“Success disasters,” data privacy, and unlocking growth with Oura CEO Tom Hale

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0:25Allie:And we're live from the living room As Doug eyes up the matchday spread He's reaching for the Buffalo wing Perfect Hang on, what's this? Oh, he's going for a can of Pepsi too Incredible What a finish Sensational combination Look at the delight on his face There's no doubt about it It just tastes better Matchdays deserve Pepsi Food deserves Pepsi Grab a pack of Pepsi Zero Sugar For today's match It's poetry in motion. We were over our skis and we had customers who had placed orders and they were like, where is my product? Hello, hello. Welcome to the Termsheet podcast. I'm Allie Garfinkel, senior writer here at Fortune.

1:09Allie:And every week at Termsheet, we go over the latest news, deals and insights in venture capital, private equity and startups. Here is where you can listen to some of the most exciting figures in the private markets. Now this week, I'm actually still thinking about some news from last week. And if you had a computer or a phone, you probably saw it. Salesforce CEO Mark Benioff in the lead up to Dreamforce told the New York Times that he was potentially supportive of President Trump sending troops to San Francisco. This created a fallout that I think was really interesting for a couple of reasons.

1:43First, it was so decisive.

1:45Allie:Dreamforce had a number of canceled appearances, and the blowback on social media was substantial. Maybe the most salient piece of blowback came from Ron Conway, who's widely referred to as a godfather of venture capital, a godfather of Silicon Valley. He stepped away from the Salesforce Foundation's board in response to Benioff's comments. Despite all of the discourse around how far right Silicon Valley has moved, true anti-Trump backlash can still materialize, with consequences even for powerful people. Now, that's not to say the rhetoric around how far Silicon Valley has moved to the right is false by any means.

2:22Allie:It's completely true. But I will say it does suggest that the picture is a lot more complicated than a lot of conversations maybe suggest. And I will say that complicated picture is the story I hear all the time behind closed doors. We're going to switch gears completely as we talk about this week's interview. Now, I am a longtime Aura ring wearer. If you're unfamiliar with the Aura ring, it is this ring on my finger. It is a wearable. It is the only one I've actually ever successfully been able to stick with. So I am very excited that this week on the podcast, we have Aura CEO Tom Hill. We talked at Brainstorm Tech a few weeks ago.

3:02Allie:and in the time that's elapsed since, Aura has raised another$900 million at an$11 billion valuation. The wearables market is really competitive. And even as a devoted Aura ringwear, I had a lot of questions for Tom, not only about the company's future, but about data security. This was a really interesting interview for me. I've interviewed hundreds of CEOs, maybe thousands over the course of my career, but it's very rare that I will interview the CEO of a company where the product itself is a part of my day-to-day life where it's something I interface with sometimes hourly. And I think in some ways I gave Tom a little bit of a harder time exactly for this reason, because I do actually believe not just aura, but all wearables are going to be part of the future of health care and part of the future of our relationship to our own health.

3:49Allie:Here's Tom. Tom Hale, welcome to the Termsheet podcast. Welcome to Brainstorm Tech in Deer Valley. How was your sleep score last night? It was great, 90, but, you know, the altitude did make a difference. It was 90 at the altitude? That's pretty good. I think I was 84. Yeah, I got a crown. Oh, you got a crown. That's actually, that's pretty huge. As an Oura Ring user, I'm familiar with the satisfying feeling that that provides. Thank you for being an Oura member. Thank you. Appreciate it. I was never able to keep a wearable before this. So I have lots of questions. I'm ready to go. Let's do it.

4:22Allie:So I guess the place to start, how this came to be. Yeah. Because it actually, the first time I saw it, it didn't look like anything else I'd ever seen. How did, what is the mythical origin story? Well, the origin story takes us all the way back to the deep mists of 2013, when three Finnish founders had a vision of a ring that you could wear that was really a health ring. Wearables were relatively new in the moment, like Fitbit was just sort of starting to be a thing. Apple Watch was starting to be a thing. And they had the idea for a ring that you would wear all the time. And so about five years later, if you can believe it, 2018, the first ring comes out.

