THE WEEKLY HOWL IS SELLING AMWAY

Pyramids: Forbes ran a piece this month on BeachBody and its CEO, Carl Daikeler. BeachBody is a fascinating company. You may not be familiar with the company but you probably are aware of its most well-known products, the P90X and Insanity workout DVD’s. Daikeler started his career producing infomercials for fitness products like the “:08 Min Abs” workout video. He later started BeachBody and used his infomercial prowess to market P90X, which turned into a phenomenon. The less well-known part of the BeachBody story is that is also a multi-level marketing business.

If the workout videos got people in the door and the coaches acted as the glue that held it all together, the real moneymaker was Beachbody's shakes. In 2007, Daikeler tapped his third wife, Isabelle, a kinesiologist certified in "medicine ball training," to codevelop Shakeology. The low-calorie liquid is marketed as "a daily dose of dense nutrition" that is packed with "superfoods" from around the world. The price tag: $130 for a month's supply of powder, with much of that cash flowing straight to Beachbody's bottom line.

Of course, for this vision to work, coaches need to expand their networks rapidly. Everyone who signs up with Beachbody is invited to join an accountability group, where participants follow a workout plan and log their exercise and Shakeology intake into an app. Coaches post words of encouragement--then urge others to become coaches themselves. "Basically from day one, you're being pushed toward the network marketing opportunity," says Heather Hanson, one of Beachbody's first employees, who worked with Daikeler at Guthy-Renker. "It's brilliant. Beachbody gets its hooks into you immediately."

              I would love to see BeachBody’s financials because I am very curious if the workout DVD’s are a loss leader. In other words, is BeachBody selling P90X DVD’s at a loss in order to get more people into the MLM network? I can’t think of another MLM company that uses another product like this. And it’s interesting to hear how the decision to move to a streaming model has affected the MLM side.

In 2015, Daikeler ignored his board's concerns and began offering the entire library of Beachbody workout DVDs, a $7,000 value, for just $99 a year via a Netflix-like streaming service called Beachbody on Demand. While turnover in any multilevel-marketing organization is not unusual, this decision prompted a mass exodus because it undermined a critical driver in Beachbody's successful formula: Keep the new commission-generating products coming. Last year sales declined by nearly 25%. His army of coach evangelists is shrinking. Today Daikeler has some 340,000 coaches, but that's down from 450,000 in 2016.

Listen to former elite coach Lindsey Westbrook. After seeing her $300,000 annual income drop by half, she quit in 2017 to sell "premium" wine in another pyramid organization, Direct Cellars, and has since moved on to Vasayo, a multilevel marketing company hawking wellness products. "When Beachbody on Demand came around," she says, "people were able to get a free trial and an all-access annual pass. You're no longer making any additional income from people ordering DVDs. And without people ordering DVDs throughout the year, they weren't purchasing Shakeology, either."

              That’s an intricate balance to strike. I’m sure BeachBody likes the predictable, recurring revenue that comes with subscriptions but it sounds like it really pissed off its coaches. And that’s where most of its revenue comes from.

Yet coach compensation has suffered as the company's product focus shifted from selling DVDs to selling shakes. Shakeology subscriptions, at $130 a month, now bring in two thirds of the company's revenue. But that too is under pressure: In 2017, following an investigation by the city attorney in Santa Monica, the company reached a $3.6 million settlement in which it agreed to stop making bold health claims about Shakeology, its core product.

The city of Santa Monica's crackdown has dealt a body blow to Daikeler's six-pack business model for growth. After years of boasting that Shakeology prevented mental decline, slowed the aging process, removed toxins and even helped prevent heart disease and cancer, Beachbody has been barred by the state of California from making claims that are not backed by scientific evidence.

