Startup Advice: Fitbit
Posted on September 10, 2008
Filed Under BS-Free Advice |
I used to provide my thoughts on individual startups back when I was commenting on TechCrunch in 2006/2007 and I haven’t done much of that over the past year, primarily because I became bored with most of the Internet/technology startups that have launched.
Yet a startup that I think might have some potential launched yesterday at TechCrunch50 and I thought I’d provide some free advice to it because the venture capitalists who provided feedback didn’t do a very good job and for the most part, didn’t seem to know their heads from their asses.
FitBit Overview
Since there’s no reason to reinvent the wheel, here’s the description provided for Fitbit:
Fitbit inspires people to exercise more, eat better and live a healthier lifestyle. The company is developing an ultra-compact wireless wearable sensor, called the Fitbit Tracker, that automatically tracks data about a person’s activities, such as calories burned, sleep quality, steps and distance. The Fitbit Tracker collects activity data automatically while it is worn by the user all day. The collected data is wirelessly uploaded to a website where the wearer can see their data and track their progress toward personal goals. The website provides a motivational interface where users can share their progress, compare themselves against similar people and compete against their friends, family and co-workers. At the website, users can also manually log nutrition, weight and other health information in order to gain a complete picture of their health. Fitbit makes it easy to achieve a healthy lifestyle by automating the collection of health data and providing a motivating and entertaining user interface.
It’s worth pointing out that, unlike most of the startups launching at TechCrunch50, FitBit actually has some “hard” technology. While it’s far from being considered highly-defensible, any company that sells a physical product is always going to be one step ahead of the Kevin Roses of the Valley.
Fitbit’s Current Business Model
Fitbit’s business model is straightforward: it plans to sell the Fitbit Tracker for $99, at which price it says it has a marginal profit. Buyers of the Fitbit tracker will have free access to the Fitbit website.
Fitbit’s Challenge
Is there an opportunity for Fitbit? Yes.
Looking at the United States market, it’s worth noting that over 60% of Americans are overweight. By 2030, it’s estimated that this figure could increase to nearly 90%.
The weight-loss industry is worth $68 billion. Of course, if you follow weight-loss trends, it becomes quite clear that most of the money is being made by companies offering diet “programs,” “techniques” and/or “remedies.” Quite often, the effectiveness of these programs, techniques and remedies is highly questionable. The notion that “dieting” itself is beneficial has .
The most successful products and services in the weight-loss industry, ironically, are those products and services that purport to make weight loss fast, easy and painless.
The bottom line is that weight loss is easy (but not fast or painless): calories out must exceed calories in. A healthy diet coupled with exercise and a healthy lifestyle is usually the only way to accomplish this successfully over the long term. Unfortunately sticking with a healthy diet, exercise and a healthy lifestyle is difficult for most for a variety of reasons (work, family, stress, depression, lack of motivation, other health complications, etc.).
Those who do attempt to improve their habits often don’t stick with them. Case in point: it’s estimated that less than 30% of the people who sign up for gym memberships actually go to the gym regularly.
This all plays in to Fitbit’s challenge: how does the company convince people that a $99 product that tracks activities, calories burned, sleep patterns, etc. is a worthwhile investment?
Most people are not stupid. They know when they’re not eating right, not getting enough exercise and not getting enough good sleep. They don’t need a $99 gadget to tell them.
In fact, I expect that many people will avoid such a device for the simple fact that it reminds them just how unhealthy their habits are.
Bottom line: sales and distribution is a significant challenge for Fitbit. Selling the Fitbit Tracker to enough people to make Fitbit a great business is not going to be easy.
My Analysis
Fitbit has potential but it’s taking the wrong approach. It is trying to be a consumer-facing company when it really should be a technology company.
Its products (the Fitbit Tracker and website) look commercially viable from the limited amount I’ve seen thus far. Even though the Fitbit tracker isn’t something that is likely highly-defensible, it does appear to work sufficiently well enough and is aesthetically pleasing (a nice bonus).
Yet Fitbit’s biggest problem isn’t necessarily defensibility - I think it’s that it looks ill-equipped to actually handle sales and distribution.
Sales and distribution are key to Fitbit’s success. Unfortunately, it’s not only the most problematic aspect of Fitbit’s business, it’s the most costly. Quite simply, customer acquisition is going to be a bitch. In fact, I wouldn’t be surprised if it loses money on each Fitbit Tracker sold when the cost of customer acquisition is factored in.
