Invest Like the Best with Patrick O'Shaughnessy
· Tom Digan, Greg Stewart
[00:00:00] S2: Telling them you had no money. [00:00:00] S1: We get them to really believe, and it was true, that there's a chance you get zero. There's a door to negotiate. And we were negotiating with big creditors at 20 cents on the dollar. We knew the list of groups that we owed money to. And it was like sales. We're like, all right, we got to go one by one and figure out how to close the door on this and not let it overhang the business. And so we raised money, get money back to the right people, clean up the house to survive. And then we had this moment around this time where we had this existing business. It's not working. There's some insights that are coming out of it, but it's really not working. But we're still trying to maintain it. So we're living in this in-between moment of keep that thing alive so we can pitch something to folks on the outside. But also, what are we going to do? What are we going to build? It isn't this. There's no path in this thing that we've built. So there are really funny stories where Digan was pitching, I'm pitching, and you're basically trying to figure out what the investor likes. Let me tell you about this one-to-one business we got. It's like super exciting. Oh, you don't like that? We're thinking about this social concept. You just live in this world of figuring out, how do I make it through? And there were enough wins. The micro wins on survival felt big to us. And there was enough to celebrate to keep going and wake up and go do it again.
· Patrick O'Shaughnessy
[00:00:00] S0: If you were to teach a class on fundraising for startups now, you've done this as masterfully as anyone with the cards you were dealt. What would the lesson plan look like?
· Greg Stewart
[00:00:00] S1: One of the biggest lessons, particularly from that moment, is selling people on your conviction. In that moment, we were selling both the product that we were about to shut down, but we didn't really even have visuals yet for the new product. So it was as much just selling the team and the conviction on what you were about to build. I think the best example of that is a story about another friend of ours, we'll call him Bill, in March of 2020, trying to kickstart a round. But no one's going to lead this round, naturally, because who would lead a round in our business at that moment? And so I was about to lead another inside round, where basically I'm pricing the round and passing the hat to all the boys and whoever would listen. What happened there was, now I need some more cash. I don't think Brayden knows how many times I wrote a check into the business. This was another example of being like, all right, the only way to get this going is to write the first check and lead with that conviction, showing that you had skin in the game here again. At this point, I'm trying to figure out how to sell anything that's not nailed down. And so it's 401k, put that in, done. What else can we do? This story here is funny because I'm looking at the line items on the balance sheet, if you want, I'm like, oh, permanent equity. That's Patrick's friend, Brent Beshore. And Brent came and told this story on this podcast. He has an unbelievable strategy, and it's called permanent for a reason in that he buys these family-owned awesome businesses and then holds them forever. And so there isn't a liquidity profile here. But I read the documents, and it said that if you found another LP to sell to, that you could sell. And so I called Brent and said, hey, I need your investor list. And he's like, S&P's down 35%. We're in a global pandemic. Of course, I'm not giving you my investor list. They were my smallest investor. But he does me a solid, and he's like, hey, you should call Bill. Bill's a friend. He's Patrick's friend. You know Bill, another Notre Dame guy. So I called Bill. And Bill's a gamer. So he's just like, what are you looking to do? When do you need this by? What are you thinking? How do we mark this? And I'm like, market's down this. What about down 10%? And he's like, what about down 50%?
· Greg Stewart, Patrick O'Shaughnessy
And we do the dance, and we end up somewhere in the middle. And I'm like, you're done, but I need the money tomorrow. And he's like, I'll send you the money tomorrow. And I'm investing in whatever this is going into. He doesn't even really know what Ladder is. But he's like, but I'm in. The point there is, in particularly those early days, it's important to have skin in the game in whatever way you can. For us, it was about being able to show that level of conviction and urgency. Bill didn't need to see a deck. We didn't have a new product yet. He knew you were involved, and he was just like, if you're willing to do this, I need to be involved too. [00:00:00] S0: So he bought your stake and then also invested in the round that you were investing in. [00:00:00] S1: Yeah, I think he matched what he was sending me, which was awesome, and that kicked it off. [00:00:00] S0: Wow. We're glossing over a lot. Maybe we'll keep returning. I love that story. Let's get to the point now where things are starting to feel like, okay, now we have to build this next thing. Maybe this is a good opportunity to ask you what you now know about the world of fitness and people that want to get fit. What becomes your North Star for what product can we build here that's scalable, that can get to what it's become?
