I. APPLICATION QUESTION OF THE CASE STUDY

(SEE COMMENTS FOR NUMBER OF WORDINGS)

1. Do you think Jacobs will achieve his dream of building a billion-dollar company? If so, explain brief scenario that describes your view of how Jacobs will achieve this objective. If you don't think Jacobs will achieve his dream, explain why.

Case Study

RunKeeper: Combining a Passion for Running and Technology to

Build an Incredibly Successful Business

Web: www.runkeeper.com

Twitter: runkeeper

Facebook: RunKeeper

Bruce R. Barringer, Oklahoma State University R. Duane Ireland, Texas A&M University

Introduction

In early 2008, Jason Jacobs was actively looking for a business idea to pursue. He knew he wanted to start his own businesshe

just didn't know what that business would be. Anticipating the need for start-up funds, he lived like a bootstrap entrepreneur, even

though he had a good job. He was trying to save at least two years of living expenses to support himself when he settled on a

business to start.

Trying to settle on a business idea was frustrating for Jacobs. He looked at clean tech, enterprise software, and several other

alternatives, but nothing resonated. He got so frustrated that he started training for a marathon as a way to clear his head. While

training for the marathon he tried several of the devices that were available at the time to time and track practice runs, including

GPS-enabled watches and the Nike+iPod device. Although the devices worked, he found preparing for the marathon to be a

fragmented experience. Different devices offered different features, but none tied the whole experience of training and running

together. Jacobs had his business idea. He would make a company that would combine his passions for running and technology,

and build a Webbased platform that would allow runners to integrate the hardware devices they were running with a Web-based

platform that would provide them analytics, coaching, running-related tips, and social support. In this sense, Jacobs's business idea

created a "turnkey" operation for runners interested in tracking their progress.

Getting Started

After a brief period of indecision, Jacobs quit his job to focus on his business idea full-time. He remembers thinking, "Now you've

got your idea and you're going to work on it nights and weekends in a coffee shopare you kidding me?" He started asking around

about people who might help him get started. He was introduced to some traditional Web site developers, who wanted $50,000 to

$75,000 to build the site and functionality he envisioned. Although Jacobs had a tidy sum of money tucked away, these suggested

fees were just too high. He met three guys who were willing to moonlight to help him get his project off the ground at a much lower

cost. He didn't bite, thinking that if he was going to commit full-time he didn't want to hitch his wagon to people who were only in it

part-time. He then became acquainted with a two-man development shop that listened to his idea and asked him if he'd thought

about building an iPhone app. That thought had never occurred to Jacobs, but sounded like a great idea. The iPhone app store was

set to debut on July 12, 2008, in just a few months, and the two developers had just received a development license from Apple.

They hadn't built an app yet but were eager to try, and offered Jacobs a deal if he could pay for their first development effort. Jacobs

knew he could go back to the three moonlighters to get the Web site side of the business built. So in Jacobs's mind, the business

that was taking shape was to build an iPhone app, with the help of the two developers, that would time and track a runner's runs,

along with a Web-based platform, built by the three moonlighters, that would take data from the app and provide runners analytics,

coaching, social support, etc., regarding their most recent runs and their entire running programs.

Jacobs now had a six-person teamhimself, the two-man development shop, and the three moonlighters working on his business

idea. The six held weekly meetings during the development process, and as unorthodox of a structure as it was, it worked well. Both

sides delivered on time, and the system was put together and was ready to go for the launch of the iPhone app store.

Doubters, Good Press, and Execution Intelligence

When Jacobs talked to others about what his team was building, there were plenty of doubters. The biggest source of skepticism

focused on whether people would actually run with their iPhone. To Jacobs this was a no brainer. The iPod was a perfect analog.

