In today’s episode, we are joined by Mike Hansen. Mike has an extensive background in the fit-tech industry, gamification, and venture capital. His company, Endorphinz is a full-service fintness streaming agency, and Mike is the co-founder who also looks after strategy.
He chats about the importance of establishing a strategy first, the different advantages of a live-streamed class offer and goes into how you should price your digital offering to help grow your business
This episode of The Fitness Founders Podcast can be found on Spotify, Apple Podcasts, and anywhere you get your podcasts.
Kevin: How is it going everyone and welcome to The Fitness Founders Podcast. I’m Kevin Mannion, VP Marketing here at Glofox. This week we talk to Mike Hansen co-founder of the fitness streaming company Endorphinz. Mike launched the company just over a year ago to support gyms going digital. He tells us how to build an online offering that works for your community, and how to market, sell and retain your online customers successfully as a bricks and mortar business. Let’s have a listen.
Mike Hansen, welcome to the show.
Mike: Thanks! Thanks for having me.
Kevin: Great to have you and definitely very interesting work you’re doing so let’s kick off and just tell me a little bit around Endorphinz.
Mike: Yes, so Endorphinz is a full service fitness streaming agency which basically means we do everything from the strategy and idea, the creation of the content to helping you collect dollar through digital marketing and things in that nature. We take this complex world of online digital fitness streaming and we now navigate through that entire process.
Kevin: Cool. We are seeing a big change in the industry now. You yourself have a really long and strong fitness and tech background so I think it would be useful just to tell people just a little bit about your own career history and what you’ve done to date.
Mike: Sure. Yeah, so my story is a little bit unique. I got involved in the industry in the late 90s on the club side with 24 Hour Fitness and help pretty much every operational there. I made a switch, I actually went to [unclear – 2:00] I decided one day I don’t want any more [unclear – 2:02] rest of my life, and I switched. When I did that I found my passion with fitness and when I came back, I came back with a mission to make fitness fun. In doing so I actually introduced gaming into the market space through Nintendo Wii, that whole thing. We built the largest enterprise company, magazine, tons of accolades. This positioned myself as a serious games expert and a gamification expert so I got to work with Medtronic, the health insurance companies, the people who wanted to gamify the process back in the day. What I found was there is this great opportunity to apply technology into fitness and so I decided that I wanted to not necessarily own the bridge but walk people across the bridge by applying technology into fitness. So I’ve been doing that for the greater part of the past decade with media streaming, things of that nature, working with brands to help them sort of innovate and use technology which ultimately led us to Endorphinz.
Kevin: Cool. Like you said, you’ve seen a lot of innovation in the fitness sector. I think you started Endorphinz before a lot of people were thinking about online streaming and content. Maybe tell us why did you start Endorphinz initially, and the following question is, do you see this online streaming as something that is here to stay or in what way will it be here to stay?
Mike: Why we started Endorphinz as we are engaged in [unclear – 3:27] project. And as part of that project we identified a big gap in the market around service. When people get in this industry or into this market there are a lot of things they have to do from create a video, to market that video, even define a strategy of the selected platform. Traditionally, you have to go to a bunch of different people to get that service. We saw an opportunity to sit in like a horizontal position to help somebody with one point of contact to every single thing.
The reason why that’s important is churn rates are really high and the way you reduce churn is you have good service on top of your platform. Just because you have a platform in full doesn’t mean you’re going to have a good business. It is the strategy and execution of that strategy just like the traditional business. And there is no firm out there that was doing that so we saw that as an opportunity to make an investment to come in and service this market.
Why we did just relates to, the next question, is we identify this format shift taking place before COVID. When we looked at all the research and we looked at everything that’s taking place no different than the music industry we saw the pie was getting new entrance of players, and we saw growth markets happening. And so we knew that the transition from a location provider model to a service provider model was well underway and we want to take advantage of that. We see this as an on-going thing because it was already happening pre COVID. The growth rates were tripled and there’s over 100% growth rate just last year alone.
Kevin: Got it. How much has COVID accelerated this?
