Sonos: John MacFarlane

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 down or you're having it up, you don't bring them all the way with you. Yeah. And I found myself after twenty five years of startup companies I was looking more for the downsides than I 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 two thousand two who said to you, Oh, this can never be done.

Exactly. Exact and 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 Raz and on the show today.

How John McFarlane and his partners figured out how to fill a house with music without wires. Launched Sonos. A brand that does over a billion a year. In business. Mm-hmm.

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 would 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 partners Craig Shelburne, 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 double 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 could be used to communicate with other countries. In his case, Russia. scientific centers, these 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.

Yeah. That just kinda 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 and We thought we should go off and start a company.

So this is why you're a grad student. You met another student. What was the student's name? Uh Mike DeRico. Alright, 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 nineteen ninety two.

If you bought some software it came on a stack of twenty floppy discs, um, and maybe they were the small ones in the little plastic, the three and a half inch uh A little later it would be a C D ROM. But it was a you know, it was a Multi hour endeavor to get in put it in the computer and let it upload. Yep. Yeah.

And so the idea was Uh 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 wouldn't you know, you'd walk away and it would install all of it. And what was the name of your company?

Software dot com. Software dot com. You could do you could register that domain. Oh yeah, that's a funny story. Uh 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 gonna 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 said sent it to dear sir Madam and it landed on the woman's desk and she just immediately approved it and Put a little note at the bottom. I've n I you know, appreciate that you Addressed it to You know.

Who you did. So That was it. I kept that email for a long time. Yeah, it was pretty funny. Be respectful. So you got software datcom. Енсо. 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 would enable software to be sold. Online. Yeah, funny funny enough, um, if you wanted to get on the internet in

Ninety two and ninety three. You had to build a lot of the software yourself. So yes, we did have the skills to build it or we learn them. Yeah. But uh while it made a lot of sense the Folks that are.

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 you realize h uh relatively quickly that that was not gonna be a viable business plan. Yeah. I mean you had to do a lot of evangelizing on what the internet was'cause People didn't really know what it was at that moment. Hm. All right. And I I guess I guess you guys kinda realized you have to pivot away f from this initial idea of of selling software online. And um

And I guess what you decide to pivot to was email and and I mean this is the early nineteen nineties. And you know, more and more companies at the time were starting to adopt email, right? And so I guess you guys developed like Like s the software for an email server to 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

commercialized this and really own that market and uh made a commercial email service 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 uh 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, um Yeah.

We're probably using our stuff or we were knocking on your door to use it. Huh. Alright, so you've got this company. Right, um, software dot com based out of Santa Barbara. And and you know, you're You're growing to the point where you I guess you decide to quit your

Yeah. And then and then your company I guess merges with another company and then and then about a year or two after that you leave. This is this is like around two thousand two, and you uh I mean, you're like in your mid thirties, and at this point you probably made a ton of money from this business, right? I mean,'cause because the internet created all this wealth. Yeah, more money than I'd ever imag I you know, making money was never the goal, but uh that said, I I had been luckier than

I should have been, so for sure. That's true. I mean at this point you could Kinda sit back and surf or what g get to surfing or whatever you might want to do in Santa Barbara, open a restaurant or something. I mean you could you could have done anything you wanted to. Sure.

But I wasn't done, so Did you have a family at that point? Yes. Uh my first son was born in two thousand and my second son was born in two thousand two and that and that was part of the factor my I remember we were remodeling a guest house uh on our property and the my son thought the contractor was his father, not me. Was a it was a good warning um about being a part of their life, which I heeded. Yeah. So all right, so you've got young family, and what did you I mean, did you immediately think

All right. I'm gonna do something else now. Now I gotta find my next project. Yeah, I was nowhere near done. I mean software.com was just an incredible opportunity because I I Got to visit almost every country in the world. Um Wow.

And the internet was kind of just getting going. So it had it really penetrated most businesses at that point, but as far as affecting you and your home, even Internet broadband had only just started. So unless you lived in the Bay Area or certain places, you probably only inexperien experience the internet through a dial up. Notem if you remember those.

That was kind of the genesis behind Sonos. The four that officially started Sonos, we'd all work together at software.com. I wanna go back to that. to that process'cause I know it didn't happen overnight. I mean from what I I understand UN Andy's

three other guys from From software.com, Craig Shellburn, Tom Cullen and Trung Mai. You came together with some other folks and you decided that you were gonna 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 to move from dial up to

DSL and other ways to access qu fast internet. When the four of you got together, Tell me, d 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 gonna come into your home, what's it gonna 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, um, Napster'd come out in nineteen ninety nine.

