All business models lie on a spectrum between want and need. If you have a life-threatening disease, you need a certain drug and you’ll buy it regardless of whether you want to. On the other hand, when a luxury car maker announces the latest model, you certainly want it, but it’s arguable whether you need it.
Companies on either end of that spectrum can create some truly lucrative business models. But companies in the middle, where the product is neither necessary nor desired, struggle. That’s where the fitness industry is.
Don’t get me wrong - exercise is a must. Everyone needs a minimum amount of physical activity each week. However, you can get that activity for free by running, skipping or doing push-ups. You can probably learn to do yoga or eat right by watching a few YouTube videos.
Couple that with the fact that most people simply don’t want or can’t get themselves to exercise and you can see why the fitness industry is such a nightmare for entrepreneurs. However, a handful of business have been successful by picking one of the following strategies:
Lock up money: The model your local gym follows when it offers an annual subscription.
Create a trendy brand: The model favored by brands like Nike (NKE) and Lululemon (LULU).
Inject network effects: Peer pressure powers SoulCycle (SOULC), Crossfit and Strava.
Make it easy: Offer convenience by opening more branches and keeping them open around the clock like Anytime Fitness.
All of these strategies seem to work. The companies mentioned above seem to have steady growth, healthy margins and recurring income streams. But what if you were trying to combine all these strategies to create a vertically-integrated fitness juggernaut? The company you’d end up with might look something like the recently-public Peloton (NASDAQ:PTON).