4:59And let me tell you something. This thing, it looked like, I don't know, an alien artifact from a future civilization dropped on the side of a Nordic hill that were polished by trolls. I mean, it was amazing. It's about the size of a Super Bowl ring. And it was, you know, made of black or white obsidian. I like you taking the mythical origin story very seriously. You cued me, so I just went there. Now, the thing is, is that what it really was in its first incarnation was a sleep ring. and you wore it to bed really just to track your sleep. And that's what it really, it did well. And then very quickly, it sort of evolved to be something that you would wear during the day.

5:31And during that evolution, they got smaller, they got more comfortable, they started to look more like jewelry than sort of a technology artifact that you would wear. And today, here it is, this very slim, very small, very petite, and actually very quiet wearable. One of the philosophical like foundings of it was, make it calm. Don't make it beep. Don't make it vibrate. Don't make it light up. Just calm. And partially that's the heritage of sleep, but also a very much Finnish set of values about calm.

6:01Allie:And how did you end up at Aura? Because you don't seem Finnish. No, I'm not Finnish. It's true. Although it is an adopted country of mine, and I do have tremendous respect for the Finnish engineers and Finnish software developers and the Finnish people who work at Aura. I arrived in early 2022. And, you know, we had, interestingly, I had, we just sold a company and it was in the process of being unsold. It was a stressful time. COVID was very stressful. All sorts of things were going on. In the process of being unsold? Yeah, yeah. The shareholders were voting down the deal. So it was a stressful moment, for sure.

6:39Allie:So it wasn't an easy time in your life. It was not an easy time in my life. And for the first time, as a championship sleeper, I lost sleep. Right. I mean, I've always been able to fall asleep and stay asleep. And this was the first time when I started researching, um, you know, kind of what I could do about it, uh, bumped into the aura ring, uh, you know, and, and fell in love with the product immediately. I started using it in a short amount of time. I changed a bunch of very simple behaviors having to do with, uh, drinking coffee in the morning, and then maybe a little bit of wine at night on wine.

7:08I kind of reversed those behaviors and started getting quality sleep. And I'll tell you something, the transformation in my life, it was like walking out of a black and white television show into a 4K technicolor movie. And I mean that in a way that like the colors were brighter, my cognition was better, my energy was higher, my mood was better. And as a consumer, the ring made a difference for you. As a consumer. And it was, you know, what it really showed for me actually was that I'd probably been sleep deprived since my early 30s when I first had children and was in the heat of a career, you know, that was, you know, exploding and expanding.

7:43And so as a result, I just didn't prioritize sleep. And it wasn't until I sort of had to take a break, take a moment and prioritize sleep that I realized how powerful it is and how important it is for your health.

7:54Allie:That's really interesting. So you were somebody who came to Aura as a customer. As a, as someone who loved the product. Yeah. And how did you become the CEO? Well, they were doing a search. And they, you know, they interviewed me and, you know, along the way I became very convincing that I wanted to be part of the company and they saw fit to, you know, ask me to join as the CEO. And since that time, we have been on a tear. Company has been growing really at hyper, hyper growth rates. Last year, you know, we broke through a milestone of 500 million of revenue in a year, profitable, all the things that would make the business be successful.

8:33So I think it was probably a good choice on their part.

8:35Allie:If you don't say so. I think modesty has always been a strong suit of mine, but in this case, it's actually true. I mean, to credit where it's due, you've, I think, doubled sales of rings and units. Multiple years in a row. Multiple years in a row. What is behind that? Well, it's quite simple, actually. There were three things that we really unlocked. And the first thing actually was women. And it makes sense in a way that women would be a great audience for a wearable that's a ring that sort of has the properties of jewelry, that is oriented around women's health. And some of the things that we do better than any other wearable really relate to either reproductive health or cycle tracking or giving you visibility into the best time to conceive.

9:18We partner with a natural cycles product, which is the sort of digital contraception. So we sort of nailed women. And in fact, at the time, I don't think anybody was paying a lot of attention to women and didn't see them as a distinct market or a distinct group of people with distinct problems. And we solved their problems very well. So that was one huge unlock. The second one, quite frankly, was retail. Again, going back to this idea that there's something about the ring that has the properties of jewelry. You want to sort of see it next to your skin. You want to look at the size. How does it fit?