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 and in many ways it was similar to what Um We had thought about it software.com because uh the original idea of 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. Um

Or You know, 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 and design it. Um

So you kinda went through You started from w what's the ideal experience you want to deliver and then you work through what that meant. See, you mentioned a couple other things like um smart homes or alarm systems, all of which would happen. This is you're having this conversation in two thousand Two. Two thousand two. And alarm systems could have been a great uh thing too, right, because uh eventually that that would go wireless and and and that would be more simplified. I mean Simply Safe is a good example of this and Ring and other companies do it.

Uh 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. two thousand two, 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. It would be very expensive to do. You still see some of those homes with like speakers embedded in the ceilings. Yeah. From that time.

Uh, but you want to figure out a way to do this. And you knew already in two thousand two 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 experiencely, you just weren't you 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. Um 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 Um, they were expensive. They often failed quickly. These are the wired systems. Yeah. Yeah.

And I'm wondering like when you guys started to have this conversation, right, two thousand two,'cause 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. I would say, well, let's do wireless electricity. Like let's let's figure out how to power my 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?

It be having that conversation in two thousand two? 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. Um 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

dived 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 at 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 It took a lot of incremental change like the iPod and the iPhone to get people to you know um start having that expectation. Yeah, and and I mean to that point.

Um, when you were first designing Sonos, where were you like thinking that the music would come from? I mean I I mean the iPod was in its infancy, right? Most people were still playing music off C Ds at that point. So So yeah w I mean where would the music come from? Would the like would the user insert a C D into into the system somehow.

It would come from a the initial music source and the people we sold to had ripped their music collections. Um 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 Uh 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. 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 And I mean people aren't used to listening to music like the this way. And You know.

Probably well into The two early two thousands. People were still playing music out their CD player, so Did you ever hear from just people, maybe friends or people in the industry who were just saying 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 gonna

Getting people to change that behavior is gonna 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 accurately pointing out Guy was really hard to do. Once they started seeing it, they were like wow. Yeah. Uh I mean I remember We had a great partnership with a Wi Fi chip company Athros, and I remember showing it to their management team.

And um they were blown away. Uh I mean I remember the CEO saying, Wow, I think I'm watching history made here and he was a huge music lover, so w he was right in the heart of the audience. It was always the case if you tried it and or saw it, you loved it. Um, but trying to explain it to somebody until they'd done that was Was the 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 Roz, and you're listening to how I built this. Hey guys. 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. If you want to share your favorite episode of how I built this,

Record a short voice memo on your phone telling us your name, where you're from, what your favorite episode is, and why. Uh a lot like the voice memo you just heard. and email it to us. at hib at id.wondery.com and we'll share your favorites right here in the ad breaks in future episodes. And thanks so much. We love you guys. You're the best.

And now Back to the show. Welcome back to how I built this. I'm Guy Raz. 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 spec'd you had these units People generally think about them as their router in their house and you had to be a distance from that um for it to work. And the farther you were

The slower it was, still is. Right. Yeah. So we had to develop this technology called a mesh network, and that's why we needed that close partnership with Atheros. And a mesh network's basically a repeater, sort of. Each unit is repeating the signal. Yeah, it 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.

Uh much. 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 um you had to be reliable, or you couldn't You weren't gonna grow.

So in order for that to happen, you were essentially Creating. The wireless just like the hub was you weren't relying on the home wifi. And w if they had it, great. If they didn't have it, it didn't matter. Because this system created

This internal mesh network. Yeah. 'Cause the customers didn't have an IT department. So you had to work. So yeah, it 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 startup. So you st 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 uh Venture capital probably in two thousand and five. John, just from a

Th 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. What what I mean, you were the CEO. Tell me why did you Where you Best suited, maybe you can't ask this question. Sometimes I ask questions that are not not the right question for the person, but why do you think you are best suited to be the CEO? of the company. I know you were CO of the previous company, the founder of it.

No, I think I was just the dumb enough dumbest person in the room to take the job. Uh 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, um, you're never well capitalized as a hardware company. So The costs 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 uh Christmas season, so th there's a lot to do there. Right,'cause you were you were building Software and hardware. Essentially.

