Invest Like the Best with Patrick O'Shaughnessy - Shark Tank with Thatcher Bell and Taylor Greene - [Invest Like the Best, EP.83]

Episode Date: April 17, 2018

We’ve always found that even in public equities, you learn more once you have a live portfolio. One of the best ways to learn is to put some capital at risk. For this episode, I asked two VCs to sit down with me and Brett and treat the conversation as they would a normal pitch meeting, so that we, the audience, can get a peek into their world and the types of questions they ask. The venture capitalists in question are Thatcher Bell, of CoVenture, and Taylor Greene, of Collaborative Fund. The first voice that you’ll hear is Thatcher, and the next person asking questions is Taylor. I began by asking Thatcher to give us a bit of background on how he approaches young companies before diving in with questions of his own.   Show Notes 3:12 – (First Question) – getting a flywheel business going 4:49 – Brett’s background and how that led to the formation of Ladder 7:58 – Breakdown of the product 9:29 – The sign-up process 10:29 – Key problem for each party of the ladder transaction 12:34 – Diving deeper into the problem of being a health coach 14:29 – How does Ladder differentiate itself from other apps that help people locate a trainer 17:01 – A deeper dive into the consumer using this product 20:28 – The accountability factor being the moat for Ladder 24:12 - How successful is the product right now in terms of recruiting new customers and trainers 28:38 – Their pre-launch interview and research process 31:49 – Going from hypothesis to product development 35:25 – What should founders think about when doing customer discovery, even after they have a product in the market 39:22 – Optimizing in the early stage of a business 43:24 – The defensive moat of a startup 46:20 – Their take on their ability to corner the coaches in this market 49:57 – Is there a side of the producer/consumer side of the equation that is more important. 55:42 – Getting and giving value to your supply, in this case the coaches 58:22 – How to view different phases of a business 1:00:43 – Growing the supply and demand so that neither side gets aggravated 1:02:28 – Market opportunity for Ladder 1:10:55 – Top 2 or 3 goals that Ladder has over the next 12-18 months 1:13:00 – Looking at Ladder, what are the strengths and weaknesses as a potential investment 1:20:40 – Pros and cons of a startup seeking institutional VC money 1:25:11 – Reviewing the pitch

Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfield guide.com. Patrick O'Shaunicey is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaunacy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy asset management may maintain positions and the securities discussed in this podcast. We've always found that even in public equities, you learn more once you have a live portfolio. One of the best ways to learn is to put some capital at risk. To learn more about the venture capital world, for example, I made an investment in a startup called Ladder, a platform business which connects coaches, fitness trainers to begin with, with consumers

who want or need a coach to help them improve their fitness and their health. health. The idea is by making the entire coaching system more efficient, Latter can provide consumers with a real person as a coach but at a fraction of the cost and provide coaches with both new customers and a much better way of managing their existing business. If you're interested in the backstory of this business, you can listen to episode number 60, the podcast with founder Brett Maloli and his story of the vision for Latter. We are now six months into the launch of the business with thousands of users and coaches on the platform and run rate revenue past a million dollars. What I was most curious about at this stage, aside from building something useful, of course,

was the relationship between a startup and institutional venture capitalists who are allocating capital from their funds into startups at various stages. For this episode, I asked two VCs to sit down with me and Brett and treat the conversation as they would a normal pitch meeting so that we, the audience, can get a peek into their world and the types of questions that they ask. The venture capitalists in question are Thatcher Bell of Coventure and Taylor Green of the collaborative fund. Both have experience evaluating new companies, but also have specifically spent time on companies like Latter, which follow the platform or marketplace model. While we do cover a little bit of background on the company, I've edited most of that part out so we can talk mostly about the business model itself. While I don't spend much time talking in this episode, you'll hear me asking Fatcher

and Taylor some questions to better understand why they care or don't care about certain aspects of a business. Lastly, I love the data aspect of all this. The interactions between coaches and customers produces a one. wealth of data of different types, all of which is analyzed and used to improve each aspect of the process. To help gather more data about onboarding, working with a coach, and tracking results, Brett and the latter team set up a little promo code for our listeners, which can be accessed by going to join ladder.com and using the promo code ILTB as in Invest Like the Best,

two, ILTB2. So let's dive in. The first voice that you'll hear is Thatcher and the next person asking questions is Taylor. I began by asking Thatcher to give us a bit of background, how he approaches young companies before diving in with questions of his own. Most of the time when I'm making investment decisions, I'm working with a group of founders and assessing their ability to attack a new market and go tackle an existing problem or opportunity before they've launched a product in many cases, in almost every case, before they have any significant revenue. Marketplaces from my first startup gig have been a favorite of mine. They are sometimes challenging to get going. I think of them as flywheel business.

businesses. So you probably heard that term before, but there's a lot of activation energy to get a flywheel going. In undergrad, I was a mechanical engineer, so mechanical analogies make sense to me. It's a lot of activation energy to get that going. But once it's going, good luck slowing it down. There's a lot of energy you can store in there. And so have been fortunate to be around and invest in marketplace businesses, a variety of types, both facing businesses and facing consumers, and have also touched a couple of businesses in the fitness space, which is where I know your business is. And so we can talk about that a little bit too. I know Patrick, you talk a lot about looking for systematic advantages and approaches to investing. That is one way we think about

not only adding value to our portfolio, but also finding a way to systematically derisks these companies that are very risky at the early stage. We're trying to take a substantial portion of the product risk, which is one of the biggest initial risks off the table, again, in a repeatable way. We focus because we invest so early and because of the capability we bring to the table on founders. We look at the teams that we get a chance to meet, with as the most important ingredients, potential ingredients for success in the businesses that we're considering investing in. And I'd love to start sort of by hearing about Ladder, by hearing about you. So, Brett, I wonder, you know, I read a little bit about your background, heard a little bit

about your background, but what were you doing before? And give me maybe the thumbnail on what ladder is so that our audience can hear that. And also so I can have a sense for how those things connect what you were doing before and what this is. Sure. So I've been in the health and wellness industry, my entire professional career. I actually grew up in the space. My dad had been in the industry. And personally, I was a baseball player. And honestly, I had never thought about doing anything other than playing baseball for the rest of my life. What was your position? I was a catcher and then an outfielder. And why I quit? I didn't quit. I got asked to leave, basically. I wasn't good enough to keep going. And that stage of my life was over. And I had to figure out what to do. The path of

least resistance for me was getting into the health and wellness industry because that was a big part of my life growing up. So I started selling fitness equipment, ended up working for a number of the larger manufacturers selling fitness equipment. And in the commercial fitness industry, commercial fitness equipment is a massive capital expenditure. So the relationships between the sales rep or the salespeople and the gym owners are very strong. So I just inundated myself with the business and I became obsessed with it. And I had the opportunity to know a lot of people that had been in the space from the beginning. And it was almost sad for me to see how little it had changed and how disappointed a lot of them were and how things have evolved. I knew that these health

and wellness professionals need help. They can't scale their earning potential. There's a tremendously low barrier of entry into the space. Consumers really don't know. or understand what the value proposition is. Gims treat them as not much more than a cog and a wheel. Frankly, the entire health and wellness coaching spectrum has likely been broken from the onset. In the mid to late 70s, when professional athletes started working with strength and conditioning coaches,

we saw some crossover to Gen Pop. But with the understanding that, the trainer is giving half of what they make back to the gym on average, and they're compensating for the fact that they have four hours of unused time during the course of any given day. What you're paying for a health and wellness coach who may have got a certification online over the weekend is pretty close to what you're paying

for a mental health professional who has put in a tremendous amount of work and schooling and so on and so forth to get to that point. We started latter to fix that. So we interviewed in-person, 22,000 gym members, 11,000 personal trainers and 1,000 physicians between Princeton Health

and Robert Wood Johnson. And probably three quarters of the way through that user research initiative, we really landed on what we believe to be the most finite product problem fit, and that was a digital coaching solution, a way to simultaneously improve the core competency of the coaches, scale their earning potential, monetize their unused time, while simultaneously delivering a far more affordable, and ultimately, we believe, more effective coaching solution that's accessible to everyone. Can you describe the product a little bit more? I want to make sure I have it right in my head.