Mike: Quite a bit. Unfortunately, we are not going to know exactly what the sticky power because obviously everybody had to go up in that so the question what the fall off is going to be. But we’re definitely going to maintain that higher level than we had pre COVID. One thing I can tell you is we did research on this last year, and last year alone just in the US, there were 10 billion fitness streams which compared to the US market was 6.6 billion check ins. There were more streams that took place for workout videos than actual workouts inside clubs.
Kevin: Interesting. Okay, so if I am a boutique fitness studio and I’m looking to get my online game together. What are the biggest initial challenges that people face which when they start to do this?
Mike: Yeah, there is a lot of decisions to be made and so i think the biggest thing that we see is a lot of people going downloading, looking at platforms, and tools, and things they want to use in order to deliver that video, or do live, or on demand. What we tell people is just take a pause for a second. You need to have a content strategy in order to actually decide what you need to select. The platforms and tools are just the delivery of whatever that strategies. You need to think about your business for one second, decide is this a brand extension or am I an instructor, I want to go from one to one, to one to some, to one to many. There’s a lot of different things you can move that decision in which then helps you pick those platforms and tools. Otherwise, what is going to happen is you’re going to get into something that you find yourself switching to another platform and you have to absorb switching cost later on.
Kevin: Yeah that makes a lot of sense. What are the options or what are the different roads that a fitness studio might go down in the initial stages?
Mike: I think the biggest thing and I’m just going to talk about a couple is that there’s some platforms out there that won’t get you in the market really fast. They are white label and things in that nature but what that does is it is usually a two app experience so you have to say do I want an app for my physical location and do I want an app for my digital experience or is it so important that I want a seamless customer experience that i want one app? Those are two different roads that you have to think about as relates to the platforms and tools you select. I’ll have different timeline restrictions. The other thing is when I do live and video on demand which one is free, or are going to be all paid, where does the pay will go between my social channel, my video on demand, my live and then actually the monetization side of the equation. Is Zoom supposed to be a higher price than just a single broadcast for video on demand? Those are all the decisions that you have to make because it actually… There is no one right answer it’s specific to that strategy.
Kevin: Okay, so there is no one right answer. I think what you are saying is you kind of need to be able to put down on paper what your plan is around the content whether it is live, whether it is recorded, whether the recorded stuff is at a premium to be on demand content. What’s the advice on that or maybe what mistakes that people make when they are coming up with that content strategy?
Mike: Yeah, there’s a lot. I’ll give you a couple of things we wrote in, social should be free. The way we look at it is we say the tool that social provides is great but it comes with an audience. You need to treat that as a part of your acquisition and part of your marketing strategy. So social is free.
Video on demand, the way I’d think about that is that’s really a way to create a connection with your brand because you can control the environment, you can create better production into that nature. When you think about the live stream that you have an instructor doing some work like a Peloton as an example, that’s facilitating a little bit more of a connection between the instructor and the person taking that and then ultimately zoom where that sort of bidirectional communication creates the best form of digital connections which is actually we say, “Don’t price the content price the connection.” That allows you to then have that [unclear – 8:42] small group training. Ultimately, if you plan this whole thing out right you can actually create a funnel to potentially get that person into the facility if they are within proximity.
Kevin: That needs to be the end goal. They are not going to start a global streaming business in parallel to running their local bricks and mortar or can they?
Mike: So this is the interesting thing that I will put out there. There are a lot of factors but if the business model is done in such a way where you’re discounting the membership to the member, right, and you are saying let’s sell it $19.99 online and $9.99 to my members. What they are going to find out is that’s actually a completely different business. 75% of the users on those platforms are actually non-members. A lot of people of the people that were out there doing this, they try to do this to create a connection to their member. And it was actually depending on the business model had a low uptake because they are already had this in person experience. The job wasn’t for them to facilitate convenience because they were already have time to come to the facility. What it is is it’s actually the lowest barrier to entry product that allows people to try your brand or try your experience first. So you have the ability to potentially build this major major pipeline and you can scale and grow that business faster.
Kevin: Okay, might dig into a couple of those areas in a little bit. Just from the consumer perspective and from what you’ve learned, what are people looking for when it comes to consuming online classes?
