CHAPTER 13
The Guts

Rick Stollmeyer wasn’t looking to get into the fitness business. Personal fitness is a holdover from training at the U.S. Naval Academy, where he studied to become an engineer on a nuclear submarine. He’s an in-shape guy.

Stollmeyer hails from a family of small-business owners and even as he proceeded through a typical post-Navy life, working for a military contractor in San Luis Obispo, California on satellite technology, he was nursing that latent entrepreneurial streak.

Unsatisfied with the track he was on, he began seriously noodling business ideas with a high school friend named Blake Beltram. A programmer, Beltram wrote software that helped Pilates pioneer Mari Winsor manage her studio in Los Angeles. The year was 2000. The high school buddies saw a market well beyond Pilates.

It started as HardBody Software and the market was growing—boutique fitness studios were relying on any number of inefficient ways to run their surprisingly complex operations. Some were running their schedules and payments through personal computers. Others, like Barry and his eponymous bootcamp, used a cumbersome system of index cards to keep track of their members. Most were somewhere in between.

Stollmeyer jumped in. “What I fell in love with was that this was grassroots entrepreneurialism, people following their passion and leaving their corporate jobs,” he says. “I come from a small business background. That really resonated with me. We could level the playing field, help them compete with the big boxes.”

The pair also saw the megatrend of health and fitness, with multiple generations moving toward wellness in general, and to studios where they could get in shape together. Seeing how consumers, especially Millennials, were thinking about fitness much more holistically, and with an eye toward the mind as well as the body, they dropped the word “hard” and added “mind” in the company’s name.

“One of our theories is that technology allows us to be more and more separate, there’s a commensurate hunger to have that face-to-face connection,” Stollmeyer says.

The hunger is fierce, based on his company’s own numbers. Revenue grew at least 50 percent year over year for the seven years ended in 2013, with 2009 standing as the only exception. That year, the depth of the Great Recession, Stollmeyer says “we took our foot off the gas,” not knowing how a bleak economy would play through their customers’ numbers. In 2014, revenue jumped 43 percent, to $70 million.

The recession was a hardly a blip and, in fact, ended up helping his business. First, the ultimate consumers—customers of Stollmeyers’ customers—didn’t stop showing up, even as many suffered economically. Second, the small businesses—as Stollmeyer had seen with his own family—figured out a way to stay open because failure wasn’t an option.

“These people are committed,” he says. “They cashed in 401(k)’s, cut staff, and worked seven days a week. This is my mom and dad running their lighting fixture store. We had that understanding of their mindset.”

Armed with that information, Stollmeyer continued to seek outside money to grow the business. In the depth of the recession, talks with the New York-based investment firm Catalyst got serious. What they saw was that once-reluctant, would-be customers listened harder to pitches that could save them money. “People had been comfortable with their clunky systems,” he says. “There was now an urgency.”

Catalyst put in $5.6 million in 2009 and MindBody continued to grow. Three years later, the company raised an additional $35 million from existing investors and blue-chip firms led by Institutional Venture Partners, a decades-old venture capital and private equity firm with more than $4 billion in assets under management.

Getting the money on board, initially, and even in the later rounds, was largely about convincing backers about the breadth of the opportunity. Stollmeyer preached a story that extended well beyond the neighborhood yoga studio, pointing to the industry statistics, as well as the demographics of the end customers.

Stollmeyer echoes the sentiment that those customers tend to be upper middle income and female. The Baby Boomers are on the front edge, with the time and the money to take care of themselves. They gave birth to the Millennials, “the most affluent generation ever born,” and a group willing to spend money on themselves, he says.

Then there’s the need for loads of technology that Millennials—and all of us—take for granted. It starts with scheduling. Because most studios are classes that begin and end at certain times, and not just a series of machines that can be used ad hoc, rosters have to be managed. You have to keep in touch with those students, who may number in the hundreds, or thousands. And they have to be able to pay you, online and in person.

There are the instructors, who themselves have to be scheduled and paid. Those deals vary by studio, and sometimes by instructor within a certain studio, with guaranteed pay per class and then more on a per-head basis.

