ClassPass: Payal Kadakia

In the late 2000s, Payal Kadakia was working a corporate job and running an Indian dance company on the side. When a search for a ballet class yielded a confusing jumble of computer tabs, she had an idea: create the Open Table of the fitness industry – a search engine where users could sign up for classes in one streamlined place. When that idea failed, Payal pivoted multiple times, eventually landing on the subscription service ClassPass. Today, ClassPass connects users to hundreds of thousands of fitness classes around the world. It was valued at $1 billion earlier this year, but when the pandemic hit, it flattened the fitness industry, forcing Classpass to pivot yet again. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

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• 0:45Guy Raz?

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• 1:30Guy Raz?

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• 2:14Guy Raz?

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• 2:54Guy Raz?

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• 4:21Guy Raz?

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• 5:06Guy Raz?

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• 5:50Guy Raz?

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• 5:56Speaker 01

  One of the best ways we would get customers to sign up is we did this Lululemon promotion where people would get $100 gift cards to Lululemon if they signed up for ClassPass and stayed with us for six months. And one day, I get to the office, and there's like a letter on my desk. And I open it, and it's a cease and desist from Lululemon.

• 6:16Guy Raz?

  Oh my god.

• 6:17Speaker 01

  And I remember, you know, my first instinct was like, oh no, should I be scared? But then I was like, oh my god, Lululemon knows who we are.

• 6:31Guy Raz?

  From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 6:42Guy Raz?

  I'm Guy Raz, and on the show today, when Payal Kadakia couldn't book a dance class online, she built her own solution called ClassPass, a booking service for fitness classes now valued at over $1 billion.

• 7:02Guy Raz?

  The more complex your business idea, the more likely that it will take a lot of time to get it right. Think about companies that depend on data to optimize their services. DoorDash, for example, doesn't just deliver food, it's a logistics business. Same with Amazon and even Peloton. All these companies provide services that require a lot of data to function effectively. But to get there, to get to a place where they all worked more or less efficiently, required many years of pain. To be clear, there is no simple playbook for running a complex business. There is a lot of trial and

• 7:43Guy Raz?

  error. And sometimes, trying to build a complicated business is like trying to improve an airplane mid-flight, which is sort of what happened with ClassPass. ClassPass is a subscription service that gives its users access to hundreds of thousands of fitness classes in cities around the world. Back in 2010, ClassPass founder Payal Kadakia was working a corporate job in New York and also running a dance troupe. And one day, she wanted to sign up for a dance class online and couldn't do it easily. So in 2012, Payal and a co-founder launched Classivity, a search engine where people

• 8:24Guy Raz?

  could sign up for all types of classes, from fitness to photography. But not only did that idea flop, it went through many painful iterations, upgrades, adjustments, and pivots before it became what it is today.

• 8:41Guy Raz?

  Earlier this year, ClassPass became the first so-called unicorn of the decade when it raised a round of funding on a billion-dollar valuation. And 2020 was set to be the best year in ClassPass's history. But then, the company flew into a big, giant headwind called COVID-19. The fitness industry has been one of the hardest hits since the pandemic began. So these days, Pyle has found herself in the middle of an unprecedented crisis for her company, a business that has largely depended on people showing up to studios to take fitness classes. Now, one of the criteria for coming on to How I Built This is generosity.

• 9:24Guy Raz?

  You have to be generous in recounting your experience, even if it means talking through personal and professional failures and setbacks. But most of the time, entrepreneurs talk about these things while looking in the rearview mirror. In Pyle's case, the setback is happening in real time, and she's being tested in a way she could never have anticipated. But for now, let's start at the beginning of the story. Pyle was born and raised in New Jersey. Her parents had emigrated to the US from India in the 1970s.

• 9:57Speaker 01

  My mom's brother, instead of giving them a wedding gift, told them that he would give them two tickets to America. And they got on a flight, came here, probably worked four jobs to make it work, and were living in small apartments, taking buses to work. Both my parents are chemists, and that's really been the backbone of their life.

• 10:20Guy Raz?

  Tell me a little bit about your, I mean, about like your household. Was it, was Indian culture a really important part of your life as a kid? Like, did you go to like Indian school on the weekends, like on a Sunday, stuff like that?

• 10:34Speaker 01

  So, um, growing up, my, I was one of the only Indian people in my school. So I had a interesting, you know, sort of dual identity where, you know, my high school and elementary years were filled with, you know, going to soccer practice and cheerleading practice. And then on the weekends, I would go to sort of this adjacent community. It was this town called Parsippany where there were a lot more Indian people. And that's where I really got a sense of my culture and my community. And on the weekends, I would also start dance practice. So my mom's best friend, um, my, my dance teacher, she started teaching us, um, Indian classical and folk dance when I was three years old.

• 11:15Guy Raz?

  Wow.

• 11:15Speaker 01

  And we, yeah, so we would do this in basements, right? There was no, there was no ballet school for Indian dance, you know? And even though, uh, my parents wanted us to assimilate, you know, I think it was very important to them that we stayed connected to where we came from. And for me, dance was that way of doing that, even though probably at the time I didn't appreciate it much. Um, I was like, why am I waking up early on Saturday to go to dance class?

• 11:37Guy Raz?

  So how, how did you, how did you get super into Indian dance? I mean, cause it sounds like, cause this is something you did, and we're gonna talk more about this, but something you did throughout, um, school and into college, like what, what was it about Indian dance that just really kind of drew you in?

• 11:53Speaker 01

  So in India, there were, at the time, I mean, it's called Bollywood now, but it was called, um, the Hindi, you know, film, Hindi films. And there were actresses like Madhary Dixit and Sri Devi, who were, you know, these unbelievable actresses that would dance in these movies. And, you know, to me, they were like goddesses and they, um, you know, like emulated this power of expression and charisma that, you know, I think as an Indian girl, I would sit in my house and I literally would put the video on over and over and over again and try and emulate it. And I think for me, what I started realizing with Indian dances, it was this way for me to feel connected to where I came from, especially because I was around people who didn't look

• 12:38Speaker 01

  like me. And it also became this place where I felt really confident. Um, I became this Performer when I was, you know, very young. I remember since I was five, I performed at every family function or party. I would have to have like my cassette ready, my dance outfit ready, you know, and I think that that was really important for me to find a place where I felt alive. I felt like I could touch people. And I think when you're that young and you realize that you have the power to affect other people, it changes you at a very deep human level. And I think that's really what happened to me.

• 13:17Guy Raz?

  I read a story that when you were, I think, in third or fourth grade, you performed at school and, and, and kids laughed at you and teased you. What, what do you remember about that?

• 13:28Speaker 01

  I remember exactly what I was wearing. I remember going on to the stage and, you know, I think at the time, I didn't think my culture and my background was that big of an issue. And then I started doing this dance and it was what my dance teacher had taught me. And we had performed, by the way, like at major places as a dance company, you know, and, and sort of an Indian community. But I didn't realize it wouldn't translate to my, my, you know, elementary school.

• 13:57Guy Raz?

  Pretending, pretending white kids.

• 13:59Speaker 01

  Exactly. I just didn't see the difference. I just thought it was, okay, well, like, I love doing this and I do this when I compete over the weekend. And even though the audience is filled with Indian people, why wouldn't it work in my school auditorium? And, you know, a little bit after I started dancing, I remember people started like booing and laughing. And I, I think I remember feeling really bad when my sister was sort of embarrassed of me when I came home and realizing that, oh, I am different. And I actually think that started this phase of my life that probably lasted a good six, seven years where I had my Indian life and I had my, my like, American life. And I kept them very separate.

• 14:40Guy Raz?

  Would you describe yourself as shy and quiet? Or would you describe yourself as confident as a girl, a young kid?

• 14:46Speaker 01

  Yeah, it's actually pretty interesting. I was pretty shy and quiet, and I think that was a dynamic of my family. Like, my mom and my sister were both very loud, dominant personalities. It actually took me until, I would say, going to college, where I started realizing what a leader I was and how, you know, what my voice was and how to sort of take control of situations. Because I was the baby of my family. And even within all my cousins and everyone, like, I was a baby. And I also, I know we're talking, you know, over this microphone, but I'm 4'11", and I was never very tall. So, you know, I was always a small person. And so I had to really find a way to come out of that. And I started really realizing that once I went to college.

• 15:32Guy Raz?

  And what about school? Was it pretty, did it come pretty easy for you?

• 15:36Speaker 01

  I would say education was a very important pillar of my childhood. Getting good grades was sort of a non-negotiable. I had to work hard to get good grades, though. It wasn't, I don't, you know, I think there's people in the world who are sort of just like great at getting, you know, getting through school and didn't have to study and would just like ace the test. That was not me. I had to study. It was actually interesting. English and writing were just harder subjects for me, maybe because of, you know, my parents, you know, didn't always speak English in the house. But like math and science, it just was so, was easy for me, and I loved it. And I used to always even like think about how my life revolved around numbers and actually did my entire college application essay on how my life revolved around the number two. So-

• 16:21Guy Raz?

