Making heat pumps better, easier, and a little sexier

Volts

In this episode, I talk with CEO Paul Lambert of startup Quilt, which came out of stealth this week with heat pumps that are not ugly. They perform well too, and are easy to buy and install, but mostly they’re not ugly.

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David Roberts

For all the hype around heat pumps — hype to which I have happily contributed — the actual experience of installing and using one remains frustrating for many people. It's difficult to find a contractor familiar with them, and if they are poorly sized or installed, they can fall short on performance, especially in extreme temperatures. On top of all that, their looks and design are … utilitarian at best.

The Quilt indoor unit.

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Several startups have identified this market as an opportunity. One of the splashiest debuted this week: Quilt is coming out of stealth with heat pumps that it claims work better, look better, and are easier to buy and install than what’s on the market today.

Paul Lambert

How can heat pump design improve exactly? How can the frictions of finding a contractor and getting one installed be reduced? Are consumers ever really going to view HVAC as a consumer product requiring nice aesthetics? I’m going to discuss all this with Quilt CEO Paul Lambert.

The Quilt outdoor unit.

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Before he spun Quilt out of it two years ago, Lambert ran Area 120, Google’s in-house incubator, where he worked with founders to build new businesses for Google. Why did he settle on heat pumps? We’re going to get into that and much more.

All right then, with no further ado, Paul Lambert of Quilt, welcome to Volts. Thank you so much for coming.

Paul Lambert

Thank you for having me.

David Roberts

Before we get into your product: You were working at this Google incubator, so you were sort of positioned, I think, to see a lot of different sustainability ideas, technologies, business proposals come through. So why, out of all those that you got a glimpse into, did you decide to dive in here? What is it about the heat pump market that pulled you in this direction?

Paul Lambert

So just as a small clarification, this wasn't actually spun out of Google. I was just at Google prior to working at Quilt. But yeah, I mean, I got to see a lot of really, really great ideas at Area 120. But this one I actually started while I was on paternity leave, away from Google. And, you know, I'm an entrepreneur whether I like it or not, I've kind of come to accept that. And I had been working on trying to figure out what my next thing was going to be for a while. But because this isn't my first startup, I knew that you're making a really long commitment.

Ideally, actually, when you start a company, you should go into it with a long-term mindset. And so, I had set a bar for myself that I wasn't going to jump into something unless I would commit at least a decade of my life. And I think that was the right decision. And also, it was hard — it was really hard to find something that just felt like it had that longevity. The way I failed at the beginning was I started with the technology. So, if you look at whatever the technology du jour is, they usually don't have a very long shelf-life.

Right? Like three years ago, everyone was excited about crypto, right? Now it's generative AI, right? Who knows what it will be in three years. But I was on paternity leave and I realized that if I could instead just work on whatever problem I genuinely believed was the most important problem to my kids' generation, that there was no way to fail and that was actually the unlock. So, you know, I just had to answer what that question was. And it didn't take a long time for me to be really convinced that it was climate change. And then I just was looking for where could someone like me make a difference?

And I wasn't going to start a fusion company or some other things, which you get to talk to people who do this incredible stuff. But my background is consumer technology. So, I was trying to figure out where the largest emissions impact I could have was. And I was blown away when I learned about how many emissions are driven by home energy use. The study I saw had it at 20% — so that's both grid-sourced and onsite. But 20% is more than personal vehicles, it's more than cars. So, as a consumer, you only buy fossil fuels in two parts of your life, right?

Your vehicle and your home, generally speaking. And it was just really crazy to me that the home was actually larger, even though there was all this energy around EVs. So, that's how I got to that.

David Roberts

As you're looking at the heat pump market, what jumped out at you?

Paul Lambert

There's a few things. One, you discovered, there's this whole other, I guess, form factor of the product. This thing's called "ductless," right? And it's kind of a technical term, but it means no ducts. And those of us who grew up in North America generally had ducted central air systems or maybe radiators, if you're in the northeast. And a lot of people recognize these big plastic boxes from sort of ACs in hotels or when they've been traveling. And when you actually look into them, they're really amazing devices on paper. They generally are more efficient. They don't have ducting loss, they're more responsive because you get to heat and cool every room.

But it's pretty hard to convince everybody in America who grew up with nothing they saw on the wall and these really easy to control systems, that that's, you know — you want to put one of these in every room of your home. So that jumped out at me. And as a sort of product designer, it just felt like an area that the type of team I could assemble would be able to improve. And it was sort of a little bit of an ignored area.

David Roberts

I think one really only has to look at the box on the wall of a ductless system to recognize that it has not had, like an Apple-style team of designers, go at it yet. They're very like eighties, I guess, looking. I don't know quite how to capture the aesthetic, but they've not been updated, let's say.

Paul Lambert

For sure. And then, of course, you could ask, "Well, why don't we just stick with the central systems?" And that's a valid question. I think a lot of people are going to use central heat pumps with their ducting. But as I learn more into that, I also realize that central systems actually have a lot of problems. They're actually really wasteful. On average, about 30% of energy is lost in ducts. And that's a lot, right? It turns out that an even bigger problem for most homes, because American homes tend to be large, is that most rooms, most of the time, are empty and people are heating and cooling empty rooms.

So, both these, when you stack them up, turn into a ton of energy loss. And it doesn't really matter if it's a furnace or a heat pump creating the energy that doesn't, you know, it doesn't make it to the home. And when you start to peel back the layers and say, "Well, how did we end up with these central systems?" It's because fire is dangerous. So when you start with the assumption of fire, you want to centralize it and contain it and keep it away from the family. And that's how you end up with a central system.

But you can challenge that underlying assumption when you have a heat pump, because they're safe. And you can put one in every room, which allows you to individually cool every room, which gets you to the ductless systems that are just fundamentally better. But the point is that you would never be able to create a room by room control system if you were hooked on fossil fuels. So this room by room system is sort of a native approach to the post-energy transition world. It's when you start with electricity. So that's what we're trying to help usher in.

David Roberts

Well, let's get into the tech then, because this is obviously the first thing that's most striking. I was looking at your materials, and you're specializing in ductless systems. And so, I think everybody knows what this means. Most listeners probably have, like I do, a central furnace and then ducts, which are just tubes that carry the warm air to different rooms. Explain how a ductless system works. Just generally, there's a central unit outside that's doing the heat exchange, and then how's that hooked up to the individual rooms? Just like broadly, how do ductless systems work?

Paul Lambert

So the best way, I think, to think about a heat pump in general is that it's almost like a conveyor belt for heat. So you take heat from one area and you move it to another. And there's different types of heat pumps. The most common is air source. There's also geothermal. But let's just talk about air source for now, which that's what we build, and it's most of the market. So what that means is you are sourcing energy from the air, either outdoors or indoors and outside of the home. So you always have an outdoor unit and an indoor unit, and on both those units, there's heat exchange happening.

