long before showing the world. We had some real complicated ideas and we started experimenting with like, how do we create an audience? We wanted people like we have a physical location people can come into. We're trying to have people come to our website and engage with us online.

10:32And probably one of the big learnings that happened in the first couple of years is we're not quirky. You know, we're not our audience and the would be audience isn't like you're an inventor to the real audience. who we resonate, they're enthusiasts. They're people who have an unmet need and like, I can only get this thing at a restaurant or this is my home hack and I've always wanted a product for it or there's a product for this, but it's for affluent people and it costs three, four, $5 ,000. But the first few years, it was the wild west. It was crazy. There were crazy prototypes everywhere.

11:09And we probably put a lot more effort than we should have working on some ideas before getting a real sense, like, does the world want this thing? Do we have too much solution? Yeah. Was there any real salient big success from those early Wild West years that stand out to you? So I think the biggest success, you wouldn't have seen it until probably year four or so, year three or four. But like all that crazy, it was probably the first time some of the people at GE Appliances started to, they weren't jealous, but they're like, how can we work with you? So So the product we're most famous for is the Opal Nugget Ice Maker.

11:47And, you know, we're trying to create community externally and show that we have value to the world. But like when FirstBuild started, it had to do it both ways. We're trying to tell you and your audience that FirstBuild is awesome. It's an amazing tool for large corporates, but we can do fast, nimble startup stuff and make awesome product. But we had to convince most of the people at our parent company the same thing. And so an R &D engineer named Alan came down from the refrigeration business, had been working on putting nugget ice in a full size refrigerator for years, had solved every technical problem.

12:21And this is like the quintessential case study of like the two reasons why I told you FirstBuild exists. The only question he couldn't answer was how to financially justify putting nugget ice in a refrigerator that would have necessitated like a$50 million program. And so he brought everything he'd solved and some concepts down to first build. And we just started asking really different questions about, is there a product here? And we didn't ask, do you want it in a full-size refrigerator? We just started by asking, would you like nugget ice in your house? And we found this amazing, engaged community that wanted to co-create with us.

12:56You've talked a little bit about the creation of this community. What was the process of creating that? So, you know, it sounds like you would do asks, you would try to bring people into the headquarters. It also sounds like you were targeting not, you know, different types of people for this community. So walk me through that entire process. So there were so many different things we tried. So one of the first places we looked was to try and show us, you know, building stuff or just the art of being a maker. So I think one of the first places that we tried to look was in the maker community. You know, there's a very specific community of makers who like to DIY and build stuff, whether they're solving a problem that's an unmet need or just creating for the sake of it.

13:37And so that was the early part of our audience. And, you know, they were very, very interactive, but they weren't necessarily, you know, driving us to like, here's a product that we should make or evangelizing in that way. Because as makers, they were really happy solving themselves. Right. So they didn't need to buy a solution that we developed. They were happy with their home hacks. But we learned a lot of things. We did stunts to try and just get people to watch our content. So a few years back, we learned that there's a show out there called Forged in Fire. I don't know if I know. Oh, my God.

14:13You're actually talking to one of the biggest Forged in Fire fans right now. Okay. So we found out that one of the Forged in Fire champions was a Louisvillian, right? So we're like, why don't you come in and do some of your sword making and Damascus in our shop? So we started, I mean, we had welded stuff. We'd done personal projects. We had a whole series of videos. We were showing people hammering with a forge. We had a power hammer making. And it did a great job of building community. The list got bigger, but it wasn't driving a lot of products. So there was a lot of experimentation. the maker community, people who love weapons.

14:50Full disclosure, that individual now works at First Build, and he makes all of our content and does all of our video. And if you watch our videos, you've seen him before, because shockingly, after doing Forged in Fire, you get really good on camera. So I don't want to belabor it too much. We tried almost everything. Every person here has been a spokesperson. We've tried talking to specific communities around product ideas, whether it be people who love mushrooms or making stuff or swords. The thing that gets the most reach for product development, though, is finding the people who are passionate about a thing, but they're not necessarily the DIY person.