  Around the number two?

• 16:22Speaker 01

  Yep.

• 16:22Guy Raz?

  What, what, what, tell me more about the number two.

• 16:24Speaker 01

  So, well, I was a second daughter, and this idea of having dual identities, which I was just talking about, like, I was Indian-American. And I always really had this very analytical side to me, but I also had a very creative side to me. And that's really, I think, throughout my life, like, the other sort of dual identity I had, which I always wanted to come together.

• 16:45Guy Raz?

  And I guess that essay got you into MIT, which is where you went. And I read that you majored in something called operations research, which is like, I guess, like a sort of a scientific approach to management.

• 16:57Speaker 01

  Yep.

• 16:57Guy Raz?

  But while you were there, I guess you also stuck with dance, right? Like, you kept dancing.

• 17:02Speaker 01

  I stuck with it. And if it didn't exist, I created it. So even at MIT, there was no Indian dance troupe that existed on campus with the style of dance that I had done. So I created it in my second year of being at school. And I put on shows there. It was my life. Like, I think everyone, anyone who's known me, I mean, a lot of people obviously know me today as the founder of ClassPass. But before that, I mean, everyone was just like, Pyle is a dancer, and that's who she was.

• 17:31Guy Raz?

  Just for a moment, and please be immodest here. You must have been really good. I mean, like, competitive-level dancer.

• 17:39Speaker 01

  It was, I think, the way I danced that really captured people. I think, you know, since I was younger, people would just stop and watch me dance. And it was because, like I said, I danced from my heart. And I think whenever you see someone's entire being come alive and doing anything in their life, right? And I think, I always talk about this, it was dance for me. I think it's music for other people. It's being active for others. And that was my home. And I think when you see someone come so in connection to a place where they belong, it makes everyone feel alive.

• 18:14Guy Raz?

  One of the cool things about when you see an Indian dance troupe, it's so seamless. It doesn't seem choreographed. But it must be intensely choreographed. Like, every tiny movement, right, is practiced and rehearsed and rehearsed?

• 18:29Speaker 01

  Absolutely. I mean, I used to choreograph big dances for our culture shows at MIT. And, you know, I think what was nice is I would bring my entire class together. We had a lot of Indian people at MIT. So some of the dances I would choreograph had 40 people in them. Getting 40 people to move in, 40 people who didn't have a lot of dance background, to move in the same way, taught me a lot about how to lead.

• 18:54Guy Raz?

  Yeah. So you graduate from MIT, this is around 2005, and you join Bain as a consultant. A lot of smart, young people do that. And did you, at that point, ever think about, like...

• 19:09Guy Raz?

  Opening your own thing one day, or was that not really top of mind?

• 19:13Speaker 01

  I actually thought about starting a dance company right away, right when I got to New York City.

• 19:17Guy Raz?

  A dance company?

• 19:17Speaker 01

  Correct. That was what I would have done.

• 19:19Guy Raz?

  As a business?

• 19:20Speaker 01

  Yeah, that's exactly what I would have done, or even just like starting a studio or something. But I'm actually really glad I did, and I've thought about this, like getting real world experience, and especially in a place like New York City, is so important. So obviously, you know, I got real world experience working at Bane, but I also got to see how sort of the dance community and arts community worked, because I was dancing and taking class through my first, you know, few years living in New York City too, which taught me so much about how, you know, other fields work as well. And I think I needed that hands-on experience. And I don't think I was ready at that point to, even though I kind of like believed in myself that I could do something, I didn't know what it was, nor did I actually realize how the world worked.

• 20:02Guy Raz?

  But it sounds like this was really what you wanted to do. Because I guess you only lasted at Bane only, you lasted at Bane about three years, and you took a new job, actually, that would allow you to focus on starting a dance company.

• 20:15Speaker 01

  Yep, yep. So, you know, I think the first few years when I was working at Bane, I was able to sort of juggle going to dance practice after work and, you know, going to performances on the weekends. I have, you know, I have some interesting stories where, one day, I remember I was walking to work and there were tryouts for So You Think You Can Dance going on outside my door, and I called in sick and decided to go audition. Like, these were sort of the conflicts I was having in my life.

• 20:44Guy Raz?

  The TV show?

• 20:45Speaker 01

  Yeah, the TV show.

• 20:46Guy Raz?

  And you didn't make it? I'm shocked.

• 20:47Speaker 01

  I didn't make it. It's okay, but that's fine. But it was one of those things where I would have, you know, these incredible sort of dance experiences happening, you know, while I was working. And I didn't like that I didn't have this predictable schedule. And so while most of my friends were going off to business school, I ended up taking this job at Warner Music Group in their digital strategy group.

• 21:09Guy Raz?

  Because it would give you time or to work on this, or because you wanted to work for Warner?

• 21:13Speaker 01

  So I kind of at least figured, hey, I'm taking a job in an industry with that, you know, was selling something I believed in, right? So that was sort of a way I think I convinced myself that it was the right place. And I, you know, it was actually a really interesting time in the music industry because everything was moving from physical to digital. So I got to see like an entire transformation happen. Did I really know what I want? Like at that time, did I, was I really passionate about that job? No, but was it a means to an end? Yes.

• 21:42Guy Raz?

  And, and so you start this dance troupe and is it pronounced SAW dance?

• 21:45Speaker 01

  Yeah, it's SAW.

• 21:47Guy Raz?

  S A, SAW dance.

• 21:48Speaker 01

  Yep.

• 21:48Guy Raz?

  So dance troupe. And this was like your passion, but this really was, and you were performing all the time on weekends in and around New York City.

• 21:57Speaker 01

  Yep.

• 21:58Guy Raz?

  And how were you, I mean, were you like running this thing?

• 22:02Speaker 01

  Yeah, so I was the, you know, I called myself the artistic director and executive director. Every second I wasn't working, you know, in my, during my full-time job, I was either choreographing, rehearsing, you know, I was booking space, I was finding places for us to perform. There, you know, I had 10 dancers, many of them, by the way, also like executives at huge companies, working consulting, like, you know, we all, we all kind of had that dual dynamic. So we wouldn't have practice until 8:00 PM at night. We would dance until 10:00, 10:30, go home, kind of do it all again the next day.

• 22:36Guy Raz?

  And how did you recruit them? How did you find them?

• 22:38Speaker 01

  It was a community-based dance troupe in the sense of, you know, I think everyone through college, like every single college had an Indian dance troupe. So we all knew each other. When I started building this, you know, they were like, I'd love to do this. They missed dance, right? This is also the crux of so much of where ClassPass came from. They were missing dance. Everyone missed doing something and an activity that they loved so much. And so it was definitely the busy, one of the busiest times of my life, but also, you know, this is sort of where it started for me and I realized what you can do if you hustle.

• 23:12Guy Raz?

  Was your goal at the time to like to turn this into a sustainable business? Were you hoping that, that you could quit your day job and, and dance full-time?

• 23:21Speaker 01

  Look, I wasn't building my dance company for money and all the girls dancing at the time weren't doing it for money either, right? We all had other jobs. We all had ways to make income. So we were really doing this to share our hearts. And until this day, I mean, my dance company is set up as a nonprofit. It is something actually that we do because we enjoy it. I think for me at that point in my life, I wasn't ready to fully scale my dance company and I kind of really wanted to find a way to build, to bring my business side and everything I had sort of studied with my passion together. So I actually started thinking about building something new and that's really when, you know, the seeds of starting a company like ClassPass started.

• 24:00Guy Raz?

  Yeah, so how did it start? Like, what did you do?

• 24:05Speaker 01

  So in the summer of 2010, I went out to San Francisco. I met a bunch of entrepreneurs because it was one of my friends' birthdays, one of my former MIT and Bain friends. And all our friends were building apps and ideas. And in 2010, in New York City, I could not count, you know, I didn't know that many entrepreneurs, right? Most of my friends were in finance, banking, or fashion. So I, you know, go and talk to them about these ideas. They're telling me about what they're building. I mean, some of them weren't even great ideas, but I remember thinking to them and asking them, I'm like, "You do this full-time?" And they said, "Yes." And I was, it was sort of this new idea for me, like, and it made me think about this life of entrepreneurship.

• 24:46Speaker 01

  And what if I could really blend, you know, my creativity with my business skills and build something as well?

• 24:52Guy Raz?

  So you, so this trip to San Francisco clearly inspires you, sparks an idea in your head. And where do you go back to? You come back to New York?

• 25:00Speaker 01

  So I come back to New York, correct. So I take a red eye, I remember, on Sunday night. And I remember thinking to myself, "You know what, Pyle? Like, why don't you give yourself two weeks to think of an idea?" And hey, if you think of an idea, maybe entrepreneurship is the right way. If not, okay, maybe it's time to, you know, look for another job in corporate America. So I'm studying ballet at the time. I was going to class, obviously, a ton. I wasn't, we weren't in active dance phase at the time, but I was obviously still training. So on the Tuesday after I get back, I, you know, get on my computer. I have my ballet clothes with me. I start looking for a new class to take. I end up with, you know, seven tabs open. I'm looking at the schedule. I'm looking at the teachers. I'm looking at the times and it's all over the place, right?