So, if you are cooling the home, you are essentially picking up energy from inside and dumping it outside. And it's in reverse when you're heating the home, you're picking up energy from the outdoor air and bringing it inside — and your listeners probably know this. But what that means is you always have those two units. It's not always the case that you only have one outdoors. And it's actually — it is a little bit technical — but if you have one large one outdoors, it actually does tend to be a little bit less efficient because that's where the compressor is, right?

And the compressor is kind of the engine of the machine, and you have to have the compressor large enough so that it could supply heat to the entire house on the coldest day of the winter or, you know, the hottest day of the summer. So, you got to kind of maximize it, size the compressor for the worst-case scenario. But in the average case scenario, say you're just trying to cool one home office during an average day, or you're just warming one bedroom, and someday like that, the compressor can't turn down low enough. And so what happens is you end up short cycling and there's a bunch of other efficiency loss.

So, it's actually more efficient to have a larger number of outdoor units.

David Roberts

And I'm guessing a larger compressor is louder?

Paul Lambert

Yeah, and of course, they take up physically more space because not just a compressor is larger — the heat exchanger to go with it, which is most of the bulk of that box, is also larger. So, Quilt has actually settled on a two to one ratio. We found that was a sweet spot because in the extreme where you have one to one, I mean, you don't want necessarily seven of these outside your home. There's only so much space outside a house, even though we do think we made them a lot better looking, and we have shrunk the size of it.

But what that means is, say you have six rooms in your home that you're conditioning. That'd be a good size house. You'd have three. And they can sort of be put around your home and stacked and things like that.

David Roberts

You're getting ahead to some of my other questions. But I just want for listeners who are somewhat baffled by the physics here, this is a question I get a lot about ducts like, "What is the relationship between the outdoor unit and the indoor unit on the wall?" Are they connected by a tube, a wire? Like, what are they doing with one another?

Paul Lambert

So, they're connected by copper piping, called a "line set." That's the technical term. And refrigerant fluid is what flows through it. The refrigerant fluid is essentially the energy transfer fluid, and it's a lot more efficient than air. So, if you think about a ducted system, it's basically air is your energy transfer fluid, where in this, it's actually a refrigerant fluid that is much more efficient at transferring energy. And I think the better way to think about it is you're moving — you're kind of moving energy, thermal energy between the indoor and the outdoor unit, as opposed to air.

David Roberts

Right. Right. So, when you're cooling, this refrigerant is carrying heat from inside and venting it outdoors and vice versa. So, the refrigerant is carrying the heat energy. This, I think, is very helpful to people. So, I've got some technological questions: One is, if I have a ducted system, which I, in fact, do have, am I just screwed? Am I not eligible for one of your systems? Or, how would you approach my house?

Paul Lambert

Oh, not at all. Actually, most of our customers have ducted systems. You can think of us as almost like just a layer on top. And a number of rebates will only come into effect if you pull away the old fossil fuel furnace. And then the nice thing about that is you get a lot of storage space. Another really nice thing about the ductless systems is they tend to be quite a bit easier to install. It's a bit of a technical point, but a lot of times when people put a central heat pump in a system that used to have a furnace, they actually have to redo all their ducting.

And that's because the air that comes out of the heat pump isn't actually as hot at the source as the furnace. And it's because the furnaces, again, were kind of designed in this lossy world where it's like, it's okay if the air is superheated, it's going to cool down in the ducts. But that's uncomfortable for a heat pump because by the time it gets to the home, it's not warm enough. And that also means you can't get enough BTUs into the home because you just have — the air isn't as hot. So, you need to widen the ducts.

And that means cutting open ceilings and walls for most people.

David Roberts

You can't just insulate them better?

Paul Lambert

You can, but you still have to get at the ducts. But also, there's kind of an equation to sort of — the volume of air times the energy that's the heat of it, really the temperature of it. And, you know, insulation helps. But often, very often, people actually need to replace their ducting. And a ductless system, you kind of just go over the top and we cut maybe a two inch. Actually, about an inch and a half size hole through the wall — usually can be done in one to maybe three days for a really large home. But it's much, much less invasive to install.

It's counterintuitive, but for many, many people who have central ducted systems today, putting in a ductless system like Quilt is actually less invasive and less in construction work than putting in a central heat pump, even though they already have ducting.

David Roberts

Interesting. And so, you don't have to do anything with the ducts, the ducted system, like, do you have to seal them off? Or, like, I mean, do you just leave them there as like a legacy?

Paul Lambert

Yeah, I mean, they basically are obsoleted. You can seal them off. It's kind of funny. My existing home that I bought actually had an old ducted system that had been abandoned prior. So, I actually have ducts that aren't used in my own home.

David Roberts

All the floors have holes in them, too, right where the ducts come out. So, do you have to seal those off or cover those off?

Paul Lambert

You can absolutely seal those over. I mean, that's not something we do by standard. Some people — generally, you just leave it there. I mean, like I said, you remove the furnace and the central blower and the central AC if you have one. So, you get all that space back.

David Roberts

Yes, I would like this closet in my office back. And I also would like it not to sound like a plane is taking off next to me every time my furnace fires up. So, there's no impediment. It's no more difficult to do this for a house that has a ducted system than it is for any other house.

Paul Lambert

It's actually usually less. Like I was saying, I mean, if you're comparing it with a ducted system. The ductless is usually less construction work. It all hinges on whether or not you have to mess with your ducts. If you do, it's usually much simpler.

David Roberts

Right, right. Are you just targeting residential here, single-family homes, basically, or is there any reason you couldn't work in multifamily homes or apartment buildings or even towers or commercial buildings? Is it a technological thing or a business thing that you're targeting residential here?

Paul Lambert

It's a business thing. So, it's more a function of our maturity as a company and our desire to focus on the maximum impact. And we're a startup, right? We just launched and I think —

David Roberts

Literally just launched.

Paul Lambert

Literally just launched. And I think the downfall for a lot of startups can be trying to do too much too fast. And on the impact side, we just felt that residential homes, like I said, the discovery of residential home emissions was kind of what led to the founding of Quilt. But also, single-family homes in particular have larger carbon footprints.

It's fairly intuitive, but density is correlated with a lower carbon footprint. So, even at the higher end of the market, right, the larger homes have larger — so if we can help transition single-family homes, which are the majority of dwelling units in the United States, to single-family homes, that's a really high impact place to start. And it felt like a place that was being a little bit ignored when there are, I think, better solutions for some of the multifamily and commercial units. That said, I will say that in most of the world, ductless units are very, very common.

Like you go to Asia, you see them everywhere. And those are generally almost always multifamily units. So, there's no reason this is technologically not going to work there. It's just not where we're starting.

David Roberts

But like, if you had an apartment building with, I don't know, 50 units, that would be a minimum of 25 of these outdoor units located around the building in various places.

Paul Lambert

Yep, that's correct. And if you go to — I remember I was in Italy this summer in Naples, and there would be one of those outdoor units outside of every apartment. So, you know, the side of a building would have, yeah, 30 or 40 on them.

David Roberts

Yeah, yeah, yeah. So let's just start with the outdoor unit, the heat pump itself — I don't know if that counts as the heat pump itself — but the outdoor unit. Tell me, what's better about your outdoor unit than what I could go to Home Depot and buy today? What's the selling pitch here?

