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When you're leading people, you bring them through your ups and downs. So you really have to be mindful of that so that you're when you're having a downer, you're having it up. You don't bring them all the way with you. Yeah. And I found myself after 25 years of start-up companies, I was looking more for the downsides than it was the upsides. Yeah. I'd run into people like that. I didn't want to be that person and that's not the person you want leading you.
You were becoming the person that you encountered in 2002 who said to you, oh, this can never be done. Exactly. Exactly. Who wants that in the company? Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raaz and on the show today, how John McFarlane and his partners figured out how to fill a house with music without wires and launched Sonos, a brand that does over a billion dollars a year in business.
Why do some consumer products survive even when the odds seem stacked against them? This is a question I always wondered about Sonos. Sonos, of course, makes wireless speakers. In fact, really good wireless speakers. They usually rate really high on review sites. But I always figured it was just a matter of time before Google or Amazon or Apple or Samsung or any other tech giant.
We'll just come along and eat Sonos for lunch. After all, each one of those companies makes wireless speakers and in many cases much cheaper ones. But Sonos has not only survived, it's thrived. The company was founded in 2002 back when most people listened to music on CDs. At that time, music streaming was barely a thing. There was rhapsody, but very few people used it. And if you wanted surround sound in your house, you had to wire it up and drill into your walls to connect those wires.
But John McFarlane and his partner is Craig Schulburn, Tom Cullen, and Trung Mai. All imagine a world of seamless, high quality, wireless listening. And to achieve that, they literally had to invent the technology to make it possible. But it would take several years before Sonos would catch on. And then, once it did, everyone else copied the idea. But instead of competing on price, Sonos doubled down on sound quality. And that strategy worked.
Today, the company sells more than a billion and a half dollars worth of speakers a year. And it's one of the most successful brands to come out of the small coastal city of Santa Barbara in California. John McFarlane grew up in Denver and studied electrical engineering in college. In the early 1990s, he was in a PhD program at UC Santa Barbara. And he would soon start his first business, a software company.
But at the time, he was experimenting with the early internet and seeing how it can be used to communicate with other countries. In his case, Russia. If you remember, that's right when the breakup of the Soviet Union was happening. And Russia had some really specialized scientific centers, the secret cities. And to exchange information with them, there was no real easy way to mail them anything or anything like that. You use this thing called the internet.
And now it didn't always work reliably. So you had to kind of understand how it worked. And I became the expert in the lab on doing that. So I was the go to person for getting anything data related in and out of Russia at the time. And that just kind of hooked me. So I dove more and more in and that was the genesis of the first company I started because another grad student and I were sitting around talking about how big this thing the internet would be in.
We thought we should go off and start a company. So this is why you're grad student. You met another student. What was the student's name? Mike Dureko. All right. So you and Mike said, let's start a company. And what what would that company do? Yeah. The idea was to sell software over the net. So if you go back to that time, this was 1992. If you bought some software, it came on a stack of 20 floppy disks. And maybe they were the small ones in the little plastic, the three and a half inch.
Right. A little later it would be a CD ROM. But it was a multi hour endeavor to get in the computer and let it upload. Yeah. Yeah. And so the idea was have a little piece of software that would fit on one floppy disk, put it in, connect the computer to the internet and then purchase what you wanted off the internet, put your credit card in. And it would, you know, you'd walk away and it would install all of it. And what was the name of your company? Software.com.
Software.com. You could register that domain. Oh, yeah. That's a funny story. There was a big debate over whether the internet was available for commercial use or for only academic use. And you could tell it was going to go to commercial use, it was just too valuable. So there was one organization that did the domain name registrations. And I sent a note in and I just happened to know there was a man and a woman that worked there that decided I sent it to Deer Surah Madam.
And the man at the land it on the woman's desk and she just immediately approved it and put a little note at the bottom. I appreciate that you addressed it, you know, who you did. So that was it. I kept that email for a long time. Yeah, I was pretty funny. Be respectful.
So you got software.com. And so did you have the, I mean, obviously you were an engineer and you'd been self taught coder, but did you have the technical skills to build the infrastructure that were enabled software to be sold online? Yeah, funny, funny enough, if you wanted to get on the internet in 92 and 93, you had to build a lot of the software yourself. So yes, we did have the skills to build it or we learned them.
But while it made a lot of sense, the folks that kind of were the gatekeepers at the big software companies at that time, Microsoft, Borland, Lotus weren't interested in selling their software over the internet. They were more worried about hurting their sales through the conventional channels. Right. And that turned out to be a bigger problem. You couldn't essentially realize relatively quickly that that was not going to be a viable business plan.
Yeah, I mean, you had to do a lot of evangelizing on what the internet was because people didn't really know what it was at that moment. I guess you guys kind of realized you have to pivot away from this initial idea of selling software online. And I guess what you decided to pivot to was email. And I mean, this is the early 1990s.