But I reviewed the deck ahead of time, but it's always good to hear it in your words. Yeah, sure. So right now, when a consumer comes to the platform, they go through a quick assessment and they're matched with a coach. When the match is made, engagement is driven from the coach to the consumer. The coach is building a monthly exercise program that we call Move, working with the consumer to mutually agree upon a weekly promise, which we call promise. and then there's ongoing engagement through the app to drive accountability. So if you think about it, if you envision a ladder, vertically we have the relationship with the coach and the relationship with the community. And then the rungs are essentially the processes or tactics.

Right now those tactics consist of move and promise. But the goal for us is really to create a platform that can drive compliance to process, no matter what those mutually agreed upon processes, are at a delta that is superior to what the consumer could do if left to their own devices. So when you think about companies like Apple or Fitbit that are leveraging and understanding data to drive insights, we're doing the same thing, but delivering those insights through an outlet of human capital. And we believe at scale, and more specifically, when you start to look at the different theories of behavioral change and behavior modification, that asset will be the most valuable asset in the overarching space as we move into the future. So I signed up and I got matched with

Leanne. I think it's Leanne. It might be Leanne. I can't tell. We'll call her Leanne pretty quickly. And it was a quick and relatively easy sign up process. Again, we can come back to that. But it matched me with her based on just a couple of questions that the app asked me. Is that something that Leanne had any visibility into other than saying, hey, you have a new client? client? That's a really good question. So it's not, I don't even know the terminology, but it's not like Uber where essentially we take the demand and open it up to the supply and then the supply is not double opt in. Correct. We've thought about that and we very may well go in that direction. Right now, I'm not sure what onboarding flow you went through, but we're testing a number of different

flows. And with the current supply base, we're making commoditized matches based on the information that we do have, but it is a direct connection. So there's no opt-in on either side. So I want to go back to the basics of the problems that you described before on the part of both the consumer and the trainer, or the, I know you refer to them in producers as producers in some of your materials. So tell me a little bit more about what you see as the key problem or two on each party's part, because I want to get into how you're addressing that problem for both parties with this product. Sure. So we'll start with the coaches, the producers. Their biggest problems, as we see them, are one, their inability to essentially create a true profession, to scale their earning potential, to be able to make enough money, to be a health and wellness coach professionally full time for the rest of their lives.

And in addition to that, we think that health and wellness professionals are not really positioned for success, aside from just monetization. Unfortunately, health and wellness professionals, they sign up to help people, but the majority of their work is in acquisition, account management, logistics, things that they don't necessarily like and aren't necessarily good at. So fundamentally, we think those two things really prohibit the health and wellness coaching profession from being what it should be or could be. On the other side of the fence, from a consumer standpoint, we don't believe that health and wellness coaching is accessible, specifically affordable. We know that in the U.S. there are about 7.5 million people that work with a coach at any given time, and they're paying $68 per session, training 1.22 times per week. So at $348 per month plus a gym membership, call it $375 to $385 per month, a price point that simply isn't affordable to the overwhelming majority of people.

You walk into a gym and you're a 55-year-old woman that's pre-diabetic, or you're a 20-year-old athlete who wants to get drafted. You're essentially getting matched with the same coach because it's all based on supply and demand relative to the business units or time slots. So it's an incredibly ineffective and inefficient solution that just happens to be a multi-billion dollar industry. And we think that there's a lot of improvement. So tell me more about the problem for the coach. Because so the way I would ask it is how do the, you talk to a lot of coaches, how do they experience the problems that you described. Is it that they have empty hours in the day, which is something you alluded to before?

Is it that they're just not earning enough to pay their bills from this profession that they've chosen? Is it that they might be fine for a while, but customer acquisition is really hard for them? And so when they need to fill slots, they have a hard time finding new clients. How do they actually tangibly experience the problems they talk about? So just to touch on the numbers. So 300,000 health wellness professionals in the U.S. They're making just $11.57 per hour when you account for the fact that they're working over 11 hours per day, and they have on average four hours of unused time during the course of any given day. The average lifetime value of the personal trainer-client relationship is just over 13 weeks. So over the course of the year, they're acquiring consistently

non-stop. Furthermore, everyone wants the same time slots. So it creates this weird dynamic between, you know, how do you value time slots? There's no dynamic pricing. It's all fixed. But everybody wants to work out in the morning or after work. Correct. And the price does not change, whether it's 2 o'clock on a Thursday afternoon

or Tuesday evening at 6.30. So the reality is trainers are in a tough position. If they want to do it full time, they likely have to try and train people out of the gym. And then the gyms get upset with them because there's like an arbitrage there. They're staling clients. But it's almost impossible to live.

for most health and wellness professionals in the markets they train and oftentimes. And because of that, it's a very cyclical industry. We see a very small shelf life on health and wellness professionals. So, yeah, I guess the crux of the problem is they can't make enough money. It's incredibly inefficient. Just to provide context, I am also an individual investor in a company called Finder Trainer, which is vaguely in the same space. But the thing that they try to do is to actually get consumers to meet up in person with trainers,

usually not at a gym, usually at the client's home. Do you find that the trainers are ultimately trying to bring, like, should I expect, you know, the match that you made for me to try to bring me in for an in-person training session? At some point, is that a goal that you try to facilitate for a trainer? Or not so much, you're really trying to create a completely different revenue stream for them, which is disassociated from their kind of hour-level. schedule. That's a really good question. So for us, we believe the ideal solution that will completely change the health and wellness coaching landscape is a delivery mechanism that is a hybrid

of digital and in person. Our goal is to create an ecosystem where instead of 10% of gym members working with a coach 5.18 times per month, we have all gym members and furthermore all people working with a coach, but potentially less frequently in person, where the backbone of the relationship is digital, and then you're plugging and playing in-person care where need be through a dynamically priced marketplace. So we're driving calendar integrations into the product now that when completed will enable us to have the coach essentially list their supply of unused business units and price them accordingly, and it will enable the consumer to essentially buy those business units. In that fashion, it's similar to class pass in a sense. And, for the

For that reason, it was very important for us to create partnerships with Health Club chains. And we're really excited to launch that. So right now from a geocentric or from a digital standpoint, we are making geocentric matches whenever possible. If the supply pool is big enough, then we will trigger a locally based match. We won't make lesser matches at this point to have them locally based, however. That's interesting. I was going to, you answered my question in that regard, because part of my sign-up flow was, what's your gym? So I had a couple questions about that that I was

going to wait on, but maybe I'll ask them now. So one, you're already answered, which is like sort of a high-level why do that, and your answer makes perfect sense, which is it opens up this potential for an online, offline relationship if it goes that way. But I also wonder, so it asked me not where I live, but what is my gym? And so that speaks to, I want to shift and talk to the consumer side, and this kind of speaks to the consumer. Who is the consumer in your mind? Because that question, to me, presumed I have a gym, as opposed to you're trying to get people off the bench who are not currently active. And I wonder if some people are thrown by that. Really good question. And we've been playing with that. So I think the verbiage wasn't where is your gym. Nonetheless,

if that's what you took away from it, then it needs work. It's something that people have said quite often. So that portion of the onboarding flow is something that exists in some flows and doesn't in others. By the way, whatever data sources you're using, it worked really well, right? I put in asphalt green. It came right up. But it was like gym-oriented. And to that point, we don't want people that don't have a gym to think that ladder isn't for them by any means. So that question, for example, is essentially a way for us to hopefully accelerate our understanding of users. Our initial beachhead user, the one that we know we can profitably acquire, is the gym member. So the 90% of gym members that can't afford and or don't see economic value in the incumbent health and wellness

coaching solution at $348 per month. That's a market or a group of users that we are comfortable with. It's potentially because that's where I've spent a lot of my time. With that said, and we can talk more about our growth trajectory, we need to continue to understand other user types. So everything we're doing right now is to simultaneously learn and grow at the same time. And I'm guessing probably mostly women. It's actually like 55% men at this point. Really? Yeah. So that's different from sort of most personal training clients, which I believe are a majority women. It's actually over 55% men on the PTC. If you look at the Association of Fitness Studios' newest data, and granted, any data you're

seeing, whether it's from Eursa, where most of it comes from, on the personal training side, one of my biggest complaints is that it's not accurate, and that's why we went out and tried to acquire it on our own. But yeah, the most recent data tells us that more men work with health and wellness professionals than women. So you're mapping pretty much to the population of people who are seeing personal trainers already. I think a few points lower, and to that point, because I think we're at 50, and I think the number might be in the higher 50s for men.

