Q: Going from 2005 to 2006, your revenue jumped from $55.33 million to over $80 million in 2006. What was the main reason for that jump, and was it because of your purchase of California Fitness Centers in Ohio? And how does the purchase of the Ohio clubs factor into the future of this company?

A: Our goal is to be over 100 clubs within a three-year period. We knew that we couldn’t achieve that goal just being in the state of Florida. We also wanted to prove that we could be a national brand rather than just a regional brand in Florida. We looked at the opportunity for growth and knew we needed to be in the Midwest and the mid-Atlantic and also in the South and Florida. We already had an existing relationship with the operators of the clubs in Columbus [OH] and were already doing all their accounting and home office functions and had done for eight years. We knew the clubs we were buying. It was great to have such a strong position in Columbus, OH, so that acquisition was easy. And that of course enables us now to springboard into all the cities around Columbus as well as the perimeter states, which we will do. Also North Carolina, we felt that was an area that was ready for our brand. We researched the market, [which had] high education, high income and high single-family home residency rates. So we made a commitment to open in Charlotte and Raleigh. We’ve got four clubs being built in Raleigh right now and two in Charlotte and we’ll continue to build and grow in those areas. So we look at Columbus as being a 25-35 club region in the not-too-distant future, as will the Carolinas, as will Florida. So that was the reason for the growth. We find that with our business model, because we’re not a freestanding building, we go into shopping centers and we can take second generation space or be freestanding. We can build or we can acquire. All of our acquisitions typically are as rewarding for us from a performance basis as well as freestanding. So how do we grow from 2005 to 2007? Certainly, the acquisition revenue helped, but we had same-store revenue growth that was double digits. We’ve been able to achieve double-digit same store revenue growth each year for the last five years. Like all other clubs, we’ve seen personal training continue to climb and we’ve been able to increase our revenue per member every year and as well as continued to increase the offerings. Acquisitions worked, as did new clubs, as did going into new markets. So I hope that answers your questions.

Q: Yes, it did. Do you have any sort of timeline in the next few years? Do you have to have this many clubs in this many states?

A: Certainly at the board level, there are plans and projections, but the stars have got to align properly, too. You’ve got to have Life Time [Fitness] and TSI [Town Sports International] performing at the right levels. Fortunately, they’ve both been doing very, very well. The markets have got to be ready. We’re very optimistic that there’s opportunities in the not-too-distant future for us and we have to continue to perform, which we are. It’s an exciting opportunity. Right now, we’re just focused on growing our business. The other thing I’ve learned in the last seven or eight years is the value of having a strong board of directors, which I never had in the first 17 years. We’ve got a seven-member board, and they’re all CFOs and CPAs and they’ve been associated with businesses that have been successful and failed. When you can be surrounded by people that have got a lot more wisdom than I do that tell me what not to do and what to do, it gives you some confidence that you’re making the right decisions. They’ve all been involved in growth strategies with fast-growth companies, so they’re helping provide a lot of direction there. Obviously, this is a path I haven’t been down before.
Q: I’m curious to find out what your thoughts are about the Bally situation. Are there some lessons to be learned from the way they’ve grown and now are struggling at this point?

