20VC: Eero's Nick Weaver on Why You Have To Grow One Stage Ahead of Where Your Business Is At and Why If You Want A Great Customer Experience, You Have To Own All The Parts

Nick Weaver is the Founder & CEO @ Eero. The company that makes your wifi hyper fast, super simple and brilliantly efficient. Prior to founding Eero, Nick was himself a VC at Menlo Ventures where he worked with companies like Uber, Betterment, Periscope and Dropcam. Before becoming a VC, Nick co-founded StartX, the community for the best Stanford entrepreneurs providing them with the required resources to build the next generation of leading companies. In Today’s Episode You Will Learn: 1.) How Nick made the move from VC with Menlo to Founder and CEO @ Eero? 2.) How can founders identify nascent and attractive markets that are ripe for disruption? 3.) How did Nick approach the pricing mechanism with Eero? Why do hardware startups need to have a greater margin than software startups? 4.) Why did Nick raise 2 rounds of funding before the product launched? Why did Nick decide he wanted to own all the parts of the production chain with Eero? 5.) How does Nick view the competitive landscape for such products? How does he view large incumbents like Netgear, compared to smaller startups like Luma? Items Mentioned In Today’s Show: Nick’s Fave Blog and Newsletter: Term Sheet: Dan Primack Nick’s Fave Book: Man’s Search For Meaning by Viktor Frankl As always you can follow Harry, The Twenty Minute VC and Nick on Twitter here! Likewise, you can follow Harry on Snapchat here for mojito madness and all things 20VC. Eve make 1 perfect mattress – made with 3 layer technology and next generation memory foam. It comes packaged in a beautiful box and arrives the day after you order. You get 100 nights to try it with free return pick-up – it really is the perfect mattress for everyone. Just go online to evemattress.co.uk and enter the code 20VC for £50 off. Everybody deserves the perfect start with Eve. Cooley are the global law firm built around startups and venture capital. Since forming the first venture fund in Silicon Valley, Cooley has formed more venture capital funds than any other law firm in the world, with 50+ years working with VCs. They help VCs form and manage funds, make investments and handle the myriad issues that arise through a fund’s lifetime. So to learn more about the #1 most active law firm representing VC-backed companies going public. Head over to cooley.com and also at cooleygo.com.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Hello and welcome back to the third and final installment of this very special Redpoint Feature Week on the 20 Minute VC with your host Harry Stebbings at H Stebbings on Snapchat. Now for this Founder's Friday, we're featuring a Redpoint Rocketship Startup Investment. So joining me today, I'm thrilled to welcome Nick Weaver, founder and CEO at Eero, the company that makes your wifi hyper-fast, super-simple and brilliantly efficient. And prior to founding Eero, Nick was himself a VC at Menlo Ventures, where he worked with companies like Uber, Betterment, Periscope and Dropcam, just to name a few. And before becoming a VC, Nick co-founded StartX, the community for the best Stanford entrepreneurs, providing them with the required resources to build the next generation of leading companies.

• 0:42Harry Stebbings?

  And if you do hear a bit of interference in the show today, well, what can I say? I didn't have an Eero at the time of this recording, which clearly shows how important they are to today's wifi. And in the spirit of it being Founder's Friday, for the past few days, you've heard about Cooley, the global law firm that formed the first venture capital fund. Well, they are also the market leaders in working with thousands of entrepreneurs and newly-formed companies to ensure that they're structured for growth and long-term success. Cooley is a world leader in financings, M&As and IPOs, and since 2005, Cooley has been ranked the number-one most-active law firm, representing VC-backed companies going public. So to learn more, head over to Cooley.com or check them out on Cooleygo.com. And with the weekend coming, it's also time for that Saturday Morning Lion, and so good

• 1:27Harry Stebbings?

  to know we have Eve to make that all the more enjoyable. Eve is the UK's number-one direct-to-consumer mattress company. Because they don't sell through high-street stores, they can cut out an incredible 70% of traditional costs and pass those on to us, the consumers. Developed over four years with thousands of prototypes, Eve is so confident of their mattresses that they give consumers 100 nights to try it at home before committing. For those of you who don't love it, they even offer a free return pickup with a full refund, so there really is no risk. Simply head over to evemattress.co.uk, enter the promo code 20VC and they'll give you a whopping £50 off and it'll be with you the next day with next-day delivery. However, enough from me, so without further ado, I'm delighted to hand over to the main man, Nick Weaver at Eero.

• 2:18Speaker 01

  You have now arrived at your destination.