              On a separate note: I don’t recommend getting involved in MLM. MLM companies try to go against the laws of business. The goals of a retailer should be to deliver great value to the customer and to provide a great shopping experience. Great value can be achieved by providing superior products and/or offering them at a great price. The great retailers (Amazon, Walmart, Costco) find ways to wring costs out of the value chain so they can offer the best prices. MLM companies are striving to insert more middlemen between themselves and the end-consumer. They are constantly trying to recruit more salespeople into their “down-lines” who will each need to get paid. This raises the cost of their products. They try to overcome this by taking the sale process into the personal area of the consumer’s life i.e. turning your friends and family members into salespeople who will try to sell you stuff constantly. It is a very weird model. And most people make little to no money despite what the MLM companies try to claim. From the Atlantic:

For instance, Thirty-One Gifts’ brief earnings statement acknowledges that most consultants who sell its handbags and totes will make between $183 and $1,993 annually. This range, however, comes only from “typical participants”—defined as sellers who are active at least five months out of the past year. This means those numbers skew high, because all of the sellers on the top tier making six to seven figures will be included in this average, but none of the women who signed on and couldn’t make a go of it for at least five months will be counted. Thirty-One Gifts did not return phone calls for comment.

Fitzpatrick defines fraudulent MLM outfits as businesses in which “the profit of the people at the top comes from the losses of the latest recruits.” The numbers for Jamberry say the average sales consultant makes slightly more than $200 a month for an average of seven months out of the year. Still, there is little public data on how many consultants making that much sustain those numbers, or how many are new consultants who sign on, sell for a few months, and then drop out when their friends and family stop buying. Jamberry did not respond to an interview request. At Young Living, a company that sells essential oils, 94 percent of sellers are in the lowest tier. The average monthly income for that level is a mere $1. For sellers on all 10 levels, the annual average remains only $25. Requests for comment from Young Living went unanswered.

              There are a lot of MLM companies selling fitness and nutrition related products. Beware of them all.

How the sausage is made: NYC is getting its first cold-workout studio next month. The idea is that working out in the cold is better somehow so why not open a gym based on that concept. From the NY Post:

The idea has been about three years in the making: Martin had always been intrigued by the way some of his clients exercised in the cold — one told him she felt more motivated and just worked out better in the winter months. It occurred to Martin that with all the gimmicky fitness classes in the city — including dozens of heated options — there had yet to be a cold class.

He and Adamic tested out the concept in the walk-in refrigerator of Brooklyn’s Sixpoint Brewery. A friend who works at the Red Hook brewery invited them to use the space, where they experimented doing various aerobic and anaerobic exercises — and found they were working out harder just to warm themselves up.

              This is remarkable because you’re not supposed to say that out loud. You’re not supposed to admit that you came up with the marketing angle first and the pseudo-science second. You’re also supposed to do a better job of selling that pseudo-science. This is exactly the thought process that I imagine going into something like this. I am just amazed that the founders admitted it to a reporter.

              This is what is wrong with the fitness industry. I understand entrepreneurs who are looking for ways to differentiate themselves in a crowded market but this is dishonest. These guys don’t actually believe that their way is better or even if it makes sense. They’re selling snake oil and they’re not even good at it. You want to differentiate? Figure out what works first and then figure out how you’re going to market it. Sell results and the customers will come. Then you won’t have to invent a bunch of pseudo-science and worry about keeping your story straight. 

Motivation: Since we’re talking about what’s wrong with the fitness industry, let’s head on over to the Atlanta Journal Constitution.

Don’t come into Desiree Nathanson’s fitness class seeking a “No pain, no gain” experience.

“Start small,” advised Nathanson, co-owner of Interfusion Fitness in Brookhaven. “People make a huge mistake with trying to jump in the deep end. Instead of saying, ‘I’m going to the gym every day this week!,’ maybe just try one or two.”

The fitness industry can be complicit, she observed.

“Lose 20 pounds in two weeks! Come get this booty by doing squats!” she said, reciting hypothetical come-ons. “No. Everybody has a different ideal. Our ideal should be our bodies at their most healthy.”

