Intro: With our recent announcement of StrengthPortal's integration with Jonas Fitness we wanted to interview a member of the Jonas Fitness team to share their story. Scott, President of Jonas Fitness since 2016, was kind enough to hop on a call to give the full background of the company and break down what's coming next as the industry recovers.
Matt: Really appreciate you sharing your time for this interview Scott. I’d like to start at the beginning when you first started your career in software working with CheckFree. Can you tell me a bit more about the early days for CheckFree and how it led to where Jonas Fitness is today?
Scott: Yeah, absolutely. So it’s helpful to know that Jonas Fitness has been the same company the whole time, we’ve just had different parent companies. Going back in time here, the company CheckFree was started back in the 1980’s and there was a Health and Fitness division. The team had developed a recurring payment engine to auto debit ACH transactions which they sold into many industries, like apartment complexes for example. Anyone who had recurring debit. The founder of the company was Pete Right and he realized that it was a very commoditized type of race to the bottom business, so he wanted to figure out a way to add value to a payment transaction. He ended up acquiring a company called RCM Racket Club Manager, which was the first software member management system for CheckFree. This acquisition was what started the Health and Fitness division within CheckFree and led to what we are today. The Checkfree Health and Fitness division was really the first in the industry to integrate a platform with recurring EFT payments. That platform in the 19080’s and 1990’s became the gold standard in terms of member management system with the integrated payments within the industry. Over time the founder, who was quite the entrepreneur, realized that an EFT transaction was a business friendly transaction, where the business is in control of setting up the payment instructions to take it and debit from the member. This gave him the reverse idea of saying, “What if we allow the consumer to drive the payment?” This idea led to the second line of business for CheckFree, which we all know now as online bill payment. If you’re paying your bills through a bank in the US you're actually using the chat free product that was developed. Most consumers aren’t aware of that because it’s branded to look and feel like their bank. So that's when the CheckFree business became really, really big throughout the 1990’s and early 2000’s. The CheckFree Health and Fitness division was continually growing during that time, but the growth paled in comparison to the overall business. As I mentioned before, CheckFree became the online bill payment for all the banks in the U S and eventually became a large publicly traded company on NASDAQ. During the banking collapse they consolidated and merged with Fiserv, which you may have heard of. They were an even bigger financial services company. When the acquisition completed our division rebranded to Fiserv Clubs. Same company, same everything in terms of people. In 2013 we divested from Fiserv and joined Jonas Software. The leadership team's reasoning for that was that Fiserv was a financial services company and we were, and still are, a Health and Fitness software and payment system. We just weren’t aligned. Fiserv's team agreed and allowed us to divest which is when we found Jonas Software.
Matt: What was your first role at CheckFree and how did that evolve over time?
Scott: For me personally, I originally joined the online bill payment side of CheckFree which was the larger part of CheckFree. I was recruited from one of my former bosses who I had worked with at Bank One which is now part of Chase. I worked on the financial services side and I got recruited to run a larger implementation group of the online bill payment side at CheckFree. Over time that led to an opportunity where they wanted me to move over to the Health and Fitness division and run all of their software implementations group. That was a bit of a stretch for me because at that time I was kind of on this well-oiled machine, a very safe and mature side of the business (laughing). It was an important decision I had to make for my career. I knew I was going to have to fix tools, processes, and people. It was a really attractive opportunity and I’m happy I took the leap. That role led to other opportunities where I took on more responsibilities with the VP of operations role, the COO role, and eventually the opportunity to be the president of Jonas Fitness.
Matt: That’s super interesting. Going back to those early days in the health and fitness division at CheckFree, what was an average profile for a business you were working with?
