Tuesday, Nov. 08, 2011

From Idea to Innovation: How Wireless Fitness Gadgets Hit Their Stride

How do you launch a consumer gadget that doesn't fit into any established niche? While one of the biggest challenges for entrepreneurs breaking into mature markets is figuring out how to differentiate their wares, the problem with trying to pioneer a new niche is that your idea can seem too different. Venture capitalists are squeamish to back a wild card, retailers are worried that no one will buy, and consumers either don't get it or write it off as a gimmick. A handful of startups in the emerging market of wireless fitness gadgets for non-athletes have all faced these challenges in the past few years and prevailed. Here's how they did it:

Getting Funded
When David Wang approached venture capitalist Ronald Chwang of iD Ventures America last fall to ask for an investment in his new startup, Chwang gave the same answer as the 15 other VCs Wang had hit up before him: No. "They all said it was too risky, and they didn't fund us," says Wang, who hoped to market a pocket-sized, keychain gadget embedded with motion sensors to track users' daily activity levels. But unlike the other VCs Wang had pitched, Chwang held out a small carrot. "I said build the prototype so I can believe these things can do what you claim," says Chwang.

That's when Wang, a former marketing director at the social gaming startup Booyah, learned that launching a one-of-a-kind, consumer hardware device was much tougher than getting a software startup off the ground. While buggy code can be tweaked in a matter of hours, hardware flaws need fixing weeks, if not months, before full production can begin, and manufacturers expect a hefty infusion of cash up front.

Wang's challenge was made doubly tough by the fact that he was trying to crack a market that most people don't even believe exists: portable fitness gadgets for people who don't really exercise. "It was really, really risky. Everyone who got funded before was doing technology for athletes," says Wang, who adds that he couldn't even give would-be investors projections for the potential market size for such a device because the data simply wasn't there.

As a result, he wound up using his own savings to build a working prototype before anyone gave him a dime. ID Ventures' Chwang finally agreed to invest in Striiv this summer, he says, once he was convinced that the device made it so that, "you do not look at exercise as a burden, but rather as part of your every day life." Striiv, the keychain gadget that Wang was pedaling to VCs more than a year ago, went on sale on the Home Shopping Network and the Skymall magazine in October for $99, about seven weeks after he closed some $6 million in funding.

Getting Retailers On Board
BodyMedia, which was founded in 1999 and is now a late-stage startup with some $20 million in venture funding, got stuck a decade ago when it first tried to sell to consumers an armband device weighing nearly a quarter of a pound that would estimate the total number of calories they burned each day by measuring everything from changing sweat levels to the amount of heat coming off their skin.

But there was a problem: The original $500 BodyMedia device was too clunky and expensive. "It was far too high of a price for a consumer 10 years ago and there was very little commercial traction," concedes Ivo Stivoric, a BodyMedia co-founder and chief technology officer. Instead, the company sold a high-end version of the gadget to researchers who were more interested in its capabilities than its aesthetics.

Today, the BodyMedia Fit has slimmed down to a third of its original size, less than an ounce in weight, and a cost of $180. "Fashion" armbands available in jewel-toned colors make the Fit look less like a medical device and more like a portable music player. The makeover has been a hit: Not only are online retailers like Amazon selling it, but so too are some big-box outlets like Costco, Target and Best Buy.

"We enthusiastically work with startups because they are at the cutting edge of identifying customer needs," says Best Buy Senior Vice President Neil McPhail. In order to make sure that unproven companies will be able to deliver product on time and of consistent quality, McPhail says, the chain actually reviews each company's financials and vets its suppliers and distributors. On Nov. 6, the retailer unveiled a new 1,200-sq.-ft. display space in three of its Chicago stores that showcases dozens of novel health technology products, including the BodyMedia Fit. Others products on display include the Zeo Sleep Manager, a $99 headband embedded with sensors that monitor your brain-wave activity while you sleep, then sends the results to your iPhone so you can view a detailed record of how much light, deep and REM sleep you got each night.

Proving It Works
Innovation breeds skepticism, however, and products like Zeo almost seem too good to be true. After all, until the first version of the Zeo headband went on sale in 2009, the only reliable way to measure one's sleep quality was by spending the night in a sleep lab. Meanwhile the growing cadre of so-called "activity monitors," which include Striiv, BodyMedia Fit, and a new $100 clip-on gadget called FitBit Ultra, have the opposite problem: They're easy to dismiss as little more than glorified pedometers.

One way to build people's confidence in such novel devices is to encourage satisfied users to post reviews online. Fitbit, whose original device went on sale in 2009, now boasts nearly 600 customer reviews and an enviable 4.5-star rating on Amazon.com. "We have very enthusiastic customers," says James Park, CEO of the company with some $11 million in venture funding.

Another route to building credibility is to win over the experts, who will then vouch for a product or even use it themselves. BodyMedia got doctors and scientists on board when it started selling its armband to researchers who were conducting studies for pharmaceutical trials and weight-loss studies. There are now some 150 published studies that validate the underlying technology, according to BodyMedia. "There is a robust body of evidence to show that they measure what they claim to measure," adds Stanford University anesthesiologist Larry Chu. The company even claims the device can help users lose up to three times more weight than they would without it.

Newer startups lacking such a cache of studies to validate their technology have wisely opted for a much softer sell. Withings, which sells a sleek $130 blood pressure cuff that syncs to an iPhone app to graph your daily readings, claims only that its cuff is within two points of accuracy, not that it will help you actually lower your blood pressure. Meanwhile Zeo claims that its brainwave monitor is 7/8ths as accurate as a full reading in a sleep lab, and explicitly states that the headband is not intended to diagnose medical problems. Meanwhile Striiv claims merely to "move people through positive reinforcement."

What remains to be seen, however, is whether such careful accounting of people's every move, day and night, is enough to get them moving more or if it will just make them feel more guilty that they're not.