Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: Ladder was my first angel investment ever. It was made entirely on trust in Tom Digan at a point when I had no idea what I was doing in venture capital. What followed over the next seven years is one of the most unlikely and dramatic business stories that I've been a part of. Today, Ladder is the number one strength training app. They're approaching $100 million in ARR and more than 300,000 paying members. But the path from near death to dominant fitness app involved debt collectors, leadership changes, and a full reset during the pandemic pivot. At one point, Greg Stewart entered what he calls a cave process, where a huge amount of effort and time went into cracking the TikTok algorithm just to make short-form content work as a growth engine. Tom and Greg built Ladder by being relentlessly empirical about their customers, ruthless about prioritization, raising whatever amount of money they could from any investor, and willing to do whatever it took when most founders would have quit. In this conversation, we cover the messy early years when survival meant negotiating creditors at 20 cents on the dollar, how they figured out their customer by reading thousands of app store reviews, and how they built the TikTok growth engine without any performance marketing background. Tom and Greg share their long-term vision for becoming the system of record for health and fitness, their approach to AI, and why they still have no managers on a 30-person team. This is a conversation about how hard it is to really build something valuable, told by two people who live through every part of it. Please enjoy. Ladder was the first ever angel investment that I made, which effectively was a bet on Tom. This was before I had any idea what I was doing in private markets, and I've learned a lot from watching you guys build over the years. The story is fairly amazing and unlikely and dramatic, which is why I'm excited to do this with you guys, to tell the story of the business that you've built so far and where it might go. The idea, I think, for our conversation today is to show people how incredibly hard it is to build something that ends up being very valuable, and the twists and turns that happen along the way. It's amazing that you've ended where you are, but I find it all the more interesting how you got here.
· Patrick O'Shaughnessy, Greg Stewart
And of course, we'll also talk about where you're going. Maybe to begin, since not everyone will know what the business is, just literally describe what the actual product and business is. And then I want to tell the real dirty version of the story of how you got here. [00:00:00] S1: Ladder is the number one app for strength training. We've built a system that's designed to make it as easy as possible to maintain a consistent routine. We spend a lot of time thinking about personal training. Arguably, the most reliable way to get to the results that you're looking for is hiring a coach — unattainable for most, inaccessible for most. But personal training, if you think about how it breaks down, it's programming, coaching, and accountability. Programming, you know exactly what to do. Someone's prepared it for you. There's no guesswork. There's no thinking. Coaching, you have an expert there to guide you, answer your questions. And accountability, if a coach is standing in front of you, and you don't want to piss off your coach, he's a really powerful motivator. Then we took those three pillars and designed an experience from the ground up to get as close as possible to that experience. [00:00:00] S0: How has it been so successful? Because I feel like this is almost a Silicon Valley meme. You have a fitness app, like there's four thousand million fitness apps. To what would you attribute the fact that this one is the one that seems to have come to dominate in a sea of competition?
· Greg Stewart
[00:00:00] S1: It's going to sound simple, but it's understanding your customers, being an engineering-first business. If you look at most companies in our space, they're started by creators. And they're good products. They're good companies. But the creator is the face of that business. They make every decision, and they don't have a DNA that's rooted in engineering and problem solving. And when you look at these apps, they're mostly just content libraries. And the motion is just constantly creating more and more content. But what we saw was nobody was spending time thinking about how to use these incredible levers to deliver an experience that actually increases the odds of you continuing on. We looked at apps like social networks and we looked at Duolingo, all these apps that we're using, all these powerful motivational mechanics and pointing them at an action. For social media networks, it's selling your attention. For Duolingo, it's learning a language. And so we took that mentality of how do we use software to create an experience that's totally different than what exists today, that isn't reliant on a never-ending content machine. And it's been guided by our members. We spend more time than you could imagine just speaking to our members, dissecting exactly what we should focus on based on what they care about. And so I think it's just not looking at other companies for inspiration. We just don't look at fitness almost ever.
