I have been a FitBit user for many years but did not know the story behind the company. Recently came across a podcast by Guy Raz called How I Built This. In this episode he interviews James Park who explains the story of FitBit.
I loved the story so much but couldn't find a transcript, so made the one below. Subtitles (and all mistakes) added by me.
Guy Raz(🎙): From NPR, It's How I Built This. A show about innovators, entrepreneurs, idealists, and the stories behind the movements. Here we go. I'm Guy Raz, and on the show today, how the Nintendo Wii inspired James Park to build a device and then a company that would have a huge and lasting influence on the health and fitness industry, Fitbit. It's taken me a few weeks to get motivated about exercise. This whole pandemic thing just had me in a state of anxiety and it messed with my routine, but I was inspired to jump back into it about two weeks ago, after watching my 11-year-old proudly announce his daily step count recorded on his Fitbit. Now, fitness isn't all that important to him. He's 11. But the gamification of fitness, the idea that it could be fun to hit 5,000 or 10,000 steps a day, that's what matters.
🎙: This is the stroke of insight James Park had soon after he stood in line at a Best Buy in San Francisco to buy the brand new video game system called Nintendo Wii. And you'll hear James explain the story a bit later, but what he realized playing the Wii is that you could actually change human behavior around exercise if you turned it into a game. And the thing is, up until James Park and his co-founder Eric Friedman founded Fitbit in 2007, there really weren't any digital fitness trackers that were designed that way. It took a few years for James and Eric to gain traction, but by 2010, 2011, Fitbit took off. At one point, their fitness devices accounted for nearly 70% of the market. And by 2015, the company was valued at more than $10 billion. But that same year, the Apple Watch was released, and Fitbit and its market share got hammered. When I spoke to James Park a few days ago, he was in San Francisco, living in an Airbnb.
James Park(⌚️): I'm in a temporary Airbnb because the place that I typically live in has been flooded out by a malfunctioning washing machine. I woke up at it 1:00 AM
🎙: In the middle of this whole thing, flooded washing machine went... You woke up in the middle of the night and there was water everywhere?
⌚️: I know. Amazing timing. Yeah. I woke up at 1:00 AM, and I just woke up to the sound of water gushing everywhere. It was coming through the ceiling. It was a massive flood.
🎙: Okay. So on top of sheltering in place and running his company remotely, James had to move out of his apartment in the middle of the night and then set up the microphone and gear we sent him for this interview. He started to tell us about his parents who immigrated from Korea when James was four. Back in Korea, his dad had been an electrical engineer and his mom was a nurse. But as with many immigrants, they had a hard time getting those same jobs in the US. So instead, his parents became small business owners.
⌚️: The first conscious memory I have is, my parents actually own the wig shop in downtown Cleveland.
🎙: Wow. How did they get into that? Was it just a way to earn a living?
⌚️: Yeah. I think a way to earn a living and the typical immigrant story is you have friends who live in the country that you're immigrating to. And I think my dad had a friend who worked in wig wholesaling. That's where he started out. There were selling wigs to people who live in downtown Cleveland, African-Americans, mostly women. And I remember my mom, she'd spend a lot of time just looking through black fashion magazine, styling hair, beating them, et cetera.
⌚️: They had a wig shop, dry cleaners, a fish market. At one point we moved to Atlanta and they ran an ice cream shop there. We sold track suits, starter jackets, fitted baseball caps, thick gold chains.
🎙: Sort of hip-hop urban wear, right? Like FUBU, and stuff like that?
⌚️: Yeah. Yeah. Yep. They sold FUBU jeans. Yep. I remember that. And they could switch from one genre or one type of business to another and really not skip a beat.
🎙: And were your parents, did they expect you perform well at school? Was that just a given?
⌚️: I think they had incredibly high expectations then as a kid. I think I remember my mom telling me when I was pretty young, I don't know, five, six, seven, that she expected me to go to Harvard.
⌚️: Yeah. I don't think I quite knew what that meant back then, but you could tell that their expectations were pretty high from the very beginning.
🎙: James did in fact meet his mom's expectations. He did go to Harvard. He put in three years studying computer science, but after his junior year, he got a summer internship at Morgan Stanley and then ended up deciding to start his own business. And then we had hoped to finish his college degree, he never went back.
⌚️: I always had a little bit of a stubborn streak, and that was when I was trying to figure things out, try to think of ideas. I think there is a lot of opportunity, a lot of problems to be solved. I was also looking for a co-founder at the time. So those are two critical ingredients, an idea and a co-founder.
🎙: This is 1998. This is not 2015 when these kinds of conversations seem so common. This was unusual in 1998 for a young person. It was just less common for a young person to just sort of say, "I'm going to look into a tech startup and try to find a co-founder and just take some time to think about these things." I would imagine your parents were nervous. I'd be nervous if my 20-year-old said to me, "I'm not going to go back to college and I don't really know what I'm going to do, but I'm just going to think about it."
⌚️: Yeah. They were understandably pretty upset, angry even I'd say. And the irony is that, they probably took away more incredible personal risk moving from Korea to United States and running these series of businesses, which are commonly done, but not easy in themselves and pretty high risk. But I do understand obviously the perspective at the time.
🎙: Okay. You decide you want to start something up, and I think you eventually landed on e-commerce, right?
⌚️: Yeah. That was not a groundbreaking thing at the time. Obviously, Amazon was around, et cetera. A lot of e-commerce startups, but settled on this idea of making e-commerce a lot more seamless and frictionless and came up at this idea of a electronic wallet that would automatically make purchases for you. It would work with a lot of different e-commerce sites and the goal there was that we would take a cut of every transaction.
🎙: Right. And what was the company called?
⌚️: That was interesting. We originally named it Kapoof, that was how it was incorporated, until a lot of people said, "That might not be the best name for a company." Sounds like, we called it Kapoof because it sounded like magic, et cetera, Kapoof. Things are done. Your transaction is completed by Kapoof.
