How Planet Fitness Punched Above It’s Weight

How Planet Fitness Punched Above It’s Weight

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Vital Stats

  • Player: Manny Rivera
  • Company: Planet Fitness
  • Launched: 1995
  • Turnover: R850 million (2016)
  • Company Value: Between R2 billion and R3 billion
  • Number of Clubs: Planet Fitness (24); JustGyms (12)
  • Visit: planetfitness.co.za; www.justgym.co.za

When Manny Rivera launched Planet Fitness 20 years ago, he was fresh from New York, having married a South African girl. He was in his early 20s, had no credit record, no assets and no money. And he had one goal: To take on the Health & Racquet Club to become the biggest health and fitness brand in the country.

“We’re going into competition with the Health & Racquet Club.” That’s what I told people — with a completely straight face.

It was 1995 and I’d been consulting for Sports Connection who were involved in the launch of a new chain of health clubs called the Health & Racquet Club, across South Africa. There was very little competition to the brand they were planning, and instead of seeing this as a deterrent, I saw it as an opportunity. There’s always room for competition. They had arrogance, backing and cash, but I knew they’d also underestimate the little guy, which was what I was. I had no backing, no cash, no major corporate infrastructure behind me. But that was my power as well. They wouldn’t be paying any attention to me, because I was too small to matter.

And so in my mind, I was going into competition with them. I wasn’t planning one independent gym. I was going to launch a major fitness brand. I was just going to start a little bit smaller than the Health & Racquet Club, that’s all.

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“When I started telling people that we were going into competition with the Health & Racquet Club, they laughed at me. They thought I was smoking my socks, and it really upset me. In my mind I believed it. I was taking them head on. I had pure blind passion, and only the end in mind. That’s what I focused on. I had a clear vision: I wanted to be the most profitable and successful health club in South Africa… and beyond.

The first challenge was that I was missing three crucial elements: Skills, credibility and a market. But I believed in this industry, and I knew there was a solution.

“The trick is to focus on what you do have, rather than what you don’t have. I had no credit record, no surety, and no one would lend me cash. No landlord would even sign a lease with me. But I was lean and mean versus a fat cat, and that would work in my favour. I needed to trade to pay the bills, so I figured out the fastest way to start trading. It was also necessary to start trading to solve my other three issues. I could acquire skills, build a market and grow my credibility once I started trading.”

Buying a club in Benoni

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At the time, my six-month contract with Sports Connection had come to an end, and although I had decided to launch my own business, the Sharper Image team had been in contact, offering me a job. I was tempted. I had a dream, but so far there’d just been obstacles, and my resolve was wavering. My wife put a stop to it. She told me I was built to be an entrepreneur, and to get out there and make it happen.

It was the kick in the pants I needed. Sharper Image had told me about the great club they had in Benoni. I’d only recently moved to South Africa from New York and didn’t know the landscape very well yet, so I focused on an area that seemed to do well.

I found a stand-alone club with nice, old school equipment and started negotiating with the owner. I couldn’t get a loan to buy the business, so I needed to make him an attractive offer that suited both our needs. My offer was simple. I’d pay him R50 000 a month (slightly more than what he said his turnover was; I’d later find out he padded this quite a bit), with a 10% escalation per year for the next ten years. We’d handle all the operating costs, and he could sit with his feet up, earning more than he was while running the gym, and at the end of the ten year period the gym would be mine.

We needed to grow our client base to make it work, but I had my club. My foot was finally in the door. That first gym gave me the skills and credibility I needed to get a meeting with Sanlam Properties. I needed R2 million to build a second club in Springs, so it was an important meeting for me.

I was keeping things lean, so my car was a tiny little Ford Bantam bakkie with no aircon. In summer this meant I drove around with a towel and spare shirt. The day of my meeting I arrived, towelled off, swopped shirts and walked into their boardroom.

There were 12 people around the boardroom table and as I started telling them my story they said, “We know who you are. You’re the guy who’s been telling everyone you’re taking on Health & Racquet Club.”

I realised in that moment that sometimes the little guy does get the attention. It might be incredulous, eye-rolling attention, but they knew who I was. I had one small club in Benoni — but I also had a story.

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I’d chosen Springs for our next location because I could build a club with only R2 million. I needed Sanlam Properties to assist with the building; we would kit the club from the Benoni club’s profits.

I promised them a good return and they agreed to the deal. After that, striking a third deal to build a club in Centurion was slightly easier. I was starting to show a track record. I was no longer a risky investment.

By this time Health & Racquet Club had gone under, and Nelson Mandela had asked the Virgin Group to save the business and launch a gym brand in South Africa. It meant there were a lot of bad feelings within the financial community towards our industry. It wasn’t fair, every industry evolves, and today South Africa has some of the most sophisticated health clubs in the world. But that was the reality at the time.

