How Nothing Founder Carl Pei Built A Multi-Million Dollar Smartphone Brand In Just 2 Years | Main Function

0:00Today on The Main Function, we're hanging out with Carl Pei, the founder of nothing.

0:11He built a smartphone company that launched two years ago. And in those two years, they've gotten to$600 million in annualized revenue. So we're going to talk about that and a whole lot more. Let's get started.

0:35So why don't we start right at the top. For someone who runs a smartphone company, you're really young, actually. What was your journey into tech and into making smartphones specifically? I was a big gadget fan when I was a kid. I think I was probably one of the first people in Sweden to have the iPod. and I was definitely the first among my friends to get the iPhone and back then the iPhone was a U.S. exclusive with AT &T and I had to get a U.S. friend to buy it for me and pay a cancellation fee to AT &T, ship it to me. I had to like jailbreak it to be able to use it. How old were you when you first held the iPhone 1?

1:13First iPhone was probably 18 maybe, 18 and you know those early Apple products were super inspiring for me and unfortunately the iPod that I got broke just a week after the warranty ended and I was very young at that time so I couldn't really afford another iPod and I got kind of pissed off because like after one year and it broke so one time when I was visiting relatives in China we went to the electronics market and we bought a mp3 player from a brand called Meizu I'm like wow this is really cool like I didn't know China could produce good quality electronics. So I got that. The sound quality was great.

1:54The design was beautiful. And I created a fan community around this brand. We were profiled a couple of years later in Los Angeles Times. And then the company was really happy because there was this kid in Sweden being their spokesperson. And so they recruited me after uni. Through the magic of the internet. Through the magic of the internet. I was actually thinking about applying to YC at that time. So I was like weighing, okay, do I have to, back then it was all about consumer internet, right? Like it was a Facebook era. And I was like, should I write a pitch for YC? Or should I take this offer in China to be a part of the beginning of the smartphone kind of industry there?

2:32To be honest, I was just too lazy to write the pitch. Wow, it was only 12 questions. So I took the offer that I had. And I flew to China in 2011 and stayed there for 11 years. that's where I learned how to make hardware. So how did you get in touch with OnePlus? And you started off, I mean, from this experience of creating a brand and creating a community, it translated very directly. I went to this company and I love their products, but their founder was kind of depressed because their competitors were doing better than them. So for the year I was there, he never showed up to work. He was still working, like doing some UI design at home, but he never showed up to the company.

3:17So I lost a lot of respect, if I'm honest. Like, I'm like, this guy is probably not going to make it if he can't handle setbacks. So I started looking and talking to other companies. And back then, OPPO was another company that I reached out to since I was already in the region. So I got recruited into OPPO, but then quickly I heard that they wanted to create a new brand to target the online market. because OPPO is very offline, offline distribution, offline sales channels. I owned one of their DVD players slash karaoke machines before. Very cool. Yeah. There were new companies like selling products online that were really disrupting via D2C.

3:53So that was the original vision for OnePlus. Like how can we take the OPPO supply chain advantages, huge scale, low cost, good quality, and sell products online and be really disruptive. And initially, like they were really focused on China. They built a management team around China, and I was like a 24-year-old kid. So I was like, hey, I don't want to do this old thing anymore. I want to do this new thing. And don't worry about China. I'll take care of everything outside of China. You don't have any team for that anyway. And they were like, yeah, okay, whatever. We're going to be focused on the China market.

4:29Was it Android already by then, or was it other OSs? It was Android-based. And the way it works is Google does not have their services in China. So there was no Android build for my markets outside of China. And I don't know if you remember at that time, there was a company called Cynogen. They started off as a community thing, like a custom ROM that got to millions of users. And they had just become a company at that time. They were sort of like a Linux skin back in the day, right? And then, obviously, Android is a variant of Linux. Yeah, it was based on Android. It sounds like they were able to translate that very quickly.

5:10We found a lot of users online, and they had just raised money. And they became a real company instead of this community thing. And I'm like, hey, we're starting something new. You're starting something new, so why don't we collaborate? So that's how we solved the problem of not having our own operating system for my international markets back then. You stayed at OnePlus through 2021, was it? Through 2020. And then did you know that you were going to start nothing or, you know, on day one or, you know, do you have a moment in there where you're trying to figure figure out what the next thing would be?

