Invest Like the Best with Patrick O'Shaughnessy
· 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.
· Tom Digan, Patrick O'Shaughnessy
So I felt naturally this obligation and my role and mindset shifted from one of co-founder to trying to be a steward of the business. And at that point, this is the day after Christmas 2019, came to the board and proposed that we needed to make some pretty significant leadership changes in order to really reset the business. And as part of that, we had some changes at the executive level, including naming Greg as CEO. Felt like at that moment, we had this sense of we can go build this thing now. Our problems were hardly solved, but it felt like the problems were now worth solving. [00:00:00] S0: Just to put like a finer point on the situation for you personally, you've left this job where you're making a bunch of money, you're in Austin, you moved your family, you've gotten most of your good friends and your family, as far as I understand it, my family, so many people that you cared about, that cared about you, to invest in this thing. What did that feel like? What was the darkest point and what did it feel like for you personally? [00:00:00] S2: Just felt like there was nothing we weren't willing to do to make it work. I think that's why it was appealing to meet someone else that felt that way, that was going to be in that foxhole. I should have learned that lesson and said, I need to not raise money from friends and family. Instead, they were the only people at that moment that I needed to double and triple down. You just had to go even further all in. Not sure I would do it again or recommend other people take that path. [00:00:00] S0: Why not?
· Patrick O'Shaughnessy, Tom Digan, Greg Stewart
[00:00:00] S0: Why not? [00:00:00] S2: You have to just know deep down that you'd be willing to do whatever it takes, including some very difficult conversations with your wife, and you're building a family, and you're leaving a lot on the table on a much easier, cushier hedge fund country club type existence here in the Northeast. And you want to go and do something hard. It turns out it's pretty fucking hard. [00:00:00] S1: I think that dynamic is why Ladder's here. Your motivation was delivering to everyone in your life. That sits with you every single day. I don't think there was a moment where we thought we weren't going to figure it out. I can't think of one day where we were like, it's not going to happen. We were going to figure it out. And on my side, I don't have that same dynamic I do now, but it wasn't true when I first joined. Not everybody was invested in Ladder. But I had a conversation with my wife where she said, this is the last one. If you don't figure this one out, there are no more startups. It had been 10 years of not a lot of success tied to a lot of work. And my wife married an investment banker who was a closeted entrepreneur. And she's been an investment banker for 18 years. And it's been a long time of, you know, I'm going to the clubhouse. I'm going to figure it out today. I promise it's coming. It's coming. That's been an enormous motivator of like, no, this is going to work. There's just no scenario where we can let this not get to the vision that we've set ourselves.
· Greg Stewart, Patrick O'Shaughnessy
[00:00:00] S1: I think that dynamic is why Ladder's here. Your motivation was delivering to everyone in your life. That sits with you every single day. I don't think there was a moment where we thought we weren't going to figure it out. I can't think of one day where we were like, it's not going to happen. We were going to figure it out. And on my side, I don't have that same dynamic I do now, but it wasn't true when I first joined. Not everybody was invested in Ladder. But I had a conversation with my wife where she said, this is the last one. If you don't figure this one out, there are no more startups. It had been 10 years of not a lot of success tied to a lot of work. And my wife married an investment banker who was a closeted entrepreneur. And she's been an investment banker for 18 years. And it's been a long time of, you know, I'm going to the clubhouse. I'm going to figure it out today. I promise it's coming. It's coming. That's been an enormous motivator of like, no, this is going to work. There's just no scenario where we can let this not get to the vision that we've set ourselves. [00:00:00] S0: Why did you decide to join it? If you think about the circumstance that you were opting into, he said it best, no money, no product market fit, needing a whole new team. Why not start a new company or something? Why come into this specific situation?