This Week in Startups - How to a Grow Consumer SaaS App to 225K Paying Customers – Next Unicorns: Fitbod CEO Allen Chen | E1259

Episode Date: August 4, 2021

Fitbod CEO Allen Chen joins to discuss how they got funded & why they haven't deployed their capital (01:06), the importance of being user-centric when building a consumer app (17:44), how Allen plans grow to 1 million customers (29:14), & more!

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All right. Our guest today is Alan Chen. He is with a company called FitBod. You can check them out at FitBod.me. And basically, it's an app that helps you keep track of your workouts. And it is a company that I was lucky enough to have in our accelerator's fifth, cohort. We've done 23 of these cohorts now of seven companies, and that was in early 2017. If you're a fan of the show, Alan's been on the show many times, to talk about how he's grown

his startup, but never really has a featured guest. And I realized, you know, a thousand or so episodes into the pod, or maybe 1,200 episodes, that we had many people in our portfolio who were breaking out, and I never really had them as a guest on the program. So I thought we'd fix that. And went down through the portfolio and realized, my goodness, Allen's company FitBot is growing exceptionally fast. When we met, you had the app built, and I'm trying to remember if you had started charging yet. Had you turned on the paid version when we met in 2017?

The app was built. We had just turned on monetization, and we were, if I remember correctly, right around $6,000 per month. So just starting to see people, paying for the product and really enjoying it. And that's when we joined the Equiprator. Do you remember our first meeting and the questions I asked you or how excited I was about

the product? I'm trying to remember when we first met. It was probably at our offices during the finals or I'm trying to remember. But what was that first meeting like when we were talking? And then I'll tell you why I'm asking. Yeah, definitely. If I think back, it's actually a pretty cool story. you had put out a tweet

saying anybody who interviewed with YCD but didn't get in, come talk to me. And so we sent you an email and we were like, hey, here's our product, here's our traction. And I want to say within 10, 15 minutes, we got a response saying this is interesting, come talk, let's talk. So I was actually out of the country at the time.

I joined on video, but Jesse went in and talked to the team, talk to you. And I think, you know, the indication that you're trying to get is how much did users love the product? And, you know, as you were able to kind of dive into, you know, our product and our users and how we were able to deliver this to users, it became pretty clear that, you know, this is something that, you know, you had wanted to be in on with us. And of course, you know, we joined the incubator and the rest is, the rest is history. There you go. The reason I ask is I'm trying to unpack from other people's perspectives, the

moments I met some of the breakout companies, whether it's Uber or, you know, yourselves or lead IQ or grin, because I don't actually, my memory is very weird. Like I meet so many companies, it all becomes one giant meeting in my memory. And, you know, this is what happens when you meet with over a thousand founders a year or so. And I do remember you had just turned on subscriptions. And in my mind, in 2016, 2017, I was seeing com.com start to hit millions and millions of dollars in revenue, you know, and then maybe even break five or 10 million in revenue. And I was like, wow, there's something about consumers paying for apps with the subscriptions, which people don't remember, but subscriptions weren't available in the app store. I don't know, maybe it was seven

years ago, six years ago. They started experimenting with allowing you to subscribe to apps. Before that, people don't remember, you bought an app one time for $10 and you had the app for life. Almost like it was a piece of package software. But subscriptions became the bigger thing. So let's talk a little bit about the traction. I think you've been pretty upfront about the first half of this year. You did $8 million. Yeah, just a little over $8 million in the first half of the year.

Okay. So $8 million in six months, you're doing over a million dollars a month. when we met you were doing 6,000. So since that time, you have 200 X or whatever it is revenue. Let's talk about, you know, that journey over the last, say, 2017, 18, 19, 20, so it's been about five years of growth here. But getting to a $16 million run rate in five years for a consumer subscription service pretty darn hard.

What are the key moments in the growth of the company that, um, led you to figure out that there was a market here for a subscription service without hardware just to track people's workouts. And that's what FitBod does, right? You pick your workout, you pick what equipment you have, and it will tell you through machine learning how your body is reacting to that workout and what you should do in the next workout, correct? Yeah, that's correct.