And more and more companies at the time were starting to adopt email. Right. And so I guess you guys developed like the software for email server to sell to companies. Yeah. So one of the things we realized was one of the first thing a company wants to do is add email. So we had put a lot of time into a good email system at software.com. And we thought, hey, we can commercialize this and really own that market and made a commercial email servers that was really easy to use.
That actually went well because we could sell it over the internet. Of course, we believed in selling software over the internet. And we had companies all over the planet buying it. And this is before Microsoft Outlook or Gmail or any of that stuff. That's correct. Believe it or not, we were about the only thing out there. So as the internet kind of shifted to telecom and cable companies, that's where we really focused on.
And we, you know, if you were a telecom company anywhere on the planet or a cable company launching an internet service, you were probably using our stuff or we were knocking on your door to use it. So you've got this company, right, software.com based out of Santa Barbara. And you're growing to the point where you, I guess you decided to quit your PhD program. And then your company, I guess, merges with another company and then about a year or two after that you leave.
And this is like around 2002 and you, I mean, you're like in your mid 30s. And at this point, you probably made a ton of money from this business, right? Because the internet created all this wealth. Yeah, more money than I'd ever met. You know, making money was never the goal, but that's sad. I had been luckier than I should have been. So for sure, that's true.
I mean, at this point, you could kind of sit back and surf or get a surfing or whatever you might want to do in Santa Barbara, open a restaurant or something. I mean, you could have done anything you wanted to. Sure. But I wasn't done so. Did you have a family at that point? Yes. My first son was born in 2000 and my second son was born in 2002. And that was part of the factor. I remember we were remodeling a guest house on our property. And my son thought the contractor was his father, not me.
It was a good warning about being a part of their life, which I heated. So, all right. So you've got a young family. And what did you, I mean, did you immediately think, all right, I'm going to do something else now. Now I got to find my next project. Yeah, I was nowhere near done. I mean, software.com was just an incredible opportunity because I got to visit almost every country in the world. Wow.
And the internet was kind of just getting going. So it had really penetrated most businesses at that point. But as far as affecting you in your home, even internet broadband had only just started. So unless you lived in the Bay Area or certain places, you probably only experience the internet through a dial up. Yeah, if you remember those. Yeah. So that was kind of the genesis behind Sonos. The four that officially started Sonos, we'd all worked together at software.com.
I want to go back to that, to that process because I know it didn't happen overnight. I mean, from what I understand, you and these three other guys from from software.com, Craig Shelburn, Tom Cohen and Trung Mai.
You came together with some other folks and you decided that you were going to create something. And this was essentially this was the dawn of the high speed internet era. This was the beginning of a time where people would start to get to move from dial up to DSL and other ways to access fast internet.
When the four of you got together, tell me, what do you remember about the process of like ideation about coming up with ideas? Like what? You had some assumptions that you made. So let's start with the assumptions that you made about that time. The basics were, hey, the internet is going to come into your home. What's it going to change? So we ranked a bunch of stuff from alarm systems to smart home to music to video.
Entertainment always popped way up there and music. Napster had come out in 1999 and immediately been sued out of existence. But the idea that you could have your music in the cloud or have access to all the music ever made was a no brainer. In many ways it was similar to what we had thought about it's software.com because the original idea selling software over the internet why couldn't music be sold that way or distributed that way.
Yeah. Keep in mind it was the day of a hundred disc CD changer or a tape deck. So we started diving into more about how you would enjoy music through your house if the you know you could completely take a clean sheet of paper and design it. So you kind of went through you started from what's the ideal experience you want to deliver and then you work through what that meant.
So you mentioned a couple other things like smart homes or alarm systems all of which would happen to this is you're having this conversation in 2000 to 2002 right. And alarm systems could have been a great thing to be right because eventually that that would go wireless and and that would be more simplified. I mean simply safe as a good example of this and ring and other companies do it because at that time you know most alarm systems were hardwired.
But music was the one you guys landed on because I guess at that time 2002 if you wanted a really amazing home system and you had the cash you could put speakers all over your house it would just have to be wired through the walls you'd have to drill holes and you know probably most people would have it done by an outside contractor be very expensive to do. You still see some of those homes with like speakers embedded in the ceilings from that time.
Yeah, but you want to figure out a way to do this and you knew already in 2002 that you wanted to do this wirelessly. Yeah, Wi-Fi was just starting and that that was the only if you didn't if you didn't deliver an experience wirelessly you just weren't you shrunk the market tremendously.
And I think all of us the common theme was we all loved music we all wanted it in different places in the house not just one room you wanted to wake up to it you wanted to listen to it when you were in your kitchen. Wanted to have it in your living room ideally out in your patio and we bought some of the systems that you could build into the house and they weren't reliable they were hard to use.