• 2:21Harry Stebbings?

  Nick, such a pleasure to have you on the 20 Minute VC. Thank you so much for joining me today.

• 2:25Speaker 02

  Thanks for having me.

• 2:26Harry Stebbings?

  Now, I'd love to kick off today by hearing what your route into venture was first, and then how you came to make the transition to founding Eero.

• 2:34Speaker 02

  Yeah, so I joined Menlo Ventures in the beginning of 2012. Before Menlo, I was at McKinsey & Company and before that at Stanford. I'd had a little bit of exposure to the VC world while I was in college. When I was at Stanford, I started a program called StartX, which is a startup accelerator for Stanford entrepreneurs. And then, you know, making the transition into consulting, primarily focused on working with large technology companies on their go-to-market and product strategy, and also with private equity firms that were looking at investing in technology businesses. You know, after those two experiences,

• 3:16Speaker 02

  it was great to make the transition into an investing role at Menlo. You know, one of the great things there is, you know, I was able to have the full venture experience from sourcing companies to managing investments to sitting on boards, you know, participating in all of our investment decisions. So it was a great, you know, great way to learn how venture capitalists approach the business. Also, you know, how the best, some of the best entrepreneurs choose to build their teams, build their companies, and ultimately build some pretty incredible businesses.

• 3:53Harry Stebbings?

  So what then was the founding kind of aha moment for you then with Eero that made you leave the world of venture to be an entrepreneur?

• 4:00Speaker 02

  Yeah, to be honest, I have been frustrated with my home network basically my entire life. From growing up, I helped manage and install, you know, networks in homes and in businesses. And then another thing I did at Stanford was I was a network admin. So I've been frustrated with these products for a long time. You know, the connectivity in our homes. Is now just as important as our running water and our power. And there weren't any products on the market that were able to, you know, provide a great experience. And frankly, when I was at Menlo, I was, I spent a lot of time looking for this, looking for ERO as an investment and couldn't find it.

• 4:42Speaker 02

  I always wanted to, to, to start a company and be even more immersed in technology than I was from a venture standpoint. One of the things I, I really took away from my experience at, at Menlo was, you can have a great team, you can have great technology, you can have a great product, but if you don't have a great market, you know, you're really not going to have this amplification effect. You know, what I started to see was just how reliant people were on connectivity in their homes, how more and more products were, were beginning to connect to the internet. And, you know, streaming was still kind of in its early trajectory, was nowhere near as dominant as it is today. And so in the beginning of 2014, you know, kind of with all those data points,

• 5:25Speaker 02

  started ERO with my two co-founders, Amos and Nate. It's been a pretty wild two and a half years.

• 5:31Harry Stebbings?

  Really interesting that you said about kind of great team, great product, but if the market's not there, it's a tricky uphill battle. I'm intrigued then as to what makes a really good and appetizing market for an entrepreneur going in. When you were doing your market validity studies, which I'm sure you did as an XVC, what, what was it that made a great market great?

• 5:52Speaker 02

  Well, so, so there it's, what are the gaps in product solutions is, is usually the, you know, first place to look. And then the second is, you know, what's the, what's the insight that you have that others don't see? And so, you know, when you look at the connectivity market, if you look at all the trends, you know, up until we started ERO, you'd actually seen a declining ASP. So people were spending less and less money on their, on their networks. You know, were there two factors there? One was upgrade cycles were lengthening and then costs were continuing to drive down. Since we started ERO, what we've seen is actually the amount of money people are spending on their networks is increasing pretty dramatically. And that's because our, our networks are running.

• 6:33Speaker 02

  You know, the core infrastructure of our home. When we started Eero, it was pretty contrarian to say people are going to be willing to spend $500 to have a great home network. You know, today, we're really seeing that there's actually a huge portion of the market that is willing to spend just about anything to make sure they have great connectivity in every corner of their home.

• 6:54Harry Stebbings?

  How did you think about pricing in the early days when you had the product and a no pricing mechanism? What was the thought process around that? Was it the typical kind of engineer with a great product who wants to get it into the hands of everyone at the lowest price? Or, as you said, it's a relatively higher price point at the time. So what was the thought behind the pricing mechanism?

• 7:13Speaker 02

  Yeah, you know, with hardware, there's hard costs. It's not like a SaaS product. One thing we've spent a lot of time looking at is what type of margin structure do we need to have to be able to support omni-channel distribution? So that's Eero.com, places like Amazon online, and then places like Best Buy in-store. You know, you need to have enough margin to, A, provide great customer support, B, have great marketing, and C, continue to invest in R and D. And so a lot of this is driven off of, hey, this is how much each unit costs. And then these are the other things that we need to be able to invest in.