🎙: It sounds like, "Kapoof, your money is gone."
⌚️: Yeah, exactly.
🎙: "You've no more money."
⌚️: Exactly. Time of crazy names like Yahoo, et cetera. But we decided to change our name at some point and we changed it to Epesi, which was so Swahili for fast. And so that was the ultimate name of the company.
🎙: And you guys were actually able to raise a fair amount of money. Right?
⌚️: We did. We ended up raising a few million dollars from some individuals and some from some venture capital firms as well. And we hired some people. We found a cool renovated firehouse. That was-
🎙: Nice. Nice
⌚️: ... Really amazing place to hang out in for many, many, many hours of the day. And we hired up to, it was close to about 30 people.
🎙: Wow. One super important thing that happened there was you met Eric Friedman, right? The guy that you would eventually launch Fitbit with.
⌚️: I did. And that's probably one of the more fortunate turns in my life. Eric, we didn't know each other at all before the company, Epesi. He was actually just graduating from Yale in computer science. And I interviewed him. I liked him a lot. And he ended up ultimately becoming the first employee at the company.
🎙: Okay. So you hire Eric, and I think the company lasted 18 months, or a little less than two years.
⌚️: Yeah. About two years, and a lot of ups and downs during that period. If I had to think back, I would attribute two-thirds of the challenges and problems we faced as a business to myself, just because I had never managed people. I didn't really know how to run a business, even it was only the technology side. And at some point the dot-com crash happened. And all of our potential customers, the whole industry, the whole economy started taking a downturn.
🎙: So this company spirals out in 2001. And when that happened, did you think, "Okay, I should go back to college now and finish my degree." Or, "I got to start something else." Where was your head at that point?
⌚️: Well, it was a really challenging personal time for me. Towards the end of the company, we obviously had to lay off most of the company, and trying to doing it in a way that was compassionate was really, really difficult. I don't think the thought of entering school or going back to school popped back into my head at all. And I don't know why. I think it was because, despite this very emotional failure, I knew this was what I wanted to do. I had a firm conviction about that. And so I knew I wasn't going to go back.
🎙: So what'd you do?
⌚️: We all ended up working at the same place actually. It was a company, a pretty large company called Dun & Bradstreet at the time. Very stable company. And we were all fortunate to be able to find work there as engineers.
🎙: So daytime working at Dun & Bradstreet, and then what? At night sitting around just-
⌚️: Brainstorming. Yeah. We go into work during the daytime and then we'd come home in the evenings, code different things, try different things out. So it was a pretty intense. I think, in terms of the numbers of hours, I don't think anything changed from our first startup to trying to figure this next one out.
🎙: And before too long, you decide to do another startup. This time, with Eric Friedman from your previous company, and then another guy named Gokhan Kutlu. I think this was what? 2003, 2004?
⌚️: Yeah. This was about 2002 actually.
🎙: Okay. And this time the startup was a photo editing platform, sharing platform. What was it called?
⌚️: The company's name at the time was called HeyPix and the product itself was called electric shoe box because a lot of people put their old photos in shoe boxes and this was just going to be a digital.
🎙: Yes. I still have them in shoe boxes.
⌚️: You'll digitize them probably.
🎙: I should. I know.
⌚️: Yeah. And so electric shoe box, which is going to be a digital version of your shoe box.
🎙: And what could you do?
⌚️: Well, there are digital cameras were coming about back then. It still wasn't easy to connect them, upload photos. It was getting easier, but nowhere near what it is today, obviously. The whole idea of electric shoe box was to make the whole process of getting photos off your camera a lot easier. And more importantly, we wanted to make the process of sharing these photos with your friends and family a lot easier.
🎙: So did you raise money for the product, for the electric shoe box?
⌚️: We did. We ended up raising money primarily from one of my friends from middle school who was a mutual fund manager in Boston. And so, he put in a bit of money, not a lot. I think about, at least for him, it was about 100,000. And we had a bunch of savings ourselves that we were going to use. And in anticipation, I also opened up a few more credit cards as well.
🎙: And it was just really the three of you, sitting at your computers and just tapping the keys all night?
⌚️: You pretty much nailed it. I mean, all we did was, we would wake up in the morning, walk over to the third bedroom and just start typing away for 12 hours. We'd take meal breaks. I remember Eric did a lot of cooking. So we'd eat our dinners on some TV stands watching TV. That was a good break for us, watching Seinfeld, and then go to bed and then repeat it the following day.
🎙: Wow. All right. So you come up with this product, and by the way, how are you going to make money off of this thing? This is a free service. How were you going to pay for it?
⌚️: I guess, it would be called freemium software. It would be free for a period of time, and the trial period would end and then you'd have to submit your credit card information to continue using the software.
🎙: Got it. Got it.
⌚️: And so, our primary goal was making sure that a lot of people knew about the software. So we put it on shareware sites, et cetera. And then we spent a lot of time debating, "Should we send out a press release?" And I remember it was a huge debate because sending out a press release was going to be about $300. And that was the level of expense that required a vigorous debate at the time. So we said, "You know what? Without getting the product known, how are we going to be successful?" So we wrote up a press release and we put it out. And actually it was probably the most pivotal decision we ever made in that company's history.
⌚️: The first email came in a few hours later. I think the second one came in a day later. But we got two emails, one from CNET, which is a huge digital publishing company. And then we got another email from Yahoo saying, "Hey, we just heard about this launch of this software product. And we'd like to talk to you guys more about it."
⌚️: Exactly. This was coming from their corporate development arms, which typically deals with M&A, with buying, buying companies.
⌚️: Yeah, exactly. We were like, "Whoa, this is magic. How did this happen?"
🎙: 2005, it gets purchased by CNET. They make an offer to buy this company, buy this product from you guys and you sell it to CNET. Was that life-changing money? Did that mean that you never had to work again?
