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Scaling Up [S2.E4]: The Road to Extraordinary – Rick Stollmeyer Co-founder and CEO of Mindbody

Rick's journey can only be described as extraordinary. Learn how he transitioned from nuclear submariner to founder of a market-leading SaaS company (eventually acquired by Vista Partners).

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Ed (04:11)Great to have you on the show. Can you take us back 20 years ago back to your garage, and it’s probably worth touching on you. You started your career as a Navy engineer and maybe we can work through that as well, but I’m really interested in this crazy founding story.

Rick (04:28) It is a crazy founding story, so yes, I went to the US Naval Academy and that’s the training ground for naval officers in America and chose the path of a nuclear submarine officer, which is the most technically intense path. And I served in the Navy for six years, really enjoyed it. There was actually some pretty remarkable things that I got to participate in. Ran in the waning days of the Cold War, left the Navy in the mid-nineties and was a fish out of water. I didn’t find the career path. It really inspired me. I was really hungry for that purpose driven, high focused, high performing life that I’d experienced on board nuclear fast attack submarines. And I found myself on the central coast. My last job working for somebody else was at Vandenberg Air Force Base, which is sort of the West Coast Cape Canaveral.

That’s where space launch is done for Polar orbits in the United States. And that’s what brought me here to the California Central Coasts, to San Luis Obispo. And I worked in that job for three years before my best friend from high school showed me this software that he was creating for yoga, Pilates, and spinning studios in the late nineties. And this is when the boutique fitness movement was just starting to take off. And the epicenters were la San Francisco and New York. he showed me this software. I found it fascinating. We both came from small business families. My grandfather, my father, three of my four brothers all ran small businesses. And I was intrigued about that, this sort of grassroots element to it and believed that wellness would be a mega trend for the decades ahead. Those two things combined led us in a very long journey of about a year and a half of formulating this idea. But I’ll just summarize it as I say. We threw in together in the fall of 2000 and founded Mindbody in my garage here in San Lu Obispo. And our official first date of business opened for business was oh 1 0 1 0 1.A bit of trivia. We actually reached 10,000 business locations on my body, literally on the day. 10, 10, 10, 10,000 locations. 10, 10 10 from zero on oh 1, 0 1 0 1.

Ed (06:53) Great symmetry.

Rick (06:54) Right? It’d be hard to engineer that.

Ed (06:56) Some might say impossible. And you touched on your time in the Navy and as someone that has sort of transitioned from a previous job into, into something else, there’s always lessons to be learned in, in your previous life and particularly high performing environments like the Navy. Yeah. What are some of the key lessons that you took out of that you applied to those first few years at Mindbody?

Rick (07:21) Well, first of all I’m just sort of pre naturally strangely attracted towards hard things. I really love complicated, difficult problems and operating a nuclear submarine, hundreds of people below the surface of the ocean, doing a very complex task with 130 other people. Well, that’s complicated. And a nuclear sub might be in fact the most complex machine ever created by human beings right up there with the Space station perhaps and maybe even surpasses that. So, I learned that normal people can do extraordinary things with the proper training and the proper leadership. That’s probably the number one takeaway. The Navy takes these young kids. I was an officer, so of the 130 people on the sub, only 12 or 13 of us were officers and we’re the ones with the college education and we are responsible for that entire ship and the people that work for us.

But the average age on that sub is no more than 21, 20, 21 years old. And what we did, what we were able to do safely and repeatably was just extraordinary. And it was this incredible combination of just systematic training and highly effective leadership. And I took that from the Navy felt in my soul when I entered the business world that I could effectively run a large organization but was in a strange place of where a few people would’ve recognized that in me. It can be quite difficult for people getting out of the service to find where their skill sets match into their careers. There are categories of recruiters in the US that specialize in military officers, and the first job I got was as a sales engineer for a chemical company. And that was an interesting experience. I actually learned quite a bit in that. But it was hardly fulfilling, and it was hardly at the level of what I was capable of achieving.

Ed (09:22) You mentioned your co-founder, Blake, and in your office there’s a fantastic photo of you with your arm around him. Yeah,

Rick (09:30) That was a one on 1 0 1 where that picture was

Ed (09:31) Taken, right? Day one. Yeah. Fantastic. It’s a fantastic photo. It’s a journey and a personal journey that you two have been on together for a long time, but it has had its ups and downs. Is it worth digging into how that relationship has developed over time?

