LIFTS Episode 92 - LIFTS Live Podcast at W3Fit North America with Matthew Januszek & Mohammed Iqbal

0:00Matthew Januszek:Clearly consolidation is good for the companies that are doing that, but question mark, is that good for the clients that they serve? Everyone should be using AI because here's the reality, your staff is using AI today. So in strength you could do a progressive program, same with cardio, if you have a marathon or 5k coming up you could build a training program towards that. There is no programming for recovery. The strength training equipment sales industry is projected to hit$19 billion by the end of this decade, and it's going to be larger than the global luxury watch market.

0:37Matthew Januszek:Welcome to this week's episode of Lyfts. Normally we do this behind the camera without a big group of people, so there's a little bit more nerves in this particular one than normal. And so being on the stage today is quite a privilege, and I really appreciate being invited here. But I also wanted to say to Mo, my partner, is I'm certainly no guru. Our plan is not to come up here and give specific instructions about what I personally think is right for the industry to do going forward. But I've always been a curious person. And my time in the industry has been about 25, 26 years. and I've always been curious to sort of understand what's happening.

1:21Matthew Januszek:I've always been curious to understand where things are going. And so although Mo, I would class as much more of an expert in a particular field than myself, I think the idea of this session is to really challenge some of the things that we typically do. Going to many industry events, like probably many of you, is you tend to get a similar amount of people, tend to get sort of similar conversations, and you end up getting similar conclusions. And what I hope that Mo and I do with Lyfts and what I hope we can achieve today is maybe ask some different questions in order to maybe get some different results.

1:55Matthew Januszek:And maybe, you know, if we take one thing from this session, maybe there's a new idea that we hadn't have thought about, which may take us into a new direction. So Mo, I'd like to sort of get your thoughts on how we're going to handle the conversation today. Well, it's definitely unique and different. I typically do this from home with my podcast set up, and now we are here with a live audience. We're going to try to call on a couple of you during the podcast here. Yeah, like you, I think I am grateful to be invited and to have this special edition of Lyfts to be live. This is a gorgeous location.

2:32I've never been out to Westlake or the Four Seasons, and I want to thank W3 for having us here. This conference does feel definitely more unique. It's my first W3 conference. I typically have different roles, but I feel like they've really brought together fitness and wellness and technology and just all tied into an incredible venue and experience. So I feel like we're almost like recording some sort of documentary, not a podcast. And look, I know this is different for us to do live. One of the biggest differences, I think, with live versus not is we can't pause.

3:08Matthew Januszek:Yeah, absolutely. Yeah, we can't pause out. And we can't edit. So this is going straight to tape. But this has been an awesome event. I've had some really great conversations. In fact, this morning, I went on what was going to be a seven-mile trail run with Brandon from Gantner. I think we cut it down to five. And it was beautiful. It was a little bit painful. But I'm glad that I did it. So I think that's what this is about. It's about doing the hard things, having the tough conversations, and really laying the groundwork for what the next 12 months and two years and five years will look like.

3:40Matthew Januszek:So maybe we just start with our journey up. Like yesterday, I managed to bump into Greg and he was traveling to the event and we went and checked out a couple of gyms on our way over. We saw Gold's Gym Fullerton and then we went down into Santa Monica and we saw what was described as an AI gym, which was Fred Fitness. So maybe that's a good place to start. You know, maybe sort of share your thoughts and experiences of Fred Fitness. Yeah, we've been talking about Fred Fitness for about a year, I think. And I know Philip from eGym has been mentioning it to us. And so Fred Fitness, just some background, their parent company owns a big chain of gyms in Germany called CleverFit.