Presumably you had to find a place to manufacture The the The speakers and and and I'm assuming you were you started in Asia or th that's where you went initially? Yeah, I mean that's where it's a true team effort, like uh 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, uh You know, one of the other um co founders, Tom, worked on sales and marketing. Uh another co founder Cred. And fortunately we had uh we had a broad enough team Andy Schuler, 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 Sonos 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 gonna work there. Alright, so

By the summer, I guess, of two thousand four, do you sort of figure out work through the bugs and you had A good working prototype. And that year you were gonna Unveil this thing. At the all things.

Digital conference. Um which was uh big deal conference at the time. Walt Mossberg and Kara Swisher, I think, um were were doing that conference. And you were gonna

Unveil this product. at that conference. Take me there. What did you do? Doing the presentation, were you being interviewed? No, uh what we did was there was a room that um all the interviews were done in 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 if delivered how much how much was it at that point? Well, two players and the remote control uh was Think thirteen hundred dollars or something. So two when you say two players is two speakers. Well At the time what we sold were two units that you connected to speakers. Okay. So they didn't have the speakers built in. Got it. Okay. So it's a lot. It's expensive. Yeah.

It was. And Walt at the time had written reviews on this Walt Mossberg. Yeah, Walt Mossberg had written reviews on similar units. Um So the goal was to get him really hooked so he would write He if you recall he had like the Wednesday column that was on the far right from the Massively Influential People. Yeah, I don't know. And so the goal was to hook him so when it came out he would write, he would review it.

'Cause he could make or 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. Well he Uh I was standing actually with a bunch of the staff of the Wall Street Journal and Phil Schiller walked by. Phil Schiller, who remind me who Phil Schiller is? Phil Schiller was their VP of marketing. For the for the journal or 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 uh he went and got Steve Jobs and walked him over and of course that was like He said that in front of all those reporters? Yes, he did. And was it covered? Was it was it published? Yeah, yeah.

That just he was gonna sue you because uh you'cause you had a remo at the time Sonos had a remote, an external remote, and it had a scroll wheel on it. 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 with them at all. So he was aggressive. Oh very. Yeah, it was an interesting experience and in fact Uh I pushed 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 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.

'Cause you would of course have other encounters with him as a partner. Um So so they never sued you. They never suit us, no. All right, so so you get off to a great start.

You get a good review from Walt Mossburg. And Uh presumably. That's it. You're gonna start to ship these products Shortly after.

Well, that that's a nice summary. Uh 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 two thousand and five. Yeah. We were really trying to make Good. holida season and end of two thousand and four.

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 or the look of No, mostly around the wireless. So we just hadn't achieved quite the bar we needed and we had some of the problems with latency and Um range that We hadn't worked all the way through, so 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 it was at at that time. Because people would have said they would try to once, that would have been it. Yep, exactly. And you had to have a great positive first experience if you're gonna build the brand on word of mouth. So We didn't ship until two thousand five. And when you say ship, where were they being sold?

Well, uh like at that Wall Street Journal conference we took pre orders there and how a lot'cause 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 uh were in Best Buys. We were in uh let's see, what was the chain that was on the East Coast? Um, Tweeter. Uh 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 two thousand five. It's thirteen hundred bucks to buy buy one.

So were they flying off the shelves? Um They I think we finished that year well above what we should have, uh, well below what we had hoped for. So

N not an overwhelming response, to say the least. Well, I mean Zero to I think we probably did Ten to twenty million that year. I mean, we had Unrealistic. Yeah. I mean, a bunch of people coming from software and

In a hardware business you can sell only as many as you make. Um 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 the s I mean A 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 were these I mean the first people to buy them, just 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'em had already digitized some amount of music. for their iPod or whatever. And keep in mind this is two thousand and five now, so the iPod had been out for two years. Um Yeah. So that's when you could literally play anything. And yeah, but it it kinda f faded away. It was a pioneer in in like music. It was before Pandora, before 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

mean I remember we when we got that integration working and we did a uh kinda press to her and we had a little hot spot, wireless hotspot. And so you could You y y you know, I went into Walt 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 gonna challenge you with some Very esoteric something.

And it would just blow people's minds. And I mean, we had uh reviewers who would Okay, what's the trick here? Where's the you know, where where's the hard drive? Uh, there isn't one. It's in the cloud. Um, so that was a big paradigm shift for sure. And and again, and this is pre iPhone, so but still now you had if your computer was connected to the Sono system

uses a rhapsody on it and then You were good to go. And and you and this and you still used a ro uh 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

Um do it all directly without a computer involved at all. And you could also pr I mean iTunes had been out by that point, I think. Yes. Could you use iTunes with the Sono system? Well, that's that's where it got a little complicated because iTunes had that digital rights management. Um so if you bought an iTun 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 um 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 a Sono speaker. Correct. That's crazy. Yep. Wow. So they create a walled garden.