⌚️: It was definitely a good acquisition for all of us at the time. Remember we were three guys working out of our apartments. I was at the time about $40,000 in credit card debt as well. We were down to some desperate times and we were negotiating numbers and they threw out a number which was, their first offer was 4 million, and we were like, "Whoa, that's amazing."
⌚️: Like, "God, I can't believe we built something that's worth this much at the time." We were just stunned. And then, we quickly got to, "Okay, how do we negotiate something better?"
🎙: So you sell your company to CNET in 2005 and you've got some money in your pocket. And you move to San Francisco to work for CNET. Did you enjoy it? I mean, it was probably a huge company at this point, right?
⌚️: It was a huge company, but I think the moment, at least for me, that I moved to San Francisco, I instantly fell in love with the city. And CNET, even though was a larger company, I actually found it to be an amazing time. I learned a lot. I got some management training. I ended up managing a small team of people. Learned a lot about how technology scales to millions and millions of users. How you market products. I really enjoyed my experience there. I think it was pretty formative.
🎙: Why did you leave CNET?
⌚️: We left CNET just because of, I guess you could call it a bolt of lightning in some ways. It was December of 2006 and Nintendo had just announced the Nintendo Wii. And I remember coming home, putting it together. At the time Nintendo had come up with this really innovative control system, using motion sensors, accelerometers to serve as inputs into a game. And after using it, especially in Wii Fit, which was a sports game. I thought, "Wow, this is incredible. This is amazing. This is magical. You can use sensors in this way. You can use it to bring people together." Particularly for Wii Fit, it was a way of getting people active, of getting them moving together. And I was just blown away by this whole idea, really excited about. I couldn't stop thinking about it.
⌚️: And after some time of playing Wii Fit and the Wii and a lot of other games, I thought, "This is great. It's in my living room, but what if I want to take this outside of the living room?" And I kept thinking about that idea, like-
🎙: "How do you take Wii Fit outside?"
⌚️: Outside. Exactly.
⌚️: I couldn't let it go. And I ultimately ended up calling up Eric and we started talking about this idea for hours and hours and we couldn't stop talking about it. It's like, "How do we capture this magic and make it more portable? How do we give it to people 24-7?" And that was really the Genesis of Fitbit.
🎙: So the technology, I mean, pedometers have been around forever. Was that where your head was going, or thinking, "Okay, maybe we just create an electronic pedometer?" But I think even electronic pedometers were around in 2007, right?
⌚️: Yeah. Pedometers were definitely around back then. Actually, they had been around for probably 100 years. One of the things though is that, they weren't something that people would want to use or to wear. They were very big. They were pretty ugly. They looked like medical devices.
🎙: A lot of senior citizens used them.
⌚️: Yeah. They weren't a very aspirational device. It wasn't something that people were excited to use. And so, I think that's why that whole category of device just never really had any innovation. And there are also much higher-end devices. You could buy much fancier running watches, like GPS watches, et cetera. But those are really expensive for people. There are 300, $400 at the time.
🎙: So you had this idea, and that means you had to raise money. And this is going to be the third time now that you've had to do that for a business. And I think I read that you raised $400,000 to launch this. I mean, I don't know a lot about hardware, but that doesn't seem like it was going to take you very far in building a physical product.
⌚️: As we quickly found out, yes, we had grossly underestimated the cost of taking this to market.
🎙: And what did that initial amount of money, how far did they get you into actually conceding of what this product was going to be?
⌚️: It got us to a prototype, write some rudimentary software, get some industrial design concepts done and some models.
🎙: What did the prototype look like? Did it look like a Fitbit?
⌚️: It looked absolutely nothing like a Fitbit. There are two things, there was actual, somewhat working prototype and then there was an industrial design model.
🎙: Which was a piece of plastic.
⌚️: Plastic, and metal that was supposed to look like the ultimate product. And so, that actually looked really, really nice.
🎙: But it didn't work?
⌚️: Yeah. It was totally nonfunctional. And we'd always have to tell people before showing, "This doesn't work here." Because they get all excited looking at the model. "No, no, no. That doesn't work." The thing that actually worked looked like something that came out of a garage, literally.
🎙: What did it look like?
⌚️: It was rectangular circuit board, a little bit smaller than your. And it had a motion sensor, it had a radio, it had a microcontroller, which was the brains of the product. And it had a rudimentary case, which was a balsa with box.
🎙: Wow. So you would take to investors, a circuit board and a balsa wood box as your prototype?
⌚️: Yeah. That was the prototype. And actually that was what we had demoed. When we first announced the company, that was the prototype that was actually being used at the announcement.
🎙: Wow. I mean, how did you even get it to that point? Because you guys are both software engineers, how did you develop a physical product that even such a crude prototype could track movement? Did you have other people help you do that?
⌚️: That was our big task was to find the right people who could help us. I knew the founder of a really great industrial design firm in San Francisco called New Deal Design. His name is Gadi Amit. And then on the algorithm side, because it was going to take a lot of sophisticated algorithms to translate this motion data to actual data that users would be able to understand, I ended up asking my best friend from college, because he was in grad school at Harvard at the time. And he said, "Wait, I think I might know somebody." And it ended up being his teaching fellow, his name was Shelton. And we talked and I was like, "Wow, this guy is super smart. We need to get him working on the algorithms." So he ended up working on the side while doing his PHD, helping us out with a lot of the software.
🎙: I mean, you leave CNET in 2007, and you've got 400,000 to come up with a prototype that quickly run out of that. So it's 2008, and you're trying to raise money, how much did you raise?
⌚️: I think our first round was about $2 million.
🎙: Which was not going to take you that far if you wanted to develop a physical product that was super sophisticated, a piece of hardware.
⌚️: We thought we could do it. We thought we knew a little bit more about the hardware business. We put together another business plan budget. It was actually a pretty challenging time to raise money as well because-
🎙: Oh, with the financial crisis. Yeah.
