A common sports injury left Rick McMullen incapacitated. His search for recovery led to the founding of Alleviate, a platform for physical therapy that is finding a lot of satisfied users. Thanks to Bryanne Leeming for introducing Rick to me.
Highlights:
Sal Daher Explains Why He Came Off the Sidelines to Invest in Alleviate
Rick McMullen, Co-Founder of Alleviate, Has the Ideal Background to Build Such a Company
Investing from a Self-Directed IRA Is High-Burden
The Problem Alleviate Is Solving
People Often Quit Before Physical Therapy Begins to Work
College Athletes Have a Lot of Support; When They Graduate There’s Nobody to Advise them on Recovering from Injuries
Alleviate Aims to Fill the Gap in the Delivery of Physical Therapy in the US
“With all of these conditions, you’ve got to do the work [to get better].”
Atomic Habits by James Clear
Alleviate Is Getting Traction
Alleviate’s Revenue Is Cash-Flow Positive
Product Returns Are Learning Opportunities
Clayton Christensen’s The Innovator's Dilemma
“...the specific subset of musculoskeletal pathologies that we serve. You can call it a niche, but it's like a $10 billion niche.”
Rick McMullen’s Journey to Founding a Startup
“...this central idea that the golden rule is the most economically rational thing.”
Why Rick McMullen Is Focused on Capital Efficiency
Parting Thought from Rick McMullen
ANGEL INVEST BOSTON IS SPONSORED BY:
Transcript of, “Physical Therapy That Works”
Guest: Rick McMullen
Sal Daher: I'm really proud to say that the Angel Invest Boston Podcast is sponsored by Purdue University Entrepreneurship and Peter Fasse, patent attorney at Fish & Richardson.
Purdue is exceptional in its support of its faculty, faculty of its top five engineering school, in helping them get their technology from the lab out to the market, out to industry, out to the clinic.
Peter Fasse is also a great support to entrepreneurs. He is a patent attorney specializing in microfluidics, and has been tremendously helpful to some of the startups, in which I'm involved, including a startup, that came out of Purdue, Savran Technologies. I'm proud to have these two sponsors for my podcast.
Sal Daher Explains Why He Came Off the Sidelines to Invest in Alleviate
Welcome to Angel Invest Boston, conversations of Boston's most interesting founders and angels. Today we have this really phenomenal founder, and it's a company that... You know, I haven't been investing because I've been very involved with raising a fund. A lot of stuff going on, and every time I write a check it comes from my IRA, and it's a lot of paperwork. I don't have a lot of capital outside of the IRA. I decided to spring for an investment in this company and in this founder, Rick McMullen.
[Note: This is my personal opinion. This is not a recommendation to invest. I am not acting as an investment advisor. Investments in startup companies are inherently risky. Individuals considering such investments should consult their investment advisors.]
Rick McMullen, Co-Founder of Alleviate, Has the Ideal Background to Build Such a Company
Rick, comes from a design background informed by work in logistics, in supply chain, in operations. He's a design person with this mundane operation, workflow orientation. Lately of Wayfair, where he was in the operations and logistics area, and he's bringing that mindset to something that he's very passionate about because he's a very good squash player, and he's gotten himself injured from time to time. Welcome, Rick.
Rick McMullen: Wow, thanks for having me.
Sal Daher: I was introduced to Rick by Brianne Leeming who's another one of these just phenomenal founders. You should look up my interview with Brianne. I was very skeptical of the space she was in, and then after I interviewed her the first time I wrote her a check because she's just so terrific.
Rick is a lot like that. He's on top of things. Very impressive.... Anyway, let's talk about Alleviate, which is a space that really resonates with me. This is probably going to be, for a while, the only check I'm going to write because I'm thinking about doing a renovation of the house. The money I've put into this is a cheaper counter for my wife in the kitchen. Try that argument. [laughs] No pressure here, Rick. No pressure.
Rick McMullen: That's a very different type of deal flow, I suppose. It's like, what's on your docket? It's either you or a crypto company. No, it's actually you or a new kitchen.
Investing from a Self-Directed IRA Is High-Burden
Sal Daher: A new kitchen. Exactly. Angel investors are investing their own money. Usually I'm investing from my IRA, so it's long-term money, but it's so complicated to do anything with the IRA. It's just a nightmare. Anyway, Rick, tell us the really compelling story of Alleviate, what problem is Alleviate solving.
The Problem Alleviate Is Solving
Rick McMullen: The problem that Alleviate solves right now is a problem called plantar fasciitis which is if you've had it, it's a very well-branded musculoskeletal disease. People know about it. Tiger Woods is pretty famously dealing with it right now. It's a painful chronic inflammation at the bottom of your foot. It happens when the musculature at the bottom of your foot gets overloaded again and again, and again, and again. If it becomes chronic, it becomes very, very difficult to treat. It's difficult to treat for the reason that it, as a condition, is hard to treat, and it's especially hard to treat in the US healthcare model where the journey sounds something like this. You go to your PCP, you say my foot hurts.
Sal Daher: Primary care physician.
Rick McMullen: Actually, I should probably back up a step. Say again.
Sal Daher: Primary care provider. It could be a PA.