Mike: Yes. We did a bunch of research around that and we boil this down to four jobs that really online streaming addressed. The first one was access. There’s some people who are just no within proximity with your location but they have heard of your brand and they want to try it. The other one is schedule, so you may offer a class at 6 o’clock, but they get out of work at 6 o’clock so it just doesn’t work for them. The next thing is price. Some people can’t afford it, so you have a price element. And then the last thing is our industry likes to call it as ‘gymtimidation’. There is an intimidation factor that allows somebody who may be more intimidated to try it out. And they have the ability to see inside the facility, see the people, get rid of those things that are scary to them, and that lowers the barrier to entry for them to potentially come into the facility if they can.
Kevin: Okay, so maybe back to my content strategy, as you’re creating that you want to have in mind what content am I going to create for people who are too far away or don’t have access to my location. What content have I got for people who have got a long commute or are busy during our opening hours? What can I create for people who can’t afford the full membership coming in here? Is there an option for those? What can I do for people who are afraid to take the first steps through the door? Maybe answering these questions is a good starting point for creating that strategy.
Mike: Yeah, very much. As an example, say you take a boxing studio, if I’ve never box, I don’t even know how to put a gloves on, I don’t know what that is and so even simple instructional videos showing somebody learn how to get setup for boxing just the basics, whatever it may be, those sort of things make people feel much more comfortable and that lowers that barrier to entry. So you can use that with the members as well as you can use that for people who are interested in the sport but have never tried because they don’t know any other way to try.
Kevin: Yeah. I think even a small scale for someone who is in the way to invest in a huge content strategy, how to get those simple videos there. There is no reason not to have that kind of stuff there if it’s going to help you get a few more people in to want to try and learn to visit.
Mike: Exactly. Also, you got to remember digital is an interesting way to even test product. You have an established space that can test product, that can come try ideas around my content that I might actually do in my facility and see if there’s stickiness with it there because it is a lot cheaper to do that.
Kevin: Okay, so we’ll move a little bit on to pricing I think especially for gyms and studios that had made a rapid change through online over the last couple of months. A lot of them certainly out there, what you can actually charge for an online class? So maybe walk us through how you go about figuring that out.
Mike: Yeah, so I’m going to tell you the thesis that I kind of brought up earlier which is we say price the connection, right. And so there’s some people that say, “Maintain your price and hold your price.” And so I start with my in club model and I say inside the studio when I shake your hand and I talk to you like that’s the ultimate connection that I’ve facilitated between the brand, and the instructor, and the person. The next level of that is actually in that bidirectional communication where you and I are talking here having communication exchange back and forth. I think that connection has a lower value than the in studio so we actually say to reduce the price. The next one is if you think of the live broadcast where we are not talking and then we’re just having this workout where you’re watching me work out like on a Peloton, we think that that’s even a little bit of a lower price because it relates to the bidirectional.
And then video on demand happens to be the next piece which is something that is more about a brand experience than it is actually connecting with the instructor. What I can tell you as it relates to price points is that through three different research projects that we’ve been involved in, and one we did independently, that highest price point on video on demand consumption is between $10 and $15. That’s the sweet spot. That’s why you saw Peloton dropdown. There is variances out there where people are doing anywhere between $5 and $40. But when you look at where are the consumers and the general basic markets at that’s a big factor. And the other factor end up being the price point of your existing brand. Everyone sells their classes for different price points and so we use that as an anchoring point and we use what the market is willing to pay on the video on demand and then we work out the prices in between.
Kevin: Yeah, and say I am charging $15 for an in person class what do you generally seeing people get away with for the next tier down which would be say the Zoom class with interaction and conversations.
Mike: Yeah, so these are some randomized numbers but I would say like we traditionally have it in the $20-25 as it relates to say a class price and then we may be about 50% reduction on the bidirectional.
Kevin: Fair enough. And then lower it down again for the recorded.
Mike: So you’re going to have a dramatic difference when you go from your $10-19.99 when you get into your $20-30, and then when you’re $30-40. It really comes down to if you have a number that you’re trying to achieve in your financials. You can back in to what we think the sensitivity of that would be if we started to change price. There is some people who want to hold a higher perceived value and be different market respect to.