⌚️: Exactly. It was the fall of 2008, when we were trying to raise money. One of the, I guess the good and bad things about VCs is, the good thing about VCs is they're incredibly healthy people. They're super fit. But it also made it difficult for a lot of them to understand the value of the product because what we were trying to do was, it wasn't a product meant for super athletic people, it was really meant to help normal people become more active, become healthier, et cetera. And it was hard for a lot of them to grasp why that was valuable. They'd ask, "Well, did it do X or did it do Y and did it do Z?" And we'd say, "No, it doesn't do any of that." And so it was very difficult for a lot of these super-fit VCs to understand the value of the product, even though a lot of them claim they don't try to put their own bias on these products. It's naturally human to do that.
🎙: And did you know right away that this was going to be... I mean, now Fitbit's are watches mainly. They're wrists, there on your wrist. But at that time, you were thinking that this was just going to be something you would clip to your clothing?
⌚️: Yeah. Something to clip to your clothing for men. And then what we found out in talking to a lot of women was that they wanted to tuck it away somewhere hidden. They didn't want people to see it. And we said, "Okay, where would you want to put it?" And said, "Well, a lot of our pants don't have pockets, so it can't be in our pocket." And so the preferred place was actually on their bra. So a lot of the physical design that we had to think about in the early days was how to come up with a product that would be very slim, slender, and clipped people's bra.
🎙: And hidden.
⌚️: And hidden and clipped the bras pretty easily.
🎙: And by the way, how did you come up with the name Fitbit?
⌚️: It's never easy to name a company, and it's even more challenging just because of domain names. That's typically a lot of the limiting factor in naming a great company. And so, we would spend hours and hours and days just going through different permutations of names, and some awful ones as well. At some point we got onto a fruit theme. So we were thinking like Fitberry or Berryfit or Fitcado. Just some really awful names.
🎙: The Fitcado.
⌚️: The Fitcado. Yes. History might've turned out a lot differently for sure. I was just taking a nap in my office one afternoon. I think I was actually napping on the rug because I was so tired. And I woke up and it just hit me, it was Fitbit. And the next challenge was actually the domain name. The domain name was not available. And it was owned by the guy in Russia. And I'm like, "Oh my god, how are we going to get this domain name? We'll just email the guy and see what happens." And he said, "Well, how much are you willing to offer?" And I said, "Oh god, I don't know. How about 1,000 bucks?" And he's like, "Oof, how about 10,000?" And I said, "Oh, I don't know. That sounds like a lot. How about 2,000?" And he's like, "Oh, okay. 2000, deal." I think it was literally two or three emails that we sent back and forth in this negotiation.
🎙: Probably the best $2,000 you ever spent in your life, except for the 300 you spent on the press release a couple years earlier.
⌚️: Yeah, yeah. Definitely a good return.
🎙: You've probably spent many millions of dollars on other things in your life that were not as good of a deal as that $2,000.
⌚️: Yeah. It's tens of thousands on naming consultants and focus groups and trademark searches and all of that. It's kind of funny.
🎙: Hey, as they say, small companies, small problems, big company, big problems.
🎙: So where do you begin? I mean, you got to make it, you got to find a factory, you got to find designers. Where do you go?
⌚️: Very good question. We obviously had zero connections. The challenge though, was not actually the connections to the manufacturers, but finding a manufacturer who we could actually convince to build this product because we didn't have a background in hardware. And so, would they actually want to work with us? That was the biggest concern at the time.
🎙: So how did you find them?
⌚️: We went out to China. We went out to Singapore. And we were never going to be able to get the Foxconn's.
🎙: You had to go to a smaller place.
⌚️: We had to go to a smaller place, who'd be more nimble, more flexible, who'd want to take a financial risk. And we finally found a great manufacturer based in Singapore called Racer Technologies. And the good thing is actually, it was the best of all worlds, the headquarters was in Singapore. Most of the management team and the engineering staff was in Singapore, but they had manufacturing facilities that were in Indonesia. The labor there was going to be lower cost than in Singapore.
🎙: All right. So 2008, you've got the name Fitbit, you go to TechCrunch to present, to unveil this product. And what was the product that you were offering? Well, you said, "All right, we've got to think of the Fitbit and it does this." What did you say it did at that point?
⌚️: Our pitch to the crowd at TechCrunch, and ultimately to our consumer was that, it was a product that would track your steps, distance, calories, and how much you slept and would answer some basic questions about your health, "Was I active enough today? Did I get enough sleep? What do I need to do to lose weight," et cetera. And one of the more important aspects was this idea of a community as well. "Join other people who own Fitbits, your friends and family, and you could compete with each other." And it was all wireless. You didn't really have to do anything. All you'd have to do is wear this device, don't even think about it, and all this magic would happen. That was the promise of Fitbit at the time.
🎙: There was a lot of excitement there, but I'm wondering, were you nervous to do these presentations? Did you have to prepare like crazy, or did you just find your ability to be this person you had to be on stage when you got up there?
⌚️: Yeah, I think there was no other choice. It was just something we had to do. And I think-
🎙: Are you better at it than Eric, or is Eric better at it than you?
⌚️: I think we're both good in our different ways. It just fell upon me. I don't even know how we decide those things. But actually, what was running through our minds, was not what we were going to say and how we're going to say it, but whether the demo would actually work on stage, because again, it was a little sketchy. It was still very early. It was still in the wooden box.
🎙: In the balsa wood box.
⌚️: Balsa wood box phase. So we were just worried that the demo would just fail or crash.
🎙: But it worked.
⌚️: It worked, and actually it did crash in the middle of the presentation because the whole demo was about me walking on stage, the device would be collecting stats. And at one point I would turn to Eric and say, "Hey, Eric, why don't you refresh the page and show that all the stats have been uploaded." Magically, do this wireless connection. And so, the demo actually crashed while I was talking, and Eric was fiercely trying to reboot his computer during this period and I don't even know anything about it. But ultimately, the demo did work. And so, to many people, it seemed like magic. Literally, people started clapping. It was really amazing.
