The fitness industry has been growing a lot over the past decade. New products and services, market consolidation, technology shifts, and organization capabilities have increasingly driven growth strategies in the leading health club, gym, and fitness studio brands. As a result, valuation is being redefined like never before as the marketplace goes through a tremendous growth curve. While technologies and new business models will, of course, be key differentiators for success, what were previously considered the “soft assets” are going to be even more of the secret sauce behind the organizations that excel.
Profit, of course, will always be an essential success measure in the near term, determining future growth value in the fitness industry has become less clear though. Some financial analyst now estimate that up to half of a firm’s value cannot be explained by financials alone. The use of different measures like strategic vision, the ability to meet member needs in unique ways, and the people in an organization itself are being considered more and more as essentials to the value of fitness businesses. Today, value is increasingly being defined by these factors that used to be considered intangibles.
Earlier this year, EuropeActive published a book with fitness colleagues from around the globe titled Human Capital in the Fitness and Active Leisure Sector . The book emphasizes the importance of people and defines “Human Capital” specifically as follows:
“Human capital is defined in multiple ways, for example, the skills the labor force possesses and is regarded as a resource or asset. In most definitions, it encompasses the notion that there are investments in people (e.g. education, training, development), and that these investments increase an individual’s productivity, as well as the collective productivity and uniqueness of a company or group of people.”
To demonstrate the emphasis on people and its importance among some leading fitness industry competitors, in July of this year Equinox and SoulCycle announced the development of a talent management agency exclusively representing their leading, market-defining fitness talent. The management agency will launch with a network of employees from across the brands’ global portfolio of Fitness Clubs and Studios. Chairman Harvey Spevak had this to say about the talent management agency initiative:
“If we’ve learned one thing in our 27 years of innovation and leadership, it’s that our people define our experience—and our excellence. While we have always been recognized for the impact that our talent has on our community, our fitness experts will become exponentially more influential with the creation of our talent agency.”
When Mr. Spevak articulates that “our people define our experience and our excellence”, I think he is right. When his company adopts a strategy that leverages its talent in new ways, I’d call it innovative. Equinox is not alone. In recent years we have seen key competitors increasingly emphasize the acquisition, development, and reliance of more capable talent to deliver a competitive advantage in our industry. I do not think this long-term view and emphasis on Human Capital is going to end soon and it will become even more essential for the winners in our industry, as the shrinking labor market and reliance on outstanding member experiences continue to compel change in the marketplace.
Leadership, talent development, and organizational culture are playing a bigger role as important drivers of successful growth. Often, leadership issues, talent gaps, restrictive decision-making, and ineffective management teams get in the way of the realization of value. Forbes estimates that half of the time firms fail to achieve expected returns, and this is often due to the wrong leadership driving the companies. According to a 2017 report from Human Capital Moneyball and Deloitte’s 2017 Global Human Capital Trends Report , investors have seen less than optimal returns because of human capital mistakes and estimate billions of dollars in value have been lost in the recent past.
On the other hand, as the book Firms of Endearment sets forth, the philosophy that investing in all your primary stakeholders, including your employees, leads to superior value and profitability. Examples of firms of endearment include Southwest Airlines, USAA, Starbucks, Patagonia, Trader Joe’s, Wegmans, and Ikea. The authors compare the cumulative performance of the firms of endearment to eleven Good to Great companies in Jim Collins’s popular book. At the five-year mark, the cumulative performance of the firms of endearment and good to great companies are on par with each other, with both outperforming the S&P 500. But at the 10-year mark, the U.S. firms of endearment deliver a cumulative performance of 410% compared to 176% of the good to great companies. And at the 15-year mark, the U.S firms of endearment deliver a cumulative performance of 1,681% compared to 263% of the good to great companies. That is compelling information about the effectiveness of investing in and optimizing Human Capital.
So how can companies get better at tapping into their Human Capital? It is not an easy question to answer but here are four tips you should consider for your health club, gym, and fitness studio business to do just that.
1. Make Human Capital A Priority. Set expectations and plan to make the development of people a priority. Seek to build the organization for the future. Consider what great organizations will look like and start making that a priority. During strategic and planning sessions, begin discussing the Human Capital required to grow the company.
2. Create A Human Capital Strategy. A “people strategy” should assess the current leadership and organization capabilities that exist to execute against the agreed strategy for the business. The resulting initiatives, plans, and actions should be implemented accordingly.
3. Regularly Measure the Leadership and Organization. It is critical to preserve successful culture and capabilities. It is just as important to understand how and where specific leaders in the organization must change to scale the company. Using a three to five-year investment growth thesis as context, comprehensively assess the management team, key leaders, structure, decision-making, and the overall organization’s strengths and gaps. Clear management actions and development priorities will accelerate the organization’s readiness.
4. Make Investments In Talent. Have the patience and capacity for leadership development programs. Renowned books and seminars provide interesting content but fail to provide change that has an immediate business impact. Investments such as executive coaching, 360° feedback, recruitment of a proven subject matter expert, leader forums, or intense focus on developing a high-performing management team can yield great dividends in the near term. Remember it is challenging and usually unwise to just fire and hire your way to success.
Increasingly we will see leading competitors demonstrate that Human Capital will make or break a compelling strategy. Leadership and talent gaps and challenges are no longer reserved just for the big companies. With a shrinking labor market high potential talent is more selective than ever. As the fitness industry continues to grow, expect to see greater Human Capital challenges and increased focus on addressing leadership and organization needs. Making Human Capital a key differentiator can be accomplished with effective planning, rigor, investment, and discipline to ensure long-term business success.
Corey Benish serves as President of ABC Financial Services. He has over 20 years of experience guiding companies through critical transitions while achieving strategic goals and rapid growth. Corey is able to translate corporate missions and visions into organizational strategies and projects to foster growth and operational efficiency. Having worked in private equity and public company environments across a number of industries, including fitness and health clubs, he has been able to build high-performing teams based on trust, integrity, and an unwavering focus on customer experience. You can follow Corey Facebook, Twitter, and Instagram .