/$3.7B weight-loss app Noom wants to outgrow bumpy past

$3.7B weight-loss app Noom wants to outgrow bumpy past

Noom has tried different ways to change how people think about their health.

The 13-year-old company has created connected-device prototypes, rolled out calorie counters, and preempted popular startups like

Strava
with fitness-tracking social apps.

The goal has been to build a health and wellness company focused on preventive care, Saeju Jeong, Noom’s cofounder and CEO, has said. But building a moneymaking business proved harder than originally thought.

Noom hit its stride in 2017 with subscription-based weight-management software that it still offers today, though the company declined to share specific user numbers with Insider.

With $540 million in fresh funding from private-equity giant Silver Lake and healthcare firm Oak HC/FT, it’s eyeing new markets. Jeong said that tapping into the burgeoning behavioral-health market will help Noom in its quest to remake the healthcare industry, focusing it on proactive care rather than caring for people when they’re sick.

Jeong’s goal might continue to be out of reach. Although he said the company is profitable, he spent years burning through venture funding trying to figure out how to become a business. Keeping customers logged in was a monumental task, and still is, even as more people grow accustomed to paying for healthcare-related apps outside the realm of doctor’s offices and health-insurance plans.

Noom’s decision to expand from

weight loss
into behavioral health may prove as tricky, since the highly competitive, well-funded industry has created a wealth of startups aiming to help people get better sleep and manage anxiety. What Noom has to its advantage, though, is a founding team that has yet to give up, even when they aren’t in the right place at the right time. If its latest investors are correct, that alone is worth a reported $3.7 billion.

“I believe we’ll surely disrupt the healthcare-market industry,” Jeong said. “Pleasing customers is mega fucking difficult. We chose a very difficult path for a good reason.

“If we discipline ourselves, develop this out of this tough environment, which people will give either one star if the product sucks, and if you survive in it, we’ll deliver a better experience.”

Insider spoke with Jeong, two Noom investors, and three clinical experts for this story to find out more about Noom’s journey as a company and to evaluate the science its current product is built on. (Silver Lake, its largest private-equity backer, declined to comment.)

Noom’s winding journey had several rough patches

Since 2008, Jeong and his cofounder, Artem Petakov, have tried to grow Noom’s business.

With the invention of the iPhone and the growing interest of app-based companies, Jeong and Petakov set out to create an app-based fitness coach that came with a step-counter function tied to a user’s mobile phone. It was the sweet spot for Silicon Valley venture firm Kleiner Perkins, which had just launched its $200 million iFund to invest in companies capitalizing on the app revolution.

“My mandate was to go out there and find the most interesting new applications that we thought would take off,” a former Kleiner Perkins general partner, Matt Murphy, said.

Murphy, who now works at the Silicon Valley venture firm Menlo Ventures, said that Noom was particularly interesting because it went beyond the calorie-counting features many other apps had launched with at the time.

Murphy led the company’s $750,000 seed round in 2011 after flying out to meet the Noom team in New York. Murphy didn’t take on a board of directors position as part of the early investment, but said he was involved in the day-to-day operations of trying to figure out what Noom could become.

One big challenge: Users weren’t sticking around on the app for long. “Churn with such a problem,” Murphy said. “It was just a massive leaky bucket. Users would come on, use it for a month, and disappear.”

Part of the issue was Noom’s less-than-ideal user experience, Murphy said, which required a lot of effort to input each food eaten into its system. They ultimately scrapped the app and started working on a new product in South Korea, where smartphone adoption largely outpaced the US.

“We shut down our product, which our investors were so pissed at us about,” Jeong added.

Murphy declined to lead the company’s Series A, citing Noom’s ongoing growth troubles and lack of product-market fit. Kleiner Perkins still retains its stake in the company. Although Murphy declined to provide the exact ownership stake, it could amount to a significant return with its most recent funding.

“There were a few years there in the middle where I just didn’t know if they were focused completely on Korea or if they were kind of limping along or what,” Murphy said, “but then all of a sudden — boom — it started working. And they just really soared.”

In South Korea, Jeong and his team developed the app that Noom now offers in the US. South Koreans were more smartphone savvy at the time, and that bought Jeong critical time to test out an app that could be successful in the US once smartphone use had gone more mainstream.

Noom created a subscription-based diet and nutrition app that offered digital coaching and educational materials in addition to the more standard calorie counting, as a way to differentiate itself from the myriad other free options available.