Where that number gets diluted in a lot of the data is when people start to group health and wellness professionals with personal trainers and group exercise instructors because group exercise is exponentially more female-centric. So when you put those numbers together, like a lot of studies too. It starts to look skewed toward female. Right. Got it. But the one-on-one training sessions tend to be a little bit more men.

Correct. And small group training. So anything outside of a class setting. So these are men and women a little more. men than women who are probably going to the gym, but feel like they could get something from a little bit more input from a professional, but they don't want to spend the money on the in-person personal trainer for the most part. Or they don't feel like they have the time. There's a number of reasons, and it's mostly people that either need help with the process and or need the accountability.

The accountability is the thing that is shining most brightly in our product. now. So yeah, that doesn't surprise me and I'm glad that we got to that early because I don't want to spend too much time on a competitive landscape just yet, but if you go check out fitness apps, there are more than a couple that are in the app store. And on the surface, there are a lot that can provide me with ideas for different workout regimens or exercises and maybe even provide me some detail about form through video or other kinds of things. And so, it strikes me that the key, a key differentiator here is just the live personal trainer who's developing a fitness plan for me and is there for questions and feedback and that sort of thing.

But to your point, maybe first and foremost accountability, the promise idea that you mentioned before. Is that kind of what you're seeing? How do you see that in the data, I guess? In the engagement. So you made a couple of really impactful points there. So to the first one, it is an incredibly crowded space. It's almost uncomfortable at times when people are like, well, what are you working on?

I'm like, oh, you know, I have, one of my biggest problems is it takes me an hour to describe what we're doing in a meaningful way, which I think is a big problem, something we're working on. But, you know, you say you have a health and wellness coaching app and, like, the response is, well, oh, my cousin is 18. She has one of those too. It's like, oh, okay, thanks. I've devoted my whole life. It's like pretty light. But that's the reality. It's a very crowded space. When it comes to how to differentiate ourselves from that massive pool of other products, a lot of which are great. We think there are a lot of great tools for people who are already self-accountable and virtually nothing that exists for people that aren't, which happens to be the larger part of the market that we believe is a lot more underserved. But when it comes to behavioral change, the most accepted theory consists of what is essentially ability, trigger. and motivation accountability.

So do you have the access? Do you know what to do? Can you afford it? Is it convenient to some extent? And then the accountability, do you want to do it consistently? And then the trigger, essentially the mindfulness that rolls back up into the accountability. So from a process standpoint or an ability standpoint or an access standpoint, there are endless amount of products that offer custom solutions.

One of the analogies I use all the time is famous trainer on the West Coast. named Gunner Peterson works with like all the Kardashians. And you can go to his website today and see what he did yesterday with Chloe Kardashian who paid him $500 an hour. But that doesn't mean that what Chloe did is what you should be doing. And more importantly, it doesn't make you any more likely to do it. Because that's what's most important. The processes in often cases are commoditized. We've seen a variety of different implementations into the space that, CrossFit, for example, So CrossFit doesn't drive any movements that haven't been around for centuries. The original movements, that's CrossFit.

But why does CrossFit work? And in my opinion, CrossFit works because the community that they've created drives accountability at a rate that is much higher than the traditional. Right, we're working out together. We had goals together. Yeah, the name of the game is how do you create accountability for long enough until people can see changes in their body? because at that point they become addicted. So CrossFit happens to do it just a little bit better than most anyone else.

We've seen curves do it successfully in the past or Weight Watchers. There are a lot of people that have done it, mostly through communities that drive accountability for long enough to keep enough people in the till to create big businesses that help a lot of people. So now that I have kind of a good understanding of you and what drove you to start the business and a good understanding of what the business is, given that you are in market and the product is out there and people are using it, I typically steer the conversation toward how it's going. And generally speaking with subscription businesses,

they tend to, if it's not an amazing product, they tend to have challenges with churn, tend to have challenges bringing new customers onto the platform. platform, since you have a two-sided marketplaces, you might have issues with both coaches and consumers. And so I'd just be interested to learn a little bit about that data and how it's going, how sticky the product is. Probably the most interesting thing for us is right now NPS is completely binary. So it's 8.2 right now for consumers, 8.9 to 9 for producers. and consumers, people who need or want to be healthier clients, producers, coaches,

health and wellness professionals. On the consumer side, it's been surprising to me that it's literally all nines and tens are ones and twos. And the main point of feedback is engagement. So one of the main KPIs that we track is messages per client per day from the coach. The nines and tens are getting what we believe to be serviceable engagement. we don't think anyone is getting the type of engagement that we envision, but the ones and twos are as unhappy as the nines and tens are happy. So a lot of the time over the last few months on the product side that we've spent has been trying to mitigate those poor experiences.

So from a quantitative standpoint, we've started to essentially gauge our coaches differently. So we measure them across 13 different metrics and provide them with a net score that is transparently. track. And we work through a phase of what we call in trial and live. So for a coach to become live, they have to bring on at least five of their existing clients, get five referrals from colleagues or other health and wellness professionals. And then they have to use the product for a period of two weeks upholding certain metrics. So from a quantitative standpoint, we've been able to mitigate a lot of that lighter touch. What we haven't started to work on is the qualitative standpoint. And another thing that has been super interesting is we were proud of ourselves.

We had this new productized onboarding flow and management flow and things were going well. And we started rolling out client reviews. And what we saw was that there were some outliers that were ranking high on the quantitative measurables, but not as high on the consumer reviews. So, you know, right now we're in the process. we just pushed what was a fully refactored data model as it relates to move. So we went from what was not much more than text assigned to text to a more holistic data model that consists of programs, which consists of training sessions, which consists of groups,

which consists of rounds, which consists of movements that have attributed goals and volume. So consumers can now track weight, receive weight or reps. They can get context around past results and we're quickly moving towards the ability to provide predictive analytics around potential future volume and goals and so forth. The heavy lifting for the next two sprints, so basically through the end of Q3, is all producer tools. Our goal is to allow our health and wellness professionals to be successful without being super proactive.

We've seen already a decrease in time spent servicing a client in a given month by about 11 minutes, which is good. So right now, the return on time for a health and wellness professional not accounting for what the increase in LTV will be is about 3x their existing hourly wage, taking them about 50 minutes to service a client any given month. Now, making that easier and easier is our main focus right now. So producer tools is really where our focus is right now from product side, which is interesting, as we were talking about earlier, because that's a SaaS product, but we're giving it away for free. So I want to move on to how you make money doing this, but before we do, I do want to go back to quickly this sort of user interviews or would-be user interviews,

sort of the customer discovery effort you undertook at the beginning, because you threw down some numbers that were pretty significant in terms of the number of conversations you had with coaches, with consumers and with healthcare professionals. First of all, how long did you spend on that calendar days? And secondly, how did you make that happen? How did you get into so many conversations and literally just make time for them? That's a lot of discussions to have. Yeah, really good question.

And it's an interesting topic because sometimes I reference that as like a badge of honor. But if I'm being perfectly honest with myself, I think it was a pretty massive waste of time for a lot of it. We did 52 weeks, and we did that in person. So we partnered with gyms. We partnered with some really cool brands like Roan and Miles Apparel and Uber and Instacart. How long are these thousands of conversations? They were all in group settings in gyms. So we would go to these gym owners, who I knew, and we'd say, you know, can we set up shop, we'll buy whatever people want in these gyms. And these were all over the country. We were literally just trying to get as much information. and in retrospect, if I'm honest with myself,

it was because I didn't know what to do next. I knew there weren't too many assumptions that were proved over that portion of time that we didn't necessarily understand. And even for the really important ones, we understood them far sooner than 52 weeks, but I was paralyzed in that I didn't know what to do next because I wasn't, I'm not an engineer, nor is my co-founder.

So taking this concept that we now had supported with some data, at least from a feedback standpoint, and turning it into a product was really scary for me. And so I want to talk about that briefly, but give me an example of the kind of question that you would ask or the kind of exercise you would undertake in one of those discussions. What were you trying to get from those conversations and an example of how you did it? So we were trying to understand why the people that don't work with trainers, why?

