In the late 1990s a young entrepreneur named Tony Fadell tried to persuade Stewart Alsop, a journalist who had recently become a venture capitalist, to invest in his startup, Fuse Systems. Fadell had done a stint at the pioneering mobile-software company General Magic and then created a division within Philips to make handheld devices. Neither General Magic nor the Philips pocket computers amounted to much. But Fadell intended to leverage his experience with a new venture. His pitch was not subtle. Says Alsop: “He essentially said, ‘I’m the guy who knows more about mobile products than anyone else. Give me money.’ ” Alsop declined.
An entire decade passed before Fadell asked VCs for cash again. But what a decade it was. Fadell abandoned Fuse Systems and joined Apple to lead the team that created the iPod. That singular achievement–the iPod rejuvenated Apple and reordered the music industry–transformed him from a struggling startup guy to an accomplished executive who’d withstood the sound and fury of Steve Jobs. Fadell became known around Silicon Valley as the mercurial “godfather” of the iPod, and he added another dazzling line to his résumé by assisting in the development of the iPhone. When he stepped down from Apple’s management team in 2008, there was much speculation about his next move.
Rather than jump into anything, Fadell took a couple of years off to travel and build a vacation home. The latter experience triggered an epiphany: He hated all of the thermostats he had to choose from for his house, and he decided to design a new, better one, around which he’d build a company called Nest Labs. He hit the fundraising circuit in 2010, and this time the reception was significantly more welcoming. His pitching skills had improved. Randy Komisar, a partner at Kleiner Perkins Caufield & Byers, remembers staring at a black velvet cloth draped over a product. Fadell would remove it only after he’d methodically set up the business case.
For Apple cognoscenti, the cloak-over-the-device shtick was an overt homage to Steve Jobs. The late CEO routinely shrouded products, in public demos as well as in his own conference room, in order to build excitement for the big reveal. Yet when Fadell pulled back the veil to display a Styrofoam prototype of a round thermostat, Komisar was crestfallen. “My emotions couldn’t have been lower,” he says. He perked up, however, when he saw Fadell’s last slide: “After the thermostat we plan to do the same thing for every unloved product in the home and make them all magical.” Says Komisar: “Then I got it. Nest was a Trojan horse into the home. In 48 hours we had a check for Tony.”
Today Nest is a two-product company–building on its “learning” thermostat, in 2013 Nest unveiled an intelligent smoke detector–and Fadell is a billionaire, having sold the business to Google in January for $3.2 billion. Nest remains a gateway to selling more products in the home. And for Google it has the added bonus of being a potential thorn in the side of both Apple, which covets more avenues into the lives of consumers, and Comcast, a rival in the communications business.
As for Fadell, he now occupies a rare spot in the Valley. The only disciple of Steve Jobs to achieve outsize post-Apple success, Fadell is a bridge from the late CEO’s concept of a “digital living room” to the fledgling meme the “Internet of things,” a vision of myriad mundane devices connected to a vast electronic network. As well, Fadell is a notable exception to a general rule about Apple executives–that because there was room inside Apple for only one extraordinary individual, the other members of the team didn’t have the opportunity to develop as complete business executives.
Fadell continues to run Nest as a quasi-independent company–with a fast-growing headcount of more than 460 employees–reporting to Google CEO Larry Page. Alsop cites the quip going around the Valley that, given Nest’s still-nascent state, Google’s CEO paid $1 billion for Nest and $2 billion for Fadell. “I think that’s appropriate,” says Alsop. Adds Komisar, who urged Fadell not to sell to Google because he was certain that Nest would one day be worth far more: “I think Larry bought the Apple genome cheap.”
The story of how Fadell, 45, has combined his experiences so far to create something new is an impressive case study in career management and entrepreneurialism. He learned much from Steve Jobs, but with Nest he’s shown that his success didn’t derive solely from his mentor. Before he left Apple there were whispers that Fadell could be the company’s next CEO. The whispers returned when Valley types began to wonder whether Apple would buy Nest, in part to get Fadell back. So could Fadell jump back some day, having proved himself away from Apple? Or might he ultimately be a candidate to succeed Page at Google? The answer may lie in how successful he is at having Nest disrupt every bit of technology in your home.
Fadell’s story begins in Michigan, where he was born and to which his family repeatedly returned while moving around the U.S. for his father’s job. The elder Fadell was a sales executive with jeans maker Levi Strauss, and his son attended 12 schools in 15 years. The hopscotching included freshman and senior years at Grosse Pointe South High School, where his classmates included the children of the auto industry’s executive elite. His Midwestern family’s background was as varied as the locations where he grew up. Fadell’s mother’s family hailed from a working-class Detroit neighborhood known as Polish Town. His father grew up in a large Lebanese family in Toledo. “On Christmas Eve we’d have Lebanese food, and on Christmas Day we’d eat a Polish-Russian meal,” says Fadell.