It also meant that the Goliath I had been determined to take on as an equal competitor had disappeared. But I was there, and I was growing, slowly but surely. I lived in Sandton and had clubs in Springs, Benoni and Centurion, so I spent a lot of time in my little Bantam bakkie. I’ve always believed that you need to be in your gyms. The pillars of this business are members and staff — that’s the core. If you lose that, you’re done, which is why I made sure that I visited each club daily. I needed to see the machines, equipment, members working out, touch base with the staff. You can’t lose sight of what’s happening on the ground.

Because of this, our head office has always been within one of our own properties. I don’t believe head office should ever be away from the heart of the business.

From 3 clubs to 36

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At the time we were opening the third club, Vitality launched and concluded a big deal with Virgin. I knew it was important to do a partnership deal with them. Virgin had, and this would kill my business.

I sent a long letter to Discovery and kept pestering them until they eventually met with me. I’m pretty sure they found me amusing. I had three clubs. Who the hell was I to complain about how uncompetitive it was if Virgin had a deal with Vitality and I didn’t?

But they invited me to a meeting. I think they wanted to meet this upstart. I was 32. I was a cheeky dude forcing the issue with my three clubs. Somehow, the fact that I was still determined to take on the big guys won them over. My line had changed to, “We’re in competition with Virgin,” but the vision was the same. They believed in my vision, and I got Vitality on board. It was a game-changer. We’d spent five years really focusing on building credibility; it was finally paying off.

Doing this deal had a massive impact on our business. We now have partnerships with Discovery Vitality, Momentum Multiply and Sanlam Reality. To this day, medical aid members are a big income earner, as it drives a lot of feet into our business and subsidises the deals we do with members.

Our early revenue model was based on upfront cash memberships. Members paid upfront for two or three year contracts. The benefit for them was that they could pay now and not have to worry about monthly debit orders, and it worked out at a discounted monthly rate because of the upfront payment. For us, it meant we weren’t reliant on annuity income, and it gave us the upfront cash we needed to self-fund our growth.

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The market has changed and no longer accepts this model — clients want monthly debit orders — but at the time it was a vital component of our growth strategy. Our perseverance, trading in cash and not having a bloated head office separate from our clubs meant we were able to work towards our growth goals without taking on too much debt — partly because we couldn’t get loans to begin with anyway.

This strategy helped us open additional clubs, but it gave us the 50% upfront cash we needed to build our first mega club in the northern suburbs. The old swimming pool area in Wanderers was for sale and it was the ideal position for us.

We approached New Property Ventures to go into the property side of the club as equal partners. We’d worked well with them on another deal in Cape Town and knew it would be a good fit.

Up until this point, we’d built our clubs on properties we needed to purchase ourselves (Wanderers included). The big shopping centre development companies didn’t see us as a big draw card. The megaclub in Wanderers changed that. Suddenly the market, banks and landlords started taking notice.

We were viewed as a premium anchor tenant. We brought feet to shopping centres and started receiving similar deals to our competitors. The support of the property industry gave us the momentum we needed to start aggressively growing our brand, and the banks were willing to lend us cash. Expansion started happening quickly and successfully once we hit this tipping point. We opened four clubs in the first six years, and then started opening five or six per year.

Hitting a wall and making changes

We had reached ‘serious business’ status. We were a proper competitor, we could access asset funding, and landlords in prime developments were contacting us to build clubs at their centres. It seemed like we were flying, and then things started coming undone.

I think there’s always a danger when you’re in an unprecedented growth phase that you take your eye off the ball. Things can go too well, and you lose sight of the fundamentals. This happened to us, but it was compounded by other factors. My wife was fighting cancer, and I had stepped away from the day-to-day of the business to support her, leaving an executive team to run things. The Lehman Brothers economic crisis made us realise we really needed to get back to our roots and core values.

When things start going wrong, you can see it as a disaster, or as a gift. I believe everything that happened was a good thing. We had become complacent. Looking back I can see we were making money in spite of ourselves. We’d forgotten what it was like to be a lean and hungry start-up and we needed to streamline our operations, have strong fiscal management and remain true to our values.

We’ve always viewed people as the backbone of this business, from our members to our people. We refocused our commitment to our employees and the Planet Fitness culture, and took stock of our members’ needs. We adjusted our revenue model to a debit order system. Our upfront payment model had worked well in the past, but expectations and needs had changed, and we needed to change with them. You cannot lose sight of your market.

Another clear need had presented itself as well: We recognised that a new wealth platform had developed in South Africa, and that we could cater to this market with a product slightly different to our traditional offering at a great price point. JustGym brings the fun back into the business with an offering anyone can afford, and opens us up to consumers who haven’t traditionally been gym goers, but who were looking for an
entry point.

The recession was challenging for all businesses across all industries, but the focus it brought us has had incredible results. We’re opening a club a month for the next five years, with a R500 million investment earmarked for 2017 into Planet Fitness and JustGym.

There are always growth opportunities available, if you pay attention to the market, and stay true to your core values.

Nadine Todd
Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. Find her on Google+.