The people that do work with trainers, why? And from a trainer standpoint, we were just, trying to understand what sucks about what they do. So that's consumer producer. And on the physician side, we partnered with a friend of mine who used to run the American Council on exercise and served on Michelle Obama's Let's Move Committee. And he was going through his doctoral program. And we were able to sneak in essentially our questions into what he was doing, which was like something that I didn't even think of. I was like, okay, healthcare to me is something I don't have a super finite understanding of short of I know that we can do a better job driving preventative medicine

and I think that over time the asset that becomes most important in the health and wellness space and in the healthcare space are the service providers or practitioners so yeah it was a year of all and I and we have another co-founder as well that's moved on and in the three of us the majority of our time was at health clubs talking to people so a couple things I really like about that and then one comment about what you said around a waste of time. So first of all, just for context, at CoVenture, you know, we do spend a fair amount of time with our founders who are not yet in market or are early in market undertaking customer discovery when it's appropriate. And I think that you are very much an outlier. In fact, I don't know anyone. I don't remember having met

anyone who had as many conversations before having any kind of product out there with would-be users as you just described. So I think airing on that side of the spectrum is good because the vast majority of entrepreneurs err on the other side of the spectrum, where they're having too few conversations with some of the wrong people or with a swath of people that's too narrow. And so I think that's really important. The other thing that I think is really important and that I would point out is I asked the detailed question about what you did in those conversations, what you asked those people, because it's very easy to lead the witness. This sort of natural tendency on the part of an entrepreneur who's excited about an idea

is to say, what do you think about this idea, which is in general a terrible way to get feedback. It's much more useful to ask a question like what sucks. And actually, that's an investment thesis for some venture firms. It's just finding what sucks for a large of population and a solution that can be high margin to go fix it. That said, 52 weeks and thousands and thousands seems a little excessive. One thing that I think we can maybe come back to that we try to encourage founders to do is once you have a strong hypothesis, figure out the simplest way to go test it. And there's a lot that's been written about this. But I think there is a tendency on the part, in particular founders who don't happen to have a technical background, to think of a

flipping a switch between not having a product and having a product. And to think that there's a big step function in effort and in the number of people that need to be involved from one step to the next. And I think that the best product management, product development people very much look at that process as a stepwise process as a gradual process of moving to a fuller product. And so, for example, I spend some time at Cornell Tech, which is the graduate applied science campus here on Roosevelt Island now. And the guy who runs the product studio there is named Leland Reckis, who's been a product manager for Etsy, and he was the first product manager for Android, and all of these products that did really well. And he talks about sort of the notion of product

development being one of having an idea as an analogy of having an idea of a product, an ultimate product, which is a car. But you don't start with the basics of a car. You start with a skateboard. And you let people try that out and you see if they like the idea of moving around on four wheels, and then you move to a scooter, and then you move to a motorized scooter, and then you move to a car. And by the time you're done, you've undertaken all this development effort, but along the way, you've gotten a sense as to whether or not people want to use a different mode of transportation, which is really what you're driving at.

And so I think, again, we can come back to that a little bit, but I think there's a happy middle ground between trying to jump right into developing a product and understanding what your customers might actually want what sucks. And there's also a sort of happy middle ground between. trying to get a product in front of a consumer that they can react to in a way that's useful, but not building too much along the way. Can I ask another question about customer discovery? This is a really interesting topic that I've not thought a whole lot about before.

How do you think about it in the context of businesses that are having some degree of success? So you've got some product that's working. It seems to me like it shouldn't be something that you do once and then never do again. How would you advise businesses think about that as like a function almost systematically that they return to beyond the asking good questions, which obviously is, I guess where I would start is find the right potential audience, get the right sample and then ask good questions. But beyond those two simple ideas, are there other things that you would encourage business owners or founders to think about when doing customer discovery? So I think we want to distinguish between customer

discovery and sort of customer success management because it's easy to sort of conflate the two. I think that if you're developing a new product or you're entering a new market, some of the techniques we're talking about, which are very analog to start with, are really important. To the extent to your question that you have a product in market, if it's software or software enabled, you know, there's a lot that can be done to instrument that product. And you might have talked a little bit about that already, some of the things you're seeing and some of the data and usage patterns that should inform. modifications to that product. And even perhaps the term of art is a pivot, even heading in a direction that is somewhat significantly different from the direction you took to start with.

And so you can see, for example, if you have instrumented a product correctly, that this is one of the reasons you're probably trying different sign-up flows, that if someone signs up and they, just going back to our earlier example, are asked kind of which gym they want to, is local to them or whatever that question is,

and you see people drop off then, you're going to try a different sign-up flow, and you're going to see if you can get people to stay through that flow longer. Similarly, if you're starting to see people churn, there may be data about their interaction with the product to help inform what you should change, if anything, about that product that will sort of guide you in your thinking. So did they go two weeks without hearing from their coach, or did they get 17 messages from the coach in the same day?

So if you instrument the product the right way and you've got a good set of product managers or a good product manager on top of it, you can learn a lot to help you iterate. But if you're trying to go somewhere new, if you're trying to really enter a new market or head in a completely new direction with the product, it's often really important to come back to these first principles. And the biggest companies do that, the Googles and so forth of the world, you know, have these product management teams that take these same techniques with them into the marketplace. To that point, and we were talking about it earlier, it's the most amazing thing that's ever happened to me is understanding how you can use technology to optimize and solve for things. It almost makes everything I had done previously a joke. A week doesn't go by that. I'm like, if I knew how to do this, then I've had some marginal success, but I can't even put into words how impactful it is. And like to that point, so in InVision, we have two, we have a SkunkWorks project and then we have like a live product project.

So in SkunkWorks like it's all new stuff. And that's what I'm going to. So Envision is sort of a prototyping product for those people who are unfamiliar with it. It allows you to mock up a mobile application or another application without building the whole thing out. And it kind of feels like it actually works when you play with it. Yeah. No, for some of the non-tech folks out there. But yeah, to that point, I mean, it's so incredible to be able to communicate with.

these people in real time. And the feedback we get from them is amazing. I mean, I talk to hundreds of people a day. So the danger, I would say, and we need to get into kind of where the business is and its evolution, but the danger around some of these tools is finding what I'll refer to as a local optimum. And so you got to sort of be careful, particularly in the early stage of a business, that you're optimizing too soon, to put it differently, that if you have decided and you have a hypothesis I would suggest as a way to think about it that you're testing about who should pay, about how much they should pay, about what the real value is, about how they use the product. And, you know, you've done a fair amount of testing around that now, but it's worth asking the

question, are there dramatically different approaches that maybe you should consider instead of having, or in addition to having the consumer pay, having the personal trainer pay, or, and this is probably a terrible idea about having the gym pay, or charging a completely different amount, or in a completely different way. Maybe it's, you look at a lead gen fee for a trainer. So it's not a monthly fee for either party or maybe it is still for the consumer. But as soon as the consumer steps into the gym, the trainer pays $100 or whatever that number is. And so, you know, you can react to any of those specifics or not.

But I think the one thing I would say about all of those tools and the notion of optimization is it's easy to head even deeper down a rabbit hole when, you're not sure yet if that's the one that has the most rabbits in it. I'm not sure. I think the last thing that would be worth understanding is just customer acquisition. So what I found is that the most successful companies figure out a repeatable and scalable way to organically acquire customers. And once they have that flywheel working, then they layer on the paid piece. Have you figured out what that is yet to get your repeatable, scalable, organic, customer acquisition channel working? Do you know what that channel is yet?

Is it from the coaches? So super complex and loaded question, right? So right now from a, I guess first to speak to a consumer acquisition standpoint, from an organic standpoint, we have very little web presence. So organic search is low. press has been relatively low and word of mouth. I don't know if anyone can figure out. We have some viral loops that are starting to click a little bit, producer to consumer, consumer to gatekeeper. We have the gym partnerships. We're partnered with 11 and the top 20 health club in the country who are giving us explicit access to their trainers and giving us their databases

of current former and prospective members. So from a organic and or viral coefficient standpoint, We have a lot of lines in the water from a paid standpoint. It's actually going better than we thought. So right now, we believe that an average producer is worth about 20 free clients to us a year. We haven't started converting those into paid, but adding the ability for producers, coaches to create and send dynamically price campaigns where we've fully run nurture. So we have essentially the producer can link to either contacts or, Facebook contacts and bucket their contacts, former clients, prospective clients, friends that live outside the area in which they can train them.