Paul Lambert

So, with the outdoor unit, I'd say I'm going to start with the aesthetics. I think that's a big deal, right? If you're going to have this outside your home, it should, like, a heat pump should be a proud statement of someone's beliefs. Like a brand statement, like an EV in the driveway. And right now, like, if, you know, Dwell magazine or some fancy magazine, like that was doing a photo spread of the eco home of the future, they would probably have to hide the heat pump. Because, like, there's nothing that would fit in that magazine. So that's actually a big deal.

And I think the other thing we've done is we've put top-of-the-line hardware in it. So the compressor and the heat exchanger are as good as anything you're going to find. But the biggest thing for us that we did is really up-level the sensor suite and the technology around it, because it's kind of the lowest level engine, if you would. It's kind of like the pistons, if everybody uses a car analogy, but where our real value add comes in using that data to make better decisions about how to run the system overall. So an analogy I like to use is like, a lot of the improvements of mile per gallon in cars in the recent decades hasn't been the way we build pistons.

It's like fine tuning what happens at the software level and the control chip level of spark plugs and things like that. So, if we have really good intel on exactly what speed the compressor is, exactly what the temperature is at the outdoor unit, we can use our algorithms to make better decisions inside the home.

David Roberts

So, in terms of the basic mechanics of the outdoor unit, you have not done any original hardware innovation here. You're just sort of using what's the high end of the market.

Paul Lambert

Exactly. And I'm actually very proud of that because I think heat pumps are amazing at the core. And so the goal here is not to reinvent the wheel. It's to stand on the shoulders of giants and add value where we can. And if you look at the team that we have at Quilt, the place we're going to add the most value is the algorithms and the design and the interface and the control systems.

David Roberts

So, this is like the best compressor on the market, whatever. And presumably, part of being the best compressor is being quiet. Like, lots of people have questions about the noise. Lots of people — this is something I run into all the time. These things tend to be louder than people think, than are advertised. So, how quiet, realistically, is this thing if it's running full tilt?

Paul Lambert

It's usually between 30 and 55 decibels. 55 is the ceiling that we can get it to in any of our testing. 55 is about the same as a conversation. So, roughly the loudness of our voice right now, it's definitely quiet, and that is also part of — we already touched on this, but the unit is smaller because we have these two to one ratios, so they are a little bit quieter.

David Roberts

How big is it?

Paul Lambert

I actually don't remember the height exactly off the top of my head. It's probably a little over 2ft tall, and it's kind of a square. So, it's a cube.

David Roberts

A cube. But smaller than the units people are familiar with.

Paul Lambert

Generally, but I will say that if they have a small one that, say, is outside their backyard office, that one is probably small as well. But it is definitely smaller than one that would be designed to do an entire home, whether that is central or ductless. And that's kind of another interesting thing, is that these outdoor units, in some way, they can be agnostic, right? Like the size is kind of just a function of how many BTUs or how many tons or whatever metric it is. So, like a three-ton outdoor unit is going to look pretty similar, whether it's ducted or ductless.

David Roberts

And what is the performance here? Let's talk performance briefly, COP. So, for listeners who are not hopeless nerds, COP is the "coefficient of performance," which basically just means "how many units of heat are you getting out per unit of energy you're putting in?" So famously, if you're burning fossil fuels, your COP is below one because you obviously cannot get more energy out of the fossil fuels than there is in the fossil fuels. But heat pumps are magic: They have a COP of above one because they're not generating the heat, as you mentioned before.

They're just going out and finding it. They're finding it in the air. So, all the energy is not spent generating heat, it's just spent moving heat. So, heat pumps famously have COPs of two or three or four. So, what is the COP of your unit at, say, normal temperate temperatures?

Paul Lambert

It's over four. So, 4.2 is kind of our typical number. And that it depends on the ambient temperature — this is a heating scenario, so that one is measured when it's 47 Fahrenheit outdoors. So, it's cold but not freezing.

David Roberts

Right.

Paul Lambert

And you're heating a house at a sort of typical temperature, say around 74.

David Roberts

And 4.2 is good. Like that's — is there a heat pump that exceeds that? Is there any technology in the world that exceeds that?

Paul Lambert

We're right around the top of the market. Basically, no. I mean, it's kind of like you could probably find some of the other major brands that are near that. And these COP numbers actually vary with the ambient temperature and the indoor temperature. So we can actually go above that when it's not as cold. So say it's 50 degrees or 55, it's actually above 4.2. But of course, it drops as you get colder. This is typical for every heat pump that's inherent to the technology.

David Roberts

Right. And so, that's not like a quantum leap above the market, but that's the high end of what you can find in a heat pump.

Paul Lambert

But I will say that this is about mechanical efficiency, and a lot of the energy savings we're getting is by being smarter about empty rooms. So for example, if you have a heat pump, that's a COP of two, and it is for a room that is only occupied, say, eight hours a day, and so it only runs those eight hours a day. Or even a heat pump that's a COP of four but it's not smart. And maybe it's a central system, so it has to run all day long, as long as any — you're actually going to use more energy with the COP four.

David Roberts

Right. So, COP is not the whole story here. Not the whole story about efficiency. Well, what about, though, one more COP question? What about when it is freezing? Because this is another, anytime you bring up heat pumps, this is something that's filtered down into normies. They have this conviction that is very difficult to talk people out of, that heat pumps don't work in very cold temperatures. Or even if they do, they'll be like running super hard and super loud and blowing super dry air. And just like generally when it's very cold, they don't work well.

So what is, what's the story on cold weather performance here?

Paul Lambert

So, I'm Canadian, so I care a lot about this. And actually, both my co-founders are from outside Boston, so we all grew up in cold climates. So, we're also basically top of the line on those metrics. So, we're rating it down to about -15 Fahrenheit, which I believe is -25 Celsius. And that's cold. Like, that is very cold. And the reason that's an important number is that that is equivalent with the USDA zone 5b. Do you know what USDA agriculture zones are? So, the Department of Agriculture will classify every part of the country by its coldest temperature, because it turns out that really defines the type of plants you can grow.

And 94% of America, and that includes Alaska, 94% of Americans live in 5b or above. So, that means that we pretty — you know, we can confidently say that we can be the primary heating solution for at least 94% of Americans.

David Roberts

When you say rated down to -15, you mean "We'll guarantee performance and comfort down to that level?" I mean —

Paul Lambert

Exactly.

David Roberts

It'll do something if it got colder than that. Presumably, you just don't want to —

Paul Lambert

Yeah, it'll produce up to 90% of its rated maximum heat output. So, you know, if it's supposed to put out 10,000 BTUs, it'll do at least 9,000 BTUs.

David Roberts

So you're confident that you could install this in a cold weather climate, in a house without a bunch of envelope sealing like just as is and guaranteed down to -15?

Paul Lambert

No. I'm not going to fall for that.

David Roberts

I almost got you.