4:23And they open up this AI-first gym here. and the idea behind it is can you use electronic controls, AI recommendations to kind of build a smart gym environment. So when you come in, instead of doing a traditional assessment with a personal trainer, you've got a wellness kind of hub that walks you through it. I think it was interesting. One of my key things is I'm sure the initial vision was to have it be all machines, but when we had the tour, they added other equipment. We saw a cable machine, we saw some dumbbells, And I think, you know, when you're thinking about the mix of a gym, it's really hard to just say a gym layout can only have electronic motorized-based controls.

5:06While that might be the intention, it might sound really good. I think consumers really crave optionality. So that was one of my biggest takeaways from looking at that is they had this initial vision, but then they had to kind of layer and stuff because they found out that members want more.

5:19Matthew Januszek:The other thing I'd recommend if you haven't seen it to check it out if you're in the area, but it wasn't what you would, I guess, imagine as a traditional gym. Like you didn't have a lot of people sweating and running around. It was almost like a retail showroom to some extent, which I think lent itself to the type of equipment that was in there. I would say the people looked pretty. They did. Yeah, yeah, they did. and it was beautifully done, but it was very much like you would kind of walk into a beautiful sort of boutique clothing store and try some equipment on. But I liked it and I could definitely imagine myself maybe working out in that type of environment.

5:57Matthew Januszek:But it certainly, I guess, re-imagined like where gyms could go. And I guess it was a combination, maybe like a boutique studio with a traditional fitness gym, which I think is a slightly different space to what we've seen before. Yeah, I would agree with that. I wish them the best. They're opening up a second location, I think, in Culver City, which might be a better location for what they're trying to do. Well, look, what we'll do is we'll jump into the questions. We asked the buyers and suppliers here at W3Fit to share their thoughts ahead of time on what you'll see is some of the biggest opportunities that are trending in the recovery space, training modalities, and then also in software, which is an area where we'll probably start.

6:40Matthew Januszek:And so the responses were quite interesting, and they're going to really sort of shape the discussion over the next sort of 20, 25 minutes. And we'll start with software and mergers and acquisitions. And it's an area for me I didn't really, you know, I'm very much from the equipment side. I'm not particularly tech first. I'm sort of, you know, coming up to be my mid-50s, so I kind of, I think I must have missed out on this technology space. But it's an area that I've learned more about as I've got to know Mo. and really probably understood the, I guess, the importance of having the right partners in this area as it relates to business today, but also with a number of the changes that are happening around things like AI, how important it is to really understand where that's going and how critical that is in terms of the success of anybody's business.

7:35Matthew Januszek:And so there's a couple of changes that have happened in the industry very recently, which Mo, I think, will be good to talk about, which is some of the recent consolidation by, I believe, Club Essential and EasyPay that have been sold to Explore. So maybe as a starting point, Mo, you could provide a little bit of an overview of that acquisition and really what you think it means for the industry, you know, both on the positives, but also some of the maybe not so positive things that would be important to sort of share with people with businesses here today. Yeah, obviously this is a topic that I deal with on a daily basis.

8:11With my role at ABC Fitness and also managing Sweatworks, one, consolidation is accelerating. So we obviously see that. And you have big profit equity players behind it, and they've just changed the game, and the players are getting even larger. So here are a few anchors for you to consider. Explore, now the combined company with Explore and Club Essentials, are majorly backed by a private equity firm called Advent International. So Battery Ventures and Silver Lake that were primarily before backing Club Essentials are going to remain on as minority investors. So translation here, long horizon on capital, and a serious bet on the vertical SaaS platform plus embedded payments, because remember, Explore has embedded payments.

8:55Now you look at ABC. ABC has Tomo Bravo. is a Tomo Bravo portfolio company. They acquired ABC in 2018, and they're following the classic TV playbook, and I'm fortunate to be a part of that, which is scale the company, modernize the product, integrate payments, and create some really good processes in-house. And there's been some chatter about what's next for ABC, which I'll touch on here in a minute. Then you've got another big player with Playlist, which was formerly called MindBody Plus ClassPass, backed by Vista. Vista took MindBody private in 2019 and then backed the acquisition of ClassPass in 2021.

