24 Hour Fitness Worldwide, Inc. - Company's Founding Dating to the Early 1980s
Company's Founding Dating to the Early 1980s
The man behind the founding of 24 Hour Fitness is its chief executive officer and chairman, Mark S. Mastrov. He was born in Oakland, California, and raised in nearby Castro Valley. While attending junior college, Mastrov played on the basketball team and blew out his knee; to rehabilitate his injury he relied on Nautilus machines. While earning a business administration degree from California State University at Hayward, Mastrov began working out at a small health club, 5,000 square feet in size, in San Leandro, California. Because he was familiar with the club's Nautilus equipment through his rehab, the owner offered Mastrov a job training the staff on how to properly use the machines. Instead, Mastrov agreed to work four hours a week at the club in exchange for a free membership. He completed his degree and found work as a natural foods salesman, but switched to the fitness industry when the club owner decided to sell out in 1983 and asked if Mastrov was interested in becoming an investor. Mastrov raised $25,000 ($15,000 of which he borrowed from his grandmother), bought a stake in the business, and became the new manager of the club. His partner was a software programmer, and together they developed a front-end system for managing a fitness club, which they then sold to other clubs in the area. The project provided a valuable education, helping Mastrov to gain the fundamental business skills needed to run a fitness club. But perhaps of more importance was his feel for the business. After seeing that members were always lined up at the door when the club opened in the morning, while others were reluctant to leave at closing time, he figured that keeping the club open 24 hours was a selling point and could provide a competitive edge. The club made the change and took the name 24 Hour Nautilus.
A year after Mastrov and his partner took over the club, they recruited a third partner, Leonard Schlemm, who held a Harvard MBA in finance. Schlemm served as Mastrov's mentor, in many ways rounding out his partner's business education, so that in addition to knowing how to run a single club, Mastrov learned how to manage a large organization. The three partners soon fell out, however, with the programmer taking the software business and leaving Mastrov and Schlemm to run the club. While seeming modest in retrospect, Mastrov and Schlemm's goal at the time was to build a chain of ten Northern California health clubs. Mastrov began to raise his sights, however, after attending a Club Industry convention in the mid-1980s. Meeting with other club owners and gaining a better understanding of the industry fueled his creative instincts and competitive drive. Because banks refused to provide the funding he needed to grow a large chain of fitness clubs, the partners developed a business model that could fund expansion through cash flow, while keeping the company free of debt. A major component of the plan was the pioneering use of electronic fund transfers. This was coupled with the adoption of month-to-month payment plans that opened up club membership to a large number of people who could not afford a large outlay of cash.
Mastrov and Schlemm steadily added 24 Hour Nautilus clubs in California through the rest of the 1980s. In 1991 the chain spurred further growth by hiring Mark Golob as vice-president of marketing. Golob, who started out in the music industry promoting the likes of Bruce Springsteen and Fleetwood Mac, turned to the fitness industry in the 1970s and became involved in promoting Jane Fonda's live workouts when her exercise videotapes were bestsellers. During his brief tenure at 24 Hour Nautilus, Golob drew on his experience with celebrities to develop promotional campaigns using Pamela Anderson, Arnold Schwarzenegger, and Mike Tyson, resulting in a sharp increase in club memberships.
By 1994 Mastrov and Schlemm were operating 32 Northern California clubs. Along the way, the chain focused on membership retention, eschewing the traditional "churn and burn" mentality of the health club industry that devoted more energy signing up new members than keeping existing members happy. The chain also attracted new business by offering membership fees well below the industry average. Given these beliefs, it was not surprising that Mastrov turned to the fast-food industry for inspiration on how to deliver a consistent product that kept customers coming back. In fact, he once told a reporter that the person he was most interested in meeting was McDonald's founder Ray Kroc, noting, "It would be interesting to see how he could keep quality in so many places around the world." Mastrov also took a page from fast food by only targeting markets that he could dominate by building a cluster of clubs. In this way members could find a club close to home as well as where they worked, permitting them to conveniently schedule their exercise sessions during the week and weekends. The company also began to develop a hub-and-spoke approach, offering different types of clubs and price points in the same market, so that some locations offered basketball courts and swimming pools while others provided the basic, cardio machines and weight training equipment.
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