Rick McMullen: Yes. I should actually probably back up a step too. Anyone who's anything like me probably didn't go to their doctor right away. They noticed their foot hurt while they were doing something they love to do like run or play sports and then self-diagnosed it online through Google. Then went to Amazon. Saw 15,000 products that range in price from $15 to $300. Tried some subset of them, realized that most of them are not effective.
People Often Quit Before Physical Therapy Begins to Work
Then went to their primary care physician, who at that point recommended that they get an MRI or an X-ray to confirm the diagnosis of plantar fasciitis that they already made themselves on Google, often correctly. That takes time to set up those appointments. During this whole time, the condition is getting worse. They go back to the primary care. The primary care says, yes, plantar fasciitis, go see a specialist. You go see a specialist. The specialist will again confirm the diagnosis. They have about 12 minutes with you.
Sal Daher: An inflammatory condition. Use and so forth just gets worse and worse.
Rick McMullen: Correct. People say you're not doing additional damage, and that's true. You're not ripping bones apart, but every day that a chronic inflammatory condition goes untreated and gets worse, the journey to recovery gets longer. You can think of it like, weight gain and weight loss. It's not that you're doing necessarily permanent damage, but every time you gain a pound, that's a pound you have to lose later. I guess I'm going long on this story, but after a couple rounds of treatment with the podiatrist, they may then refer you off to physical therapy.
At which point, by the time you get to the physical therapist, the tissue in your foot is so banged up that the physical therapist has very little chance of getting you back from it unless they're specifically trained in how to undo chronic presentations of plantar fasciitis. I had had a experience like the one I just described, but for me it was patella-femoral knee pain syndrome stemming from a college sports injury. I went through that whole journey.
Sal Daher: I've had both, now that I remember. Plantar fasciitis and the inflammation of the patella.
Rick McMullen: Sorry to hear that. I don't recommend being a loyal customer in this industry. That was my experience as well as once. Once one thing goes, it's not uncommon for something else to go that's related to it. We have all these compensatory patterns. I'd lived that journey and I'd lived it actually multiple times over, over the period of about 10 years after graduating college when the athletic trainer was taken out. When you're a college athlete, you have an athletic trainer. They fix you up for these little things.
Sal Daher: They've seen all these things.
College Athletes Have a Lot of Support; When They Graduate There’s Nobody to Advise them on Recovering from Injuries
Rick McMullen: When you're a grown adult, you don't have that. I'm living as a college athlete who can't load the dishwasher without pain for a long time until I finally meet this guy, Luke Ferdinands, who I met him when I was his patient. He was my PT. Notably, he's from New Zealand where they have a completely different model of diagnosis through care. When I enter his practice, he diagnoses me differently, treats me differently, and gets me better in the span of weeks. Whereas I had spent years not making progress. That's the real background on the problem, is there's this convoluted journey from diagnosis to treatment.
Alleviate Aims to Fill the Gap in the Delivery of Physical Therapy in the US
There really is a very cost-effective, very reliably efficacious shortcut that's practiced in other countries but that isn't practiced in the US and is really hard to pull off with the current standard of the way that we coordinate care.
Luke and I hatched this idea of, there are some conditions that are simple enough to treat, that the end user can either treat them completely themselves as an alternative to that whole maze, or as an adjunct to an existing practitioner relationship that they have. That's what Alleviate is. Alleviate is a self-contained home treatment system that's focused on specific chronic pathologies. We deliver a direct to the consumer.
Sal Daher: Excellent. Can you describe the various components of Alleviate?
Rick McMullen: Yes. The Alleviate system for plantar fasciitis has three components to it. The three components to the New Zealand solution that work so well and are so cheap are tape that unloads the inflamed tendon, a instrument-assisted massage that allows the practitioner to get hands-on and produce a pretty intense amount of pressure on the affected tendon that helps change the underlying tissue damage. Then third is a dead simple exercise program that gives you a little bit of strength around the area to prevent future damage.
We replicate that. That's a great system. It works super well. Problem is it's manual and it requires an expert, it requires Luke. There's only so many Lukes out there, and we're not creating them at the rate that people are hurting themselves. The Alleviate system replicates the tape job by creating a brace that has the same mechanical properties as an expertly applied tape job that you can apply to yourself.
“With all of these conditions, you’ve got to do the work [to get better].”
It has a massage device that you can use your own body weight to put the same amount of mechanical force through your own foot that a practitioner can put through your foot using an instrument, and it has an app that, on the one hand, gives you the simple exercise program that you can follow to get stronger, and also does a bit of progress tracking, coaching, adherence building. As I think you and I talked about in our first conversation, adherence is the name of the game. With all of these conditions, you’ve got to do the work [to get better].
Sal Daher: Everything in life, you've got to do the work. That's part of it. I remember my older daughter who lives upstairs, the one with the grandkids who lives upstairs, primary care physician. I'm going to get her this Alleviate, get her thoughts on this.
Rick McMullen: That'd be great.
Sal Daher: She was in junior high. I remember an essay that she was writing. She has this image that she was in a kayak race and she was last. She was coming in on the final lap. She just does this little trick and she jumps up front and wins the race. She was very excited about that whole idea of there being an easy shortcut to life. Eventually, she learned [laughs] There's no such short-- whenever I hear somebody say, you got to do the work, it reminds me of that essay, because it was a very well-written essay. The climax of the story was, "I did a flick of my kayak paddle. I jumped ahead and I won the race."