Paul Lambert

That's a — I think it's kind of a common, I don't know if it's a misconception, but I think the right analogy for this in terms of how much energy you need to keep a home warm is a leaky bucket. So, if I'm trying to fill up water in a bucket and I'm pouring a certain amount on the top, and you're going to ask me, "Will you be able to fill it?" And if you're not telling me how big the holes in the bucket are, it's literally impossible.

Right? If it's a very holey bucket and I have a big stream, it's going to be empty. And if it's a completely sealed bucket, I can fill it with a small drip. And so the holes in the bucket are a function of two things: It's how well insulated and basically leaky, you know, the room is or the home is. And then the ambient temperature outside, because, of course, you know, it's going to work harder when it, when it has to, when it's colder outside. So insulation and weatherization is at least half the equation. And in fact, if you have a really, really well-insulated home, you can get away with hilariously low, you know, output in terms of your heat pump.

David Roberts

Got it. So, you can't be insensitive, let's say, to the envelope here?

Paul Lambert

No, and actually, one more thing I'd say on this is like, I also am not a puritan to think that air source heat pumps are the right solution for everyone on the whole planet. There's, you know, I grew up in Calgary, Alberta, Canada, and I remember days where it was -40 Celsius.

David Roberts

Oh, yeah. I spent a year in Edmonton. It left an impression.

Paul Lambert

Yeah. So, I mean, basically, right, both my parents were born and raised in Edmonton.

David Roberts

The only place I've ever been where sometimes on the morning weather, they're just like, "It's too cold to go outside. It's literally dangerous to go outside." Just because of the coldness.

Paul Lambert

Well, I remember as a kid, they would have a countdown timer of until you got frostbite. So it's like you have 90 seconds of exposure until frostbite, and you're like, just run for those 90 seconds. Seriously. But even in places like that, most of the time, it's not that cold. So if you say you have a backup system, say it's even a fossil system, if we can take 95% of the heating load for the year, and we're able to take that fossil use from 100 to 5, I mean, I'm very proud of that. And I think also you can have electric resistive as backup.

And you didn't mention electric resistive, but that's actually the default electric heating. And that's, by definition, essentially a COP of one, because you're just turning the electricity directly into heat.

David Roberts

Yes. No one loves electric resistance heating anymore. It's an orphan in these discussions. What about humidity? I got a lot of questions about humidity. There's been some complaints, I think, in the past about heat pumps, that they are sort of pursuing the target temperature at the expense of drying out the air or something like that. So, are there humidity controls, sensors? Have you thought about humidity?

Paul Lambert

I'm not really sure where it's coming from, and it's probably more inherent to the ducted systems.

David Roberts

Oh.

Paul Lambert

But it's really hard to cool a space without also dehumidifying. The way a dehumidifier actually really works is that it essentially is an AC and then will sometimes rewarm the air. But you use the principle of condensation. So as you lower the temperature of the air, water will condense out of it. That's how you dehumidify. To add humidity, that's a separate system. But the way that a ductless unit like Quilt works, it is actually just a fan in the room blowing the room's air through a heat exchanger that is either hot or cold. So on the heating side, it really shouldn't impact humidity at all.

David Roberts

Got it.

Paul Lambert

And on the cooling side, it'll do some dehumidifying. We are able to control the dehumidifying a bit, where, for example, you can have the heat exchanger be quite cold and blow the fan quite slowly. So you're not actually adding a lot of cool air to the room, but you are condensing a lot of the humidity out. So we can do that, but we can't really add humidity. That's like a separate system.

David Roberts

Right, right. And what about air quality? Is there any — cause I think there are heat pump systems that have air filters and air quality stuff built in, are there not? Is that mostly ducted systems that do that?

Paul Lambert

Yeah, well, the V in HVAC is ventilation, right? And kind of get into that idea. So, our product philosophy at Quilt, and I think is kind of inherent to the ductless approach, is small products that do their job really, really well. And at heating and cooling, Quilt is going to do a better job — and I will stand by this — than pretty much any central system, whether it's a heat pump or anything else. And that's our job to be done. Central systems are kind of monolithic, and they do a lot of things, but none of them perfectly.

And one of the things they do better is air filtration. And that's because you can put a high MERV or HEPA filter in your air intake, and some of the air will get pulled from that. It's not perfect, obviously, there's leakiness, and a lot of the air won't actually get pulled through that. But it's something. The ductless units, including ours, and pretty much all of them all have pretty porous filters by most measures, because if you have a really heavy one in there, it really, really decreases performance significantly. So what we recommend for people is there are a lot of dedicated air purification products.

Right? A ton of them. And they're all better — well, I shouldn't say all. A lot of them are much better at purifying your air than any central system with a HEPA filter.

David Roberts

Right, right. Refrigerant. One of the big concerns about heat pumps is that lots of them use refrigerants that are themselves greenhouse gases and are quite potent greenhouse trapping. What refrigerant are you using? What's to be said about it?

Paul Lambert

Those are completely valid concerns, and I share them. The refrigerant we're using is R32, and R32 is one of the two major next-generation refrigerants which have lower, it's called GWP or global warming potential, and those are indexed on CO2 as one. And the current one in the market that most people use is called R410A. And that actually came out as the "environmentally friendly" one because it replaced the earlier CFCs that were causing the ozone problems. So, R410A is now being phased out for these newer generation ones. So, R32 is less than one quarter the GWP of R410A.

But it's still not good, to be totally honest. It's about 650. And I think R410A is well over 2000, it might be 2500. So they're all bad. It's kind of various levels of bad. And the kind of good thing about this, if there is that, is that it's only a problem if it leaks. And there is pretty strict enforcement, rightfully so, by the EPA, around handling refrigerants. You need a license, you need to go through a lot of training, and there's severe penalties if you're caught essentially venting the gases. So we're trying to be as diligent as possible on that.

So, we have leak sensors. We're also a vertically integrated company, meaning we're doing the services and the product itself. So, we're taking a lot more responsibility to make sure that things are being installed properly. A lot of times, when the problems happen, it's because these systems might be installed as sort of a DIY or under the table and the sealing isn't done properly, and then they do leak. Also, I'll say that I would love to get to natural refrigerants, which is what they call the really low GWP ones, like ammonia and actually CO2.

David Roberts

Don't they use propane in Europe?

Paul Lambert

Yeah, ironically, propane is actually a really good refrigerant and it is a GWP of one. It's, of course, a fossil fuel. So it's a little funny. But you don't use much of it.

David Roberts

Right. That's in Europe, they use that a lot. Is there, is there some reason we're not — we don't have those yet here?

Paul Lambert

Yeah, because propane is very flammable. Most US regulations don't allow it. Actually, it's been difficult even getting to R-32 because R-32 is mildly flammable and it's really mild. Like, you need a lot of it for it to be a problem. And that's been just slowing down some of the adoption as you know, you have to update fire codes and things. So, putting propane into the home is like ten times worse. Ironically, of course, people already have natural gas, which is really methane. Right. I don't even like that term.

David Roberts

We have lots of flammable gases all around us. I mean, that's kind of part of the problem.

Paul Lambert

Yeah, so it doesn't really make a ton of sense when you think about it, but it is the fire concern that is holding back propane in most of the US.

