Pod Insights Y Combinator Podcast How Nothing Founder Carl Pei Built A Multi-Million Dollar Smartphone Brand In Just 2 Years | Main Function About this episode After co-founding the successful Chinese smartphone maker OnePlus, Carl Pei felt the tech industry was missing the fun and wonder he remembered as a dedicated gadget fan growing up in Sweden. Pei decided to launch a new smartphone brand, this time with an increased focus on thoughtful user interface and stylish yet practical designs. In only two years, the brand known as "Nothing" has gained a cult following and gone to $600 million in annualized revenue. On this episode of The Main Function, Pei reflects on the highs and lows that have come with the journey of pursuing excellence in hard tech.
Transcript 0:00 Speaker 00 Today on The Main Function, we're hanging out with Carl Pei, the founder of Nothing.
0:11 Speaker 00 He 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.
0:36 Speaker 00 So 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?
0:48 Speaker 01 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 it was definitely the first time among my friends to get the iPhone. And back then, the iPhone was US exclusive with AT&T. And I had to get a US friend to buy it for me and pay a cancellation fee to AT&T, ship it to me. I had to jailbreak it to be able to use it.
1:10 Speaker 00 How old were you when you first held the iPhone 1?
1:13 Speaker 01 First iPhone was probably 18, maybe, 18. And 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 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 an MP3 player from a brand called Meizu. I'm like, wow, this is really cool. I didn't know China could produce good quality electronics. So I got that. The sound quality was great. The design was beautiful.
1:56 Speaker 01 And I created a fan community around this brand. We were profiled a couple of years later in the Los Angeles Times. And then the company was really happy because like there was this kid in Sweden doing like being their spokesperson. And so they recruited me after uni.
2:10 Speaker 00 Through the magic of the internet.
2:12 Speaker 01 Through the magic of the internet. I was actually thinking about applying to Y C 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 Y C? Or should I take this offer in China to be a part of the the beginning of the smartphone kind of industry there? To be honest, I was just too lazy to write the write the pitch.
2:34 Speaker 00 Wow, it was only 12 questions.
2:37 Speaker 01 So I took the offer that I had and I I flew to China in 2011. And stayed there for 11 years. That's where I learned how to make hardware.
2:47 Speaker 00 So how did you get in touch with OnePlus? And you started off, I mean, from your this experience of creating a brand and creating a community. It translated very directly.
2:59 Speaker 01 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. So I 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 was very offline, offline distribution, offline sales channels.
3:44 Speaker 00 I owned one of their DVD player slash karaoke machines before.
3:48 Speaker 01 Very cool.
3:48 Speaker 00 Yeah.
3:49 Speaker 01 There were new companies like selling products online that were really disrupting me at D two C. So 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 I don't want to do this old thing anymore. I want to do this new thing. And don't worry about like China, like 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. Like, we're gonna be focused on the China market.
4:29 Speaker 00 Was it Android already by then? Or was it other OSs?
4:33 Speaker 01 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 Sinogen. They started off as a community thing, like a custom ROM that got to millions of users.
4:55 Speaker 00 Yeah.
4:55 Speaker 01 And they had just become a company at that time.
4:58 Speaker 00 They were sort of like a Linux skin back in the day, right?
5:02 Speaker 01 Yeah.
5:02 Speaker 00 And then, you know, obviously Android is a variant of Linux, so.
5:06 Speaker 01 Yeah, it was based on Android.
5:08 Speaker 00 They were able to translate that very quickly.
5:10 Speaker 01 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.
5:27 Speaker 00 You stayed at OnePlus through 2021, was it?
5:30 Speaker 01 Through 2020.
5:32 Speaker 00 And then, did you know that you were gonna start nothing? Or, you know, on day one? Or, you know, did you have a moment in there where you're trying to figure out what the next thing would be?
5:41 Speaker 01 Yeah, for the longest time, I thought I was gonna 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 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. So I started reaching out to all the entrepreneurs I knew and they kept introducing me to people.
6:26 Speaker 01 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.
6:37 Speaker 00 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.
6:47 Speaker 01 Yeah, and it was really confusing at the time because everybody was giving me. Slightly different advice?
6:53 Speaker 00 Oh yeah. Well, everyone has like N equals one, like what I experienced.