9:37And the former ClassPass leadership team is now running the whole playlist company. They also got an additional$500 million in 2021 from Sixth Street as well. So what they've kind of combined there is solving for how you discover and also how you could book. Now, if you're zooming out, right, take a step, a big step back and let's go higher up. M &A in tech totaled$5 billion last year, in fitness tech specifically. Deal volume in the last year has been up 42%, which is significant. PE right now, the PE firms that are backing fitness companies are sitting on$1.2 trillion of dry powder, which means that they've got$1.2 trillion to invest.

10:28For comparison, that's bigger than the GDP of Mexico. That is how much we're talking about here. So the capital is here to consolidate what has been an incredibly fragmented, payments-rich SaaS vertical. So there clearly is a massive opportunity here. But here's the tension. I think when you look at a lot of these acquisitions and you're looking at, for example, Explore plus CE, are they making an ecosystem stronger? What does this allow? Are they able to integrate? Because acquiring a company in some ways is the first step. The harder part, as most people who've been through it will tell you, is integration.

11:05And then are fewer choices better for the market, right? Because sometimes you could say more choices, more innovation. So I want to come back to that. But we've seen this before. About 10 years ago, we saw the same playbook from PE firms applied to healthcare. And in that, three players today in healthcare control 70 % of EHR systems in the market. And we've seen that happen with success. And I think we're going to be following the same playbook. So with fitness software, what you hope for is that consolidation will allow more innovation. And that's critical at a time of AI where you have to be thinking AI first about everything.

11:45Interoperability, so when you're migrating from one system to the other, why is it so difficult to do? It's almost like an art. We make it really hard to do that. So the third, personalization. As you think about, it's not just about a gym check anymore. It's not just about what's happening within your four walls. It's how else do you remember sleeping? What do you remember eating? What other activities are they doing? I was at the Garment Health Summit last week in New York, and that was a big topic of conversation. So I think that you've got to decide from an operator perspective, when you're making a choice on a vendor, what is your philosophy?

12:18And a lot of times it comes down to economics. A lot of times operators will tend to say, well, I'm going to go with this vendor because from an economics perspective, whether it's the rebates or the transaction fees or something else is what's leading it. But what I would say is you probably want to go a little bit deeper. You want to understand who is the PE firm that is backing you. What is their playbook? Every PE firm out there, like Advent, Vista, Tomo Bravo, others, will all have their own playbook. And historically, look to see where are they going and what do they want to do? And does that align with my philosophy?

12:53And does it align with where I want to go?

12:55Matthew Januszek:I've got a question on this, which I think is quite relevant, is that clearly consolidation is good for the companies that are doing that. But, you know, question mark, is that good for the clients that they serve? And, you know, the reason I say that is that, you know, clearly as you grow a business, consolidation, simplifying processes, prioritizing product development where there's the biggest return on the investment. And so if it's, you know, big international companies have got a lot of different things and priorities to focus on. And obviously they're going to go if a private equity backed is about growth and profitability and then probably another exit.

13:31Matthew Januszek:For people who own a business, how do they balance mitigating some of that consolidation themselves in terms of where do they consider investing when it comes to technology, bearing in mind that this is a huge expense to get involved in something like that? And where do they sort of rely on some of the main partners that are actually sort of driving the business? And what would you recommend is best to do in terms of protecting their business future growth without necessarily getting forced into a particular route that may not be best for what they want to supply? I mean, to answer that question, there's a lot to unpack there.

14:13I'll first start by saying that we're fortunate to be in an industry where I would say that the majority of the players are actually invested in the operator's best outcome. Because as an operator does well, the platform also does well. So with that said, I think you've got a ton of great choice. I mean, I've been talking about different companies here. They're all good, right? So it's a matter of what's the right fit. It's almost like if you're going out to a restaurant, there's a ton of good restaurants. What is it that's the right fit for you? Or if you're making an investment, are you thinking short-term, mid-term, or long-term?