• 25:44Speaker 01

  The formats are different. I'm kind of getting lost between, you know, the times and the subway I need to take. And by then it's been two hours and I've missed class and I don't go that day. And that's when it hit me. I realized, oh my God, this is a disaster. This information is all over the place. What if technology could help people put this all in one place for them to be able to, you know, continue to do their passions and go to class? That was the initial moment for me.

• 26:10Guy Raz?

  So this idea of like, and I remember that, right? Like you, you, you would look for, you know, a bunch of different yoga studios, for example, or whatever. And their, you know, websites and tabs and sign up here and yeah. And, and so you were looking at that thinking, there should be just one easy way to do this.

• 26:27Speaker 01

  Right. And at the time I was really obviously inspired by, you know, products like OpenTable, SeamlessWeb, Zocdoc. Those were all a part of the offline to online movement that was going on. So that was the idea and, you know, OpenTable, I think had just reached a billion dollars at the time. And so everyone, you know, knew there was a lot of scalability in a product like this. So that's sort of for me, the market research I started doing in those models to see how I could build this for classes.

• 26:55Guy Raz?

  So you're kind of thinking about this, but then what's the next step? I mean, you still had a job at that time, right?

• 27:01Speaker 01

  Yeah. So I, I'm still working for Warner. I start, you know, once again, doing some research, looking at these adjacent models. I start doing some, you know, a little bit of qualitative research with my friends. So I start telling them, you know, hey, I want to build this idea like an open table for classes, which by the way, sounds pretty good, right? To anyone. It sounded, everyone was like, that sounds great. I would do it. And I am, by the way, the name of the company at the time was called Dabble, Dabble Now. Cause that was what I thought the company would be. I thought it'd be like a place where people could dabble in different classes.

• 27:33Guy Raz?

  Yeah.

• 27:34Speaker 01

  And I, you know, I would just kind of tell them about the idea and they were, people were really interested in, in me starting it.

• 27:41Guy Raz?

  So, and you were, I mean, were you looking for, for funding at that point or, or not quite yet?

• 27:47Speaker 01

  I hadn't quit my job, like you said. I mean, I wasn't fully there yet. And obviously, like, for me, getting my parents' blessing was actually a really important thing for me. I remember sitting down with them Thanksgiving of that year, so we're in 2010 still. And, you know, I was pretty like burnt out when it came to my job at work. And I remember just thinking like, oh, I don't want to go back into the office on Monday. And my mom looked at me and she goes, why don't you quit? And that was actually a very surprising thing to hear from someone like my mother who's, you know, as I said, immigrated here, wanted to make sure my sister and I were stable. But I think what she had realized, I had been working for six years. I had sort of checked every box that I needed to for them. I think my mom almost got to the point where she was like,

• 28:32Speaker 01

  you can stop working, like, you know, go do what makes you happy because it's happiness is as important. And that's when I kind of got this freedom to be able to sort of dream about what I wanted to do. I decided in January that I would quit. I sent an email-

• 28:48Guy Raz?

  Of 2011?

• 28:49Speaker 01

  2011, January, I decided I would quit. I write an email to, you know, all the executives and people I had worked with at Warner Music Group and the vice chairman of the company, Michael Fleischer. He invites me up to his office and he wants to hear about my idea. And, you know, I had probably interacted with him two or three times throughout my experience, but he was really interested in hearing about a new idea. So I go up there, I start telling him about, you know, Dabble at the time. And he was like, this is amazing. Like, I'm going to introduce you to someone who can, you know, who's running this tech startup program, David Tisch. And he's like, and I want to invest money, so here's $10,000.

• 29:26Guy Raz?

  Wow.

• 29:27Speaker 01

  Once again, like, I'm kind of fascinated by the fact that, you know, I'm about to walk out, you know, or quit my job. And it's like the scariest day of my life. And I walked out with a $10,000 check on the day I quit.

• 29:40Guy Raz?

  Okay, so you had this idea and there's clearly interest. And were you doing this all by yourself at this point at the beginning? Or did you, because eventually you had a co-founder.

• 29:50Speaker 01

  Yeah. So one of the early conversations when I was really getting feedback on the idea was with one of my childhood friends, Sanjeev Sanghavi. And he was an amazing dancer also when we were younger. He did martial arts. He became a banker and sort of stopped doing all these things that he loved. And when I told him about the idea, I remember waking up the next morning and he had texted me like 100 times being like, hey, I want to give you money for this. Let me know how I can help and get involved. And that's sort of where it started. So it first started with him wanting to invest. And then little by little, as I quit my job and started working on it, and you know, once again, I knew he was as passionate about being active, being fit, staying in touch with your passions as I was.

• 30:34Speaker 01

  He was like, you know what, Payal, like, I want to quit and do this with you. And that's really how, you know, we were always a team. Like, growing up, we kind of did everything together. So that's how we decided to build this together.

• 30:45Guy Raz?

  I'm trying to, I mean, this is a story that I have almost never heard, which is somebody has an idea like this and without a deck, without a business plan, people are like, here's a check, I want to give you a check, I want to give you a check. And that must have suggested in your mind that this was a great idea, that if all these people want to invest, then maybe I'm on to something.

• 31:08Speaker 01

  Yeah, I mean, it's actually interesting because a lot of these people, by the way, had also followed my dance company trajectory. And I say that because the way I presented my dance company, the professionalism, the way I sold out shows, I think people knew I was doing that while I had another job. So these were my friends who had been able to watch me hustle, been, once again, able to watch me create something from nothing. And when I was like, hey, like, okay, open table is a billion dollars, I'm building a business that big, they were like, all right, sign me up. You know, that's really where it started.

• 31:39Guy Raz?

  And so the idea was basically a search engine for, like, when you described it, you would describe it as a search engine or basically as open table but for fitness? That's how you describe it?

• 31:50Speaker 01

  It wasn't just actually just fitness classes at the time. It was active and creative classes. So we had photography and drawing and cooking on there as well. And we obviously had all the fitness classes listed at the time.

• 32:02Guy Raz?

  And the idea was you would partner, you would start to like basically dial up different businesses and see if they would partner with you?

• 32:08Speaker 01

  So at that time, and this is one of the mistakes we made, what we were really interested in was the information, like the schedule data, right?

• 32:17Guy Raz?

  Right.

• 32:17Speaker 01

  So what we started doing was really integrating with like the backend APIs that were integrated into the scheduling platforms these places were using.

• 32:25Guy Raz?

  And you would just, those are just open RSS, or open feeds?

• 32:27Speaker 01

  Exactly.

• 32:28Guy Raz?

  And you would just pull them out?

• 32:28Speaker 01

  100%. So they were open feeds, we were working with like sort of scraping data if they weren't connected to something. So what we were really trying to master was like sort of becoming like this Google, right? Of class information.

• 32:40Guy Raz?

  And how much money do you remember raising just to get started?

• 32:42Speaker 01

  I raised about a half a million dollars. This was before we got into Techstars, which was this big incubator.

• 32:49Guy Raz?

  So you have got some funding and you're working on this idea, but you haven't launched it yet, right?

• 32:53Speaker 01

  No.

• 32:54Guy Raz?

  This is not, this is still pretty much, okay.

• 32:55Speaker 01

  Right.

• 32:55Guy Raz?

  And, and you get into this program called Techstars, which is like an incubator program. Is it like, is it like the Y Combinator?

• 33:04Speaker 01

  Yeah, it's, yeah, Y Combinator and Techstars are very similar. And this was the second class of, in New York City. So it was pretty new. But once again, you know, because there weren't that many startups yet, it was a great program because, I mean, I got to meet every incredible founder that, you know, in New York City and even folks who would come by from Silicon Valley through the program because they came to mentor, right? Because the startup community was much smaller at that time.

• 33:29Guy Raz?

  Was anybody, by the way, did anybody say like, you know, Dabble just doesn't, it doesn't take, it doesn't, doesn't speak to me?

• 33:35Speaker 01

  Well, so in, when was this? I think in 2011. This is before we were in Techstars. We actually had to change our name because there was a company in Chicago that started selling classes under, under the name of Dabble. So we had to actually overnight change our name and we couldn't think of anything. So we like literally were just scouring the word class with anything on GoDaddy and found ClassTivity. So our second name was actually ClassTivity because it was class and activity together.

• 34:07Guy Raz?

  Yeah.

• 34:07Speaker 01

  Yep.

• 34:07Guy Raz?

  I like that.

• 34:08Speaker 01

  It was good aside from the fact that everyone messed up the I's and the T's all the time, like even till this day, no one spells it right. So that was a problem. But, you know, that's sort of where it started. It was a mouthful, but we were, we were, we got into Techstars, we were, our name was ClassTivity, the search engine, everything was called ClassTivity at the time.

• 34:27Guy Raz?