They were expensive they often failed quickly. These were the wired systems. Yeah, yeah. And I'm wondering like when you guys started to have this conversation right 2002 because this is really when Sonos is founded. Would that have sounded like kind of a pipe dream to most people like right now if you said to me you know hey guy let's come up with something really cool.
Let's say let's do wireless electricity like let's let's figure out a power my blender without having to plug it in was it it might not have been that kind of outlandish but was it a little outlandish. Is it be having that conversation in 2002. Yeah for sure I mean I was told by no end of people in the industry or outside of it that that was crazy and it would never work.
But we were pretty persistent and keep in mind I had been through this with the internet before so I had some level of confidence that once you. Digged into something and you saw the trends going your way you. Saw something someone else didn't and so we felt pretty confident it would go that way in fact we thought it would move faster than it did it usually took longer for example you look now it.
The cloud services they were out the same time we really got started and it was a wonderful thing but people could not get their heads around getting their music out of the cloud it was right it took a lot of incremental change like the iPod and the iPhone to get people to you know. Start having that expectation.
Yeah and I mean to that point when you were first designing Sonos where were you like thinking that the music would come from I mean I mean the iPod was in its infancy right most people were still playing music of CDs at that point so. So yeah I mean where would the music come from would be like what the user insert a CD into into the system somehow. It would come from the initial music source and the people we sold to had ripped their music collections so they had taken them.
And put them on their computer and they might listen to them on their computer but they had them available and then we would find them and play them it took time until the services like rhapsody or pandora. You know could really express all that was available and that was really when it opened up for Sonos but initially it was your ripped music collection.
You know you could look at this as an example of starting something before the market is ready right like you know there's so many stories of great ideas like the apple Newton right. And this seems to me like it could have been one of those stories because there was no. I mean people weren't used to listening to music like that this way and you know probably well into the two or you know the 2000's people were still playing music out their CD player so.
Did you ever hear from just people maybe friends or people in the industry is who are just saying. No one's going to do this like people are happy with their systems they've got their speakers they've got their CD players like they like it no one's going to getting people to change up behaviors going to be impossible.
Well the decade of marketing challenge for Sonos was if you tried it you loved it but trying to explain it to somebody as you're actually pointing out guy was really hard to do once they started seeing it they were like wow yeah.
I mean I remember we had a great partnership with a Wi-Fi chip company atheros and I remember showing it to their management team and they were blown away I mean I remember the CEO saying wow I think I'm watching history made here and he was a huge music lover so he was right in the heart of the audience. It was always the case if you tried it and or saw you loved it but trying to explain it to somebody until they done that was was a challenge.
When we come back in just a moment Sonos gets a rave review from a top tech journalist and a pounding from another Titan of tech Steve Jobs stay with us I'm Guy Ross and you're listening to how I built this. I've talked to hundreds of founders on how I built this and I've heard time and time again how important it is to have a strong web presence in order to really grow a business. Squarespace is an all in one platform for building a brand and engaging customers online.
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Hey Guy, my name is Christina and I live in Austin, Texas. I love every episode of your show, but if I had to pick a favorite it would be your interview with James Dyson. Ever since listening to the episode my favorite thing to say to people is you know Dyson didn't actually invent the vacuum. He just made it better.
I thought the episode was such a great reminder that just because something exists doesn't mean that the idea is completely off the table. Something can always be done better and when you open your mind up to that concept the fact that you don't have to start from scratch to make something great it means the possibilities are literally endless. Thank you for all that you do keep up the good work.
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Welcome back to how I built this I'm Guy Ross. So it's around 2003 2004 and John McFarlane and his partners are trying to bring Sonos wireless speakers to life. But to do that they need reliable Wi-Fi so they reach out to a company called atheros for help. The way Wi-Fi was originally spacked you had these units people generally think about them as their router in their house and you had to be a distance from that for it to work. And the farther you were the slower it was still is.
So we had to develop this technology called a mesh network and that's why we needed that close partnership with atheros to do that. And a mesh network is basically a repeater sort of each unit is repeating signal. Yeah basically as long as any one unit can see another unit it all works. And making the mesh network work and then making it reliable was the heart of the matter in that and that that was a big effort.
Which had we not been successful we probably would have stopped doing it in the early days Wi-Fi was really unreliable in the home and you couldn't you had to be reliable or you couldn't you weren't going to grow. So in order for that to happen you were essentially creating the wireless system like the hub was you weren't relying on the home Wi-Fi. And if they had it great if they didn't have it didn't matter because this system created this internal mesh network.
