538: He Built a $2.9B Home Fitness Empire | Carl Daikeler [VIDEO]

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0:39Just head to omnisend.com forward slash founder without the E to get started. All right, now let's jump back into the show. You got to answer the question, why will this solve my problem when everything else I've tried hasn't worked? If that mission mean something, don't fucking quit. It's the entrepreneurs who won't cut those corners, who will find a way to make this thing just that much better. You want them to go, now that I understand what's gone into developing this program, why would I go look for something else? We've been fighting this fight for the last three years. We've lost, I think it's 98 % of our market value since we went public.

1:20Every day that I think, oh man, I can't take this anymore. I literally turn around on myself and just say, shut the hell up and keep going. Because the only way through this is through it.

1:32Hear the stories, learn the proven methods and accelerate your growth and future through entrepreneurship. Welcome to the Founder Podcast with Nathan Chan.

1:46really excited to speak with you so the first question that i have is do you feel health and wellness is really an essential part to running a successful business um no uh not no i mean that would be self-serving to say yes but uh but you know if you have a good idea. There's, there's, I can remember I, um, had a meeting with the guys at, um, Bowflex at one point. Uh, this was very early when we started the company and I remember walking in and this guy was huge and out of shape and smelled like cigarettes. And, uh, and Bowflex was doing$1.5 billion a year at the time. And so there was no correlation with that success and his health and fitness.

2:39In my case, honestly, it is my struggle to stay fit and to get myself to be consistent, which actually helps me create programs that get me off the couch, that get me to wake up at 5.30 a.m. to do this stuff or, frankly, to eat better or to drink a nutrition shake. So, you know, but in terms of overall and your listeners, hey, man, the most important thing you're starting a business, focus like hell. And I don't believe in work-life balance. You focus. Now, it'll be helpful to you and your energy if you don't burn things at both ends. and you're not going to live on fast food. And if you let your weight go or you let your muscle deteriorate and atrophy, you're not just going to be physically weak, you're going to be weak.

3:41So I suppose to the extent that you really want to make a go of it and be resilient, you probably should do something to maintain your overall health and well-being. Otherwise, you're going to be calling in Zooms from your sickbed. So I've gone through phases where, you know, really focused on health and fitness, they're not focused on health and fitness. And it is difficult to maintain that. And I'm a big form of having daily non-negotiables, habit stacking, and just having that kind of consistency and routine and then also accountability. but I'm curious, you've stated that you're not a big fan of fitness.

4:27How did you end up starting a health and fitness company? Yeah, well, I'm a fan of marketing and solving problems. So it just sort of happened that my own desire or disgust with myself, my own disgust with my waistline turned out to be like, Like, you know, if for me, like I can't put together like a full year of working out. You know how people New Year's, hey, happy New Year. Make your resolution. Join a gym. And like I can't, you know, so I'm going to go to this gym four or five days a week for the rest of my life. Like I can't, I will not stay motivated without a goal and some sort of short-term orientation.

5:19that's me and uh so i figured well if that's me that's got to be a million other people so if i can come up with something that solves my problem i'm going to help another million people solve their problem so the the first big program that we developed was called power 90 which was look i'm super busy but but i've got to find a way to help myself physically not feel like a pig and to feel like I'm strong in my own body. So Power 90 is just 90 days. For 90 days, I'm going to work out for about a half hour, six days a week, and then day 91, I'll worry about that then. But for this goal, I'm going to show up for myself.

6:04And like the first time I did that, I lost like 20 pounds. And so I don't want to put it back on. So then I either do another round or do the next program. And that's really the structure that has helped Body become what it is with a catalog of 134 programs that people literally, like you have that background of these magazine covers that you've got there. That's the way many of our subscribers have a background or a wall covered with tiles from the programs that they've finished because they're goal-oriented. These are people who would have never kept going to the gym just like I did my aerobics class.