⌚️: Originally, right before TechCrunch, Eric and I, we made just a verbal bet. "How many pre-orders are we going to get after this conference when we announce and make the company public?" And I think Eric said, "I think we'll get like five pre-orders." So it's like, "The device isn't even available. People are going to have to give us their credit card information." And I said, "Nah, you know what? I'm not as pessimistic. I think there's going to be like 10, 15, 20." And so we got off stage, and by the end of the day, we had about 2000 pre-orders.
🎙: Wow. When we come back in just a moment, James and Eric have a prototype in the balsa wood box and they don't exactly know how they are going to get from there to filling thousands of pre-orders. But a lot of people are expecting them in time for Christmas. Stay with us, I'm Guy Raz, and you're listening to How I Built This from NPR.
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🎙: Hey, welcome back to How I Built This from NPR, I'm guy Raz. So it's 2008, and James and his co-founder Eric Friedman show off their Fitbit prototype at TechCrunch, and it makes a huge splash. The problem is, they have no finished product. They haven't even figured out how they're going to make it and pre-orders are pouring in.
⌚️: And they just kept coming in. It was crazy. We were like, "Oh my god, it's not just dozens of these units we have to build, it's now thousands, and more and more every day." And so we were still thinking Christmas of that year that we were going to start shipping out units, and it rapidly became clear to us that we weren't going to make Christmas. And so, we're thinking, "Okay, how do we keep all these people happy while we pull this off?" So this was before Kickstarter and Indiegogo and all that. We had to improvise. We were like, "Okay, why don't we just blog about the whole process and just be very open and transparent about it." So we started a blog, and I wrote maybe weekly updates on how things were going, challenges and delays that we were facing.
⌚️: And I was really surprised, actually, it worked. It made people understand what we were going through. They're literally seeing the thing being made, the sausage being made behind the scenes. And I think that kept people really engaged throughout the process.
🎙: So you have basically a bunch of contractors and freelancers and you guys are going back and forth to Asia. You got people working on the software to transmit the data to the web. You've got some people working on the hardware, presumably, in Singapore trying shrink down the motherboard to something that is two inches by one half inch. And were you just constantly running into failures? You would think that, "Oh, here it is." And then somebody would hit the go button and then it would just fizzle out, it wouldn't work?
⌚️: Yeah. I can't even enumerate the number of challenges with the product that we had.
🎙: Please start.
⌚️: In some ways a lot of people, I think when you think about hardware, it's like, "Oh, I'll find a manufacturer in China. I'll throw over a design."
🎙: Yeah, right. No problem.
⌚️: "They'll just run with it."
🎙: And then, "Just send me the bill," and then it's done.
⌚️: And they'll just crank out thousands, tens of thousands of this. But that's never-
🎙: And that works if it's a suitcase, we've done a way. It works if it's that thing.
⌚️: If it's that thing or something that's very similar to something that they've built before.
⌚️: Well, that's a different story than this thing that this manufacturer never had built before.
🎙: So they would send you things and say, "Yep, we got it." And then you would get it and it sucked. It just didn't work.
⌚️: Yeah. We wouldn't wait for them to send it. I mean, either myself or Eric would be in Indonesia or Singapore at any given time. We'd trade off different weeks. And we were out there on the production lines pretty much inspecting every part of the process.
🎙: But were you convinced this thing was going to work or did you have doubt?
⌚️: I was absolutely convinced that it was going to happen.
🎙: You had no doubts that this-
⌚️: I had no doubts because we were getting proof every day that this was something that was going to be big. And I think the first evidence of that was at TechCrunch where we had 2,000 pre-orders and we were getting pre-orders every day. I think by the summer time, we had about 25,000 pre-orders at $100 per unit. That's a fair amount of revenue if we could ship these units.
🎙: And how much was it going to cost you to make each unit?
⌚️: That was a very good question. We didn't know that. Hopefully, under $100.
🎙: You didn't know? You were selling them for $100, but you didn't know how much it was going to cost you.
⌚️: We had a sense of the bill of materials. I think we were trying to shoot for a gross margin of about 50%. So we're targeting the full cost of the product, including shipping, et cetera, being no more than $50. That's what we were targeting.
🎙: Which is a lot. That's high. It's a high cost.
⌚️: It's a high cost, but that was a cost at which we felt we could sustain ourselves as a business.
🎙: How did you and Eric manage your relationship and friendship? I mean, with the stress of this delay and inability to meet demand and all these, was there tension at all between the two of you, or you guys totally are on the same page?
⌚️: I don't think there was that much tension. I mean, a lot of stress, but not tension. I think we trust in our ability to help each other out. And there are periods when either of us would be pretty down on the company and the product. And luckily, we weren't down both at the same time. And that's why it helps, I think, to have a co-founder.
🎙: So there were times where you were really down and he could give you a pep talk and.
⌚️: Exactly. And then I'd wonder why he wasn't down. And there're some pretty dark times right before we shipped. I remember we were months before we thought we could finally get the first unit off the production line. And I was sitting in my hotel room in Singapore, and I was testing out one of the prototype builds that that Racer had produced and the radio range was not good at all. It was supposed to have a range-
🎙: 10 feet or 15 feet?
⌚️: That was the hope that it would have 15 to 20 feet range, but the range was actually two inches.
🎙: Oh god. Wait, so the antenna in the device had a two inch range.
⌚️: Yeah. It would only work at two inches. And I'm thinking, we've got to ship this holiday season. I've got tens of thousands of these people waiting.
🎙: Oh god.
⌚️: And so, I'm just freaking out in hotel room.
🎙: You might as well have a cord and just plug it in.
⌚️: Exactly, exactly. I couldn't sleep that night obviously. And I took the unit apart. I had a multimeter and I was measuring different voltages and currents. And what I realized was, huh, the cable for the display was flexible and long enough that maybe it was actually trooping down and touching the antenna and that was causing-
🎙: That was creating interference.