              There’s 2 big ideas here. The first is that people often overdo it when starting a new fitness routine and then don’t last. It’s much smarter to start small and ramp it up. This allows you to adapt to the changes in your lifestyle, it allows your body to adapt to the changes in the demands that you’re placing on it, and it allows you to collect some wins and positive feedback. It is also not what the fitness industry usually wants to sell you. An important thing to keep in mind is that everyone wants to maximize the amount of money that they can make. It’s a big reason that running has been taking a beating in the fitness world lately. Because the people selling things don’t know how to make money off people running so they try to convince everyone that running is bad. And fast results sell better than a slow, measured approach to changing your lifestyle. So that’s what they sell.

              The second idea is the fitness industry focuses too much on appearance. I actually think that there has been some improvement here recently even though it is still a big problem. The rise of functional fitness has prioritized what your body can do over what your body looks like even though there is still a lot of emphasis on looking good. But what looks good?

“People are trying to achieve these bodies that might not even be real,” she said, adding that while nutrition and exercise are key, genetics can contribute to beauty and fitness perfection. “People are trying to get J. Lo’s butt? You have to go back in time and get J. Lo’s parents.”

              I agree that most people cannot replicate Jennifer Lopez’s posterior, no matter how many squats and lunges they do. But I’d rather see people strive for J. Lo’s body than Kate Moss’. The female ideal used to be supermodel thin and that’s it. There is definitely more variety in what an attractive female form is these days. A woman doesn’t have to “heroin chic”-thin in order to be considered attractive these days. This doesn’t mean that there are not numerous issues related to female standards of beauty in our society. I am just saying that it’s a slightly better world when a woman looking to make herself attractive is more likely to set up camp in a squat rack than she is to starve herself.

Mixed messages: Pregnancy seems to invite 2 phenomenon of intrusive behavior. The first is strangers thinking that it’s okay to touch a pregnant woman’s belly without asking. The second is judging them for everything that they do or eat. Why does the state of being pregnant seem to indicate a loss of agency for so many women? From Shape:

So much of being an athlete is about respecting your body and just listening to it. When I got pregnant with my first child in 2016, I tried to abide by the same motto. I didn't know what to expect, but I had a really good and longstanding relationship with my ob-gyn, so he was able to help me navigate what's safe and what my body's capable of when it comes to exercising while pregnant. One thing he always said that has stuck with me is that there isn't a lifestyle prescription for pregnancy. It's not one-size-fits-all for every woman or even for each pregnancy. It's all about just really being in tune with your body and taking it one day at a time. I followed that rule with my first pregnancy and felt fantastic. And now that I'm 36 weeks along with my second, I'm doing the same.

Something I'll never quite understand though? Why others feel the need to shame pregnant women for simply doing what makes them feel best.

My first exposure to the shaming began when I was about 34 weeks along into my first pregnancy and my belly popped. I had just competed in my first CrossFit games while eight months pregnant, and when the media caught on to my story and my Instagram account, I started to get some negative feedback on my fitness posts. It probably did seem like a lot of weight to some people, who were thinking, "how can this eight-months-pregnant trainer deadlift 155 pounds?" But what they didn't know was that I was actually working at 50 percent of my normal pre-pregnancy rep max. Still, I understand that it can look drastic and crazy from the outside.  

I went into my second pregnancy a bit more prepared for the criticism. Offline, when I'm working out in my gym, the reaction is still mostly positive. People will come up to me and say, "Wow! I can't believe you just did those handstand push-ups upside down pregnant!" They're just kind of shocked or amazed. But online, there have been so many mean comments I've received on my Instagram posts or in DMs like, "This is an easy way for an abortion or miscarriage" or "You know, if you didn't want a child you shouldn't have had sex in the first place." It's awful. It's just so odd to me because I would never say anything like that to any other person, let alone a woman who is going through such a powerful and emotional experience of growing a human inside of them.