Kevin: Okay, so they are willing to have essentially fewer people coming through but to keep that price high.
Kevin: Yeah, that makes sense.
Mike: Keep in mind member versus non-member, big difference too.
Kevin: Yeah, that makes sense. Okay, so assuming we have done our homework and come up with a good content strategy that tackles things like facilitating access, and schedule, and intimidation going to the gym. Maybe we started running online classes during COVID to our existing members that have been going on okay. Next thing we have to think about now is growth and start doing some marketing around this. How do you talk people thought starting to launch this publicly and starting to market?
Mike: Yes, so we look at a couple different buckets when it comes to marketing and trying to determine how many people we could have potentially acquire. And so they first off have an existing member base, and so you can look at your members and your segmentation of users and market to them. And we fly a different capture rate to that. You obviously have your email list which is another factor. The web traffic is another thing we look at because what happens is they might not actually go to your website looking for it but they discover it that’s a big thing that happens. And then your social channel is the other factor.
So when we look at those four things we are able to take those buckets of users and figure out what percentage we could potentially capture for online sale there. And then when we look at that and we say, “Okay, our goal is 10,000”, and we got 5,000 via our existing channel already. Then we look at that 5,000 and we say, “Okay, now, we need to create some sort of add PPC acquisition plan around that.” And that’s where the [unclear – 16:57] comes into place against your lifetime.
Kevin: Okay. I think you were saying if you start with your existing list it should give you a good idea to learn a lot around pricing, around what you can convert at, and I’m starting with that initial list of people that you already have, and you move on to more sophisticated marketing out in the outside world, paid campaigns, social media, that kind of thing.
Mike: Yes, so we just take the social, the web, and your existing list whether that be a member list or email list and we can look at those three and treat them differently as relates to capture rates because we don’t have to acquire them we just have to message them. The other ones we have to go out and actually acquire them…
Kevin: Yeah, okay. In terms of sales, so let’s say we’ve got some leads, and now we are having sales conversations. How do you work with… You are obviously working with a lot of businesses now. They have to craft a sales pitch or sales message around online. What are they really selling in those sales pitches?
Mike: I think it comes right back to those jobs. In the event that we actually took the time to actually discover what the job to be done was being handled for a member and your traditional segmentation and you organize the product, the message, the sales, everything around that. So when I speak to somebody who is not within proximity and I know the IP originated outside of my trading area, I know that there is a proximity message that I can feed to the, right, like, “Here’s your great chance to try ABC Fitness for your first time”, right, because they’ve never had the chance to try that. So you can do the traditional marketing as relates to the segmentation and marketing message around that job.
Kevin: Okay, so it’s back to your original content strategy. What reason you created the content for in the first place, whether it was flexibility around the schedule, whether it’s a cheaper option and building your sales pitch around that.
Mike: Yup, all the messaging. I mean, you can organize the entire business around those four jobs to be done. It makes it really simple because the product speaks to that, the message speaks to that, and the sales should speak to that. We can identify that core board and say there’s this many of these people and we can target those people through social channels, and things in that nature like traditional marketing you can do it online.
Kevin: Okay. We are coming towards the end here, but maybe the last we’ll cover is, and maybe it is too early to tell but obviously retention is going to be pretty big in this business as well. And for all the people that are going to try out online classes and not everyone is going to stick around, not everyone is going to be successful retaining members in the long run so what have you learned so far in terms of maximizing those retention rates?
Mike: We can talk a little bit about retention or I guess churn kind of looks like right now. Traditionally there’s been this sort of %5-15 of churn on a monthly basis. A lot of these platforms are holding on to their people for more than a month. I think there’s this great opportunity once you actually understand the users you have on the platform to start to go ahead and use the physical facility for those that can to potentially create stickiness there. There is also the ability to take those members and create new business models that allow for them to have this as an option when they need it which will then also keep retention longer because it is tied to the physical and the digital product.
