Six Degrees of Scaling a Business: Ecobee CEO Stuart Lombard

Some people might fiddle with their thermostats if they want to save energy. Stuart Lombard wants to do it for you.

Ecobee is a Toronto-based company that makes wifi-enabled smart thermostats, saving users money and looking great while doing so. Lombard founded the company in 2007.

The average ecobee customer saves about 23 per cent on their heating and cooling costs per year, a number that leads to many ecobee units paying for themselves within a few short years. Users can control the device with their phone and create a positive impact on the environment by minimizing energy use while away from home.

The vision seems like a surefire winner—after all, ecobee’s biggest competitors are currently huge entities like Google and Honeywell, so they must be doing something right—but it was a long road to get to where the company is now.

Lombard studied engineering in college and always had a passion for making an impact on the environment. It would take some time to realize that passion though—when Lombard graduated, he really had no idea what he wanted to do.

He eventually went to work at CAE Electronics in Montreal and clawed his way through the ranks into a situation most people would dread.

“I was really fortunate in that I had the worst boss ever,” explains Lombard. “So I had one of those take this job and shove it moments. I had all the papers in my full office, threw them in the air and said, ‘F*** this! I quit!’”

After skiing his way through British Columbia, Lombard moved to Toronto where he founded one of Toronto’s first internet service providers in 1994, Inforamp. An acquisition and merger later, he launched and sold Isolation Systems.

It was when this serial entrepreneur was working at JLA Ventures that he decided to combine his environmental passion with an eye for business. Realizing thermostats were as dumb as a doorknob, he launched ecobee a decade ago.

Since then, ecobee has earned 35 per cent of the smart thermostat market share, received amazing customer reviews, and secured $35 million in funding from the Amazon Alexa Fund. Ecobee recently moved into a new office on Toronto’s waterfront to accommodate their quickly-growing work force.

When you launched ecobee did you realize how lucrative the smart home product market would become?

To be perfectly honest, I don’t think so. People ask me, “What did you do? Did you just decide to start a thermostat company one day?” Well I think it’s a pretty good idea. People then said, “You’re building a thermostat, what are you going to do six months from now?”

We thought it was a big market—big enough at least. Did I think it was going to become what it is today? No, I didn’t, but I think a lot of those big opportunities start from small beginnings. I’m a big believer in owning your skills, building things over time—as a team that’s really what we have accomplished.

Like you said, people were skeptical of a thermostat company. How did you approach scaling ecobee in its youth?

It was a really big challenge on a whole bunch of different fronts. The biggest one was getting people interested in the category. I tell people, “If this thermostat thing doesn’t work out I’m going to start a YouTube channel called ‘S**t VCs Say,’ because if I had a dime for every time somebody said, “You’re an idiot,” I’d be a very rich man.

When you think about scaling, the hard part is just raising the capital. It was incredibly difficult because nobody had an interest in thermostats. People were like “nobody cares,” or “you’re crazy,” and so scaling was really around perseverance.

We knew that the business was good because we were able to double our revenue every year and were on a good growth trajectory, so there were clearly consumers who wanted this kind of tech.

All of that allowed us to continue to grow, then as we became significantly bigger—we are now at number two in the market at 35 percent share—the challenges are a bit different. It’s around taking a company that’s 300 people and making sure they’re all engaged and understanding what they’re doing and why. It’s different compared to back then.

Ecobee seems like a product that almost sells itself: “Buy this product that pays for itself in less than two years.” What are the challenges of marketing that message and saying, “How do you not have one of these in your home?”

For this, it’s one of the ways we think about competing with Google and Honeywell. Those are the behemoths with unlimited funds.

For us, and really for any startup, you need your customers to be your advocates. We need word of mouth and people to talk about their experiences and share it. So we really focus on customer satisfaction. Our net promoter score is something that we value and we survey our customers at least twice, so it really puts us in the top one per cent of companies.

In previous years, I may have said our product is good enough on its own but now we’re trying to make sure that it’s really awesome and consumers will talk about it.

Were you surprised at how quickly ecobee grew, given its niche marketability and stiff competition?

When you go down one of these journeys you have high hopes. I don’t want to sound arrogant but you definitely want to see it grow rapidly. We believe one of the most exciting parts is the future.

I’m more excited about ecobee’s roadmap today then I have ever been, and we believe there will be a Snapchat or a Facebook or a significant company that comes out of this space and our goal is to be that company.