[laughter]
I think we fall to that trap so much. You don't understand every 90-day wonder is a 9-year arduous success.
Rick McMullen: Totally. It's a funny thing when I think about our industry- and I can see myself going a little bit off of the original question here but not really- where if you take my experience of 10 years of no success and then getting rapidly and enduringly better in 8 weeks, that actually, by comparison, is a silver bullet. Eight weeks is doing the work.
Atomic Habits by James Clear
Sal Daher: It doesn't feel like a silver bullet because it's eight weeks of very mundane stuff. Taping your foot, doing the scraping with the butter knife-like thing under your heel. Stupid mundane stuff. Physical therapy is all like that. It's interesting that James Clear-- Are you familiar with Atomic Habits by James Clear?
Rick McMullen: Yes.
Sal Daher: It's a physical therapy, a physical rehab story. He cottoned onto this whole idea of studying how to create habits precisely because he had an injury he had to recover from, and he started studying the whole literature of habit forming. It's so unlikely that an engineer would come up with figuring out how people build habits.
Rick McMullen: It is, but it isn't. If it was truly an engineering problem, the person who invented the most recent better orthotic would've solved plant fasciitis.
Sal Daher: Right.
Rick McMullen: As people who are watching the market, we do see new orthotics come on the market, and no debate that they're better than the previous iterations. Fundamentally, this is not a problem that can be solved with pure engineering. It's a physiological, emotional, and psychological problem. If you only treat the physiological anatomical aspects of it, you're basically leaving a lot up to the patient, is the point.
Our notion of self-containing the whole thing where we include all of the tools, yes, we do think our tools are best in class relative to the other tools that are in the same category, but what really makes us different is combining the system into one thing so that you as a consumer are like, "There's a package. There's not 15,000 things I need like Amazon's telling me, there's 2. I need to basically build three atomic habits, stack them, and I'll be better in eight weeks." At the beginning of my own pain journey, if you told me I needed three atomic habits and eight weeks, I would've been like, "Ugh, that's too long."
Sal Daher: It's so painful.
Rick McMullen: Once you try the other things that are out there, many of which are promising immediate results, suddenly, three tools, three habits, six to eight weeks is like, oh my god, that is a silver bullet. It's all relative to where the customer or the patient is in their journey with the condition.
Sal Daher: In retrospect, it'll be seen as a silver bullet.
Rick McMullen: Exactly.
Sal Daher: Let's get a little bit more specific about how much traction you have in Alleviate.
Alleviate Is Getting Traction
Rick McMullen: 2022 was the first full year of operations for the company. We did $510,000 in net revenue that year, which represents about 10,000 customers if you combine our direct-to-consumer and wholesale channels. We did a soft launch in Q4 of 2021 but really hit the gas at the beginning of calendar year 2022. At the beginning, we're pretty far into Q1 of 2023, and revenues to this point are already pacing ahead of Q4 of last year.
We've basically started our first month in business we did, I think 10,000 in revenue. We had a month in 2022 where we broke 100,000. We can say we have 10x to our growth without being misleading. We're still growing at a real clip, and our plans to grow in the coming year are in multiples, not in percentages. We think we're just getting started.
Sal Daher: How do you get found? What is your strategy for going to market?
Rick McMullen: The most common way that we get found right now is on Facebook and Instagram. It's an interesting thing where we have rolling video ads that show up on Facebook and Instagram where people can see particularly our massage product in use. It produces a very tactile sensation for them. People that are in pain, they see a video of this massager being used on the foot, and they can telepath-- you can't see me gesticulating on the podcast. Because they are so in tune with what their feet feel like right now, they can look at that action and be like, oh, I know that's going to feel good.
Sal Daher: That makes sense to them?
Rick McMullen: Yes.
Sal Daher: You're creating videos and doing paid ads on Instagram and on Facebook. What's the economics there?
Rick McMullen: Currently of the 500,000 in revenue, in general, between 50% and 60% of that goes to variable marketing right now, and we're in acquisition mode. Around 20% or 25% of that goes to cogs, direct cost. Our contribution margins at this time are close to 10%.
Sal Daher: Explain to me contributions margin.
Rick McMullen: Contribution margin would be, there's your gross revenue, which is your net revenue, your direct costs which include cost of goods sold, fulfillment, labor. Then there's your gross profit that comes out of that. Again, people on the podcast can't see me gesticulating [crosstalk]
Sal Daher: He's got his fingers.
Rick McMullen: I'm making a profit and loss statement with my fingers here. Then you take out the variable ad dollars that you spent to acquire those customers. That gives you your variable contribution margin.
Sal Daher: It's the effect that your ad dollars have, how much profitability your ad dollars contribute. They're contributing 10%. What does that mean?
Rick McMullen: That means that on every unit that goes out the door, we are making a blended 10% of the revenue, is cash that enters the company.
Alleviate’s Revenue Is Cash-Flow Positive
Sal Daher: Your revenue is cash positive.
Rick McMullen: At the unit level. Correct.
Sal Daher: At the unit level. If you multiply and multiply, the company will take money in.
