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February 27, 2012
NEWS & RACING BROUGHT TO YOU BY CHAPTER2 BIKES
Thoroughout the past two years I’ve been a keen Strava user and have been watching the company grow at a tremendous rate. I’ve always been interested about their backstory, their business model, and their way forward. Last week I spoke with Strava’s co-founder and CEO, Michael Horvath, to find out the answers to all these questions and more.
How did you come up with the idea of Strava?
You have to go all the way back to my college days when I was rowing on the crew team. If you’ve rowed before you’ll know that you train all year long for six or seven races that only last six minutes each. So there’s very little competition for how much training you do. So what motivates you are your teammates and the people around you which drives you to push your limits. When I left that environment I thought “oh no, I don’t have my team anymore!” My business partner and I wanted to recreate that feeling of being on a team even though we couldn’t physically train with our friends anymore. The impetus was trying to recreate that feeling of training with your friends to motivate you to new heights.
This was in the back of our minds for a long time. It took until the 2005 or so when we could finally see that the technology was there to be able to do this. We knew that if we were going to ask for the athlete to upload all their data then it better be pretty simple for them. That’s where the widespread use of GPS technology was a big driver of getting us started.
We tabled that idea and saw lots of other potential opportunities and created a company called Kana Software and it was enterprise software that shifted CRM support from phone to online. We started that in ’96, took it public in ’99. By 2005 my business partner and I were out of the company. We remained friends but not thinking about starting something new until we realised there was some unfinished business. We now figured that the time was right to build Strava. We saw what Nike Plus was doing and that was good, but we saw a gap in the market. We wanted something that was aimed at the top third of athletes as opposed to the bottom third. By 2009 Garmin was really on top of GPS for athletes we were ready to put some fuel behind the fire. We hired a small team of six to join us and created a very basic prototype of Strava.
Michael Horvath: Co-founder and CEO of Strava
How many people are working with Strava now?
Now there’s 30 people working with us in our San Fransisco office and only two others working in our office in the East Cost; Hanover, New Hampshire where Dartmouth college is. I used to teach there for a few years when I was in-between companies. I taught entrepreneurship. I have a PhD in economics. I taught economics at Standford before I got involved in the first company we started. Rather than going back and teaching economics I decided to teach entrepreneurship for a four years. But it wasn’t the same as being an entrepreneur. I felt like it was kinda boring. I was telling the same stories based on my own experiences over and over and I felt like I needed to go out and find some new stories. Business school isn’t the place where you meet lots of great entrepreneurs. They tend to not go to business school. They tend to take risks earlier than that.
How did you get the early adoption from users in order to gain the momentum required to make Strava work?
Word of mouth in general is the best way. For the better part of our beginnings in 2009 it was just the six of us telling our friends and getting them to sign up. We had to sign them up because we didn’t even have that functionality yet.
It takes 30 seconds or longer to explain to someone what Strava actually is. It’s hard to say “give this a try because…” It’s not so simple to finish the sentence. We realised that it meant that we need to grow more slowly than something that goes viral like Twitter. With Strava you need to be pretty passionate about running or cycling that you care enough to capture your training. You need to understand what’s different about Strava and the social interaction with like-minded people. Word of mouth was the most powerful way to reach the right customer.
What have been some of the major milestones and achievements that you guys have hit since your beginning?
The biggest thing in the recent past is the launch of our mobile apps. It’s an emerging platform and the future of ‘quantified self’. We can talk about how the form factor or battery life isn’t quite right…you certainly can’t swim with a phone, but in reality it’s how most folks are going to have their first experience capturing their data. It’s so easy to download the app and give it a try and get excited about what they see. Two thirds of our new users today are mobile users. It’s going to swamp the number of folks who are on Garmins. In a year we’re going to realise the fact that we have a mobile business. It doesn’t mean that we won’t support Garmins, we absolutely will, but even the dedicated GPS devices are moving in the mobile direction. The two are becoming one. Launching the mobile app last year and getting more into mobile have taught us a tremendous amount of what the possibilities are and what we can give to the user while they’re actually on their bike.
Another milestone is that up until 2010 we had self-funded Strava. Mark Gainey and I put our own dollars towards this because we didn’t know how big this could get or what the opportunity was like. [CT:Mark Gainey ended up not being able to say with the company for personal reasons but he’s still on the board.] We saw lots of other companies take other people’s money but they hadn’t really figured anything out yet, then it’s a slow death. We wanted the ability to scale it up or scale it down depending on what we learned. In 2010 we learned that this could be really exciting. The technology is evolving rapidly and we’re seeing a lot of interest. We decided to raise some venture capital money and try to accelerate the growth of the business. It’s not that the money is the milestone, but the fact that we could start growing and hiring great people was the milestone.