  So you're working on it and, and people are giving you great feedback, right? Like, most people are saying, This is awesome.

• 34:34Speaker 01

  Right, because it worked for OpenTable and it worked for Seamless Web and it worked for Zocdoc. Why wouldn't it work for classes?

• 34:40Guy Raz?

  All right, so you, I guess what, you launch in 2012? You launch, you go pub, you go live?

• 34:46Speaker 01

  We go live at the end of Techstars, so June of 2012. We have our big demo day, you know, we're getting all this tech press. We launched the website.

• 34:54Guy Raz?

  And what kind of classes could you sign up for?

• 34:56Speaker 01

  You had photography classes on there, we had, you know, yoga classes, spin classes. We had a variety of different classes. We had about a million classes listed.

• 35:06Guy Raz?

  A million classes available, about a million, I mean, it's amazing. And all in New York, presumably, right?

• 35:11Speaker 01

  All in New York, correct.

• 35:12Guy Raz?

  And presumably, you were eventually going to monetize this, I guess, by, well, like, charging a transaction fee to the studios? Like, if you want your class listed on the site, you pay a fee to ClassTivity?

• 35:24Speaker 01

  Of course, right, so it was, it was a volume bet, essentially.

• 35:27Guy Raz?

  And, and like, pretty soon after you launched it, you get, you get like, a bunch of press, I think? And, and like, the tech press covers this, it's like, all over the place. You do Techstars, and does this just like, go crazy? Like, are your servers, like, breaking down with all the people signing up?

• 35:43Speaker 01

  Exactly the opposite. There was crickets, meaning no one went to any classes. We had probably 10 days go by before we got even one reservation.

• 35:53Guy Raz?

  Wow.

• 35:54Speaker 01

  Yeah, it was, it was heartbreaking. It was one of those moments where, you know, you start realizing all these, like, false signals of success, right? I was like, oh, all these people who compared this to OpenTable.

• 36:07Guy Raz?

  This was gonna be OpenTable.

• 36:08Speaker 01

  Right, exactly. And by the way, people were coming to the website, right? So, so the first thing we did was, we thought, like, first of all, we wanted to make sure, you know, the buy button was working. Obviously, that's the first thing you check, you're like, is this going through?

• 36:21Guy Raz?

  Yeah, is something wrong, is there a glitch?

• 36:23Speaker 01

  We would test it, and then we thought it was, maybe people couldn't see the buy button, so we would change the colors.

• 36:29Guy Raz?

  Make it bigger.

• 36:30Speaker 01

  Change the shape, yeah, exactly. So, I call it-

• 36:32Guy Raz?

  Because it doesn't make sense, 10 days with one signup.

• 36:35Speaker 01

  Exactly, so I call it the summer of buttons, because that's like, really what we did. And it was, it was kind of depressing. I mean, you know, we had, once again, like, close to, it's been, by the way, about, close to a year and a half, right? We had probably spent close to a half a million dollars at this point. And it's crickets, and I didn't know what to do.

• 36:58Guy Raz?

  When we come back in just a moment, how Pyle took the business in a new direction, and then several more, before she finally landed on the winning formula for ClassPass. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR.

• 37:22Guy Raz?

  Hey, welcome back to How I Built This from NPR. So it's the summer of 2012. Pyle and her team have just launched a brand-new booking service, ClassTivity, and nobody is signing up for it. And they're racking their brains, trying to figure out what to do next.

• 37:41Speaker 01

  We start thinking about like some new marketing tactics we could do. I remember we launched this promotion where we literally sent an email saying, like, "Go to class for free." And still no one went. So that's when I was like, "Okay, we have totally missed this. Something is wrong here." And that's when I knew we needed to start iterating and changing. So the first thing we started doing was going to our studio owners, right? So what we didn't do the first time was talk to the partners, right? We were kind of behind the screens and thinking that tech was going to fix all of this, right? And that's when I realized tech does not fix all of this. This is a human behavior. I need to get someone off the couch physically to get them into a classroom. If I can't do that by talking to them and motivating them,

• 38:24Speaker 01

  there was no way technology was going to fix that, right? And so we started talking to the studio owners to understand more about what challenges they were facing. Many of them offered a first class for free, right? That was sort of their way of getting people in the door. And this was also when boutique fitness was starting to boom. So this is when we started to focus a little bit more on going towards fitness.

• 38:44Guy Raz?

  Yeah, but I'm trying to figure out, like, if I want to get an airline ticket, right, I'll go to Kayak because it's just easy or expedient. Was it one of these search engines? And it just seems to make sense. Like if I was like, I need to, I want to do a yoga class and let me just go here and sign up. Like what, I'm not, it's not clear to me why there was a disconnect between somebody wanting to go to, because people were signing up for classes online.

• 39:09Speaker 01

  So, I mean, you, do you enjoy yoga, I assume?

• 39:11Guy Raz?

  Uh, yeah, I mean, I do, yeah. I mean, I don't do it as often as I should, but yeah.

• 39:15Speaker 01

  Right. So I think that's really what it is, is everyone, everyone I surveyed, if I said, do you want to do a yoga class, 100% of people would say yes. If I told them, do you want to go tomorrow at 12:00 PM, I would get like a 1% people who would convert. And so that was sort of the problem. It was this, it was this drop off that was happening when people actually were presented with the information in front of them, right? It was the brain cycles of which class do I go to? Is this the right class?

• 39:40Guy Raz?

  Do I commit?

• 39:41Speaker 01

  Do I commit? Oh no, oh my God. Oh, and then it's $20? Forget it. You know, so this was sort of the brain cycles of putting too many decisions in one place for someone that was not working, right? And so something with like airline tickets, like you already made the decision to go. Or if you're going to go eat, you're, you're going to eat. Eating is, is a utility. Like you're going to eat, right? And that was the difference where working out and going to these classes are aspirational. I had to really motivate people to want to get out of their houses to go and try these experiences. We needed to build a product and a value proposition that would make classes fun, not an obligation or not something that felt like work.

• 40:19Guy Raz?

  And just to review here, I mean, at this point, your business was basically just a search engine for classes. And I guess you realize that people are not, are not just going to go into a search engine and look for a class and come and sign up. And so essentially what you had to do was, I guess you had to completely change what your model was.

• 40:39Speaker 01

  Yeah. A year and a half in, we decided to work, go in a different direction. I mean, we downsized the team. I had to save cash and I wasn't done, you know? I wasn't done trying to solve the mission.

• 40:53Guy Raz?

  So what was it? What did you land on?

• 40:55Speaker 01

  So we started building another product called The Passport. And this was a 30-day product where people could go and try these, you know, one-off free classes that these studios were offering, all in one place. And because we had built so many of these integrations, what was nice is at least that part was done. So all that people had to do was go on, you know, search around, discover, and they had 30 days, right? So putting this time limit on it also helped them say, "Okay, wait, I have 30 days to go, you know, try a yoga class, try a dance class, try a spin class, let me go do it."

• 41:26Guy Raz?

  So wait, it was like a, just explain. It was a, you would just pay, how much was the 30-day?

• 41:31Speaker 01

  So it was $49. We had about, we had 20 studios at the time when we launched, and they were of different genres. So using your pass, you could go to up to 10. You had to be a new customer.

• 41:42Guy Raz?

  And these were all fitness? This was not, these were not like photography and art classes? This was just fitness?

• 41:46Speaker 01

  These were all boutique fitness classes.

• 41:47Guy Raz?

  So 10 classes, we had 30 days to use it up?

• 41:52Speaker 01

  Correct. So you had 30 days. You came onto the site, you could see all the schedule information, and you basically got to stamp your passport, right? With different studios.

• 42:02Guy Raz?

  So it was like five bucks a class?

• 42:03Speaker 01

  Basically, correct.

• 42:04Guy Raz?

  But then, I guess the question is, why would they pay 49 bucks for it? If they could have just done it individually for free?

• 42:09Speaker 01

  It just was an easier booking experience, right? I mean, that's like where technology really, I think, in our lives started coming alive. It's like sometimes it's easier to call a cab than Uber, but you still do Uber because it's like in your phone, right? And I think it was, it was sort of that type of experience of people just saying, "Oh, my God, this is all in one place." And, you know, we made it all so easy, right? Like, we would give information, we would have photos. It just felt more accessible to people in the way we were also presenting the information. And it felt exciting, right? To say, "Hey, like, let me sign up with my friend, and we'll both do it together for a month." You know, it just felt like you were going on a journey together. And this kind of brings me back to having a value proposition and not just it being a search engine.

• 42:50Guy Raz?

  So how did it do, the Passport model?

• 42:53Speaker 01

  So we finally started seeing reservations, which was, you know, a really great, was great progress for us as a company. We started, you know, having people try these classes. They loved going to yoga on Monday, dance on Wednesday. Our studio owners, though, you know, were getting the wrong end of the deal because the promise we had made to them was that 75% of people would come back to these studios. Now, what we were doing, we were, every single time you went to class, we collected a rating review right from you on if you liked it. If you gave a class like a four or five, we would then retarget you with a package right from that studio directly.

