The Three Generations Rule
Make the product, fix the product, then fix the business — innovation almost never lands in one generation.
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 4
- Confidence
- 95%
Fadell's observation across the iPod, iPhone, and Nest is that a genuinely new product needs three generations to succeed: generation one makes the product, generation two fixes it using customer feedback, and generation three fixes the business by dialing in margins and volume. The discipline is to stay with a right idea through early non-success instead of abandoning it.
Origin
Tony Fadell's lesson from shipping the iPod, iPhone, and Nest products; he attributes the same iterate-through-failure philosophy to Jeff Bezos.
Core principles
- 01No one gets it all right the first time
- 02Gen 1 = make the product; Gen 2 = fix the product from customer feedback; Gen 3 = fix the business (margins, volume, reliability)
- 03You only truly fail if you stop — continued iteration is learning, not failure
- 04Restart only if something is 'severely brain-damaged' about the concept; otherwise hang in there
How to run it
- 1
Ship generation one to get real feedback
Make the product and get it into customers' hands. Expect it to reach only a narrow early audience and to make little or no money. The first iPod sold only to Mac geeks (<1% of the market); the first iPods and iPhones made no money.
Pro tip Accept thin early margins as the price of learning — do not judge the idea dead on gen-1 economics.
- 2
Fix the product using customer feedback
Use what real buyers tell you to refine features and correct the biggest gaps. By gen two you should have 'the features sort of dialed' even if the business still isn't working.
Watch out Don't try to fix margins yet — get the product right first.
- 3
Fix the business
In generation three, make the margins, drive up volume, nail reliability, and remove adoption blockers. For the iPod, gen three added Windows connectivity and the iTunes Music Store — which is when it finally took off.
- 4
Decide: persevere or restart
Stick with the idea through non-success unless something is fundamentally broken about the concept itself, in which case restart. Judge the difference honestly.
Pro tip Run skunk-works bets in parallel so the fix for gen two/three is already in flight before you need it.
Watch out Confusing 'not a hit yet' with 'wrong idea' kills products that just needed another generation.
In the wild
Gen 1 and gen 2 sold only to Mac loyalists — sold out the first quarter then died. It wasn't until gen 3, when the team finally shipped Windows connectivity and the iTunes Music Store, that the iPod took off. Fadell had pushed for Windows from the start; Steve Jobs blocked it ('over my dead body') to protect Mac sales, so it advanced as a behind-the-scenes skunk-works project.
→ The third generation turned a niche Mac accessory into a mass-market product that became a core part of Apple's business.
Nest needed two generations of the smoke detector and several generations of the thermostat before the business model worked — not just the product.
→ Nest became the best-in-class product in its category and remained so for a decade.
Common mistakes
Quitting after a lukewarm generation one
Because a truly new product reaches only a tiny early audience and makes little money at first, founders read gen-1 economics as failure and stop — forfeiting the gen-3 payoff. Fadell: 'you only fail if you stop.'
Trying to fix the business before the product
Chasing margins and volume in gen one/two, before the product is dialed from real customer feedback, optimizes the wrong thing and produces a well-priced product nobody wants.
Is it for you?
Best for
Builders launching a genuinely new product category who need conviction to iterate through early non-success
Not ideal for
Products with a fundamental, unfixable flaw in the core concept — those warrant a restart, not perseverance
From the transcript
“I've learned you make the product, you fix the product and then you fix the business”
“It took three generations of the iPod before it became successful”
“you only fail if you stop. If you keep iterating and keep going, well, then that's not failure. That's called learning”
“you need to stick with your idea even if it's not necessarily going the first time unless there's something really severely your brain damaged about…”
From the episode
Father of the iPod and iPhone on building taste, judgment, and creativity in the AI era
Tony Fadell