Today, Sonos is celebrating its initial public offering, a big milestone for the Santa Barbara company that began with an ambitious mission sixteen years ago to become a beloved presence in millions of homes around the world.
My journey with Sonos has been one of the most personal and unique experiences for me as an investor and it’s incredibly exciting to celebrate this achievement with the Sonos team. Our partnership began when I had just joined Index in the fall of 2009, and met an old friend named John Macfarlane for dinner in Notting Hill, a quaint neighborhood located in West London. I had invested in John’s first company, Software.com, back when I ran corporate development at Cisco and it had turned out to be a huge success. John is a true entrepreneur and innovator — he cares deeply about his customer and his products; he defies conventional wisdom; and, he is resilient in difficult times. We love entrepreneurs like him at Index.
John’s new company, Sonos, was doing well, and it was clear that his obsession for creating great products was working its magic again. At home, we were happy customers - Sonos had enriched our entire house with music. And though investing in a WiFi home music company was definitely not part of our strategy at Index at that time, the more we learned about the company, the more excited we got. After a few meetings and discussions, we were fortunate enough to lead their financing round later that month.
Every company in the Index portfolio has a different personality. We’d like to think that by taking a more contrarian approach when investing, we’ve built a portfolio of unique companies - some defined by charismatic founders, some by a dramatic pivot, and others by the devotion of their users. Sonos in particular has been a special business for us because it so beautifully defies so many Silicon Valley conventions, and has exceeded its own expectations.
When the founders started Sonos in Santa Barbara in 2002, it wasn’t long after the first dot com bust. At the time, consumer hardware startups were not viewed favorably because they typically demand higher capital requirements and have inventory risk. But MacFarlane and his team took no notice of the Valley’s prevailing wisdom, just as they ignored another burst of short-lived hardware hype from 2012-15. They concentrated instead on building great products that customers loved. In doing so, they not only created a powerful, software-based music system for the home, but also established partnerships with Apple, Spotify, Pandora, TuneIn, and many others in order to offer customers the broadest possible selection of streaming music services.
There are many reasons Sonos has built such a loyal customer base. It’s a blend of design, technology, an immersive listening experience and the ability to wirelessly stream content customers love that has earned Sonos the reputation as the connoisseur’s music system at affordable prices. That’s why Sonos has seen sales of more than $1 billion in the past year, and why customers have an average of nearly three Sonos devices set up in their homes. It’s also a system that is simple to install and use. Sonos homes listen to an average of 80% more music, and a remarkable 93% of units shipped since launch in 2005 are still in use. That longevity testifies to the quality of the product.
Sonos has matured as a company since its early days, yet it continues to defy Silicon Valley’s conventions. They elegantly executed a leadership transition from John to current CEO Patrick Spence, and while conventional wisdom would say that such transitions — from founders to business leaders — are tricky and often value-destructive. Under Patrick leadership, Sonos has accelerated its growth and product velocity by introducing the Sonos One and Sonos Beam in the last year along with third party integrations beyond music services. He’s also extended the company culture towards a bias to action and risk-taking - which is quite an accomplishment for a company that is now 16 years old.
The company still doesn’t have an office in the valley. It employs nearly 1,500 people globally with large offices in Santa Barbara, Seattle and Boston. They’ve navigated the challenging technological shift to voice assistants like Amazon Alexa and Google Assistant. And once again, they’ve created a space for their product by forging smart partnerships with other industry innovators.
Sonos has deep connections within the world of music, film, and culture, which has defined the company’s ethos and its journey. The company’s sound experience team is led by Giles Martin, son of legendary Beatles producer Sir George Martin. To perfectly tune Sonos speakers, Giles has worked with a remarkable roster of respected industry advisors, including Def Jam co-founder Rick Rubin, Radiohead producer Nigel Godrich and composer Hans Zimmer. The involvement of these sound creators speaks volumes about the credibility of the company among those who really understand what great sound means.
While this group of extraordinary advisors is a great asset for Sonos, the true work gets done by a talented group of people that hustles day in and day out. To name just a few — Nick Millington, the Chief Product Officer who has the technical heart of the company essentially since its inception; Matthew Siegel, the Chief Commercial Officer who joined the firm from Nike not too long ago; Anna Fraser, the Chief People Officer who has partnered with Patrick transform the company culture, Mike Giannetto, their CFO, who has got Sonos running in ship-shape, and many many others who have created this company we are all so proud of.
Today marks an important milestone for Sonos and its entire base of loyal customers. It’s a celebration of many years of hard work, creativity and dedication. Most importantly, it’s a tribute to music lovers everywhere. Yet the team at Sonos will be the first to remind you that with seven million households under their belt, they are just getting warmed up. We’re delighted to have been part of this company’s beautiful story that’s had just the perfect sound.