And then we drive nurture through those contacts through either text to lander or direct email that's co-branded with the image, with the price. So to date, that's definitely been the most valuable free acquisition tool. A lot of the reason for going earlier on the paid side was mostly for learning and just to populate the product. Obviously, we need to get to a certain point so that we could start making product improvements and we could start learning a bit more. And obviously, we wanted to accelerate that process. So moving forward, we kind of have a bunch of different things in the till at the moment. As far as true channel fit, the producer-to-consumer loop is definitely the one we're most bullish on,

though paid through SMM. Even SEM has been cost-effective at this point for us. So I think this is one of the big differences between, you know, a good company, a good tech company and a great company is the great companies figure out a way to defend their position because there's lots of capital out there. There are lots of fast followers. You need to build some sort of moat around the business in order to scale it in order to give yourself enough time to properly scale it to the outcomes that a lot of ECs are looking for. Have you thought about what the defensive moat is here? Yeah, for us, I mean, we believe that the bigger innovations in the consumer fitness space are going to be on the hardware side over the next five to 10 years. With that said,

we believe the most valuable asset in the space is the platform that connects people with other people, products or services that put them in the best possible position to succeed. So when everything shakes out over the next few years, we think health and wellness professionals are potentially the only asset that matters. And we believe that we can acquire critical mass of that market in a very cost-effective way and retain them due to a massive switching cost. Right now, as soon as our health and wellness professionals move from what is currently the six or so products that consist of email, I message, notes, Excel, whatever, to latter. And when we start to see messages like, you know, hey, Taylor, I'm running 15 minutes late for my session, those are the

things that make me most excited, because then that implied product is part of the onboarding process. So it's no different than someone new starts at Ladder. And we had this come up the other day. We had a new employee. He was like, well, Brett, how do we, you know, why would they use Ladder instead of IMessage? And it's like, okay, well, let's look at it. So what can Latter do that IMessage can't do? The coach can send group messages that are BCC'd. So you can send one message to a bunch of clients at the same time. You can in real time track activity. You can track promise. You can track move. It's what a CRM does. When I was selling fitness equipment, I remember literally a period of six months where we went from not using Salesforce to using Salesforce. And the people that adopted it that were open to change over the next 18 months produced that. ridiculous multiples ahead of those who didn't. And for us, you know, that's the switching cost. That's what our goal is. Our goal is that for health and wellness professionals who use ladder with their clients to provide a 10x improvement over those who don't. I'm curious as a question for you,

given that you've seen so many different consumer marketplaces. So this is, what he's just described, is what, as just a relatively novice outside investor in this business model, let's say, is most exciting to me. That just really resonates that if you owned the coaches long term, and before we started, I was talking about institutional raise versus like an individual raised metrics that matter for institutional VCs that make it, let's say, reduce career risk. I'm fascinated by career risk, like investing in a company that's got a three or four LTV to CAC, you can kind of look back and say, well, you know what? you can't fault me too much.

Like it looked great, right? Whereas... Or like buying IBM. Exactly, yeah. Like, yeah, you don't get fired for buying IBM, exactly. Or certain asset managers today, Vanguard is a great example. But in my mind, like there's maybe even an interesting strategy. I'm just curious reaction to it where the only focus is on acquiring coaches.

That if you owned this incredibly productive, potentially productive asset, and you were by far the de facto standard as their CRM, as their acquisition tool, as basically their hub. for their entire business, much like dentist office SaaS software or something like that, where it's just so embedded in the workflow of the coaches themselves. And they're like almost figure out the other side later. I'm just curious your take on, I guess, my bullishness, my relative bullishness, if you take all the different aspects of what makes latter interesting,

on owning the coaches and their workflow above all else. I think it's interesting. I think any time you build something that can become anyone's core, operating system you're on to something and in many ways that's more of a B to B what you're describing as more of a B to B model if you think of the coaches as their own individual sort of small businesses and in some cases it's easier to sort of block and tackle and sell to that cohort than it is to to build the perfect product for consumers usually on consumer stuff you either hit it or you or you don't

And oftentimes it happens on the first try, but a lot of times it takes 10 tries and multiple iterations. And you don't necessarily know what the consumer wants because they want lots of different things. But if you start by targeting the coaches and you really understand the value proposition that's going to resonate most with them and you target your efforts there, I think you can lower a little bit of the risk of building a consumer product that either works or doesn't work. You pivoted a little bit more into a B to B to B model or B2B to C model. And so I think it has a lot of merits as a go-to-market strategy. To your career risk question, I would say that that's how you lose a lot of money in venture is thinking about career risk. Obviously, we can't be reckless. We're taking calculated risks here. If I look back at some of the

best investments I've been involved with, they, tend to be the contrarian bets. They tend not to be the investments where every single fund wants in. They tend to be the ones that are a little bit overlooked. There's something a little bit off about it. There's something a little bit weird. And there's a lot of career risk in sticking your neck out and having the conviction believing in the company and in the investment thesis. So I feel like you kind of have to throw the career risk stuff out the window in this business because it tends to revert you to the mean when you make those types of investments. I'm just curious, again, another question from your perspective, looking at a lot of marketplace businesses where you've got

the supply side and the consumer side or producer side and consumer side. Do you, and maybe it's just a totally nuanced dependent answer, but do you tend to find that one of those two sides of the equation is more important? A general principle and then maybe not in this order. I'll also. start with sort of an unsatisfying, but the most true answer, which is every marketplace is a little bit different. So at Coventure, for example, we're invested in a company called KidPass, which is sort of like class pass for family activities. Solomon, if you're out there, I'm sorry for using that analogy because it's overly simplistic, but that's sort of the idea. So in that case, we're trying to get parents and families to go to the Jimberies or the art studios or the children's museums of the

world that are probably in their local neighborhood. And so we need the supply from those activity providers, and then we need to get the consumers' parents generally to sign up and bring their kids. What that business is found, unsurprisingly, is that having density of supply in a given neighborhood is really important for bringing on consumers. And so it is kind of a waste of money to try to acquire consumers before you've got some level of density in a neighborhood. But there's a timing issue there, right? Because you don't want the providers sitting there without any consumers coming in because they sort of forget about you and they're not interested in participating in the platform anymore. And so that's a particular dynamic of that market because people are

undertaking a physical activity that needs to be particularly close to their home. That's not maybe so different here, but there's this whole virtual component where it's entirely possible for users in the case of ladder to participate and to use the product without having to go to the local gym or without having to go to the trainer that they're meeting with. And so this is going to have its own dynamic. That said, the general principle is still something to consider, which is think about who, and this is sort of behind your thought process, Patrick. Also, it's important to think about who is going to provide the kind of carrot to get the other party involved,

which one is the more magnetic of the two sides to help get the flywheel going, if you will. and there's also this notion in a marketplace of the cold start problem. And so that problem is when the first user comes onto the marketplace, what value can he or she get from that marketplace? And so there has to typically be some supply. So at some level, most marketplace businesses start with supply. The way around that, there are a few ways around that. You could offer like productivity tools or something for one side of the market.

So you're doing more than the matching and more than facilitating a relationship. but typically you're starting by adding a little bit of supply. And then the last thing that I would say is this is a challenge that every marketplace business has forever, where the best businesses aren't shifting from one side of the ship to the other and having the whole thing go back and forth in the water. But they are emphasizing. They're putting more resources behind either the supply acquisition or the buyer acquisition at any given time. And that's probably what you've experienced already, I would guess, Brett.

Yeah, I mean, the chicken and egg, not to be cliche, is one of the first things people say. Platforms are tough. Marketplaces are tough. I think in our case specifically, not that that's not something that will be super important forever, but it's almost a little different in that there's similar value to consumer 5 and consumer 5,000 and potentially consumer 50,000, which is why when we were talking about companies that we think are similar, The one that always jumps off the page to me is Rubicon Global, because what they have done is catalyze an underserved and, essentially underused base of local waste haulers,

immediately improving their businesses overnight by allowing them to access multinational contracts that were previously unavailable to them through the network that is Rubicon Global. And now that they've built up the supply driven a massive switching cost through that supply, in that without Rubicon Global, a lot of these companies would go back to where they were before, which is the much worse place. And now they're starting to leverage that supply to drive a solution to consumers. So I think about what we're doing similarly in that we're essentially providing our coaches, health and wellness professionals, with what will be in our minds a tremendously valuable CRM tool.