· Patrick O'Shaughnessy, Greg Stewart, Tom Digan
[00:00:00] S0: Just to give people a sense of scale, roughly how many people use it, what sort of revenue does the business do? Just give people a sense of how big the business is. [00:00:00] S1: We're north of 300,000 paying members today. At the beginning of ‘23, we were 9,000 paying members. So the growth has been exciting. We're getting pretty close and knocking on the door at $100 million of ARR. So it's been very exciting from a revenue growth perspective. But it all boils down to we've created a product that gets people the results that they want and they stay with it. [00:00:00] S0: Having laid that quick, simple groundwork for what the thing is, I would love to rewind time. And Tom, have you talked about—actually, we've literally recorded podcasts at the same table. Do you know what year that was? [00:00:00] S2: 2017, maybe. [00:00:00] S0: 2017, the beginning chapter of the business, call it 2017 to 2020 or so, was a struggle to stay alive. And you personally put so much of your time, your reputation on the line to go do this thing. You left a really lucrative, successful hedge fund career to do it. Maybe you can just tell the story of those early years and what was going on. Again, I want to paint the story of — $100 million ARR is awesome, congratulations, that's really fantastic, I'm very happy as an investor. But the more interesting part of this is what it takes to get there. So maybe set the stage for us.
· Tom Digan
[00:00:00] S2: So Ladder started as a side hustle for me, I guess. A high school classmate that I went to school with up in Boston had pitched me on a fitness startup. The product didn't exist yet. I think it was a pitch that I was just looking to swing at the time, was very interested in startups and technology. And he asked me to put some money into the business, which I did. I then raised the rest of the money, ended up joining him as co-founder and president of the business. And my condition for joining the business was to move the company to Austin, Texas. For me, that was less about warm weather and change in lifestyle. It was about separating myself from safety nets and putting distance between New York and my Bloomberg terminal and the easy way out, because I assumed it would get hard. I didn't know it would get quite as hard as it did. But there's really two Ladders, or two different companies here. Same name. I would call Ladder 1.0 as everything pre-2020. And after 2020, the name's Ladder and we're in the fitness space, but it was a different team. It was a different product. What we were originally building was more of a managed marketplace for personal training. There was heavy emphasis on personalization and a relationship with another human. We thought that was really the opportunity. What we'd come to find out is that business would be very operationally complex, difficult to scale. Ultimately, as you scale that business, it starts to look more like a call center and you'd be inclined to start to automate away the very human you were selling in order to build anything that had margins worthy of venture type economics and scale. So, uninteresting. But what we were seeing was that all of the innovation in the space was focused on the casual fitness consumer. We were noticing that it was all very cardio based and we saw that this fitness enthusiast customer was really being ignored, strength training in particular. There was no one selling strength training solutions. And we got excited that there was this fitness enthusiast customer that was already working out that had a huge pain point around just planning their workouts daily. And we got excited that this is something that we can solve with software. So we find ourselves in Austin, Texas.
· Tom Digan
And by the time I got down there, I realized startups are really hard and it didn't quite look like what I had been hearing on your podcast as far as the iterating and the learning, and it was hard. It was messy. We were kind of out of money the whole time. We didn't have really any customers to speak of. There was no signs of product market fit at that point. Fortunately, this is where Greg enters the picture. So Greg and I went to Notre Dame — we should disclose all three of us were classmates at Notre Dame. Greg and I reconnected in Austin, Texas. He had left banking and has now been building startups for a period of time. It was very obvious that he had this small team that believed in him very much. And it was clear that he wanted to build something very meaningful and consumer. So I spent my time tricking him into joining us, if you will. And eventually I got him under the hood and excited about what we were building. Why I was so interested in startups myself is that I had this sense that you could will something to happen in the startup world. It just felt like if you were willing to not stop and you just keep going, it seemed like sheer forced determination, you could build something. That was appealing because in the hedge fund space, I can promise you in the finance world, that's not possible. You can't just will hedge fund returns. I think Bernie Madoff tried to do that and it doesn't work. It was obvious to me that he shared that same belief. We'd be in the middle of doing something messy, like the debt collector, whatever it is, something hard. And in that same next conversation, he's talking as if our success is inevitable and we're going to build this enduring business. I was attracted to that. I've always felt that way. And so I could just tell that Greg seemed like the type of guy you wanted to be in a foxhole with. So it's now the end of 2019. And I'm realizing that we have this opportunity to reset and to really think about what can Ladder 2.0 be. But in order to do that, we need to refocus, restructure. I was thinking about what a leadership transition could look like. I found myself in a position where I was our largest financial shareholder. In addition to being in the company, as a co-founder, early days, it was all people like yourself that had put money in because they trusted me personally.