It'll construct a next workout for you. So the next time you're ready to work out, whether it's at home, whether it's at the gym, you open the app and you know exactly what you need to do. And as you log more workouts, of course, you know, the app will understand your tendencies and capabilities and get better and more catered and really advance you along in your fitness. So that's what we had there. And, you know, I think to your question, what were the indications where we started to say, hey, you know, this is actually something that that's really good. And I would say that, you know, very early on, we knew that we had built a product that people loved, kind of like we talked about

with the incubator. And then soon after that, you know, we were talking with Near A.L, the author of Hucked. And, you know, the book Hooked talks about, you know, the feedback loop where you start to build habits. And that's the trigger, the action, the reward. And then the investment phase that goes into, you know, the next cycle, which triggers you to go work out again. And Near A.L. really enjoyed this model that we had. And he actually wrote us into a chapter. of, you know, the Buck Hucked, so the newest release of Huck has us as a chapter. And you start to see us having that kind of traction and engagement where people are coming back to us and the kind of retention that I think, you know, is far, it is a really good

number for retention in this space relative to others in this space. And I think with that, we're able to build on our subscription business where, you know, month after month or year after year, we're building on our user base, you know, to come in and really enjoy the product, to remain retained in the product, and to tell their friends about it. You took your time in those early days, making sure the product was not a leaky bucket, as we say in the industry, that people didn't churn the fancy word we use in our industry for quit. What was the process of figuring out who your customers were and how to not,

make them churn? What can you teach the audience about that process and that discovery process? How do you do it as a founder as a product designer? Yeah, listening to our customers. You know, from very early on, we were the ones, you know, speaking with our customers, getting them on, you know, phone calls, video calls, interviews. And, you know, this happened. How do you do that? Mechanically, how do you ask a customer to get on the phone with you without it being creepy and weird.

Yeah, I don't think it's creepy or weird at all. You know, we have customers right in all the time saying that, you know, they love the product. And if we are able to say, hey, you know, here's an opportunity for you to talk with the founders of a company to help us make this product better for you. A lot of people are more than happy to jump on the phone with us and really explain to us their experience of how they're interacting with the product. And early on, we had that luxury, right? We were small, you know, I remember answering emails myself to users to say, hey, you know, here's actually how we respond to customers. And as we've grown, we've definitely tried not to let that go where we still have, you know,

user researchers that we're working with to interview customers. And Jesse, even today is still getting on the phone, gigging on a video call with our existing customers to make sure that we can continue to make better products for them. So very simple process. Somebody writes in, they like the product and you have a public email address for feedback. You say, hey, can we jump on a Zoom call and talk for a couple of minutes about how you use the product, what you like about, and what ideas you have? So it's really just finding the people who are already passionate and engaging with them and doing, I guess, what we call in the industry,

a user interview. Exactly. Early on, it was as simple as that. Today, now we actually have people fill out surveys. And one of the questions in the survey is, would you like to talk with the team? And then we actually break it on the cohorts, right? There's people who are, you know, you know, power users of FitBot that we of course want to talk to. There's people who have churned that we want to talk to as well. So definitely different cohorts that we go on and talk to it to make sure that, you know, we're able to improve the product for them. Okay, some people only believe in organic growth. They don't believe in paid. Other people are just experts that paid and they don't really think about organic growth. How do you think about your

business and scaling it in this combination of organic growth, word of mouth, versus spending money to get people into the product and the relative strengths and weaknesses and how you deploy your resources to capture both those opportunities because I would think these are two very different disciplines. You know, I would say that they may be different, but they are connected. And what I mean by that, what I mean by that is, you know, when we started early on, we actually didn't do any marketing at all. And we were all organic, all word of mouth, all people, you know, talking about us.

And you can kind of see signals, you know, in different places, social media, emails, where people are talking about us. And that was early on. And then we layered in paid user acquisition on top of that. And because the organic growth was strong, that's what allowed us, in my opinion, to really be successful at paid user acquisition. And continuing to improve the product and then continuing to layer in, you know, increases to our marketing spend. I think they go hand in hand in saying, hey, the effectiveness of paid use acquisition is going to be dependent on the core product and how much people are enjoying it and telling the friends about it. So I think they're definitely very intertwined.

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and then you have every possible channel under the earth from TikTok to Instagram to Google, search to YouTube, Facebook, etc. When you look at those different vectors that I mentioned, creative channel and audiences, which is the most important? And how do you let's break down in each one what the best practices are. And if there are other vectors that I'm missing here about growing a company, because once you found that you had a great product, you did lean into really growing the base of users, correct?

Yeah, we did. And yeah, you know, I would still start with the bottom of the funnel, which is, you know, retaining users with a great product. And then you take a step up and that's, you know, getting people involved and getting people doing workouts. So the whole onboarding process has to be strong, making sure those new users have a good experience. You take a level up from there, which is, you know, when they click to download the product,

we want to make sure that we find those users that know what they're getting into. So, you know, we want to make sure the messaging, the creatives, you know, the wording, who we're targeting are the right cohorts to say, hey, this is a product that are going to resonate with these people. And, you know, you get to the top of the funnel, which is, okay, you know, how do we actually make those creatives? How do we actually, you know, find the right targeted audience? How do we actually, you know, find the groups that are going to, you know, ultimately transition successfully to the next step of the funnel? So I think all of them are important. but I think, you know, very much thinking about it from the bottom up as opposed to, you know, how can we fill the funnel with as many people as possible?