5:41Yeah, for the longest time, I thought I was going to travel the world for half a year at least because at OnePlus, I was so busy. I was working at least six days a week and just no real vacations for seven years. But after 10 days on that holiday, it got kind of boring. I felt like I was burning away my life and I was still young and I was staying in fancy hotels and enjoying the drinks and the dinners and whatnot. But I felt a lot of anxiety that I wasn't contributing anything. So I quickly wrapped up the trip after 10 days, went back to Stockholm where I grew up and started reaching out to entrepreneurs there because I had never raised money before.

6:20So I started reaching out to all the entrepreneurs I knew and they kept introducing me to people. So basically in like three weeks in Sweden, I got coached by all the Swedish entrepreneurs on how to raise money. It was a super welcoming community. I'm sure it's the same here. I haven't spent as much time here. That's the coolest thing about working with founders is that everyone sort of recognizes how hard it is. And then, you know, we're the ones who can help make it easier for each other. Yeah. And it was really confusing at the time because everybody was giving me slightly different advice.

6:54Oh, yeah. Well, everyone has like N equals one, like what I experienced. There's all these concepts like how do they fit together? But eventually it clicked, and we quickly raised the seed round at that time. What was the first thing that you wanted to do? I mean, one of the trickier things about smartphones is that unlike software, you can't sit in a garage in front of, you know, two or three people in front of a computer and just, like, get a splashy launch out there. Like, this is, it's hardware, it's relationships. There's a whole value chain here, right? Yeah, I think in the beginning, the idea wasn't super clear.

7:29I'm super ashamed of my seed deck. It's really, really bad. I think, basically, I just wanted to take all the learnings I had from OnePlus and do it better. That's how it started, but now over time the idea has changed a lot. So I guess at that stage I just wanted to raise some money. We knew that it would be impossible to raise enough money to make a smartphone. We made a quick calculation at that time. I think we said we needed at least 100 million USD to make a phone. And I think there's no way to raise 100 million for me, at least, in the seed stage. We also got shunned by a lot of the factories that made phones, like Foxconn for instance.

8:08Foxconn at that time had worked with like five startups that made phones and all those five startups have failed and they're like hey we're not gonna work with any more startups we're just gonna do our Apple thing and whatever and just make a little bit of money no more startups so Foxconn is a contract manufacturers is one of the key players that you need to go and get a contract with because they're the ones who actually take all the components and integrate it and test it for you. And they make iPhones as well. So they're very happy with their Apple relationship. And there was a period of time where they took on a lot of risk with working with startups.

8:42But when it came our turn, that wasn't the case anymore. What's the game theory there? I mean, Foxconn, normally, you'd think that they would really want more competition for Apple because the problem that we see in startups all the time, it's happened to YC companies all the time, is single channel risk. If you have one big buyer and they have 100 % of your business, then guess who owns who, right? So why isn't Foxconn worried about this? They're worried. So that's why they tried working with countless startups, but they all failed. And they lost money each time because they have opportunity costs.

9:18They have to invest in engineering and even inventory, actually. I heard they used to, this is pretty crazy now, It doesn't happen anymore, but the factory, I mean, Foxconn and their competitors, they took on the inventory risk for the startups as well. So when the startups made a big projection in terms of the unit sales and they couldn't deliver, they were fine. Foxconn was stuck with inventory. I mean, that's a lot of nuance there, right? in order to create a value change, like to actually create the supply chain, it's actually different companies that have to collaborate, trust each other, and take risk with one another, actually.

9:57Yeah, it was very hard, if I'm honest. I felt like when it came our turn, the game had become a lot harder because of what happened in the past. So that's why we decided to make earbuds first. We're like, okay, nobody's going to trust us on making a phone. let's make something smaller but equally complicated not equally but still quite complicated because there's like antennas and Bluetooth and radio and stuff like that and battery and let's just sell a ton of them like we sell a ton of them and then the factories are gonna want to work with us however when we started making earbuds nobody wanted to take our our business either because they were like hey there's a thousand companies making earbuds what makes you special who are you just because you've worked at a larger company in the past doesn't I mean, you're going to be able to context switch and make a earbud startup successfully.