14:42The second thing is around technology investment. Technology is moving at such a pace right now that it's almost hard. We have to think about retooling our teams. We think about retooling our infrastructure. There's a lot of money that's being invested into this. I would say that for most operators that want to own their own tech stack, looking at the next five, ten years is going to be a challenge because there's compliance regulations that's coming in, there's AI that's coming in, and consumers are going to expect faster innovation. So with that said, how do you work with a partner such that that partner is going to help advance your initiative?

15:19So I think, you know, make sure that they have open APIs. Make sure that they can accept payments in all the markets that you're in. Payments, this is your checkout. Make sure that, and we'll talk about this a bit later, but you could do add-ons. We're going to talk about recovery as an example. How does that work? Is there a seamless upgrade path? And the second thing is you've got to understand the regulatory framework that we live in today, right? A lot of operators would potentially push back against click to cancel as an example. And I know that we were able to defeat that bill. Even the 18 states have it today.

15:49But what's best for the consumer? Stop thinking about how the industry has been working for the last 20, 30 years, but I would take a consumer first mentality and have that drive a lot of your decisions and as well as your partner selections with software.

16:03Matthew Januszek:So just to ask one more question on the technology side, AI, clearly from what I understand, with my limited knowledge of technology is that AI can now start to write code and it can almost like create apps on its own. And it seems as though as a result of what's happening in that field, it's getting rid of a lot of the development work that was originally done by people. What does that mean to me as an individual that's got a business that's thinking about the future of my business? Is this a great opportunity now for me maybe to get involved in developing my own tech stack, as you call it, that could complement what other companies are doing?

16:40Matthew Januszek:Or is that actually going to be more difficult? So, you know, in summary, does AI put more power and opportunity in the hands of me as a business owner? Or does it actually get a lot more complicated and a lot more expensive than what it is today? And don't say that from a company that's selling technology. Sit on the fence on this one. Look, I think everyone should be using AI. Because here's the reality. Your staff is using AI today, right? So you don't want to be stuck back in the phone era in 2007, 8, 9, where your members, your employees were using iPhones better before you had an app on the iPhone.

17:20So I think we learned from that lesson. I would say that I would encourage AI adoption. I would encourage AI hackathon sessions for everyone, by the way, because AI and understanding prompting is something that you don't need to be an engineer to do anymore. It's made it simple. It's almost like the pre-made recipes for food, right? Anyone can be a chef now because you could order, and you learn a lot from that. The art of cooking, like during COVID, people learn to be better cooks. I think get involved. I would encourage you to leverage AI, whether it is from your partners or yourselves, because I think that there's a lot of good to come out of it.

17:58Before we move on to the next section, I do want to call on one of my friends, Erwin, from Sport Alliance. So Cameron, if you could find, he's sitting out in the front here, but Sport Alliance is a PSG-backed company. I think they've done a tremendous job in consolidating and acquiring companies. But Erwin, you've been at Sport Alliance since they've had a few acquisitions. Would love to understand what your journey is and what Sport Alliance is looking to do. Yeah, thank you. Thank you, Mo. And maybe I can explain it from two ways, because in the beginning of my career, I was with Explore Technology.

18:34and now with Sport Alliance. And I think there's a difference. Some of the software companies in the US follow also a strategy of M &A and keeping multiple systems alive. What we have done, we have like, I think, 80 % market dominance in Germany, but we migrated every M &A platform to one single platform. So that means that our 500 people, if they wake up in the morning, they have only one focus. So all the investment dollars, everything on resources, feature development goes in one single platform. And when I was working with Explore Technology, the strategy was different. Mo knows we were buying and buying and buying different software companies for one reason, to plug in the payment tool and make money from the payments on the software systems.