· Greg Stewart
[00:00:00] S1: Yeah, it was no magic bullet that said, go do this and you'll win. But we spent a lot of time, the first two, three months I was there trying to dissect the current business. And the current business was this one-to-one, essentially a marketplace connecting an independent contractor coach with a consumer who was looking for personal training. We're studying the behavior and watching what's going on here. And what I noticed was that coaches could set their own price. And some people had crazy high prices. Some people have more approachable prices. And they're building this as a customizable program, building it for you based on your very specific goals. And that's why I'm charging you this amount. And on the back end, we could see that it really wasn't personalized. It was big bucket personas. The names were Sally Pilates. And that was being billed as super personalized programming and charging like you would work with a coach. But we could see these big bucket personas. We're like, okay, maybe personalization isn't the secret here, but it's having good programming that's relevant to you. And that same moment, I went through the list of coaches. And there weren't a lot of coaches that were making a lot of money on this. But we had a couple that were making four or five grand a month. And I spent time with them. And I asked them, what are you doing differently? How are you making this thing when everybody else is struggling with it? And we had one in particular. And I was like, all right, so you're making four grand a month. Your earnings are growing. How did you get there? Why isn't it growing anymore? And Lauren was a trainer in New York, like a high ticket trainer in person. And she was filling up all of her downtime with online clients with Ladder. And we had no idea how to grow. So she figured out, I have this Instagram profile. She had 5,000 or 10,000 people. And she was telling a story to her audience. And they were coming in. But she filled up all of her time. And she couldn't take on any more clients. I'm like, that's a bad business. You've capped how big this can get. The constraint is human time. So these two insights of calling bullshit on personalization, watching what Lauren was doing and seeing how she was growing, and piecing those together into what became a trial test or an MVP of this vision.
· Greg Stewart
We didn't know what we would build. But we said, there's something in these concepts. And in February 2020, we said, you can't take on any more business, Lauren. What if we jimmy-rigged the existing app? And we created an experience where there could be more than one person in there. You're going to program for a group of women. You'll go out to your Instagram audience. And you'll say, hey, this is for, I'm in New York, busy women in New York, kettlebell training. I'm an experienced coach. I'm going to give you new workouts every week. It's not customized, but very specific persona that she was talking to. And we're going to have this chat in the app where we all can talk to each other. And the app looked like shit. The functionality barely worked. But the concept was clear. We're in process of dying in this moment. She went out to her Instagram audience and we had like a 100 people sign up at a 100 bucks a month, very fast. I'm like, that was the most exciting thing I'd seen yet, other than getting wins against American Express and her creditors. And that was awesome. We're like, okay, there's demand. Lauren's audience, it came in very clearly that there's interest in this concept. And so that first month, we were just watching what was happening because there was nothing else to look at from a product perspective. I think what the most amazing and impressionable thing to me was these people had found each other in the app. They were similar personas. They lived in a similar place, busy women following the same workouts every day, interacting with the coach and each other. They'd never met each other, but they started posting on Instagram about Lauren and Ladder. And then we saw them meeting up in New York at the park together. They'd never met each other before. And that was like magical. There's community elements and social and they're happy. And we'd never seen anything like that in the original version of the product. So all these little glimmers of hope on this concept of programming, it's not personalized, but it's high quality. It's meant for a specific persona. The social accountability element, all these things are like bubbling up as real tangible proof points of something that could be interesting to go work on. And that group, the renewal rate was 90% plus. People paid again.