Yeah because the customers didn't have an IT department. So you had the work so yeah created a whole parallel network and worked around any imperfections you had in your network as well as it could. Okay you guys were and I'm assuming you guys self-funded this because all of you made some money off of the previous start-up so you self-funded this at the beginning right.
Yeah we self-funded through the first big manufacturing run we had an angel and then we took our first venture capital probably in 2005. And John just from the business side now you are all working out of an office in Santa Barbara you're well capitalized because you didn't have to raise money initially.
What what I mean you were the CEO tell me why did you were you best suited maybe you can't ask this question sometimes I ask questions that are not the right question for the person but why do you think you were best suited to be the CEO of the company I know you were CEO of the previous company you the founder of it.
I think I was just the dumb enough dumbest person in the room to take the job hopefully I was inspirational enough and I held the bar high enough on certain areas that really mattered for the company but you know you talk about being well capitalized you're never well capitalized as a hardware company so. Yeah the cost are just so high right you're constantly worried about how much inventory you've built and how quickly you're getting paid and if you have enough cash on hand for the next.
Christmas season so there's a lot to do there right because you were you were building software and hardware essentially right we're both those things and you had to presumably you had to find a place to manufacture. The the the speakers and I'm assuming you've started in Asia that's where you went initially. Yeah I mean that's where it's a true team effort like.
Trung my the one of the co founders really focused on getting the manufacturing and supply chain in place and it turns out he's just incredible at building relationships.
You know one of the other co founders Tom worked on sales and marketing another co founder Craig did about everything else and fortunately we had we had a broad enough team Andy Schuhler who was one of the early people put together the software team and I would say without each of these people if we didn't have one of them we wouldn't have been successful.
I mean so this was a wonderful thing because everybody believed in the mission fill your home with music what a wonderful thing who doesn't want their home filled with music and if you don't you probably weren't going to work there. All right so by this summer I guess of 2004 you sort of figure out the works of the bugs and you had a good working prototype and that year you were going to unveil this thing at the all things digital conference which was.
Big deal conference at the time Walt Mossberg and Cara Swisher I think we're doing that conference. And you are going to unveil this product at that conference taking there what did you do were you doing the presentation were you being interviewed. No what we did was there was a room that all the interviews were done and there was kind of a foyer that you went out and it's where you got food and drinks and stuff like that and we put those around the foyer so you could play with them.
Our price point was too high at that point but how much was it how much was it at that point well two players and the remote control was I think $1,300 or something so two when you say two players as two speakers well at the time what we sold were two units that you connected to speakers so they didn't have the speakers built in. Got it okay so it's a lot it's expensive yeah it was.
And while at the time had written reviews on this well Mossberg yeah well Mossberg had written reviews on similar units so the goal was to get him really hooked so he would write if you recall he had like the Wednesday column that was on the far right massively influential people yeah so the goal is to hook him so when it came out he would write he would review it because he could make a break products at the time yeah he could.
So we fortunately exceeded his expectations and he wrote a great review and everything went well from that yeah at that conference you had a confrontation with Steve Jobs yes that's correct what happened. Well he I was standing actually with a bunch of the staff of the Wall Street Journal and Phil Schiller walked by Phil Schiller remind me who Phil Schiller's.
Phil Schiller was their VP of marketing for the for the journal for the Apple for Apple okay and he walked by and I I had known him I from a previous context and he said you stay right there and he went and got Steve Jobs and walked him over and of course that was like bait for all the Wall Street Journal but he walked right up to me and pounded on my chest and said they were going to sue us out of existence for having a scroll ring on our remote.
He said that in front of all those reporters yes he did and was it covered was it was it published yeah yeah the front page of the next day that just he was going to sue you because you had a room at the time so I was had a remote an external remote and it had a scroll wheel on it and he said that's copying their iPod or whatever right yeah that's exactly right we had done it in parallel unknown that they were doing what they were doing so really had no overlap.
Overlapped with them at all so he was aggressive very yeah it was an interesting experience and in fact I push back on him because we had been a little worried about that so we had done our homework on filing some patents and understanding where their work was and I told him well you have no grounds to stand on there's nothing you can sue us over and later I learned he checked and had heard the same thing and the relationship I had with him.
After that was all positive and he wasn't aggressive with me at all ever after that so it just turned out to be the right way to handle Steve in that moment because you would of course have other encounters with him yeah partner so so they never sued you they never suit us.
Alright so you get off to a great start you've got this product you get a good review from Walgmeasburg and presumably that's it you're going to start to ship these products shortly after well that that's a nice summary what really happened was we were we were running really hard to release the product so we announced it in I think that would have been June 2004 yeah we were really trying to make.
The holiday season in end of 2004 but we just didn't have the quality we felt we needed to have so we had to postpone the quality of what the like the look of the machine and the look mostly around the wireless so we just had an achieve quite the bar we needed and we had some of the problems with latency and range that we hadn't worked all the way through so we had to skip that whole thing.