Photo by Bryce Duffy for Fortune
Fadell, who has a bald pate and a powerful voice, is a born tinkerer. He attributes the trait to his maternal grandfather, a school superintendent in Michigan as well as a handyman who helped out with home repairs around the neighborhood. “He saved every nut and bolt and wire,” remembers Fadell. “He had cigar boxes full of the stuff, and we’d build things together. A birdhouse, a lawn mower, that sort of thing. He loved tools.” As a teenager, Fadell took a summer-school programming class, after which he coveted an Apple II computer. His grandfather recognized the PC as a tool on par with screwdrivers and saws, and he agreed to match Fadell’s earnings from caddying at the local country club so that he could buy one.
Computers and tinkering would define Fadell’s career. He studied computer engineering at the University of Michigan, building and selling a startup from his dorm room that created multimedia software for children. He graduated in 1991 and migrated to Silicon Valley, where he failed to persuade his bosses at General Magic to make a device that worked on the company’s groundbreaking Magic Cap platform. He found the TV maker Philips more receptive, getting himself hired to create products based on Microsoft CE, among the software giant’s earliest efforts in mobile.
The Philips handhelds, the Velo and Nino, had some success. But Fadell learned the hard way what it’s like to push a product that lacks top-level support, especially in sales and marketing. “The Philips salespeople were commissioned on selling televisions,” he says. When Steve Jobs and his chief hardware deputy, Jon Rubinstein, came calling a few years later to recruit Fadell to work on a mobile music player, Fadell knew the pitfalls. “I discussed this with Steve,” he says. “I had had a marketing failure at Philips. I built products we couldn’t sell or market. I knew we needed executive air cover.” Jobs’ response was unequivocal: “Steve said, ‘We’re taking on Sony.’”
Fadell started at Apple in 2001 as a consultant, initially hired to support the new iPod team. He quickly converted to full-time status and also developed a combative reputation, fighting with the likes of his first boss, Rubinstein; his eventual nemesis, mobile-software chief Scott Forstall; and frequently with Jobs.
Legend has it that Jobs periodically fired Fadell. In fact, Fadell says, he repeatedly quit. One time, after key members of his iPod team had been raided for another Apple project, Fadell informed Jobs he was done, and the CEO asked him to stay, telling Fadell he was overreacting. “I said, ‘I’m not overreacting.’ I told him I was out. If you didn’t stand up for yourself, no one else would.” (Fadell says he recanted at least two resignations, having gotten his way each time.)
Click image to enlarge.
Jobs and Fadell had a relationship that alternated between the father/son and school principal/naughty student archetypes. “He thought I asked too many questions,” says Fadell. “I would just keep asking, ‘Well, what about that? What about that?’ And he’d say, ‘Enough already.’ It would frustrate him. But then he’d ask me a ton of questions, and he could frustrate me, and I’d be like, ‘Steve, leave me alone.’”
Fadell stood out at Apple not only for his bickering with Jobs but also because he maintained relationships outside the company. He networked with startup entrepreneurs and spoke to VCs, the types of contacts Jobs liked to keep for himself. He even befriended journalists, including veteran New York Times technology reporter John Markoff, a regular cycling partner of Fadell’s, along with Kleiner’s Komisar.
A complicated relationship with Jobs only became more so when Fadell began dating Danielle Lambert, a senior Apple human resources executive. For their first date, a fix-up by a fellow employee, Fadell and Lambert sat and talked in the lobby of Apple’s headquarters building. The blind date turned awkward when Jobs walked by, confused by the obviously social conversation between two of his most senior executives. Lambert was a power in her own right, having come up at Apple as a recruiter, the one aspect of HR Jobs fully respected. “Dani was super-key for Steve, who was always thinking about people,” says Jerry Murdock, a Nest investor who has become friendly with the couple. Fadell and Lambert, who wed while still at Apple, announced their resignations from the company on the same day in 2008. They and their two young sons–Lambert recently gave birth to their first daughter–promptly decamped to France, where they rented an apartment in Paris.
Fadell characterized his departure from Apple as a retirement. In reality, he enjoyed an 18-month break enforced by his exit agreement with Apple, which paid him as an adviser to Jobs. It was then that he involved himself in every aspect of the construction of his majestic vacation home near Lake Tahoe and hit on the idea of making a better thermostat. He also realized there were other products in the home he could reinvent, which convinced him that he had an idea for a company.