Rick (09:47) Well, Blake and I think we were, we were so drawn to each other in high school because we both were out of the box original thinkers, and he’s a deeply intelligent guy, very creative. Only Blake could have come up with this crazy idea to create a crafted vertical software for a nascent industry that was barely even a business when we started. And, and only Blake would’ve been crazy enough to say, what? We can actually do everything they need in one package. Everybody else approaching businesses similar and like that at the time where we’re building edge solutions, demand force, for example, built a simple marketing solution that small business c could deploy. Other people were building scheduling solutions. A few people were building points of sale. Nobody was trying to tie all that together, together with CRM and with staff management and reporting and payments on online booking.

That’s what pulled us together. I’m writing a book right now about how to create a successful wellness business. It’s called Building a Wellness Business that lasts, because that’s the number one marker of success. Can this business actually sustainably exist, generate a profit, feed its founders, and serve its community? And one of the breakthroughs that I had writing the book is realizing that when a partnership forms, the partners need to align on two axis. And the first axis is their motivation. What do you need right now in your life? And if you were to imagine that on this scale, a 10 is somebody who needs achievement, there is a deep burning fire in their soul that needs to do something that really matters, that needs to achieve high and expects a financial outcome from that. And in my case, it came from my small business background, my desire to tackle hard things the economic insecurity I grew up with that really helped fire my soul.

And when you talk to a lot of entrepreneurs, I think they, a lot of us share that that white hot fire at the other end would be someone who’s really just focused on lifestyle. They want time to explore the world. They want time to explore the depths of their own soul. They want more time with their family. That’s what’s motivating them. So, that’s one access. Well, Blake and I had alignment on that access. But there’s another access where we didn’t have alignment. And that is what is our intention with the business. For me to jump into a business, my intention was to do something long term. And I didn’t even realize at the time, but I was hungry on my soul to find my life’s work. I wanted something that I could pour myself into for a long time, even my heroes were Bill Gates and Steve Jobs and Henry Ford.

And these are people that didn’t just start something and flip it and then go on to the next startup. That would be the life’s work, long term people on one end of the spectrum. And on the other end of the spectrum would be those short term motivated, and certainly serial entrepreneurs would fit into that. Blake had this burning ambition to do something great, but he wanted to build something that he could make a certain amount of wealth from and move on quickly. I wanted to build my life’s work that actually in the right set of circumstances could be a match made in heaven. Right? That’s perfect for many entrepreneurs because I was never out of the box enough to imagine the business that he actually originally imagined the Mindbody idea. But he didn’t have the desire or the skillset to build the thing to scale.

we could have crafted our agreement with those things in mind. We didn’t. We formed California llc established ourselves as co-equal partners. 50 50 made no provision of what to do when neither one of us wanted to exit, made no provision for how we would meter our draws from the business, even how much salary we drew from the business proportional to our effort. And I’m the guy that shows up every day and I grind it out and I will do what’s necessary to push that rock up the hill. Blake’s the guy who would have these intense creative moments and could produce amazing things in those moments, and then needed to disappear for a week. There was almost from the outset, we were set up for tension. And before long we both started building up resentment. I was building up resentment because I’m carrying the damn rocks.

And this dude disappears for a few days and then he calls me one day and said, where are you at? I’m up in Oregon. He just decided to take a road trip. And I’m like well Yoga Works is pissed about at this thing. And I got this problem over at this studio and this engineer we want to hire, and I need you right now. He got upset with me because his best friend, or one of his best friends at least, had suddenly turned into, instead of us having deep, wonderful conversations about our dreams in life and the world and what we cared about, our conversations became business meetings and typically tense business meetings about this, this software release or that upset customer or this financial struggle. Within a few months at the start of our partnership, we were in a pretty tense place.

And I realize that now it started taxing our friendship. Almost immediately we started avoiding each other more. We became these two engines that were running, pulling the business, but we weren’t in sync with each other. And it led to a really difficult breakup, and it led to a conflict that for a time annihilated our friendship. Although we did recover our friendship later, very happy to say it led to very nearly the destruction of the business right as it was starting to hit. The business was just starting to become successful in around 2003, as he and I were pulling the business in different ways. And it actually became a power struggle at one point. And ultimately, I brought in another partner to assist me in buying Blake out in 2004. And that was Bob Murphy.

Ed (16:24) The story has a nice ending, as you alluded to, that the friendship is now repaired. And I love the mental model that you applied to co-founders and where they sit on those access because I’m sure out in the world there are plenty of other entrepreneurs who are facing similar situations. So, thank you for sharing that. That was incredibly insightful.