We had to skip that holiday season and of course you you feel like you have to make that holiday season in retrospect it wouldn't have made any difference and we would have killed the company had we released the quality of product or was that at that time because people would have said they would try to once that would have been it.
So we had to have a great positive first experience if you're going to build the brand on word of mouth so we didn't ship until 2005 and when you say ship where were they being sold well like at that Wall Street Journal conference we took pre orders there and had a lot because you could put your hands on the unit you could see and could you buy it directly from sonos at the time you could buy it directly from us and by the end of the year we were in best buys we were going to be able to do that.
So we were in best buys we were in let's see what was the chain that was on the east coast tweeter if you remember them. All right, so you have all this great response this great reviews excitement in the industry you start shipping them in January of 2005 it's 1,300 bucks to buy one so were they flying out the shelves.
They I think we finished that year well above what we should have well below what we had hoped for so not an overwhelming response to say the least well I mean zero to I think we probably did 10 to 20 million that year I mean we had unrealistic I mean a bunch of people coming from software and in a hardware business you can sell only as many as you make right and only if they're in the market.
And only if they're in the right stores and the right places where people want to buy them and so the whole logistics learning of how to get the units in this I mean given best buy store might do really well but then run out and then another store might have too many and so learning how to manage best buy and all of that is a whole art in and of itself. And who are these I mean the first people buy them is the early adopters these are people who were basically had digitized most of their music.
I mean uniformly they were music lovers and they wanted music around their home so most of them had already digitized some amount of music for their iPod or whatever and keep in mind this is 2005 now so the iPod had been out for two years.
2006 I think was when we first integrated Rhapsody so that's when you could literally play anything ever made on their service by the way the Rhapsody which which doesn't exist anymore was a venture merged with Napster and you know but it kind of faded away it was a pioneer in in like music it was before Pandora for Spotify before iTunes so Rhapsody was if you could integrate that with Sonos it was perfect.
Oh it was that was the mind blower when you I mean I remember we when we got that integration working and we did a kind of press tour and we had a little hot spot wireless hot spot and so you could you you you know went into what Mossberg's office and said what do you want to listen to anything ever made and of course when you say that to somebody they're going to challenge you with some very esoteric something.
And it would just blow people's minds and we had reviewers who would okay what's the trick here where's the you know where's the hard drive out there isn't one it's in the cloud so that was a big paradigm shift for sure and again and this is pre-i phone so but still now you had if your computer was connected to the sonosystem uses a Rhapsody on it and then you were good to go and you and this and you still use your computer.
And this and you still use to wrote an external remote control right right when we very first demonstrated Rhapsody you needed a computer in the middle but pretty quickly the sonos could reach out to the Rhapsody services and do it all directly without a computer involved at all and you could also I mean iTunes who had been out by that point I think yes could you use iTunes with the sonosystem well that's that's where it got a little complicated because iTunes had that digital rights man.
So if you bought an iTunes track you couldn't play that but if you used iTunes to play your ripped music you could so that was friction for sure and we had back and forth with Apple about using the DRM but then they took it off so then it didn't matter. So initially if you if you bought music from iTunes you could not hear it through sonos speaker correct that's crazy. Wow so they create a walled garden.
Okay so all right so you've got the iphone comes out in 2007 but what's about to happen is a global financial crisis which is 2000 and 2008 I shouldn't I shouldn't chuckle but that is going to I mean that obviously you know was even worse than the dot com bubble at burst bust I should say.
And from what I read it really had a massively negative impact on sales for sonos well we went from like a hundred percent year on your growth or yeah to I think 2008 we grew 10% or maybe you know we grew but not that much.
So we definitely had to temper things and select what we were working on and it was scary I mean it really started the end of 2007 if you recall that's when the global financial crisis start rippling through so the information we had to see what was happening was the first players being set up and when you set up a sonos it would radio in and say hey I got set up is there any new software for me and then we prompt you hey.
You know there's a there's a later version of software do you want to download it. Oh right when someone set up at their home you could see how many people are setting it up. Yeah and they went to zero near zero it dropped like off a cliff.
And so we we planned we had a wonderful guy running the commercial side of the company at the time and he just sat down and really worked his way through it that was also the year that would have been 2008 so we released the iPhone controller which helped because that made the purchase cost low on the app store. Yeah so now you could buy sonos units without the controller and use your iPhone and that helped.