Back in Silicon Valley to attend a wedding in the fall of 2009, he had lunch with his former intern at Apple, Matt Rogers, then in his late twenties and still at Apple. Fadell’s acolyte was ready for something new. “With Tony not there, being one of Tony’s guys was a pretty bad thing,” says Rogers, now 31. The next year, once the Fadells returned to California, Rogers quit Apple and became co-founder with Fadell of a stealth startup with an office in a garage near Stanford University.
Nest co-founder Matt Rogers, photographed outside company headquarters in Palo Alto, was once Fadell’s intern at Apple. Photo by Bryce Duffy for Fortune
Having failed at startups before, Fadell thought holistically about Nest from the outset. That included seeking help from heavyweight advisers. For example, for sales, marketing, and operations advice he leaned on Intuit chairman Bill Campbell, an Apple board member very familiar with Fadell’s abilities and a noted management coach in Silicon Valley. Fadell more or less had his pick of investors, and Kleiner beat out Benchmark Capital for the first round of funding. Google Ventures and others invested later. “If the deal he’d shown us had to do with snow tires and diapers, we probably would’ve been just as enthusiastic to give him tens of millions of dollars,” says Google’s David Krane.
What Fadell showed early investors was a high-tech thermostat and a combination smoke/carbon monoxide detector. The thermostat is a $249 round orb jammed with Wi-Fi-enabled sensors. The revolutionary aspect of it is that it “learns” a consumer’s habits, can be manipulated remotely by smartphone, and uses other tricks to conserve electricity. Nest launched it as its first product in 2011. The company doesn’t disclose sales figures, but according to a source with knowledge of the numbers, Nest has sold roughly a million of the thermostats. The newer smoke and gas detector, Nest Protect, is designed with consumer-friendly updates on the standard device. For example, it gently warns with a recorded human voice that a battery is dying rather than chirping loudly throughout the night. And Nest suffered a black eye earlier this year when it detected a defect in 440,000 of the smoke detectors that could cause users to turn them off unintentionally. Nest halted sales for a period of time and fixed the problem with a software update.
As Fadell was pondering what type of culture he wanted to create at his startup, Lambert introduced him to the noted management consultant Keith Yamashita, who helped Fadell write down a description of the company’s “corporate character”–even though Nest was only a few months old. “What I found fascinating is that he was asking questions that CEOs far deeper into their journey finally ask,” says Yamashita. “Questions about leadership. About culture. About focus. About the core character of Nest, what would make it unique. We would alternate between exploring his vision–reimagining the everyday things in our lives–and bringing not just true usefulness to them, but impact. He talked about dozens of products he could reimagine.”
Fadell and Rogers focused on recruiting top executives, particularly from Apple–poaching legal, engineering, and human resources talent. Rogers says Apple barely noticed. “Apple’s a big company,” he says. “The iPod in particular was never a huge priority after Tony left, and that business was declining. Having great folks leave to do something else didn’t really raise a lot of alarms.”
Another weapon at the team’s disposal was Lambert, who advised on top-level recruits. “She just said, ‘I got it. I can handle it,’ ” says Fadell. “I don’t think you could find a better person to help any size company.” These aren’t just the words of a supportive husband. Lambert remains an in-demand HR exec, if only a company could persuade her to go back to work full-time. Jack Dorsey, the Twitter co-founder and CEO of fast-growing startup Square, recently approached Lambert at a public function and said, “I hear you’re ungettable.”
When They Were Smartphone Kings: After the announcement of the iPhone in 2007, Jobs posed with senior Apple executives behind the device. From left: Philip Schiller, Fadell, Jony Ive, Jobs, Scott Forstall, Eddy Cue. Photo by Jonathan Sprague—Redux
Fadell and Rogers packed the senior ranks with unusually experienced executives for a startup. Among their first hires, for example, was a senior-level radio-spectrum expert from Apple named Shige Honjo. They gave him the same role he had at Apple, engineering product manager, even though there wasn’t yet a product, let alone an engineering team to manage. What he gave the fledgling team was a web of relationships and instant credibility with suppliers. Honjo says young companies often fight for meetings. For Nest, suppliers were so eager to work again with the team from Apple that top executives would take their calls. Says Honjo: “The CEO of Texas Instruments even visited us in the garage.”