• 43:30Guy Raz?

  Right.

• 43:30Speaker 01

  So, you know, people would try these classes and they weren't going back. We saw less than 10 to 15% of people go back to studios. And that was not fair, right? These studio owners were giving us these classes for free, but we're not getting people to come back and be loyalists. And bigger problem for me was this is a 30 day product and it's a one-time purchase. That's also not a great business.

• 43:52Guy Raz?

  Because you need repeat customers.

• 43:53Speaker 01

  Of course, right. So the other thing we realized, which was very interesting, was people were buying this product with multiple email addresses. And we started getting yelled at from our studio owners who would call us and say, "Hey, you told me like customer X couldn't come back. I saw her again last week."

• 44:10Guy Raz?

  Because they were using a different email account.

• 44:13Speaker 01

  They were using different email addresses and signing up over and over again for the passport. They loved variety. And that was sort of this thing we stumbled upon accidentally, which was this idea that people really loved, you know, having this, you know, different classes to take and this motivation of I could really package my own workout routine together. So then we started thinking about what if this is something that needs to be, you know, recurring every month? So we did a survey with our users where we asked them, you know, if you could go back and do this product over and over again, use the passport month over month and visit your favorite studios, you know, would you do it? And 95% of them said, "Yes, I would."

• 44:52Guy Raz?

  Wow, wow.

• 44:52Speaker 01

  So that was sort of the information and insight we needed to say, "Hey, let's try a subscription."

• 44:58Guy Raz?

  And so you've got customers. And were you getting a lot of customers? I mean, what was a lot? Was it like we getting thousands and thousands of people signing up?

• 45:05Speaker 01

  No, this, this was, I mean, we had a total of about 2,000 customers on the passport before we pivoted to ClassPass. So we're, you know, we're getting there like in the sense of, you know, the, the chart was starting to go up, but we had a problem that that still needed to be fixed, even though all these, you know, moments were great of people starting to talk about us and tweet about us, we still needed to do more work. So this is when we started to test out a monthly subscription. So in June of 2013, we sold a ClassPass model where we let 50 people come on and try, you know, try this out on a more monthly basis.

• 45:41Guy Raz?

  So what was the difference between the ClassPass model and the Passport model?

• 45:45Speaker 01

  So the ClassPass model was a monthly subscription where you could go back to any of the studios, right? Up to three times a month, there was still a cap on it. So you could try, you know, you can go to, you know, a dance class, yoga class, spinning class, whatever you really want to do. You just couldn't go to any one place more than three times in a month. That's when we started and it was also $9.9 for 10 classes when we launched.

• 46:07Guy Raz?

  And this was really inspired by the success of the Passport model, that you saw that model and you thought, this is really where we should, this is what we should be focusing on, like one simple idea that people can get, can wrap their heads around and that's what, like that's going to work.

• 46:24Speaker 01

  Correct. And it was just exponential growth after that. And by month three of having the ClassPass out, we, it took over the Passport revenue and we knew that that was the model to focus on.

• 46:36Guy Raz?

  So June of 2013, you launched the ClassPass idea. And by the way, was the business still called ClassTivity?

• 46:44Speaker 01

  Yes, it was. So we were called, that product was called the ClassTivity ClassPass.

• 46:49Guy Raz?

  Right.

• 46:49Speaker 01

  That's a mouthful.

• 46:50Guy Raz?

  Yeah. And, and it's $9.9 a month for 10 classes a month, a variety, a variety of options in New York, which is an amazing deal, right? Because some of these classes could, I mean, that's 10 bucks a class.

• 47:03Speaker 01

  Yeah, some of the classes were $30. Yeah, absolutely. And, you know, we had a variety of different studios on the platform. I mean, there were certain studios that we just put on the platform where we didn't have like full agreements with yet. Because we just wanted to test and, you know, we started sending them so much traffic that they would call us up and say, hey, like, who are you? Guys, can we, you know, let's chat, let's talk about this. And then we were able to, you know, negotiate a better rate.

• 47:28Guy Raz?

  Right.

• 47:28Speaker 01

  But we kind of were really just testing out this idea. And if people wanted to do this, and as I, as I mentioned, like, people would make a reservation. And then we would go fulfill it on the back end.

• 47:37Guy Raz?

  So basically, when, when someone would sign up for a class through your website, you would just go to the studio's website and, and sign up that user and pay the fee yourself. And, and I guess it didn't matter whether you were losing money on it because you just, you just wanted to see if this thing worked.

• 47:52Speaker 01

  Yeah. So in the beginning, I mean, we didn't really care as we were testing the concept.

• 47:55Guy Raz?

  Right.

• 47:56Speaker 01

  We were, we just wanted to prove that we could do this and get their attention. Right. That's the number one thing in the beginning is no one was gonna really, I mean, at least the bigger studios weren't gonna, you know, pick up the phone. I mean, for the smaller guys, it was actually, it was fun. We would actually, you know, there were days where I would do five classes a day because the way we would really like, we'd love to kind of go into these studios was take the class with the owner and then sort of talk about class pass after, you know, sit down with them with our, in our sweaty clothes after work with an iPad and talk to them about what we were building.

• 48:26Guy Raz?

  So you were really, you had to be like a door to door salesman. Like you had to go, like, I always think about the story of Sarah Blakely selling fax machines door to door, which is what made her into a great entrepreneur. I mean, you had to do that. You were basically knocking on doors and saying, hey, I've got this business. Do you want to work with us?

• 48:42Speaker 01

  It was amazing, though. I mean, we had to go to class, like, which, as, you know, I think that was so important for the people, you know, we were meeting is that the, we were their customers and we loved going to class and so did everyone on my team, you know? And we weren't trying to, you know, we weren't walking in there in suits with some, like, some marketing, like, platform for them. We were, we were like, hey, like, we have this idea. And, you know, that we truthfully, like, we did so much to understand about, more about their business. So we did a lot of analysis for every single studio because we wanted to make sure they had a good experience with us and wanted to stay with us. Right. We wanted to have high retention of our studios because that's also what was gonna keep our customers happy.

• 49:22Guy Raz?

  And Paul, we should mention here that I think at this point, you've got this model where you're paying the studios like a fee for each class that your customer takes. So, so your customer might be paying 99 bucks a month, but you were paying the studios like a negotiated fee every time. One of your customers would go to one of their classes, right?

• 49:45Speaker 01

  Exactly, yeah.

• 49:46Guy Raz?

  But it's a little bit like going to the dentist. Like, if I go to the dentist and I pay cash, I'm going to pay a higher rate than if I have an insurance policy because I'm going to pay a rate that the insurance company has negotiated. So, I mean, it's a kind of a fair analogy, right?

• 50:02Speaker 01

  Right, yeah, I mean, the dentist feels a lot much or much more cruel than going to yoga class.

• 50:07Guy Raz?

  Yeah, right, right.

• 50:08Speaker 01

  But sure, yeah, I see what you're saying, like, in the sense of, yeah, we have a pre-negotiated price, but the whole thing is, is it's the discovery side. Like, you probably wouldn't have ever even gone to the yoga class if it wasn't for ClassPass.

• 50:21Guy Raz?

  By the way, I mean, you had raised about $500,000, but I imagine that money was gone by that, that point.

• 50:27Speaker 01

  Yeah, so I had, by that point, I actually raised a little over, I raised another $700,000 after Techstar, so what was nice is, you know, I had money to get to this point. I actually remember in the summer of 2013, once ClassPass worked, we almost were, we were getting to a point where I had about three, three months of cash left.

• 50:48Guy Raz?

  Wow.

• 50:48Speaker 01

  And so I thankfully, you know, raised a bridge round from, actually Cyrus from Zocdoc helped me raise that round, which got me into, got me through to January, which is when I officially closed my seed round that was going to let us launch in other places.

• 51:01Guy Raz?

  This is January of 2014.

• 51:03Speaker 01

  January of 2014, correct.

• 51:05Guy Raz?

  Right.

• 51:05Speaker 01

  So, between that point, what I really wanted to prove was getting to a million-dollar run rate, right? So that would mean that we had 1,000 people paying us monthly for ClassPass, which was a $99 product, and that would mean that I was at a million-dollar run rate. And that's like really what I wanted to get to for January. And I think, you know, this was such a fun phase for the company because every day we would, you know, have new customers and we would be doing these crazy promotions. And one of the best ways we would get customers to sign up is we did this Lululemon promotion where people would get $100 gift cards to Lululemon if they signed up for ClassPass and stayed with us for six months. And one day, I get to the office and there's like a letter on my desk and I open it and

• 51:50Speaker 01

  it's a cease and desist from Lululemon.

• 51:52Guy Raz?

  God.

• 51:53Speaker 01

  And I remember, you know, my first instinct was like, oh no, should I be scared? But then I was like, oh my God, Lululemon knows who we are. You know, it was one of those moments where I remember celebrating kind of because we were so small, right? And to sort of be on the radar of a company like that, it made me realize like, we were really on to something.

