Fat Prophet

IN­FOMER­CIAL KING CARL DAIKELER NEARLY MADE HIM­SELF A BIL­LION­AIRE BY TRANS­FORM­ING HIS BEACH­BODY EX­ER­CISE-DVD BUSI­NESS INTO A PYRA­MID SELLER OF HEALTH SHAKES. THEN HIS NET­WORK—AND THE GOV­ERN­MENT— BE­GAN TO REVOLT.

Forbes - - BEACHBODY - BY LAU­REN GENSLER

As the air-con­di­tion­ing hums in a squat, win­dow­less ware­house on a des­o­late side street in Van Nuys, Cal­i­for­nia, Carl Daikeler strolls onto the set of a work­out-video shoot and in­forms the span­dex-clad cast that it’s time for his so­cial me­dia rit­ual. Ev­ery­one qui­ets down. He holds his iPhone up high, forces a smile and be­gins to rave about 80 Day Ob­ses­sion, a new work­out pro­gram about to be filmed in real time. He stops and gri­maces at a reporter after a few failed takes: “I’d be curs­ing right now if you weren’t here.”

A cou­ple more tries and he fires off sev­eral minutes of footage to his 130,000 In­sta­gram fol­low­ers. We head into a dimly lit room with couches and a bigscreen TV mon­i­tor to watch the lithe celebrity trainer Au­tumn Calabrese tap­ing a chore­ographed work­out. At 10 a.m. sharp, an as­sis­tant hands Daikeler a plas­tic tum­bler of Beach­body’s flag­ship prod­uct, a weight-loss shake called Shake­ol­ogy. He has gulped down this ve­gan choco­late-fla­vored con­coc­tion—co­coa pow­der, chia, quinoa, rose hip and some 60 other in­gre­di­ents—at the same time, every day, for the past decade. He posts an­other quick video of him­self drink­ing the brown sludge, his voice ris­ing an oc­tave as he tells view­ers he’s log­ging Day 289 of the 365-day chal­lenge urg­ing other Shake­ol­ogy drinkers to stick to the reg­i­men.

Daikeler, at a trim 5-foot-8, is lead­ing by ex­am­ple. As co­founder and CEO of Beach­body, he’s at the top of a mod­ern­day mul­ti­level mar­ket­ing ma­chine with more than 340,000 in­de­pen­dent “coaches,” who sell work­out videos, shakes and sup­ple­ments to weight-loss hope­fuls via so­cial me­dia. The play­book goes some­thing like this: Lose weight with Beach­body by do­ing the at-home work­outs and drink­ing the shakes. Share it on so­cial me­dia. Use your story to sell prod­ucts and re­cruit new cus­tomers and coaches. Re­peat.

“Cred­i­ble suc­cess sto­ries are the back­bone of the com­pany,” says Daikeler, 54, who owes his six-pack abs to Beach­body work­outs. He con­sid­ers him­self cus­tomer No. 1 and tells any­one who will lis­ten that he hates work­ing out and can’t stand veg­eta­bles. The story makes sense when you con­sider his mis­sion is to sell to a na­tion of coach pota­toes.

The way Daikeler sees it, he’s hit on a scal­able so­lu­tion to the fat epi­demic af­flict­ing ap­prox­i­mately 175 mil­lion over­weight and obese adults in the United States. For­get the gym—you’ll never go. In­stead, shed those pounds in the com­fort of your own liv­ing room, then be­come a cheer­leader for oth­ers—all while mak­ing a per­cent­age of sales to reg­u­lar cus­tomers, plus a slice of any new coach’s sales that you bring on. In other words, join Beach­body to lose weight and get rich in the process. Daikeler him­self is now worth an es­ti­mated $660 mil­lion, based on his ma­jor­ity own­er­ship of the pri­vately held com­pany, which has at­tracted 28 mil­lion di­eters since its 1998 in­cep­tion and had rev­enue of $1 bil­lion in 2017.

“The fact that there still hasn’t been a so­lu­tion to obe­sity is a stun­ning op­por­tu­nity,” says Daikeler, dis­miss­ing com­peti­tors like Weight Watch­ers and Nutrisys­tem. “It’s an op­por­tu­nity that is just shock­ingly avail­able to me.”