One thing the founding duo didn’t want to re-create entirely was Apple’s culture. There’s a certain whimsy about Nest that simply doesn’t exist at Apple. Summer interns, for example, are called “Nestlings.” Information flows to the employees, who are encouraged to pipe up with their views, whereas views are best kept to oneself at Apple. Apple is the ultimate siloed company; Nest discourages silos. “What’s different here is that we’re under one roof,” says Jose Cong, an ex-Apple recruiter who now heads the function at Nest. “Everyone here is working side by side.”
What Apple under Jobs and Nest under Fadell do share is the certainty among the troops of exactly who’s in charge. Fadell immerses himself in details as granular as company blog posts and algorithms guiding the sensors in thermostats. He’s known as a demanding boss who is meticulously prepared–and expects everyone else to be too. “I come from the engineering point of view,” he says. “I want to know all the variables.”
Toward the end of 2013, Nest began to think about raising more money. Two prominent firms that had made a name for themselves investing large sums in relatively mature Silicon Valley startups, Rizvi Traverse Management and DST, expressed interest in valuing Nest as high as $3 billion. Sensing an opportunity, Google, already a Nest investor through its venture arm, offered to buy the whole thing.
Google also promised to let Nest operate as an independent business, with Fadell and Rogers continuing in their roles. Rather than relocate to the search giant’s Mountain View headquarters, Nest will remain down the road in Palo Alto. “I almost don’t even feel like we sold the company,” says Rogers. “It doesn’t feel like that. And the way we talk to our employees about it is we had the opportunity to go raise some money.”
The ability to raise a lot, not some, money quickly is the chief reason Nest sold itself. “Google is willing to put billions into this company over the next several years,” says Komisar, the Kleiner Perkins investor. “As a venture capitalist, I could only get my hands on hundreds of millions.”
Fadell and his colleagues are tight-lipped about what products Nest is working on next, but he’s recently alluded to areas like home security, health and safety, and water conservation as possibilities. Snippets of concrete information confirm Nest’s big plans. Cong, the recruiting chief, says he ran a team of seven at the time of the Google acquisition. “Within six weeks,” he said in late April, “I’ll have 30 people reporting to me.” As for when to expect Nest’s next release, Rogers says: “For consumer products, you always want to get them out before Christmas.”
Because Google has so little hardware expertise in its upper ranks, as soon as the Nest deal was announced, tongues began to wag about how high Fadell might rise at the search giant. For now, Fadell exudes modesty about his role at Google. He says he budgets about one day a week for visiting Google, meeting with executives up and down the organization in order to achieve two objectives: learning about Google and figuring out how the bigger company can help Nest.
The betting among insiders is that Fadell will step into a significant operating role at Google, particularly as hardware becomes a bigger part of Google’s efforts. “If Tony gets around there more and becomes a part of the management team, you’ll see an uptick in hardware excellence,” says Bill Campbell, a former adviser to Google’s Page. “He’s impatient. He wants everybody to do it at his pace and his precision.”
Fadell says he’s enjoying Google’s culture, especially in contrast to Apple. “I’m getting emails from people from all over the world inside Google,” he says. “At Apple the communications were very well structured.” As for a larger role, he claims not to have time right now. “I’m just trying to build relationships.”
The association with a behemoth that profits from selling ads pegged to information about its users has created some headaches for Fadell. After the Nest deal closed, a pre-acquisition securities filing came to light in which Google named the thermostat as one household item on which it might place advertising in the future. Fadell quickly issued a statement saying Google had no plans to run ads on Nest thermostats. “We’ve said from the beginning it makes no sense to have ads on thermostats customers paid for,” he says.
If there’s one thing that gnaws at Fadell, it’s that he never got to tell Jobs about Nest. The two had corresponded, with Jobs checking in to express interest in Fadell’s stealthy startup, which, Fadell had told him, had an energy-conservation aspect to it. (A key selling point to the original Nest device is that it saves electricity by knowing when its owners don’t need it.) By the time Fadell was ready to share more in the summer of 2011, however, Jobs had grown gravely ill, and he died several weeks later. “I would have loved to have been able to show it to him, but the timing didn’t work,” he says. Jobs presumably would have been proud of Fadell. And he almost certainly would have asked a lot of questions.
(An earlier version of this article stated incorrectly that the Nest Protect smoke detector speaks in a computerized voice. It talks with a recorded human’s voice. The article also said the Consumer Products Safety Commission determined that a defect in the smoke detector required a recall. In fact, Nest initiated the recall, repaired the defect, and notified the CPSC.)
This story is from the June 30, 2014 issue of Fortune.
Related Video: How Tony Fadell came up with Nest