I don’t know how big it will get, the future is always a little murky. But if we can grow from 35 to 50, to 75 people and maintain that core of a really talented and passionate team then it will hold us in good stead.
How difficult was it to raise the funds?
People were very skeptical in the way we portrayed the business in general. They tell us that they’ve seen so many train wrecks from companies who wanted to create a piece of sports gear – maybe a bike frame or wheel company. They come and go because it’s such a competitive and challenging environment to launch a product in. What we needed to do was show them the data we collected in the first half of 2010 and their willingness to engage in the product and pay for it was well. That showed them that even though we’re still very young, there’s still something here. We had to talk to a number of folks as you usually do, but once we got through the first conversation and were able to show them what we needed, there was a lot of enthusiasm. It helped that we were doing this in San Francisco where people understand the culture. Many folks in the venture community are cyclists or runners and understand this audience of extremely passionate users.
In the end it turned out very well. We raised a series A in October of 2010 and by the middle of 2011 we raised a large round with some great investors who are really great to work with; which is really important for a start-up to have great relationship with it’s investors.
The long-term business model of Strava?
Today it’s 90% subscription based and will be the majority of our revenue for the long run. It speaks to who we’re here to serve, and that’s the athlete. We have a free plan which is good but we also know we have a percentage of users on the free plan want more and they jump onto the premium plan. I have a lot of confidence that the subscription based business model is the right way to go.
But if we’re doing that job right we also recognise that the athletes have other needs to be served. And that’s where we have other opportunities. We want to be able to recommend what gear to buy when they’re ready to upgrade and get something new. We collect all this data on user’s gear and we want to be able to turn that back around and show what similar people are using. There could also be a community based element where people can talk directly about this sort of stuff with each other. We would then refer users to a place where they could buy that gear and we’d share in the revenue coming from that. We wouldn’t be selling anything as in direct retail, but we’d be helping to mediate that transaction.
What else is on the roadmap?
A whole lot more features. We’re nowhere near done. We keep iterating and improving things. We’re careful not to add too many things without nurturing what we’ve already built. We have a long product roadmap with things we want to see come to life. We want build things around route maps and planning a ride. Some other ideas revolve around training plans and looking ahead in your calendar and looking toward things you want to do versus just thing things you’ve already done.
From the infographic you released last year I’ve done a bit of backwards math trying to figure out how many subscribers you have. Can you tell us?
We don’t give out exact number for our subscriber base but I can tell you that we haven’t hit the million mark yet. I expect we’ll get there very soon but that’s ‘users’ – ‘subscribers’ aren’t there yet. We have a very good conversion rate but it’s not 100%. We understand that we’re aiming at an audience that’s at the top third but that’s a smaller number. But what we believe is possible is getting that sizable middle third of athletes. They aspire to be at that top third and we believe we can capture that audience as well over time. It might take two or three years, but that’s were we can be very successful as a business.
We’re meeting a lot of the objectives we set out to do when we created Strava. We wanted a direct relationship with our customers and 1) we provide something they value and they pay us for it, and 2) it’s in an area that we ourselves are passionate about. Just about everyone in the company thinks of themselves as an athlete and we love the product and want to make it better ourselves.
The third objective is coming. We want to create a successful and sustainable business that’s here for the long run and a brand people can believe in. That’s what we believe Strava can be and we’re definitely on the right track.
What’s your exit plan? Who are the potential buyers of Strava?
I can tell you who I don’t think it’s going to be. It’s not going to be Garmin or someone in the bike industry or the running space. Garmin already did that with MotionBased to create Garmin Connect. What this does is create this captive site that really limits it’s potential to grow. Who it really needs to be is a media property. A company in the online business already. It could be a Facebook or Google who really sees that Strava has connected to a core group of people that they want to serve and continue to have a relationship with. I don’t spend a lot of time thinking about exit, I want to create this company for the long-run.
Can you talk revenue numbers from 2011?
I’m sorry but we keep that private. It’s still modest. We’re not covering our costs but we’re getting there. We’re still unprofitable.
Last question, where does the name “Strava” come from?
It comes from the Swedish word, “To Strive”. I’m Swedish – born in the States but lived in Sweden when I was a kid. When we were looking for a name for the company we picked out a Sweedish word describing what we wanted the company to be about. So “strava“, “to strive”, it spoke to exactly what we wanted to create. A company that helps you strive and helps you achieve something you didn’t think was possible.