Welcome to Scaled and Failed! My name’s Amil Naik and I’m an aspiring VC and founder at The University of Texas at Austin. I write about startups that scaled and startups that failed to draw insights about the patterns of startup failure and how to avoid them. Everything is clearer in hindsight, so it’s worth looking back.
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TLDR
Today’s Topic 🧠: Psychology of Fitness
Scaled 📈 : Noom; Psychology-based approach to long-term behavioral change for health and weight-loss proved effective and satisfying for consumers despite some complaints surrounding billing practices.
Failed 👎 : Pact; Bet on fear of monetary loss being a good motivator to get people into the gym and focusing on health goals, but poor app design and infrastructure led to numerous complaints surrounding bad charges and missing payouts.
Lessons Learned 💡 : When consumers are paying you money for continued service, messing up on handling money is a critical mistake early on. Take longer to work out the technology rather than accelerate a launch if a consumer’s dollars are at risk.
Today’s Topic: Psychology of Fitness 🧠
We all have our own struggles with discipline; for many of us, that struggle is very apparent when we want to go to the gym. I myself have been in and out of my fitness commitments over the years and only just now am getting back on track with weightlifting. Habits take time to form, and small slip-ups along the way can snowball into total abandonment of health goals. To help people with their fitness goals, the US fitness industry has become a monstrously sized market. Unfortunately, there’s quite a bit of snake oil and smoke and mirrors for sale in the space; education about nutrition and fitness is sorely lacking here, making many consumers easy targets. That said, there are also many great companies providing excellent gyms, supplements, and equipment. In recent years, several startups have also taken on the mental challenge of getting people committed to fitness and weight loss through incentivizing behavioral change.
Noom is one of these startups that I have personally used to help me regain consistency in the gym and my meal prep. It takes a psychology-based approach towards fitness, helping you make small shifts in behavior over time that stick better than all-or-nothing strategies to weight loss. The app sprinkles in gamification of learning, standard features of fitness apps like meal and activity tracking, and access to a coach to help you work through specific challenges with a person to create a well-rounded program that sticks. Pact was a startup attempting to bring about that same commitment to fitness in its users, opting to take a monetarily-driven approach; it had users make a “pact” to meet certain fitness goals like daily gym attendance each week and rewarded them with money if they met their goals. If a user didn’t live up to their promise, they paid money into the communal pot that would be used to reward the committed. After many years, the company ended in a rocky failure fraught with litigation. Perhaps money just isn’t a great motivator for fitness, but what else separated the paths of the two startups? Let’s dive in.
Scale: Noom 🌕
Founded in 2008 in New York, Noom remains at the forefront of fitness apps today, rolling together motivation, tracking, coaching, and education. Starting out as WorkSmart Labs, the startup saw a series of pivots before settling on its current mission. The initial idea was a platform tied to an exercise bike, then a pivot towards fitness tracking, and finally a turn towards weight loss specifically. To bring casual users into the platform, Noom was designed to require less data input and time commitment than many other apps at the time. Noom was actually several different in the apps at the time; the flagship weight-loss coach, a calorie tracker, an exercise log, and several others all available on Android. Rather than push for users to lose a lot of weight quickly, the value proposition was in the psychology research incorporated to help make small behavior changes over time. It wasn’t an 0 or 100 gambit; that was exactly the type of thinking Noom was designed to break. Slower, longer-term change to keep weight off and promote healthy habits was preferable to crash diets and rebounds.
As a 13-year old company, Noom has had quite a bit happen since its founding. Release on iPhone, consolidation of its apps, more powerful AI, grants from the NIH, numerous funding rounds, millions of downloads and dollars in revenue, and several research studies have marked Noom’s journey to the top of the market. The data speaks for itself; nearly 80% of users in a study saw significant weight-loss results using Noom and several others showed strong results in treatment of prediabetes and hypertension risk. A quick Google search will turn up plenty of great anecdotes about how Noom changed people’s lives. 2020 was a landmark year for the company with many turning to fitness during the pandemic: the startup managed to generate $400M in revenue during the year. Just a few months ago, the company raised a $540M round to expand its offerings to address more behavior changes and conditions amidst rumors of an IPO on the horizon later this year or in early 2022.