Rick (16:45) You’re welcome. It’s so common. It’s actually more common than not. And I’m in a group called Y P O, it’s a global organization called Young Presence Organization. We’re all CEOs, most of us entrepreneurial, and almost all of us have some element of this story. And just to extend the metaphor, one more step, it’s like entering into a relationship. You start, it’s a Marriage. You start dating that beautiful girl, it’s a marriage and you fall in love with each other. And before you entered the marriage, did you actually have the conversation of, well, how do you want to live? How do you want to prioritize work versus life? Do you want kids? These are essential questions and they’re much harder to have after the marriage has been executed.

Ed (17:30) Phenomenal advice and it will get onto it. No doubt. The biggest friction point to scaling these global billion dollar businesses is the people in the culture. Yeah. And, and when you are, you’re struggling to scale from one to two or two to three people because there’s tension with the founders. It’s almost doomed if something’s not done about it. It front Yes,

San Luis Obispo, I wouldn’t call it a tech hub by any stretch of the imagination on the central coast of California with three hours from San Fran, five hours from la. Mindbody though is a truly global business. You have scaled this business from day. Here, you’ve never moved. There are offices in different parts of the world. Mm-hmm. On this theme of scaling people and culture, how have you thought about attracting talent to the business, particularly here in slo not just engineers, but recruiting executives to pick their life up in, in maybe New York or other parts of the country that are big cities and picking their families up and coming to contribute on your journey? I’m really interested to dig into this. Yeah.

Rick (18:36) Well, so first of all, where we sit today, the business has 13 offices in four countries. We have offices in San Francisco, San Diego, New York, Scottsdale, Atlanta, London, Sydney. So, we’re able to recruit most critical positions, I should say most important positions can be recruited in a number of locations. And I think that that sort of location agnosticism is important for almost any global company today because there’s is no ideal place to put a tech company. You can interview a Silicon Valley CEO and they could tell you what, how tough it is right now in the Bay Area to build an effective team. And I’m sure the same is true in Sydney in London. But if you go back to the early days of the business we had a couple of ACEs in the whole, The first one is San Luis Obispo, by the way, the S isn’t silent, it’s not French, it’s actually Spanish.

San Luis Obispo. San Luis Obispo has one of the best universities in the western United States. Cal Poly, California Polytechnic State University. They have a learned by doing approach. There are major talent feed both into the Silicon Valley and into the LA scene as well. And we’ve been able to cherry pick talent the entire history. In fact, some of the first employees we hired, the very first employees were Cal Poly students and employees or, and graduates. I mean, so there was actually quite an extensive early advantage. Second, our mechanism of delivering the product, even when it was on CD Rom, was, was always remote. We were using PC anywhere to link into people’s PCs, we’d ship them to cd, they’d call us from the radio, install it, they’d pop it in, we’d connect to their screen, and we would conduct a live training remotely. This is in 2001.

Ed (20:23) I was going to say that there might be listeners who were born after this.

Rick (20:26) That’s right, yeah. To all of you millennials out there was, there was a time yeah, when we were not all real time connected automatically. So, we always said to ourselves, remember Blake was LA based and I was in San Luis Obispo. we said to ourselves there may come a point at which it’s time to move the headquarters. And the classic playbook would’ve been to move it to the Bay Area. In fact, there’s been a number of great startups from San Obispo that had been moved to the generally to the Bay Area after they got going. We just never faced that moment. We, this is a pretty delightful place to live, by the way. It’s three hours to LA really. Although if you catch bad traffic, we’ll spend the first two hours getting the first 10 miles out of la. We don’t have that traffic.

We don’t have the crime; we don’t have the air pollution. This place is not a hard sell. So, we’ve been able to recruit multiple highly capable sea level executives, senior engineers into this place. We use LinkedIn to cross reference the skill sets and experiences we want with Cal Poly graduates. And we’ll reach out to this Cal Poly graduate in Chicago and say, hey, would you like to come back to San Luis Obispo? And they get a dreamy look in their eyes because this place is pretty fabulous. This is, this is wineries meet the beach.

Ed (21:45) I personally would happily live here and of Holidayed here a few times even, so I get the attraction, but yeah, it’s still so hard to get great talent and that is everywhere. The risk,

Rick (21:57) My point, my point would be is like, so tell me where it’s easier. You

Ed (22:00) Might Seattle here.