6:48Now I'm going to lift tomorrow. It just would not be rewarding for them. But the concept of finishing 30 days of a program or six weeks of a program and then printing out that tile and putting it on the wall, that artwork represents their consistency. And that consistency is a breakthrough for millions of people like me. So you started the company, what, around 20 years ago? 26. And your first program was effectively P90X with Tony Horton. How did you find Tony? How did that come about? Talk me through that because you guys are a publisher, right? Yeah. So, um, actually P90X was a follow-up. So, um, it started with a program.

7:33Well, Tony was a friend of mine. Let me, let me answer your question. Tony was just a friend and, uh, um, that he, I'd moved to California, mutual friend introduced us and I had created another video for another company called eight minute abs. And, uh, again, it was just for me because I I needed, I like, if I, maybe I'll do an ab routine for eight minutes a day and try to get this under control. So then when I moved to California and I met Tony, I said, look, I'd like to do something more holistic. And he gave me just basically a very easy to follow circuit training routine that took me about 25 minutes to do.

8:14And then he went off and shot a movie for three months. so I was left doing this putting this program together and I refined it um because I've got a little background in in athletics and and uh when he got back that's when I'd lost the 20 pounds he's like what did you do and I said I just did what you told me to do for the last 90 days and uh I said I think this is a program let's let's let's tape a like a pilot for it and uh and we'll see if we can get other people to do it. So we, we did a round of videos, put a hundred people through a test group and their results were outrageous again, because they knew they just had to do it for 90 days.

9:00So they're like, they dive in. Right. And, uh, and it was like, all right, we gotta, we gotta make this an infomercial. And it like the company was maybe two years old at that point. And we did$33 million like that, that year. And it was just five of us sitting in an office. And we had so many strong stories from Power 90 that I said to Tony, hey, I'm about to turn 40. I want to go to the next level. I've never been truly ripped. I want to be ripped. So I want to do something extreme. We'll do a sequel to Power 90. We'll call it Power 90 Extreme. p90x for short and tony said nope i don't want to do it i want to do something that helps all these people who are overweight or obese there's millions of them and i said well we're going to do this with somebody so you can do it with us or i'm going to go find somebody else he's like all right i'll do it so and we did this like i remember when the the producer and director uh did this design it was all shiny and pretty and and we completely rejected it i said i want to feel like I'm going into Tony's basement and I don't want people wearing spandex.

10:12I want them wearing cutoffs and work boots and just whatever they pull out of the hamper that's still dirty. And, uh, and that, that's what led to a very different vibe. And, and on day one of shooting P90X with Tony, he was really uptight. Um, cause there was a lot on the line, you know, An extreme program is going to be hard to shoot, hard work out. And I pulled him aside because Tony's a former comedian. And I said, look, man, just relax. We have control of this. We're not doing this for some big producer, production company. It's just us. So curse if you want. Say anything you want. You just be you.

10:54The main thing is you got your workout buddies on set. Have a blast. And that's when the magic happened. And P90X was our first billion-dollar program.

11:31or click the link in the description to claim your trial. Billion dollar program. Yeah, I mean, over time, it didn't happen. It was interesting. We sold, it was successful to the database of Power90 people at first. This is 2005 when we originally released it. But the infomercial did not work at all. It was a dog. But we saw a glimmer of response from the marketing of that. So we kept at it. We kept doing focus groups and kept refining it. And then we'd learn a little something else. Or we'd go too far and we'd have to pull it back. And we started to get more customer success stories from that original Power 90 cohort.

12:14And after 22 different tests and basically two years, like people in the company were quitting. They were like, this is stupid. The CEO is mad. He like, why does he continue to pursue this? The thing's a failure. But we always saw something extra. And then 2007, it all came together, offer, presentation, product configuration. And 2007 and going into 2008 is when the economy was a disaster, right? That was the mortgage crisis. And it was like the steepest growth that we had as a company from 2007 to 2013. And I can remember our board, they couldn't believe what was happening because all other businesses, banks were folding.