David Roberts

Interesting, interesting. What's your warranty? How long should a homeowner expect this system to last before some part of it will need to be replaced?

Paul Lambert

Twelve years. And that is also on par with the best in the industry. But we actually think that we've gone even beyond that because warranties often have a lot of caveats. Like, they're invalid if you sell the house. So, if you put the heat pump in and sell it three years later — they have a bunch of weird things like that. So, we've removed all those. So, we have what we believe to be the best warranty in the industry because twelve, which is what you get from the very top of the line ones, many are much less than that, but we have much fewer caveats.

David Roberts

Okay, the indoor units, these little — what are they called? Is there a term for these? I've just been calling them —

Paul Lambert

Some people call them heads. Some people call them units.

David Roberts

That's it. That's the word, that's the word. It was head I was looking for. Yeah. Well, anyway, these indoor units, I've seen your pictures, they're very nice. You got like a facade over one. You can paint them or wallpaper them so they sort of blend into the room. Very nice looking in there. And are they smaller than typical heads? I mean, it sort of looked to me, eyeballing, like they were smaller.

Paul Lambert

Yes, that is probably the biggest single mechanical level innovation we've done in terms of, like, physical level mechanical innovation. It was shrinking the height of the indoor unit.

David Roberts

Interesting. And so, how big is it now?

Paul Lambert

It is seven and seven eighths of an inch tall. So, just under eight inches.

David Roberts

So, the idea here is that you can tuck these away and they'll integrate better. Then, another thing a lot of people who I think are familiar with ductless systems will be familiar with are the annoying, poorly designed remote controls that you have for every one of these indoor units that float around, get lost, and are opaque to use, even if you can find them. I've dealt with this at Airbnbs. Presumably, you've done something, you've improved that experience. You did not have these —

Paul Lambert

You don't love the 1990s remotes in every room? Yeah, of course. Right. So, we want Quilt to feel like an upgrade no matter what system you're coming from. And a lot of people will now be used to a smart thermostat. You know, there's a few major brands out there, one of them made by my former employer, and they're great. They've really advanced the industry. And going to a remote that you have to find for every room does not feel like an advancement. So, we've made a smart thermostat, and it's called the Dial, the Quilt Dial. It's much smaller than current smart thermostats, and that's actually really important because it's about a mental model shift where you have a little control in every room in your home.

And it feels really cool now that I've had this. Like, you just get used to every room having a little dial, like a little control. And when you go to a house that just has, like, a thermostat in the hallway, you kind of feel like you're stepping back in time.

David Roberts

Yes, well, I feel. I mean, I work from home and I have a central fossil gas system, to my enduring chagrin. And all day long, every day, I'm like, "98% of this heat that I'm producing just on a day-to-day basis is wasted because I'm just sitting in one room of this house and I'm heating my entire house all the time." Consciousness of this has haunted me now. So these are just little dials. I think if people are familiar with the Nest thermostat, that little dial on the wall, it's roughly — it's not as, doesn't stick out as far as that, but, like, circumference-wise, that's roughly the —

Paul Lambert

It's actually about half, circumference-wise.

David Roberts

Oh, really?

Paul Lambert

Yeah. So, it's quite a bit smaller. And also, it's got a different shape. It's got a wedge to it. And that's actually kind of a big deal also, even though it seems minor, because you can mount it lower on the wall next to level your light switch, and so the screen looks up at you and so it's closer to your hands. It also means it can be near the light switch and other sorts of control levels in the home when, you know, if you put a traditional thermostat lower, you'd have to, like, crouch down to use it. It would be a little awkward.

David Roberts

Right, right. So, you can mount these dials anywhere on the wall, and they operate wirelessly. Is it Bluetooth? I guess so. You don't — there are no wires.

Paul Lambert

The communication is all wireless. We do use wired power, and this was a big design debate internally at the company for a while.

David Roberts

So there's a wire going to every one of these dials?

Paul Lambert

There is. We do install them for people as part of our installation. Although, I will say that people can also have them on a tabletop, and they look great there. So, you can have it by your bedside table, or you could have it next to your computer at the office, just sitting on the desktop. The reason we did that is that we want this to feel like truly an integrated part of the home, just like a thermostat. And it should be able to be there for ten years or more. And if you have one in every room, even if the battery lasts a year, if you have six of these in your home, you're switching a battery every two months.

It just — you just want it to never have to think about it. So, we do the work up front. So that is, once it's installed, it just works as long as there's power in the home.

David Roberts

And if it's mounted on the wall, presumably, you can put that wire in the wall and it will just appear wireless on the wall.

Paul Lambert

Yeah, that's exactly the point. It's very low voltage. It could run off a battery. So, yeah, it's pretty easy to wire it up.

David Roberts

All this sensing, one of the things you're talking about, is the system has the ability to sense when rooms are occupied and when they aren't. And that sensing technology, is it in the dials or is it in the heads?

Paul Lambert

Both.

David Roberts

Oh!

Paul Lambert

So, the heads have — we actually calll it the Quilt Sense, which is kind of, it almost looks like a tag in the bottom right-hand corner. And that has something called a millimeter wave radar. It's kind of the best in class right now for occupancy detection. It's what's replacing the older occupancy detection technology of infrared sensors. And people will know these from having sat too still in an office and then the lights go out. Right. And they have to wave their arms. So, we don't use that technology, we use something totally different. That is, it actually truly detects occupancy, not motion.

That's a big difference.

David Roberts

Is it heat that they're — body heat or what?

Paul Lambert

It is about a 60 GHz radar, is what it is. I'm actually going to get a little bit beyond my technical depths here if I try to get too deep into that. But I do know, for example, the latest Nests. And if you go and buy dedicated smart home occupancy sensors, right now, all the good ones are using this.

David Roberts

And so what's the dial doing? What's the kind of —

Paul Lambert

Yeah, so both the dial and the indoor unit have this radar in it. So we use a variety of signals to build our occupancy model. That's the strongest one. But there's many other things you can use to build data into your model that is basically a binary classifier. It's saying, "Is this room empty or not?"

David Roberts

And presumably, there's an app. Everybody's got an app for everything now, of course, there's an app. And presumably, you can program the app to say, "Heat this room if and only if it is occupied."

Paul Lambert

Yes. So, you can have it basically let the system do its auto mode. Right. And when someone walks out of the room, it goes into eco and then it basically is allowed to drift. And that is actually a really interesting part of our tech as well. It's not as simple as just turning it off when the — that'd be sort of your first assumption. Well, like we'll just turn off the system when someone leaves the room. The problem with that is that when someone comes back into the room, they want it to be comfortable and so they'll want it to crank and work really, really hard.

And just like if you're redlining a car, if you're running the heat pump as hard as it possibly can, it's in a very inefficient mode.

David Roberts

Right.

Paul Lambert

So, we try to understand when someone's going to come back in the room and sort of let it drift a bit to save energy, but not so far that we'll have to basically give up all our gains when someone walks back in.

