Fitness Machine

Fitness Machine

By Janet Leiser

Senior Editor

Geoffrey A. Dyer, chief executive officer of Lifestyle Family Fitness LLP, says it felt like he was stepping off a cliff in 1999 when his company gave up long-term contracts in favor of month-to-month agreements.

What if more clients left than stayed?

Dyer wasn't the only apprehensive one. The company's lenders fretted the change would sink the business, then 17 years old.

It was one of the best decisions the entrepreneur ever made.

Dyer has run Lifestyle Family Fitness for 23 years. He started the company in 1982, with an inexpensive club in Lakeland. It thrived, albeit inauspiciously.

Then, in 1999, with the shift to monthly memberships, the business changed nearly overnight from a sales-driven group to one that was customer driven. The St. Petersburg-based company no longer had a product it had to push to sell, it had to produce a product that sells.

Some members left, but even more signed up. Those who stayed were glad to be part of a club that didn't handcuff them with a contract.

Revenue increased, as did cash flow, since initiation fees went up. It climbed from $9.6 million in 1999, Dyer says, to $17 million less than two years later. This year, gross revenues are expected to top $50 million. And the company's footprint covers an area from Sarasota to Tampa Bay to Orlando to Jacksonville.

The monthly membership concept also changed club's clientele - from mostly younger people to highly educated, professionals with more money to spend on such extras as personal training, a growing source of revenue for the company.

Sell or grow?

Dyer, who was named Ernst & Young's Florida's Regional 2005 Entrepreneur of the Year in the retail category last month, faced another tough choice.

In 2000, a year after Lifestyle switched to monthly contracts, Dyer had to decide: Should he sell or keep the business that he had grown with grit, hard work and equity loans on his home?

Officials with Bally Total Fitness Corp., the largest health club company in the United States, were interested in acquiring Lifestyle.

Dyer, an Australian native who moved to the United States after a 1972 family vacation at the age of 22, wasn't sure what to do. He called friend, consultant and venture capitalist Stuart Lasher, who had been advising him for about a decade.

"I thought it was too early in the process, in the building of the business to sell," Lasher says. "He's a great leader. He's a charismatic leader. He had the skills to take the business to the next level."

Instead of settling for a guaranteed amount and walking away, Dyer, now 54, took the riskier and what he hoped would be the more profitable route.

Lasher offered to help, Dyer says, adding: "He said he'd invest in Lifestyle if I ran the company like a public company, and I accelerated the growth."

That year, Lasher and John Simmons of Quantum Capital Partners invested $6.25 million in Lifestyle to help pay for new centers, each of which costs about $2 million to build from scratch at today's prices.

Much of Lifestyle's initial growth occurred with the addition of gyms closed or abandoned by others. In the beginning, there was no choice, Dyer says. "When you don't have a lot of cash, you take what you can get."

Acquiring other clubs is still less expensive than starting a new club, Dyer says.

By renovating existing clubs at a cost of $500,000 each, Lifestyle saved as much as $700,000 for each location it opened, Dyer says. Plus, the company leased to own each of its sites, buying real estate as it went along.

Paying to play

With plans to grow, Dyer changed the management structure and added more managers at the clubs. In 2001, Lifestyle's payroll increased by $1 million, to $6 million.

"Without the key people, it doesn't work," Lasher says. "We projected an organization chart two to three years in the future."

Lifestyle, which now has 117,000 members, employs 1,500, including 300 personal fitness trainers who work full time and earn part of the revenue they bring into the business. Some earn six-figure incomes, Dyer says.

Todd Bright, who had worked with the Eckerd Corp., was hired as chief financial officer.

"Growth is more manageable when you hire people and forecast growth," Dyer says. "Surround yourself with the best people you can afford to pay. When I had only six or seven clubs, you hired the people as you needed them."

By the middle of 2004, Lifestyle had grown from eight locations to 19, Dyer says.

In July 2004, the company received an additional $8 million in venture capital from Quantum, Ballast Point Ventures LP, a firm affiliated with Raymond James Financial Inc., and The Burton Partnership, one of the investors in Outback Steakhouse.

"It was time to accelerate growth even further," Dyer says. "We felt we were ready."

Today, the company has 27 locations. Another 25 are planned over the next two years.

About 40% of expansion involved acquisitions. In May, for example, Lifestyle bought four SouthSide Fitness centers in Sarasota and Manatee counties. The company now has six locations in those two counties.

Another three Florida locations should open by year's end, Dyer says. Ten new clubs are projected to open in 2006 and 12 the year after that.

Beginning next year, Lifestyle plans to expand outside of Florida, though he declines to say where. Other new locations are also planned for Florida's East Coast.

Dyer carefully chooses each new location based on demographics, he says, adding, "We don't want to grow just for the sake of growing." The company targets areas with a population of at least 70,000 within a three- to five-mile radius and with affluent income levels and education.

Revenue grew from $27 million in 2003 to $36 million in 2004 and is projected to exceed $50 million this year. He declined to disclose profit margins. Revenue from personal training has grown 40% year over year at each of the clubs, Dyer says.

Dyer's role has evolved with the growth.

"I'm a bit less involved in day-to-day operations," he says. "My job is more involved in maintaining the culture and reminding everyone what made us successful when we had five to six clubs."

Within three to four years, Dyer and Lasher plan to take the company public. "The goal," Lasher says, "is to continue to expand the business. There's a great market out there for the product. There are a lot of markets that could use the product."

In the most recent ranking of clubs by revenue growth, compiled by the International Health, Racquet & Sportsclub Association and released this month, Lifestyle ranked 19th in the nation. Bally was No. 1.

Top of the heap

When Dyer talks about the company and its growth, he usually uses the pronoun we, not I.

"I always say we because it's never a one-man show," he says. "We have fabulous management. I'm just lucky to be at the top of the heap."

He realizes a time may come when he has to step aside and let someone else take over his business.

But not yet. "At this stage, the growth is very manageable," Dyer says. "We're all having a lot of fun."

Massage the customer

How does Lifestyle Family Fitness LLP differ from the competition?

Part of the reason is founder Geoffrey A. Dyer and his charisma, says Stuart Lasher, who sits on the company's board of directors.

"He has a good vision of what the customer wants," Lasher says. "And he understands the business very well."

Add to that a company culture where the client and his needs come first, and top-notch facilities with the newest, best exercise equipment available.

Most Lifestyle centers are 22,000 to 25,000 square feet. "We use products that don't show a lot of wear and tear, including high-quality products for flooring, showers," Dyer says. "We have the best equipment and tons of it. We have more variety in cardiovascular equipment than anyone in the state."

Lifestyle is implementing a paperless application system and personal training program for customers at a cost of $500,000. Customers use their fingerprint to sign on to the system.

Plus, employees realize the customers can cancel their contract at most any time, Dyer says. That means the culture must be geared toward keeping clients happy. Otherwise there'd be no business.

And when it comes to personal trainers, the club's employees are full time, which isn't always the case at other clubs.

"Our personal trainers are consistent," Lasher says. "They don't just come and go as they please."

Best of all, Lasher says, "Geoff has good intuition and the ability to look ahead. No business can remain stable. You always have to look ahead and have a vision of what the customer wants."