And because it’s not charging anything for its website, the Fitbit Tracker has to make money - it’s not currently designed to be a loss-leader.
My Recommendation
Fitbit has absolutely no need to be a consumer-facing company and thus has no need to deal with the challenge of sales and distribution. It has much greater potential as a pure play technology company.
By selling its technology to companies that already have consumer sales and distribution channels, Fitbit not only solves its greatest challenge but actually cuts out what is likely to be its greatest ongoing cost - customer acquisition.
Major players in the weight-loss space such as Jenny Craig and Weight Watchers are investing huge amounts online. Fitbit is potentially a perfect vendor (or partner) for companies like Jenny Craig and Weight Watchers.
And they’re potentially the perfect solution to Fitbit’s sales and distribution problem - combined they already have millions of paying customers who have made a financial commitment to losing weight. These are exactly the type of individuals who are most likely to shell out $99 for a Fitbit Tracker.
Make no doubt about it: Fitbit should be focused on selling its technology to companies like Jenny Craig and Weight Watchers who can then package it and upsell it to their existing and new customers.
Incidentally, companies like Jenny Craig and Weight Watchers even provide a means for Fitbit to turn the website component of its technology package into a money-maker. Fitbit would probably be able to charge them a licensing fee to white label its website technology and to integrate it into their own websites. That integration (and the likely customizations customers like Jenny Craig and Weight Watchers would want) would provide for a professional services revenue stream as well.
In conclusion, by operating as a technology company only, Fitbit has the opportunity to:
- Make money selling its device to companies who in turn handle the otherwise difficult task of selling it to consumers.
- Eliminate most (if not all) of its customer acquisition costs.
- Generate additional revenue by licensing its website technology and providing professional services related to website integration and customization.
What’s not to like about this?
The Importance of Defining What You Are
Will my approach work? There are never any guarantees. A lot depends on whether or not Fitbit’s technology can be presented to companies like Jenny Craig and Weight Watchers in a compelling-enough fashion and sold via a deal structure that makes financial sense for both parties.
Yet the best case scenario with this approach is quite compelling: three revenue streams, reasonably far more device sales through established business customers who have direct access to the consumers Fitbit is challenged to reach on its own, lower cost of sales due to lower customer acquisition costs and as a result of all this, far less risk.
The current approach provides for a single revenue stream, a high likely cost of customer acquisition and a significant amount of risk because, unfortunately, the chances that Fitbit fails to successfully build sales and distribution on its own are significant.
Fitbit is perhaps the perfect example of just how important having the right sales and distribution strategy is. I hate to say it, but I suspect that if Fitbit tries to handle sales and distribution on its own, the potential for success is marginal and the probability of failure is high, especially if the company raises money from venture capitalists who are looking for a bigger company that Fitbit is likely to become without help in the area of sales and distribution.
With that, I hope Fitbit’s founders to give much more thought to this type of model and I will close with this: if I was looking to invest in technology startups, I wouldn’t invest in Fitbit as presented today but I might actually look at it if it took an approach that effectively outsources sales and distribution.
Of course, if Fitbit takes this approach, it probably wouldn’t need much more funding than the $450,000 it has already apparently raised. Go figure.
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Drama 2.0 spikes the Web 2.0 kool aid by providing critical analyses of Web 2.0, its people, its startups and its impact on the world of media. Other topics are explored when Drama 2.0 has been drinking too much 1975 Dom Perignon. Read more about the Internet's version of Keyser Söze here.
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There is a gazillion gadgets like FitBit. The only reason we are talking about this one is because they got themselves some TechCrunch love, no matter how useless it is.
Companies like Jenny Craig and Weight Watchers know that FitBits are dime a dozen, understand they hold the upper hand with distribution and know that the real way to make money off consumers is not by selling them novelty gadgets but ramping the programs and supplements. They need FitBit just like fish needs an umbrella.
The most likely reason FitBit is at TechCrunch is they ran into this channel buzzsaw and thought they could end run it by going B2C. Bottom line, they are chasing a crappy business opportunity.
Health Industry Observer: Fitbit might very well be one of a gazillion health gadgets (this isn’t my space) but with all due respect, lots of dime-a-dozen-products with minimal differentiation serve as the foundations for profitable businesses because the people behind them came up with sales and distribution models that are far more effective and cost-efficient than their competitors.