David Roberts

Does it learn like patterns? I don't know how much AI you've got in here, but does it like start to learn, like when this room is typically occupied so that it can sort of anticipate and start heating a little in advance?

Paul Lambert

Yeah, so we do some of that now, and we have schedules built into the product, which is a really nice way to get that with a high level of conviction, because people can just build in when they're going to bed or when they're out of the office. I mean, this probably is not news to your listeners, but to make good models, you need lots of data. We're launching, right? So this was something that will definitely get better over time. I don't want to promise features that are just roadmap features, but if you look at our backgrounds, I think you can assume that we'll be very excited about building this over time.

David Roberts

And when you say building over time, you just mean the sort of AI aspects, the automation aspects, the sort of anticipation aspects.

Paul Lambert

Yes, what I mean is, like predicting when someone's going to reenter a room, we can do a much better version of that when we've seen someone coming in and out of the room for a few months.

David Roberts

Yeah, right, right.

Paul Lambert

So that's just what I mean. And there is quite a bit already in there around, like I said, the sensors and the models that we can build here, but it's just gonna get better over time.

David Roberts

Final tech question. Is there a 110 volts version, or are 110 volts homeowners going to have to upgrade their electrical panels to do this?

Paul Lambert

I'm actually a little bit confused by the question because almost all panels are 220/240. It's just that the outlets are 110.

David Roberts

Yeah, sorry.

Paul Lambert

The typical outlets. So, because our heat pumps have to be professionally installed, again, because of the refrigerant and the copper pipes, we want them to be, we hook them directly to the panel and so we can get to 220/240 volts. And that actually allows you to run at a lower amperage — without getting into the electrical math too much. And you can actually have a smaller and more efficient compressor. So, you could build a 110 volts heat pump, but it's going to be louder and less efficient.

And given that we're already installing these professionally, there's like, there's no reason, there's no incentive to. Because I think the main reason to have the 110 one is so it can be something people buy off the shelf and plug in or do themselves when, because of the refrigerant concern and other concerns, it's really important that these get installed professionally, so we really don't have an incentive to do that.

David Roberts

So there's no homeowner that's going to have to do electrical upgrades before calling you basically?

Paul Lambert

The way that might happen is what they call a service upgrade. So, it's really about the total amount of power or the amps coming to the house. Some people will have like 100 amp service, and if they're now electrifying their heating when before it was fossil, they're going to have a lot more demand. So, they might have to upgrade to, say, 200 amp service. That can happen.

David Roberts

Okay, I think that's all my tech questions. I'm sure someone is going to remember one that I forgot and scold me. But I want to talk about — well, let's talk about pricing real quick. So, if I just buy one of your outdoor units, and it's got two interior heads, that's —

Paul Lambert

So, I think the right way to think about it is around the indoor unit, and then we'll sort of supply however many outdoor units you need. And that's because I think that's how people think about their home. So it's like, "I want to do my whole house," or "I want to do the office," or "I just need my kid's room to be easier to control." So it's almost like you buy the indoor unit and then everything else, including the outdoor unit and the dials and everything, is just thrown in to make sure that it works in the best possible state.

So, it does create some funniness that sometimes people get a little bit caught up on. So, if you have one indoor unit, you'll get one outdoor unit. If you have two indoor units, you'll get one outdoor unit.

David Roberts

Yeah, so why am I paying the same amount for that second unit? I guess that's a question I had. If the one unit comes with all the stuff, and then the second unit is just the unit and hooks into the same stuff, why does the second unit cost as much as the first unit?

Paul Lambert

Because we really, really wanted simple, transparent pricing, because we think that's the best customer experience. And so obviously, we as a company are making a lot less money when we do one and one, and we're making more when it's like... I mean, I think anyone can figure that out. So, if you look at the market today, it's very hard to even figure out what these things cost, because the way you do it is you have to get a contractor to come out to your house. The first quote you get is almost always a shock. So, you end up having to get two or three more, and that can take weeks or even months by the time you know, because you have to be home from work or whatever it is when someone comes.

And I actually think because of the lack of price transparency, it also creates some market inefficiencies because homeowners aren't well equipped to, they don't have as much knowledge as to what things should cost as a contractor who shows up. So often, just out of convenience, they'll take the very first quote they get. So we honestly think that just bringing transparency to the market and empowering the homeowner and making it really easy to understand what this will cost in itself is just a service and an innovation. And so we want to just anchor on simple, understandable pricing and then we sort of absorb all the ambiguity.

By the way, the other ambiguity is, some homes are a lot more complex than others to do installation.

David Roberts

This was my very next question because I have a relatively small and dumpy house, but it's got lots of rooms. And I was doing the calculation that if I was going to put one of these in each room of my house so that I have a whole home system, that's $31,000 for me. And I remember my natural gas furnace, I think, installed was like $8,000 or $9,000. So, that is a large price delta. I don't even know what my question is. Make me feel better about that.

Paul Lambert

Yeah, so I mean, we're at market and in fact, I'm very proud of our pricing. Like nationally, most ductless systems are between $5,300 for lower-end systems or up to about $7,000 for the higher-end systems — that's fully installed per zone. This is data that was recently published by Rewiring America. And we're at $6,500 or $6,499. So we're actually coming in already below what the higher end of the market is today. And we're including considerably more. So you know, that doesn't include usually a smart thermostat or even an app, never mind the sort of top of the level performance that we've already talked about.

The reality is that I think labor prices have gone up, material costs have gone up, and that is what these things cost.

David Roberts

Right? So this. But I'm just like, I'm just trying to be realistic about the fact that this is more expensive than heating your home with fossil fuels currently — absent subsidies.

Paul Lambert

I think that's true unless you were doing new ducting. And this goes back to this idea of like — I will say like a central heat pump, if you can use your existing ducting, is probably cheaper than a ductless system, whether it be Quilt or any others. And like I said, Quilt is basically at market for a ductless system price, we're not more expensive. But if you have to redo the ducting, then it gets to be a lot more. Because you're talking about drywall work and things like that as well. And so if you're putting a new furnace into a home and you have to do ducting, you know, it doesn't matter if it's a furnace or a heat pump.

Like, that's going to be expensive. So, it's kind of situational.

David Roberts

Well, what would you tell a homeowner like me who has lots of small rooms? Is there any solution for me other than just biting the bullet and spending $31,000? Is there a way an interior head can handle two rooms or bigger zones? Or is there any way around this high cost for the lots of rooms to style a home?

Paul Lambert

Yeah, of course, you already mentioned it, but the rebates do help. And the reason that there are so many rebates is that society, government sees that this is a transition that we really want to make, and we want to facilitate that. It also depends a lot on where you're sitting. I think in Seattle, there's actually quite a few good state and local rebates as well as the federal ones. It depends how small your rooms are. If you have two small rooms that are near each other, one head can maybe produce enough heat for both of them. But again, a lot of the savings and the comfort benefits, we haven't really talked about the comfort benefits, but come from being able to individually control every room, and that will save energy over the long run.