BACK AT THE com­pany’s sun­lit Santa Mon­ica head­quar­ters, Daikeler parks his Tesla Model S and heads into his office, pass­ing a wall of hand­writ­ten in­spi­ra­tional say­ings (“You can’t pre­dict the fu­ture. But you can CRE­ATE it!”). Daikeler loves this stuff. He is, after all, in the mo­ti­va­tion busi­ness. “Prob­a­bly the coolest part about Carl is he does lead with his heart. He’s about em­pow­er­ing other peo­ple,” says Am­ber Kuiper, a top-tier “nines­tar di­a­mond” coach from Wood­bury, Min­nesota.

Daikeler needed mo­ti­va­tion as much as any­one else. Grow­ing up out­side Philadel­phia, he wasn’t much for healthy eat­ing (his af­ter­school rou­tine in­volved de­vour­ing a stack of Oreos while he watched The Flint­stones) or ath­let­ics (he got cut from his high-school bas­ket­ball team on the first day). Not much has changed. He’s still far more in­ter­ested in the lights-cam­era-ac­tion ex­cite­ment of en­ter­tain­ment than in pump­ing iron at the gym. As a kid, he helped with the sounds and lights at a theater his fam­ily co-owned, the Bucks County Play­house. Later, in high school, he some­times slept in the school’s TV stu­dio after work­ing late into the night, to the detri­ment of his grades and SAT scores.

When Daikeler was roundly re­jected by every college he ap­plied to, he drove up to Ithaca College in up­state New York with a buddy and talked a dean of ad­mis­sions into meet­ing with him later that day. After en­joy­ing a three-beer lunch with his friend, he man­aged to per­suade the dean to change his re­jec­tion into an ac­cep­tance. He went on to grad­u­ate with a bach­e­lor’s de­gree in cor­po­rate or­ga­ni­za­tional me­dia in 1986 and landed a job pro­duc­ing the half­time shows for na­tion­ally tele­vised foot­ball games. But en­ter­tain­ment for en­ter­tain­ment’s sake wasn’t re­ward­ing enough for him, so in 1987 he de­cided to get into in­fomer­cials, where suc­cess is mea­sured solely in dol­lars.

Daikeler’s first fit­ness in­fomer­cial was for Life­line Gym, es­sen­tially a gym in a bag. In 1994 he co­founded TelAmer­ica Me­dia with Lance Fun­ston and came up with the idea for the “:08 Min Abs” work­out video. He thought it had the same ring to it as Greg Smithey’s hit work­out video, “Buns of Steel,” from the 80s. Daikeler ended up sell­ing 2 mil­lion copies. “What I learned was that solv­ing my own prob­lem—that I don’t like to work out and I eat like a sec­ond-grader—was a scal­able op­por­tu­nity,” he says.

How­ever, he was hardly the first to cre­ate a work­out video. Jane Fonda had been step­ping and stretch­ing for years (see box, p.95), and Daikeler’s busi­ness part­ner didn’t want to dou­ble down on health and fit­ness. So Daikeler de­cided to sell his po­si­tion in the com­pany and plot

his next move while test­ing new prod­uct ideas at Guthy-Renker, an in­fomer­cial pow­er­house in El Se­gundo, Cal­i­for­nia. For the next two years he worked on a tele­phone-based dat­ing ser­vice and a Lasik re­fer­ral ser­vice, and then in 1998 he left to start Beach­body with GuthyRenker co­worker Jon Cong­don, armed with $500,000 from an­gel in­vestors. The idea was to test five prod­ucts and see which stuck.

The nat­u­ral place to start was in health and fit­ness. Daikeler tapped celebrity trainer Tony Hor­ton (clients: Bruce Spring­steen, Shirley Ma­cLaine, Billy Idol) for a se­ries of eight-minute work­outs dubbed “Great Body Guar­an­teed.” The ex­per­i­ment worked, and they de­cided to run with it. Un­for­tu­nately, the web­site GreatBody.com was al­ready taken. On the way home one day Daikeler spot­ted a bill­board for San­dals beach re­sort, and the name Beach­body came into his head. “I liked the name, and we were able to get Beach­body.com,” he says.

Beach­body’s first block­buster pro­gram was P90X, a three-month in­ten­sive boot camp that has at­tracted fans like Paul Ryan, Michelle Obama and Sh­eryl Crow. At first Daikeler and Cong­don couldn’t af­ford to hire celebri­ties, so they mar­keted their work­out reg­i­mens by show­cas­ing their own re­sults. Even­tu­ally, they turned to cus­tomers for suc­cess sto­ries and packed their in­fomer­cials with as many be­fore-and-after pic­tures as they could. Then they added Amer­ica’s Funniest Home Videos-style footage of cus­tomers work­ing out at home. The more wilt­ing plants or cats in the back­ground, the less likely some­one thinks it’s a fake, says Daikeler.