13:11It was terrible, the mortgage crisis. People were losing their homes. And somehow P90X was just taken off. I can remember I was at a fundraiser for Obama, and the lawyer that got us into this fundraiser said, here, let's stand over here. He's about to walk in the room, and I think this is the door he's going to come out. So that's our best chance to meet him. So we were standing there, and sure enough, he comes through that door as Secret Service, and we were the first ones. And my friend and lawyer says, Mr. President, I want you to meet Carl Daigler and John Congdon. These are the guys who started Beachbody, now Body, and they're the ones that created P90X.

13:53And Obama goes, P90X? My wife does P90X. All these Secret Service guys are doing P90X, and I can't keep up with them. My jaw hit the floor. Like, I had no idea. It was like I was at the center of the universe. And those were some crazy times. It's not often that you get lightning in a bottle like that, but P90X was that. And then that led to Insanity with Sean T. That led to a program called 21 Day Fix, a three-week program that combined fitness and nutrition or portion control, then 80 Day Obsession. Like we've had these, we've been lucky, blessed to have these just absolute home runs for in-home fitness that redefined the whole space.

14:47Yeah, that's really crazy. Thank you for sharing. What a crazy story. So, yeah, it's insane that, you know, Michelle Obama, like just kind of, you didn't even know that she was using the program and then the whole Secret Service team. I'm curious, you said you love marketing. I love marketing too. Oftentimes, you hear about this concept of a unique mechanism and people use P90X as an example of a fantastic example of a unique mechanism, something that is different, something that shows a potential purchaser or potential buyer that your product or your service is different there's a uniqueness about it when you came up with the concept of p90x were you looking at it from like a marketing standpoint that we need to have a unique mechanism or it just so happened that way yeah it just so happens um like a part of the formula like the the question that you've got to answer and this is good for any founder when you're trying to solve a problem In our case, trying to help people start a fitness program where, you know, it's not like there's a shortage of fitness programs or gyms or nutrition programs.

16:11Like, you just look it up online. But people don't trust that they're going to get results. So you've got to answer the question with whatever product you market or are creating. You need to be able to communicate to people in a very efficient way. Why will this solve my problem? when everything else I've tried hasn't worked. So it all comes back to what is the problem? So the problem with P90X for me was I'd never been able to see a program through to truly get ripped, which in this case means I didn't dial my nutrition in enough and it wasn't intense enough. So that's the problem that we solved.

16:51And the device or the category that got created was called muscle confusion. So why will P90X work for me where going to the gym has never worked for me? And that's because I would plateau. And because I was doing the same thing over and over again. And P90X every 30 days or every three weeks mixes it up. So your body's like, wait, what the hell is this? And that breaks your plateau. So that's why P90X will get you more extreme results in 90 days than just being consistent with a lifting program that you make up off of YouTube or whatever, because it's designed to keep your body guessing. So that's just an example with that specific program that is answering that question.

17:39Why will this work for me when nothing else has? And so when it comes to kind of designing programs, making programs, what comes first, and this is a common thing that people always think about with any product or services, is what comes first? Is it the product or the marketing? The first thing that comes is the problem. And so you assess the problem. Is it going to be worth it to solve the problem? Is it a big enough problem? Do enough people have the problem? Or if there's not that many people have the problem, is it such an acute problem that people will spend enough money on it and I'll be able to make profitable sales on it?

18:22And then within the creation of solving the problem is where product development happens. And that's where vigilance and absolute grit to not allow the soft edges or the cut corners that most entrepreneurs will accept. And it's the entrepreneurs who won't cut those corners who will find a way to make this thing just that much better. Walt Disney used to call it plussing. He would look at a movie and the editors or the directors would always wait for Walt to come in because he would plus it up. He'd just make it a little bit better by refining that.