6:57 Speaker 01 There's all these concepts, like how do they, how do they fit together? But eventually it clicked and we quickly raised the seed round at that time.
7:07 Speaker 00 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?
7:26 Speaker 01 Yeah, I think in the beginning, the idea wasn't super clear. I'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, has changed a lot.
7:45 Speaker 01 So I guess at that stage, I just, 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 a hundred million USD to, to make a phone. And I think, you know, there's no way to raise a hundred 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. Foxconn 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 going to work with any more startups. We're just going to do our Apple thing and whatever and just make a little bit of money. No more startups.
8:21 Speaker 00 So Foxconn is a contract manufacturer. This is one of the key players that you need to go and get a contract with. Cause they're the ones who actually take all the components and integrate it and test it for you.
8:33 Speaker 01 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. But when it came our turn, that wasn't the case anymore.
8:45 Speaker 00 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 a single channel risk. If you have one Big buyer and they have 100% of your business, then guess who owns who, right?
9:07 Speaker 01 Yeah.
9:07 Speaker 00 So why isn't Foxconn worried about this?
9:10 Speaker 01 They're worried, so that's why they tried, working with countless startups, but they all failed.
9:14 Speaker 00 Yeah.
9:14 Speaker 01 And they lost money each time because they have opportunity costs. They have to invest 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, the 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.
9:41 Speaker 00 Yeah.
9:41 Speaker 01 Foxconn was stuck with inventory.
9:43 Speaker 00 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.
9:57 Speaker 01 Yeah, 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 going to want to work with us. However, when we started making earbuds, nobody wanted to take 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 mean
10:42 Speaker 01 you're going to be able to context switch and make an earbud startup successfully. So the only factory that wanted to work with us was a factory that had no other clients. Like, without us, they would go bankrupt. That's the only reason they took us on.
10:57 Speaker 00 Underdog plus underdog.
10:58 Speaker 01 Yeah, but it was a disaster. We do the engineering of the product, we do the design, engineering. And we also designed 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 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.
11:25 Speaker 00 Oh, man.
11:26 Speaker 01 So for the first batch of ear ones,
11:31 Speaker 01 Ninety percent of them couldn't charge properly.
11:32 Speaker 00 Oh, no.
11:33 Speaker 01 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 were like, oh, my God, this is like, this game over.
11:44 Speaker 00 So that must have been a scary moment, right? So you raised your seed. You have this grand vision and plan that, you know, this is, we do this and then we get to do the smartphone.
11:54 Speaker 01 Yeah.
11:54 Speaker 00 And then out of the gate, you ship 5,000 and 90% of them are coming back as returns.
11:59 Speaker 01 Yeah, so 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 factory was manufacturing to our spec. And then we got the quality up.
12:24 Speaker 00 Oh, nice.
12:26 Speaker 01 So we ended up selling about 600,000 units for year one.
12:30 Speaker 00 So you saved it.
12:32 Speaker 01 We saved it, but it was very, very uncomfortable and scary at that time.
12:38 Speaker 00 Yeah. 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.
12:52 Speaker 01 There's a beauty to not having another option. It forces you to survive. I've seen that multiple times in our, in our journey. Like, 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 like the desire to keep on living as a company.
13:11 Speaker 00 In terms of like, nothing users or nothing sort of your stalwart customers, there's a sense of like, if you know, you know. What does that mean? Like, how did you cultivate that?
13:23 Speaker 01 I think it simply just means that our brand awareness is too low. I'm honest.
13:28 Speaker 00 Well, it's, 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, 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.
13:49 Speaker 01 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. And we didn't have that community before. So I think because we're, 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.
14:22 Speaker 00 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?
14:31 Speaker 01 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. Only 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.
15:06 Speaker 00 Is there a max amount of Johnny Ive you should be?
15:09 Speaker 01 Uh, yeah, maybe it's like 20%.
15:12 Speaker 00 Yeah.
15:13 Speaker 01 80% be safe.
15:14 Speaker 00 Yeah.
15:15 Speaker 01 20% take a risk. And you can increase the threshold 20% to something higher over time.
15:21 Speaker 00 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.
15:32 Speaker 01 You might have heard of Jesper, the founder of Teenage Engineering. He's one of my-
15:36 Speaker 00 A legend.
