At CES, Brad Feld, CEO of the Foundry Group, led a fireside chat with James Park, Co-Founder and CEO of Fitbit, about the startup journey and the ups and downs they’ve experienced since they started and all the way through to IPO.
How did Fitbit get started?
In late 2006, James Park and his co-founder, Eric Friedman, were working at a company which is now part of CBS. Nintendo had just released the Nintendo Wii, which was the first consumer device that had accelerometers, and it was the first product that proved gaming was begging to be made into something fun and active for users. During April 2007, they decided to start Fitbit. At the time, the company was just Eric, James, and some consultants helping part time.
How long did it take for Fitbit to have something that would look like a Fitbit?
By the time they created their first prototype, they were raising Series A investment. People started to get more interested in the company once they saw a fancy object (that was actually made out of plastic).
Around the IPO, they went back to review their pitch decks. The slides read, “Automated personal trainer and nutritionist in your pocket.” It is not far from what they are now, even though they pivoted every six months. Fitbit has held through the original vision, however they weren’t presenting much to investors.
How much money did the company raise before Series A?
Thanks to friends and family, James and Eric were able to raise around $400K. This initial funding is what took them to production and launched the product. However, the money ran out quickly.
In September 2007, raising for Series A was different – they went to TechCrunch Disrupt with a prototype that “kind of worked” for the demo. They told people that they were shipping at Christmas (but they didn’t say which Christmas!) — and everyone was excited.
How did you get people excited about Fitbit?
The initial excitement came after the company joined Kickstarter. Later, the weekend before TechCrunch Disrupt, James shared photos of his friends using the device. Their website was poorly built on a ‘sketchy’ platform, so they didn’t think anyone was going to pre-order the device. But less than a month after the conference, they had over one thousand pre-orders.
Since the production wasn’t ready for release, James created a blog and a Flickr account to keep people updated on the status of the product, including what they were doing to get the product ready for customers. This consistent communication kept people from rioting and hating the company.
Did any of you have a background in consumer electronics products?
James only had a single semester of school under his belt, so no. Eric, on the other hand, had a Bachelor’s degree and a Master’s. Eric was responsible for software and James was responsible for hardware.
How did it feel the first moment you had the box in your hand with the produced Fitbit?
Both co-founders did not feel 100% confident in the product. Unlike software, they couldn’t fix it and patch it up once it was released and shipped; this was hardware, it required different kind of work. We were lucky enough to tap into something people were passionate about, so people just ignored the first few mistakes.
What was the path like going forward after the first production line?
In the beginning, during the Christmas of 2008, 5000 units were out after a couple of months of production. They had 25K to 30K pre-orders in their platform and by the end of 2009 they had about $500K in revenue. In 2010, the production was up to 50K devices with $5M in revenue.
When James and Eric were seeking to raise their Series B, they were looking for around $12M in financing. During this time, they met with around 40 VCs. In the end, they were rejected by all of them and ended up raising a Series A-1 instead.
By the time they met with Brad Feld as a potential investor, Fitbit already had Fitbit One, which was the product they were releasing after Fitbit Classic and Fitbit Ultra, and that’s when things started to really move. Classic and Ultra were both released before any type of mobile connectivity, so in order for them to get data from the device to the backend, they had to develop their own platform. It was not a quality experience for the user.
When they heard Apple was releasing third party app development, they stopped coding the backend, because they decided to bet on Apple to do that, even though it was just a rumor. When it finally happened, that’s when the business took off; Fitbit went from $15M to $76M in revenue, which signified 5x growth over a year.
What made Fitbit different from other companies?
The keywords to describe Fitbit was “fitness tracker” or “activity tracker.” Information that was invisible before was made visible so people could play with it, adding different sorts of data to provide a personalized coaching or guidance experience which used information in a smart way. That change brought them from $70M to $300M in revenue.
Next, they changed the marketing strategy. Before, they only used social media platforms and word of mouth, maybe a blog post here and there. But in order to go from $300M to $750M, they needed to change their distribution in a major way, starting with their distribution deal with Best Buy. Marketing dollars were invested in channel marketing, buying displays and putting them in stores, which helped with advertising, but also helped educating staff of stores by having POP marketing at the stores.
What would you have done differently since you started Fitbit?
Fitbit was lucky to end up with a small pool of investors, which meant there was a lot of cohesiveness on the board and practically no egos; it was focused on getting stuff done. At some point as a company, they were really desperate for investment but now are grateful to not have accepted some of those investors on the board, because the key ingredient was having people that believed in the product.
One of James’ biggest transitions was when he stopped coding. He went to manage the hardware part of the business in the summer of 2014, but he was still involved in the company’s internal operations. A lot of stuff was being neglected, for example, they were still using Quickbooks until they had about $300M in revenue, so they hired a CFO that helped them prepare for the IPO.
What was it like going from a private to a public company?
The transition from private to public was one of the hardest things for the founders to do. They experienced incredibly fast paced growth and launched a new product called Fitbit 4, which included Color ID and alphanumeric display. At the time, they sold around 600K units and within a couple of months, discovered the product had health risks and people were starting to get skin irritation. They had already raised about $65M by that point and had $300M in revenue.
The exposure and liability included inventory, stock that they owed the suppliers, and the cost of that production mistake, which was close to $100M. In terms of cash flow, it was a hit they could take, but the risk was losing consumer confidence. They had to work on convincing the suppliers to stack their displays with other Fitbit products instead of their competitors.
The IPO process started in late 2014, Fitbit started all the documentation in January 2015 and went public by June of that year.
What’s coming for Fitbit in 2017?
Fitbit’s vision is to make everyone in the world healthier, and they want to do it from a consumer point of view. The goal is to make Fitbit an essential part of the healthcare ecosystem. Currently they’re developing sensors and the software that will support them.
What is the best advice for entrepreneurs?
- Be prepared for a lot of grey hairs.
- Raise efficient capital – mistakes are really expensive.
- Try to have the right investor base.
- Co-found your startup with someone you have chemistry with.