'It's not frugal, but it's intentional': The cofounder of the fitness app Strava describes the money principles that shape his business and personal finances

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'It's not frugal, but it's intentional': The cofounder of the fitness app Strava describes the money principles that shape his business and personal finances

Michael Horvath

Courtesy of Michael Horvath

Michael Horvath, cofounder of Strava.

  • Michael Horvath founded Strava, a fitness app, with the idea of motivating and connecting individuals around exercise.
  • But when he and his cofounder Mark Gainey got Strava started, they weren't totally confident things would work out, so they decided to fund the company via their own personal credit cards.
  • To this day Horvath follows the same money principles they introduced at the outset of Strava.
  • These strategies include spending to prove a concept, investing in ideas that align with your core values, and not being afraid to spend money, period.
  • Anyone can apply these principles to their life, career, or business.
  • Click here for more BI Prime stories.

For cofounder Michael Horvath, Strava started with an idea that seemed crazy: connecting people online in an interactive way around exercise and fitness. Horvath first had the idea for this sort of "virtual team" platform in 1995, the year he and his cofounder, Mark Gainey, graduated from college. During school, they'd both been on the rowing team and enjoyed the motivation of working out together. But after college, it was hard to find reasons to train.

They took the idea of a virtual locker room to several companies. "I remember they said, you can't do this," Horvath recalled. "There was no Facebook yet. We wanted to develop something interactive when websites were static."

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So Horvath and Gainey created something else instead: Kana, a software company which was later acquired by customer engagement and cyber intelligence analytics company Verint. In 2006, both entrepreneurs were free agents again and went back to their original idea. This time, they were determined it could work.

Today, Strava is a popular social network that connects millions of runners, cyclists, and other athletes via a mobile app and website. The company has raised about $70 million to date, according to an internal source, and employs over 200 people worldwide. Pitchbook estimates the company's post-money valuation is $365 million.

But at Strava's inception, Horvath and Gainey were less confident in its future. So, they decided to fund the company via their own personal credit cards. If things didn't work out, it was all on them.

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"There's an early phase for a lot of companies where the founders are starting something and they haven't taken outside capital," Horvath explained. "There isn't a bank account with the company's name on it, and for a finite period of time you're trying to learn if this is an idea that has legs … Plus, no bank is going to give you better credit than you can give yourself."

Obviously, things did work out for the best and the company quickly took off - but Horvath told Business Insider that Strava's business principles are still influenced by the founders' personal spending theories and strategies, especially those they introduced at the outset. Here are a few of those important principles.

You have to spend money to prove a concept

In the beginning, Horvath said he and Gainey made some costly business moves that weren't in line with how they thought Strava would function in the long run - and this turned out to be a good thing. Even today, Strava spends between 40% and 45% of their total operating costs on research and development.

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"Spending money to prove a concept is worth it when it means getting your product in the hands of your customer early on, to start getting real feedback," Horvath said.

For example, during the company's inception stage, Horvath and his cofounder heard that Costco had 300 cheap Garmin cycling computers, all older models of GPS tablets that mounted onto bikes, sitting in a warehouse. The retailer wanted to get rid of them quickly.

One of Strava's biggest barriers to entry was getting people to sign up for the community and buy a device that would track their activities.

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"At the time, those devices were expensive," Horvath said. "Battery life wasn't good enough on mobile phones to track multi-hour bike rides … so you needed to invest in [a] GPS unit to use [the] service, and we realized that was a high barrier to participate. Even though it didn't scale, we found a connection at Costco and … we said we will pay you. It was $30,000, so it wasn't cheap for us, but then we gave the devices to people and said please try Strava. It was the fastest way we could think of to build a community on Strava to see how people would behave when presented with this way to work out. If we hadn't done that, it would have taken so much longer to get going!"

The computers provided much-needed feedback about Strava's usefulness early on, Horvath said, noting that he started by handing out the devices to friends, family, and influencers with the goal of building communities in certain areas. This early investment led to a community of 5,000 athletes that would eventually power investments and business growth.

Horvath also remembered that early on at Strava, an employee had to build every new user account. Obviously, that approach didn't scale - but the early feedback was valuable enough to justify the extra work, he said.

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You have to spend money on projects and opportunities that align with your values

Horvath emphasized that you should spend money in alignment with your values, a concept he has etched into Strava's core from the first moment of the company's launch in 2009.

"The culture of spending at a company should definitely be determined by the company's values," he said. Strava's values - authenticity, balance, craftsmanship, commitment, and camaraderie - are central to the way the company functions and the way they allocate their funds.

Michael Horvath

Courtesy of Michael Horvath

Horvath said that Strava spends between 40% and 45% of their total operating costs on research and development.

For example, they don't cater lunch and dinner every day, but instead focus on big events where employees can spend quality time together. There's also a focus on quality and productivity, to make sure the company's craftsmanship improves at all times.

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"We prioritize the right kind of spends," Horvath said. "It's not frugal, but it's intentional."

You have to be flexible and prepare for the worst

While Horvath knows it's less-than-recommended by financial advisors, he said he likes to think in the nearer term when it comes to business and personal decision making and spending - often only about 10 years ahead. This allows him to remain agile and resilient, no matter what comes up.

"I think making plans is helpful, but the plans themselves are often useless" when life throws you curveballs, he explained.

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Horvath also said that he sees a danger in building a lifestyle that extends beyond your means, especially once you achieve a higher level in your career. Instead, he recommended that founders and entrepreneurs create a frugal personal life that gives them what they need - and save the rest.

"You have to build resiliency and flexibility into your lifestyle, because what would happen if this all goes away? It's not having a less extravagant lifestyle that hurts. It's going from high to low expectations," he said.

You have to not be afraid to spend money, period

"When I was a kid, my dad made a really big impression on me," Horvath said. "Not because he was frugal or extravagant … but because he said money belongs to the person who spends it."

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For Horvath, the power of money is always in the hands of the person making the spending decisions. He maintained that money is all about spending, not earning, since that's what you have control over.

This belief trickles into his business, but is also important in his personal life. Horvath currently has four kids in their 20s, and he said that they often control his money because of things like school tuition, travel, and family vacations.

"But this is a commitment I made when I had them," he added.

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Jenni Gritters is a Seattle-based freelance journalist who covers health, psychology, business, and travel. You can find her bylines in The Guardian, Wirecutter, Outside magazine, 538, mindbodygreen, and beyond. When Jenni isn't working with words, she's teaching yoga and mindfulness; hiking, camping, and snowshoeing in the Pacific Northwest mountains; and running with her husband and puppy.

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