But you're not charging them anything at this point. Correct. So I don't have any money. I want to come back. Right. But you're giving them money, right? You're trying to do so anyway. But I want to come back to those.

So just to do the simple math. But just to that point, right quick, because I think that's something I spend a lot of time to think about. We are giving them money so we could potentially retain money. I'd rather drive a way to monitor their consumption of content or education. So we have these entitlements. They need things from us. We need things from them. We could jump to monetization.

But I think the better play, is to just further ingrain ourselves in their daily workflow, in their core competency, so that in two years from now, fundamentally, a health and wellness professional, working with a client using ladder, provides an exponentially better experience than without ladder. So that makes sense to me, but I wouldn't say that that's necessarily mutually exclusive from trying to experiment around the economics. to your point about having a few different sign-up funnels running at one time, it may be possible, maybe not simultaneously, but to try different ways of getting value from and providing initial

value to the coaches. So, you know, food for thought on that front. But just to sort of lay out the economics a little bit and then think about the opportunities for the business. So contribution margin is 25 bucks a month for four and a half months. So 112.50. Did I get that right? Right now, blended. Okay. And so what's customer acquisition cost at this point for a consumer? Like $110. Okay. And so that suggests the ratio of lifetime value to customer acquisition cost is about one, right? A little over one. It's early days. You just launched the product. So those are not very firm numbers yet. But that's obviously not where you want to end up. Do you want to talk about that a little bit and kind of where you want to try to get? Yeah. So CPI has been lower. CPA has been lower. Nurtures, weak. We have

no SEO. So like baseline stuff, we think KAC is going in the right direction. We're also comfortable with CPI and CPA being a little higher now because we're trying to better understand more user types and expand. What's a realistic target do you think? If you look at, you know, I don't know if Class Pass is a useful example, but any analogous business, and I can tell you, you know, kind of what I think, but for customer acquisition costs, sorry. I mean, I think we can cut it in half. I think we can get it down to $50. And that's looking at some of the comps. I wanted to come back to a point you made about the monetization strategy because the majority of the competitors are in the space, companies like train arise, for example, who we think is doing a

really good job, is driving an economic model where the producer is paying for this widget that they can use to drive a digital coaching solution. And that's what everyone's done. And we've seen probably 10 companies get to series A or later and, you know, a handful exit at the most successful, I think, was $30 or so million. But no one's really cracked this thing, yet consumers find value in it. So I totally agree with you. I think that we have to play with every different monetization strategy. But at the beginning, we believe it's super important to create this community of coaches.

We see it as a land. grab of health and wellness professionals. We firmly believe that the most important asset in the overarching space are the health and wellness professionals, that the larger innovations will be on the hardware side, but the most valuable company will be the company that connects people with other people, products, or services that put them in the best possible position to succeed. So I couldn't, I had to just speak to that because it's a, it's something we talk about a lot. I think that makes a lot of strategic sense. I think that. think, though, the thing that I would suggest, so I'll share kind of how we think about different

phases of a business, because I think that's another source of kind of confusion and difference of opinion amongst entrepreneurs as well as investors. So we think about startups in particular as working against and trying to validate or invalidate a hypothesis or a set of hypotheses at any given time. And we're not the other ones who have this idea. You know, Eric Reese and Steve Blank and a bunch of others have kind of written and talked about similar things. We have our own spin on it. But our view is that to start with, you have a value hypothesis. You're trying to figure out, does anybody care about the product? Are they going to use it and do they find some kind of value in it? Related to that, you're trying to figure out how much value. And so that really boils down to

understanding the transaction or the unit economics of the relationship and trying to figure out if there is potentially a good business to be scaled. Then you have, you know, what we refer to as a growth hypothesis. So if you have a business that has good unit economics, that any one customer, anyone consumer in a SaaS business would have an LTV to KAC ratio of over three in a consumer facing business, you probably want it to be a little bit higher than that, but, you know, a pretty good margin there. Once you're comfortable with that, then you're trying to figure, okay, how do we go buy those customers and can we do so at a customer acquisition cost that sort of make sense, even as we scale? And so that's trying out a bunch of different channels and seeing which one

seem to be most profitable and most productive. So that's sort of your growth hypothesis. You're just testing different channels at low volumes. And that's something you may not even have done so much yet because it's fairly early in the life of the business. And then once you feel like, okay, we can acquire customers really inexpensively, you know, on Facebook or whatever the right channel is, then you're trying to start pouring more and more money into those seemingly productive channels to see how deep they are, to see if you can actually scale the business. And so while it's true that in order to build strategic value and to sort of think ahead

to growth, having the relationship with a coach and providing sort of value to them they're not getting from other sources and developing that community, I think, makes a lot of sense. At some point, I think, early on, you want to sort of just prove, I would think, to yourself that the unit economics can get to a place where if you had a million or seven and a half million or 10 million of those consumers, that this is a huge wildly profitable business. And so I'm curious how you think about the tension between that and sort of aggravating the coaches or the consumers, one way to sort of to split the goalposts on that in this business might be, let's just see if we can up the lifetime value. Let's see if through this tool and the way that

we enable coaches to interact with consumers, we can get to seven months instead of four and a half, which is a really long time given that they're only showing up for in-person training sessions 13 weeks, according to what you said before, but wow, would that be valuable to everybody? So how do you think about that? All really good stuff. So a few things. One, when we talk about LTV, I don't necessarily think it's accurate to use the existing monetization strategy to effectively gauge the LTV. So like with Uber, for example, and I hate saying Uber because it's so cliche, but, you know, if the goal was to create a perpetual ride, right, so you could drive, you know, this fleet of

people that could deliver people or things in a more effective way, you need to build that supply. So I completely agree with you. I would maybe put a little more importance on building that supply because I think that very quickly there are going to be a lot of people trying to acquire the same supply. But as far as the union economics specifically, I think there are two ways to essentially walk up LTV. That's to extend the time cycle and it's also an ability to increase the average revenue driven per consumer. Sure, it's just a better, right. one other major question, I guess, is around how do you think about the market opportunity here, right?

So two more categories of questions. One, total addressable market. And second, I want to talk about funding a little bit. So how do you think about total addressable market here? You talk, you know, there's seven and a half million people, you said, seeing a personal trainer. In the U.S. In the U.S. Is that the sort of focus for the foreseeable future?

You talked about expanding that market, but not really focusing on the population that doesn't go to the gym today. is it everybody who goes to the gym, it doesn't see the trainer? How do you think about the total addressable market? I think that there's almost three plays here. There is the health and wellness coaching component. There's the relationship that individuals have with the commercial fitness industry. And then there's the driver that is health care that expands the entire market to levels that are difficult to understand at this point.

So I think the addressable market is society. So I think the limit on how big this could be is bigger. than anything else, to be honest with you. And I say that and people are like, well, you know, that doesn't sound very thoughtful. Like, tell me about the math because on your deck you have slides that say there are this many gym members and this many personal trainers and this is the revenue. But the percentage of gym members that belong to a gym has been stagnant for four decades at 16.5%. And the percentage of gym members that work with a coach has been stagnant for four decades at 10%.

We believe we can bite off those markets. We believe that there's an opportunity. And when I say we, it's maybe it's not latter. A company that does this, whether it's us or another company, is to be determined for sure. So the way I would suggest maybe thinking about this and coming to a sort of like answer where you kind of just press play on the tape when you're in a fundraising conversation and you know you'll kind of check the box. Because I don't think this should be a hugely difficult question for you.

And the way I, for a startup, the way I think is the best way to think about it. it is very simplistic and very bottoms up. And so if you said 50 bucks a consumer times whatever, 15% of the 70 million people, so let's just call it 10 million people. So that's 50 million bucks a month potential, 600 million a year. You know, you probably want that number to, you want to use that number as a guidepost and thinking about who you're raising money from. And if the answer is institutional venture investors, that number of the sort of simple bottom up back of the envelope mass should be multiple billions of dollars. And I think you can get there in a way that's very credible and you're probably there in your head, but it should be a number to

start with that's like very simple and it's based on the business you're delivering now. And then when you talk about these other opportunities that have to do with getting beyond just, you know, the move part of the business and into nutrition coaching and, and when you talk about expanding even further into healthcare professionals or payers or what have you, then that feels like, holy moly, this is already a really huge market, a really big opportunity, but that's just the beginning, as opposed to feeling like, well, it's unclear whether Brett thinks the initial market is big enough, so he's talking about these other markets that are clearly bigger. That's a really good point. One of the things that, and I'm really enjoying this conversation,

when it comes to talking about things so that it's more palatable for an investor, I struggle with that. Well, it shouldn't be your mission in life. So it's, That's a fine thing to struggle with. But I think, so I was talking to someone about last night. So like if you said to like early days Netflix or Red Box, what's the market opportunity or Uber or Airbnb, it's not realistic. So what do you actually get from that short of being able to check a box that says, okay, this thing could be.