Scott: Well the product was called Racket Club Manager and that was because there were a lot of Racket Club customers that we worked with (laughing). That was a big part of the fitness industry at the time. When we were working with a customer we were selling them file server software, which is on premise software which was locally hosted at the club itself. Just like Jonas Fitness does today we were focused on mid to large multipurpose health clubs. So those Racket Clubs would have tennis courts, pools, racket clubs, and sometimes food and beverage. We really liked working with businesses focused on those models because our software was very flexible enough to handle all the different aspects of bookings, scheduling, and member management activities which drove more value to the customer. The biggest thing that’s changed at Jonas Fitness over the years is the technology shift to internet cloud-based SaaS solutions. In the earlier days you would sell somebody a piece of software and hardware every three years with a traditional licensed sale model. Now everything is SaaS annual and monthly subscription models.
Matt: So along that journey you clearly made a conscious choice to keep on working within the health and fitness industry specifically. A little bit about me, I grew up in the Bay Area in the heart of tech and innovation. I love the software industry. Having said that, I really enjoy building software for people outside the software industry (laughing). My brother was a personal trainer and was the one who first got me interested in the industry and I’ve really grown to appreciate the industry as I’ve learned more over the years. What was it that led to your appreciation for the customer base?
Scott: I was an athlete in high school and actually had a chance to play baseball at Ohio State university. I’ve just always had a passion for fitness and staying healthy. When I first had the opportunity to work in the CheckFree Health and Fitness division I loved the technology and had a strong background in payments from my time with Bank One. The opportunity to mix that passion with Health and Fitness really appealed to me. I really loved software and solving challenges for businesses by helping them adopt technology. It was the best of all worlds for me. Going to trade shows in the health and fitness industry was just a completely different vibe compared to going to banking trade shows (laughing).
Matt: I bet (laughing). So I’d love to hear from you what the acquisition was like with Jonas Software, which is a part of the Constellation software group.
Scott: The process really started when CheckFree was acquired after the banking collapse. If you remember back in the 2008-2009 range no one would ever have thought that banks would be going out of business left and right. Prior to the collapse banks were viewed as just about the safest customer base you could possibly have. So at that time, Pete, who was the founder of CheckFree decided that he was either gonna go private after being public to ride out the storm or find a larger financial services company that was diverse enough to ride out the ups and downs of the banking collapse. So that’s what ended up happening. He met with Jeffrey Yabuki, the CEO of Feiser, who recently had joined from H&R Block and they got together and they did a deal for close to a billion dollar sale to acquire CheckFree. So for us being in CheckFree Health and Fitness we became even more of a misfit within our larger parent company. As a senior leadership team we went to Fiserv and just spoke the truth. We were a rounding error for them and not core to what they were offering to their customers. They agreed and were happy to let us look for a new parent company where we were a better fit. So we went through an M&A process for a year or two meeting with different companies. Ultimately we found Jonas software, which was a perfect fit. Like you said, Jonas software is a division within a larger publicly traded company called Constellation Software. Their model is to only buy vertical market software companies. They have to be vertical, they have to be mission critical software, and they have to be the top 2-3 major players in their niche within their markets of software. But the model is really cool, once they get into a market like fitness software once they are in it forever. Once your company is acquired they share their playbook on how to run the perfect software company and help make you as profitable as possible. Once they're in that vertical they're in that vertical forever cause what they do is they never sell a company. They will buy a company and then take the capital that they generate from the first company to buy the next company, and then the next company, and then the next company. So Constellation Software has a decentralized business model by design to support this. Our brand will always be Jonas Fitness and we're never going to be forced to merge into other companies within the Jonas Software division of Constellation Software. They understand that what made us successful in our little niches of our segments is what makes software companies unique and successful. It's a people-based business approach to build products that focus on very specific niches within markets. The last thing they want to do is to have bureaucracy or anything to slow down the creativity and the speed that their newly acquired companies operate with. Outside of just centralizing a few areas such as HR, accounting, and finance everything else is decentralized within Constellations. As a collective unit it means that if we all just keep on winning deals in our market segments Constellation companies can’t lose. I believe when we were acquired there was only one other brand within Constellation in the Health and Fitness unit and it’s grown to over 14 in North America with more in Europe. Going back, when we were going through the M&A research process we really liked our jobs, and still do, and we just loved the concept of buy and hold forever. Jonas Software and Constellation had a good understanding of the health and fitness industry, of how software companies should be run, and it was a perfect fit. After the acquisition we rebranded ourselves to Jonas Fitness because we couldn’t keep the CheckFree name. It’s been a great ride for us ever since then. Obviously the pandemic has been the most challenging portion of it all, but we couldn’t be happier with the decisions the business made to join the Constellation family.