And most studios are selling merchandise, from water to smoothies to branded T-shirts so there’s a point-of-sale component. “You add all that up, it’s a beast of a product,” he says.

Stollmeyer says he’s not worried about certain exercises falling in and out of favor with a fickle product, in part because he’s already seen smaller studios pivot to new classes to meet demand. His nephew Darik runs his own boutique in San Luis Obispo called Rev SLO and has broadened to include spin, yoga, and Zumba based on local demand.

And they’re not just sticky in terms of staying around—they’re numerous. By mid-2014, MindBody had 38,000 customers and no one customer accounted for more than 0.5 percent of the company’s revenue, Stollmeyer says.

Now, MindBody is one of those companies that almost anyone who’s signed up for a fitness class has encountered, even unwittingly. The purveyors of that fitness are highly aware of MindBody’s existence—it’s one of the things you sort of have to do in order to not drive yourself crazy doing your own books. Lillian So says it was something of a sign of growing up, even though she initially balked at laying out the monthly cost to be on the platform.

Any lasting economy requires a certain amount of infrastructure, and that’s the role that companies like MindBody play in the fitness ecosystem. These also are the sorts of companies that investors seek out in a rapidly expanding market, even as the sexier, consumer-facing companies draw headlines and eye-popping valuations.

The power lies, in part, in how entrenched and necessary such a company can become, especially if it’s a leader in its given market, as MindBody is. And given how much time most studio operators want to spend worrying about technology (not much), if MindBody can get in and keep their customers—and their customers’ customers—happy, it’s likely to have loyal clients.

Other companies have sought to connect consumers with their activities, including Active Networks, whose Active.com online sign-up service is familiar to most people who’ve signed up for a race on the Internet.

While MindBody and Active improve efficiency and convenience for both businesses and consumers, their impact pales in comparison to that of applications, websites, and platforms that are user-driven.

The dawn, and explosion, of social networks—fueled by the visceral power of still images and video—is among the most powerful influences on the rise in participation sports. It is impossible to imagine many of the companies described in this book thriving, maybe even existing, without the direct or indirect help of social networks. Facebook, Twitter, and Instagram especially allow us to brag, compete, and advertise instantaneously and cheaply, to breathtaking effect.

Today’s social media feeds are riddled with references to fitness. Every day, people tweet and retweet, post and Like, and Favorite descriptions and pictures of their workouts and races. Especially committed athletes send out agonizingly long recaps of their races, training and triumph screeds that read like manifestos.

Twitter and Facebook are rife with posts of encouragement, support, and good old-fashioned bragging about exploits in various races, or even just workouts. Friends celebrate and rib each other, one-upping on times or accomplishments. Social networking helped popularize the humblebrag, a long-practiced method of letting people know that you did something interesting or difficult, couched in seemingly low-key or self-deprecating tones. Example (fictional) tweet: “Bad girlfriend for falling asleep at 9 pm. Must’ve been the 20-miler this morning. #NYCmarathon.”

All corners of the sports world have leveraged social media. Nearly every brand has its own Facebook page and Twitter handle, and many have someone (or several someones) whose job it is to populate and update those sites. They follow and tag interesting and influential athletes or participants, Favoriting mentions of the brand or race. Every race of any stature has a hashtag on race day, and encourages participants and fans alike to tweet about their experience.

Social media have a democratizing effect. The presence of athletes on social media only draws them closer to everyday participants, and a win—or even just a finish by Meb Keflezighi or Kara Goucher—elicits hundreds, or thousands, or tens of thousands of social media mentions. Each of them has more than 80,000 followers on Twitter.

Like authors, journalists, and performers, many athletes use social media to cultivate their fan base. That draws them to appearances before races and makes them that much more attractive to sponsors. A social media-savvy athlete brings a built-in audience that’s immediately available to market to.

Social media help amplify, sometimes to a painful extent for our friends and families, the narcissism embedded in the pursuit of these sports. Our modern need to over-communicate takes flight in these forums. The beauty and horror of Twitter and Facebook (and Instagram, and Pinterest, and sites not created in time for this book’s publication) is that they are unfiltered and ready to be exploited for our own selfish gain. There is nothing stopping any of us from posting all the time about our latest run, ride, swim, or workout.