“The cus­tomer has al­ways sort of been our celebrity,” Daikeler says. While most in­fomer­cials ped­dled gim­micky ex­er­cise equip­ment like the Thigh­Master, Daikeler was sell­ing some­thing stick­ier than a one-off pur­chase. He was sell­ing self-es­teem. But the ul­ti­mate task was get­ting peo­ple to stick with their healt­hand-fit­ness goals. So, in 2007, he turned to Avon and Amway for in­spi­ra­tion and put cus­tomers in charge of sell­ing work­out DVDs, which had the added ben­e­fit of keeping them ex­er­cis­ing, since no one buys a work­out video from a fat per­son.

If the work­out videos got peo­ple in the door and the coaches acted as the glue that held it all to­gether, the real mon­ey­maker was Beach­body’s shakes. In 2007, Daikeler tapped his third wife, Isabelle, a ki­ne­si­ol­o­gist cer­ti­fied in “medicine ball train­ing,” to code­velop Shake­ol­ogy. The low-calo­rie liq­uid is mar­keted as “a daily dose of dense nu­tri­tion” that is packed with “su­per­foods” from around the world. The price tag: $130 for a month’s sup­ply of pow­der, with much of that cash flow­ing straight to Beach­body’s bot­tom line.

Of course, for this vi­sion to work, coaches need to ex­pand their net­works rapidly. Ev­ery­one who signs up with Beach­body is in­vited to join an ac­count­abil­ity group, where par­tic­i­pants fol­low a work­out plan and log their ex­er­cise and Shake­ol­ogy in­take into an app. Coaches post words of en­cour­age­ment—then urge oth­ers to be­come coaches them­selves. “Ba­si­cally from day one, you’re be­ing pushed to­ward the net­work mar­ket­ing op­por­tu­nity,” says Heather Han­son, one of Beach­body’s first em­ploy­ees, who worked with Daikeler at Guthy-Renker. “It’s bril­liant. Beach­body gets its hooks into you im­me­di­ately.”

WHEN ME­LANIE MITRO joined Beach­body in 2011, she had just given birth to two boys in two years and was try­ing to lose some baby weight. After she posted on Face­book about sub­sist­ing largely on cel­ery, a friend reached out to her and in­vited her to join Beach­body. She bor­rowed an “In­san­ity” work­out DVD from a neigh­bor, lost 30 pounds in six months and was hooked. She signed up as a coach right away to help other new moms.

Now at the “15-star di­a­mond” level, she’s Beach­body’s top coach, mak­ing over $2 mil­lion a year. Thanks to Beach­body she’s paid off the mort­gage on her sub­ur­ban Pitts­burgh McMan­sion and takes dream va­ca­tions each year to places like Turks and Caicos and Bora-Bora. Her hus­band, Matt, quit his cor­po­rate gig at Heinz to work full-time for his wife. From her spa­cious home office, filled with flow­ers, pho­tos and scented can­dles, Mitro, blonde and blue-eyed with Step­ford-wife good looks, spends her days tend­ing to her blog, her pod­cast (“Women In­spir­ing Women”) and other so­cial me­dia plat­forms in an ef­fort to mo­ti­vate her team. “Ninety-nine per­cent of my busi­ness is so­cial me­dia,” says Mitro, 35.

The rise in pop­u­lar­ity of Face­book, In­sta­gram and YouTube—es­pe­cially among soc­cer moms—has been a boon to Beach­body and coaches like Mitro. Beach­body’s first rule of thumb is to be a prod­uct of the prod­uct: Do the daily work­outs, drink the shakes and brag about your re­sults. Search for Beach­body on­line and you will find end­less pages full of daily tri­umphs (work­out self­ies, new Shake­ol­ogy recipes) and strug­gles (what to eat while trav­el­ing, a weak-mo­ment cookie binge). There are also tear­ful ac­counts of sui­cide at­tempts, eat­ing dis­or­ders and drug ad­dic­tions, of­ten con­clud­ing with “be­fore and after” im­ages and chron­i­cles of how Beach-

While most in­fomer­cials ped­dled gim­micky ex­er­cise equip­ment like the Thigh­Master, Daikeler was sell­ing some­thing stick­ier than a one-off pur­chase. He was sell­ing self­es­teem.

body changed their lives. This is all in ser­vice of the sec­ond rule of thumb: Gain a fol­low­ing and in­vite peo­ple to join Beach­body.