By May 2017, the latest version of the app landed in the US, and it has been adding users ever since, Jeong said.

Using psychology to help with weight loss

There are a few ways the Noom app works to help users lose weight.

At its most basic, users are encouraged to use the app to track their weight changes, physical activity, and what they eat. They can also access a variety of articles and other resources about nutrition and healthy habits, a common feature of fitness and nutrition apps.

Noom app

Noom categorizes foods based on color-coding.

Noom


The app labels food in three categories based on how often users are encouraged to eat them.

“Green” foods are those with a low caloric density, like vegetables, and are encouraged in unlimited amounts. “Yellow” foods like eggs, beans, and cheese are suggested in moderation, and “red” foods such as bacon or cake are to be eaten in limited portions or not at all. This stoplight system is also shared by other industry giants, like the WW (formerly Weight Watchers) app.

Noom pairs these tools with two additional features. It offers a virtual human coach for personalized support. And, according to a spokesperson, Noom’s service is based on principles like cognitive behavioral therapy, or CBT, a type of psychological technique that helps people identify harmful patterns of thought and behavior and change them. 

There’s evidence that CBT can be an effective way of treating a wide variety of both mental and physical issues, from depression and anxiety to addiction and chronic pain.

While it’s a relatively new phenomenon, digital versions of CBT have shown early promise to be just as effective as face-to-face therapy, according to J. Ryan Fuller, a cognitive behavior therapist and executive director of New York Behavioral Health.

But experts say that while CBT can help some people lose weight, it’s not a proven solution for long-term weight loss. That’s because nothing is. Research has shown that a majority of weight-loss attempts are unsuccessful after a year or longer. Studies have found that most people who do lose weight regain it, and sometimes more than they started with.

While Noom has more research behind it than any other digital weight-loss company, studies showing its effectiveness range between eight weeks to a year.

CBT isn’t a regulated practice, so there’s not a consistent standard for consumers of what to expect from businesses advertising it, said Robert Hindman, a psychologist with the Beck Institute, which certifies practitioners of CBT. That can make it hard for people to tell if they can benefit from a program like Noom, or might need more traditional treatment.

“Apps might be helpful to learn new strategies to stick to your diet, but if you’re having more severe issues, you really need specialized treatment,” he said.

Over time, Noom and similar apps could make CBT for weight loss, stress relief, and other conditions more accessible to people who otherwise couldn’t afford treatment. Fuller said he hopes that such programs will be diligent about the science behind the practice, and avoid moving too quickly beyond what current data can support.

“There is a gap to be filled, so I don’t think these apps are going away. I think they’re going to get better,” Fuller said. “I would love for Noom to solve this — I just wish they were more transparent about their outcomes.”

Noom said its net revenue was about $200 million in 2019 and roughly $400 million in 2020.

Jeong is trying not to ‘fuck it up’

Saeju Jeong, CEO and Co Founder of Noom

Noom cofounder and CEO Saeju Jeong.

Noom


On May 25, Noom got another boost. The private-equity giant Silver Lake led a $540 million investment in the company together with Oak HC/FT, a venture fund known for its healthcare bets.

Noom wasn’t seeking additional funds to grow, Jeong said, because the company was profitable. But he was starting to eye different avenues of growth for the company and needed vast reserves to make it happen.

Bringing on a healthcare investor, too, would help Noom with its goal of selling to

healthcare companies
, employers, and insurance companies, Andrew Adams, an Oak HC/FT managing partner, said. 

“We worked with dozens of payer-facing and employer-facing businesses on the healthcare side and that really does create a substantial opportunity for Noom,” Adams said. “We really see it as an opportunity to take their digital health platform and scale it across those customer types, but also the broader range of conditions.”

On Wednesday, the company further cemented its healthcare-centric ambitions by announcing that former CVS digital health officer Firdaus Bhathena joined the company in a newly created role as the general manager for healthcare. 

Noom’s quest to remake the healthcare industry — yes, the entire industry — is the latest iteration of Jeong’s original mission for the company, which focused on proactive care instead of what his father, a doctor, called “sick care.”

Weight management was simply a way in through healthcare’s side door, and though Jeong is strategically adding services for conditions like

diabetes
that are adjacent to weight management, his eyes may still be too big for his stomach.

“Now we have a chance, if we deliver a great outcome, we are literally helping their health and boosting their confidence,” Jeong said. “So let’s not fuck it up.”

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