Just two versions earlier, the iPod was nearly as big as the iPhone, and people ran with their iPods. Still, the doubters remained

unconvinced. Another source of skepticism was Jacobs's team. He was literally his company's only full-time employee, yet he was

about to debut a high-profile app in the new iPhone app store. Generally, the problem with using contract employees rather than

hiring people full-time is that a company runs the risk of the contract employees getting distracted or not delivering on time

whatever the excuse might be. Jacobs gambled in this regard and it worked. The two-man development shop and the moonlighters

came through in an exemplary manner.

In the midst of the skepticism, one thing that worked in Jacobs's favor was perfect timing. The opening of the iPhone app store

created lots of press, and news outlets were eager to profile apps that would soon be available for the iPhone. Jacobs worked this

angle to his favor and RunKeeper, the name he gave the app, got lots of prelaunch press. The launch of RunKeeper also aligned

nicely with the emergence of Twitter and with the growth of interest in Facebook. RunKeeper engaged its users from the beginning

via both Twitter and Facebook, and created a "community" of users around the RunKeeper experience. A little guerilla marketing also

helped. For example, Jacobs ran the 2008 Boston Marathon dressed as an iPhone, and periodically posted on Twitter as he ran. The

idea was to draw attention to RunKeeper and the iPhone app store in general. The payoff was a front page story in the New York

Times.

Although Jacobs promoted RunKeeper when he could, he remained laser focused on execution, and turned down many promotional

opportunities. In his mind, the best way to build RunKeeper was through creating an exemplary user experience. Jacobs's success

in this regard can be seen in the numbers. RunKeeper has a freemium business model, meaning that the basic download is free and

users can pay $10 for the premium service. As of mid-2010, 54 percent of the people who bought the premium service from mid2008 until the present day are still active RunKeeper users. That's an extremely high retention rate for a smartphone application.

A photo of the RunKeeper app in action is shown next. Along with timing a runner's run, the app shows how fast a runner is running

(in mph), the number of miles run, the calories burned during a workout, and the pace of the run (in minutes per mile). The bars in

the middle of the screen show how the pace has varied during the run. All this data can be automatically uploaded to the RunKeeper

Web site, where a user can keep a history of his or her runs and run a variety of analytics on past and present workouts. An especially

enjoyable feature is that the RunKeeper app allows users to stream their runs in real time, allowing others to follow them. The results

of RunKeeper runs can also be automatically posted to a user's Twitter or Facebook account, providing the runner extra incentive to

do well because the results will be immediately available for friends, family members, and other followers to see.

What Does the Future Hold for RunKeeper?

Currently, RunKeeper is primarily a smartphone app. The company has more than 2 million downloads on the Apple iPhone, and has

launched an Android version that's taking off. RunKeeper has been cash flow positive since day one. Jacobs now has about a dozen

employees. The company has never raised a dime of investment capital. Instead, its users have basically provided the seed funding

for the company through downloads of the premium version of the product. RunKeeper sells a Websubscription service for people

who don't have a smartphone. The RunKeeper app is consistently one of the top selling apps in the iTunes store.

Jacobs's long-term goals may surprise you. Technically, the name of his company is FitnessKeeper rather than RunKeeper, which

gives the company room to expand. Although he envisions eventually building iPhone and Android apps for other sports, such as

cycling, swimming, and skiing, he doesn't see that happening anytime soon. He believes RunKeeper has only scratched the surface

of running, which Jacobs sees as a strong and vibrant industry. The company also does very little in the area of paid advertising or

marketing, instead relying on the quality of its product to generate buzz and stimulate additional downloads.

Even though Jacobs says that he doesn't see RunKeeper expanding beyond running anytime soon, his ultimate goal is to build a

billion-dollar company and change the way people interact with their health. How that will be achieved remains unclear. Jacobs

readily admits that selling smartphone apps is not the route to building a billion-dollar company. The top smartphone app, Bejeweled

2, a puzzle game, has sold around 3 million downloads at $2.99 a piece. While impressive, that's just $9 million in one-time download

feeswhich is a far cry from $1 billion. Jacobs sees apps as a way of engaging users and funneling them to his Web site. The Web

site will presumably offer additional products and services for sale over time.