• 7:51Speaker 02

  So there is a large formulaic approach to it, but at the end of the day, setting that final price, it is a little bit of an art. You're trying to bring in as many inputs as possible before you set up your pricing strategy.

• 8:04Harry Stebbings?

  How important and kind of relevant is the in-store retail portion of your sales as opposed to the online or the Amazon element? In terms of, I'm always intrigued, is kind of the diminishing effect of retail stores. Are you seeing that in your sales patterns?

• 8:22Speaker 02

  Yeah, so we're a month into selling in physical retail. Best Buy is our launch partner. And frankly, like, you know, sales are very strong through that channel. You know, at least living in Silicon Valley, you know, it's easy to think that, you know, everyone just presses a button and has packages show up two days later. But if you look at kind of purchasing patterns. Across the country, you know, physical retail is still a very dominant force. One of the things it does provide that you don't have in an online experience is product discovery. There isn't a great online substitute for, you know, walking down the aisles of, you know, a Best Buy and seeing all the new products, especially in the early days of us being in the market.

• 9:06Speaker 02

  It's a great way to have customers, you know, discover our product and ultimately become advocates for Era.

• 9:13Harry Stebbings?

  And we spoke about kind of the costs there behind it with regards to pricing. And one of your costs is obviously the fact that you brought the full stack technology and the development in-house. So I'm really intrigued as to the thought process behind doing this. And then with regards to the molding of the team, how you sought to seek out those incredibly talented people that you did?

• 9:32Speaker 02

  Yeah, so when we were, when we were making kind of the strategic decisions around, you know, what parts of the product did we want to own in-house and what parts did we want to work through with a partner? One of the biggest guiding principles was really around how do we react quickly to customer feedback? And are able to be really responsive to the needs of the market? You know, as we, you know, went through the process, it just became more and more clear that if we wanted to be able to react quickly to our customers, most importantly, provide a, you know, a great customer experience that we were in full control of, we just had to own all the parts. The flip side of that is you need a bigger team, it's harder to hire some people with specialized skills.

• 10:13Speaker 02

  And we just made a commitment to spending a lot of our time focused on, you know, just recruiting great people. And, you know, today I still spend close to half of my time in recruiting. You know, looking at what we've achieved and what we have planned. Having that full end-to-end team from the design of the hardware to our own operating system, to our own cloud, to our own mobile applications and all the tools and plumbing kind of behind that to validate our product and make sure it's working as intended for as many customers as possible. You know, it's a huge strategic advantage and something I'm really glad we started investing in, you know, from the earliest days of Era.

• 10:57Harry Stebbings?

  You said there about the proportion of your time spent hiring. I hear from a lot of CEOs how frustrating they find it that so much is devoted to hiring when they really want to focus on kind of growing their business in the operations side. Do you find that a frustrating element?

• 11:11Speaker 02

  There are times when it can, but there's nothing more rewarding than seeing your team execute and grow. And, you know, there is the flip side of if you're spending a lot of your time focused on hiring great people, very quickly you get to see all the great work they do. And, you know, I've been fortunate here to, you know, just see some of the amazing things that that folks at Eero do on a regular, on a regular basis. You know, I could spend more time writing product specs or working through sales analyses. And I enjoy that work. But at the end of the day, you have to keep scaling the company and scaling the organization. And hiring great people is one of the most important things I can do for the business.

• 11:52Harry Stebbings?

  And in terms of kind of the scaling and the hiring, you're competing against some massive incumbents like Netgear. So how do you look to compete with such entrenched companies first like Netgear while expanding as a startup?

• 12:05Speaker 02

  You know, here, I think of entrenched as really not a advantage. Entrenched means you have a way of doing business and you've been operating in that cadence for many, many years. You know, what's happened in the networking space is the problem statement has changed very dramatically in a very short period of time. You know, it was only a few years ago when our connection speeds were in single digits in terms of megabits per second. And the number of devices connecting to our networks were only a handful. And in a very short period of time, we've gone to connection speeds that are hundreds of megabits a second. You know, homes have dozens of devices connected. And so our, you know, our competitive advantage,

• 12:47Speaker 02

  again, is we own that whole stack. We're able to react really quickly. And we're also pouring all of our focus into one product instead of a, you know, massive portfolio of undifferentiated products. What that allows us to do is rapidly evolve our software and stay focused on delivering a great customer experience. And, you know, as our distribution grows, as our team grows, you know, we'll be able to continue to build a just a great business while being nimble enough to address, you know, all the feedback we get from the field.