⌚️: Creating interference. And I could see that when you put the whole thing together, that it might troop down. And I thought, "Okay, how do I create a shim that would prop the antenna?" So I went to the bathroom, grabbed some toilet paper, rolled a little bit of it in a ball and stuffed it between the antenna and the display cable, put the device back together. And it started working. The range was great.
🎙: Wow. So you had to separate one wire from the antenna and that was it, with toilet paper?
⌚️: With toilet paper. Yeah, that was it.
⌚️: And I still couldn't sleep. So as early as possible, the following morning I raced into our manufacturing and said, "Okay, I think I found the problem," but obviously a toilet paper is not a scalable high volume situation. So they went back and figured out how they could make this manufacturable. So they ended up creating these little tiny tie cut pieces of rubber that they would glue onto the circuit board to keep the antenna away from the display cable.
🎙: Wow. Wow. So that was, basically, was just, inserting something in there and then it worked?
⌚️: Yeah, it wasn't exactly duct tape, but that was the equivalent of duct tape
🎙: It was pretty close.
⌚️: It was pretty close. Yeah.
🎙: So you guys launched this product in Christmas of 2009, and it was a pretty successful product launch. You had 25,000 orders and sounds like you're off to the races, but I guess even with this success, when you went out to raise money, this is 2010, were investors more excited or was it still a challenge to get more investors in?
⌚️: It was still a challenge. And at the time, it wasn't, "Okay, I guess you guys are having some success, consumers are buying the product, et cetera." And they congratulated us on that. But they were very scared of hardware businesses. I think there had been a lot of really high profile failures in the consumer electronics industry. And so, it was very difficult for us to raise money. I remember, we had a spreadsheet of target VCs. I think there are 40 names that we put on that list. And literally, we went to number 40 before we were able to raise money.
🎙: And just giving the same pitch, again, again, answering the same questions?
⌚️: Same pitch. We're in San Francisco driving down 101 to Sand Hill Road, constantly giving the same pitch to 40 VCs. That's probably the one thing I didn't like about that whole time period was, I hate giving the same pitch over and over and hearing the same questions and same objections, et cetera. That was not a fun or stimulating time for me.
🎙: All right. Eventually, the 40th investor does decide to give you some money. I think you raised about $8 million. And at this point, were you able to then have a proper office and a staff. Were you able to begin to recruit real full-time engineers and developers and people like that?
⌚️: We were. We did that with the round that was right after our first $2 million institutional round. We hired a bunch of customer support personnel. I interviewed and hired our first head of sales. I interviewed and hired someone to finally run all of our manufacturing and operations, which was still a job that I was doing. I was still issuing all the [POS] and managing the inventory. And I think we were really fortunate because the early management team that we hired in those days pretty much made it up to and passed our IPO, which I think rarely happens.
🎙: It's so crazy to think about it now. But I think early on, with the Fitbit, the idea was to be part of a bigger community. Like the data from your activity would be available. You would just go to a site and you could see it and you could see everybody else's because the idea was, "We're all part of this together." But I think early on, some users were tracking sex. And when you started to hear about these things was your reaction like, "Oh my god, I never even thought about this being a privacy thing. I always thought that people would just want to share stuff."
⌚️: Yeah. This was still the early days of sharing things like that. And I found out about it because I saw this tweet about someone going, "Hey, if you do this Google search, you'll see," because Google was indexing all our public pages where people are logging things that people had made public. "You could find out all the sexual activities that people are logging on Fitbit." And I saw that, I'm like, "Oh my god, this is not good." That ended up being the first real PR crisis for the company. And it was happening over the 4th of July weekend. So I had to call an emergency board meeting. We had to scramble to delete all that stuff, turn everything private.
🎙: Because the default setting, initially, when you got to Fitbit was, it's not private, it's open. Because the idea was, it was going to be a big community of people trying to get fit.
⌚️: Yeah. I mean, we made a lot of things private by default. We made sure that people's weight was private because we thought that would be sensitive, but we didn't think that people's activities, there wasn't any harm in doing that and we just didn't realize that people would start logging that.
🎙: And just to be clear, people who logged sexual activity, this was not a category that you offered up, it was just people were voluntarily deciding to just log that as one of their activities.
⌚️: Well, it was a category, but it wasn't something that we had realized. We use this database from the government that was thousands of different activities that people would do.
🎙: Oh, I see.
⌚️: And so, it was an option. We just didn't think people would with log that.
🎙: You were just naive about that.
⌚️: We were naive. We were like, "Okay, this is a government database of activities. It must be fine." That was quite a shock and a wake up call for us.
🎙: Fitbit for the first couple of years was, a, still a clip. Mainly a clip. And then, I think really 2011, you released the first product, Christmas of 2009, you've got 2010. By 2011, just business exploded, 5X growth from 2011, 2012. You went from $15 million in revenue to $76 million in revenue. What was going on? Was it just this self-generating phenomenon? Were you surprised by it? Were you've investing in marketing? Was it just unearned media, just people reporting on it? What was going on?
⌚️: I think, the primary reason is, because we had baked in this social element, this community element into it from the very beginning, it ended up being a very viral product. So one family member would get it, and to really realize the potential, the community aspect and the competitive aspect, you had to have someone else as well. So they'd either buy it for their spouse or their parents and they would start competing and then they'd buy it for their friends and they'd try to get their friends to buy the product.
🎙: So they could each see how many steps you were... Because I remember this, I remember this in NPR. People were wearing Fitbits and they were talking and there was, I think there was even, people were encouraged to get Fitbits.
⌚️: Exactly. It was very driven by word of mouth. And this viral spread was a huge driver of our growth in those days.
🎙: I think by 2013, you had some competitors coming in. Nike was making one and Jawbone was making one. I mean, I remember going to the TED Conference in 2013 and getting a Jawbone in my gift bag. Were you worried about the competition at that point, or not really?