A: I think you’ve got to continue to change with the industry. There’s a lot of things going on in the industry, and if you want to be at the edge of the industry, you’ve got to be present at these trade shows and conventions and networking with your peers and learning what’s hot and introducing new programs and taking risks and changing things. That’s the nature of our business. It’s not very old. It’s a 25-year-old industry. The problem with Bally was they never changed. The first mistake they made was never reinvesting in their clubs. We’ve all been in a Bally club. You’ve only got to go in the locker room to realize that that’s a sorry situation where there’s been no reinvestment in the physical plant. And if they did reinvest, it was at the end of the day when they should have done it at the beginning of the day. Maintaining a club is an ongoing thing that we have to do every single day, and I don’t think they ever really put that at the top. The other thing is that antiquated business model, 36-month membership. The way it was recorded from an accounting standpoint, it was bizarre. It was financing an enrollment fee of $1,500 was the way it was explained in the accounting system. The investors didn’t understand the business model, and we didn’t understand the business model. Unfortunately, the industry has gone so far past them, they’re an anomaly now. No one does business like Bally did. Yet they still have a phenomenally strong name. Bally is probably the most recognized name in the fitness industry. There is value there. The unfortunate thing is there can’t be a lot of member confidence because the promises have never been kept. To get back to this month-to-month thing, anyone that’s been in this industry as long as I have, and there’s a lot of them, the two black eyes for this industry are the long-term contracts and high-pressure sales. The first step is eliminate the contract and give members the right to pay on a month-to-month basis and earn the right to keep them. And if they want to quit, let them quit. Charge more for it. Don’t charge $5 a month or $19 a month. Charge a reasonable price for the membership. The second thing is get away from the aggressive sales practices. The good news is Bally can probably come out of this bankruptcy and keep their best clubs and re-brand them and reinvest in them and start over with a lot of debt. The unfortunate thing is the other clubs that are underperforming or too far gone will all have to be let go or recycled in the marketplace.
Q: Do you think Bally will keep its name after this restructuring plan?

A: I’m sure it will. I’m sure that it will come out of the bankruptcy with 200 of the best clubs and I’m sure that they’ll probably do well with the right reinvestment. I don’t see the brand going away. It’s too well known.

Q: In your PowerPoint presentation, you have some interesting references under the headings of “Mission Statement” and “Vision Statement.” In your “Vision Statement,” you quote Winston Churchill from 1940 as the world was going to war, but you also in your “Mission Statement” quote Captain Kirk of all people, from Star Trek, the quote “boldly going where no man has gone before.” How of you incorporated those men both real and fictitious into not just your presentation but the way you handle the company?

A: All companies have to have a mission and a vision and a purpose. The responsibility of the CEO or the entrepreneur or the owner is to identify what that purpose or mission is and what that vision is, and then tell the story to the employees. As you get bigger, the mission statement of the company becomes more important and so does the vision, or the Big, Hairy Audacious Goal (BHAG) was the way I put it. If you read the book “Good to Great,” it talks extensively about having a big, hairy audacious goal, or BHAG, a goal that’s achievable yet probably won’t be met. Back in 1995, we had three clubs, and we wanted to be the biggest coed chain in the Tampa Bay area and only offer month-to-month memberships. Well, that was a ridiculous goal that I didn’t think we’d ever accomplish. I always wanted to be month-to-month but didn’t think we’d ever get there. Then lo and behold, five years later, we had accomplished that goal. We were rated by the local newspaper as being the largest coed player, and we’d already moved to month to month. So then we set a new BHAG and that was in 2000 and we only had seven or eight clubs. The goal was by the end of this year, 2007, we’d grow to 50 clubs, $100 million in revenue, 25 percent revenue from other ancillary services. It’s a goal that we feel confident we’ll achieve this year. What’s a BHAG? A BHAG is setting a goal that seems too far-reaching, not likely to be met. But it’s a goal nevertheless that gets your employees excited and the executive team should create that. The mission statement is your purpose for being, and the mission statement of Lifestyle is to fulfill our members’ needs and build lasting relationships through a fun and friendly experience. And that really tells all of our employees what their job is. Fulfill the members’ needs is pretty clear. Lasting relationships means we have to know everyone by name. And a fun and friendly experience means have fun at the job. People wear that mission statement, they memorize it and they’re expected to live by it. The final thing is the core values. Every one of us individually is known for something. He’s an honest guy, he’s caring, he’s loving, he’s a hard worker…we all stand for something. But what does your company stand for? If your executive team can identify one of the core values of the company and you put them in writing, it lets everyone hold each other accountable to live by the core values. In our company, that’s honesty, integrity, commitment, consistency, opportunity to grow and to provide a fun and friendly atmosphere. There are books that talk about core values, core vision and BHAGs. The BHAG book is “Good to Great” by Jim Collins and “Built to Last” [also by Jim Collins]. I think they’re very important to have and they’re more important as you get bigger. When get bigger, you’re always got to remind everyone what it was like when you were small. What made you strong? Because there’s always the tendency to drift away from that because people forget where you came from.

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