15:31We're going to take a quick break and we'll be right back. It sounds like there are so many different possible projects and so many different possible things that FirstBuild has attempted to do and done. How do you decide what is a project that is worth going for? Is it just – and like are there confines of it has to be – have vaguely appliance-like qualities? Like how does it work? So I've really – so I think appliance-like qualities was a paradigm we used to operate under. I'm really trying to myth bust that. The dictionary has a great definition of appliance because it's super ambiguous. And it's like, you know, any artifice that was designed to accomplish a specific task.

16:15Like if you actually look at the definition of appliance, anything could be appliance. So I'm trying to push that on the team. So how do we figure out what to do? So we try and publish a lot. That's the thing that we've kind of really changed from 10 years ago to today is it could it's not a wouldn't it be cool if statement, but it could be a looks like, but doesn't work like, like, or it could be. prototype that like does the thing it is nothing like a finished product would ever look or anything would buy but we can get the point across and what we're doing is we're looking at and we're basically asking people to kill everything we're working on all the time and and and so something has an opportunity to be killed the first time we show it we we could be far along in tooling it or crowdfund it and bin and mark it and kill it right like we we exist to fail so like 93 percent of the ideas that we come up with will not ever be produced.

17:11So like, it's almost a hedge fund model in that way. Like we have to be successful with five to 10 % of our ideas actually being commercially viable, but we're always looking at organic engagement and we run always on marketing. And so we are looking at the, like the non-statistical stuff, like people's comments and engagement. We try and watch engagement, engagement matters. We've had things we kept alive where everyone said they didn't love it, but they kept commenting on it. They really, there was something there. For some reason, the engagement was through the roof, even though it was negative.

17:46And so we kept going to learn. But we're really looking honestly underneath it. We're also marketers. So with, with the organic engagement and the always on marketing, we're understanding who's the audience. What did we spend to attract that audience? and we now have run so many Indiegogo campaigns and different crowdfunds, we can actually guesstimate what the conversion would be and what we would do in a crowdfund just by running marketing. And that helps us decide if we want to go forward and ultimately crowdfund it. And again, even then, it can fail if we miss our metric. So it's pretty much like, this is a terrible way to put it, but like hype beastie like product development.

18:30If it has the ability to go viral and people are really engaged, you're probably going to put more energy towards that because people are really interested. That's absolutely fair. But we've had some middling ones that just had enough engagement to be like, people still want it and there's a return. And so, you know, we've kind of, you know, so there's, there's a bracket between hype beastie and I don't want to say it this way either, but like just good enough to not kill it. And so that's the way we think about it externally. And some of the stuff that we've worked on has never become like, this is a product I'm going to buy in the store, but innovation within it has ended up in another product or has been picked up at GE Appliances and made it into a major appliance.

19:14So some of the stuff that we've worked on hasn't come out as a new product, but it's ended up in another one. Got it. And that actually leads to the next thing I wanted to ask you, which, so you said you're now self-funded or you're able to fund yourself. Is that all through sales on your Shopify store or like what are, what is the general end for these products? Is the idea that these will become not necessarily mass products, but viable products that more people will buy and then you'll be a self-run organization? So we are self-run. So no, the majority of our revenue actually doesn't come from Shopify.

19:47So we've had some there. We've taken products all the way to like having our own storefront on Amazon, for example. We have some products. We're really interesting. So we make and manufacture things in our maker space. We just opened another first build in Connecticut. So it's bigger than the original one. So it's more microfactory. So, you know, we make an indoor oven that we sell the GE appliances. They sell it through their dealers, but we've been manufacturing it for almost five years. So, and we've got a few products like that, that we make in the microfactory and we sell back to, in these cases, GE appliances.

20:26The Opal Nugget Ice Maker is a fascinating one because we don't manufacture it. It's huge scale. It's a viral product. And we actually collect the royalty on that. So when we graduate something, and again, we're a wholly owned subsidiary. So there are probably upwards of five, six different business models we have just with GE appliances alone. Sometimes we're a supplier. Sometimes we're a vendor. Sometimes we're charging a margin. Other times we're collecting a royalty. So it depends on the product and the business that's going to take it and the business model. But do they all end with GE appliances?