I think that's kind of what, you know, the approach that we took, what was the bottom up? Seems very smart because you're being disciplined and saying, hey, we don't want to, we want to churn as few people as possible because if they renew, if they use the product and we get them in year two, we could actually either be more profitable or pay a higher price. You're just going to be more efficient in terms of putting people into the top of the bucket because you retain more of them. And then above that, making sure their onboarding is elegant

and gets them engaged and they understand how to use the app. So let's talk about that onboarding. How many times have you totally revamped her onboarding in the history of this six-year-old company? Are you six years or seven years now? Seven. And you probably didn't even have an onboarding in the beginning.

Yeah. So maybe you've did six years of onboardings. Let's just unpack that one piece. for a moment. Tell me about the onboarding process. How many wholesale renovations did you? How much iteration? How many people work on just that part? Yeah, I would say we've revamped it completely. So a whole new set of onboarding screens. We've done that three to four times in the history. And, you know, when we first started, this was six, seven years ago. You know, kind of like you mentioned, the goal for onboarding at that time was to minimize the number of clicks.

someone needed to, you know, make or taps in order to get into the product. And I think that was the general guideline for onboarding at the time. And what we found was that when we were able to provide an onboarding experience such that users can give us some of their information, whether that's their profile, their goals, their gym equipment, and at the same time, we could educate the user a bit on what they're getting with this product. I think that starts to build the relationship between our product, us, and the customer. and they get bought in,

they start to understand what this is all about and they actually convert better later down the line. So we're adding some friction to the process, but at the same time that information transfer,

I think is really important between the product and the user. Kind of like when you go to a new gym and they onboard, you're like, hey, what do you like to do? And I'm always just like, just let me go in the gym.

And they're just like, well, if we just let you go in the gym, you're not going to know about the rock climbing wall. You may not know about the massages. You may not know about the yoga class or that we do breakfast in this place or whatever. And then you might churn. So they always want to walk you through and give you the tour of the place. And that tour is good friction.

Exactly. Because it gets you more bought into the product. And you knowing what equipment they have and what their goals are allows you to give them a better experience than reduces turn. Do I have that correct? Yeah, that's correct. And it also starts to build trust. You know, people know that, hey, you know, we're building this workout.

based on the information they had given us. So it's actually catered to the individual. So that's when we start to build trust with the user as well. So now you've got the trust with the user. They understand what the product does. You need to understand which customers to go after. How did you zone in on, or zero in on rather, how did you zero in on and triangulate on this is a FitBod ideal customer profile?

I guess we call it ICP in the industry. I don't know what you call it internally, but what do you call it internally? And then how do you narrow in on this is who we should go after? Yeah, so when we first started, it's the theory of the crossing the chasm, right? You have the early adopters, the small group of people that are going to be the ones that are going to spread the word for you. And then as you cross the chasm, you get into the larger majority where you start to broaden

out your targeting. I can tell you very early on our target is very narrow. And it was quite simply lookalikes. we were taking our best users who were sending them to Facebook and we were saying, hey, go find us another 100,000 or million users

that are like these type of users and send them over to us. Naturally, we know that privacy laws with, you know, these ad platforms are changing with, you know, with, you know, iOS 14 and, you know, the whole, you know,

privacy rules that they're implementing. And, you know, I think that nice, falls in line with us where we're, you know, starting to more broadly target different audiences, whether that's, you know, interest-based targeting or other kinds of targeting where we can say, hey, you know, this is a product that's not proven. You know, we have, you know, social evidence of people really enjoying this product. Now we can actually reach the larger majority. So different kinds of targeting, but definitely at the early stages, it was definitely, you know,

starting small and then kind of growing from that point on. So you have the ideal customer profile when you're starting are the avant-garde, the tip of the spear, the beachhead market is people who are working out three days a week who know what a burpee is, who, you know, know how to use different weights, have worked out with a kettlebell. So this product to them is Nirvana. They probably are writing their workouts down in a log book, right? They might, what did people do before FitBal? Would they log their workouts on paper or they carry a little book with them? What did you do as somebody who was working out? How did you log your workouts. Yeah, you know, I had this issue completely. I had a PDF that I printed out

and I wrote on it. So I carried a PDF and a piece of paper in my backpack on the way to the gym. And when that routine was done, I remember going to the gym and I would just guess. I would take whatever was available. I wouldn't know what to do when I would guess. And a lot of this is really what led into the concept of how we started a FitBot, which is to say, hey, you know, based on what you did in the past, we can actually use this information to provide your next workout for you, or at least tell you what to target for your next workout. Got it. So you did your bench press. You did your biceps. Hey, let's do squats. Let's work on your back or your abs or something, some other muscle group so they can get a full workout.