• 52:11Guy Raz?

  But why is that not a lot? Why couldn't you offer a Lululemon gift card?

• 52:15Speaker 01

  Well, we were like, marketing it with like, it was in our marketing materials, right?

• 52:19Guy Raz?

  I see, I see. So it made it seem like it was like a partnership or something.

• 52:23Speaker 01

  Joy promotion, correct.

• 52:24Guy Raz?

  So did you stop offering the Lululemon gift card?

• 52:27Speaker 01

  I think we may have done it once or twice more, but we were careful. And I mean, you know, at the end of the day, you, you do what you need to, right? I think that was, this was like the beginning, like we were-

• 52:38Guy Raz?

  As long as it's legal.

• 52:39Speaker 01

  As long as it's legal, exactly. Like, we didn't want to, we weren't obviously like not, you know, we didn't want to, you know, Lululemon's obviously a great, you know, partner to us now and we, we've done a lot with them, but it's just, you know, at that time, we were, we were just five people in an office trying to make something happen.

• 52:55Guy Raz?

  So I love this idea. You had a very clear goal. You need to, you needed a thousand paying customers a month for a million dollar run rate, which was still not going to make you profitable, but it was going to prove the concept.

• 53:10Speaker 01

  Yeah.

• 53:11Guy Raz?

  And did you get there? Did you get to that point?

• 53:13Speaker 01

  Yeah, we got there. I mean, when you look back at the curve, right, that we started seeing, I mean, it just, the numbers were exponential, right? We just started doubling and then we were tripling. The amount of people sort of signing up for ClassPass, talking about ClassPass was exponential and viral, right? And all of our marketing outside of this Lululemon promotion really came from people telling each other about it. So we would do a lot of, you know, referral tactics and referral marketing and it was very much a product people wanted to do with their friends. So it was a million dollar run rate that we wanted to achieve by January. And this is basically the advice I had received was, you know, once you get to a million dollar run rate, you'll be able to raise your Series A, right?

• 53:56Speaker 01

  That was sort of what I had heard in the market at that time because, by the way, I had gone out to Silicon Valley three times already.

• 54:03Guy Raz?

  In that, in the previous year?

• 54:05Speaker 01

  Yeah, in the previous three years I'd been building my company.

• 54:08Guy Raz?

  Looking for cash.

• 54:09Speaker 01

  Looking for cash. So I was like, I kind of remember feeling like, oh, I have to go back out there. And I didn't, I didn't want to come back with, you know, no cash, right? That was, that was just not an option.

• 54:19Guy Raz?

  I imagine a lot of the rooms that you were in where, where you were trying to raise money were, were filled with men. And, and I imagine men who perceived themselves to be powerful or, or important. Were you ever intimidated? And if so, how, how did you find your courage?

• 54:36Speaker 01

  It's, you know, this is a great question. And I feel like it's been the backbone of my whole life, which is I had to get comfortable being different in every room. I think being different just became something I got very used to. And I think things like, you know, dancing, things, you know, staying in places and being around people who made me feel confident became ways for me to never doubt myself. And I knew I was smart. I knew I had passion. I knew I knew how to work hard. And so if people doubted me, like, that's their problem, not mine. And I think I would always walk into a room with a lot of confidence, with knowing exactly, you know, how I wanted to present my company with, you know, all the,

• 55:18Speaker 01

  all the, you know, jazz and charisma I could. And, you know, if people didn't want to believe me, it's their problem. And I would find someone who, who was going to, right? And I think that it was so important to me to find people throughout my journey who understood who I was. And I think everyone struggles with this. I never wanted to be boxed into any one thing, right? Like, I'm a dancer and I'm a business person. I am, you know, I am short, but I am completely powerful. You know, I'm Indian, I'm American. I've kind of always needed to, I've always had this sort of struggle with sort of being like in one place, but being many things. And everyone's multifaceted. And I think when you find people who see what your magic is and can see it, it's, you know.

• 55:58Guy Raz?

  Okay, so it's around the end of 2013. You've hit your million dollar run rate. And at this point, you start to get rid of some of your earlier products. Like, for example, I think you get rid of Passport, the $49 package.

• 56:15Speaker 01

  Correct. I always remember this conversation with one of my advisors in that fall. And he was like, "Pile, you need to focus and get rid of the Passport. It's crack to you guys. It will be a chapter in your book one day." And I remember like at that moment, because it was like our first sort of child that had worked, I wasn't fully ready. But by, you know, three months later, when, you know, we had crossed 1,000 customers on ClassPass and, I mean, you know, 90% of the reservations were coming through the ClassPass model. We knew it was the right way to go. And we luckily got the ClassPass domain. We got the ClassPass like Facebook name, IG name, Twitter account. And in February of 2014, we finally changed our name to ClassPass.

• 56:56Guy Raz?

  All right, so you get ClassPass. And up until 2014, you were only in New York, but you wanted to test this out. And so you expand it to LA and Washington DC and San Francisco. But that presumably meant, over the course of the year, right? But that meant that you had to expand your team. You had to build your team out.

• 57:16Speaker 01

  Yes, right. So in January, once we raised our $2 million seed round, the hypothesis was, okay, can this work in other places, right? That was the number one thing we had to prove. We needed to make sure that this was just not a New York phenomenon. And so we launched in Boston and DC. And we started seeing the same traction, the same growth in those markets, which gave us confidence to say, hey, let's bring this to other markets. And so we ended up, you know, hiring more people, sending them out to these cities, expanding the team. But it was heavily a sales effort. But we were able to get cities up in a matter of two weeks.

• 57:51Guy Raz?

  So you start to build it out to other cities. And that year, 2014, this is a kind of a pivotal, even another pivotal year, because you had this model with the $99 a month for 10 classes, which was an amazing deal. Then you kind of double down on that. You made it $99 for an unlimited, unlimited membership. You could go to as many classes you want for 99 bucks.

• 58:14Speaker 01

  So it started as a summer promotion.

• 58:17Guy Raz?

  In 2014.

• 58:18Speaker 01

  In 2014, to continue, you know, with growth, we did a summer promotion for Unlimited. And I think the other part here is... We were, you know, there was no blueprint, right? We didn't know how many classes people would go to. With the 99 for 10, we were seeing our average around, you know, five or six classes per customer. We didn't know if that was right. And we had people, some people telling us 10 wasn't enough. Some people telling us 10 was too much. So it was, you know, we didn't really know where the numbers should be, if that makes sense, right? We had to test different plans. And so, you know, we were in, obviously, heavy growth mode. So we do this promotion for Unlimited Summer. And at the same time, we also secure like amazing partnerships with like top tier studios like Ferris Boot Camp, Flywheel, with, you know, a bit of a higher price, right?

• 59:03Speaker 01

  So we're also dealing with a little bit of our cost structure changing from more of the premium inventory. We do this Unlimited Summer promotion. I raise my Series A. We announce it, right, on all the media blogs. And literally, the wolves come out. The next day, I start seeing a competitor in every single city.

• 59:21Guy Raz?

  Like local competitors? Like, uh, like some company would just decide to, to like aggregate a bunch of studios or gyms in a city and then offer packages to users?

• 59:32Speaker 01

  Yeah, so now I'm dealing with multiple things happening at the same time, where I can't really change my pricing, because all my competitors have copied my same product, right? So everyone has an Unlimited product now in the markets. We obviously were the front runner, because we had started the business and we were raising more money. I mean, by the way, six months after my Series A, I raised a $40 million Series B, right? So just think about how quickly that scaling and that growth is. And even in terms of numbers, at, when 2014 started and we started projecting how many cities we would be in, we thought we'd be in eight cities by the end of the year. And in September, once we launched our, or we announced our Series A,

• 1:00:16Speaker 01

  and all these competitors came out, I remember thinking, we need to go much quicker. This is not going to work. We're going to lose some of our markets. We need to win. And we started at this project as a team. We called it Operation 2015, which meant that we wanted to be in 20 cities by the end of the year, right? So, so this was launching 12 extra cities in a matter of three months. And so we hired like 60 people that weekend. It was absolutely like one of the quickest things we had ever done. We literally like bought tickets for people to go into these cities. We trained them. They went in, we launched all these markets and we did it by January 1st of 2015. We were in 20 markets around the US and we were, we were, we had to build a protection shield essentially.

• 1:01:01Guy Raz?

  And so that month, that, that summer of 2014 temporary promotion became.

• 1:01:06Speaker 01

  It became the product. Yep.

• 1:01:08Guy Raz?

  So here's, here's what I'm wondering, right? And I think this is, this is important, important point to point out, which is

• 1:01:15Guy Raz?

  even though you were getting tons and tons and tons of customers, I can't imagine that, that people paying $99 a month was profitable for you because you still had to compensate the studios. And even though you were paying them less than what they might charge for a full price class, I can't ima- like if somebody was going to 20 classes a month, that was gonna, that was gonna be five bucks a class, right?