19:14But that is also feeding the marketing machine because it's those differences that you're finding. Like those little, that little nuance, like there's a program that we've got right now called Belvital that launches in December. It's a women's hormone health program. As part of that program to help women's hormone improve, that's basically cortisol response and insulin response. So stress is a big problem to hormones. so we needed a way to help them reduce stress so we could have thrown in five breathing exercises to to incorporate into the program but we wanted to go another level so that really really reduces those hormone disruptions so we found an app called the breathwork app and incorporated 90 days free access of that app into the belvital program that's plussing it up and so now that's part of the marketing, but it's not just a bolt-on to say, ooh, that's going to make it really sell.

20:23It's to make it so that somebody learns about this program, and really what you want them to do when they're learning about it is you want them to go, well, I could probably put this together. I could probably figure out another place to get this product, but now that I understand what's gone into developing this program, why would I go look for something else that doesn't have that kind of discipline and vigilance and testing about it. I think that's the difference. So these things are all integrated and it never stops. It's a constant loop. You know, problem, solution begets another problem and another solution, another problem, another solution.

21:00And that, the output of that is your marketing plan. So you said you went through 22 different iterations with P90X for you guys to really, really get everything dialed in. Like you said, the offer, the packaging, everything, the features, the benefits, all of these things. Do you think that if you hadn't have kept going, what kept you going? like 22 different iterations most people would have given up and and that's the power of like getting an offer really dialed and getting a product really dialed in well we were getting signal so you got to get some signal we we have had products that were just duds right out of the gate like the trainer wasn't magic the presentation or the concept wasn't magic um we didn't articulate it appropriately.

22:03So, so I'm not saying never quit or, or, you know, blow your brains out for something. P9DX, we would, we would test a show, a new version of the commercial and the advertising. And so we might tweak the offer. Um, I remember one focus group, um, cause what people were fascinated about with P9DX was this concept of intense training at home. And, uh, but in a focus group, I remember one guy said, well, they're, you know, I'm not going to get results like that unless I change the way I eat. So we realized, even though it had a nutrition plan, that we hadn't gone into enough detail about, we're going to show you how to eat for these kind of results too, which was very different.

22:49Bowflex wasn't doing that. The gym wasn't doing that. So we were basically, and we do that with every one of our programs now is we provide access to a meal plan so that you can get the results that you want. So it was part of that iteration that we're like, oh, the customer's telling us what they want. That's the objection. So it's just a matter of, we didn't solve that objection in the last advertisement. So we got to get to that. And that's the process. And as long as you've got enough resources to stay alive while you're doing this testing, then there's no reason you can't create your own billion dollar success.

23:23Yeah, I love it. So cool. And obviously, you guys have gone through many different iterations. You've scaled out the portfolio. You're even listed. You're a listed company now. I'm curious, when did you decide to list the business and why? Well, we had employees who had options in the business. So, you know, we owed it to them to take it to the next level. We had investors who expected an outcome. And coming out of the pandemic, things were so good that it looked like it was a good time to go public. and uh and there was a company a bike company that we could buy that had a similar model but it was more cost effective than peloton so we're like oh let's roll that in here that'll be a good company to take public um anybody who watches the stock uh now it's traded under bodi body um would see that it's it has not been a good ride i mean we've lost i think it's 98 of our market value since we went public.

24:34Um, but that is a, that is a consequence of the, basically the bottom falling out of the in-home fitness market coming out of the pandemic, um, and a, and a change in the business model, not a drop off in the need for a company of what we do. So, So we've been fighting this fight for the last three years to make this public company story valuable for people. And I think we've got that line of sight to that now. It's a real turnaround. but we've made some very aggressive, courageous decisions to amputate things that were dragging us down or were no longer a strong contributor to the business, sales channel changes, and just got way more disciplined.