Rick McMullen: Precisely. That's where I'm talking about this [crosstalk]--
Sal Daher: I love this so much. There is cash flow.
Rick McMullen: I think we were taking about one of my passion areas is capital efficiency. If you asked 17-year-old Rick if he ever thought capital efficiency would be his passion area, he would--
Sal Daher: Oh, no. 17-year-old Rick would-- no, forget it.
Rick McMullen: He would've turned up his distortion pedal and said, no, you'll never turn into a suit like that. That is exciting, is that in theory, there is a number of units that we can sell that will cover our overhead and turn us into a profitable business where basically capital raises will become discretionary. We understand that math. Where we're at in the journey now is trying to dial down all those percentages that I just said. If there's a gap between gross and net revenue, what is that? There's credit card fees, can't do much about that.
Product Returns Are Learning Opportunities
There's returns. You can do something about that. We sell a product that goes on the foot. The foot is an incredibly complicated anatomical structure. We're making a second revision of our product that fits on a higher variety of feet. We also have a, if it doesn't work for you 100% return policy that people only take advantage of as often as they do. It's a huge deal. People, when it doesn't work for them, they do return the product and then we reach out and figure out why.
Sal Daher: A learning opportunity. This is excellent.
Rick McMullen: Yes. Exactly. V2 of our product, we did a laboratory test with V2 of our brace product relative to V1. 100% of customers said that V2 was better for them, which tells me a couple of things like one, we didn't launch too early with V1. As we launched a product that worked, when we tested that in the lab, it worked. Also, that by ruthlessly, rigorously following up with every return, we've ironed out a lot of issues that are going to be great for customers. Then the way they're going to affect that contribution margin line is by coming out of the return. You shrink gross to net revenue by reducing discounts, reducing returns, and all those fees.
Then you go for COGS. The first version of our brace product which retails for $95, the cost to produce one of our braces, the first design cost around low 30s in euro to create, and we retailed it for $95 to the consumer. We have been able to create a second version of the brace where we've cut the cost of goods in half and we can still retail to the consumer for the same price because it's more effective. It's delivering the same amount of value, it just is simpler in terms of its engineering, and as I said, it'll lower the return rate. The impact on the overall contribution margin, it'll close the gap between gross and net revenue, and it will shrink the cost of goods sold line item.
Also, as less products are being returned, the portion of your unit figures that are being paid for by advertising will go down because more people will have more positive things to say word-of-mouth to each other. There's a flywheel effect where you listen to your most ticked-off customers, you fix their problems, and then you start off with a baseline where it appears that your margins are-- Again, if you asked me a year ago, if I'd be happy with the 10% contribution margin, I would say no, but if I think about the-- now I'm going to use some non-NBA jargon. If I think about the second-order derivative, the--
[laughter]
Sal Daher: Go back to calculus. The second derivative. Acceleration.
Rick McMullen: Exactly. The contribution margins are 10% now, they were negative 130% 18 months ago, and the-- you can't necessarily draw a straight line, they won't ever be 132%. If we think about continuous improvement along all of these little micro things, that's what gets us from business right now that is helping people, winning with customers, has a great team, all the foundations, to a company that's generating positive cash flow out of its first product.
Then our investment thesis becomes really easy. We've done it for plantar fasciitis, we've solved the anatomical problems for tennis elbow, runner's knee, all these other chronic tendinopathies, we understand the go-to market, we understand how to take it from a do the thing where you start losing money and then, I was going to say cross the J curve.
Sal Daher: Yes, cross the J curve, exactly. You start losing money in the beginning, build your product, and then eventually you create a really profitable market. Perhaps we can say that what you are doing is you are creating a platform, not a technological platform, but a workflow and product design platform to create products for therapy. First one, the lowest-hanging fruit is plantar fasciitis, but there are a whole bunch of other physical therapy-amenable problems that can be solved with relatively simple technological devices connected with an app, which you have.
Which kind of help people, and with their behavior around the use of that. What you're doing is you're creating a platform of workflow for creating products, and making things that exist already work better and work effectively, things that can work effectively and they don't because of behavioral obstacles. The obstacles are not technological, it's not like you have a patent on a device, although perhaps you might.
Rick McMullen: As it turns out, we do have a couple of patents, but that's if your castle needs a moat, that is a spike at the bottom of the moat. It's not the most important moat itself.
Sal Daher: If you don't have a way to convince people, there's a castle worth storming.
[laughter]
It's like having a patent is like having a moat in a castle nobody wants.
Rick McMullen: It's hilarious that you bring that up because I only have-- this is my first company. I almost said a general thing like, "When you're building a company," as though I have many pain points. In my singular experience building a company, you have a thatched hut that no Viking no matter how desperate they were,-
Sal Daher: [crosstalk] Not interested. [laughs]
Rick McMullen: -he would bother rating. You're getting questions from investors about how wide your moat is going to be. It's a legitimate question. If you are successful, how do you protect your success, but you have to be like, "Oh, my God."
Sal Daher: You're looking at your shoes instead of looking ahead because you're carrying this massive boulder, and your investors are thinking, is this something that can scale? Is this a business that can scale profitably? Then can I make a packet on this business, or is it just going to become a commoditized business where you can't really get monopoly rents? I'm sorry to use this.