10:48So the only factory that wanted to work with us was a factory that had no other clients. Without us, they would go bankrupt. That's the only reason they took us off. Underdog plus underdog. Yeah, but it was a disaster. We do the engineering of the product. We do the design engineering. And we also design the manufacturing line for each product. And then the factory just has to replicate our design. like each station what is the task and that factory couldn't replicate our process so that the in the end the pogo pin the metallic part of the case that connects to the metallic part of the earbuds that charges it the spring wasn't strong enough oh man so for the first batch of ear ones 90 % of them couldn't charge properly oh no and at that time I think we had shipped like 5 ,000 units and we started getting a lot of feedback through our customer support channels and we're like oh my god this is like this game over so that must have been a scary moment right so you raise your seed you have this uh grand vision and plan that you know this is we do this and then we get to do the smartphone yeah and then out of the gate you ship 5 000 and 90 of them are coming back as returns yeah so we we were super friendly with our customers we just shipped them new devices and we immediately stopped the production and we immediately rented out two apartments just outside of the factory and we put 15 engineers in those apartments and basically our engineers de facto became the factory floor managers just overseeing like that every part of the the factory was manufacturing to our spec and then we got the quality up oh nice so we ended up selling about 600 thousand units for for year one so you saved it we saved it but it was very very uncomfortable and scary at that time.

12:38Yeah. What caused you to sort of roll up your sleeves right at that moment? Was it just a, either we do this or we die? Like, you know, some people who obviously can't make hardware, they just sort of throw their hands up and they say, well, I guess that's it. There's a beauty to not having another option. It forces you to survive. I've seen that multiple times in our journey. And each time we come out a little bit stronger, better processes or better teams or better partners, I think it's that. It's the desire to keep on living as a company. In terms of nothing users or nothing sort of your stalwart customers, there's a sense of if you know, you know.

13:20What does that mean? How did you cultivate that? I think it simply just means that our brand awareness is too low, if I'm honest. Well, I mean, I guess you could argue that it's like a growing cult brand. You know, 600 mil a year in revenue is actually quite a lot, you know, in terms of how big a company might be. But on the other hand, like it's not, you know, a large majority of the smartphone market by any by any stretch yet. I feel this time is different. This time around, our current users are partially tech enthusiasts and partially kind of creatives. people who like design, who like fashion and music.

14:01And we didn't have that community before. So I think because we've been a lot more design-centric this time around with nothing, it's really helped us attract a different type of crowd. Our Instagram feed is very curated, kind of like a hybrid between a luxury fashion brand and a tech brand. The visuals have really attracted a different type of user. So if you had to guess or give advice to people who are trying to make a hardware startup. What percentage should they be Tim Cook versus Johnny Ive? I think for most people, they should be 90 % Tim Cook, if I'm honest, because survival is the name of the game for hardware.

14:40Only when you survive and you pick up in volumes, you pick up in... When you pick up in volumes, you can get stronger engineering teams. You get lower prices. Like, it's so... This industry is so volume-driven. So I think in the beginning, you should be like Tim Cook. over time you can become more like Johnny Ive. Or you should be more like Johnny Ive over time as you create more differentiation in the product. It's not something people want to hear, I think, but I think it's the truth. Is there a max amount of Johnny Ive you should be? Yeah, maybe it's like 20%. Yeah. 80 % be safe. Yeah. 20 % take a risk.

15:16And you can increase the threshold 20 % to something higher over time. So let's talk about the Glyph interface in the context of sort of this Tim Cook versus Johnny Ive thing. It seems like a really good example of 90 % Tim Cook, 10 % Johnny Ive. You might have heard of Jesper, the founder of Teenage Engineering. He's one of my - Yeah, he's one of my partners in this company. And I learned this one thing from him. And it's basically, for every product you make, imagine if a user sees it for like two seconds and then has to sketch a defining feature of the product. So we try and build each product with something iconic that people can immediately remember and attach themselves to.

