In the mid-2000s, the thermostat was an ugly box that few people thought much about. But when eco-conscious entrepreneur Stuart Lombard failed spectacularly to program his and returned from vacation to a freezing house, he saw an opportunity to make home heating and cooling more efficient. He founded ecobee and, in 2008, launched the world’s first smart thermostat, which automatically adjusts temperatures depending on when the home is occupied. Since then, ecobee has grown to make a range of sleek home-monitoring equipment that features artificial intelligence and voice control.

In December, the company was acquired by Generac, a U.S. manufacturer of power-generation equipment including solar panels and backup batteries, in a deal worth U.S.$770 million. Here, Lombard explains how the deal happened, how he knew it was the right one, and why it proves more than 100 VCs wrong.

 
Approaching the exit: “I’ve never spent a lot of time on exit strategies. If you focus on them, the tail can wag the dog. But build a really great business and exits will present themselves. Having said that, as we scaled and became a much bigger business, an IPO or a stock transaction were both on the table. As well as the Generac deal, we also investigated staying as a private company. In the end, the Generac transaction made the most sense.”

Why Generac won: “I thought about why I started this business, why am I here at all? One thing is to grow our impact through scale. We can have tons of impact, but if we have no scale does it really matter? We could have gone public by SPAC [this stands for special-purpose acquisition company — the term for when a private company becomes a publicly traded one by merging with a listed shell company] and raised a lot of capital, then built our own solar and storage businesses and all that. It probably would have taken four or five years. But by combining with Generac, we get that right away and we can accelerate significantly faster.”

Putting the deal together: “We had been talking to Generac about how we could integrate products and leverage sales channels and they were considering an investment in ecobee. That moved quickly from making an investment to doing an acquisition as we were able to really crystallize the value proposition.

If you think about how to create a net-zero home, there’s a part that is around generating energy, so things like solar and storage. And there’s a part about being able to intelligently manage how you consume energy. Putting those two sides together creates a much better value proposition. That was one of the reasons we think the Generac transaction strategically makes a ton of sense.”

How ecobee got here: “I think we were rejected for venture capital something like 174 times. At the beginning people just thought that we were crazy. They said nobody was going to pay $250 for a thermostat. Then in 2011, Nest came out and the venture capitalists told us we’d already lost, that there can’t be two players in the market. So, it took a lot of perseverance on a lot of different fronts. But the main thing was winning with consumers. We were able to show significant traction with consumers, and that’s what led to our eventual success.”

Competing with Nest: “They spent an inordinate amount of money on advertising. I remember coming home one day, and every bus shelter and subway car had Nest all over it. I thought, ‘They know where I live, and they’re messing with me.’ Then I flew to Chicago, and they had bought every bus shelter there, too. They were spreading the word everywhere. But that created a much bigger market and that enabled us to adopt a strategy of going in the draft behind them. We let Nest spend a lot on creating category awareness and we really thought about how to win in the last three feet: how to win at retail, how to win on Amazon, when people are at the bottom of the sales funnel, and convert them.”

Biggest surprise in scaling a business: “One of the things that I didn’t appreciate is the challenges of scale. When you’re 20 or 50 people, communication is really easy. But as you grow, you have to be very thoughtful about how you communicate and keep people engaged, because you cease to know everybody. It has forced me to be much more thoughtful about communication and how you formulate strategy. That has been a significant challenge that was unexpected to me. I was expecting once you get to a certain size, then you’re playing golf every day, but it hasn’t turned out that way.”

Where next: “We’ll continue as a standalone entity, and I will continue as CEO. Generally, our strategy and approach will not change. The biggest benefit is we’ll have access to new products and services as well as significantly larger sales and marketing channels, including access to international markets and to electrical contractors. All of those together, we believe, will create significant upside for us.”

 
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