Three Lessons from the Success of Nest’s Smart Thermostats

By: Dave Farber ​​

Earlier this year, I was at the Front End of Innovation Conference, and I had the pleasure of meeting some folks who are responsible for customer insights and product marketing at Nest.

 I find Nest to be an interesting success story. Nest Labs was founded in 2010 as a company that predominantly sold thermostats. Somehow, the company became a big enough deal that it was acquired by Google in 2014 for $3.2 billion, and it has continued to grow since. I’ve never quite understood why. And I say this as someone who has purchased two Nest thermostats, as well as some of the company’s other connected home devices.

In chatting with the folks from Nest, I started to better recognize exactly what it was about the Nest thermostats that I found so attractive. The fact that they understood me — their customer — and my motivations better than I did meant that I was talking to a standout team. I wanted to hear more. As I listened to them speak about their products and their successes, I extracted three lessons that brands should keep in mind as they innovate.

Borrow ideas from outside your industry. While many of us have colleagues who have been “in the business” for decades, it’s foolish to think that everything there is to learn comes from those who did the job before us. By looking at other companies and other industries, we can learn to think about our business in new ways, learn from others who have experienced similar challenges, and borrow designs, technologies, and business models that we haven’t yet adopted. According to the Nest team, they regularly borrow ideas from nature, the fashion industry, and education. The Pathlight feature on its smoke detectors — which briefly lights up to guide your way at night — was inspired by experiences walking in the moonlight. Beyond Nest, some of the most successful business ideas are the ones borrowed from somewhere else. An IKEA product developer famously gave the company a way to create strong, light pieces of furniture using minimal amounts of wood after touring a door factory that used a construction technique that was previously foreign to the furniture maker.
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Find creative ways to build empathy. Companies that simply add cool new features to their products are rarely successful over the long term. Occasionally they get lucky and experience some short-term success, but even then their features are usually easily copied by competitors. The companies that tend to see sustainable prosperity are those that truly understand their customers and think about product development from their perspective. Nest ensures a customer-centric approach in a few different ways.

​First, its team regularly uses Airbnb stays to get inside the homes and minds of people in different geographies and walks of life. Second, the company often engages in consumer collaboration workshops where its C-level officers are working directly with consumers to design products that resonate. Finally, Nest has an instant video system in place that lets it connect with consumers to quickly bounce around ideas, get feedback, and test key risks or assumptions. These three techniques collectively give Nest deep insights into what its customers want and why they want it.
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Segment customers based on their “Jobs to be Done.” As people go about their day, there are various “jobs” that they are trying to get done. Maybe they’re trying to cool themselves down on a hot summer day or ensure that their children get proper nourishment during the school day. Those jobs — along with other related factors found in a Jobs Atlas — help us predict why consumers will buy a particular product or behave in a particular way. With respect to our sample jobs, a Jobs Atlas helps us determine why someone chose a trip to the community pool over an ice cream or Lunchables over a hot school meal.

Because jobs are so fundamental to purchasing behavior, they’re far more important in defining customer segments than basic demographic data. And understanding the jobs that different types of customers are trying to get done can make a huge difference in how a company designs and markets its products. Nest came out with its Learning Thermostat for customers who value identifying as tech early adopters. They want the latest technology, and they want others to see it. While there are other customers out there who want the same features — such as an ability to save money by having the thermostat turn itself down when they leave — they don’t want such an invasive device. They don’t want it standing out on the wall or learning their behaviors. For that group, Nest offers the lower-priced Thermostat E. While it’s technologically very similar to the Learning Thermostat, it offers a white rim and a frosted display so that it blends into the wall. Its messaging focuses on how easy it is to use and how it quickly saves you money. Each product satisfies a different type of consumer. The first group of customers pays more for the Learning Thermostat not because of its longer feature list — the two products have nearly identical feature sets — but rather because of the emotional jobs that the Learning Thermostat helps the user achieve. I opted for the pricier Learning Thermostat. I regret nothing.
We can learn a lot from the way Nest designs and markets its products, and we can learn just as much by observing the ways in which its team members innovate. Nest’s teams humbly look beyond their own walls for inspiration, and they make customer empathy a focal point. Because of that, Nest generated over $700 million in revenue last year, and it will continue to grow.

Dave Farber is a strategy and innovation consultant at New Markets Advisors. He helps companies understand customer needs, build innovation capabilities, and develop plans for growth. He is a co-author of the award-winning book Jobs to be Done: A Roadmap for Customer-Centered Innovation.