And then your content and what you put out there is going to be pretty important. What I mean by that is some people put the content out and they are going to slow down on making it. Well, 80% of the content that you originally put out there will probably be consumed in the first 2-3 weeks. So if you keep dripping you’re going to have a greater chance for retaining them longer. The other side that I don’t think people are quite there yet but then you started thinking about is about the story side of the equation. Working out is one thing but they are working out with somebody who they want to know the story, they want to see the behind the scenes, they want to learn about that person, and that actually does extend the time within your brand because they create this humanized sort of fan relationship around that sort of instructor and your brand.
Kevin: Ok. I think what you’re saying say is one way of, and it actually makes a lot of sense, in terms of using your physical location to make your online content more sticky and I think it reinforces the idea of not really having two business here – an online business and an offline business. But combine these things to have an offering for customers that’s extremely convenient, that’s always there, and that compliments each other in order to, so they don’t get tired of doing the online, they can come in to the class, and likewise there is certain periods of time where they can’t come in person the online content is there to back up so thinking about how you get your studio and your online content to work together to keep those retention rates high is probably a good starting point.
Mike: Yeah. If somebody has the time to actually think about these things, what we traditionally won’t do in a situation like that is we would take your traditional business and we would actually list out every single thing that’s kind of a value proposition that’s makes up the business model, and then try to look to say what is the digital component of that. And if we do that then we’re actually able to create this sort of resource process business model that’s very similar between businesses. Otherwise, what happens is you will get into the digital business and you will have two separate companies to run.
Kevin: Yeah. I mean, that’s a great point. Okay, Mike, we are almost at the end here now. Just a couple of questions left and I know it’s impossible to predict the future. Maybe tell us how big you think the online aspect of fitness is going to be, maybe as like many people with a gym membership are going to be consuming online content say in the next two or three years.
Mike: Yeah. I think this notion of personalized fitness or personalized fitness anytime anywhere is the thing in the future. This is an omnichannel strategy that’s taking place. It is something that I think is going to continue to grow. I think what’s an interesting point kind of think about here is that my view is that the workout is the “transaction” whether it is inside a hotel, or at a club, or online. I think the consumer is leaning towards the convenience factor just based on every single thing in this world, right. There are still going to have a demand there so I still see the growth rate still taking place and continuously growing. I think the one report that’s’ been put out there publicly by another market research groups says that they believe online in the next 5 years is like $7.7 billion in the fitness industry. So that’s one notion where we can anchor in and they say right now it it’s around $1.5 billion I think in 2019. So that gives you an idea of the growth rate so it’s definitely a growing market.
I also think that a lot of people just got exposed to online. I think the consumer… a little bit of this, a little bit of that, a little bit of this. And so there’s going to be that point where somebody was exposed to and they are going to say, “You know what, that works for me in this situation where I had 30 minutes. I can’t go to the gym. I know I can do it here. It’s going to be one of those things where you’re going have to service your customer 24/7, and online and streaming is a factor.
Kevin: Yeah, that makes a lot of sense. I think the lesson for me is that sure there is market is billions of dollars, but maybe not to get carried away with that and come up with content plan that really fits in with the existing business that you have and always remember why you created that business in the first place.
Mike: Yup. I think our view is that stand alone digital probably doesn’t win the long run, and standalone retail might not win in the long run. But the two together, I think that’s the winning combination.
Kevin: Got it. Okay. We’ll leave it there. Now, before we go, just like what is the biggest lesson you’ve learned in the past 8 weeks of coronavirus?
Mike: Biggest lesson… that you have to be open to change as you grow and you need to be able to pivot and align your team effectively pretty quick and kind of make sense of thing. Something we did it’s probably a good story of a learning is as soon as this took place, I gathered the team together and I said, “Hey, for the next four weeks we’re not going to make any based on what’s happening. We’re going to focus on week four…” And so we took all of our time to just help everybody. We made that announcement that we’re to help and we help everybody. Well, we internally focused on… versus trying to react in the moment.
Kevin: Got it, great one. Okay, Mike Hansen, thank you very much for coming on the show.
Mike: Yeah, thanks for having me. It’s been great.
Kevin: Thank you.
This podcast is brought to you by Glofox, a boutique fitness management software company. If you want to accelerate growth, work efficiently, and deliver a well-branded boutique customer experience, then find us at glofox.com.