A positive aspect is the motivation provided by seeing a virtual stream of friends or colleagues note their achievements. Companies are increasingly using social media to motivate their employees to participate. Technology allows for open competition that otherwise might not happen, or be very difficult to initiate and track. Prevention Magazine cited a firm called ShapeUp, which found that employees at companies that used social media to run their wellness programs saw at least double the participation rates of a walking program and upwards of four times that of a traditional weight-loss effort.1

For runners, cyclists, and other everyday athletes, social media is a way to connect with like-minded individuals, to crowdsource a good workout—through applications like MapMyRun—or read a review of a new pair of shoes on sites like SlowTwitch or message boards created by Runner’s World and other specialty magazines. Tweeting and Facebooking puts us in a conversation.

So even as technology is a great enabler of our athletic pursuits, it’s also pushing us in a different way, toward an active life that is more social, where we can actually have real, meaningful, physical human contact.

Running and cycling began as distinctly individual activities, very much apart from the teams many of us grow up on. As kids, we are socialized by our Little League or soccer team. They are a key to learning how to get along with others, how to take direction, how to be gracious in both victory and defeat. And there is something special about being a teammate.

To that end, our reliance on, and obsession with, technology may have an unintended, and happy consequence—at least for those of who believe that exercising makes us happier and healthier people.

As we became more attached to our devices, it was probably only a matter of time before they became totally attached to us. With the size and cost of electronics shrinking, owing to advances in processing and memory, wearables became a word thrown around by executives and investors alike.

The annual gathering once known as the Consumer Electronics Show, and now known simply as CES, is a geek’s paradise. Held every winter in Las Vegas, it’s a chance for the electronics industry to sniff each other out, and for the rest of us to get a peek at what’s next. Its scope usually allows for a bevy of predictions around what the big tech companies and their scrappier start-up counterparts are betting consumers will buy in the coming year or two.

The 2014 version was all about wearables, with a fitness and wellness bent. As online tech bible CNet wrote as the show came to a close, “Like ‘the cloud’ a few years ago, ‘wearable tech’ was an unavoidable catchphrase, a show floor fever dream, a vague future strategy that nearly every company seemed to toss into their press conference.”2

The wearable craze in fitness initially blossomed around the ability to make a relatively simple pedometer sexy. Once attractive only to mall-walking retirees looking to satisfy their doctor’s request to be more active, person-based activity trackers became a tool for the fitness-obsessed.

And the early versions weren’t much more than step-counters. Initial products from Nike, as well as upstarts Fitbit and Jawbone, relied mostly on answering that simple question (“How many steps did I take today?”) to get people hooked on their respective wristbands.

Nike was the first band I began to see as useful in any meaningful way. I was startled in early 2013 to see two private equity investors—one London-based, one from New York—sporting their Nike FuelBands during a meeting in Doha. One of them, a guy in his late fifties, bragged that he was a top performer in his gender and age cohort, according to the Nike-compiled statistics.

The FuelBand, in addition to counting steps and stairs climbed, came with its own proprietary measure—“fuel”—that factored in the user’s activity to come up with a proscribed number of points per day. Achieving that goal led the band to light up with congratulations.

The ability to feed one’s data into a larger set underscores the social exercise theory. Friendly (and sometimes not-so-friendly) competition is a powerful motivator. Strava stands as the most popular in that regard, allowing its users to win what it calls segments. As the (U.K.) Telegraph put it in a piece with tips to help Strava users get a leg up on each other, “Strava has forever changed cycling, for better or worse . . .Now even a short trip to the supermarket has an element of competition.”3

Offloading some of the motivating pressure from one’s self is a powerful tool. Fitbit and others (including Under Armour’s Record app, which pulls data from any number of devices, including its own wearables, as well as Fitbit’s) allow users to go head to head, to join up with a group of friends and compete on steps taken or floors climbed.