And you used to be able to say, hey, here are our existing users. Give me more people like this. And the Facebook algorithm would do all the work. Now the ad networks are going to have less ability to do that. And that is a more acute issue for iOS users, which I'm sure is the bulk of your paid user base, because that's where all the paid users are. So the fact that iOS and Apple has said, you can't track people by their phones and what they're doing on their phones, Facebook for your ad network,

that becomes headwinds against your business, correct? You know, I would say it's headwinds for all businesses, but from what I have seen so far, this has been out for a month or two now, what I've seen so far is a couple of things. those businesses that don't have a strong funnel that, you know, going back to what we talked about, start from the top down where they're trying to target everybody, get people to download and click and, you know, you know, start a trial or whatever, you know, those businesses that don't have

strong retention and strong conversion, I think they're now, you know, having a harder time trying to, you know, find the right audiences to target. So that's one of the impacts. And the other impact that I've actually noticed is that there's a minimum threshold that you have to spend in order to get what's called SK ad network attribution, which is what Apple provides us. And so this minimum spend is actually, in my opinion, you know, hurting the little guy, right? They can't get any sort of visibility into their attribution until they have a certain amount of spend. And, you know, so there's two, these two different places where I think are getting hit somewhat hard. And then you look at all.

our business, right? You know, I believe we have strong, you know, organic, you know, traffic. I believe we have other channels that are driving our users. I believe we're able to, you know, target in a somewhat broad sense for, you know, for different interest-based targeting and still be successful. And, you know, I believe that, you know, our funnel is strong. So, you know, we're still in a good place. There's definitely a shakeup in, you know, the ad space for digital advertising. And I think that we're in a definitely a really good place to say, hey, you know, this shakeup has happened. We understand what's going on. And our, you know, marketing efforts are still stronger. We're still actually moving forward and growing our marketing efforts.

But for folks who didn't know their ideal customer profile well, maybe they churn a lot of customers, and they were kind of just buying ads willy-nilly on the ad networks and letting the ad networks figure out who their audience was, that those folks will be infected a little bit more. I mean, this is my opinion, but I think so. You know, imagine, you know, seeing a commercial on TV that's just completely not relevant and not quite there. I think that's going to be similar to what happens with a lot of advertisers. Yeah, it's interesting.

And very few people are opting into sharing their data with Facebook because Facebook has some trust issues. and then I saw Snapchat was getting like 70 or 80% of people were opting in because people who use Snapchat are so loyal to that brand that they're actually opting in more. How much time and money do you spend integrating a bunch of different software products together at your company? Let me guess. Way too much time. Well, Odoo is here to help.

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that happens is people have organic growth, they do some paid. And then some number of them, if they have a really good product, can find the influencers and have a content marketing strategy that also becomes a major driver. In some cases, I was talking to Brandon from Grin, which you know, one of your, not in your cohort, but one right after you, you know, they have people managing hundreds of influencer relationship with their platform. And they're starting to see people spend 20 or 30 percent of their budget on influencers this year, which is truly mind-blowing since that was like a 5% of your budget, now moving

to double digit. How do you think about some of the other emerging platform? influencers and then affiliate for people who don't know what affiliate is, it means that influencer or another platform, another content provider, would get 50 bucks for every time they sell $100 subscription or something like that. Yeah, no, definitely. There's a lot of opportunity there. And starting with the different channels, like you said, I think,

you know, different people are on different channels, whether it's Facebook or Instagram or Snapchat or TikTok. And having the right creatives and the right messaging for that channel, I think is definitely important. And then when we get to the influencers, I think there's a lot of opportunity there. I think the main thing is that the influencer would need to have buy into the product. Our best performing influencers are fit by users. So they know the product.

They really enjoy the product. When they're telling others about the product, that's where the messaging is actually, you know, genuine and true. And that being said, you know, one of the next things that we're going to be, you know, putting together is our referral program where, you know, anyone can refer to anybody else. It could be an influencer with, you know, hundreds of thousands or millions of followers, or it could be anybody who just really enjoys a product and is going to refer, you know, 10 or 100 really high quality referrals to FitBod. That's definitely an opportunity there for us to, you know, continue to grow on that scale. Yeah. And if you get those influencers or the affiliates, you could put them on staff. You could give them like a retainer.