A great product with a poor sales and distribution strategy usually goes nowhere - a mediocre product with an excellent sales and distribution strategy often goes everywhere.
While Jenny Craig and Weight Watchers are the ideal targets for Fitbit, you’re correct in noting that Fitbit may not be an ideal vendor for Jenny Craig and Weight Watchers. Frankly, I don’t know what their strategic plans are, what they’re already doing and who they’re already talking to.
That notwithstanding, I could probably come up with a dozen other types of businesses in the weight-loss space that could provide sales and distribution for Fitbit and regardless of whether or not Fitbit is crappy, I think they’d have a decent shot of getting something done in one of those business categories with the right pitch and package because the technology itself looks saleable even if it’s not particularly defensible or differentiated.
The bottom line is that Fitbit is almost certainly going to fail as a consumer play; its only hope is as as technology play.
For what it’s worth, I think Fitbit is most likely launching at TechCrunch50 because the people behind the company have tech consumer internet pedigrees (CNET/Webshots). This explains why they have chosen the wrong sales and distribution model and, of course, leaves considerable doubt as to their ability to execute on the one I suggested.
I’ll stick to my guns on this: if you have a team capable of executing and dealmaking, something like this could become a very viable business with the right sales and distribution model.
1. iPod integration Nike+ style with aff. iTunes sales. “Download your very own playlist for perfect sleep!”
2. Or subsidize the device in return for a year-long paid subscription to the site; make money on recurrent subs.
ivv: neither of those things solves Fitbit’s current sales and distribution problem.
Gyms? And white-labeled versions of the site for them?
Drama 2.0, you are right that “Fitbit is almost certainly going to fail as a consumer play; its only hope is as as technology play” - if you primarily look at their hardware.
However you make the 3rd party distribution sound way too easy. Distribution channel owners are not stupid, they focus on pushing products that could get them highest volumes and margins. I will go out on a limb and say that gadgets like FitBit are novelties that do not fit this profile.
Being poorly differentiated low-demand niche commodity hardware vendor who does not own the channel is tough. Just ask PC peripheral makers.
Great suggestions…
Health Industry Observer: I don’t mean to marginalize the difficulty of third-party sales and distribution. I obviously can’t speak to the abilities of Fitbit’s management. It’s quite possible they don’t have the skill, experience or relationships to execute successfully.
As for your comment that “distribution channel owners are not stupid, they focus on pushing products that could get them highest volumes and margins” and that “gadgets like FitBit are novelties,” I’d point out that “novelty gadgets” sell all the time.
The true utility of something is not necessarily correlated to volume and margins. In fact, less useful products often sell more than their more useful competitors.
I look at it this way: Fitbit is a souped up pedometer with a web interface. Do you know how many stores and businesses sell pedometers? Obviously, that’s both a blessing and a curse but I’ll put it this way: with the right strategy and a competent management team, there’s no reason a product like this can’t get some third-party distribution.
Will Fitbit become a massive business? I’m don’t know enough about the market or their economics to say that but given that this is a business that actually makes a product that is sold to someone puts it way ahead of most of the other TechCrunch50 startups.
And finally, while I think your skepticism over Fitbit is deserved, I have to say that I think your personal business interests are influencing your perspective here.
I wish FitBit folks the best of luck and according to my experience with the industry they are going to need it. Many health-focused businesses appear deceptively easy from the outside, but there is a huge difference between what appears useful and what actually sells.
Have you followed Steve Case and his troubles with Revolution Health? This is perhaps the biggest case study in Web 2.0 dreams gone haywire. Would love to see your take on this:
“Revolution+Health”
Drama: could you please provide full text in your RSS feeds? Thanks!
Health Industry Observer: I don’t really consider Fitbit and its competitors to be “health-focused” in the same sense that I think you do. I see it as more of a weight loss industry (or racket?) play and from that perspective, I wouldn’t market it as anything other than a nifty gadget that helps you track your activities for the purpose of improving fitness.
I’m loosely familiar with Revolution Health. To be quite honest, I haven’t really been all that interested in online health content plays since Web 1.0.
Frankly, I think it’s often less-than-productive (and sometimes outright stupid) to rely on health information from the Internet. If I have a problem, I call my doctor. Working fine so far!
By the way, you might be interested in the post I wrote about .
Diwaker: if I do that, everytime you read one of my posts you won’t be reminded of my washboard abs (as seen in my logo photo).