That that cost cut your cost presumably to produce the remote and I guess really the way out of that hole or one way out of that hole was to basically make a cheaper product or less expensive product which was the play 5 right that was like a third the price of what is so because the so does system was really expensive in 2000 as like 1200 bucks well that that's not a system that's a combination that's a bundle I'm not criticizing I'm just saying understand
that you was expensive yeah and a play five which came out in 2009 really opened up the growth and you're right it was it was easier because before that you had to buy a unit you had to buy speakers you have to connect the speakers to the unit and the play five was all in one so you bought it you plugged it in and it just worked yeah and so you're right it was less expensive it was easier to use it just made more sense all the way around
and that had a huge impact right it did we grew a bunch that year okay I mean I around this time I mean you're kind of peerless right I mean you did not have any significant competitors making quality home wireless speakers did you well I would say no there were competitors but they were all traditional audio so Phillips had a product that competed against us Yamaha had a product Sony had a product there were a variety of
there were a couple of startups that competed but none of them worked well so I wouldn't say we were alone but you know if you were a reviewer who was competently you weren't you were going to rank us first what what was the I mean as you started to really dominate this category tell me about a little bit about the strategic thinking because when a when a brand starts to dominate a category it can actually be a really dangerous time
because that's when you start to get comfortable and that's when you start to say okay you know we're bulletproof but of course that almost never happens company's very rarely dominate for long time what do you remember about the internal conversations about how you were going to innovate I mean you could make better quality sounding speakers or make it even easier to set up but those seem incremental to me what what were the big swings for the fences you guys were talking about at that time
in 2010 11 well at that time first off we didn't feel like we were dominating because it's a global market and every country everywhere on the planet had its own complexities including the music companies licensed at that time by country so while spotify was available in Sweden it wasn't available anywhere else yeah and rhapsody was available in the U.S. but it wasn't available outside of the U.S.
and the success of sonos really depended on your view on those on the proliferation of these streaming services you would the best experience by a long shot you would have as if you had sonos with those streaming services you know otherwise you have the complexity of having a reply for it so i didn't feel i don't think we ever viewed it is dominating the marketplace we just saw so much to do
so did you did you think of yourself as i mean i know the mission statement was like music what was the music you're home with music with your home with music which is great it's very simple clear fill your home with music that's what we do did you think of your company your sonos as like a JBL or a Dolby or like when they were at their peak you know like did you think of your did you think of those as the gold standard that you were trying to achieve
no you've got to keep in mind we i mean i remember at the cts show in 2005 when we released a guy came over i think it was from Yamaha and asked the people that were working the booth you know how many inputs do you have and the person answered well an infinite number because we have an internet connection and he said well how do you have an infinite number you don't have enough connectors on the back
so the traditional audio market that you're mentioning we didn't really view them at all in the same mindset as us while they did fill the home with music they just you know it was usually the b or c team tv's were much more popular home theater receivers so they were just kind of on autopilot and what we were worried about is that apple amazon and google would ultimately get into this space and they understood software clearly they had a global footprint they could do an amazing job
so we knew down the road we would compete be competing with them we didn't know when we didn't know how so we were more playing scared and through that period of you know when does at least i can speak for myself when does apple dinner if they did a great product they could put a lot of earth on us
and we come back in just a moment what happens to sonos after a lexas and seary enter the home speaker market and why after leading the company for 15 years John decides to step away for good stay with us i'm guy raws and you're listening to how i built this amica knows that your home auto and life insurance are more than just a policy it isn't just home insurance it's about protecting the life you've built
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welcome back to how I built this I'm guy rise so it's 2015 and after 10 years sonos has become a force in home audio but another force is coming smart speakers Amazon launches the echo and sonos is suddenly competing with a bot named Alexa right you know I was actually
probably too blas a about it I paid attention to the voice recognition market forever and it consistently under delivered and under performed so I looked at it more as a gimmick than I did is a real thing I would say they went to they they made the cardinal mistake of trying to go after everything
and under delivered on everything and since it's a you know first impression thing you see it in their numbers people try it but they don't keep coming back and doing it or grow their use so I think the promise of voice response for music in the home is still ahead of us not really behind us even today yeah I would say that all right but they but they were so but just going back to that time right I mean yeah this is a new technology clearly Amazon had cracked something
yep no question about that and then you'd have Siri that would come out yeah right come out around that time they crack something and it was different it was better and you in oftentimes and then industry when a camp you know competing product comes out that just all the sudden
you know it's like it's like the blackberry like the blackberry when when they first saw the iPhone they were like and then respond but then people were like we got to make a smartphone and then they scrambled and eventually they did which we know the end of that story yeah they didn't make a great one did part of you feel like we better make a smart speaker right now because we're going to be put out of or no
