Startup Stories: Challenging Diet Industry Giants with a Computer

The $35 billion diet industry is growing as fast as the nation's waistlines. But if you are a small business that offers a different approach to weight loss than the pills and prepackaged foods that dominate the market, what kind of hurdles would you face?

Plenty, says Terry Dunkle, chairman and founder of Connecticut-based Diet Power. In the company's 20-year existence, it has become a case study of the travails that go into starting a small business in an industry dominated by giants. The company's product is a computer program that can create a weight-loss regimen based on an individual's actual metabolism. Then, it acts as a coach, recommending the right combination of foods, portions, and exercise to meet weight goals.

"I was an overweight editor back in 1988, and I was counting calories by hand with pencil, paper, and calculator," says Dunkle, who chronicled the nation's growing problem with obesity, among other stories, for Reader's Digest. It was the dawning of the personal computer age (Dunkle got his first in 1984), and it seemed, to him at least, that a home computer would be a better tool to monitor his diet. "I thought, 'there ought to be a computer that can do this,' but I couldn't find anything."

He met with a friend, an out-of-work computer programmer, over one weekend, and the idea for a company was born. Dunkle didn't realize at the time, however, that it would take four years to develop the software. He also quickly discovered that he had no real experience running a startup company. Yet the idea of working for himself was a powerful motivator.

"I did not grow up in business-oriented family; my father was a postman. I learned the power of American entrepreneurship at Reader's Digest, and even though I was earning a paycheck from them, I wanted to own something for myself," he says. "I did a back-of-the-envelope analysis, and all of these ideas just came together."

The company launched its first DOS product on floppy disk in 1992. At the time, there were five other programs on the market, Dunkle says. The company got a mention in Shape magazine and bought and ad or two on Prodigy, an early Web portal site, but competition wasn't the principal problem. The computer industry was undergoing rapid change; DOS and diskettes were giving way to Microsoft's Windows, which forced Diet Power back to the drawing board.

It took another four years to develop a Windows version. When it launched in 1997, Dunkle decided to quit his day job and devote all his attention to Diet Power. He decided the same year to launch a Diet Power Web site, and that, he says, has been the key to the company's success.

"We could not exist without the Internet," he says, frankly. "Now we get almost all of our business from three sources: word of mouth (of course, for that you need a great product), search engines, and through [an e-mail] newsletter." Because of his editorial background, Dunkle writes his own content, which he says is key to building traffic on his site. He's also learned the value of cool marketing applications. Diet Power is launching one soon that will match users with someone famous based on their body size and shape.

His site is also peppered with testimonials, a time-tested marketing strategy. "I got an e-mail out of the blue from the Bowflex man, the guy you see in the commercial," says Dunkle. "He uses Diet Power." Dunkle promptly did a story for his newsletter.

The product has also received favorable media coverage. PC World named it one of their top downloads, and the American Dietetic Association "highly recommended" it in its journal. Even so, it hasn't been all smooth sailing.

Sales climbed rapidly until 2003, and Dunkle decided to bring in professional managers. "I knew I didn't have a lot of knowledge about business. So I began looking for business brains. I had two experiences with people with management experience, and both were disasters," he says. "One had never really run a startup company, and the other seemed to be in it for the paycheck."

Now he's running the company himself. "I spent the past three years learning my own business, and found out the most amazing things. For example, 25 percent of revenues came from selling ancillary products, but they were responsible for only 3- to 4-percent of profits. Why do that? We can't compete; we're in the knowledge business." Now the company only sells software. Although today's sales are still lower than 2003's, the company is profitable and sales are rising, he says.

Technology, however, has changed the game again. More and more software programs are now Web-based, which makes them more convenient to use. Dunkle says he wants to do the same with his program, as well as have it computer based. And for the first time, he says he plans to seek some kind of outside financing. He also needs to execute on two other fronts: marketing and making the product more convenient.

If you study the marketing campaigns of most major diet companies, they sell not only weight loss, but also convenience. It may be hype (all diet programs require discipline), but the myth of painless weight loss is a powerful message that is hard to overcome. "The product needs to be easier to understand and use; it's still not a mass-market product," he acknowledges. "It takes a certain person who wants to log information [on their computer]. You really have to be a logger. It works very well if you do it, but you have to be pretty religious about it," he says.

With 33 percent of the population now considered obese, compared with 15 percent only 30 years ago, according to the federal Centers for Disease Control and Prevention, it may be only a matter of time before people finally get religious about their diet. But as they say, no pain, no gain, in more ways than one.