THE WEEKLY HOWL NEEDS AN ORIGIN STORY

Nutrition: The hallmark of a true Silicon Valley techie is the belief that everything can be hacked. I’m not just referring to the act of breaking into someone’s computer network. A hacker believes that the answer to any problem is more technology and that you should always be searching for increased productivity and efficiency. We’ve started to see hackers tackle health & wellness and it doesn’t look like it’s going to stop anytime soon. From Bloomberg Businessweek:

Like most of the health fads that catch on in Silicon Valley, this one broke through thanks to word-of-mouth—and a Medium post. Entrepreneur Sumaya Kazi extolled its virtues to 650,000 readers, while venture capitalist Phil Libin and others preached about it to anyone who would listen. Their miraculous idea was in fact a very old one: eating nothing at all for long stretches of time. Monthly Google searches for “intermittent fasting,” which has become a catchall term for various forms of the practice, have risen tenfold over the past three years, to as many as 1 million. That’s about as many as “weight loss” gets, and more than “diet.” Now comes the next step, as businesses try to turn various forms of the craze into profit.

The idea may sound troubling depending on your relationship with food, but paid-for fasting regimens are finding a new audience in the Valley, partly because they’re framed in terms of productivity, not only weight loss. (Fasting falls under the techy-sounding buzzword “biohacking,” like taking so-called smart pills or giving your brain tiny shocks.) There’s a growing body of research and anecdotal evidence showing a link between periods of noneating and increased focus and output, and perhaps even longer life. “Periods of nutrient restriction do good things,” says Peter Attia, whose medical practice focuses on the science of longevity. “The subjective benefits are evident pretty quickly, and once people do it, they realize—if this is going to give me any benefit in my performance, then it’s worth it.”

              There is actually some science behind this idea unlike many other bio-hacking schemes. But it still makes me a little nervous to see Silicon Valley eye nutrition as yet another industry that needs to be “disrupted”. It’s not that we don’t have major issues with the food industry in this country; it’s that I don’t trust Silicon Valley to be any better at addressing those issues than General Mills. As the venture capital money flows in, so does the pressure to make huge returns for those firms. Huge returns on the business of not eating for long periods of time. How is that going to work exactly?

 

Hvmn (pronounced “human”) pitches customers mostly on productivity and performance. Its chewable coffee cubes and other dietary supplements are supposed to enhance focus and cognitive function. One product contains synthetic versions of ketones, compounds your body creates when it’s fasting long enough to burn fat. Hvmn markets the drink to athletes ($99 for three small vials) as a way to boost performance and accelerate recovery. “It’s more efficient fuel for the brain and body,” says co-founder Geoffrey Woo, though he says they aren’t meant to replace the benefits of fasting.

 

              Oh, by selling everyone a bunch of supplements. You can see why I am skeptical that this is going to re-invent nutrition. What we need is for the healthiest foods to be the ones within arms’ reach of the majority of people. We do need people to lower their consumption of food but I don’t see how you make that a huge, scalable business. We need an attitude change towards food.

 

 Venture capitalist Libin, who lost 60 pounds fasting, acknowledges it isn’t for everyone. “It’s just something that works super well for me,” he says. “I have more energy, more stamina, more mental clarity. My mood is better—all of this stuff. And I’ve measured all of it.” 

             

              Whatever you put into your body should make you feel good in both the short-term and the long-term. Phil Libin gets this, it just may not be the basis of the next billion dollar company.

 

Wearables: Fitbit is trying to figure out who it wants to be right now. Its roots lie in fitness tracking but competing with Apple in consumer electronics is not going well. From MarketWatch:

Fitbit Inc.’s smartwatch sales are gaining some speed, but its tracker business continues to sputter.

The wearables pioneer missed expectations by selling 2.2 million fitness trackers in the first quarter as interest in basic trackers waned. Overall revenue fell as well, and came in just above Wall Street’s estimates.

Fitbit executives said they now expect revenue from smartwatches to exceed that of fitness trackers in the second half of the year. The company predicts some more pain on the tracker side, especially in the near term. Fitbit delivered a revenue forecast of $275 million to $295 million for its second quarter, which came in below the FactSet consensus estimate of $310 million.

The company’s second-quarter outlook reflects the fact that management expects the tracker business to see “worsened decline in Q2 versus Q1,” Fitbit Chief Financial Officer Bill Zerella told MarketWatch after the earnings release came out. Channels continue to “de-stock” trackers, he added, but the company predicts some improvement in the second half of the year.