Competition is a funny thing. The elements have to be just right to motivate us to perform better. In their book Top Dog, Po Bronson and Ashley Merryman write about studies related to selecting just the right cohort to boost performance. A small group (as is often the case with the curated fitness gangs) can be powerful. They write: “When there are only a few people in the race, we put our foot on the gas, working harder and harder to outpace our competitors. And the competition becomes very personal, a referendum on our own ability.” Putting too many people in the mix is dispiriting. “Once the crowd is large enough that we don’t feel the element of personal competition, the result doesn’t feel like a personal statement of our worth, so we don’t try as hard.”4

By 2014, it was clear that private equity dealmakers and venture capitalists weren’t just slapping the bracelets on their wrists, but also writing huge checks to fund the wearable fitness market. Fitbit in August 2013 raised $43 million in a single round of funding, drawing new money from SAP Ventures, Qualcomm Ventures and existing investors led by Softbank Ventures.5

Fitbit was only one of the wearable fitness companies drawing attention from the moneyed set. Jawbone, an electronics company selling speakers and headsets as well as the Up and Up 24 fitness bracelets, raised $100 million in equity and debt a month after the Fitbit round was announced.6

By May 2014, Jawbone’s ambitions, and coffers, were even bigger. It was in the midst of raising somewhere between $250 million and $300 million, according to published reports. One of those quoted CEO Hosain Rahman validating the broader wearables thesis, namely that it was about collecting lots and lots of data: “Tomorrow is all about more information, more signals, more understanding of yourself, but then taking all of that and really crunching it,” he said. “Taking all that data, contextualizing it for the use and turning it that into understanding which leads to data [is the goal].”7

While his logic appears circular at first (Go get some data, do stuff with it, and then turn it into more data), it gets right to the heart of why companies and investors piled so heavily into the business of tracking fitness. All of us seem quite willing to share an excruciating amount of detail about our lives. Some of it, on its face, seems absurdly useless (see: the vast majority of Facebook posts, especially those involving descriptions and pictures of food consumed at restaurants). And yet even that nonsense has some use, when put together with lots of similar data. (Our posts tell would-be advertisers things we may not even realize about ourselves and our habits).

It’s even easier to see why data about our health and bodies and habits would be that much more useful. Most of us are generally fiercely protective of our medical records; strong state and federal laws prevent the sharing and dissemination of our health history, lest we be discriminated against for a new job or made to pay more for health insurance.

There is a dark side to all of this, raised eloquently by the activist magazine Mother Jones in a January 2014 article. The piece reviews the privacy policies, which they deem insufficient to really protect the user who is voluntarily (and happily) entering in data such as blood pressure and glucose levels. The article quotes the executive director of the Center for Digital Democracy: “When companies promise that they aren’t selling your data, that’s because they haven’t developed a business model to do so yet.”8

The ability to measure appeals to a certain type of professional person who is used to taking stock (sometimes literally) in their everyday lives. In the information economy, the person with the most robust spreadsheet is king. So why not apply the same metric-driven rigor to one’s personal life? (I’m reminded of a senior private equity executive I interviewed, who voluntarily used all the performance metrics applied to companies his firm acquired to himself, measuring his productivity at work and at home.)

Data gathering plays to our own modern self-involvement, too. The satirist David Sedaris, who has long eschewed exercise, wrote in The New Yorker about falling into the throes of obsession with his Fitbit. “At the end of my first sixty-thousand-step day, I staggered home with my flashlight knowing that I’d advance to sixty-five thousand, and that there will be no end to it until my feet snap off at the ankles. Then it’ll just be my jagged bones stabbing into the soft ground. Why is it some people can manage a thing like a Fitbit, while others go off the rails and allow it to rule, and perhaps even ruin, their lives?”9

Falconhead’s David Moross says that while many wearable users get excited, even addicted, only to drop the device within weeks or months, the broader movement stands, especially for the more serious among the everyday athletes increasingly accustomed to information close at hand, all the time. “Being able to go back to your computer after a workout and see things instantly is the future, it’s where it’s going,” he says. “Everyone wants instant data to help performance.”

My own experiments with the fitness bracelets stoked something of an attachment. I first bought a Fitbit Force, which I found mildly useful. It tracked my steps and gave me a general idea of the distance covered (general in the sense that it usually varied, sometimes substantially, from my Garmin running watch, which uses GPS.)