They did. Okay, so All right, so you've got the iPad iPhone comes out in two thousand seven, but what's about to happen is a global financial crisis. Yeah. Which is t two bad begins in two thousand eight. I shouldn't I shouldn't chuckle, but that is going to Um

I mean that obviously, you know Was Even worse than the dot com. Bubble at first. Uh bust, I should say.

And um And I I from what I Read it really. had a massively Negative impact on sales.

Personas. Well, it we went from like a hundred percent year on year growth or Yeah. Um, to I think two thousand and eight we grew Ten percent or maybe. You know, we grew, but not that much. Um

So we definitely had to temper things and select what we were working on and it was scary. Uh I mean I it really started the end of Two thousand and seven, 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 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'd 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 would set up at their home. You could see how many people are setting it up. Yeah. And they went to zero. Uh near Euro. It dropped like off a cliff. Uh

And so we replanned we had a wonderful guy running the commercial side of the company at the time, and he just sat down and really um worked his way through it. That was also the year that would have been two thousand and eight, so we released the iPhone controller, which helped. Because that made the purchase cost lower. On the app store. Yeah. So now you could buy sonos units. Without the controller.

And use your iPhone and that helped. That that cust cut your costs, presumably, because you have to produce the the remote. And I guess really the way out of that hole. to basically make a cheaper product or less expensive product, which was the the play five, right? That was like a third the price of what a s a soda system was really expensive in two thousand nine, it was like twelve hundred bucks.

Well that That's not a system, that's a combination of that's a bundle. I'm not criticizing, I'm just saying Understandably. Yeah, and uh Play Fog which came out in two thousand and nine really opened up the growth. Uh, and you're right, it was uh it was easier because before that you had to buy a unit, you had to buy speakers, you had 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. It we grew a bunch that year. Okay, I I mean around this time, I mean, y you're you're kind of peerless, right? I mean you did not have Any significant competitors making quality

Home wireless speakers, did you? Uh well, I would say no. Um, 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 y you know, if you were a reviewer who was competently you weren't you were gonna rank us first. What? What was the um I mean, as you started to really

Domate this category. Mm. Tell me about a little bit about The strategic thinking because When a c when a when a brand starts to dominate a category

It can actually be a really A 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. Companies very rarely dominate. For a long time. What do you remember about the internal conversations about

how you're gonna 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 two thousand ten, eleven. Well at that time

First off, we didn't feel like we were dominating'cause it's a global market. Um 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, uh it wasn't available anywhere else. Yeah And Rhapsody was available in the US, but it wasn't available outside of the US. And the success of Sonos really depended, in your view, on those on the proliferation of these streaming services.

You would The best experience by a long shot you would have is if you had Sonos with those streaming services. You know, otherwise you have the complexity of having a ripped library. So I didn't feel I don't think we ever viewed a Has

dominating the marketplace. We just saw so much to do. So so did you w did you think of yourselves as a I mean I know the mission statement was like Music Wha what was the music? Fill your home with music. Fill your home with music, which is it's great. It's very simple, clear. Fill your home with music. That's what we do.

Did you think of your company? Your a JBL or a Dolby or like when they were at their peak, you know? Like did you think if you're you're Did you think of those as the gold standard that you were trying to achieve? No.

You've gotta keep in mind we I mean I remember at the CES show in two thousand and five when we released uh A guy came over, I think it was from Yamaha and asked the people that were working the booth, you know, w how many inputs do you have? And the person answered Well, an infinite number,'cause we have an internet connection and

He said, Well w how can you have an infinite number? You don't have enough enough connectors on the back. So the traditional audio market that you're mentioning is 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, um, TVs were much more popular, home theater receivers, uh 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. Um 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. Uh, we didn't know how. So we were more playing scared and through that period of, you know, when does I at least I can speak for myself, when does Apple enter If they did a great product they could Put a lot of hurt on us.

When we come back in just a moment. What happens to Sonos after Alexa and Siri enter the home speaker market? And why, after leading the company for fifteen years, John decides to step away for good. Stay with us, I'm Guy Roz, and you're listening to how I built this.