15:59That was like the thinking behind the Glyph interface. On a product functionality level, we have this thought that, you know, when Steve Jobs pitched a personal computer, it was pitched as the bicycle for the mind. It enabled us to do way more stuff creatively. However, the modern smartphone is just so far away from that idea. It's making us more addicted. It's making us sad. It's making us watch garbage content on TikTok. So how can we make people more mindful about their smartphone usage? And we wanted to allow people to flip the phone over and just through lights on the back of the phone, know all the important things that are happening so they don't have to always check the screen or turn on the screen.

16:41Because once you turn on the screen and unlock it, you just want to do the next thing. You just want to scroll a little bit on your Twitter feed or whatever. So we would have useful things like being able to set different patterns for different people, so you know who's trying to contact you. Or we've done integrations with Google Calendar and Uber. So in Uber's case, you can see how far the Uber is without turning over your phone. It's like a countdown with the lights. Google Calendar, you can see how much time there is to your next meeting. So just things that keep you away from kind of doom scrolling.

17:10Okay, we're going to do a segment around design. So purely from a design perspective, tell me your favorite sneaker. This is a hard question because I've changed. I used to collect sneakers, all the collabs and stuff. But lately I've just been wearing kind of classic white Common Projects. Common Projects. Yeah. What's your favorite Apple product? This might sound a bit strange, but it's the volume knob UI on the first gen iPad when it was still scuromorphic. That's the moment I fell in love with Apple. That's such a small detail, right? On the original iPad, if you swiped up, you got this kind of control panel thing with the volume knob on the left side.

18:01And it was like brushed metal. and as you tilted the iPad, the gyroscope recognized it got tilted, so the light reflection on the brushed metal also changed. I was like, wow, if Apple cares about such a minute detail in the product, I'll trust them completely because they've really thought through everything else. We need to bring skeuomorphism back. I love it. I hate flat design personally. Yeah, same here. It's a very unpopular opinion. People love flat design, but I'm not a fan, so bring me back. What's your favorite watch? You know, it's probably my Royal Oak. Nice. Classic. Yeah. I'm not a super big smartwatch fan if I'm honest.

18:45Yeah. Like I get a ton of notifications on my phone and just having another machine to keep beeping. I'm not a fan of that. Yeah. Kind of a nightmare. Yeah. Best sci-fi movie aesthetic. Aesthetic? Yeah. Space Odyssey. Yeah. A lot of our brand, we have a lot of like Space Odyssey screenshots on our mood board for the brand. That's so cool. I'm super into Blade Runner, so it's 2049. I don't know, anything, both like the original and the Denis Villeneuve remake is pretty amazing. Yeah, that's pretty cool too. We also have screenshots from Blade Runner. Oh yeah, definitely. Carl, thanks a lot for hanging out with us today.

19:24I really enjoyed this conversation and you built something of great value that in some ways you've been through many ego deaths, and then in other ways, I could see the trajectory on this. We're just getting started, I think, yeah. Yeah. Do you have any last words for now to leave our audience? A lot of people who are watching might want to start hardware startups. You've created one of the hardest ones to do, which is in the smartphone category. What do you have to tell them? Yeah, I think there's no beating around the bush. It's going to be tough, but it's doable. if you want to do it, I think you should go ahead.

20:00But maybe think about the sequencing of things. Like in our example, we had to get the earbuds to sell really well before going into the phone. How can we build credibility to do the next thing? And I think some people watching this might be a little bit confused as to why do it at all when there's other things you can be doing, and this sounds really hard. But I would just like to say that there is a lot of satisfaction and seeing people in the real world using a product that you've helped build, especially if they don't recognize you. If they don't recognize you as the maker of the product, that means your brand is growing in brand awareness and reaching new people.

20:38I think that feeling is just so different compared to if you're making an app or some server-side infra. Well, thanks for working on it. And if anything, I'm kind of surprised that there aren't more. I think it's a testament to how hard it is to create what you've created. So thanks for joining us. Thank you for having me. And hopefully somebody watching this will create the next one. You know it.