19:30So it's a little bit depending on what the strategy is of the investors. Do they want to go to the stock market? Do they want to step out in five years? Do they want to grow with you or take money out? So there's not a right or wrong answer. I think different companies have different strategies. And yeah, we can be happy with PSG because they allow us to put all the M &As in one single platform. And that costs also money and resources to do. But on the end, we think that's the way forward for our strategy.

20:04Matthew Januszek:Thank you, Robin. We'll move on to the next question, which was recovery and wellness. And the question that we put out to everybody before the event was, what type of recovery do you offer or plan to offer? And I'll give you some of the highlights from the responses that we got from everyone in the room. Sauna was number one at 67%. Red light, number two, 63%. Percussion, number three at 59%. Foam rollers, 52%. Cold plunge, 44%. And then we've got meditation at 22%. And hyperbaric at 11%. And so probably for this session, a little bit of a blank sheet of paper in terms of how we think about it.

20:47Matthew Januszek:But recovery is the next new thing. I've been around in the industry to see these kind of new trends come and go from plate load to group cycling or spinning to functional training, which I was very much involved in. And so recovery is that new thing. It's the buzzword. It's what everybody's looking at. And if you think about many of these different sort of concepts as they came in, you generally had small brands that nobody had ever heard of that came up with an idea, almost like sort of a man in a garage where they developed products. not exactly fit for purpose in some cases. And over time, the products go into the market.

21:33Matthew Januszek:More research and information comes out about these products. Operators give their feedback. They redesign them. And you kind of get this evolution that happens over time. For most people that have been in the space for a number of years, they've probably been the test cases with many of these ideas and had to deal with it when it goes wrong and had to re-engineer it. And so I think as an industry, that's made sense because fitness and owning gyms is still a relatively new industry in many cases. But when it comes into this recovery and wellness space, it's almost like it has the terminology biohacking attached to it.

22:07Matthew Januszek:And with the rise of things like social media and podcasts, there's a number of different claims that are made out there. Many of them lack genuine research that's probably credible enough to sort of build a business off it. they're very new cutting edge technologies some of them work some of them don't work and so I think for this session you know it's curious to sort of you know get people's thoughts on this space clearly it's something that people are looking for and with sauna being the biggest one that's probably got the most research and there's the most credible out of everything out there it's quite nice to sort of see that as as one of the more popular ones but I guess over to you Mo probably both as a consumer and understanding, you know, where we are in the industry is, you know, how are you looking at this space in terms of, you know, where do you think it's going?

22:59Matthew Januszek:And what are some of the sort of safe bets that we can almost guarantee are going to be here in future? And what are some of the, I guess, considerations that we might need to give some thought to? So what I think about in recovery is, number one, it's great because it feels good. It It helps keep you injury-free. But you know what it's missing? When you think about, you talk about strength, you talk about cardio, there's programming. So in strength, you could do a progressive program. Same with cardio. If you have a marathon or 5K coming up, you could build a training program towards that. There is no programming for recovery today.

23:34That is missing. When we were driving up yesterday from L.A., you talked about this place in Newport Beach where they had all the things. They had all the things. And so now when you go into a gym, whether it be a premium product or an HLOP product, they may have a sauna, they may have a cold plunge, they may have massage here, red light therapy. But if you remember, what are you trying? And I think consumers are going to get a bit more educated to understand the efficacy of what they're doing. Because sure, I mean, can you just go sit in something for an hour or two? No, I mean, time is valuable.

24:09How can you be efficient with your time just so you can think about your workout? Now, recovery may be one of the things or just because it feels good and it's easy and it's an enjoyable thing to do. But ultimately, people are going to ask this. I think the winner here is going to be, is there an operator or a recovery? I'll give you another example. And I've been foam rolling every day for 15 years. It's kept me largely injury-free from the running that I like to do. I also use a percussion gun as well, right? But I've had to learn, and of course I get to talk to incredible people from the industry that have said, hey, Mo, for the type of training that you do, this is what works best.