Not everything has been perfect. Two key issues marked a serious bump in the road for Noom: availability of coaching and supposed shady subscription practices. Many users complained about the lack of response or attention from their coaches, even mentioning that often it seemed like talking to a bot when they did get a reply. My coach has been great, but I heard about the same issues from friends last year; perhaps they’ve caught up on hiring? The second issue is a bit more severe; Noom is facing a $100M class-action lawsuit filed last year over its misleading free trials and difficulty in canceling auto-recurring subscriptions. There have been plenty of complaints about the difficulty in canceling a subscription following a free trial over the years and how hard it is to get a refund, and it seems to have finally blown up. I never used a free trial and don’t have any personal experience with the problem, but the allegations do raise questions about ethical business practices. Despite these bumps, Noom remains a giant in the space with growth continuing to accelerate. I’ll close with some words of wisdom about communication with cofounders from the CEO, Saeju Jeong:
It's hard for co-founders to make time for conversation. Startups are fast-paced, always working on new initiatives. Business partners rarely have time to bond over coffee and conversation, and it only gets worse as your company grows. It's even harder for Petakov and I since we are both constantly traveling around the world. In fact, most of the time we're not even on the same continent. This week, I'm in Japan and Petakov is in New York.
Still, communication is the key component to our successful co-foundership. In order to touch base regularly, we have meetings where we talk for 90 minutes every week, with no interruptions. During these one-on-one chats, we discuss our projects, exchange ideas and make sure we're on the same page about ... well, everything.
We consider our weekly talking sessions one of our most important meetings. And if we're not in the same place, we chat on Zoom. What's more, we even talk during weekends to work on our friendship.
Fail: Pact 🤝
Founded late in 2010 and launched in 2011 as GymPact following a trial run early in the year, the core assumption behind the startup was that negative motivation through the fear of monetary loss would be a great way to get people into the gym. By monitoring gym check-ins via GPS and measuring the time users were there via a smartphone, the company could keep tabs on your attendance and either reward or punish you based on your attendance and an amount you had committed to paying if you failed. Capital flowed in, with total venture funding reaching $2.5M early in 2014. With the newest financing came a rebrand and new features for the app. Instead of just offering “pacts” for gym attendance, new programs for eating your veggies and food logging were launched. Accordingly, GymPact became just Pact. The startup also created a health plan, launching Pact Health for employers to be layered on top of existing policies and change deductible coverage based on adherence to their “pacts”.
Success melted away as quickly as it came, with Pact shutting its doors in 2017. Given many positive reviews, the cause was unclear initially. It likely had to do with a complaint by the FTC and the following settlement because the startup failed to pay many users, charged those who had completed their pacts, and took money from thousands of consumers who had already canceled/closed their accounts. Technologically, the app wasn’t up to par with its activity tracking and handling of charges. Practically, despite these problems, the company continued on with the issues unresolved until closure. I love this comment from a Gizmodo article about the company’s closing:
It’s a particular sort of irony that a startup founded on the idea of paying a penalty for failing to live up to a pledge is ending its days by paying a penalty for failing to live up to a pledge.
Lessons Learned 💡
The core assumption behind Pact wasn’t its failing; indeed, it seemed very effective at motivating individuals to go to the gym and watch what they ate. If the company had continued, maybe its success could’ve become a problem with too many individuals meeting their goals making it difficult to sustain the company from a revenue perspective. That never became a concern because the product botched execution for the users. Noom has been dealing with some of the same problems that caused Pact’s demise, but it has an immense, satisfied user base and the app itself doesn’t suffer from core technology faults. Those issues arose far later into the company’s life than at Pact. Pact’s app may have been great in theory, but when the entire value proposition relies on accurate location data and timely, accurate payments, any failure of the technology is a critical failure. Noom doesn’t have those dependencies, and so it never carried that risk. Negative motivation and fear of loss may work better than positive reinforcement, but implementation is a lot more complicated with the same expectations from consumers on both. The simpler solution may work better early on and complexities can be built up rather than in a rushed early version. When individual consumers have money on the line, they won’t be very forgiving of mistakes and you could lose future potential due to poor launch conditions. Take your time to refine for consumers before it becomes a problem; the fastest launch isn’t always the best.
More Reads and Info
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Cheers,
Amil