for sure I mean when when I finally woke up to what the echo was how long did I take you to wake up a few months OK and then I you know really pulled hard on the whole company to realign us around smart speakers and voice assistance how were you but that means you would have to develop your own voice recognition system well at that time I thought that was a probably bad idea
because Amazon Google and Apple with Siri were clearly running that down hard so what the positioning we took was to be compatible with all of those integrate with them just like the music services such that you use the voice assistant for selecting which music you wanted but we would be the person filling your home with music but it sounds like you were relying on
the brand that sonos to consumers meant crystal clear quality does it's a quality brand and no one I think everyone thinks of Apple Amazon Google as quality brands but nobody necessarily thinks of them as great speaker companies so were you in your mind did you think that's really what our value
is going to be even if these companies try to crush us will be OK because people will think of us as the quality way to listen to music yeah I mean a brand gives you certain permissions so but you have to then follow up and deliver on that and I think sonos stay true to its roots and continues to do a great music experience and as it does that I think that works I think Apple of all those brands has the brand
permission to do a great home music experience but they've got so many other things to do they haven't really done that yeah this would be a tiny PNL for them it's not worth their time yeah all right but by early
2016. Amazon's Echo started to eat into sales of sonos and this is a fact this has been written about it's been chronicled you guys had to announce layoffs I mean the Echo whether you liked it or not it did have an impact on your business yeah unquestionable and that I mean so either they were doing something right or
the price point was right or something I mean how did you respond to that we really focus the company around embracing voice assistance that was expensive probably to start to work on that yeah for sure it always is when you start something new but you just have to ask yourself is this a better way to do you know fill your home with music and we felt it was so we put the work in
right you did because you eventually were able to integrate voice assistance into your speakers I think I think first around 2017 right with a system that integrated with Amazon's Alexa and then and then not long after that you could do with the Google and Apple devices to so I mean so when all that happened I imagine it stopped some of the bleeding hard to say maybe because if you wanted a sonos and you wanted a voice assistant you could you could have that was before
in you know to 2015 you had to choose one or the other yeah and it was after I left so I was uninvolved in it and I don't know any of the inside but I think they just felt it you know as I've told you in my view the voice assistance still you know their time is coming I think they were just too early like now you see the star companies trying to integrate voice assistance with the AI stuff
and do I believe in that yes you know is that 10 years away or is it two that's the question right so that that year I imagine was a tough year I think I think you thought about stepping down already from from from what I gather in part because your your wife was was actually battling breast cancer and your parents were getting older you would you wanted to step down earlier right but but that year was a challenging year 2016 and it kind of delayed your plans a little bit
yeah more I'd say with my wife's breast cancer and my kids are teens and it I I sprinted the marathon if you put it that way I was always really good at keeping a little bit of reserve and never trying to sprint a section I sprinted and I just burn myself up
and so I just found myself not the person I wanted to be at work I would you know I'd be angrier I'd have a shorter attention span I I wasn't enjoying it as much and on top of that I wanted to successfully lead the change to embracing voice assistance
because as you can imagine there was a quite a bit of debate over whether we should go that way or not and so you don't really want to leave that half that effort half finished and I didn't really realize when I was burned out that I was burned out it took a little time to have that perspective
when when you were feeling like you were burned out right and you're leading the company so you've got to show up one face because you got that plus a thousand or more employees at this point were right by 2017 1400 employees at least probably in that range yeah and and you're doing over a billion dollars and say we brought the company over a billion dollars and sales but but here you are internally feeling stressed out and burned out
yeah one thing you realize is you know very well when you're leading people you bring them through your ups and downs yeah so you really have to be mindful of that so that you're when you're having a downer you're having a you don't bring them all the way with you and as a leader you want to be that you want to choose optimism and I found myself after 25 years of start up companies I was looking more for the negative the downsides than I was the upsides
yeah and that's I just didn't want to be that per I'd run into people like that I didn't want to be that person that's not the person you want leading you you you want you want the person that's seeing the nine out of ten up sides not the nine out of ten downsides if you will you were becoming the person that you encountered in 2002 said to you oh this can ever be done exactly
exactly when who wants that in the company right but that's the cycle right that's a perfect cycle of human the human experience right and that's fine but that was my turn I was done yeah but even that right recognizing that is one thing and then deciding to step down as another thing is this 14 years of your life you start this company now you didn't need the money you
were financially said even before this started so it wasn't about the money but it was about the purpose is about going in it was about your colleagues is about you know people looking to you for affirmation yeah and giving that up is very hard you know my ego was not based around that I really I wanted the company to be successful ten times more than I wanted to be the leader of the company I had
kind of decided and I shared with board members of maybe six months before we did the official transition in January so Patrick was kind of running the company already so when I stepped out and he stepped into the CEO role I didn't I didn't want to be in a position where I was second guessing what Patrick was doing yeah I mean when I left I didn't stay on the board