25:32So, you know, look, a 26-year-old company is going to deal with, like, I think cycles coming about every six years. So you've got to look for what is going to be the big change that you're going to need to move away from in order to avoid a big downturn. And that's what these most recent three years have helped us identify. now going forward, I think we're going to be, uh, we're going to make the most out of being a public company, but it's, I'll tell you what it is. It is no easy. Um, it is no easy job to, to run a turnaround as a public company. Yeah. Thank you for sharing. And can you tell us what some of those courageous things are that you've, you've done and that you're doing and, uh, your ambitious plans?

26:29Yeah. Well, the first thing is, I mean, we peaked at$1.4 billion a year. And it was very profitable. But that also mean our overhead chased that. So, you know, as of, I would say, let's say three years ago two years ago our break even revenue we had to we had to generate 900 million dollars of revenue to turn a profit and uh as revenue declined you gotta you cannot sustain that overhead those operating operation expenses so um so we've pulled that down now which is very painful people that you love people who are incredibly talented but you gotta to right size the business. We've got it now to where the company, I believe it breaks even at around 220 million.

27:27So we're really in an agile position, kind of like we were when we were a startup. That's one painful but necessary move that we had to make. The other one was, I would say just as painful, maybe even more. For 17 years, we operated a thing called a network, network marketing if you're familiar with multi-level marketing like herbal life or amway that model and it was super productive it's part of how we grew to 1.4 billion because we had customers who were great proof that the product works so they would just post on social media and they would build teams of people who wanted to do our programs and that was just killing it up until the pandemic.

28:15And then the FTC, our Federal Trade Commission, started to scrutinize multi-level marketing. And it turns out, we read some surveys, 90 % of the population will not entertain a conversation if it's related to a network, a multi-level marketing business. So we thought we had a huge total addressable market or TAM, but it was being completely misrepresented by the fact that most people will not entertain working with a multi-level marketing business. So about a month ago, we had to make the tough choice to sunset that business model. Um, and, uh, and we're, we're just getting there so that, so that, because my, my job is to run a business that, um, our mission is to help people achieve their goals and lead healthy, fulfilling lives.

29:17It is not to sustain a business model of network marketing. So since now we've seen affiliate marketing and influencer marketing and the creator economy explode, that's where we've got to put our business model. So we are transitioning that whole network of amazing people who are proof the product works over to an affiliate model, where now they're not sharing their commissions with an upline. Now they make 100 % of the commission, and we've got one of the most generous, aggressive commission programs in the entire affiliate marketing space. So I think that in 2025, that's going to be a game changer for us where the opportunity to scale this business by user generated proof is going to take off in 2025 because it's in a more agile business model of affiliate marketing.

30:16Got you. Yeah. Wow. And I assume when did you guys launch the subscription? Because obviously at the start you were selling one-off programs but as the market has started to mature and you've added on more and more authors and programs and creators or influencers you've got now a portfolio which would you know and you've got new programs coming out it kind of leans toward that subscription model when did you start making that transition you know it's a really interesting question It was 2016, we launched BODY, okay? And BODY is an acronym for Beachbody On Demand Interactive. And it was so good, and we got a four-letter URL.

31:02So we were like, we've got to name the company this. And it also made the company approachable for partnerships because Beachbody was a little dated. So BODY is a little bit more benign for like a, you know, we have a partnership with the American Diabetes Association, um, who's about health, right? So anyway, I remember I was out of coffee with a guy who helped build Hulu, you know, that company Hulu. So, so he helped build that. And we were, and I was telling him, you know, look, we sell these DVDs. Shouldn't we package this into a, into a service where people can buy the content like they do a DVD, but sort of own it like you buy a record in iTunes through Apple.

31:50And he said, no, the game is subscriptions. Like I can remember that conversation. It was a watershed moment, as they say. And so we launched Body in 2016 and it was great. And we got to a million subscribers pretty fast million subscribers wow yeah and yeah but what we've seen frankly since you know you got paramount plus disney plus netflix hulu you know just max like all these subscription services everything's a subscription now and we realized there's also subscription fatigue. So we added a parallel option for people that if they just want to buy one program like P90X, they can buy that program and they'll have permanent access to it on the app.