If you look at where we are, we’re really at the front edge. To steal a line from Jeff Bezos, we’re always at day one. We really believe that we’re building a new computing platform in the home and that it will change the way that people interact.

Ecobee can deliver this awesome experience based on voice, but also one where we understand what devices you have and learn how you want to use them to create a magical experience.

Think of a simple case where you go on vacation—we’ll turn down your heating, that’s obvious. Maybe you want it to look like you’re home, so ecobee can leave some lights on. Or turn them off to save energy. It’s about understanding how you want to create simple but magical experiences.

How have you been able to separate ecobee from similar products?

It’s two things. First, is understanding your customer value proposition, and we do that through customer-led innovation. We are very focused on interacting with consumers and understanding what their pain points are, then using that information to drive our innovation strategy.

For example, if you look at one of our core differentiators versus both Honeywell and Google, in our research we found that the number one complaint with a heating and cooling system is that there are hot and cold spots in a house.

So we have these wireless room sensors that measure temperature and occupancy to make it comfortable in the rooms you actually use, which delivers way better results. That’s an example of customer-led innovation. We’re active listeners, so we take those challenges our customers have and prioritize them.

Second is around how do we deliver a great consumer experience. We focus on that and those two things together allow us to really compete with Honeywell and Nest. If you look at market share from [Canadian market research firm] NPD, we’re growing faster than both of those products.

A recent funding round for ecobee was led by Amazon’s Alexa Fund. What’s the importance of integrating a smart home product like ecobee with these wide-ranging virtual assistants?

It’s interesting, and is another way we are different from Nest. They’re building this ‘works with Nest’ platform, saying everyone come and integrate with our platform.

We believe customers are already invested in ecosystems and our goal is to be the number one player in those places where customers are already invested.

If you look at Amazon with Alexa, we worked with them to write the connected home skillset for thermostats. We did the same with Apple’s HomeKit. We worked closely with Samsung too.

We’re really trying to say “Hey, ecobee will connect into something that’s the most important for you.”

If you look at a customer’s journey, people buy smart thermostats because the value proposition is simple. It looks way better, it’s way easier to use, connected on my phone, and pays for itself in maybe a year.

As customers get more devices, they say what’s the next problem I can solve. Maybe it’s a camera or a doorbell—then they have three or four devices and start asking how it all works together. I think that’s really where we are in a customer’s journey today.

Ecobee has partnered with the Canadian government to install smart thermostats into homes for free. You also have partnerships with power and utility companies. What is the value in working with huge national entities or providers like those?

We’re really excited about that program as it will be a great one to make consumers’ lives easier and better, but also drive really great savings at really good price points.

These partnerships are super important. We work with maybe 50 utilities and have similar rebates available to about 60 per cent of the North American population, all around driving energy efficiency or reducing electricity usage during periods of peak usage, which drives peak costs.

By reducing that, we reduce the costs of delivering that electricity for everyone. We have a whole business development team that works with utilities to spearhead those types of programs and they have been incredibly successful.

What are your thoughts on society building towards this completely integrated, IoT friendly home? Is it completely necessary for our fridge and coffee maker to be connected and speak with one another?

I don’t know if I should tell this story—it was at the Consumer Electronics Show last year. And I’m listening to this connected home presentation, where your coffee maker is connected and whenever you wake up coffee will start and all this stuff will happen, and this guy put up his hand beside me and says, “I was only going to the bathroom.”

It’s all really around figuring out uses cases. As we get significantly smarter and use technology like AI and machine learning, we can understand how those devices should work together to create a much better and personalized experience.

One of the challenges with a product today is that you can only focus on the three or four major use cases—otherwise, it gets too complicated, it breaks, and it’s not perfect for you but good for the majority. By using machine learning and AI we can create these micro use cases. I think people are going to get a much better overall experience and things are just going to work better.

What’s important for us is to allow you to think about your family and friends and what makes your home a special place. You don’t want to be fighting with your coffee maker or furnace or anything else.

How is ecobee looking towards the future of the smart home beyond thermostats?

We have a new light switch. One of the things that’s exciting about it is that it includes a speaker and microphone, so you can talk to it the same way as Alexa. It includes things like a sensor to measure temperature and occupancy. These light switches will know you’re in the room and make it comfortable for you. It can act as a security system as well. Ecobee wants to create all of these wonderful experiences.

You’re going to see a whole bunch of new products from us. I think we have some really cool things on the horizon.

This interview has been edited and condensed for clarity.