15:37 Speaker 01 Yeah, he's one of my partners in this company. And I, 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. That was like the thinking behind the glyph interface. On a product functionality level, we have this thought that, you know, when Steve Jobs pitched the 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.
16:18 Speaker 01 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. Because 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.
17:02 Speaker 01 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.
17:10 Speaker 00 Okay, we're gonna do a segment around design. So purely from a design perspective, tell me your favorite sneaker.
17:19 Speaker 01 This is a hard question because I've changed.
17:23 Speaker 01 I used to collect sneakers, all the like collabs and stuff. But lately, I've just been wearing kind of
17:30 Speaker 00 Classics.
17:30 Speaker 01 Classic white, Common Projects.
17:34 Speaker 00 Common Projects.
17:35 Speaker 01 Yeah.
17:35 Speaker 00 Yeah. What's your favorite Apple product?
17:38 Speaker 01 This might sound a bit strange, but
17:42 Speaker 01 It's the volume knob UI on the first gen iPad when it was still skeuomorphic. That's the moment I fell in love with Apple. Like, that's such a small detail, right? On the, on the original iPad, if you swiped up, you got this kind of control panel thing with a volume knob on the left side. And it was, it was like brushed metal. And as you tilted the iPad, the gyroscope recognized it got tilted. So the, 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.
18:21 Speaker 00 We need to bring skeuomorphism back.
18:24 Speaker 01 I love it.
18:24 Speaker 00 I hate flat design personally.
18:25 Speaker 01 Yeah, same here.
18:26 Speaker 00 It's very unpopular opinion. People love flat design, but I'm not a fan, so bring me back. What's your favorite watch?
18:35 Speaker 01 Uh, you know, it's probably my Royal Oak.
18:39 Speaker 00 Nice, classic.
18:41 Speaker 01 Yeah, I'm not a super big smartwatch fan, if I'm honest.
18:45 Speaker 00 Yeah.
18:45 Speaker 01 Like, I get a ton of notifications on my phone and just having another machine to keep beeping, I was not a fan of that.
18:52 Speaker 00 Yeah, kind of a nightmare.
18:53 Speaker 01 Yeah.
18:54 Speaker 00 Best sci-fi movie aesthetic.
18:56 Speaker 01 Aesthetic?
18:57 Speaker 00 Yeah.
18:58 Speaker 01 Space Odyssey?
18:59 Speaker 00 Yeah.
18:59 Speaker 01 A lot of our brand, we have a lot of like Space Odyssey screenshots on our mood board for the brand.
19:05 Speaker 00 That was so cool. I'm super into Blade Runner, so.
19:08 Speaker 01 Oh, yeah.
19:09 Speaker 00 Yeah, 2049, I don't know, anything, both like the original and the Denis Villeneuve remake is pretty amazing.
19:17 Speaker 01 Yeah, that's pretty cool, too. We also have screenshots from Blade Runner.
19:21 Speaker 00 Oh, yeah, definitely. Carl, thanks a lot for hanging out with us today. I really enjoyed this conversation and you built something of great value that, you know, in some ways, you've been through many ego deaths and then in other ways, you're, I can see the trajectory on this.
19:35 Speaker 01 We're just getting started, I think, yeah.
19:37 Speaker 00 Yeah. Do you have any last words for now, you know, to leave our audience? You know, a lot of people who are watching might want to start hardware startups. You know, you've created one of the hardest ones to do, which is in the smartphone category. What do you have to tell them?
19:54 Speaker 01 Yeah, I think there's no beating around the bush. It's gonna be tough, but it's doable. If you want to do it, I think you should go ahead. But maybe think about like the sequencing of things. Like in our example, like we had to get the earbuds to sell really well before going into the phone. Like, how can we build credibility to the next thing? And I think some people watching this might be a little bit confused to like, 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 in 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 you're reaching new people.
20:38 Speaker 01 I think that feeling is just so different compared to if you're making an app or some server-side infra.
20:45 Speaker 00 Well, thanks for working on it. And if anything, I'm kind of surprised that there aren't more. You know, I think it's a testament to how hard it is to create what you've created. So thanks for joining us.
20:57 Speaker 01 Thank you for having me and hopefully somebody watching this will create the next one.
21:01 Speaker 00 You know it.
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