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.
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.
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.
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.
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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