Rick (22:01) Is it little easier in Austin right now? Is it easier in Boulder? I think

Ed (22:06) You flipped a disadvantage into a disadvantage. That’s right.

Rick (22:10) And that’s what you generally need to do in any business. And in the early days, it went from being an odd choice as described by VCs who would call on us to being brilliant overnight. Wow, that was brilliant. You, you built an ability to assemble your own cohesive culture without being constantly mined for talent by your neighbors. When you have a revolving door going on of career day traders entering your business and leaving your business in, in a period of months, not even years sometimes, how do you build a coherent culture and a Mindbody of the original six people that were in my garage before my wife finally kicked us out. Three of them are still with the business. And in fact, up until very recently, four out of six. So, we have multiple people here, dozens and dozens who have been with the business for more than 10 years. And having that blend of long-term veterans and topnotch new talent, fresh blood and weaving that properly is perhaps the most important thing a CEO does. Having all one or the other is really bad. But there’s failure on both ends of the spectrum. But the proper weaving in the metal can be quite profound.

Ed (23:33) You talked of churn sometimes in the valley it’s almost six to nine months, people are, are turning over jobs looking for new opportunities. Do you think, is it because of the deeply mission driven culture that you have built that people who are aligned to that feel so deeply aligned that they really want to, like you say, almost make it their life’s work to contribute to this?

(23:55) Rick Yes, it is entirely that. And that begins with a set of actionable core values. Our core values. They’re written everywhere. You’ve seen them as you came here on our campus three

Ed (24:06) Times around four corners to get from the lift to your office’s.

Rick (24:10) when someone applies to work at Mindbody, the screening interviews beyond just the let’s validate you actually have the skill sets we need goes immediately into core values., our number one core value is committed to wellness. And, and that doesn’t mean that everybody’s looks, looks like they’re in perfect shape at Mindbody. It isn’t that a litmus test. Wellness is a seven-dimensional concept. It’s not just having physical fitness or physical wellness, it’s also emotional wellbeing, intellectual wellness. It’s about social wellbeing. It’s about environmental wellbeing, it’s about occupational wellbeing, all of these things. It’s a whole person concept. And we look for that and we look for people that are, are inspired by, committed to the wellness industry. So, when you’ve got those two things, boy, we really are starting on second base, aren’t we? I mean, things are already looking quite good.

(25.01)

Second, once they join Mindbody, we reinforce these core values continually, every new class of team members will have a core values workshop with me. And still, yes, still incredible. the way we’ve been able to scale that is it could be sometimes as many as 30 people Sure. In a group of hires. And this is one of my favorite things to do because what I do is I tie together the core values with the purpose of the business, which is helping people lead healthier, happier lives by connecting the world to wellness with these core values that we have. And explain a bit about examples of these core values and why these things matter to us. And the best way to explain any core value is to discuss the opposite of it. And one of our core values is humble and helpful.

Well, it’s really easy to explain the importance of that because imagine the opposite, arrogant and unhelpful. I don’t care how talented you are, you don’t belong here if you are arrogant and unhelpful. And we will not tolerate the organization will literally expel such a person if they manage to fool us enough to get hired. But actually, just go through them real quick. So, number one is committed to wellness. Number two is humble and helpful. Number three is audaciously achieving those people that have that fire in their bellies to actually achieve something. You can’t light that fire if they don’t have it. Number four is empathetic. And number five is consciously evolving. And empathetic is really a cool one, right? Because that’s actually the core design thinking and software design. And that is that you are consciously striving to get into the psyche and the mind of your end user to really understand the product from their perspective. We want to understand our customers. We want to understand each other. We want to understand empathy for the business itself, understanding why the business needs to be profitable, why the business needs to continue growing, why the business needs to return to their shareholders. That’s a form of empathy as well. For, for a team member,

Ed (27:21) Having shown the light, the sunlight onto these values. Have you ever almost flipped it and seen it from the other side? Has there been any darkness or unintended consequences from these values that you’ve seen play out over a long period of time?

Rick (27:37) I can think of two. Darkness is probably a little heavy, yes, sure. But I can think of two competing values. In other words, yes, interpretations of the values that have not been helpful through the years. The first one, by the way, this, we iterated the values that the principles remained the same, but the way that we emphasized them and surfaced them, we changed it. A few years back we actually got a group of 60 Mindbody team members that had to be nominated to be part of the committee that dove into these values and said, how can we, which ones are still valid? What’s missing? what may not be appropriate. One of the ones that we were struggling with was work-life balance. work-life balance was under the wellness value. It was, it was a sub bullet of that. Me people had come to just interpret that to just mean cruising.