⌚️: Yeah. At that time I think people were looking at the success and there was even a name, coined for the whole category, which is quantified self. "How do I use sensors, et cetera, to measure everything that I'm doing in my entire life?" And so that attracted a lot of competition that you said. And I'd have to say the competitive aspect was definitely worrying at the time, especially with Nike and Jawbone.
🎙: Because they're so huge.
⌚️: There are huge. I mean, Nike, obviously, it's a multi-billion dollar, multi-national company with a lot of media dollars. I remember when they announced the FuelBand, they had all these celebrity athletes at the announcement and we're like, "Oh god, that's insane."
🎙: And yet, by 2014 you had 67% of the activity tracking marketplace. I mean, Fitbit was just totally dominating the marketplace. I mean, were you and Eric doing victory laps and high-fiving each other and thinking back to all those doubters? I mean, what was going on?
⌚️: I think we were still pretty, I don't know if scared is the right word. I think, it's still very, very cautious. Nothing was guaranteed. There was a lot of competition that was emerging. We still had a lot of internal challenges in the business, scaling production, scaling the company, et cetera. Again, a lot of fires for us to be solving on a day-to-day basis. And I remember occasionally we'd always check in and say, "Hey, when do you think we'll know we're going to make it?" And we'd say, "I think we'll know in six months." And we kept saying that every six months. It was pretty much an ongoing thing, pretty much up to the IPO.
🎙: 2015 was a huge turning point for you in many ways. You go public, I think your market cap, I read a certain point, reached $10 billion. That year, 2015, the Apple Watch is released and they stopped selling Fitbit in their stores. At the time you were quoted saying, I'm not really worried about this because it's a huge market. It's a $200 billion market. The Apple Watch is just crammed with a bunch of stuff, or smartwatches are crowned with a bunch of stuff. And what we're doing as something simpler." Was that, what you were saying publicly, because I don't know, you be felt like you should be saying that or did you really think that was true that the Apple Watch wouldn't actually have much of an impact?
⌚️: We were definitely concerned with Apple. I mean, this was the preeminent technology, and especially a hardware company at the time with an amazing brand. We had faced off Philips and Nike and Jawbone, which were in their rights, very big competitors, especially Nike. We did feel very strongly that our product had very clear advantages. It was a simpler product. If you looked at the Apple Watch, that was announced at that time, I think everyone will admit maybe even Apple, that it was a product that didn't quite know what it was supposed to be used for. With the launch of the first Apple Watch, I don't really think that that had an actual impact on the trajectory of the business. It wasn't the product that it would later become. And the industry wasn't where it would eventually evolve either.
🎙: I mean, but eventually, the industry did change. I mean, Apple Watch got really popular. I think, by 2016, Fitbit's stock had dropped by 75% over the course of a year. I mean, you and Eric were running a publicly traded company and the stock was just tumbling. What did you think? I mean, I can't imagine that was pleasant for you.
⌚️: No, it was definitely a stressful period. And you could argue, well, maybe we shouldn't even have been valued at 10 billion in the first place. And I think in a lot of times it's a question of perception. If we had never hit that 10 billion and we had steadily grown into the 2 billion, I think people's perceptions and just psychology about the whole situation would have been different than going to 10 and falling to two. And it was a very challenging period because as a private company, despite challenges, your valuation doesn't change very often. It only changes when you raise money, which could happen once a year, once every two years. So if you hit a bump in the road, your employees don't really feel it.
⌚️: We had a product recall where, if we had been a public company, our valuation would have plummeted immediately, but at the time we were private. So we just told the employees, "Hey, look, this is the challenge. It's pretty serious, but here are the steps that we're going to take to get through it." And everyone rallied together. But when you're being measured every day in real-time-
🎙: By the stock price.
⌚️: ... By the stock price, you're not really given a lot of breathing room to try to fix things.
🎙: Even though you were introducing new products, revenue was declining every year from the time you went public. And I read an article about something that you did in 2017. And I'm really just curious to get your take on it, because I actually think it's really courageous, but also probably super stressful and difficult, which is, you asked your employees to submit an evaluation of the company and of you. And then you sat in front of them to hear the results of this evaluation and it wasn't good. You even had some employees who wrote letters to the board asking that you be removed as CEO. I can't imagine that was easy for you to hear.
⌚️: I don't know if I've heard that particular feedback directly, but clearly the survey results were not great. I have jokingly think, probably used to hearing very critical feedback because of my parents. I don't think there was a moment where they're truly happy with anything that I did. I remember even when I took the SATs and I got my score back, it was a pretty good score, but my dad just honed in on clearly the areas that I had not done well. I don't think I have a huge ego. I mean, I do have an ego, I think it's human to have one, but my primary focus was, "How do I get things back on track?"
🎙: You had, there was a quote from somebody in an article. It was an anonymous quote. It said, "At a certain point, we're focused on the right things. We had the ability, and have the ability to know a lot about our users, which you do, but our users don't want to be told what they did." In other words, they don't want to be told, "Hey, you exercise, you did 10 steps today." They want to be told what to do. Like how to get better. And the quote was, "This was the greatest missed opportunity." And I know you've made a pivot since then, but was that a fair assessment at the time in 2017, that you were too focused on telling people what they've accomplished rather than telling them what they need to do?
⌚️: Yeah. I think there are ultimately two big things that were driving the headwinds in the business. First of all, I think we were really behind in launching a competitive smartwatch at the time. People were-
🎙: Competitive to...
⌚️: Competitive to Apple. It was clear that the industry, consumers were moving to that category and we were seeing that in our sales. So in a very short period of time, our tracker business fell by $800 million in revenue. And at the time, at our peak, we were doing about 2.1 billion in revenue.
⌚️: So we had $800 million hole, and we finally launched our smartwatch, but it was only sufficient to fill that hole very barely. We hadn't transformed the software into giving people guidance and advice. And it also ties to our failure at the time to quickly diversify our revenue stream beyond just hardware to a services business that-
🎙: Like a subscription.