Matt: As someone who’s a bit younger within the health and fitness software industry looking back, the biggest change in the last 10-15 years is the shift to the cloud. I’m curious what the timeline was for Jonas Fitness. When did that process start? When did Jonas Fitness really hit it’s groove for the product suite with a cloud setup?
Scott: The process for us started around 2007-2008. We knew the future was internet based products SaaS solutions. Back then there were quite a few different technologies that you could use to attack the problem and evolve your software to a cloud-based SaaS. We started building our next generation product, which we now call Compete, around 2009. It was tough because we were building to match Racket Club Managers software products which was built over 20+ years to serve really complex multi-purpose health club customers. That’s just not going to be an overnight transition. So we had to start developing the product, releasing it in iterations to serve smaller market segments, and working our way up over the years. We know that we would have this big gap between our current product which was long in the tooth if you will, and an older technology while building out our next-gen cloud-based product. When we were part of CheckFree Health and Fitness we actually acquired a company called Aphelion which was based in Houston, Texas. Small note, that’s how we got our HQ in Houston, Texas. The original office for CheckFree’s Health and Fitness team was in Columbus, Ohio. So now we have offices in both places, or we did before the remote work we’re all doing now. Goin back to the acquisition, we acquired Aphelion with the idea that they would help us bridge the gap. They had an internet based product called i4. While we knew it probably wasn't the perfect product to lead us into the future from a tech stack perspective we felt like it was a good transition product for us while we continued to build Compete to meet our entire customer segments needs. Compete was ready for the market around 2010-2011 in a private data center. And now the final transition that we're making now is transitioning to AWS cloud services. We’ve had some fun migrating from SQL to Postgresql so we could have a true cloud model where you can easily scale up and down and take advantage of the right aspects of cloud. It's always easier to use a tool like AWS when you're building a brand new product from scratch. It's like buying a house that’s 30 years old versus a new build, right? So we’re well underway for that transition and should be fully set up with AWS cloud by Q1 of 2022. I'm looking forward to some advantages such as the speed benefits and other things you get from using AWS. The biggest challenge we have today is just that if you're far away from Dallas, where our data center is, you could have some internet latency at your clubs depending on internet providers and whatnot. So we're very excited to really take advantage of the cloud and be able to connect on the cloud background backbone and really speed the speed of the product up.
Matt: So obviously you've been with the company for, for quite some time, but you took on the role of president of Joe fitness in 2016. What was taking that next step forward with this new position like for you? What were the biggest focuses for you as you took on more ownership with the business?
Scott: I was fortunate that I came up through the business spending some time doing almost every job in the company in some aspect. My dad used to always tell me you're probably doing the job before you get the job and that was how it turned out for me at Jonas Fitness. I was probably pretty much doing the job for about a year or so before I took on the role. The team had brought in a gentleman by the name of Scott Saklad who had run most of our UK fitness businesses over there after Adam Zeitsiff had transitioned out. Scott mentored me for about a year to kind of get me ready for taking on the role, but I had pretty much been doing the job for quite some time. So the transition wasn't too hard but it was nice to have that time to get a better understanding of how Jonas Software approached measuring businesses and to learn some of the financial aspects of the business. I knew the market inside and out, knew the people, and the processes and everything because I had worked in different roles throughout the business. When I did move into the role I would say my biggest focus was getting the right balance in our Research and Development organization. There was a period in our history after we got acquired where one of the former presidents was doing a bit of what I would call whale hunting. They were going after monster prospects and our company sort of lost our way in terms of focusing on our existing customers and our existing market segment that made us who we were. So I think one of the very first things that I was really focused on is getting back focused on our sweet spot in the market. For Jonas Fitness that’s multipurpose health clubs and hospital wellness centers in the mid to large market. That’s where we really focus our efforts for sales and also for our existing customers. I felt that when you chase whales sometimes you start doing enhancements and things for future sales and that distracts you from best serving your existing customers, which to me felt like a big mistake. We really got back to a balance where you’re listening to your customer requests from the existing customer base to guide what we were working on. Bugs, technical debt, compliance and regulatory, and after we did that we could plan ahead for what's that next thing that we can build to add value to our customer base and new customers. To help facilitate this we realigned our scrum agile teams into kind of separate groups, focused on some of those different areas of the product suite.