Is there some way that you can extract monopoly rent from this product? One way you could do it is by having a monopoly on the technology. The other way is just becoming a very, very effective competitor that just completely outclasses all the other competitors. It becomes the solution to go to if you have this problem. If you can market it, and be found effectively, it could become a very attractive business. I see the proposition.
Rick McMullen: I appreciate the description of a workflow solution. The defensibility around that is it happens in order where in order to design a workflow that's completely centric around the customer and their needs, and what makes them tick, and their pain points, you have to purpose-build your business model to deliver that workflow. A company that is in the orthotics business can't deliver that workflow without also entering the injection-molded product business, the digital app design business, the concierge service business, et cetera.
On the margin, we don't look like something that they want to even-- That's really expensive. That's really inconvenient for you to make that workflow. We don't want to do the work. That's barrier number one, is when we're at the small stage. We're willing to work for unattractive customers that incumbents aren't willing to serve them to the level that we're willing to serve them. Once we establish that though, the moat becomes the brand because we've gained a reputation for doing this and doing it really well.
Then somebody else can come, but even the things that they can replicate or that they can rationalize trying to replicate, they're not able to do it with the same level of credibility. This is a space where credibility really matters, where credibility is hard to come by. It's hard-won, "wellness". We're somewhere between a medical company and a wellness company. Our credibility is hard-won, will continue to be a hard-won. Then once we've won it, that is going to be very, very difficult to dislodge.
Clayton Christensen’s The Innovator's Dilemma
Sal Daher: It's funny. You're addressing non-consumption in Clayton Christensen’s The Innovator's Dilemma language. The idea of a disruptive product that is at first addressing undesirable customers that are not using. It's non-consumption, and then eventually taking over the mainstream customers, because the product improves and is able to offer more value.
Also, this kind of platform and workflow orientation, I see in the long-term also being amenable to enhancement by machine learning. Once you have a connected device, you have lots of people using it, you've got data points, you're going to start discovering stuff that the orthopedists themselves don't know. There is potential, if this is done right, for this to be just a really category-eating business if it's fully exploited.
“...the specific subset of musculoskeletal pathologies that we serve. You can call it a niche, but it's like a $10 billion niche.”
Rick McMullen: I love that you said it, not me, because I agree with everything you just said that what the castle really looks like is home care that looks like our care being the standard of care for the specific subset of musculoskeletal pathologies that we serve. You can call it a niche, but it's like a $10 billion niche.
[laughter]
I like my niches measured in B's. Relative to the musculoskeletal problem in the United States and the cost of care, it looks like a niche relative to back pain, for example. Anyway, I'm diverging again. Yes, the machine learning and the data science where you can personalize a lot by getting feedback from the customer, and also the IoT connected devices thing. Right now, the way that we know about adherence is because users use our app and tell us their adherence. You can imagine it wouldn't be too many steps ahead to put just a little accelerometer in the brace device that every time somebody closes the Velcro strap, we get a ping so that we know that someone used the device.
Sal Daher: How much they're using it. How they're using it, you're going to learn so much.
Rick McMullen: We can learn so much. I will say this, and this is where I'm going back to capital efficiency and angel models, and building a cash flow business on the way to big business is, the temptation would be to do that stuff now and start to invest in machine learning now, and invest in IOT now.
Sal Daher: It's too much work.
Rick McMullen: It's too much work, and it's risk. It creates risk where there wasn't risk before.
Sal Daher: Build a mundane cash-positive business where at the unit level you're cash flow-positive, and then you can have money to spend on all this stuff as your clientele because these things are really valuable when you have tens of thousands, hundreds of thousands of users, that's when you begin to learn stuff.
Rick, let me give a quick plug for the podcast, and then I want to get into how you decided to make this big jump to entrepreneurship.
Listeners should know that, the conversations we have here, the main purpose that they have is for me and for my listeners to learn more about how to build really exciting companies. I love having inspiring founders on, inspiring angel investors, really knowledgeable people who are advisors. We're into, well the 200 and something episodes. If you look through our back book, you're going to find advice about every type of startup you can imagine. Every circumstance I think has been covered somehow or another.
I refer listeners, for example, I mentioned Ed Roberts, his interview that I did with him talks about the most strongly supported result from the study of entrepreneurship about success of startups, which is more founders better up to three, or for example, like the 400x return of Howard Stevenson, I interviewed him. That is the best return from the dumbest investment. My podcasts are full of gems like that. Most of it's stuff that my guests say. My gems are only my late, sainted mother would think that the things that I say were gems.
Anyway, to help us get found, follow us on your app, the app that you use to listen so we show up every week in your stream. Also, take a good little time to do a rating. We love five-star ratings. Also, leave a written review.
Ah, interesting thing about written reviews. You can be candid about them. If you give a five-star rating, the algorithm doesn't read in there the subtle dig at the fact that the host talks too much or the host cut off the brilliant guest, or things like that. Those things help me be a better host while not vitiating my future career, as they say.
Rick McMullen’s Journey to Founding a Startup
Anyway, Rick, give us a precis of your career. We mentioned design, then we mentioned business, then we mentioned logistics and operations. Lend some personal aspects to that outline.