Mitro, of course, is the ex­cep­tion. In 2016 the av­er­age Beach­body coach pay­check was for $3,233, with half of coaches mak­ing no money at all, ac­cord­ing to an in­come dis­clo­sure state­ment. Also, coach pay doesn’t in­clude ex­penses. To get started, coaches pay $40 to sign up and then a $16 monthly fee, which pro­vides, among other things, a per­son­al­ized e-com­merce page. This gives them the right to make a 25% com­mis­sion on sales of work­out videos, Shake­ol­ogy drinks and sup­ple­ments to re­tail cus­tomers. The real riches, how­ever, come from bring­ing on new coaches, be­cause coaches earn a piece of every prod­uct their net­work sells. Mitro, for ex­am­ple, has 20,000 coaches con­tribut­ing to her in­come, though she has per­son­ally spon­sored only about 700 of them.

Since each coach’s earn­ings de­pend on those be­low them on the pyra­mid, the pres­sure to ex­pand your net­work’s sales is in­tense, and strug­gling coaches speak of be­ing dropped by their higher-ups if they fail to per­form. If coaches are con­fronted with a med­i­cal or fam­ily emer­gency, and need to put Beach­body aside, they run the risk of los­ing their sta­tus and hav­ing to restart their en­tire busi­ness from scratch. “The blame game is in­her­ent in the pro­gram: If you do what we tell you, you’ll be rich. If you don’t, you won’t. That is the de­cep­tion, of course,” says Jon Tay­lor, a Ph.D. who has stud­ied dozens of pyra­mid or­ga­ni­za­tions and is the au­thor of Multi-Level Mar­ket­ing Un­masked.

In 2015, Daikeler ig­nored his board’s con­cerns and be­gan of­fer­ing the en­tire li­brary of Beach­body work­out DVDs, a $7,000 value, for just $99 a year via a Net­flix-like stream­ing ser­vice called Beach­body on De­mand. While turnover in any mul­ti­level-mar­ket­ing or­ga­ni­za­tion is not un­usual, this de­ci­sion prompted a mass ex­o­dus be­cause it un­der­mined

a crit­i­cal driver in Beach­body’s suc­cess­ful for­mula: Keep the new com­mis­sion­gener­at­ing prod­ucts com­ing. Last year sales de­clined by nearly 25%. His army of coach evan­ge­lists is shrink­ing. To­day Daikeler has some 340,000 coaches, but that’s down from 450,000 in 2016.

Lis­ten to for­mer elite coach Lind­sey West­brook. After see­ing her $300,000 an­nual in­come drop by half, she quit in 2017 to sell “pre­mium” wine in an­other pyra­mid or­ga­ni­za­tion, Di­rect Cel­lars, and has since moved on to Vasayo, a mul­ti­level mar­ket­ing com­pany hawk­ing well­ness prod­ucts. “When Beach­body on De­mand came around,” she says, “peo­ple were able to get a free trial and an all-ac­cess an­nual pass. You’re no longer mak­ing any ad­di­tional in­come from peo­ple or­der­ing DVDs. And without peo­ple or­der­ing DVDs through­out the year, they weren’t pur­chas­ing Shake­ol­ogy, ei­ther.”

Ac­cord­ing to Daikeler, aban­don­ing DVDs in fa­vor of stream­ing sub­scrip­tions was a busi­ness ne­ces­sity. It also gave Beach­body head­quar­ters a di­rect com­mu­ni­ca­tion chan­nel to its mil­lions of cus­tomers. In light of the re­cent sales slump, Daikeler’s mes­sage is to be even more re­lent­less. He con­tin­ues to in­struct coaches not to take no for an an­swer and to push back on po­ten­tial cus­tomers who say they’re not in­ter­ested. Daikeler told one wo­man who com­plained about the price of Shake­ol­ogy to take a look at her spend­ing and as­sess her pri­or­i­ties. After all, Beach­body coaches aren’t just sell­ing ex­er­cise and frosty drinks; they’re sell­ing a health­ier lifestyle and self-con­fi­dence. Coaches are ad­vised to reach out to as many peo­ple as they can each day, which of­ten leads them to cold-mes­sage strangers on so­cial me­dia. “You’ve got to take care of your wealth.