I was speaking too branded about this. He said some influencers now are doing deals like Michael Jordan or LeBron James might do for a sneaker. So this person is sponsored by Fitbit or they're sponsored by this clothing company and they get, you know, a $2,000 a month retainer to talk about it. plus, you know, their affiliate link gets them $25 per whatever, and they just have to hit a certain threshold or something. And so the person who's providing the relationship for the sponsorship says, okay, can I make more than $12,000 off of the relationship with this influencer is on TikTok?

And it seems to me to be pretty authentic, especially if you were doing it through your existing base. Do you have people who are influencers already using the product and sharing it for free anyway now? Because I see sometimes that comes up on my feed. Oh yeah, we have people sharing it. We have people reaching out. We have NCAA athletes who are trying to reach out and say, hey, you know, let's start to use that platform.

So, you know, definitely a lot of people who are reaching out. And, you know, when they do, you know, like I said, those are the ones that end up being the best partners with us. We do have people that, you know, we reach out to and other influences that we work with that we've also worked with in the past. But I would say by, you know, by and large, the best partners are people who are. fit-bod users. All right. What's the plan to triple revenue this year and next? How do you make that next jump? And is it getting easier to make the jumps now that you have more resources? How is your life changed? Because, you know, it's one thing to grow from $6,000 to $20,000 a month or $20,000 to $50,000. But now you're starting to get to this million plus a month in revenue. It is harder to move the needle.

You have to take bigger swings, more monies at stake. Maybe you talk to me a little bit about how to keep this level of growth up and, you know, build out the team in order to do that. Yeah. I think we have a ton of room to grow with our existing product and our existing platform base. You know, we have 225,000 paying customers. Wow. 225,000 paying customers. It's amazing.

Congratulations. Yeah, definitely. Thank you. But we're not there yet. And I think this product can definitely grow to over a million. just by continuing to improve their product and giving our users a better experience. And I think with that, we just follow right in line of calm, which you know, you know, really well, which has, you know, probably millions of users at this point.

Millions of parents, subscribers, yeah. So I think, you know, we keep doing what we do better. And, you know, over the next, you know, six months, our roadmap allows us to continue to build a better and better product for our users, whether that's, you know, you know, Google I.O. who presented us at Google I.O. for their WorldOS app, their new watch app,

or it's Apple WDC who presented us with their, you know, Apple watch and the Always On feature that they're going to introduce. The Always On is the new thing with the Apple Watch where the screen's always on.

Exactly. And you'll see your workout on your watch, even when you lower it. So you can get that information on your watch all the time. And at WWDC, Apple introduced this feature, using FitBut as the example. Amazing.

That's when you know you've hit it is because that happened to calm early on and we started to see or Zing, I remember my friend Mark Pinkus or Uber was included in some of those moments. And when you start getting asked by the platforms to do the special functionality, that's when you know you're in really great shape. Now, just talking about the financing of a company like this, you've been incredibly capital efficient. You've heard my term before Pegasus. I think a lot of people on the program have heard it.

Pegasus to me is defined as a company that's so profitable, they can fly over rounds of funding without diluting the cap table. What this basically means is you are able to grow the business off of revenues. I believe I'm the, am I still the only major outside investor in the company? Yeah, that's correct. You're the main investor in Pitpac. And you've had many opportunities to raise money. I offered you money many times.

And I remember, I was like, hey, maybe we'd do a 10, million dollar round and you just only wanted to raise a couple of million. And so you've basically run this company with only diluting ballpark 10 or 15 percent. Is that ballpark correct? 15 percent maybe? Yep, that's correct. So what is you're thinking now as the company has gotten this big and the funding environment has gotten so rich and you continue to run a profitable enterprise, I believe your cash position most months goes up rather than down? Am I still correct on that? Yes.

I read the updates and it's really very similar. It's like deja vu all over again. When I read the comm updates, Alex would send me the update and I'd be like, okay, you're going to raise more money and they're like, no, no, the cash you're seeing there is the cash we're throwing off. This business is profitable. And I'd be like, oh, okay. So the $4 million you're saying there is money you made or we got that money from

ambassadors? And I was like, no, no, that's, that bank account keeps growing because we're profitable. It's really weird to have happen in Silicon Valley. I mean, I'm thrilled by it, but you must be looking at, hey, this next jump going from 16 to 50 million. You know, it's a bigger jump. And maybe needing more money for that or maybe not or taking advantage of this very unique moment in time when valuations and money is flowing. A lot of investors ask me to introduce you to them and then they come back and say they're not raising money. Can you tell them to take our money?