9:50What finger should I wear it on? All the things that sort of help you make that decision. And retail was a huge key for that. We'd done a partnership with Gucci, and Gucci designed a ring that looked very much like a Gucci product. It was the sort of ring you might wear to, I don't know, a gladiatorial combat where you as the Caesar were going to thumbs up or thumbs down Spartacus at the end of the battle, right? It was black and gold, and it was pretty boss-looking. But the thing that we learned from Gucci was that they had a bunch of retail stores, and people went to the retail stores because they wanted to see the jewelry in person.

10:26Really fascinating. So we rolled out into retail based on that kind of experiment that we did with Gucci. And it was one of these big unlocks. We had been a D2C consumer, you know, kind of website. And when it became something physical, I think part of it is people started to see us in a different light. We weren't just a website, which is kind of like an ephemeral thing with some pictures on it. We were like a stand with a big sign next to Apple and next to Google and next to Samsung. And all of a sudden we were as big as they were. At a Best Buy, for example. And so all of a sudden, it gave us credibility in a way that I think, not that we didn't deserve it, we just didn't have it.

11:00So retail was the second thing. And then the third thing, this is fascinating. Do you know what an FSA or HSA account is? Yes. Yeah, you've heard of this, right? It's basically you put some of your funds aside for health or for flexible spending around your health, and it's pre-tax dollars. So we kind of nailed this by being the first health wearable that you could buy with HSA or FSA funds. And I remember the moment that it happened. We started seeing people on TikTok. And forgive the impression, but it was sort of like, hey, sister, that Oura Ring wearable that you've wanted, you can now get through HSA, FSA.

11:37And this was through no agency on our own other than making it available. And that sort of viral pickup of people being like, you mean I can buy this thing with pre-tax dollars that I set aside and I can, if I want the, you know, the fancier version of it, I can use that and get it. And the thing was, is of course, HSA FSA, as you probably know, when you go to an HSA FSA store, the kinds of things you can buy there, they sort of range from, you know, band-aids to first aid kits to suntan lotion and, you know, maybe glasses and stuff like that. If you have those things, there's not a whole lot else you can buy.

12:08Yeah. Right. But here it was this sort of very desirable, wearable, you know, high fashion, available to you with your HSA funds. And it rocketed.

12:17Allie:How did you negotiate that? Gosh, you know, I think it's a little bit of a situation where we had to go through sort of an approval process. And we had to work through a set of partners who sort of walked us up there, sort of a governing board called SIGUS. And SIGUS gave us approval, and that was the unlock. What has been the biggest challenge? The biggest challenge. How much time do we have? As much as you want, especially if we're talking about hard stuff, as much as you want. I'll tell you, I think that maybe the toughest moment, honestly, that I can remember was it was actually at the tail end of this sort of period where we had been growing so quickly.

12:53And we sort of said, wow, it looks like we're going to head into the new year and we're expecting it to sort of slow down and it'll be kind of a little bit of a breather. And we're fine in terms of inventory. And then what happened in January and February was that we were not fine. The sales continued to ramp, and we literally could not make them fast enough. And we had to make a really tough decision because we were in the process of expanding into additional retailers. We had to make this tough decision. So you were really over your skis. We were over our skis. And we had customers who had placed orders, and they were like, where is my product?

13:24And we had to choose, like, who got their product. And we were trying to build them. And of course, you know, the thing that as a primarily a software person, I don't think I truly appreciate is that you have to buy the parts to make the things months in advance. And then you have to make the things to have them so that you can sell the things. And so if you don't forecast appropriately, you will not have enough things to sell. And if you don't have things to sell, guess what? You can't sell them or it's difficult when you do sell them. So this was a tough time. And we had to, we scrambled. We did everything we could to kind of fulfill all the demand that we were facing.

14:00But it was what I would like to kindly refer to as a success disaster.

14:05Allie:I was going to say, how long did it take for you to get out of that trough? It was about four months. It was about four months. So what were you doing every day for those four months? Well, I was explaining to people. It was a lot of resetting expectations. It was a lot of saying, hey, I'm really sorry that your product is not available to you right now. And yes, it is available on Amazon. So maybe if you want to cancel an order with us and go to Amazon, great. But it's one of these things where it's a good news, bad news story. So it wasn't that we had zero inventory. We just didn't have enough.

14:33And for people who had bought it directly from us, they were like, well, where's the thing that you promised? It was tough.