Hey, welcome back to how I built this. I'm Guy Raz. So it's twenty fifteen and after ten 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 blah about it. I had paid attention to the voice recognition market forever.

And it consistently under delivered and underperformed. So I looked at it more as a uh gimmick than I did as a real thing. I would say they went too 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 uh they don't keep coming back and doing it or grow their use. So

I think the promise of uh voice response for music in the home is still ahead of us. Uh 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 this is a new technology. Clearly Amazon had cracked something.

Yep. No question about that. And then you would have Siri that would come out. Right, come out around that time. They'd crack something and it was different. It was better. And y and oftentimes in an in an industry when a com you know a competing product comes out that Just all of a sudden.

You know, it's like uh it's like the Blackberry. Like the Blackberry. When when they first saw the iPhone They were like, but but then people were like then we gotta make a smartphone and then they scrambled and eventually they did, which and we know the 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 gonna be put out of b or or no?

Yeah, for sure. Uh I mean when when when I finally woke up to what the echo was How long did that take you to wake up? A few months. Okay. And then I you know, really pulled hard on the whole company to realign us around

Um smart speakers and voice assistants. 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. Um, so what the positioning we

took was to be Compatible with all of those. um integrate with them just like the music services such that um you'd 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. It does. It's a quality brand. And no one I m I think everyone thinks of Apple, Amazon, and Google as quality brands But nobody necessarily thinks of them as great speaker companies. So were you w in your mind did you think that's really what our value proposition is gonna be. Even if these companies try to

Crush us. will be okay because people th 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 Sono stayed true to its roots and continues to do a great music experience. And as as it does that Um

I think That works. Um, 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 PL for them. Th it's not worth their time. Yeah. Alright. But

By early twenty sixteen. Amazon's echo started to eat into sales of Sonos. This is a fact. This has been written about. It's been Chronicled. Um you guys had to announce layoffs. I mean the echo f 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 maybe the price point was right or something. I mean H how did you respond to that?

We really Focus the company around embracing voice assistance. That was expensive probably to t 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 it and we felt it was, so we put the work in. Right, you did. Because you eventually you were able to to integrate uh voice assistance into your speakers. I think I think first around twenty seventeen. Um with a system that integrated with Amazon's Alexa and then and then not long after that

Uh you could do it with the the Google and the Apple devices too. Um I mean so when all that happened, I imagine it It stopped. Some of the bleeding.

Hard to say. Um, maybe, uh, because if you wanted a sonos and you wanted a voice assistant, you could You could have that. Whereas before Um in you know two twenty fifteen 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. I y you know, as I've told you, in my view, the voice assistants still

You know, their time is coming. Uh I think they were just too early. Like now you see the startup companies trying to integrate voice assistance with the A I stuff. Um And do I believe in that? Yes. You know, is that ten years away or is it two? That's the question, right?

So that That year, I imagine was a uh tough year. I think I think you you thought about stepping down already from from from what I gather In part because you're Your wife was

uh was actually battling breast cancer. And your parents were getting older, you would you would want it to step down earlier, right? But But That year was

A challenging year, twenty sixteen, and it It kind of delayed your plans a little bit. Yeah. Mm 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 mean I was always really good at keeping a little bit of reserve and never trying to sprint a section. Uh I sprinted and I just burned myself up. Um 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 sex 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 wanna leave that half after 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 burnt out. Right, and you're leaving the company. So you've gotta show up. one face'cause you've got thousand thousand or more employees at this point.

Fourteen hundred employees at least? Probably in that range, yeah. And and you're doing uh over a billion dollars in sale you brought the company to over a billion dollars in sales, but But here you are. Internally.

Feeling stressed out and burned out. Yeah. one thing you realize is you know very well, uh when you're leaving people you Bring them through your ups and downs. Yeah. Um so you really have to be mindful of that so that you're when you're having a down or you're having an up, you don't bring them all the way with you.

And as a leader you wanna be that o you want to choose optimism. And I found myself After twenty five years of startup companies, I was looking more for the negative the downsides than I was the upsides. Yeah. And that's I just didn't wanna be that per I'd I'd run into people like that. I didn't wanna be that person and that's not the person you want leading you. You you want you want the person that's seeing the Nine out of ten upsides, not the nine out of ten downsides, if you will. You were becoming the person that you encountered in two thousand two who said to you, Oh, this can never be done.