• 13:19Harry Stebbings?

  One from Nikol at Shasta. Nikol asked how you felt about the rise of kind of copycat startups in the same space. Not naming names, but obviously there are very similar products that have arisen since Eero. How do you view the competition from that perspective then, from the non-incumbent heavy, the new innovative startups supposedly that are coming out?

• 13:40Speaker 02

  It's not a unique problem. Whenever there's a new startup that's doing groundbreaking work and is showing some early signs of success, there's always going to be copycat products that appear very quickly. In a software-only business, your barriers to entry are much, much lower. What's great here is, you know, you hear this phrase all the time, hardware is hard. That actually ends up being a pretty big competitive advantage. There's all these moving pieces. You have to build all this infrastructure because it's not just about delivering an experience in a web browser or a mobile app. You're actually delivering physical goods to customers all over the country and even across the world. It's one thing to announce a product.

• 14:21Speaker 02

  It's another to be able to ship a great product, handle all the influx of customers, support them, also at the same time, expand your distribution and expand your feature set. It's just a really tall order and it's incredibly complex. So, you know, all the complexity that comes with the hardware business ends up being a pretty significant barrier to entry.

• 14:44Harry Stebbings?

  What have you found the most complex element? Is it kind of handling supply chains? Is it manufacturing prototypes? What was the most challenging for you in the process?

• 14:52Speaker 02

  I guess the simple answer there is yes. In hardware, what's challenging is you have all these different teams on very different cadences. Ultimately, you know, there's specific milestones, whether it's a new feature launch or a new product launch or a new retailer launch, where you have all these teams on different cadences and timing has to align perfectly so that, you know, you can execute properly. And so at any given moment, you know, there's work on sourcing components and building new product and adding new features, fixing bugs, talking to customers, building a brand. There are so many different components here and they all have to be sequenced perfectly.

• 15:30Harry Stebbings?

  And then in terms of kind of sequencing perfectly, scaling perfectly, one thing that's fundamental to all of that is the funding and the cash. So talk to me about the fundraising process. We mentioned Nikhil at Shasta there, I suppose to many of your other investors. How was the fundraising process for you? You know, you experienced it on the other side of the table with Menlo. How was it as being an entrepreneur?

• 15:51Speaker 02

  You know, we've been fortunate enough to have some great investors and, you know, we've raised four rounds of financing, recently raised our Series C. All of those processes have gone fairly smoothly. You know, one of the great things from my time at Menlo is that you got to see hundreds of companies come in and present to the full partnership. You really start picking up on, you know, how do you tell a story in a compelling fashion? You know, how do you tailor that message to your audience? And, you know, that's a skill that helps in fundraising, but it also helps in talking to customers, it also helps in recruiting. Being on the other side has really helped in, you know, how do you think about Euro as a company, as a product, and then also as an investment opportunity?

• 16:34Harry Stebbings?

  Nikhil mentioned that two rounds of funding were obviously pre-launch of the product. Talk to me about that and why you chose for such heavy funding pre-product? Was it purely a case of manufacturing and distribution setup?

• 16:48Speaker 02

  Well, with hardware, you have a lot of upfront costs, whether it's tooling or manufacturing line support, but you also have to build up the team before revenues hit. You need to make sure you have a big enough team to then be able to support all your customers. You almost have to grow one stage ahead of where the business is. That's one of the, you know, critical reasons why we took a decent amount of funding ahead of the product being launched, because we had to go build up a team, we had to build up all the infrastructure to be able to not just ship the product, but then also support everything once it got in the field.

• 17:23Harry Stebbings?

  And I'd love to dive into a quick fire round now. So I say a short statement and then you give me your immediate thoughts. Say 60 seconds per answer. How does that sound?

• 17:31Speaker 02

  Sure.

• 17:31Harry Stebbings?

  Let's start with your favorite book and why.

• 17:33Speaker 02

  So one book I keep coming back to is Man's Search for Meaning by Viktor Frankl. It's all about what are the driving forces and how people live their lives. In his book, it's a focus on how people find purpose and finding purpose, you know, ends up being, you know, one of the biggest drivers for people having a fulfilling life.

• 17:55Harry Stebbings?

  And then let's do the hardest question posed to you by VC in a pitch.