And the classic playing ping pong during the middle of workday or throwing a Frisbee or football or playing basketball. Those things are all well and good, so long as it’s all in a context of committing ourselves fully to this business and to our teammates. And it can really be corrosive to the culture of the business if the people that are working hard look at other people who aren’t, who aren’t giving their all to the business. what we had to do was say, look, work life balance, the balance is defined by your role. And that role needs to be in an alignment with your intentions. if you’re an administrative assistant or frontline onboarding specialist, which is our, our trainers that train people in software, one of the benefits of a job like that, you make a decent wage.

You’re never going to get wealthy in that, in that job, but you punch a clock and when you punch out, you’re done. In fact, if we ask you to stay an extra hour, we’re going to pay a time and a half. That’s very different than the work life balance that we expect from a senior engineer who makes a high salary or that we certainly, that we expect from management. And at the very top of the expectations of course are the executive team. what we say to each team member what I say in the core values workshop is make sure you’ve had an explicit conversation with your supervisor. They will appreciate it if you ask them explicitly what are the expectations here? Because it depends on the role, and it depends on the team. What are the work hours they expect? Can I work from home?

Some of the time all these things are specific to teams. So, that was number one. We, we had right around the time of the IPO, we had, just to be blunt about it, we had to exit some cruisers that were just people not willing to just dig in hard. And if you ask them, they’re the ones that trash us on Glassdoor. the place used to be great until they went public. And I was like, yeah, what? We didn’t catch you soon enough because I promise you the people who built this company in my garage we’re not cruising, and we never have been. But when you’re scaling a business fast, you can get these unintended consequences. This is a really, really great question. The core values used to be humble, helpful, caring, and happy. And the interpretation of caring and happy could become the avoidance of direct feedback, the inability tolerate any form of conflict.

We’re all just so darn nice that nobody’s saying the emperor has no clothes. Nobody’s saying, hey, look, this this team, they didn’t deliver and nobody’s holding them accountable. And because they didn’t deliver, we’re not keeping this customer happy over here and our business is suffering, or this team has to put in extra hours because that other team didn’t fulfill their promises. And where are we holding accountability? So, we had to get the words accountability explicit in our values and teach that accountability is a positive thing. It’s an empowering thing. It’s literally the ability to count. You matter, your work matters. And if you don’t know what you’re individually accountable for in your role it’s going to be very difficult to be successful for. So, it’s another thing that we challenge every team member have that conversation. What are we as a team mutually responsible for? Because responsibility can be shared, but accountability cannot. What am I accountable for? that had been muddied and lost in the ethos of we’re all just humble, helpful, caring, happy people. Yay.

Ed (32:01) That’s the danger of just having values on a page and not understanding how they actually play out in, in real life. But they’re moving feasts often. And it’s great to hear how they have evolved over time. I think while we’re on the topic of people in culture, I know it’s something you are passionate about. I’m curious as to how the culture has changed over the years. You’ve seen it all from venture capital and the push for growth. Yeah. And that hyperscale, you’ve seen the public markets and mm-hmm. the volatility that can be seen in those markets that we’re seeing at the moment. And now you’ve been acquired by perhaps the most famous technology, private equity business in the world. How have those different investors and funding solutions really affected the culture of the business over time?

Rick (32:49)  Deeply impacted every step, step of the way. So, let’s walk through it. So, the early step, we were, we were a bootstrap. I mean, we founded the company. Remember what 2000 was, was that was the wake of the.com boom. It was literally called the dot bomb. And in every crisis like that, and by the way, the crisis that we are entering right now with Covid 19 and the likely global recession we are entering is an opportunity. And the opportunity in 2001 was that talent was much more easily accessible. The challenge of course was that capital was hard to get. Yes. So, you adapt to the realities of that moment. Capital is hard to get. So, I was fortunate enough to get a second on my home. I didn’t tell them that I was going to use to start a business. By the way, the bankers will not loan you money.

Yeah. But I, they will not loan you money. You, if you’re using the money to start a business, they’ll loan you money, ironically if you’re using it to do an expensive remodel on your home or to buy a boat. But they would not do it to start a business. So, I didn’t mention that part, but I was able to use that capital and very judiciously apply it. And the early team, we were just scrappy, like run through walls band of brothers and sisters that we were not going to fail. We were utterly determined because frankly, for most of the people we hired, there weren’t many other jobs around. So, that was really quite a golden moment that occurred once again for a brief period during the financial crisis of oh 9, 10 11. But in boom times it’s very hard to create that. Then we got our first venture investment.