Right. So what I think you get is what you get as the entrepreneur is a sense for like, is it worth going to the professional investment community or going again, I don't know how you raise money, or am I just kind of wasting my time? Should I find out, think about another way to fund it, whether it's cash business or angels, or cash financing or angels, or

for certain businesses they got equipment, there might be debt available early on. So that's kind of one way of thinking about it. The reason that professional investors are thinking about that as a sort of check the box thing or as something that they're considering is that one of the few things that I feel pretty confident in in this conversation

is that the business that you've started and is probably not exactly the business you're going to end up in if this is a big successful company, which is kind of what you said before about Uber and some of these other businesses that did get very large. On the other hand, they started out in markets that were really huge. So there was a lot of opportunity such that when they ran into competition or when the initial model didn't work, when for some reason they needed to effectively head in a new direction, when they needed to maybe not relaunch the business, but make a dramatic change in the product, there was still a lot of room for them to grow a big company. And so that's really why investors who will only make money

or drive sufficient returns to justify their existence if at least some portion of their businesses are returning 15, 20, 25 times the money they put in. Like in order for those economics to work, the businesses that do succeed have to get really big, which means the markets they start in have to be really big. So how would you answer that question? I would characterize what you think the low-hanging fruit is or the consumers who are already using the product and map that to the market and say we think that based on what we're seeing in these early days, that, you know, there are 20 million, 25 million people just in the United States who are target customers for us because they are in these geographies or they have these

characteristics or they go to this kind of gym or whatever those characteristics are that make them low-hanging fruit. And even at the current economics, without sort of increasing our average selling price to consumer, you know, that's a multi-billion dollar annual opportunity. And it's early days. We think that the revenue numbers can get higher. We think that, you know, that we're only talking about the United States. You can say all those things then. But for starters, are you clearly selling into a market that is, you know, very large, is defined by multiple. billions of annual revenue available for this kind of business model. That makes total sense.

So for us, 65 million gym members that can't afford and or don't see economic value in the incumbent solution at $50 per month. That's $40 billion, right, just in the U.S. So 120 to 150 billion. Right.

So that, so, you know, those numbers feel really big and, and it's a very back of the envelope number. So it's hard for someone who runs a real business all the time and is in the weeds to kind of, you know, use pie in the sky numbers like that. But everyone in the conversation knows that. It's more to understand how big is the opportunity here, not exactly how big will this company be at a certain time.

That's a whole other question that is sort of unanswerable at this point. The thing we're trying to understand is just how big is the field, right? So sometimes I find myself acting. a bit like arrogant because I think this opportunity is is like so much bigger than anything else, right? And when I was talking to you earlier, I said something in like, I could only imagine your face when I said that I believe that the health of our society rests on the ability to drive proactive medicine in a way that can salvage our health care system and furthermore, our economic system. But I think that's a really, so yes, you might, I'm not actually rolling my eyes, but you might get

am I rolling from some folks on that? On the other hand, I do think that having some sort of mission is really important. And if you're going to attract the best people, you need to demonstrate in this conversation and conversations with everyone, as you've learned by now, that you do have a vision, that it's clear and that it's big, and then it's something that people can attach themselves to as investors, as employees, as customers. And so it doesn't mean you're arrogant. That means that you are in the position that you need to be in as a salesperson for all of those. reasons, selling literally the product, but also getting folks to join you on the journey. Top two or three things you want to accomplish in, call it 12 to 18 months?

One thing, we want to drive more of a synchronous engagement loop. We think that's the most important thing. And we want to be able to do that in a way that doesn't require our producers to be incredibly proactive. So how can we take the existing workflow of health and wellness professionals and drive an incredible experience to the consumers. If we can do that well, where we'll go next is starting to test more of the processes and the delivery. So whether that's adding nutrition or starting to show more proof of concept around in-person engagements, because we know they are happening.

They're happening off platform. So the data will tell us likely which direction we'll go after first. Those make sense to me. And these might, I think it's really important to map those to the the unit economics, because I still come back to that as an important next step for the business, is making sure you're really comfortable that you can drive those to a place where they need to be rationally. My guess is that in your head, the things you just said drive directly to those to reducing, or at least increasing lifetime value, and there are probably other things that

reduce customer acquisition cost on your list. But I think I would keep using that as the touchstone for now until you feel like, yeah, we can definitely get these union economics to where we want them and then expand beyond that to thinking about growth and adding value. I have a bunch more questions, as I usually do after a first meeting with a company. But, you know, initial impressions, one of the most important things we think, and I said this earlier maybe, is that we look for as what we think of as founder market fit. Are you the right person to do this? Do you have the passion and a set of insights that is unique based on your experience? And I think that clearly shines through. know, I have questions, as I've alluded along, as I've said along the way, about unit economics.

And so digging into how to fix that or improve on that would be where I would spend more time. And then just understanding more granularly about the product, about the plan for the business and how you expect to grow. That's where I would take it in future conversations. From what little you now know about ladder, I'm curious if you were creating like a ledger. And there were sort of, let's say, three markers that are really interesting that are associated with the sorts of things that could lead to huge outcomes. and maybe the three most major roadblocks or things that would concern you about a business like this, what would you say on those two sides? I would say that this business checks a lot of boxes for me.

It's a massive market. I understand the pain point. Nobody has really been able to do it well yet. Nobody's really been able to figure out the pricing or how to make the business model work so that you can lower the fee for having a trainer. And I believe having a trainer is really is one of the most effective things that you can do to help, you know, change your own habits. So it checks a lot of boxes there. I would say the biggest challenge with this business is simply changing people's behaviors enough so you can, you're basically trying to help them form a new habit.

And humans are really stubborn. And so, and this business probably only works if you're able to make it into a habit. Because, you know, from what I've said earlier about people being very quick to cancel digital fitness subscriptions, you need them to be using it at least two times a week. And you're just, there's an uphill battle because of how the human brain is wired. I'm not saying it can't be done. But that's the key challenge. It's something outside of your product. it's outside of the market.

It's just inherent in its human nature. But it can be done. It can be done for sure. Yeah, to me, I mean, what you just described is the same problem as the incumbent solution, right? Because it all comes down to behavioral change. So we do know that there is this trillion-dollar industry that also struggles with that same problem. I think one of the issues has been trying to get people. that don't want to change to change.

When I was in the health club business, any business plan I saw for a new gym was, oh, we're different. We're going to go after the 85% of non-gym members. So it brings me to kind of, I have somewhat of a contrarian view on the consumer fitness space specifically as it relates to tech right now in that it seems to me like everyone is trying to solve

for what is essentially the incumbent soul cycle by productizing a solution and making it more accessible. And we have literally like human capital and venture capital being deployed in massive amounts to all these companies that are trying to recreate batteries and recreate Soul Cycle. And I kind of, I look at it sometimes and I'm like, I just don't get it because the other side of the market is exponentially bigger and growing at a fairly similar rate. And all of these things have been around forever. Spinning has been around forever. Nordic track was bigger than Peloton. We've seen it come and we've seen it go.

Let's look at what people do consistently and have done consistently since the late 60s, since the onset, and how do we improve that? And how do we create change for the people that really need it? So I don't know that, I agree with you that this is, it's very difficult and that's what makes me so excited. Because when we were talking on our last podcast at Thatcher, we were talking a lot about CAC to LTV and SaaS companies best in class or three to one, four to one. And afterwards, I wanted to, I didn't have the chance to say this, but when I was thinking about it, I was like, okay, paying $12 for a coach, do you want me to create a company that, can earn $48 a year from a coach because we could do that, right? That would be a nice little business. Maybe we could sell it for $50 million, but what is it going to do? I started this

company and sometimes, most times people just think I'm nuts, but I think this company has the potential, whether we do it or not, I believe the company we're building has the potential to be one of the major catalysts for fixing our domestic health care system. So, you know, sometimes it's odd because a perfect example. A couple weeks ago I was here in New York. I have a friend that is like super deep in crypto. And he's talking to me. I'm not paying attention to what he's saying.