. . . This is why we say in­vite, in­vite, in­vite,” said Daikeler at 2016’s coach sum­mit in Nashville. “Be­cause if you only in­vite, you are screwed.”

Yet coach com­pen­sa­tion has suf­fered as the com­pany’s prod­uct fo­cus shifted from sell­ing DVDs to sell­ing shakes. Shake­ol­ogy sub­scrip­tions, at $130 a month, now bring in two thirds of the com­pany’s rev­enue. But that too is under pres­sure: In 2017, fol­low­ing an in­ves­ti­ga­tion by the city at­tor­ney in Santa Mon­ica, the com­pany reached a $3.6 mil­lion set­tle­ment in which it agreed to stop mak­ing bold health claims about Shake­ol­ogy, its core prod­uct.

The city of Santa Mon­ica’s crack­down has dealt a body blow to Daikeler’s six­pack busi­ness model for growth. After years of boast­ing that Shake­ol­ogy pre­vented men­tal de­cline, slowed the ag­ing process, re­moved tox­ins and even helped pre­vent heart dis­ease and can­cer, Beach­body has been barred by the state of Cal­i­for­nia from mak­ing claims that are not backed by sci­en­tific ev­i­dence. Beach­body is now es­sen­tially lim­ited to say­ing its shakes curb ap­petite and im­prove en­ergy. Since that’s not a ter­ri­bly re­mark­able claim for any food, Daikeler and his coaches have amped up their fo­cus on the so-called “su­per­foods” found in every shake—in­gre­di­ents like flaxseed, matcha and reishi mush­room—present in undis­closed amounts.

“There’s no le­gal def­i­ni­tion of su­per­foods,” says Liz Ap­ple­gate, a li­censed nu­tri­tion­ist at UC Davis. “They have an ex­otic sound, and no one can say they’re right or wrong.”

Daikeler’s other work-around is en­cour­ag­ing his coaches to preach about their per­sonal ex­pe­ri­ences drink­ing the shakes, which hap­pens to be largely ex­empt from reg­u­la­tory over­sight.

Kuiper, the coach from Min­nesota, boasts: “At one point all I wanted to do was take naps when my kids napped. But within four or five days I felt my en­ergy lev­els im­pacted. I could ac­tu­ally get the dishes done.”

But Santa Mon­ica’s city at­tor­ney didn’t just fo­cus on Beach­body’s ag­gres­sive nu­tri­tional claims. The gov­ern­ment also forced the com­pany to re­vamp its auto-re­newal pro­gram, which it says wasn’t prop­erly alert­ing cus­tomers when their credit card ac­counts were be­ing charged and which made it ex­ceed­ingly dif­fi­cult to can­cel sub­scrip­tions. Start­ing in 2018, Beach­body must gain sep­a­rate con­sent for auto-re­newals and give am­ple no­tice be­fore charges are in­curred.

Daikeler, who seems phys­i­cally un­able to stop sell­ing, dis­misses Beach­body’s new chal­lenges. He has his sights set on re­cruit­ing 2 mil­lion coaches and nearly jumps out of his seat when he’s telling me about the lat­est work­out pro­grams and shakes that he’s rolling out for new au­di­ences, in­clud­ing kids! Fit­ness-phobes! And Span­ish speak­ers!

Daikeler un­der­stands that it’s go­ing to take more than a reg­u­la­tory wrist slap to stop Beach­body’s mo­men­tum. Twenty years hawk­ing prod­ucts on late-night TV has taught him that the mar­ket for thin­ner thighs and trans­for­ma­tional elixirs is lu­cra­tive and po­ten­tially lim­it­less—es­pe­cially when so­cial me­dia can help you at­tract le­gions of new coaches com­mit­ted to the Sisyphean task.

FAfter years of boast­ing that Shake­ol­ogy pre­vented men­tal de­cline, slowed the ag­ing process, re­moved tox­ins and even helped pre­vent heart dis­ease and can­cer, Beach­body has been barred by the state of Cal­i­for­nia from mak­ing claims that are not backed by sci­ence.

Beach­body founder Carl Daikeler: How to solve Amer­ica’s obe­sity epi­demic? In­vite, in­vite, in­vite.

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