14:40Allie:Well, it's really tough, too, because on one hand, this is great. People want it. On the other hand, once trust like that is lost, it's hard to gain back. I went directly to a bunch of forums, to Reddit, to online, wrote a blog, just said, hey, listen, you know, this is a situation where our success has outpaced our ability to deliver. And we're, you know, sorry. And, you know, we'll make it up to you in all the ways that we can. And I find that actually, you know, weirdly, people responded well to that. I was going to say, this is actually something I've seen you do recently. I actually don't know when this is going to come out.

15:14Allie:But right now there's some controversy around the partnership with the DoD. Yeah. You took to TikTok. You know, it was my first TikTok. That was your first TikTok? How was it? You know, what's funny is it wasn't as bad as maybe I feared, meaning that I tried to speak directly and address people in a, I don't know, comfortable, calm, empathic way that was authentic. And I think that carried the day. There was a ton of misinformation. information. I think, you know, the Internet being what it is, people, you know, bad news and misinformation travels pretty fast, maybe faster than the truth. So I felt like it was really important to state the truth.

15:56And doing that in a direct address way, just sort of like, I think it's very typical of TikTok, right? Holding up the camera and talking to the camera, which is your phone, and broadcasting to everybody. It really worked.

16:06Allie:I mean, while we're here, let's clear the air. Yeah. How is it worth securing my data? So, interestingly, one, as a Finnish, you know, kind of original company, we're sort of governed by GDPR. And GDPR, as you probably know, is the most stringent data protection regime there is. We also are HIPAA. And if you know what HIPAA is, it's another data regime. And our kind of commitment to our customers and anybody who wears an O-ring is we are there. Have you guys been HIPAA compliant since the beginning? Or is that something developed over time? No, actually, it's something that we came into, I can't remember the exact date, but I think it was in 2023.

16:45And so it's been a while that we've been going down that path. And the reason for that is that data, what we would think of as protecting your data is critical because health data is this incredibly sensitive, very personal, very private information, particularly if you think about women and the information that's available based on how your physiology changes every month. Okay. So we've always had this incredible bias in terms of protecting data, in terms of being secure. And we only think of our members as the people for whom we serve. We're there to enable your health. We're there to support you.

17:24We're not there to, you know, to sell your data or share your data, unless that's something you want us to do. We don't do them. And so for this situation, it was just really easy to just come out and say, this is what we do. So how do we do that? Well, okay, your data is stored in an isolated system. It has only certain employees in the company can access it, and only then under certain circumstances. We encrypt your data, and we make sure that most of the processing, as much of the processing can happen on the edge, meaning on your device. So we try and keep as much data on your device as possible because your device has this incredibly strong encryption that is biometrically enabled.

18:06So all these things that we do are really about keeping that. Now, as we look ahead too, we also have like real ambitions to sort of create a privacy forward solution. So for example, one of the things we're super excited about is this idea of processing AI on the edge. And what that means is that if you process the AI and you ask us a question and the AI responds, if that happens on your device, that means no one else is looking at that data or can look at that data. So we're maybe uniquely in the sense of servicing women so centrally, and that's so important to our business, we're uniquely focused on this, which is why, frankly, this meme that was propagating was so painful.

18:48And it felt personal in a way.

18:50Allie:I'll be honest. I, as someone who genuinely loves this product, right? Completely. Can't imagine my life without it, actually. I do worry about this because I'm a woman. It's my biometric data. It also knows where I am all the time. Like, it knows when I go for a walk at home in Venice Beach. I mean, what do you worry about? What are you sort of, what kind of sort of cybersecurity-oriented future are you guarding against? How do you sort of make sure this doesn't go horribly wrong? Well, I think you have to invest. And the thing is that cybersecurity is kind of an infinite surface area. Attacks or things can come from any direction.

19:29And I think, to be honest, I think our success has made us maybe a more interesting target. So we spend a lot of money and time and invest in a lot of technology to make sure that, you know, your data is private and secure. And maybe the most important part of that is building an architecture, an architecture that means that if the data isn't being propagated everywhere, then it's by definition more secure. The more places it's propagated, the more parts of your system it touches, the more exposed it can be. So we try and limit that exposure as much as possible. You know, I think this is a truism about cybersecurity, too, which is that, you know, the threats are asymmetric.