We, there was actually an angel round in there where like I could finally breathe again and sleep at night when we raised a million bucks from the Pasadena and Tech Coast Angels. And then there was a following Angel Round led by one of our largest customers, Trevor Tyson of Core Power Yoga. But we got our first institutional investment in oh nine and from Catalyst Investors in March of oh nine, 5.2 million. And that was when okay, we actually have a reasonable shot here. Like we’re not, we’re not just running for our lives. And then there were multiple other rounds as the world emerged out of that financial crisis. And we had already raised capital and we were, we had accelerated in oh nine, 10, and 11. We went from being the first among equals to being the clear, dominant leader in boutique fitness during that timeframe. And then the money came fast and easy for a period of years. So, I would say we went from that really sharp, scrappy group to now scaling very fast, a lot of hiring and developed a soft middle during the easy money venture days. And I would hazard to guess, there are a number of businesses today that are in that mode right now. The money has been too easy. That

Ed (35:34) Might be found out in the next months

Rick (35:36) And years. That’s, yeah. There’ll be a purifying effect of an economic downturn or money isn’t so easy. And frankly, it’s needed. It’s needed. And to all your entrepreneurs out there, it’s a good thing. It’s a really good thing. It’s going to separate the wheat from the CHF. It’s going to separate the people that are really committed from the people that are just chasing a buck and cruising. we saw that the next period, the next crucible we faced is when we went public and when we went public I’ll reveal something to you’re probably going to find shocking. And that is from the period of about oh seven to going public in 15, my boite didn’t talk about gap profitability. It, it wasn’t of interest. It was all about growth. And we, I barely paid attention to the bottom line. And we went public in a market that at the time had the years leading up to the summer of 15.

They were richly rewarding fast growth companies, irrespective of their EBITDA or their gap net income that shifted right as we were in public. And as the folks at TDM probably know full well, we got our ass handed to us during the IPO. We were lucky we got out, we raised a hundred million, but we were suddenly worth 50% less than we thought we were. And the big challenge to us, and the headline of our local newspaper, I’ll never forget, it was Mindbody has never been profitable. So, that was a wakeup call and we always had the intention of profitability, but it’s so easy to just delude yourself and thinking, well, at the next stage of scale we’ll get there. We’ll just keep throwing our money into growth. We’ll scale up faster, move the horizon and back a little bit.

That’s right. So, we made a commitment that the executive leadership team in the summer of 15, we were like, oh hell no, we’re going to get profitable faster than they expect and we’re going to maintain our fast growth. And we march that bottom line up systematically at a whiteboard in my office. We just mapped out every quarter what we were going to produce and boom, boom, boom, we delivered it and got the business profitability during that time, it shifted the culture. That was the time when we revamped the core values. That was the time when a number of the cruising folks decided that the company had been ruined by the IPO. And they left and good for them to leave. Those of us that never lost our sharpness actually gained a quicker step to our stride. And we recruited additional people that were highly focused on achievement and performance.

And since we have gone to Vista, the last stage, what Vista has done is provided a lens through which we can understand our performance in a more granular way beyond just financial metrics. One of Robert Smith sayings is the financial results are a trail in the sand. They tell you how you have been doing, they don’t tell you where you’re headed. Of course, what every public investor is doing is trying to tease out where is the business heading? What are the leading indicators of their performance? they’ve helped up our game analytically in the business, number one. Number two is a set of operational best practices that have proven to work in large businesses of scale. To go from zero to 300 million in revenue. Every stage of that growth, there’s a different set of operational challenges. So, since being privately held by Vista, I would say that we have materially upped our game in terms of just operating discipline and operational excellence. And this is a far better run company than it was a year ago. And we wouldn’t have gotten here quite so effectively as a public company.