21:00Is that sort of the deal? you're going to make these next gen products and then they're going to figure out a way that works best with them? So far, but that's not what it has to be. So I would love, you know, and we've put out some concepts that I don't know where they would fit at GE Appliances. So we talked about my role as president of FirstBuild. I actually have two jobs. I also lead the small appliance business at GE Appliances. So when they made Opal, there was no place to put it. And so in that case, GE Appliance has actually created a new business unit. And now there's, you know, 60 different product SKUs that all started with Opal.

21:37But there may be something else that we sell to another consumer goods company. Would love to partner with a retailer or brand and do something that is, you know, further afield from what we've done to date. Got it. Got it. Can you talk about how, like, I was reading the website and I was doing some research and I think, correct me if I'm wrong, but it said something like you try to approach 12 new products every year. Is that correct? Yeah. So those are kind of the KPIs we have for ourselves. So at least 12 new product concepts that we've offered to the world every year. And our goal is to have at least one of them actually make it to market, like be produced and be purchased and have a path to another manufacturing site, another business, whatever that may be.

22:22Got it. And how do you like, you mentioned the community, is it all based in just now that you've built this community, you ask them what, you know, what it is that they want, or what is the general thought process behind? We're now going to go into pizza ovens, or we're now going to do this, we're now going to do that. There's a couple of ways it happens. So, you know, we have, you know, process here, and there's some large corporates that have done this in the past. But when we're not like fully mired in execution mode, like, because sometimes we're, we delivered multiple products this year.

22:52So, but in a normal world, we try and have the product development team have like a day a week where they're just thinking about what to make next. And sometimes that's ideas people have submitted. A lot of times that's like Facebook groups. A huge part of where Opal came from was just like a really engaged thread on Reddit. There's some Reddit groups. So we take outside ideas from all over. We've just started to talk to some of the retail partners and saying, how could we work together? So we're getting ideas from everywhere, but the pizza oven, that's a great question. Sometimes we solve a problem and and usually this happens from someone's personal project on our team more so than like Andre said to work on it.

23:35You know, a year and a half ago, we crowdfunded and we're delivering, you know, Arden indoor smoker that was based on a smoke elimination system that was figured out for the indoor oven, the pizza oven. Right. And so someone bought a refrigerator, turned it into a smoker and hacked it so we could do it inside. And that's one of the reasons we're open to the public. It wasn't supposed to be a product. But everyone who came through the doors would say, when's that going to be a product? Really? Wow. That's so interesting. You mentioned the KPIs. Was that all of them, pretty much the fact that you come up with 12, at least one should be one that goes to market?

24:10Or what else are you thinking in terms of the KPIs for these? So KPIs are four things. Three of them are static, and one evolves every year. So 12 ideas, one commercially viable, we call it graduating. It moves to another business. You know, it's had some found some kind of scale. So the 12, the one we got to pay for ourselves, that's important, lets us keep doing crazy stuff and reinvent and innovation. And then the last one, every year we think about like a community metric. So we thought about like our YouTube audience, our newsletter subscribers, but we are open And a huge part of how we move ideas forward and get the engineers of the future, all our manufacturing and the microfactory as students.

24:52Right. So we have some of the best skilled labor in the country. So we focus really this year on driving more in-person events here and getting more people into the space. You know, last year we had a metric around how many people were on our newsletter. The year before it was driving the YouTube audience. But community is how we make product. So every year we try and challenge ourselves to grow community in a new and meaningful way for us. Got it. Got it. Can you talk about this year? What have you what have been the priorities this year? Have there did you have you had a project graduate yet or, you know, what have you been doing?

25:25Yeah. So, you know, if you if you follow us online at all, we've just been delivered. So this was a huge execution year for us. Huge execution year. So the hearth oven I told you about, we moved that to our new site in Stanford, Connecticut. we opened a new site in Stanford, Connecticut. So there is a first build within a GE Appliances location that just had its grand opening a month ago. We have 70 ,000 square feet. It's crazy. It's in the middle of their kind of downtown residential area. So that was a huge fund. And we are literally, as we speak, shipping the Arden indoor smoker to our crowdfund backers.