I don't like getting into sort of a payback period argument. Cause I don't think that's the right way to think about it, because you are —

David Roberts

Well, no consumer thinks — right, no consumer is really, except for the sort of geeks who listen to Volts, but no normal consumer is really sitting down and doing this math about payback periods, I don't think.

Paul Lambert

Yeah. Although, I will say the solar industry has really framed it around a financial conversation. So, I think people have sometimes been sold solar and thought about, "Okay, well, I'm saving this much on my electricity. It's going to pay back after this." But solar and HVAC are actually very different because HVAC is something you interact with every day. And even a traditional thermostat, people touch it about three times a day on average, versus solar is a — it's infrastructure in the home, and it sells a commodity, ultimately power. So, it's actually a very different experience. And just on the comfort thing, if I may. The other interesting thing about central systems, a lot of people have rooms that are too hot or too cold. Like, is this the case with you?

David Roberts

Oh, my God. Mine's, mine's. I will — I won't get started. That is very accurate about my house, even though I will just say, like, ten years or so — I won't tell the whole story — but we were getting rid of our oil furnace, and I looked into heat pumps back then, and I could not find a contractor who would talk about them. They kept telling me I needed natural gas backup anyway. Just, like, it was a nightmare. The quotes were head-spinning. So I just ended up getting natural gas, even though it — I'm very bitter about it to this day.

But they did, as part of it, allegedly, like some sealing and some, you know, insulation upgrades and et cetera, et cetera. And the net result was it's still friggin' drafty. There are still rooms that are freezing cold, there are still rooms that get too warm. Like, it's just, it's not — the comfort sucks.

Paul Lambert

Yeah, it's pretty inherent to the ducted architecture. I mean, if you just think about it, right, some rooms are going to be a lot farther away from where the energy source to the other is. And rooms have different levels of insulation. Yeah, and we found that well over 80% of Americans with central systems have serious comfort issues, which is kind of crazy to think about.

David Roberts

I know, I know. Well, they just don't even. It's just one of many things about the sort of fossil regime that people just absolutely take for granted. They just think, like, "This is how the world is, this is how buildings are."

Paul Lambert

And this goes back to why we're doing ductless, is that, you know, I love that people are getting heat pumps, whether it's central or ductless, but I do think that the central system is a side effect of the fossil systems. And so it's kind of like dropping an electric motor into a gas car and calling it an EV, like it works. But to go back to the value and why this might be worth $31,000 or some number lower than that after the rebates, is that your home is just a nicer home to live in, because by controlling every room, we can correct for the levels of insulation, and we actually build a thermal model of every single room. So what that means is we learn how it retains heat, how quickly it dissipates heat, and we use that to not only keep you comfortable, but run efficiently.

And if you think of how much houses are worth, especially in places like Seattle, you know, a small increase in the value of that home compared to the value of the home itself is actually, you know, a number like $30,000 is actually not generally that huge of a number compared to the value of the home. And the HVAC system is arguably the most important system in the entire home.

David Roberts

Yeah, if you can make that visible in — this is a whole different subject — but just like, if you can make the energy setup of the house visible somehow in the real estate listings and in the — you know what I mean? Like, it's not always — having bought a home, those things are often quite opaque.

Paul Lambert

That's true. Although, I've seen a lot of Zillow listings for like $3 million houses in San Francisco that have a Nest thermostat as a third photo. Like, why? Because it says something about the house.

David Roberts

Yeah, yeah, that's funny. So, as you scale up, where do you see opportunities to reduce costs and reduce net pricing? Where do you see opportunities to drive down the cost? Is that hardware, software, installation?

Paul Lambert

It's hardware and installation. I mean, most of the cost today is labor and materials. It's actually, and by materials, I don't mean the hardware that Quilt is producing. I mean it's the line sets and the copper piping and things like that. I have trouble betting that labor prices in terms of hourly wages are going to come down. I don't think that's going to happen. I think we can get more efficient, but I actually think the answer is going to be in getting better at communicating the value, if that's possible. I do think that there is some ability for prices to come down with some competitive pressure.

And candidly, I think Quilt coming out at the price we are, which is right in the middle of the market with a very clearly premium product, will put some pressure on other people in the market because, candidly, we should be more expensive. So, I think there might be some pressure there.

David Roberts

Interesting. One other random question that I forgot, but I just want to get to it real quick. Is there any reason that your system couldn't hook up to a ground source heat pump, like the outdoor unit and the indoor units and all that stuff? Could this work with ground source, basically, is my question?

Paul Lambert

I would say not the system we're launching today because it's kind of explicitly an air source heat pump. So, you know, like the fan on the outside has a certain amount of air it's expecting to go through the heat exchanger. And also because we're a vertically integrated system, we can't just swap out our outdoor unit for, you know, off the shelf, ground source one, because I mentioned the sensors that we have out there that feed into our algorithms. So we can make really, really good, intelligent decisions. But we need to know what's running throughout the system. And that's actually one of our big advantages, because a typical smart thermostat today from any manufacturer has to work with hundreds of furnaces and ACs, and so they just don't know what they're working with.

When, by being vertically integrated, we can make a lot better decisions. We could, in the future, potentially produce a ground source heat pump, but not the one we have today.

David Roberts

You could, in the future, do a ground source heat pump. You could, in the future, produce something hydronic that could replace sort of high temp, like replace boilers. You could — what about hot water heaters? You could get into heat pump hot water heaters. Are all these things floating out on the horizon somewhere?

Paul Lambert

If only you could see the smile on my face right now.

David Roberts

What would be next? Let me just ask that, should you master this system, what's next on the product list? Can you tell us?

Paul Lambert

Well, heating and cooling of spaces as a category is massive and large, and this is our first product. We think it's amazing for a lot of homes, but it's not going to be the one answer for every building in the world. Right. There's a lot of — there are a lot more things we can do around the HVAC space. We already talked about the air quality space. Like, you can imagine something there. I do think if you look at the systems in the home, the next biggest fossil fuel consumer is the hot water system.

David Roberts

Some heat pumps will use some of the excess heat, if they don't need it, to heat up a little bit of water, to sort of like, preheat a little bit so that the hot water heater. So if they were both heat pump operated, I'm just imagining ways you could integrate them somehow or, like, get efficiencies out of making them work together.

Paul Lambert

Oh, absolutely. Or think about cooling your home in the summer. You are essentially pulling heat out of the inside of your home and you're dumping it in the air outside.

David Roberts

Dump it into the water.

Paul Lambert

Dump it into the water and then, yeah, exactly. Don't spend as much energy heating your water. So absolutely, we should get there. We're just, you know, we haven't started there.

David Roberts

Okay. Well, one of the big things on your that you're advertising is the user experience is better in terms of finding the thing, finding a contractor to install the thing, running the thing, maintenance for the thing, performance, you know, just someone to track the performance of the thing. All this. The world is full of nightmare stories. I mean, about HVAC generally, but about heat pumps also. Just like, can't find a contractor, or the contractor doesn't seem to do a very good job, or the contractor is impossible to contact afterwards. The thing doesn't work like I thought it was.

I don't know who to call, et cetera, et cetera, et cetera. This is generally a nightmare consumer experience from what I hear. What are you doing to solve that problem?