Rick McMullen: For sure. I recall hearing, I think it's attributed to Steve Jobs, I don't know if it-- who knows who's attributed to what these days. I recall it being attributed to Steve Jobs that your life story makes perfect sense but only in retrospect. I feel like that applies to my career trajectory.
I studied a discipline called human-computer interaction at Carnegie Mellon, was my undergrad. At the time, that was a fusion of design, computer science, and cognitive psychology. Now I think that might be, I think you could go to-- Carnegie Mellon was fairly unique for offering that program at that time. Now I think you could go just about a lot of places and get a UX degree or a UI degree or something like that.
That was pretty formative because that got me, that appealed to the engineer in me that loves to tinker and build things. It appealed to the therapist in me that loves to listen to people, hear their stories, understand their problems, and then also the artist in me that likes to create things that are novel and subjectively beautiful. I was lucky, I think, where I left college with both a technical skill set and real resonance for what I was doing.
I hear other people's stories and I think some people find what really hits their internal tuning fork, it takes them a little bit longer. I loved my first job. I worked at a company called MAYA Design in Pittsburgh. We were a design consultancy. We did product development for big companies that were having trouble innovating or needed a fresh set of thinking on how they go to market with new products. Absolutely loved that. I got to just invent, invent, invent, create, create, create, problem-solve, problem-solve all day, every day with unbelievably smart people on really cool problems.
I then, for personal reasons, moved back up to Boston where I'm from, and joined a similar company called Continuum, which is still here in Boston, and did very similar work there. Loved every day of it, found myself frustrated with what happens to the idea after it goes...when the project's done. When the consulting project is done, it goes over to the client. I never understood why the brilliant thing that I designed, me and-- this is the early 20s thinking. Why are clients so stupid that these genius ideas that I'm creating don't make it to the market in the way that they should?
Sal Daher: You're saying Your clients are stupid ironically.
Rick McMullen: I am. Yes.
Sal Daher: It's the product manager doesn't understand, that is not client-centric.
Rick McMullen: The butt of the joke here is 24-year-old me. Who thought that ideas are everything, and really undervalued execution.
I had this moment where I changed trajectories. I said I want to go into business. I want to get onto the client side, see what was going on. I went to Harvard Business School, did MBA, focused on entrepreneurship there. Then I was a product manager in a tech portion of a service company for probably three years, learned a lot about execution. The first thing I learned was that I didn't know how to do it.
That I stopped at the idea phase and really struggled at first with getting things done in a company setting where a company that makes a product. Then I moved over to Wayfair, where I was a general manager. I guess what I learned as a product manager is you have a lot of scope, but even as a product manager, there's always something upstream of you or downstream of you that affects the experience you're able to deliver to the customer. I had this epiphany moment that was like, oh, the only way to actually control the customer experience is not to be a designer, it's not to be a product manager, it's to be a general manager.
Then I went to Wayfair and was a general manager. It's a big company. I had another epiphany. I had a great time there. I had another epiphany while I was there, which was, I can't imagine a company that is more suited to me. It's like they built a company that I should work at. Aggressive, quantitative, creative, entrepreneurial. Checks all the boxes, and I'm like, I still don't really like working here. Which had this other aha moment that was, oh my gosh, every company is messed up in its own way like every person is. I'm not going to be happy until I'm working at a company that is irreversibly messed up in my own image.
[laughter]
Sal Daher: That is quirky in a way that is amenable to your personality. Because Wayfair is a brilliant and quirky company, the way it emerged and so forth. The history of it is just fascinating. I'm sure it's an acquired taste for a lot of people who work there, and not for others.
Rick McMullen: It's funny that this was all framed positively. I was doing this soul search of, why am I so uncomfortable? I tried to imagine a situation that would be more comfortable, and I realized that it doesn't exist. That's the point. I was chasing the perfect company, and there is no perfect company. I had this, again, epiphany that was like, I think I'm really only going to feel really like I'm what I'm supposed to be doing if I'm doing things my way. Not that my way is right or wrong, it's just my way.
Sal Daher: That's the way for you to do it, and if you can do it in a cash flow-positive way, go for it. If you can be passionate about something that's cash flow-positive, awesome.
Rick McMullen: You told me that people who listen to this podcast actually sometimes start companies afterwards, and so I feel compelled to be really transparent about something. When I had that epiphany, between the time that I had that epiphany and when I left Wayfair to start Alleviate with Virginia and Luke, was almost two years, and I had real risk aversion like psychological barriers.
Sal Daher: A long road to travel.
Rick McMullen: Yes.
Sal Daher: Getting a paycheck to launching your own company. Very long road.
Rick McMullen: Luke is the fundamental IP inventor of Alleviate. He had the core idea early on. The difference, the time between when we decided we were going to start a company out of it, it was a long time.
Sal Daher: Rick, go over again, mention the names of your two co-founders and the division of labor, their superpowers.
Rick McMullen: The co-founding team has been a little bit fluid. I've since learned this is less unique than I thought.
Sal Daher: Oh, it happens all the time.
Rick McMullen: Yes. Luke is the primary co-founder. He's a physical therapist, his career trajectory is fascinating. He grew up working in wool factories in New Zealand. He was a pretty high-level rugby player himself. Studied physical therapy in college and went up a-- climbed the ramp to be a team physio to the pro-rugby teams in New Zealand. Practicing physical therapy at the most elite level.