              The landscape for Fitbit is perilous. Demand for fitness trackers is declining as consumers are shifting to smartwatches but all smartwatch roads lead to Apple. Fitbit realizes that it need to evolve, become something else if it wants to survive. From Fast Company:

 

Fitbit is a company in transition. It’s trying to reduce its reliance on direct-to-consumer sales of fitness devices by providing high numbers of them to health insurers, healthcare providers, and big employers. All of these players are taking on financial risk for the health of their members/employees, so they have an interest in providing tools that promote fitness and wellness.

Fitbit stock got a lift earlier this week after it announced plans to use Google’s cloud service and healthcare API to offer a care management and coaching platform for healthcare providers. Adam Pellegrini, who leads Fitbit’s Health Solutions team, told me that in the future his company hopes to use Google’s machine learning capabilities to draw insights from large sets of patients, and perhaps analyze the data to find (and proactively treat) patients who are likely to be headed for health problems in the future.

              Shifting to an enterprise model makes sense. There is a lot of potential in the digital healthcare field but if I was a Fitbit board member, the question that I would be asking is what is preventing Apple from following us into that market? Blackberry dominated the enterprise smartphone market until employee desire to use their iPhones at work led to the rise of BYOD (Bring Your Own Device). What is different about smartwatches? There is nowhere you can hide from Apple in hardware. It’s not like Apple isn’t already exploring how the Apple Watch can detect health problems. The best path forward for Fitbit is as a software company. Abandoning hardware would be a bitter pill to swallow but sometimes that’s what is needed.

               

Buzzwords: Wall Street is not very familiar with the fitness industry. There are only a handful of publicly-traded fitness companies which means that the industry does not get much coverage from either the analysts or the media. And fitness is a weird industry. Think about a big-box gym. It’s a subscription business (membership), a services business (personal training), and a retail operation. But now that Planet Fitness is flying high, we get to see some of these Wall Street-ers makes sense of fitness. The results are not great.  From Investor’s Business Daily:

 

Membership to the no-frills gym starts at just $10 per month. An upgraded $21.99 Black Card membership offers perks like discounted merchandise, free haircuts, unlimited used of massage chairs and spray tanning. Meanwhile, rivals like Gold's Gym or LA Fitness offer membership plans that can cost more than $500 a year.

Planet Fitness' inexpensive membership is available thanks to its massive scale. The gym has more than 1,500 locations in all 50 states, Canada and Latin America, and boasts membership in excess of 10 million.

"If you look at the concept, it's a 20,000-square-foot box that's full of all the cardio and strength equipment you can imagine," R.W. Baird analyst Jonathan Komp told Investor's Business Daily. "There's a lot of capacity and scale they are able to drive with the model. That facilitates the low price, then they are able to advertise their proposition and it fuels the awareness for its distinctive value."

              What do they mean by scale? In business, scale typically refers to economies of scale. Economies of scale refer to the reduction in cost per unit that occurs as production of that unit increases. The classic example is an auto manufacturer. There are massive fixed costs that go into building and operating an auto plant. But as you make more cars, the average production cost of each car goes down. This analyst describes a basic gym and then tries to say that Planet Fitness’ “scale” allows it to charge this much lower price that is the foundation of its success. THIS DOESN’T MAKE ANY SENSE!!! Has this person ever set foot in a gym? What does he think goes in LA Fitness? This man is just spewing out some jargon and buzzwords and hoping that no one notices that he has no idea what he is talking about.

 

Radioactive spiders: What do superheroes and companies have in common? They both need a good origin story. For superheroes, it’s important to understand how an ordinary man comes to dress up as a giant bat to beat up criminals. For companies, it’s important to create a founding narrative that communicates the company’s mission and values. It’s also important to create an origin story that doesn’t make you look stupid. Brrrn, a cold workout studio in NY, has crafted its origin story. From Refinery 29:

 

At Brrrn, they offer three types of workouts, with different degrees of chilliness: 1st˚, a yoga-inspired workout in a 60-degree studio; 2nd˚, a core and cardio workout in a 55-degree studio; and 3rd˚, a strength training workout with battle ropes in a 45-degree studio. The classes sound gimmicky, for sure, but the creators of Brrrn insist that there's a deeper reason why they choose to keep their studio so frigid.

As the story goes, Jimmy T. Martin, one of the co-founders of Brrrn, was training a client who told him she couldn't stand the heat, and felt like she exercised better, and looked and felt her best during the cold winter months. "It got me thinking, if those things are true, then why aren’t we turning the thermostat down?" Martin says. He pitched the idea for a cold workout studio to Johnny Adamic, a self-described "big skeptic" with a background in public health, who told Martin he had to do some research before he got on board.