because who wants to have the founder of the board sitting on the board of the company that you're running happens every day but I hear you I know but I wanted to give the company a chance to be successful and if they needed my help they'd call me and I'd be happy to help and if they didn't they wouldn't and you know that would be fine that's that's yeah that's fine time to step out
so you literally went from being the CEO one day took the next stage is going home and waking up the next morning and you didn't have an agenda or a calendar pre-populated for you
now now it was wonderful I mean I got I love reading I've always been a reader but for 25 years you would pick up the book by the side of your bed and you'd start reading in five pages and you'd fall asleep and then you'd pick it up the next day and you'd have to re-read three of the five pages and that just was no fun I I mean I distinctly remember after leaving Sonos in January and re being able to read a book from start to finish
in the middle of the book thinking geez I'm such a loser I should be doing something more productive so I definitely had to deal with those feelings of disconnect too but it was it was fantastic to be able to read a book yeah I mean I remember my wife and I patty would take a walk and I would get phone calls during the walk which would drive her crazy and after I was out of there I went with her for a walk and and her she had signed up for a bunch of boards and her phone was ringing off the
herk and my phone didn't ring that whole walk yeah and how's patty's health by the way I good she got all the way through it and hasn't had any complications that's great yeah thank you yeah yeah I probably since your departure and as I say I mean you you could got it to over a billion dollars and sales and you know huge staff I mean creative this incredible brand and to me that the story and I
think I think probably everybody they were acknowledged it you know you your time there helped set them up for success because really Sonos could have been like you know a product that everybody used for a short period of time like the blackberry and then it went it got crushed and it didn't
yeah well first off I only got it to about Josh shy of a billion Patrick really carried it through a billion and through two billion so you know if I got the foundation set up correctly then good that's what I should have done but they carried it past that but the fact that it's making products that still compete and more than compete with you know the Google speaker and the Amazon speaker and the Apple speaker so people have all those things I mean I've got you know different
ones is pretty remarkable because Sonos is a tiny company compared to those giant companies true but you're not really competing
against the whole company you're competing against the section that's making a competitive product. Tivo was a great company but never decided was it a product was it a service which is it is it both and as the idea becomes mainstream you've really got to do that and dive deeply and the companies that survive do that well the companies that don't don't and I think I think Patrick who's done a wonderful job of staying on that.
Yeah do you think that it's I mean you mentioned that it's you think it's healthy for founders to make a break right and I I think there's something to that I mean although there are founders who've been on the show who disagree you say no you want
to stay in mentor stay around and be a resource and whatever whatever it is whatever that perspective might be but you must still say Santa Barbara's a small town you must run into people all the time from the old days or who still work there or or not or maybe
don't well it's funny actually a lot of people I run into that work there I don't know so you know seeing sitting next to somebody talking about Sonos or seeing a sonos jersey not knowing the people you know happens I mean it's like staying
in your child's life there is a period of time where you need to be prescriptive about things you know don't cross the busy road and there's times when that kind of prescriptiveness is just going to hinder their development and I think for me and Sonos it was just far better to keep my fingers out of it and of course if the company fails after I leave that's not great on me right yeah when you think about the journey you took in all of the ups and downs and where you got to today how much do you
attribute it to the the work and grind you put in and how much do you think had to do with timing and luck oh boy timing and luck is so critically important because as you pointed out there lots of companies that had their timing wrong so I would say timing is maybe it's 80% and hard work is 20 you got to put the hard work in because the luck comes your way when I mean I'm sure it's the same for you guy
if you don't put the work in the opportunities aren't going to come and you're not going to grow but boy if your timing isn't right those two things are not going to get you across the finish line that's John McFarland former CEO and one of the founders of Sonos by the way the very first song played through Sonos speaker was chosen by John himself on a day when some of the first units were being worked on and according to company
lore that song was the Beastie boys no sleep till Brooklyn that's all true it just fit these were the first units that were fully assembled we had a room that had the quality assurance team in it and they were really trying to beat it up and I thought that was the appropriate song because it had a lot of work ahead of them so I played it full volume for them in that room nice
hey thanks so much for listening to the show this week please make sure to click the follow button on your podcast apps you never miss a new episode of the show and as always it's free this episode was produced by Catherine Cipher with music composed by Rampti Narev Louie it was edited by Niva Grant with research help from Sam Paulson our production staff also includes JC Howard, Casey Herman, Carrie Thompson, Alex Chung, John Isabella, Chris Messini, Carla Estevez and Malia Aguadello
our engineers were Robert Rodriguez and Josh Newell I'm Guy Raaz and you've been listening to how I built this if you like how I built this you can listen early and add free right now by joining Wundery plus in the Wundery app or on Apple podcasts
prime members can listen add free on Amazon music before you go tell us about yourself by filling out a short survey at Wundery.com slash survey the global smartwatch industry is worth $45 billion annually the Apple Watch is the undisputed bestseller but Apple's dominance wasn't always a given
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