⌚️: Exactly. We were so focused on growing our hardware business because that was what was bringing in the money, that was what the retailers wanted, et cetera. And one of the mistakes I made was not setting up enough time, enough focus to building the subscription part of the business that actually answered those pivotal questions for our users.
🎙: As many, many companies find themselves in a successful companies that have a successful legacy product, this is crazy talking, but a legacy product for your company, which is only 10 years old or 12 years old. You could argue that the Fitbit product is your legacy product, right? And that, as any company with a legacy product realizes, they've got to make a pivot. Like for American Express, it was traveller's checks for 100 years. That's how they made their money. And they had to pivot into other things, there is travel services and credit cards and so on. It sounds like in 2019, you really made a pivot into thinking about Fitbit, not as a hardware company that makes a tracker, watch, or device, like smartwatch, but a company that really is about healthcare and is designed to pivot more into healthcare data and analysis. Is that fair? Is that right?
⌚️: Yeah. I think that's fair. I think we stopped thinking of ourselves as a device company and more of as a behavior change company because that's effectively what people were buying our products and services to do, was to change their behavior in a really positive way. And not only individual people, but companies as well. Companies who in the US, especially bear the direct costs of the care of their employees. We started thinking about ourselves as a behavior change company and figuring out what are the products and services that really deliver that both to people and to businesses.
🎙: So we get to the end of last year where Google announces that they were going to buy Fitbit, $2.1 billion. We should mention that, at the time of this recording, it hasn't closed yet. To me, it makes perfect sense. If I'm you or Eric, I would have done it. I would've said, "$2.1 billion, that's great. That's a great outcome because now with Google, we've got access to their dollars and their research labs and all the people who work there and the analytics and our ability to really go to the next level." Why did it make sense from your perspective to sell to Google?
⌚️: Yeah, that's a very complicated and emotionally fraught question, but last year our board met and it was pretty clear to everybody that we had a lot of challenges in the business. We weren't profitable. There was a lot of competition out there from the likes of Apple, from Samsung, some emerging Chinese competitors, but there was a lot of just great things going on in the company. I was so excited about our product roadmap, about things that were in our pipeline, all the advanced research that we were doing around health and sensors. I would look at our product roadmap every day and just come away super excited about that. And then also be confronted with a lot of the business challenges as well.
⌚️: And for me, most importantly it was about a legacy and I wanted the Fitbit brand and what we did to continue onwards for a very, very long time. And we just had to figure out the best way to do it, whether it was as an independent company or within a larger company. That was really what was most important.
🎙: I imagine that there are some details you can't talk about for obvious reasons, but as of this recording, we're talking in mid-April, there is a hold on the Google acquisition. The department of justice is doing an investigation because there's some interest groups who have said, "Hey, we don't think that Google should have access to all of this data. That Fitbit has 28 million users. This is incredible trove of health data." Is that causing you stress right now that there is this justice department holdup on the acquisition?
⌚️: No. And it's because sometimes the press does like to sensationalize things, but the process that we're undergoing right now with the department of justice and also with the EU and some other countries around the world is pretty normal for acquisitions of the size. In fact, it's required. Really, the whole reviews about the anti-competitive element, and especially around the wearable market share. That's just something that we have to convince regulators that, "This doesn't reduce competition in the marketplace."
🎙: As far as you know, the situation now with the lockdowns and the pandemic does not have any impact on Google's interest or commitment to making this happen.
⌚️: No, I think everyone's thinking towards the long-term, fingers crossed is that we do find ourselves through this COVID-19 situation and that there is life beyond that. Maybe it comes back slowly, but I think everyone is thinking, "What does this whole category look like in time span of years? How?" And I think what, one of the things that COVID-19 has shown is that, especially if you look at healthcare, this idea of remote health care, remote monitoring, people healthy outside of a hospital setting is actually really important.
🎙: Super. It's going to totally change... I've had a video call with my doctor just for a quick question. It's actually super convenient.
⌚️: Exactly. And if during these telemedicine visits, if they have a snapshot in summary of what you've been up to and what your health has been outside of that visit, and almost be predictive in that way, I mean, I think that can be really groundbreaking in the way medicine gets practiced. And this whole time period is merely accelerating that transition.
🎙: When you think about all of the things that you have done professionally and your successes, you made a lot of money. I mean, you're extremely wealthy and wealthier than your parents could have ever imagined you would be, or they would be. They took a huge risk to come to the US and had all these little mom-and-pop stores. How much of that do you think is because of your intelligence and skill and how much do you attribute to luck?
⌚️: Yeah, that's always a tricky question to answer. I think, very fortunate to have grown up with my parents. Just having seen them persevere through life, you get the realization that nothing really comes easy. That it does take a lot of just grinding away at things that at the time seem unpleasant. I think those are good traits and very fortunate to have parents like that who sacrificed a lot to put me in great schools over time, even though they started from some humble beginnings. But also, have learned a lot of ways, gotten some lucky breaks where things could have gone the wrong way very, very quickly. Ultimately, I attribute it to a little bit of all of that. I think it's not fair to say that everything is luck because then I think you start to discount the actual things, actions that you can take on your own to affect the future. And that's really important.
🎙: That's James Park, co-founder of Fitbit. And here's a number for you, 34,642,772, that is how many steps James has tracked since he first put on that balsa wood Fitbit prototype. At least as of this recording. It's about 15,430 miles or 24,832 kilometers. And thanks so much for listening to the show this week, you can subscribe wherever you get your podcasts. You can also write to us at email@example.com. And if you want to send a tweet, it's @HowIBuiltThis or @guyraz. This episode was produced by James Delahoussaye, with music composed by Ramtin Arablouei. Thanks also to Sarah Saracen, Candice Lim, Julia Carney, Neva Grant, Casey Herman, and Jeff Rogers. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.