Ed (39:21) It’s interesting, and you’re not the first person to say this, but the rigor really came when you had to report quarterly in the public markets. That’s right. And that’s now been stepped up with as I mentioned, Vista are potentially the best private equity technology investors. They’re famous for these playbooks, these operational playbooks that they put in place in these businesses. Has that sort of top-down approach affected the culture aside from the rigor and,

Rick (39:48) Well, everything affects everything. So, yes, the simple answer is yes it has, but predominantly for the better. One thing that we’ve appreciated about Vista is that they’re walking the talk. They don’t ask us for anything, any level of commitment or level of rigor that they themselves don’t practice on a daily basis. I mean, I thought I knew how to work hard. These people have just epic work ethics. Second, they have this consulting arm, the Vista Consulting Group, VCG, that dives into the business in depth every aspect of the business. And they’re very respectful of the team. They don’t come in and act like they’re throwing their weight around. They do in fact act as consultants, but these are consultants who have a vested interest in our long-term outcome. Not somebody just earning an expensive contract from us. I have almost weekly contact with my Vista board.

Ed (40:43) That doesn’t surprise me. Yeah.

Rick (40:44) The only CEO that wouldn’t enjoy this would be one that A, doesn’t want to be held accountable or b is just two in love with their own ideas. Yeah. Like I don’t like someone telling me or challenging my, my viewpoint and I literally have spoken to entrepreneurial CEOs like, because I would never ever sell my business to a private equity firm. And if I had the time with them, I’d say like, Tell me more about that. What’s really going on with you man? Hmm. Because I love this business a lot more than I love my job. I love my job, don’t get me wrong, but I love Mindbody more. Hmm. And I’m still here because I know Mindbody hasn’t achieved its full potential yet. And all I care about is helping my baby achieve its full potential. And if someone’s going to challenge my point of view, if someone’s going to hold a mirror to my face and make me study my own wards. Good.

Ed (41:43) We’ve talked about the challenges of scaling people in culture and incredible insight, but you’ve seen the full breadth of other scaling challenges from going from on-prem, this legacy software to now full cloud real time. Often that comes with some for well it does come with some form of technology stack debt. Can you give a quick insight into the challenges of overcoming this tech debt and how you went about that?

Rick (42:15)

Well, first of all, tech debt is inevitable and constant. There. There isn’t any platform that you’re going to find out there that doesn’t have tech debt. We have probably more than our share because of the length of time that we’ve been at this. But you have to just embrace that reality and you have to just pay the price literally, it’s called paying down the debt and it’s allocating a percentage of your r and d spend to tech debt reduction. And for us, nearly half, nearly 50 cents of every dollar of r and d is tech debt reduction right now, it wasn’t always that way. And like most entrepreneurs, it’s hard to sell me. It was hard to sell me in many of those years that were going to spend all this time fixing things that our customers can’t see.

Ed (43:12) From a customer point of view, it’s a still a gorgeous product, but behind it’s like the iceberg under the water, the bit you That’s

Rick (43:18) Right. Saying that’s right. And on the flip side, there’s a, there’s another truth. And, this was when a senior executive on the engineering team at Salesforce said this to me and he said, when your engineers lose contact with the customer, the code becomes the customer. So, a lot of what is called tech debt by the engineering team is just things they don’t like to look at. Yeah. It bothers them. The room is messy. And if you tell them that you want to move the couch in the room or replace the couch, they tell you, well, we’re going to have to gut the whole room to move that couch.

Ed (43:56) Great analogy,

Rick (43:58) Well, it’s taken me a long time to come to terms with this and first of all, just embrace what they stand for. When, when someone on your team is behaving in a way that you find perhaps disappointing or annoying in that moment ask yourself what do they stand for? And if what they stand for is what they truly believe is right for the business, well celebrate that. And the right answer is probably a synthesis of their point of view and yours. Well, what if we agreed that we’ll replace that couch and remodel that corner right now and then we’ll schedule the other corners. But if they agree to that, you darn will better follow through or they’re going to lose faith in you and it’s a constant wrestling match. There’s no substitute for just paying it down. Yeah. And there’s the benefit of scale because we can afford to do it at a pace far exceeding most of our competition.

Ed (44:57) And what about scaling the business model itself? In my mind, there’s no tougher market to crack than the small business software market. There’s huge churn in the first few months, but what it does have is these customers become incredibly sticky when they are reliant on your software to run the business. And mind bodies become a pin up in this space for being able to deeply drive into the vertical. It started as an ARP moved into payments now into the marketplace. How have you thought about scaling the business model?

Rick (45:33) Well, the reason for the marketplace play is because we don’t believe, I don’t believe in my heart or hearts that the B2B only can scale in a certain place. But for the realities you just said there comes a point at which you’re leaking too much from the funnel to keep filling it. And there are these counter pulling forces. So, the tailwind that you’re getting is because you have greater brand recognition, your product is more evolved, the target market has just come to know you as a standard. Right. That’s a, that’s a beautiful place to be. To a large degree in the English A countries, we’ve become a standard in boutique fitness, very specifically in our target market. But the countervailing force is just sheer mathematics because the same rate of investment in customer acquisition yields generally a linear outcome.