The breakthrough for me, oddly, was the silent alarm on both the Fitbit, and later, the Jawbone Up. Through the app, I was able to set the bracelet to gently buzz me awake in the morning. I’m among those who wake up before most of humanity to exercise, so the ability to set an alarm that didn’t wake up my wife with a loud alarm was a huge boon. I honestly would pay the $100+ price tag for this feature alone.

In early 2014, the Fitbit Force was recalled. The company cited a number of wrist rashes apparently caused by wearing the Force and offered full refunds, including shipping, no questions asked. I didn’t have a rash, but sent it back anyway, mainly to try a different wearable.

The Jawbone Up is funnier looking and lacks the digital display of the Fitbit, which was a bummer. I’m not a big jewelry guy, and the Jawbone from a distance appears to be a somewhat bulky bracelet with no function. But, the app is sleek and I concede to easily falling into its sway; I liked looking at the various charts of my activity and sleep.

After going through a couple of Jawbones (both companies are good about replacing them, quickly and free, when something breaks) I went back to the Fitbit, mainly because the model I prefer has a screen that shows the time when I flick my wrist in a certain way or press the button on the side. But mostly, I’m in it for the numbers.

The data are useful in aggregate and to look at patterns. Some of them are obvious—I, like most modern American working parents, don’t get enough sleep. I also remain surprised at how much effort it takes to hit certain step goals. The U.S. government, through the Centers for Disease Control, recommends that people partake in moderate exercise for at least 150 minutes a week, as well as “muscle-strengthening activities” two days a week. For reasons of history, ease, and simple numbers, 10,000 steps has caught on as a standard measure of daily good health. By virtue of that, Fitbit and Jawbone set that as their step goal defaults. That many steps is the equivalent of almost five miles of walking and I have a hard time imagining how most Americans—especially those outside of urban centers with desk jobs at offices they drive to—come anywhere close to that. Ditto the 150 minutes, and certainly the muscle activities.

That’s largely based on extrapolating from my personal experience. Given my penchant for running almost daily—which is good for 8,000 or so steps alone—I set my Fitbit and Jawbone goals at 15,000 (in part to prove, if to no one else other than me, that I’m above average) and check it most days. On days when I hit the 15,000, it buzzes happily and flashes, and sends me a notification on my phone. I confess to feeling a small flush of satisfaction when this happens.

But that goal takes a certain amount of work. I’m fortunate to have a step-heavy commute, living and working within walking distance of the commuter train stations at either end. I prefer to walk whenever I can, and certainly feel somewhat compelled to do so, in order to get my steps in. But on those days when I don’t run in the morning and drop any walking segments of my commute, I fall well short of not just my own 15,000-step goal, but even the 10,000 government-prescribed steps. When I think back to my days in Atlanta, where I drove to and from the office, I realized there was no way I’d get halfway to the goal without extraordinary effort. If 10,000 steps is really what we need, many, many people are failing that test.

There’s also the question of using steps as the main measure. During a lively fitness challenge at Bloomberg one summer, we used the Under Armour Record app to compare and compete, logging workouts manually and steps automatically through our devices. Not surprisingly, the runners reigned supreme in any version of the contest based on steps. I liked that, but understood my colleagues’ dismay. My swim workouts, which were as intense and seemingly worthwhile as my runs, didn’t contribute to my step count and couldn’t be measured in any meaningful way (my Fitbit isn’t waterproof, nor are any of the basic wearable models, though that element was promised in later versions).

So the incomplete or insufficient data simply leaves at least some of us wanting more, better, and more comprehensive information that we can, at least theoretically, leverage into higher performance.

Runners and cyclists are especially susceptible to the data trap, poring over a recent run or ride, picking apart power exerted, heart rates, and per-mile pace to judge the quality of the workout. Entire books have been written by running coaches featuring formulae to make a mathematician blush. Among the volumes on my shelf is Daniels’ Running Formula (second edition) by Jack Daniels, PhD, who Runner’s World magazine (as noted on the cover of the book) dubbed the World’s Best Running Coach.