Paul Lambert

The first thing we're doing is just taking responsibility, and this means that we are the person you come to no matter what breaks. Meaning, is it the system that something is going wrong with, or is it that, you know, someone's not showing up on time? Any part of the customer journey, we are your go-to person. And that's because our guiding light is to create the best end-to-end customer experience, period. Because I think that's how we're really going to add the most value to this space. Because as you said, there isn't always the greatest experience, and that's both on the contractor side and on the product side itself.

David Roberts

So, from a consumer perspective, I buy the thing from Quilt. Quilt sends someone to my house to install it. Quilt is making sure that it's running well. If it breaks or I have questions, I call Quilt, et cetera.

Paul Lambert

Correct.

David Roberts

And so, presumably, you are not employing a giant national army of contractors. So, what is the relationship between you and contractors? How are you training them? How are you ensuring that they are as dedicated to the consumer experience as you are?

Paul Lambert

It's a very good question. So, we aren't trying to do everything at once. We're rolling out geography by geography. Of course, we want to get to everyone as soon as we can, but we're not willing to trade off that customer experience quality.

David Roberts

Right. So, you're starting in San Fran, right? I mean, that's —

Paul Lambert

Yeah, well, Bay Area, broadly speaking, I'm about 40 minutes south of San Francisco right now. So, we've been working with contractors here already, and there are — I actually don't want to broad brush stroke the whole industry. There's a lot of really great contractors out there who get it. They want to do great work. They do do great work. And there's a couple bad apples out there for sure. But, like, that can be true anywhere. So, our job is almost like a curator, right where we need to hold people to the quality bar and empower people to do well.

We are also employing technicians on our staff directly. And what that allows us to do is establish the quality bar. It's great for the engineers because we can get really quick feedback from our own staff, but also we know what great looks like because we have sort of our in-house contracting force that we can use as the bar in the playbook. And we can train, you know, we can test training, we can test software integration. We can test all that and then roll that out to partners.

David Roberts

This almost strikes me as the most challenging part of what you're trying to do. Like, it's one thing to maintain quality standards of your own equipment, but just like once you're out in the field, once you're out in homes, once these are, you know, there's thousands of these happening from dozens of different contractors. Just like that, it seems to me, is going to be the real challenge is maintaining that level of quality once you have a kind of sprawling group of partners.

Paul Lambert

You know what, I'm not going to disagree with you. We should check in in a year when that is more reality and we can see how it's going. I can tell you it's something we're spending a lot of time thinking about and we take really, really seriously. And I honestly think just taking responsibility and showing up and putting our names down and saying we are going to put our name behind this is itself a really big step.

David Roberts

So if I buy a system from you and three years later you go out of business, what do I do? Who maintains my customer experience?

Paul Lambert

So, as we already touched on, the actual core of the system is, is actually pretty standard. Like, we're using standard compressors and heat exchangers. So, technicians that aren't Quilt certified could go and fix it and maintain it. We have built it so that it works even when the cloud is down. So, if that were to go off, you know, you can still control things in the home. The reality, I mean, yes, we are a startup, so the reality is there's some risks here. We are not a particularly, I'd say, aggressive one. We are building a sustainable business from the beginning and we have a very long-term mindset about this.

I want to be working on this company for a really long time.

David Roberts

To conclude, even though I could probably keep you on for another hour, but to conclude here, let's talk a little bit about that, about the business plan, the scaling. It's very difficult. I feel like this is sort of analogous across a lot of clean energy technologies that I talk about. Even for Tesla, it's one thing to design a really awesome car. Manufacturing kajillions of them and keeping customers happy with them on a massive scale is just a very different thing. Like, it's a very different set of skills. Very different like business plan. And I think a lot of clean energy startups have this, whatever this valley of death they have to get over from sort of a great product to a scaled business.

So kind of what's your, how do you think about your, your plans for sustainable sort of scaling?

Paul Lambert

So, as I mentioned, we are rolling out region by region, which is actually a really big help because we can ensure that we have a sustainable business and have a quality level that we're willing to stand by before we move to the next region. And I think we're going to get better at that as we go. We are not selling products at a loss. There's no sort of dark patterns here where we're spending —

David Roberts

You're not trying to make it up in volume?

Paul Lambert

Yeah, we're not trying to make it up in volume. We're not just blowing VC money to acquire customers and assume we'll make it down — like, none of that. We do have a positive profit margin on every sale we make.

David Roberts

So you expect to be making money from the jump?

Paul Lambert

Yes, absolutely.

David Roberts

And is there a list of regions targeted and is Seattle on?

Paul Lambert

Yes, so we're starting in the Bay Area. It's our own backyard. Makes sense, right? We can learn from our customers and be close to them.

David Roberts

And I would assume, like, if there is a center of demand for clean, electrified home heating, I'm guessing the Bay Area is probably it.

Paul Lambert

Yeah, it's not a bad one, although there's actually a lot. The Northeast is just great as well.

David Roberts

Oh, yeah. They probably need you more there.

Paul Lambert

Yeah, because a lot of them are on oil heating and it's just much, much better. And a lot of them don't have ducts either. So they have to be using ductless solutions. But we have shared that Los Angeles will be second. Maybe that's not super surprising. It's kind of the closest metro to us, but a lot of single-family homes there, and then it's going to be based on reservation demand. So right now, people can go to quilt.com and reserve a system, and that is effectively also a vote to come to their town next.

David Roberts

No money down, I'm assuming.

Paul Lambert

So, for a region that we're not in, it's $100 down — but that's fully refundable, so if someone changes their mind, they get it back. Because you need some sort of signal that there's some real level of — but it's $100, so it's not a massive amount compared to the sort of investment in the system.

David Roberts

Right. Okay, so basically, you're going to start in the Bay Area, going to Los Angeles, and then wherever you get the most orders or the most reservations, that's where you'll go next.

Paul Lambert

I think that's a good rough approximate. Like, of course, there are other things we have to factor into it. Like, you know, how easy is it for us to get our products there and build a contracting force at our quality level, but it's a big signal. I can say that the Pacific Northwest is high up on the list. You know, going up the coast is not going to be the hardest thing. I already mentioned the Northeast. It's a really, really great region on our radar. We also got a lot of interest from Texas, Florida, and Colorado already, so I'm just throwing out some names.

There's honestly a lot. We've also got a lot of international interests, so.

David Roberts

Oh, yeah.

Paul Lambert

So, they'll probably have to wait a little bit longer, unfortunately, but —

David Roberts

All right, well, like I said, over time, we're really testing the listeners' appetites for heat pump talk. My personal appetite is bottomless, as you can see. But I think we should probably wrap it up here. Thanks for coming on and walking us through this. It's really interesting. I'm so glad to see designers showing up in this sector. It is overdue. Good luck to you and maybe, yeah, like you said, maybe we'll talk in a couple of years and see how things are going.

Paul Lambert

That would be great. Thank you so much for having me. This was a lot of fun.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf. So that I can continue doing this work. Thank you so much and I'll see you next time.