And I'm like, I can tell them that, but I don't think they're going to listen. So how do you think about it now? Let's have a candid discussion here on the show. Yeah. You do keep saying no to people. I mean, we always have the conversation. It's always good to, you know, chat with people and definitely have that discussion. And, you know, I think, Jason, to your point, you know, if when we have a compelling, you know, reason to go down that path and we have the right partner and we know that this is the direction we're going to go, then we're more than happy to do that.

what I will say is that, you know, to your point, I think that there is a lot of activity in the venture space. There's also a lot of activity in the fitness space. And I think, you know, this is definitely an interesting space. And the premise that we're approaching this with is that we want to do what we can do to make this product better for our users. So if we start with the users, you know, we want to figure out, okay, how do we actually make, you know, make this product better? And if there is an opportunity where we're like, hey, you know, let's go down this path, then we're more than happy to do that. I will say at this time that, you know, to your point, Jason, our bank account right now

is larger than it was when we closed the last round with you. So we've grown up. So you basically wouldn't spend my money. You're just sitting on it's good to have a cushion, I guess. It's a cushion. And for sure, it'll allow us to make the investments we want to make. Yes. When we see these opportunities, and we definitely will.

So not ruling anything out. We're definitely continuing to have these conversations. but I think it starts with the user and the focus on the user and the team and making sure that that's in a good place. So you always love when I make you unsolicited offers publicly, 10 times $60 million run rate is 160 million. So how about we raise another $5 million at 160 million? What do you think of that?

I can do it with the syndicate, put a little bit of money in from our fund, syndicated, I think everybody would like to be involved. You don't have to change the governance of the company. You want to put a quick five million into the company? Yes or no? Think it through for the next 15 seconds. It's very entertaining for the audience. Over the past few years, everyone has been talking about no code. And one of the first no code web app tools was Bubble.

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$529 a month, but act fast because they're only offering this deal for the first 500 redemptions. Head to bubble.io slash twist and snag one of those 500 coupons. What I will say is this, and I'm actually curious to hear thoughts on this, Jason. And that's that, like I said, the most compelling thing for us right now is to make sure that we take care of our users and our team. And if we think about that, we have a lot of team members who have been working really hard and had been with us for a number of years now. And so if I were to think about the most compelling reason to raise,

it would be to give these team members an opportunity to see some liquidity in their shares. Sure. So we could do $10 million, $5 million in primary, $5 million in secondary. So that would be the way I would think about it. So then maybe try to raise $10 million at that $160, the earmark $5 million for primary to go in and then $5 million to buy secondary. And there's plenty of people who like to buy that. that secondary. And what you do is the investors coming in would either get to buy one or the other.

The secondary shares might be at a 10% discount to the preferred shares, typically, because they don't have the same rights set. But, you know, anyway, it's pretty close. Or sometimes they just go for the same prices that preferred if you have some motivated buyer. But then what you do is when the investors come in, you say, listen, we're doing this dual thing for every $10,000, for every million dollars you put in, you get half and half or whatever it is. And the founders can drive that. I think that's another way to get a deal closed, like a big series B, which is, this would be a, this would be your Series A technically because you really never did a, did we price the last

round? I'm curious. I can't remember. The last round, yes. It was priced. Yeah. So that was like a seed, price seed round at a big number. So if you call this a series A and you could even raise $25 million and have 10 go to secondary and 15 go

to primary. And the reason to do it would be it just gives you another two years of runway and if something opportunistic comes out, you're not losing money so it's just a war chest. But if something opportunistic came out like an acquisition or adding more team members or you saying to the team members,

anybody who's been here for five years can sell 10% of their shares. You've been here four years. You can sell 7% of your years, three years and under, or three years you can sell 20% of your shares, whatever. And then two years you can sell nothing. You know, only this applies to people three years and above, you know, so you get that kind of nice longevity kind of approach. I think it's a not a bad idea. I would think it's a smart idea, actually, because you do have people who've been there over four years.

Right around four years is, I think, that's the mark for the longest people. So, yeah. It is a great way to keep people in the company longer. And what you could say is we're going to do it every year or we're going to attempt to do it every year. So we're going to have our 2021 secondary offering, you know, in the. third quarter so you can spend the money, you know, in the fourth quarter at the holidays on your vacation. And every third quarter, you can put in a request for how much you want to sell and the company will tell you how many we're going to sell. And this is the share price.