• 1:01:36Speaker 01

  Right. Well, so we were obviously looking at the averages, right? And so in the beginning, you know, we started seeing the numbers go up and it was on our radar. And we also then obviously started seeing our costs go up because we started getting better inventory, right? That was the other thing that happened is we started attracting the better studios, right? Which we had to negotiate better rates with.

• 1:01:56Guy Raz?

  Because they're gonna charge more money because they're the better studios.

• 1:01:58Speaker 01

  Of course. Yeah. Because at, at that point, we were, the way we were doing a lot of the discounting was it was a 50% off of their 10 class pack rate. So it was obviously going to be higher, right? So we were kind of in this jam and we started doing some price increases, right? Because that was sort of the first thing that, you know, anyone could try. And what we wanted to do was really find this really nice price point where we wouldn't have people leave, right? I think the, the other point is fitness should be accessible, right? And I think that was a belief we had as a company. We didn't want to have like a $300 product that didn't work for anyone.

• 1:02:32Guy Raz?

  You had, I think at one point you tried to raise the price to about 190 a month. And, and customers, I'm sure you can understand, were like, hey, what, what, like what gives? We're paying $99 a month for this and now it's like twice as much.

• 1:02:45Speaker 01

  We didn't, we didn't go that high that quickly. I mean, we started with doing like a 15, $20 increase and then it went up to around 150. What we started doing was introducing lower, lower packages. And then what happened was, you know, our really profitable users were obviously choosing the lower packs, which made the unlimited package even get worse in terms of, of our margin, right? And the people who are sticking with that product were obviously the ones who are using it a lot. And so over time, the margin of, of our unlimited product was deteriorating as the cohorts were, were growing.

• 1:03:18Guy Raz?

  And that puts you in this weird situation where you were kind of betting against your subscribers, like, I guess, like hoping they don't go to too many classes.

• 1:03:27Speaker 01

  Yep. I think for me, even as a founder, I remember, you know, showing up to work one day and I was doing like a social media interview with my team. And they asked me, you know, pile, like, tell customers, like, how many times you work out? And I was like, oh, I go to class every day. And they were like, you can't say that. Like, we don't want people to go to class every day. And that's when I was like, wait a second, this is like, not the mission we stood up for, right? And it was sort of a moment where I knew we needed to make a change. As, as hard as it was, I was like, this is not going to work, you know? We're, we're betting against our, our customers being active. And that completely goes against everything we've fought for, for the past, you know, three, four years, where we were just trying to get somebody off the couch.

• 1:04:08Guy Raz?

  Yeah. There, there's actually a great Planet Money episode about this several years ago, about how gyms don't want you to come there because they make their money when people don't show up, right? You know?

• 1:04:18Speaker 01

  It's very true. It's, it is sadly very true. It's the breakage model, right? And that's not what we wanted to bet on here. It's the exact opposite.

• 1:04:27Guy Raz?

  And the breakage model would be that people would buy the unlimited pass, but really only go two or three times.

• 1:04:33Speaker 01

  Yeah. And that's not, that's not the promise you want to make to people. I mean, obviously, there is a lot of data and customer testing we did. And, I mean, we have so much data on like, you know, how many times people go to class and how we could change. And, and we were trying to understand what human behavior would do. But what we didn't, what we didn't know is there, you know, every time we would make a change, human behavior would change, right? And so we had to kind of do this testing while the airplane was in flight.

• 1:05:00Guy Raz?

  So it was clear by 2015 that the unlimited model just was not, you were increasing the fees, but the margins were diminishing. It was clear to you that it just couldn't work. You couldn't offer this as a product.

• 1:05:16Speaker 01

  We knew that.

• 1:05:16Guy Raz?

  I mean, what's amazing about this story, I just want to pause and point this out is, you've already had like five companies in one single company at this point.

• 1:05:25Speaker 01

  Oh, we're not done yet.

• 1:05:27Guy Raz?

  And it's actually really amazing because, you know, that's really what I think, especially a technology-focused business is about. It's about, you don't know. I mean, you had this model in 2011 that was foolproof, that everyone said, this is a no-brainer, it's a slam dunk. But it wasn't. And you had to shift. I mean, you're, what, at this point, five years into the business?

• 1:05:51Speaker 01

  Yeah, we're just about...

• 1:05:51Guy Raz?

  And you have five different products that sometimes it worked really well, and then you kind of evolved and you realized, we got to pivot again.

• 1:06:00Speaker 01

  I think that's, you know, really is in the DNA of our company now. And I think we're super resilient. And I've learned this, you know, to be mission-obsessed as a founder and not product-obsessed. It's not my product that makes us. It's us actually creating a solution, right, to the problem. And as variables change, whether there's things that change in the world like we're going through right now, or, you know, things that change in my customers' behavior, I have to be able to respond to it in a way that's aligned to the true north. And that's the one thing that's never wavered in our company, is what we're fighting towards, right?

• 1:06:32Guy Raz?

  So when you got, I mean, the other challenge is you offered something that people got used to and they laughed, and then you said, it's not going to be available anymore. So I'm assuming there were people who were not happy about this.

• 1:06:44Speaker 01

  Yeah.

• 1:06:44Guy Raz?

  Did you take a hit initially from that? Did people stop signing up as quickly?

• 1:06:49Speaker 01

  The noise was bigger than the impact it had on the business, for sure. But the noise obviously still hurts, right, in the sense of, you know, you never want, you know, your customers unhappy. And that was definitely a tough, tough day. And, you know, we obviously knew it was the best thing for the long-term part of the business. And, you know, we're here today because of it. And we have, you know... Obviously, you know, built a much bigger business since then. And that's obviously because we were able to get through that moment.

• 1:07:19Guy Raz?

  So basically, you pivot to, what, offering packages like, you know, $99 for 10 classes? Or you go back to that kind of model? Or what did you do?

• 1:07:30Speaker 01

  Yeah, so we have, yeah, we have class packs now, right? So there's like a three pack, a five pack, a 10 pack. And then you could always add on extra classes through bundles and à la carte. So we kind of made it a bit more, you know, pick your, pick your plan and by how many times you want to work out.

• 1:07:48Guy Raz?

  And also, I think it's based on credits, right? You get credits.

• 1:07:52Speaker 01

  So that was another change we made. I know, we've definitely made a few iterations to the company. But we made that change slightly after the class packs was we realized that the class packs were a bit constraining in the sense that not every class was the same price.

• 1:08:11Guy Raz?

  And just to be clear, a higher ticketed item would be like a Sunday morning yoga class versus a Wednesday 10 a.m. yoga class?

• 1:08:18Speaker 01

  Correct. And my favorite thing is you can now even book like things like massages and acupuncture and other types of experiences that would have never fit into our class model before because we now have these new experiences in different cities that people can go to.

• 1:08:36Guy Raz?

  You kind of really became, it's kind of important and a symbol for young women who wanted to become founders, especially women of color. You know, you launched this company, this business, you were getting a lot of attention, you were raising a lot of money, you were running it. I think the company was valued at almost half a billion dollars in 2017. And that year, you decided to step down as CEO, remained as part of the leadership of the company, but your business partner Fritz Landman becomes CEO. I mean, Tell me why. I mean, I wouldn't want to be a CEO personally. I think it would be horrible and boring and stressful. I'd rather do like strategy and vision stuff.

• 1:09:21Speaker 01

  Right. Yeah. So first, I think it's important for people to understand that the role of a founding CEO significantly changes as your company grows, right?

• 1:09:30Guy Raz?

  Right.

• 1:09:30Speaker 01

  So what I was doing when we were five people and even 50 people is very different than all of a sudden when you have 200, 300 people. And I started finding that the title of CEO was defining me and boxing me in more than me being able to sort of have the freedom to continue to do the creativity and the vision and the projects that I knew I really wanted to spend my time on. And I realized, you know what? And I was lucky. I had a great partner in Fritz. Fritz had been working with me at this point for three years. We kind of also started, you know, he started getting more involved and he was kind of in the day to day a lot more. And I was working on more like of the strategy and the vision of the company. And so it became pretty easy for us

• 1:10:14Speaker 01

  to make the shift. I think like what I realized in that process is that a title like to me doesn't mean anything. It's the work you do. And, you know, it was really important for me to make sure that, you know, especially little girls and women know that they can be CEO.

• 1:10:31Guy Raz?

  Yeah.

• 1:10:32Speaker 01

  Now, the opposite side of that is I would not want to see somebody in a role that didn't feel authentic to them, right? And wasn't letting them be who they wanted to be.

• 1:10:42Guy Raz?

  Yeah. So you stepped down as CEO, but obviously still very much involved in running the company. And you really kind of, you growth go on a kind of a, just this explosive period of growth, right? I mean, you guys acquired a couple of competitors, international competitors, and really growing very, very quickly. And as you grew, as you, as expected, you also become a bigger target, as you should be, as any big targets, anyone that does well, it becomes a big target. And that's, that's part of the deal. You know, that's just part of the price you pay when you have success. And

• 1:11:26Guy Raz?