Matt: I love that, thanks for sharing that insight.
So we're doing this interview in August 2021 and it’s a year and a half after COVID essentially halted the fitness industry leading to its biggest challenge to date. Our industry is just starting to build its momentum again, as the vaccine deployment has reopened our economy. I did an interview with Rick Stollmeyer, the former CEO of Mindbody, last year and he mentioned something really interesting about their customer base after the 2008 financial crisis. Many owners and operators left the industry and never came back, but others used to reset in the industry as an opportunity to expedite growth and were really aggressive with their growth plans. I’d love to hear what your advice is for the fitness business owners and operators out there as we move forward from the challenges of 2020 and 2021.
Scott: The interesting thing about the pandemic for gyms to me is that as an industry the adoption of technology has been slow compared to other market segments that I've worked in. So I think one of the things that happened with COVID is that it has really accelerated the adoption of some technology solutions that gyms really needed to have to survive. The biggest concept that I’ve been focused on is that self service is the new full service, right? Using technology so that your members can join your platform online with the ability to handle their own service through member portals while businesses were closed is incredibly important during a pandemic. Actions such as the ability to pay their own past due balance bills, for example. Our customers, just like everyone else, have had less staff and have had to learn how to do more with less while they have been recovering. What we’ve seen at Jonas Fitness with our existing customers that we’ve had for quite some time is that their adoption of the software tools and platform has been bigger than ever before. They are pulling more value from the software as a business with these self-service tools. In addition, there's definitely been a focus on our Jonas Move product which offers virtual training and streaming. That was definitely a reality during the pandemic depending on the states or localities our customers were in. If they were physically shut down or they had restrictions where they could only do outside workouts you can only do so much, especially if you are in the cold climate states. Our customers needed to add services to their members and have other revenue streams. I don’t think gym members will continue to use the online and streaming service at the same level in the long-term, you just can’t replace the physical gym, but I see a hybrid model going forward due to the adoption of technology and virtual technology. So I think it's a balancing of the two worlds, in-person and online, that we'll see in the market down the road. People will work out in the physical world, but they also sometimes take advantage of the convenience of the online instructor.
Matt: I couldn’t agree more. That’s one of the reasons we were so excited to build out the StrengthPortal integration with Jonas Fitness to add value to your customer base and community. So my last question for this is what are you most excited about for the Jones' fitness team and also the platform over the next 3-5 years?
Scott: I'm really excited about our transition to cloud and for what I think that can mean speed-wise for our clients. For Jonas Fitness we're just like our customers in terms of recovery. 85% of our revenue comes from payments and obviously the payments got decimated during the pandemic due to gyms closing without the ability to bill members. Because of that we felt the pain equally with our partners. The cool part about it is we're in it together, right? Their success is our success and it's been fun to watch over the last two quarters the numbers return. The check-ins are up, sales are up, the number of freezing cancellations are down, and we're starting to see those transactions flow again. So our team is very excited to see the industry recovering. We've got another way to get through here with some of the Covid variants, but I'm hoping as long as we can keep these gyms open with little or no restrictions we'll continue to see the recovery ramp up for the rest of the year and onward.
Matt: We're definitely bullish and looking forward to seeing the industry coming roaring back as well.To wrap this up I just want to say that I really appreciate you sharing your time, story, and insights Scott. Thank you!
If you'd like to learn more about Scott and Jonas Fitness please check out the links below:
Interviewer's note: This interview was recorded over a phone call, transcribed, and edited. Some sentences may be edited slightly for an easier read.
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