Adoption theory would say, well, at some point, like there’s a like the rest of the market just comes to you overnight. That’s never happened to us. And for everybody who’s ever experienced that, good for you. Because we’ve never seen it. Every incremental growth in the market we’ve had to fight for equally. But then the same rate of attrition or churn is going to cause greater numbers of losses. So, to get to the point, what we needed was a network effect. And that was the reason that we launched the marketplace strategy. Gosh, seven years ago now, there was something we can do with this scale that our smaller competitors cannot. And that is four and a half million available classes and appointments per day on our platform, drawing a consumer audience that becomes a demand generation line of sight for our businesses or mechanism I should say. That of course was the pitch we went public with. And it is the greatest thing happening in the business today. But it’s not without peril and it’s not without deep investment. The consumer, the consumer marketplace at our business does not make money, not, not even close. And it’ll be a long time before it does.

Ed (47:47) It’s amazing. I can feel the energy sitting across from you. It’s been a 20-year journey. Yeah. Where, where’s this motivation still deep inside the belly? You, you must be exhausted. There must be so

Rick (48:00) That

Ed (48:00) The first thing that I think of you must be exhausted

Rick (48:05) At this moment. I’m speaking to you, it’s been actually a pretty exhausting several weeks. There are two things happening right now. I’m literally putting the finishing touches on my book, which has been far harder than I thought. While at the same time oh by the way, I’ve got a pretty demanding day job.

Ed (48:23) You expect nothing less of high performers to be doing two things at one jet, juggling a few bulls in the

Rick (48:29) Yeah, yeah. This is clearly skewed heavily towards the achievement motivation, and it bugs me on a certain level that Mindbody didn’t achieve as much as I hoped it would in the last five years. I don’t want to leave the playing field battered and bruised and defeated when I leave the playing field. I’ll leave it knowing we’re ahead in the game.

Ed (48:57) Victory up.

Rick (48:58) Yeah. I mean, what happens after that? I’m not going to hang on to it forever. I don’t think this business should be run by an old man. And I’ve told my board, I’ve said this to the prior board there, it’s, you guys got to tell me when it’s time to get off the field. I’m not going to be that punch drunk boxer still in the ring. Like this is, you tell me when you feel there’s somebody else who can do this better. And I’m purely pragmatic about that, but I, that fire is still burning bright. I lost my mom last year. She passed away from cancer after many years of fighting it. And I was with her right to the end and one of the last conversations we had, this last June, was about the fact that I was going to write this book. And she just looked at me with this knowing smile. And she goes, I don’t know where you get the energy. And I said neither do I, mom. I don’t know.

Ed (50:04) Has the book bank cathartic for you?

Rick (50:05) Yeah. Yeah. A lot of why this is so easy, this because I was like, this has surfaced all these things, The payoff of that deep, deep work writing, what was, who was the, some great writer, I think it was Joan Didion said, I write so that I can know what I, what I believe

Ed (50:22) Yeah. Gives you a moment of reflection that you probably haven’t had for 20 years.

Rick (50:26) That’s the payoff. And the book isn’t about Mindbody, it’s not the Mindbody journey. It’s not my biography autobiography, but me and the company are inextricably woven into it because it’s about how to be successful in the wellness business. So, yeah, I think I don’t know. I’ll figure that out. Yeah. In next, next chapter, why, why it all is except I’ll, I’ll tell you this and I’ll say this because this is actually the, I’m literally writing the right last chapter right now, and the last chapter is titled, Keeping Your Cup Full. How to Stay Well as a Wellness Entrepreneur. This Wellness Business paradox is so many wellness business owners end up feeling depleted or trapped by their businesses. Their wellness has literally been diminished by their pursuit of a wellness business. What I’m realizing in writing this chapter and of coming up with this, some of the principles actually we’ve talked about in this interview isn’t about the amount of effort, it’s that business is in alignment with your, with your own needs and your own motivations. It’s the alignment, it’s the, that your work and your life are integrated in a way that they, that they feed each other. This amount of effort doesn’t make me less happy, I don’t think it makes me less. Well, why is that? Because it is in alignment with what my soul needs.

Ed (51:54) You have been so generous with your time today, so thank you very much, Rick. My pleasure. It’s been absolute

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