 

              Seems like a reasonable story. The only problem is that Brrrn has already told the NY Post their origin story. And that story was a little more…honest.

 

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.

             

              At least, they’re omitting the part where they blatantly admit that they were looking for a gimmick.

 

Retailpocalypse: What do you call it when a brand uses fitness events to engage and excite consumers? I call it fitness marketing and we’re seeing more and more companies using it. Now Macy’s has purchased an experiential retailer and hopes that it can shore up sagging sales at its flagship store. From the Washington Post:

 

Macy’s, the 160-year-old mall standby, is looking for a new audience — and thinks it has found it in a Manhattan concept store.

The department store chain on Wednesday said it purchased Story, a small “experiential retail” shop in New York that offers yoga classes, cooking workshops and a lineup of quirky merchandise that changes every few weeks. That keeps shoppers coming back, said the start-up’s founder, Rachel Shechtman.

In other words, it is the opposite of Macy’s sprawling suburban stores, which are piled high with a predictable selection of run-of-the-mill clothing and housewares.

              Fitness is appealing because it is viewed as internet-proof and it attracts young, affluent consumers. Macy’s isn’t the first retailer to go this route and they won’t be the last. Malls and department stores are starting to realize the potential that fitness has for generating foot traffic. People are passionate about it, they need to do it every day, and it’s actually good for them. Fitness is the best product in the world. And now there are companies that want to give it away in order to sell more merchandise.

 

MLM: There is a very fine line between a multi-level marketing operation and a pyramid scheme. Multi-level marketing is a business model in which the company uses a non-salaried workforce to sell a product or service. Members can make money by both selling the product/service and by recruiting more members. The difference is that in a pyramid scheme, the only way to make money is by recruiting more members into the operation. It can be very difficult to tell the difference sometimes. You may have heard of LuLaRoe, a multi-level marketing company that sells athleisure wear. It is the latest company that has been accused of crossing that line from MLM to pyramid scheme. From Bloomberg Businessweek:

 

Now, she, along with Blevins, are two of thousands of women who claim they’ve been duped by LuLaRoe. In the past year the company has faced more than a dozen lawsuits. The largest, a proposed class action, calls LuLaRoe a pyramid scheme focused on recruiting consultants and persuading them to buy inventory rather than actually selling clothing. Since the lawsuits were filed, consultants have fled LuLaRoe by the thousands. Many say the company owes them millions of dollars in promised refunds. Women have garages, closets, guest rooms—and, in one case, a farm shed—filled with LuLaRoe clothes they say they can’t sell.

 

              Personally, I think that MLM’s are like a dysfunctional relationship. The relationship between the company and its salespeople is inherently flawed. Any decent salesperson will tell you that the first question that they ask to a potential employer is about their territory. They don’t want to have to compete with salespeople from the same company. It’s hard enough competing with salespeople from other companies. The MLM model is built on recruiting more and more salespeople. It aims for salesperson saturation which means that each salesperson will earn less and less as time goes on.  This is how you get a MLM company pressuring people to buy inventory that they can’t move. It is also the way that the FTC identifies the line between pyramid scheme and MLM.

 

By definition, multilevel marketing companies are pyramid-shaped, with a few people at the top level, some in the middle, and the majority toiling at the bottom. This kind of hierarchical structure is legal as long as the company’s main goal is to sell a product; it becomes a scam when the goal is to lure people into buying inventory regardless of whether they can sell it. There are state laws against pyramid schemes, but at the national level the job of spotting them falls to the U.S. Federal Trade Commission. It primarily does this by checking to see if a company abides by a standard established in the wake of a 1972 lawsuit against a now defunct beauty products company called Koscot. The Koscot standard, as it’s known, says that while a company can compensate people for recruiting new sellers, it can’t base that compensation on how much inventory the recruits buy. Most state laws, including California’s, also require compensation plans to be based on sales.

             

It doesn’t appear that LuLaRoe followed this rule. They also encouraged female members to be “subservient” to their husbands and to get gastric surgery in Mexico. There are a lot of MLM companies that sell products in the health & wellness space. If you’re thinking about getting involved with any of them, then read this article.  

 

TidBits:

-Peloton is opening its treadmill studio in Manhattan

-The Rock is still looking for contestants for his new fitness reality show

-Have your next birthday party at the gym

-Meanwhile in China

-The treadmill was designed to punish criminals

-Virgin Active says that over half of its members use tech in the gym