Sal Daher: Luke and his last name is?
Rick McMullen: Ferdinands. Like the bull, but there's two of them.
Sal Daher: With an S at the end?
Rick McMullen: Yes. He's two bulls.
Sal Daher: Your other co-founder?
Rick McMullen: The third co-founder of the business is a guy named Sean McDowell, who is now a board member advisor to the company. We now have a third late co-founder who's our chief operating officer, who's Virginia Chan.
Sal Daher: Virginia Chan, C-H-A-N.
Rick McMullen: Correct. The first founding team is Rick, Luke, and Sean. Sean went and has a huge job at Herman Miller, now, and so now--
Sal Daher: That's the problem. The talented people, they get sucked into these things.
Rick McMullen: We were not the only people looking to keep Sean McDowell.
Sal Daher: You have his ear.
Rick McMullen: Oh, yes. He's on our board. He's a really clutch advisor, he designed the first product, he's a big part of the story. Now the operating founding team, the core management team is Luke as chief product officer, Virginia Chan as chief operating officer, and myself in the CEO seat.
Sal Daher: This is phenomenal. Your career bio told us also about your entrepreneurial journey. I don't have to ask that question. Beautifully done.
Rick McMullen: I guess that's why the Steve Jobs quote. I always say things out of order, but it makes sense in retrospect where let's say, I wish when I was 21 I had the epiphany that an entrepreneur needs to be an inventor and an executor, and an operator, and a manager. I learned those skills in that order through different jobs, and then co-founded a company with two other people who have a lot of those same skill sets. I did not stack the deck that way. It just worked out. When I look at it in retrospect, I'm like, you know what? I can draw connections between the dots.
Sal Daher: It makes sense in retrospect.
Rick McMullen: Yes.
Sal Daher: Let's touch in a couple of topics that you wanted to pursue a little bit. Let's talk about how does the golden rule apply as an economic principle? First, explain to listeners what the golden rule is.
Rick McMullen: What does that mean? The golden rule, I guess this is scary because it's a part of most major religions. My way of summarizing the golden rule is my way of summarizing the golden rule. Most people say treat your neighbor the way you'd want to be treated, or love thy neighbor as they self. There are all these different stations of it.
Sal Daher: It's the idea of reciprocity. That's very deeply embedded in the human psyche and human behavior.
“...this central idea that the golden rule is the most economically rational thing.”
Rick McMullen: I would agree with that statement. We've talked about Clay Christensen a little bit. Another really influential business thinker for me is Fred Reichheld, who he's most well known as the inventor of the net promoter score. Buried deeper in his work is this central idea that the golden rule is the most economically rational thing. Again, I may be butchering it. If he's listening, he may say that's not what I meant. I take it to mean that by treating particularly your end customers and your employees with the utmost respect in the way that you would want to be treated, and if you were in their shoes, that comes back to you via a path that is very difficult to analyze.
So long as it's economically rational. I've found that you build your model, you build your Excel spreadsheet, and your Excel spreadsheet has targets like grow revenue by 20% week over week until world domination occurs. On the ground, when you're moving the boulder one foot at a time, it's, treat this customer who has had a difficult return process with the utmost respect and like their return is the most important thing in the world. This investor who's writing a relatively small check and has a lot of due diligence questions, this is their money. Treat them with respect and answer their questions. The employee who's having a rough day, there's a lot of temptation to cut corners on that.
Sal Daher: We're only human. That's the problem. It's like going back to the Steve Jobs quote, where it only makes sense in retrospect when you think about it in a system of voluntary exchange where we buy things, we sell things, we're not compelled to do it, we do it because we want to, treating people well and treating them the way you expect to be treated is essential for success in a situation of voluntary exchange. Now, if you have involuntary exchange, if you have single supplier, single consumers, and so forth, then you can begin to stint on this idea of treating people well.
Because people are going to come anyway. It doesn't matter. You end up with situations where people have to have a product, so it doesn't really matter that it's a very high quality or that they're treated well. It's like you take it or you leave it. To the extent that we have volunteer exchange of goods or services and so forth. It is really, really important to have the golden rule in mind. Let's talk about capital efficiency and optionality. That's another area that you feel strongly about. Not your 17-year-old you, you now.
Why Rick McMullen Is Focused on Capital Efficiency
Rick McMullen: Right. Rick now feels really strongly, and the reason I feel really strongly about capital efficiency is because I feel really strongly about optionality. This may be a mixed metaphor, but if you believe like I do that in any company that has a clear rational business thesis that works, and some companies don't, but it's not necessarily certain what the size of that business is, or it's not necessarily certain the rate at which it will attain its maturity state where it is a enduringly self-sustaining and profitable entity. That by taking on too much capital too fast, you force the company down a particular maturity route that may not be the one that is proper for it.
The metaphor I use is imagine if-- I don't have kids, so now I'm going to go way outside of my area of death. If I did and I decided that my kid was going to be an NFL linebacker when they were born, but my kid was 5' 2" and skinny, and really loved to play the cello, but I set its life up to be an NFL linebacker, and it's a failure if it doesn't become an NFL linebacker, then that kid is set up to fail when in fact he could have become the next Yo-Yo Ma. In my mind, keeping capital needs low allows you the flexibility to have a high-return, high-impact business that grows at the pace that's right for the business, that grows to the scale that's right for the business.
