Muve was Minnesota’s “breakthrough business idea” of 2007. That year, the company’s obesity-fighting fitness device concept was the unanimous winner of the Minnesota Cup contest, earning it prize money and piles of positive press. Not only that, the startup had a big-name partner behind it in the Mayo Clinic.

Muve’s small, wearable clip tracks how many calories users burn and vibrates when they’ve been inactive for too long. The concept was inspired by co-founder Dr. James Levine’s research at Mayo, which suggested people could lose or maintain weight by breaking up their day with periodic, light activity.

“We had a lot of momentum,” founding CEO John Montague recalled this week, three months after debtors shut down the company and claimed its assets. “I get asked every day: what happened? Why did it fail? How could that have possibly failed, when it had the Mayo Clinic involved and it was focused on obesity and it had every possible macro-economic trend working in its favor?

“The answer to that question is probably a little bit complicated.”

That’s an understatement, and the story took its latest twist this winter when seven Muve investors used the assets they repossessed from the company to launch a product called Gruve. The new project gives the North Start State-hatched technology a second chance to make a splash in the market, but it’s also left vendors and other investors feeling burned and believing they’re still owed a piece.

Resuscitated by Dr. Oz
Nobody’s lost more money than Tom Hudson, a former IBM executive who was recruited out of retirement to run the company in 2008 and became its largest investor. As he lost money, he also lost weight ’ about 30 pounds over three years using the Gruve device, he said. That experience is part of why Hudson is now also the majority shareholder of Gruve.

“I believe in the solution. I believe it’s proven, and America certainly needs it,” Hudson said.

Dr. Oz apparently agrees. The doctor/daytime TV host featured the device on a Nov. 10 segment called Cutting-Edge Weight Loss Products. “This is a cool little device,” Oz told viewers, making a brief pitch for its use before giving one away to a woman in the studio audience (which giggled when Oz explained that it vibrates).

At that point, the company was little more than a stack of corporate articles and incorporation forms. A small group of Muve investors were still putting together pieces left over from their October foreclosure on the company. In fact, the product was actually off the market when the show aired. The website was still live but nothing was being shipped, said Gruve CEO Bob Gauthier. Besides setting up the new company, the team had to fix a manufacturing glitch that caused problems in Muve’s final months.

“It really started when the Dr. Oz Show ran a special and highly recommended our device,” said Gauthier, who was also one of the secured investors in Muve.

The device is a high-tech pedometer, only instead of counting steps, it uses an omnidirectional accelerometer to track a person’s activity level, measuring both the duration and intensity. That data is then converted into approximate calorie burn. Users can synch the gadget with Gruve’s website, where they can track activity, goals, and other health metrics.

Another key function is the activity reminder. Hudson said every person has a threshold of inactivity at which the body starts to convert sugars to fat. It’s calculated based on variables like height and weight. For Hudson, it’s about 59 minutes. So if at any point in the day he goes 59 minutes without activity, his Gruve device will buzz with a little reminder to move around some to reset his body’s sugar-fat conversion countdown.

Gruve is basically following the same plan that was in place at Muve. They see it as a potential mass-market solution to the nation’s obesity epidemic. Consumers, employers and insurers are all increasingly realizing the connection between obesity and chronic disease, and they’re looking to wellness as a way to reduce overall healthcare costs. Gruve sells some devices direct to consumers (they retail online only for now at $185 on Amazon), but the company sees the real opportunity in partnering with employers, insurers or others who have access to larger distribution channels and can package the device in a suite of wellness tools.

Bad Economy, Plenty of Distractions
So why didn’t it work the first time?

Hudson and Gauthier blame the market. It was a lousy time to try to raise money, and when the company couldn’t come up with cash fast enough, its progress slowed and eventually stopped in its tracks. But the company clearly had other distractions on its plate, any one of which could have contributed to the foreclosure. There were lawsuits from vendors and a former CEO. There were acquisition talks that fell apart at the altar. And there was turnover from employees who left to work for a competitor.

The turnover started in April 2008, when the board of directors pushed out Montague in favor of a more seasoned top executive, which they found in Hudson. Muve had yet to get its product to market and still had work to do on both the device and the software that lets users track their activity.

The company had already been struggling to raise money, but then came the first of the lawsuits. Montague said the board promised to repay him within 30 days money he was owed from loans and back pay. He estimated the total amount was around $200,000. When 30 days passed, then 60, then 90, Montague hired an attorney and filed a lawsuit against Muve in September 2008.

Muve settled with Montague in December 2008, agreeing to repay him over the course of 2009. When the payments never materialized, Montague filed another lawsuit in October 2009. That case was settled last summer, with a condition that a judgement be ordered against Muve if it didn’t comply. Montague said he still wasn’t paid, which led to the judgement being imposed in the company’s final weeks.

“We just didn’t have the money to pay what he and the courts wanted,” Hudson said in an interview.

Muve was already attempting to raise money in the wake of a financial crisis and recession. The lawsuit from Montague was one more fundraising obstacle, Hudson said. In order to win over even a small number of investors, the company started selling secured debt, putting new investors at the front of the line over a couple dozen unsecured debtors who invested earlier.

Montague said this week that he never attempted to collect the money after the last settlement and has decided to move on with his life and career. He only commented after being contacted by a MedCity News reporter. Muve, however, owed money to more aggressive parties, two vendors in particular. Hudson said when these companies saw Montague seeking payment through the courts, it triggered similar lawsuits that were successful in garnishing revenues from the company.

“When you can’t raise money and can’t spend the money you get from customers, it shuts you down pretty quickly,” Hudson said.

Montague disputed any suggestion that his lawsuit somehow led to the downfall of the company. He blames another distraction. He said that about six months after he left the company, new management entered acquisition talks with Philips, which makes a competing product. Gauthier confirmed negotiations with Philips did take place, twice in fact, but he denied that they were a distraction.

What happened next was that Philips began to hire away several members of Muve’s small staff, said Montague, who named four people he worked with who left for jobs with Philips, including two product developers, a marketing employee and a lead salesperson. Gauthier said Philips was “quietly courting” Muve’s employees. “Twice Philips went through the entire sales list.”

Muving forward
Montague and Levine have moved on and are now working on a new ambitious public health project together called the Cleveland Project.

Gauthier and Hudson are hoping the second time will bethe charm for the Gruve technology.

“The real thing is: the market’s picking up,” Gauthier said. So is interest in wellness programs.

Gruve started shipping devices again in December. Gauthier said they’re working through their backlog and shipped about 1,500 over the holidays. They’re ramping up and normalizing a production schedule and expect another 1,000 devices in-hand by the end of the month. They’ll supplement the 500 that came in last week.

The company is debt-free and extremely lean. It hasn’t yet moved into an office and most of the people involved, including Gauthier, are working for free right now. It’s pulled together a sales and distribution operation and will continue to outsource manufacturing, as Muve did.

Gauthier said sales are steady, and that they’ve been approached by some major consumer brands about incorporating Gruve into their wellness-related programs. He’s also getting more calls from the media. Fast Company featured the device Wednesday in a slideshow called Intelligent Devices That Care. Meanwhile, the producer of a national daytime TV program is currently wearing a Gruve while considering whether to feature it on the show. Others who are trying out Gruve include staff at the U.S. Surgeon General’s Office. They’ve also had interest from health researchers.

Hudson said he thinks the device could be a very good solution for the masses. The challenge is that it needs a very large mass of users to make the company sustainable.

“I’m optimistic, but cautiously,” Hudson said, “and I can’t really put a lot more money into this thing.”