The entrepreneurial, fast-growing, middle-market companies on this year's Founders 40 list have taken on a new challenge in the past three years: the always unpredictable public markets. But these companies haven't let the change in their status distract them from their original mission--or their commitment to rapid growth.
All successful startup founders eat, sleep, and breathe their companies' missions--but at Fitbit, James Park and Eric Friedman go a step further. The co-founders have given over so much of their brains to the business of making wearable devices to quantify physical activity, the work seems to control even their basic speech functions. Neither can get through more than a few sentences at a time without committing an inadvertent, sometimes groan-inducing, fitness pun.
Just listen: Fitbit spent the years before its June 2015 IPO "building our muscles to become a public company," says Park. A class-action lawsuit alleging that some Fitbit heart rate monitors don't work as advertised is "something we have to keep a pulse on." Do they do this all the time? Of course, says Friedman: "It's almost like the business is a perfect fit for us." (OK, that one might've been intentional.)
No matter how muscle-building it was, Fitbit's decision to brave the public markets is one that few of its peers are emulating these days. The $30 billion raised by U.S. companies in 169 IPOs last year, according to data from Renaissance Capital, was the smallest haul since 2009, when the financial crisis depressed market activity. The retreat continued into this year; there were no IPOs at all in January, the first such monthlong freeze since September 2011.
Going public, in other words, seems less attractive than it has in years--at least if you find yourself overly distracted by forces outside your control. (Not that raising money in the private markets has been much easier of late.) But the passionate, accomplished entrepreneurs behind the companies on Inc.'s second annual Founders 40 list have learned how to stay focused on growth, while tuning out the investor noise around them.
"There's nothing about the rigors of being a public company that scared us," says Park. For his business and the other members of the Founders 40, middle-market companies that have taken the IPO plunge in the past three years, going public is just the latest stage of their focused, fast growth. There's a lot they can teach you at any stage and in any market: 48 percent were among the Inc. 5000 in the past decade, and all can credit those who launched them for getting them so far. All have their founders still in the boardroom or the C-suite, and 73 percent have founders as their CEO. Their knowledge and passion for their businesses make them leaders to watch.
Park and Friedman, like the other leaders you'll meet in the Founders 40, have approached the transition with the same athletic rigor they've brought to every step of their company's growth. An IPO "enforces a good sense of discipline," Friedman says. "You're insanely focused on hitting the numbers you're guiding everybody to. It gives everyone a clear goal to shoot for."
It's February, and the Fitbit founders are holding a team strategy session at the Fairmont atop San Francisco's Nob Hill. Trim and upright in a sweat-wicking zip-up and New Balance sneakers, Park, the CEO, looks like the distance runner he is, while the lanky Friedman is every inch the CTO in khakis and a baggy button-down. Their casual appearances don't quite telegraph their accomplishments--most notably, increasing profit despite mounting competition. In 2014, Fitbit posted $131.8 million of profit on $745 million in revenue; last year, profit rose to $175.7 million on $1.86 billion in revenue. "They're growing faster than anyone would have expected," says Steve Wardell, an equity research analyst for Leerink Partners.
Yes, Fitbit has faced the same stock market woes as many a public company, especially during what's been a terrible start of the year for markets worldwide. Its shares have been in free fall as investors worry about limited future demand and mounting competition from the likes of Apple, Under Armour, and China's Xiaomi. But the trend lines are still very much in Fitbit's favor. As it's grown, the company has become skilled at selling to the high end of the market; Park and Friedman have steadily added general-purpose features, like text-message notifications, and placed more emphasis on fashion, even rolling out a line in collaboration with the luxury designer Tory Burch. "These devices, to become a pervasive part of people's lifestyles, they have to look good," says Park.
Taking Fitbit public shows the world how the company plans to focus on even longer-term growth; after June, Park tripled the company's R&D budget, to $150 million. Much of that will be put toward developing sensors that go far beyond the ones Fitbit currently uses in its devices--accelerometers, GPS, heart rate monitors--to track other aspects of its users' health and lifestyle. Over time, says Park, improvements in sensor capabilities "are going to give us approaching-perfect awareness of what our bodies are doing."
That sort of smart, relentless expansion is exactly what makes Fitbit part of this year's Founders 40--and a model for any ambitious, fast-growing company, public or private. Even for those without Fitbit's puns. "The fun is climbing the hill," says Friedman, "so we're always focused on the next peaks after this."
How the Founders 40 Was Compiled Companies that went public since the start of 2013, with annual revenue between $50 million and $2 billion, are listed in reverse chronological order by IPO pricing date. Revenue from 2015 is three-quarter revenue as reported by February 1, 2016, unless otherwise indicated. (Data Sources: Renaissance Capital, SEC filings, companies. Research: Victoria Finkle)