Fitbit and the Dark Ages of hardware
Concluding a 40-minute chat with Fitbit founder James Park at Startup Grind in Mountain View this morning, Jeff Clavier, Managing Partner of SoftTech VC, fits it all into six words. "Manufacturing is a bitch, remember that."
Talking with Clavier, an early investor in his company, Park shared his many tales of woe from Fitbit's nearly seven year history, as he and his co-founder Eric Friedman came in blind and tried to get a handle on making hardware.
Things are good now for Fitbit, running with prevailing trends. In 2014, wellness and "the quantified self" - making hardware that allows people to track their health using software - is a burgeoning market. Last year, the company raised $43 million in a series D funding round.
As Park details, Fitbit is a dominant player in this space. Physical point of sale data from last year's Christmas retail season put its market share for sales of activity trackers at 77 percent. Which is admirable when one of your competitors is Nike. Across the entire sector, including GPS watches and heart rate monitors, Fitbit's market share was 50 percent. Despite requiring a $100 companion purchase, through the holidays Fitbit was the second most downloaded health and fitness app.
Fitbit stays under the radar purposefully. Park laughs that at SXSW two years ago Nike spent more money at that event than Fitbit spent on marketing the whole year.
But when Park and fellow founder Eric Friedman had the idea for a wireless-enabled wearable device that tracks a user's daily activity, energy output and sleep quality, the only comparable product was a $25 pedometer, they had no manufacturing skill set and knowledge about how to make hardware was closely guarded.
"It was all trade secrets locked away in the bowels of companies like Apple," Park says.
Fitbit was founded in April 2007. "The dark ages of hardware," as Clavier describes it.
Park and his co-founder Friedman put together a friends and family funding round of $400,000 quickly after launch. Friedman's father, a professor of biomedical sciences, invested while still letting the two know he thought their product was going to fail.
Progress was slow. "I actually thought we could get a product to market with $400,000" Park says. The following year Fitbit raised a larger round of over $1 million. Sixteen months later they still had nothing but a fleshed out idea.
Stepping on stage at TechCrunch 50 in September 2008 - a genesis moment presenting to judges like Evan Williams and Kevin Rose, which resulted in almost 3,000 preorders - the founders told the crowd there that Fitbit would ship by Christmas.
"We didn't say Christmas of what year," Park says, wryly. It wasn't until the end of 2009 that the first Fitbit product shipped.
When Fitbit finally shipped its backlog of orders stood at 30,000. In the intervening 15 months since its big moment at TechCrunch, the company had taken on even more funding but the entire thing had almost fallen apart.
"A lot of times we were pretty close to being dead," Park says.
Park says that Fitbit almost ran out of money. An early prototype had a radio range of two inches rather than the promised 25 feet. They discovered that a display cable was too close to an antennae and had to come up with a last minute solution of inserting a small piece of foam into the device, in order to save the production run they'd been camped out in Indonesia for.
At the end of 2009 the business model was good, Park says. The company had no channel partners, a staff of 12 and great margins.
But in pre-Kickstarter days, Park remembers feeling like it was all on more slippery ethical grounds. There wasn't huge precedent for taking thousands of people's card information and holding that information for several months.
Four years on, Fitbit is in 30,000 stores in 28 countries. It had early interest from Best Buy and success on Amazon. Unlike GoPro, Parks says Fitbit made a conscious choice to target a few major retailers and slowly leverage that success, rather than go after smaller independent retailers.
"If you have a small number of key national accounts, it makes it easier to make sure everyone is retailing at the same price," Park says.
He's cognizant now that the struggles he faced aren't so applicable now for new hardware entrepreneurs, with Kickstarter and a greater number of hardware accelerators making market validation and information easier to find.
But for people entering the exploding wearables market now, because of the variety of forms the technology may take Park recommends being very adaptable.
"There's not a single winning paradigm," he says.
"When people comment on the category they take a very static view. They take a look at what they see and extrapolate that out. You've got to assume change."
[Illustration by Patrick Kyle for Pandodaily]