  You start to get a lot of criticism, really more visible criticism from studios and from small business owners who had studios saying, look, this is really undercutting our, you know, our business because our margins are so low anyway and ClassPass, you know, we have to work with them because they're now the big 100-pound, 800-pound gorilla on the block and we have no choice, but we're not making any money off of this system. And of course, I'm sure some of it you feel like is unfair, but some of it has to be a little bit fair.

• 1:11:58Speaker 01

  So, you know, we always look at all of our partners and, you know, I think it's important to understand that we're a two-sided marketplace, right? We're always trying to balance the two and be the middleman that is making both sides happy. And with that being said, you know, I think there are many studios out there who've literally built their entire, entire, you know, businesses off of ClassPass, right? Like, wouldn't be alive today without launching with us. And on the flip side, you know, I think we also know that there's companies that, you know, have had to deal with discounts who didn't want to, you know? And I think for us, we're always trying to improve. We're building, you know, our, our technology, our algorithms, our data to make sure that we're always maximizing revenue and our studios are making money when we make money, right?

• 1:12:43Speaker 01

  So, everything is 100% aligned. I do think, you know, studios would love to be able to do some of this themselves, but when you really, I mean, when you think about it, it's not that like, I hate saying like, it's not that they can't, it's really just that the synergies, right, of a, of a company like ClassPass being able to do customer acquisition for an entire industry, right, where a class is, you know, $25, $30, is just obviously more efficient when we're selling a product that has a bigger lifetime, right? We're able to put money into Google Analytics or Facebook, you know, and we, they can't do that.

• 1:13:18Guy Raz?

  And I think in February of 2020, there was an article in Vice, and it was a big article about ClassPass, I think it was called "ClassPass: Squeezing Studios to the Point of Death." I know that you, your company refuted it, you were, you went out and kind of refuted what, what they said. And let's say, let's say a significant part of the article was inaccurate, I don't know, I'm not, I'm not saying, but let's just say for argument's sake it was. That article still must have stung a little bit when you saw it.

• 1:13:46Speaker 01

  100%.

• 1:13:48Speaker 01

  I don't think we're ever at a point as a company where we are saying like we know that we're right and that we have the exact perfect way of doing things. What we're always trying to do is make the majority of our studios happy, right? A majority of our customers happy on a given day. And we're improving our models, we're improving the way our business works for all these studios. And it really comes down to prioritizations. But we're always, once again, like our teachers are our product, right? I always say this, it's not, our product is not this technology we built. Our product is this class that someone goes to, right? Offline. It's the experience they have with our instructors in our studios.

• 1:14:29Speaker 01

  And that is the most important thing for us to protect and make sure that everyone feels like they are getting a good end of the deal.

• 1:14:36Guy Raz?

  I think in January of this year, you closed your Series E round with a $1 billion valuation. It's the first billion dollar value company of this new decade, which is amazing. And like many or most businesses, I just talked to a founder who was on the show recently and who told me February of 2020 was their best month ever. And then comes March. And here we are, you're at home, you've got a three-month-old baby at home, by the way. Congratulations.

• 1:15:09Speaker 01

  Thank you.

• 1:15:10Guy Raz?

  And it's just a different world.

• 1:15:14Speaker 01

  It's a different world. I mean, these are unprecedented times. And I mean, studios in our business were one of the first things to obviously be mandated by the government to shut down. So overnight, in almost, close to, I would say, 95% of our markets, most of our studios closed down.

• 1:15:35Guy Raz?

  I mean, you raised money in January, so I have to imagine that that helps you because it gives you some cushion to maybe weather this storm for a while?

• 1:15:47Speaker 01

  Yeah. So, I mean, we've obviously had to make changes anyway. But yeah, I mean, we're happy we have that money, but that still doesn't mean we can waste it, right? I mean, this is all about survival. So the number one thing that, you know, we're really focused on is making sure our studios make it through this time, right? I mean, they are small businesses, they have huge rents, they, um, you know, they've, many of them have had to let go of their employees, you know, and their instructors during this time. But we want to make sure that, obviously, when this is over, and, you know, we don't know when, that people can return to these amazing experiences and instructors that they know. So what we've really been focused on is, you know, how do we send money to them? And we have a partner relief fund that we've launched

• 1:16:30Speaker 01

  where customers can donate directly to their favorite studios. And on top of that, you know, something which is obviously very important to us is how do we keep people active at home, right, today, in their own spaces? And so a few years ago, we started working actually on a video product. And, you know, we were lucky that, you know, we had it sort of up and ready. And so right when this started, within like, a week, our entire product changed. And, you know, our homepage and everything became, do these digital workouts. And we've launched this live stream capability where you can use your credits to book these live stream classes to over 50,000 different workouts a week that are going on from our studios. So what we're, you know, I say this in the sense

• 1:17:13Speaker 01

  of, we're trying what we can, you know, we're doing what we can. And our studios, obviously, if you book these classes, make money. And that's really one of the most important things right now is for people to stay active and our partners to be able to make it through.

• 1:17:26Guy Raz?

  Yeah. And so I wonder, how do you, I mean, it's, it's very hard, even for the most optimistic people.

• 1:17:32Speaker 01

  Yeah.

• 1:17:33Guy Raz?

  It's hard. It's a hard moment.

• 1:17:34Speaker 01

  Yeah, I mean, you know, I, I think it's been really heartbreaking to see, you know, what this has done to a lot of small businesses. And even, you know, for, you know, we've had to let go of a lot of employees. I know a lot of companies have had to. I think it's hard. I mean, we started this year being a billion dollar company, right? And then have lost a lot of our revenue. So we're gonna have to go backwards a little before we go forwards, right? But I think if you have the mindset of, we're gonna figure it out. We have a team that's unbelievably loyal. We have a mission that doesn't go away, even in Corona times. Right. We're actually trying out different types of classes on there from cooking classes and

• 1:18:15Speaker 01

  and other and like comedy and things because we don't know what's going to work. So we're back to throwing some things at the wall. Again, and I think that startup blood is in our is in our DNA and there's going to be some adjustments that are going to be made and we'll have to see how customers evolve with it.

• 1:18:30Guy Raz?

  You know, I think there are roughly two types of there may may have so much, but there are roughly two types of entrepreneurs. Those who really kind of deal with stomach churning anxiety, right? Like bathroom floor fetal position, crying, freaking out. Is this going to work? Right. And then others who are just naturally more even keeled like they just they're okay. They can handle it. I would put myself in the anxiety riven bathroom floor crying model to be perfectly honest. But you you just seem to me to be just, I don't know, you don't.

• 1:19:05Speaker 01

  I think I think once you've been through the bathroom floor model for three, four times, you just start feeling more resilient to it and more confident in the fact that you're going to get through it that, you know, we've been through so many ups and downs as a company, you know, I think there there is like close to nothing to like that. I feel like we haven't been through. I mean, outside of a global pandemic, but you know, I think that's that's really what it is, is I we've been through a lot, you know, and I've fought every single day to come up with a solution, you know, every single time I could. And and I think that's, you know, the advice I always have is like, as long as there's a dollar in that bank account, you have time to fight and you have money to fight.

• 1:19:50Guy Raz?

  When you think about, it's been 10 years since you launched this thing and we've got a billion dollar valuation in January, which is incredible. And we're obviously in a difficult moment now and it could could last for a while, but but but when you think about the success and the trajectory of of this business, do you? You know, how much do you think this has to do with luck? And how much, how much do you think it had to do with just your insane work ethic and skill?

• 1:20:17Speaker 01

  I think it's all about making luck happen to you in the sense of positioning your cards right, right? In the sense of when opportunities sort of present themselves, you either have to decide to go with it or not. And I think like, this is part of why, to me, ClassPass is so important to people is I kept dancing. And I say that because dancing connected me back to like, the center of everything I was building. And I really want other people to always have that center in their life. It gave me clarity. And so I think having that clear thinking helped me guide my decisions, helped me listen to myself, helped me sort of put together, wait, like, people are saying this and my data is showing this, so I, this is sort of gray still, but I'm going to go with this decision.

• 1:21:03Speaker 01

  And, you know, I even think about my parents, like, I mean, my parents came here with nothing, you know? And literally, like, for them to know that their daughter built a company like this is like, something that I will always feel like is the most rewarding part about this.

• 1:21:21Guy Raz?

  That's Pao Kadakia, co-founder of ClassPass. By the way, Pao still dances, and you can actually see some of her incredible choreography on YouTube. One of Pao's videos of her dancing at her wedding reception has more than 3.5 million views.

• 1:21:42Guy Raz?

  And thanks so much for listening to the show this week. You can subscribe wherever you get your podcasts. You can write to us at [email protected]. And if you want to tweet at us, it's at How I Built This or at Guy Raz. This episode was produced by Rachel Faulkner with music composed by Ramtin Arablouei. Thanks also to Candice Lim, Dareth Gales, Julia Carney, Neve Grant, and Jeff Rogers. I'm Guy Raz, and you've been listening to How I Built This.