It's how many shares you own. So we're going to buy, you know, the company's going to, the company's going to buy back a million dollars in shares at $12 a share. Anybody want to sell? Go ahead. We're buying back, whatever it is, 800,000. We're buying back 80,000 shares at $15 each or $12 each, whatever it wants up being. So it's, it's a very nice. It's a very nice. process you can run internally and when people realize it's a yearly thing, that they can have the conversation with their spouses or significant others or make life planning decisions and say, you know what? I should stay with this company another four years because I'm getting this liquidity. And I think that's what Elon is doing at SpaceX. I think, and then I think Twitter was using

Chris Sok to do the secondary offices, but most companies, the founders are taking control of that situation now. So I think taking control of the situation yourself and running the process yourself. with a financial partner, like a fund or something, who wants access to those shares. Yeah. And that's exactly what we're thinking. So I think, you know, it would be awesome if we can make this a regular thing. I think that would definitely give people, you know, that opportunity. And I think, you know, in large part, you know, it'll let them know that, hey, you know, these option grants, these shares in the company are actually worth something, right? And, you know, they're working so hard for the mission. But there's also this liquidity that they can actually achieve with a company

like us because we are cash flow positive. So that's what we're thinking. It definitely burns a different set of neurons in people's brains when they realize their shares are no longer this ephemeral abstraction in their mind.

And that's what you see with Facebook and Google and Uber employees now or Airbnb employees. They're making decisions about staying or not staying based upon RSUs, restricted stock units and options. for shares or things that are still vesting. And they're making these decisions and there are real world decisions with real numbers

and real impact. So that's why you'll see some senior executives. Like they leave Google and they've got to leave 40 million in shares behind. I'm talking about top top executives. And they're like, you know what? Facebook's stealing this Google person or whoever Apple is stealing somebody from Waymo. They'll be like, yeah, we'll make you hold. Oh, you're going to lose 10 million in options.

We'll just throw 10 million in options on top of this. So it's really interesting how dynamic our industry is in that regard. Yeah. And I would say the great thing with us is, you know, we're, you know, a fast-growing startup where we can see that kind of appreciation and shares of, you know, the series A, series B type company. But if we also layer in liquidity, we get the advantage of people being able to realize their efforts as well. Another nice thing is if you are, you're a mission-driven company. There are people who really care about the product and you're like a cool company to work for

and you pay good salaries and you add that on top. It's really hard for people to leave. I had like one or two employees leave over the last couple of years who just became boomerangs. They were just like, yes, that was a mistake. And I just tell people, and if you're listening to my voice and you were a great employee for me at some point, a great team member, if an employee comes back to me,

they're like, you know, I left. And I got more money from this place. or I thought I was going to get a better deal. And I kind of miss working with the team. Like, don't be too proud to go back to your boss and say, you know what? I went to this other job for three months. I hate it. Can I come back?

Yeah. Have you had that happen yet? We haven't had people come back. But yeah, no, we have had people pursue other opportunities. And I'm with you, you know. And you got the back channel that they didn't like it as much and they regretted leaving? I haven't done that. I haven't done that.

You'll get that back channel. Yeah, you just haven't had that many people leave when you have like a 30-year career. I have people all the time who are just like, yeah, you know, working for you was hard. And then I thought this other thing was going to be better. And always the other company that's trying to pursue somebody who's worked for me is going to be able to outline a better world, right? They have to win the employees. So they're going to just keep offering stuff until they shake somebody free. They shake them free.

The employee goes and they're just like, ugh, what am I doing every day with my life? You know, like, oh, I got a 10% raise or a 7% raise or I got this thing or that thing that I coveted. and I actually kind of missed the thing I had. Yeah, and we would, we would for sure, you know, welcome, welcome our team members back at, you know, like I said, taking care of our team and, you know, being able to work with these people on our team has been what's allowed us to grow. So, you know, this isn't so much as, you know, us trying to get ahead of, you know, people leaving. It's more just saying, hey, people deserve this. They work hard. And this is our way of saying, hey, you know, at football, we're going to make sure we take care of our team as well.

perfect use of proceeds for you to just say in the Q3 we're going to buy a million dollars in shares back as a company and then you can retire the shares so that's another power move for you like let's say you buy back 1% of the company every year you retire it then the existing shareholders all their shares went up by that percentage so buying the company buying the share of us back and doing a company at corporate buyback and yeah is if you have tons of money sitting around is totally fine too um you could also buy them back, put them into the employee stock option pool for the next set of employees. So there's, I think, two different concepts there.

One just gives you the ability to invest the shares in new people without having to issue them. The other one gives you the ability to retire them, reduce the denominator, which then makes everybody's shares worth a little more when it gets divided into it. So either way, no additional dilution. So, you know, I think it keeps everybody in a good place. Yeah. I think what you've done and what Com have done, both of those techniques of skipping the highly dilutive rounds in the early days is very smart.