I'm talking to him. He's not paying attention to what I'm saying. Because in our minds, everything else is a waste of time. because any other thing you're working on is like, oh, that's a nice little project. Where it gets daunting is how do you get there? Uber is like the most cliche example, but, you know, without black, they couldn't have got X, and without X they couldn't have got to pool, and without pool they couldn't have got to eat.

But now that they're there, as far as I'm concerned, in like 18 months, Uber Eats has surpassed like DoorDash and Postmates. It's at a point now where I can get takeout delivered from the same restaurant in a quarter of the time for a lower price. And they spent the time building up the supply side from super early days, the perpetual ride. We want to deliver people, products, things. What we're focused on is really enabling health and wellness professionals to serve more people. And with technology as it exists today and where it's going in the future, I think it would be naive. to try and solve for that without making basic technology core to the implementation and delivery

mechanism. So I think the consumer is ready. And we know that because consumer engagement is already accustomed to certain types of modalities, yet the massive commercial fitness industry just hasn't caught up yet. For years and years, we have these gym owners. We're still in our first generation of ownership. So it's, just to put it bluntly, a lot of former bodybuilders and, you know, people that weren't necessarily educated in traditional fashions.

And a long time ago, the commercial fitness industry stopped selling health and wellness and started selling memberships. The certifying bodies stopped selling education and started selling certifications. And even the governing body of the whole thing, stopped championing the industry and started selling ad and booth space. I went last week to the International Health Rack and Sports Club Association. I've probably been there 15 times. I used to run around the trade show floor when I was a toddler with my dad.

Everyone's saying the same thing. And it can't go on forever. We can't continue to see such a lack of utility to the consumer and expect things not to change. So the fact that the incumbent industry is growing, That's the thing I don't understand because every day there's more and more solutions, yet it's growing. And, you know, attrition is 50%. Inactivity is 60%.

It's been like that for 40 years. It's wild. What I'm curious about is from your perspective that maybe the pros and cons of institutional VC money seeking it, why should we or why shouldn't we, at let's say a C. Series A. And any advice, I guess, that you would give Brett, us, latter in general, as we think about telling this story versus like how you heard it today, what can we do better to present this both to investors and then ultimately to, I think we've got the, hopefully the consumer and the producer side handled, storytelling wise, but to investors and to the financial community. What are the key bits of advice that you would give us?

Sure. So I would say that the biggest difference between taking institutional VC money and not is that once you take institutional VC money, there will be pressure to build something really big. And the $20 million exit, which would be incredible. you know, for you and depending where the investor, depending what price the investor got in at, it could be incredible for the investor too. Those outcomes are generally sort of frowned upon in the venture ecosystem, which is kind of ridiculous to think about. It's a $20 million business is a huge, huge business. And so I, but I think that you'll get pressure, you know, not to have that outcome.

And it's not insignificant. I think one of the reasons why I ask kind of psychographic questions in the beginning is because in most cases, the $20 million exit, that's the rational move to take that and run. And there's a good chance you'll never ever have to work again depending on your ownership of the company. That's the rational move. But I'm actually looking for the irrational person who is motivated by something beyond money who's motivated. by the mission of the company who's motivated by a personal experience that they've had that's driving them to start the company and grow the company and not stop and run through walls and have the sleepless nights until they build something that changes the world.

And the world changing companies tend to be the ones that drive the biggest financial returns as well. And so I spend the first bit of the meeting really trying to understand the founder to see if they are driven by, like, if they want the quick hit, which would be awesome, and we would all high five if you solve for $20 million. Like, that's a win is a win. But I'm looking for the one who's, the irrational person who's trying to go really big, almost in an irrational way. So that's actually one of my biggest fears with institutional capital.

So for me, without getting like too personal, super close with my dad. So growing up, we had baseball and we had the fitness. industry. My dad was a minor league baseball player. When I didn't play baseball for the rest of my life, the fitness industry was all there was. So to me, a $20 million outcome is I'd want to jump off the roof. It's not even like, and that's what scares me. Because right now... Wait in a bad way or a good way? A bad way. I remember talking to like the CEO of photography and they sold for like 36 million. he called me and I think he was expecting me to be like wow like how'd you do it and my first thing

was like so where to go wrong like what happened and right now with like our board which is Tom and my co-founder and I we talk about it once every couple weeks I get a text from Tom at like 730 in the morning would you sell for this and if like people saw those they'd be like you guys are outside of your mind we've been in business for for six months. But like in our culture deck, we have our core values and then we have things to know about the company. And the first thing is we're not the star of the show. We connect people with people. The second thing that is we want to be really big. When I'm feeling extra good about how things are going, I say I think we can be the first privately held

$100 billion tech startup. And I believe that. I think the market's big enough. I think the opportunities big enough. To the second part of your question about what could you do better, I mean, first of all, I thought it was great. And I think it makes a lot of sense. I think there are generally four parts to a pitch. First is the piece about you. You did that really well. Second is describing the problem, which you have a great handle on. The third piece is the solution, what you've actually built. And the fourth piece is the go-to-market. I would say the only piece, which is the easiest piece, is on the solution. In the deck that you send ahead of time, it doesn't even have a slide on what the product actually is. And so I was left to sort of infer

it from the, from the screenshots later in the deck, but just laying it out really simply. I mean, I like to say that entrepreneurs should treat VCs like kindergartners and needs to pass the kindergarten test, you know? It's like, because there's a generally like really short, a attention spans, there's lots going on, their emails flying in, their pitch decks flying in, and so you have like 10 seconds to get their attention, and there's such muscle memory built up from looking at decks all day, we can fly through a deck in 90 seconds, which doesn't sound like much time, but you can get the, when you're doing that all day, you can get the sense of a deck in that little time, but usually it's like made or broken in the first 30 seconds,

and you need to lay out the problem, lay out the solution, and tell the story of yourself to really quickly, and I think that solution piece was missing from the deck, which is a really easy thing to fold in there. And what was interesting about it was also missing from the beginning part of our conversation. I had to sort of pull it out of you a little bit. I feel like you need to be prepared in any situation for three different pitches. One is the really informal 20-minute pitch over a cup of coffee, and then another is the two-hour version of that. And then the third is a really formal, structured, you're going through the pitch

deck, but you don't often know what you're going to get when you walk into a VC. Every VC is a little bit difference. I think seed financing can be raised over a cup of coffee. It's much more informal. Usually they look at the deck ahead of time and they're just drilling in with questions because the seed investors are sort of the front lines for the rest of the industry. we have the sort of widest funnel, I would say. And then of those companies get funded, kind of move on to Series A. And so the funnel gets a little bit more narrow. And so because we're looking at so many companies, it's usually more succinct.

But then when you get to the Series A in later stages, it becomes more formal. There are usually presentations at partner meetings with 20 partners in the room. And it's more like you're giving a keynote presentation at a conference than it is that you're having a cup of coffee or beer with. the frat. Well, this has been awesome. I think really nice and complimentary to stuff some of the ground that we covered with Thatcher. So thank you very much. Thanks for having me. It has been interesting to watch a company go from a concept and beta test to a live, ever-changing product with thousands of users. Nothing exists in a vacuum in any early stage company must balance relationships with customers, producers, employees, and outside investors.

One thing I continually take away from my conversation on this fledgling company is the power and importance of technology. I'd encourage everyone out there to constantly ask where people's jobs can be made more efficient and more productive with technology as an assistant. In the huge debate about the future of work and the rise of automation, what's often lost is the amazing outcome where people can offload the boring, repeatable parts of their jobs onto technology and focus instead on what they are uniquely good at, and that can't be automated the way. Sometime later this year, we will check back in again to see how ladder is faring in its attempt to pair human capital with to build a solution that improves health and fitness for its customers.

I hope you've enjoyed this look inside the venture capital process. Hey everyone, Patrick here again. To find more episodes of Investors like the best, go to investorfieldguide.com forward slash podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com forward slash book club. After you sign up, you'll receive a full investor curriculum right away and then three to four suggestions of new books every month.

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