• 17:59Speaker 02

  Yeah, in one of our investor meetings, you know, I got posed with, how are you going to triple the size of the team and who on your team is going to be able to scale into that new role of having, you know, to manage a much larger organization? If you think through hiring, I gotta get these next five people. It's very much focused on the immediate. You know, when you step back and say, all right, I'm here, a year from now, I need to be double or triple the size to be able to support everything, you know, we want to do. It really reframes the question as like, do you have a team that's going to be able to scale to manage just a significantly more complex organization?

• 18:35Harry Stebbings?

  And then let's do building the Eero consumer brand. What are the core fundamentals to building the brand of Eero?

• 18:41Speaker 02

  Yeah, as as we look at, you know, the type of brand we want to build at Eero, first, it's all about having, you know, great customers and customers that become advocates for us. You know, to do that, you have to stay focused on delivering a just fantastic product. You have to treat your customers with respect, having open and honest conversations with them. It's also about maintaining this level of approachability so that you get people's feedback and they feel personally invested in, you know, helping build the brand.

• 19:11Harry Stebbings?

  The favorite blog or newsletter for you? What are the must reads?

• 19:14Speaker 02

  I think I probably read Term Sheet every morning. So it's a it's a great way to still stay.

• 19:22Harry Stebbings?

  Stay in touch.

• 19:22Speaker 02

  Informed about what's about what's happening in, you know, the VC and private equity world.

• 19:27Harry Stebbings?

  Do you miss it?

• 19:28Speaker 02

  I miss definitely pieces I miss, you know, being exposed to so many different businesses, so many different types of products and challenges, you know, at Eero, I'm really focused. But, you know, at the end of the day, one of the things I like the most is, you know, building a great team and, you know, that's something I really love doing at Eero.

• 19:45Harry Stebbings?

  And then let's finish on the next five years for you with Eero. What's the roadmap ahead?

• 19:50Speaker 02

  You know, if you fundamentally believe that all of these products and experiences in our homes are going to be either connected or delivered over the internet, then having a incredibly fast, reliable and performant network is is.

• 20:05Speaker 02

  And it actually starts going further than that. Really, you can think of the network as becoming the central nervous system of the home. You know, if all of our content's delivered over the internet, if all of our devices are connected to the internet, then you know, you really have the opportunity here to build the central nervous system, something much more than just a wifi network. This is all about continuing to build great products and continuing to build a great team that's excited to, you know, really shape, you know, connectivity in the home over the next five years and beyond.

• 20:33Harry Stebbings?

  Well, Nick, it's been such a pleasure to have you on the show. As I said, heard so much from, from so many of your investors, and it was immense pleasure to hear more about Aero. So thank you so much for joining me today.

• 20:43Speaker 02

  Yeah, anytime. Thanks for having me.

• 20:47Harry Stebbings?

  A huge hand to Nick for giving up the time today to appear on the show and to Rob Hayes at First Round, Nicola at Shasta and Iliad at Index. Very grateful for your input. And if you love the show, stay with Nick and do not want to leave the world of the 20 minute VC, then you can add me on Snapchat at H Stebbings, or you can follow me on Twitter at Harry Stebbings. You can even sign up for the newsletter on the 20minutevc.com so you never have to miss an episode or an update from us. Do not forget though to check out Cooley. If you are a founder setting up or running a startup, Cooley are one of the market leaders in working with thousands of entrepreneurs and newly formed companies to ensure that they are structured for growth and long-term success. Cooley is a world leader in financings, M and As and IPOs. And since 2005, they've been ranked the

• 21:31Harry Stebbings?

  number one most active law firm representing VC-backed companies going public. So to learn more, head over to Cooley.com, that's C O O L E Y dot com, and also at Cooleygo.com. And with the weekend coming, it's also time for that Saturday Morning Lion. And so good to know we have Eve to make all that more enjoyable. Eve is the UK's number one direct to consumer mattress company. Because they don't sell through high street stores, they have the ability to cut out 70% of traditional costs and they pass those on to you and I, the consumers. And they've developed the mattresses over four years with thousands of prototypes. And they're so confident of their product that they give customers 100 nights to try it at home before committing. So for those of you who don't love it, they

• 22:13Harry Stebbings?

  even do a free return pickup with full refund. So there really is no risk. Simply head over to evemattress.co.uk, enter 20VC and they'll give you a fantastic £50 off and it'll be with you the next day with next day delivery. As always, I so appreciate all the support and cannot wait to bring you next week's shows.