If you are capital efficient, if you're builders and you're charging for your product, and you're thoughtful about that, and you can skip the Series A, you know, the traditional Series A, which is 20% dilution at a $30 or $40 million evaluation. If you skip that, you're basically skipping a 20% dilution moment, which were a founder who owns 30 or 40% or a team or whatever, go founders. I mean, you're talking about 20% of your shares.

You just get to keep. It's incredible. And I don't know why more companies don't do it. All right, listen, this has been incredible, continued success. You're still hiring for the team. What are the old positions for people who are listening going,

I think that sounds like a pretty cool company and they're correct to go work for. Yeah, yeah, definitely. We're hiring across all positions. You can check out fitbought. dot me slash careers, engineering, engineering in all roles, data science, product management, designers, really, you know, across all roles, we're looking to grow. So, happy, happy to see anybody come on board. All right, listen, continued success. It's great being along for the ride.

I'm very proud of the work you've done. It's just been great to get to know you and Jesse over the years. And it really is just a point of pride for me. You're one of the most successful startups I've ever invested in. It just means a lot for you to have come to the accelerator and let me join the round. I know that we're investors, but having Robin who go public today, watching your success, grin, lead IQ, calm, it's very rewarding for me just to see y'all succeed and do so well for yourselves and see your vision realized. I mean, you guys had a great vision for this company to make people more fit, and it's just

working. I see the before and after photos that some people post and it's just, that's so heartwarming. That's got to be great for you to see somebody who was 50 pounds overweight, just do that six-month body transformation. It's the best part of this job. Hearing from our customers, you know, whether it's people that show us their transformation, some people tell us, you know, we literally saved our lives, which, you know, which if you think about it, is, you know, pretty amazing. Some people would tell us that they, you know, they, you know, were afraid to step into the gym until they had found FitBot and we gave them the confidence to start their finish journey. So it's the best part of the job to be here.

And, you know, I think going back to what you were saying, you know, really happy that you're on board. It's been a great journey. You know, I was thinking back to our time in the incubator. And, you know, really, you know, as first time founders, what has allowed to, a lot us to grow in and really approach this in the right way. So I think it's been great having you on board. It's really wonderful to see, and I'm so glad that YC didn't accept you. And I'm so glad that I, I mean, I pissed up a lot of people at YC with those tweets, I know. I was like, if you didn't get into YC, well, I was starting my accelerator.

And I was like, well, they keep saying they only accept 1%. And I was like, is there any difference between the 1% and the other 9% and the top 10%? No. We, I mean, honestly, I'm sure there is no. difference between somebody who is in their 1% and somebody who is in the 20th percent time. I guarantee you all of those companies, if you put them into a bucket and shook them up and then took the names back out, would be equally successful. I could see they're picking being able to say, hey, this is the top 20% versus the bottom 20% sure. But for them to pass on this,

what was their reason for passing? What did you not even get the interview? Do you remember? We did get the interview. Um, you know, it was a quick conversation. It's a 10-minute interview. Yeah. And, you know, I would say to your point, you know, the 1% or the 20%, I think that it's a really early stage to be trying to evaluate companies. And, you know, I think a lot of it is what companies do after that. And so, you know, there's a lot to, you know, getting into YC, getting into launch accelerator,

that's kind of one of the first steps. And going far from there is a long journey. And having to, you know, make sure we approach it the right way, I think, has been a lot of, you know, what has allowed us to be. accessible. Well, I think this is a really important conversation and for founders who are watching, you know, you can build highly profitable businesses, be disciplined and really make that tight funnel so you don't churn users and then you control your destiny and you own the majority of the equity. A lot of people think that investors want, you know, to take control of companies or

own the majority of companies. I don't think that's true. I would much rather see the founders own and control their company and be, you know, one of the, be lucky enough to be part of the 20% of investors who are on the cap table because you're going to be so motivated, you care so much and you're so thoughtful about this. And that was the thing with Com, you know, we suffered very minor dilution as they grew that business. And the same is true here. So it's really great for investors. I think this piling on of capital, you know, is going to be unhealthy for certain folks because they don't have to have the same discipline you had. And if you lose that discipline, I don't know you get it back or it's hard to get it back.

Once you have that money sloshing around, you don't have to be as thoughtful about the funnel. You don't have to be as thoughtful about your cat because you can just, the war chest, you know, makes it so you don't have to be thoughtful, you know. It makes me nervous. And really, you know, going back down to it, is focused. on, you know, focus on the user, focus on the team, focus on the business. And, you know, there's a lot of stuff, you know, out there that can support this. But I think, you know, if we start from there, I think making sure we approach it from that premise, I think it is the best way to go. Awesome. Well, listen, continued success and we'll see you all next time on this week and startups.

Bye-bye.