              I have no respect for people who write things on social media that they would never say to someone’s face but that’s an issue for another time. Why is it so hard for people to conceive that this woman has already adjusted her workout to account for pregnancy? Just because she is still lifting more weight than a lot of people can lift without a small person inside them doesn’t mean that she’s overdoing it.

There also seems to be a weird attitude around proper fitness and nutrition for pregnant women. If you believe everything that you read, then pregnant woman shouldn’t eat anything because everything could potentially be bad for the baby. And pregnant women need to stay active but every form of exercise is potentially hazardous as well. Damned if you do, damned if you don’t.

Subscriptions: CrossFit is partnering with Strass Brands to offer a meal-kit service. Staying true to the brand, the meal kit will be Paleo Diet dream, big ole box of meat. From Today:

After the initial success of the meal-kit delivery service Blue Apron, other brands have been trying to capitalize on the pre-prepped, curated recipe trend that creates a middle ground between takeout and full-blown cooking from scratch. More recently, healthy lifestyle brands like Weight Watchers and Whole30 have launched their own meal kits as a way to target consumers seeking to follow their programs with less hassle in the kitchen.

But the CrossFit Box, which sells for $215, is one of the more expensive pre-packaged deals on the market. However, its contents can be frozen if you're not planning to use them right away. It includes five packages of cage free chicken breasts, three pounds of grass-fed ground beef, a selection of grass-fed steaks including lean tenderloin, ribeye, strip and sirloin, plus a package of ready-to-eat grass-fed beef sticks. It can be delivered in one to three month intervals.

              That is a lot of meat. Two thoughts here: the first is that the comparison to Blue Apron is not all that great. Blue Apron has been struggling since its IPO in 2017. From Forbes:

Blue Apron was one of the pioneers in delivering cooking with convenience—the experience of cooking, and learning how to make new dishes, without the hassle of finding and measuring ingredients. Online subscriptions grew at a 219% CAGR from 2014 to 2016, from $78 million to $795 million, giving the company a 57% market share. But Blue Apron’s fortunes changed in the second quarter of 2017, around the time of its June 2017 IPO, coincidentally. The company’s quarter-over-quarter revenue declined in the second, third and fourth quarters, and its fourth-quarter revenue was down 13% versus the same period in 2016.

              Investors love meal-kit delivery and subscription boxes because they love the subscription business model. Once you have someone signed up for a subscription, there is less pressure to re-acquire that customer the next time that they are buying that product or service. The path of least resistance is to remain a subscriber. Cash flows become much more predictable and you don’t have to spend as much money on marketing (theoretically). That doesn’t mean that everything should be a subscription business either. And the meal-kit delivery market is showing the signs of a lot of strain.

The same three forces that are hurting Blue Apron and others in the $5 billion online meal kit market are benefiting the grocery chains from which meal kits initially took share.

1) High customer churn has caused online-only meal kit subscription growth to stall.

2) Packaging, shipping and customer acquisition costs are too high.

3) New entrants are disrupting the disruptors.

              No one has cracked the food delivery business model yet and it’s not for lack of trying. Some of the largest companies in the world (Amazon, Walmart) are working on it. My second thought was this is not really a meal kit so much as it is a box of meat. The only reason to buy this is if you’re get a deal on buying in bulk. You’re not getting any vegetables so you still have to go to a grocery store. So it’s not exactly the same as Blue Apron and therefore might not run into the same problems. This may also only appeal to CrossFit acolytes who adhere to a Paleo diet (and will therefore be confident that they are going to eat a lot of meat) and have strong brand loyalty. Maybe that’s exactly what CrossFit is planning for.

TidBits:

-(Old Man Voice) I remember when there was only company that sold kettlebells

-How is the Tulum Jungle Gym not at the top of this list?

-Barry’s Bootcamp CEO on building a fitness community

-In case you weren’t sure that SoulCyclers have a lot of disposable income

-Don’t talk to anyone at the gym