Why The Basis Of Every Business Model Should Rest On Both People & Profit

Boasting over a decade of leadership roles in the health and fitness industry, for brands such as Fitness First and Elixr across the UK, Ireland and Australia, Ed Lynam is an expert in the business of wellness.

With investment in people and culture one of the central tenets of today’s most successful wellness brands, here the Founder of Frank; a consultancy designing award-winning learning solutions for fast growth organisations, explores whether, when it comes to the fitness industry, people or profit should come first…

It’s no secret that the UK fitness industry has experienced a transformation. The market has shifted its weight around the middle, with the traditional operators now squeezed between the low-cost model and highly specialised boutique offerings, as customers demand more.

But this isn’t a market analysis.

As somebody who has spent almost a decade in the health and fitness industry, when I examine the drivers behind the success of these new players, I don’t see aggressive sales strategies or haphazard land-grabbing, I see a shift away from a facilities, features and a price-driven model to an obsession with customer experience, driven by people and culture.

The Human Touch 

“The main difference between boutique fitness operators versus larger groups is that the culture and the team are the product.” explains Rob Leboff, CEO of BOOM Cycle.

For the boutiques, each detail of the customer experience is important: the seamless online joining, the inspiring environment, how staff engage and, of course, the Instagram account. This is a major innovation for which the boutiques are responsible: shifting away from a ‘my gym is bigger than yours’ approach to a people led, community-driven model of fitness.

And the rewards are significant, particularly if the United States is anything to go by. Barry’s Bootcamp is currently valued at £75 million, whilst SoulCycle reported £90 million in annual sales in 2015. It’s safe to say boutiques are booming. 

Now, this is all well and good, but a high-value product with people at its core brings a new set of challenges.

“Having a team absolutely engaged and being ambassadors for what we do is a crucial part of our product,” says Leboff, whose commitment to customer experience has huge implications for BOOM Cycle’s commercial strategy.

After an intense series of auditions, new staff are put through an intense 8-week training programme, at BOOM Cycle’s considerable expense. Though once complete, new recruits tend to stay longer, perform better and become more passionate ambassadors for the brand.

“Investing in our people is a core component of our product strategy, without a doubt,” says Leboff. “A huge problem in the fitness industry is turnover of instructors. None of our instructors have left us voluntarily in two years.”

Connecting The Service-Profit Chain

Much of my work revolves around helping fast-growth organisations understand the value of investing in people and culture; specifically, the relationship between employee engagement, customer loyalty and profitability.

The key factors that drive this model of profitability; The Service-Profit Chain, are Purpose, Challenge, Autonomy, Growth and Recognition, and the highly successful senior leaders that I’ve met pay close attention to these drivers. 

Jason Tubbs, Managing Director of Another Space, is a standout example. “Everyone talks about how important it is to invest in your people, but most people just don’t do it,” says Tubbs. “They think that if they build a beautiful facility then the people will come. That’s all changed. Now it’s about empowering your people to take ownership.”

For Tubbs, a core component of his value proposition is the tribe-like community. If you invest correctly in your employees, the tribe will take on a life of its own, supplying the business with an endless supply of customers.

“People want to be part of the community, which generates loyalty, retention and referrals,” he argues. “Why would you need an expensive and aggressive sales and marketing team when loyal customers keep bringing all their friends along?” he adds. 

The caveat is that competition for talent in the boutique fitness space is fierce, and the sector is particularly vulnerable to poaching. This is especially troublesome for boutiques because customers are loyal to instructors, not facilities.

“Nine out of ten clients will follow instructors if they leave, regardless of how good your facilities are.” admits Tubbs. “If the senior management team don’t embrace the idea of investing in people, somebody else will and you’ll lose out on talent.”

Creating a Culture of Ownership

John Treharne, Founder of The Gym Group, is a master at using culture as a tool for driving profitability. With an ever-expanding empire of 93 clubs, The Gym Group now boasts over 400,000 members.

Treharne’s model is to create an entrepreneurial culture in every site, empowering its people to run it as if it were their own business. The company runs a lean operation at its centre, and prides itself in its internal training programme, which has a track record of taking people from entry-level positions through to managing successful clubs with thousands of members.

“I’ve always believed that you’re better to do without what I call the ‘porridge’ at the centre of the business, and replace it with high calibre local site management,” Treharne explains. “We have incredibly high retention levels, and we don’t have the inefficiencies of middle management. Site managers can make quick decisions because they don’t have to go through layer upon layer of management.”

Treharne is a strong advocate for investing in people and culture from the get go. “No matter how big or small you are, if you want to retain good staff you need to invest in them. Ideally, you will invest in people and culture from day one, because changing the culture is one of the hardest things you can do in a business,” he reveals.

‘Selling in’ People and Culture

But investing in people and culture isn’t always an easy sell. Just ask the leader of one of the more traditional industry heavyweights, Fitness First UK.

When Neil Tune joined as HR Director in 2008, the company had just recorded its best ever year. The company’s growth over the previous decade had been tremendous, fuelled by rapid site development and aggressive sales. As market leaders, Tune found a company that felt it was already doing all the right things, but all was not as it seemed.

Over the following 8 years the middle market was squeezed — the company had huge staff turnover rates, and the inconsistency of people added to their difficulties.

“We wanted our customers to keep coming back and become ambassadors, but our people inside the business kept changing,” said Tune. “This meant a huge amount of re-work in order to get new people up to speed, causing tremendous inefficiencies and ultimately causing the customer experience to suffer.”

Throughout that tumultuous period, Tune was instrumental in keeping people and culture at the centre of Fitness First’s strategy, winning a number of awards along the way.

When asked how he convinced those with the money, about the value of investing in people, he reveals that he sold it as a ‘hidden opportunity’.

“I described our turnover rates as a handbrake on the business. If the personnel is in constant upheaval the business will never be as efficient or productive as it could be,” he argues.

“You increase productivity by building a more effective workforce and to do that you need them to buy into the company and feel part of its story. If people have a stronger connection, they’ll perform better. That’s worth investing in,” he adds.

The Magic Formula

Investing in people and culture is no longer a nice-to-do, it’s a crucial source of profitability and it creates a competitive advantage that’s impossible to ignore. Look no further than the UK fitness industry and you’ll see what happens if you don’t.

But no matter the sector, no matter the size, success comes to organisations that can meet the increasing demands of its customer. This means aligning your strategy to give your people Purpose, Challenge, Autonomy, Growth and Recognition, as well as a high-performance culture for them to thrive.

So, when it comes to a ‘magic formula’ is it people or profit? In the case of the fitness industry, I say both.