We all hope that it grows really fast, and we all hope that it grows really big, but when you start doing unnatural things to accelerate that trajectory or to blow that up larger than is natural, in me, in my mind that is creating risk where there wasn't before in an attempt to control risk by funding the business. It's like I get really intellectually curious about some of this stuff, and that's one thing that I've always loved waxing poetic about, or waxing philosophical about with other people who think about these things.
Sal Daher: It has a real-world application. Keeps bringing my mind back to being cash flow-positive on a unit basis. I can't get over that. That as an investor, it really excites me. I got a one-track mind here.
You also mentioned that you had great interest in the human body. Briefly explain to us what your perspective is on the human body and why it's important.
Rick McMullen: I know we're running way over time here, so I'll keep this brief. Part of what makes this business-- I think this is a good business. I'm an investor of my time. I'm an investor of this portion of my life in this company, and for all I know, I may be investing the rest of my career in this business. From that standpoint, I have to look at it as a investor myself and think about it in an economic and rational way. What really excites me about this particular business is my own personal experience with what being in pain and what feeling physically incapable feels like, and how not it's not just pain.
My own experience was I played sports. I'm not an elite athlete by any stretch of the imagination, but it was a big enough portion of my life and my energy that I self-defined as an athlete. I don't think you need to self-define as an athlete to have a big portion of your identity wrapped up in being physically capable of doing whatever it is you want to do. You want to walk your dog, you want to play with your grandkids, feeling physically capable is a huge deal.
When you have a chronic injury...when I had a chronic injury that took those activities away from me, it didn't just take those activities away from me, it took away a part of myself. When I got function in my knee back, which is like this mechanical thing, a piece of my identity that I had lost came back with it. I want to proselytize that. I want to share that, and I want to make it affordable.
Sal Daher: We are corporeal beings. We have a body, and the state of our body informs the state of our soul. Sorry, Plato, Aristotle had a right here. I'm a very much an Aristotelian in the sense that the body is really, really important. If your body is not functioning right, your mind is going to be affected by it. Your body's not everything. I will make a concession to the spiritual, but the body has a say. I agree with you entirely on this. Let's say, as we wrap up the podcast, is there anything that you want to leave our audience of founders, of investors, of people who work at startups, people who help to advise startups, that you want to communicate to them?
Parting Thought from Rick McMullen
Rick McMullen: I'm going to say two really quick things. One is I am 100% certain that when I go back to the office and when this airs, Virginia and Luke are going to make fun of me that we ended up talking about Aristotle on a business podcast.
[laughter]
That is classic Rick, and there's no way I don't get teased for that.
Two, the thing I think I would-- It's funny, I don't want to position myself as somebody who's in a position to give advice, except to people that are less far along on the journey than me, and sometimes it's useful to know the experience of somebody who's just one or two steps further ahead on the journey. I imagine most of your listeners are 98% further along on the journey than I am.
For the 2% that are earlier than me, I do feel that I should pay forward the lesson that understanding my why for why I wanted to start a company, and a real reason that I believed in, not just one that I thought was going to sound good, was really important, and getting aligned with my co-founders on their why, and being really upfront about what their why was super important because it has-- a ton of decisions that we've made have been downstream of that. That includes, by the way, the decision to get cash flow-positive real fast. The decision to--
Sal Daher: Oh, I love that. That's my favorite part of the story, is the cash flow-positive path.
Rick McMullen: Now I'm telling you what you want to hear. Part of the why, I guess I've talked probably way more than enough, but I can spare you all the logical connections between that. Business strategy comes, at least in my experience, our business strategy has been a natural extension of the individual wants and needs of the founding team. What drives them and honest conversations about figuring out what you and your co-founders want, you'll see it show up more than once. I'm really glad that we did some of that stuff upfront [crosstalk]
Sal Daher: Oh, the motivation for things. What drives you is really essential. Philosophers do show up in this podcast. I had Brad Feld on to talk about Nietzsche for Founders. Maybe someday we should write a book, Aristotle for Founders, if it hasn't been written already.
Rick McMullen: I was [crosstalk].
Sal Daher: The thing about Aristotle, he's in the air we breathe. We're Aristotelians to the bone and we don't even know it.
Rick McMullen: One of my most valued advisors at Alleviate, who's an investor, sent me a book called If Aristotle Ran General Motors. I haven't read it.
Sal Daher: That's been written already.
Rick McMullen: Maybe, I don't know. I'll tell you when I read it. If it hasn't, we'll write it.
Sal Daher: Excellent. Very good. Rick McMullen, co-founder of Alleviate, and a very inspiring founder. I thank you very much for being here and talking about what Alleviate is doing to alleviate the problem of plantar fasciitis initially, but eventually tackle all kinds of physical therapy-amenable conditions with a world-beating workflow.
Rick McMullen: Thank you so much for having me, Sal. I really appreciate the opportunity.
Sal Daher: This is Angel Invest Boston. I'm Sal Daher. Thanks for listening.
[music]
I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McKusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.