Exactly. Exact and who wants that in the company? Right. But that's the cycle, right? That's the perfect l 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 is another thing'cause This fourteen years of your life, you'd start at this company. Now you didn't need the money. You were financially set even before this started.

So it's it wasn't about the money, but it was about the purpose. It was about going in. It was about your colleagues. You know, people looking to you for Uh 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 kinda decided and I shared with board members a Maybe six months before we did the official transition in January.

Um 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.

Who wants to have the founder of the board uh sitting on the board of the company uh that you're running. Happens every day, but I hear you. I know, but I w I wanted to give the company its best shot at being successful and if they needed my help they'd call me. Yeah. And I'd be happy to help. And if they didn't, they wouldn't and You know. That would be fine.

Yeah, that's fine. Time to step out. So you literally went from Being the CEO one day to the next day just going home and Waking up the next morning and You didn't have an agenda.

or a calendar pre populated for you. No. No, it was wonderful. I mean I Guy, I I love reading. I've always been a reader.

Right. For twenty five years he would pick up the book by the side of your bed and you'd start reading and five pages in you'd fall asleep and then you'd pick it up the next day and you'd have to reread three of the five pages and That just was no fun. I 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 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 Uh 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 uh Went with her for a walk and And her f she had signed up for a bunch of boards and her phone was ringing off the hook and my phone didn't ring that whole walk. Yeah.

And how's Patty's health, by the way? Uh, good. She got all the way through it and hasn't had any complications. It's great. Yeah, thank you. Yeah. Yeah, I I mean probably.

Since your departure And as I say, I mean you you you could got it to over a billion dollars in sales and huge staff, I mean, created this an incredible brand. Um and To me the the the story And I think I think probably

Everybody there would acknowledge it. You know, you your time there helped set them up. for success because Really, Sonos could have been like TiVo. 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. Uh well first off I only got it to about Josh I have a billion. Patrick really carried it through a billion and through two billion, so You know. If I got the foundation set up correctly.

Um Then good, that's ha what I should have done. Uh, 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 m 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, and the companies that don't don't. And I think I think Patrick has done a wonderful job of staying on that. Yeah. Do you think that it's it I mean, you mentioned that it's you think it's healthy for founders to

make a break, right? And I I I I think there's something to that. I mean, although there are founders who've been on the show who disagree, who say, No, you you want to stay and mentor or stay around and be a resource and whatever. W whatever it is. Yeah. Whatever that perspective might be. But You must still r it's a 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 m maybe you don't. I don't know. Well, it's funny, actually. A lot of people I run into that work there I don't know.

So you know, seeing uh Sitting next to somebody talking about Sonos or seeing a Sonos jersey and not knowing the people. You know, happens. mean it's like staying in your child's life. Uh there is a period of time where you need to be prescriptive about things. Um, you know, don't Cross the busy road.

And there's times when that kind of prescriptiveness is just gonna hinder their development and I Thank you For me, uh and Sonos it was just far better to Keep my fingers out of it. Uh and of course

If the company fails after I leave, that's not great on me. Right. Yeah. Um, when you think about the journey you took in in all of the

Ups and downs and where you got to today. Attributed 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 are lots of companies that had their timing wrong. Uh So I would say timing is Ma maybe it's eighty percent and hard work is twenty. You gotta put the hard work in'cause the luck comes your way when y I mean, uh I'm sure it's the same for you guy. If you don't put the work in The opportunities aren't gonna come. And you're not gonna grow.

But boy, if your timing isn't right, it's Those two things are not gonna get you across the finish line. That's John McFarlane. Former CEO and one of the founders. Of Sonos.

By the way, the very first song played through a Sono 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's on?

No sleep. Till Brooklyn. That's all true. It just fit. These were the first units that were fulbled. 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'cause they 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 app so you never miss a new episode of the show, and as always, it's free. This episode was produced by Catherine Cypher with music composed by Ramtina of Lui. It was edited by Neva Grant with research help from Sam Paulson. Our production staff also includes JC Howard, Casey Herman, Carrie Thomson, Alex Chung, John Isabella, Chris Massini, Carla Esteves, and Malia Agadello. Our engineers were Robert Rodriguez and Josh Newell.

I'm Guy Raz and you've been listening to how I built this.

What you see above is a preview of the first minutes. One unlock costs 3 credits and covers this episode forever: full segment and word-level timestamps on this page, plus .txt, .srt, .vtt and word-level JSON downloads, as many times as you like.