Daniels’ major contribution is the use of VDOT, a measure of exertion that a subset of serious runners and their coaches use to build their training plans. The VDOT phenomenon illustrates the absurdity as well as the utility of the personal deep data dive. In-depth training plans, especially those that use lots of math, are wildly appealing to the category of amateur athletes who dissect companies or securities for a living. Wait, there’s a way that I can use a spreadsheet in my personal life to slice and dice each and every workout, track my progress, and achieve a goal? Yes, please.

(The obsessive runners’ relationship to technology and tracking is nothing compared to cyclists, who can spend hours and thousands of dollars, sometimes tens of thousands, on gadgets that track their speed and effort).

What was clear at CES in 2014 (and 2015, and 2016) was that wearables and personal measurement were appealing beyond just the crazies. While Fitbit and Jawbone—along with the Nike FuelBand product—had pioneered the industry, the show demonstrated that the world’s biggest consumer electronics companies were putting real research and money into the trend.

Samsung, the Korean mobile phone giant, showed off a wrist-based device called the Gear Fit, a band that promised to play well with Samsung’s ever-growing line of smartphones. Another mobile phone behemoth, LG, talked about a similar product.

And then there was Apple, which had hinted repeatedly at a smartwatch that many expected would be the proverbial category killer, keying off the company’s historical design savvy and the undeniable popularity of the iPod and iPhone. The Apple Watch debuted in 2015.

Apple’s interest, along with Samsung and the other big electronics makers, signaled the tipping point for the wearables movement.

Calling a winner in 2016 is hard to do in this space, though there’s consensus that the Apple Watch was not the Fitbit and Jawbone killer that many, including some inside those companies, feared it would be. At least not yet. Apple Watch sales during its debut year were lower than expected, and there wasn’t the expected uptake from the fitness community, even for the Apple model aimed squarely at that set. Among the major missing elements, amid the hundreds of apps, was a reliable GPS tracking method—critical to convincing runners to ditch their Garmin.

And so the temporary winner was Fitbit, which survived the Apple storm and proceeded with its initial public offering on the New York Stock Exchange. Investors valued the company at $4 billion in a transaction that raised $732 million for the company and some of its investors. The stock doubled in its first three months of trading and even after some late-year turbulence, was trading at a market capitalization of more than $6 billion at the end of 2015.The market’s appetite for the stock was hearty. During the week of the IPO, Fitbit raised the price range and expanded the size of the offering, and a day after that, said it sold more stock than it expected. That boosted the total by $254 million beyond what the company had previously set out to collect.

The IPO of Fitbit was notable for its segment of the economy of mind and body, and taken in the larger context of three other offerings—MindBody, Planet Fitness, and SoulCycle—an indication that something substantial is indeed going on.

MindBody debuted in the summer of 2015, just ahead of several months of broader market volatility. The stock jumped around amid that market commotion, and settled in by the end of the year around its $14 IPO price. Planet Fitness followed in August, debuting at $16 a share, where it hovered during its first few months of being a public company. SoulCycle was expected to begin trading in 2016.

While private equity investment signals something meaningful for a group of companies, so too does a slate of initial public offerings, especially if they lead to well-performing, sustainable public companies. At the risk of oversimplifying the matter, that signals maturity, or at least a road to it.

That’s for several reasons. First, it encourages more early investment by venture capital and private equity firms because they see a path to making profits for themselves and for their investors. With the aforementioned stocks trading above their IPO prices, some well above, early investors were headed for healthy gains.

Second, if they are the previously mentioned well-performing, sustainable companies that signals something about the overall market for their goods and services. A company’s stock price is, at its core, a reflection of its investors’ view of its future earnings potential. That’s why one of the most tried and true ways of valuing a stock is its so-called P/E multiple, the ratio of its stock price per share to its future earnings per share.

And finally, this lifecycle for companies—from idea to investment to profits and going public and becoming its own form of investor and acquirer—begets the sort of ecosystem described at the beginning of this book. The Aarti Kapoors, Brian Smiths, and Brian Woods find they are jockeying for deals amid a much larger set of competitors, as the potential pie for profits, and associated fees, gets ever larger.

There’s always the potential for a bust, as shown by the history of market manias runs from tulips centuries ago to, more recently, dot-coms. Here, the fundamentals seem more likely to create a long-term upward trend.

The body is only going to be a bigger business.

Notes

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