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ENTREPRENEUR OF THE YEAR

Zumba Fitness: Company of the Year
 

You know what's even healthier, stronger, and more flexible than a Zumba instructor? The business model behind Zumba.
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Back in the '80s, when Alberto Perez was a skinny teenager aping Michael Jackson's moves on the mean streets of Cali, he would dream of a night like this one. August lightning crackles outside the Orlando Convention Center as Perez, his GI Joe musculature shellacked in sweat, commands the stage in a dark, cavernous hall. Over two hours, he dances to an accordion and to an electric guitar, in a Russian fur hat and in a bright red kilt, with children and with Vanilla Ice. His lunges are deep; his hips undulant. In a free spirit's version of unison, 8,000 dancers slam, sling, and snake along with him. Edging into the press of bodies, I try to mimic their steps but clock some woman in the cheek. Three days into this reporting trip, and I am still not ready for Zumba.

That puts me in the minority. In this age of social stratification, Zumba--a dance-fitness program born in Colombia--qualifies as a genuine mass-market phenomenon. It is a democracy of cool where the cheerleader, the goth, and the fat kid from high school are besties. You can do it, and so can your preschooler and your grandmother. Fourteen million people in 150 countries take Zumba classes at least once a week. Eighty nationalities are represented at this instructors' convention, an annual event that is part professional education, part Woodstock with cargo pants. "I look around, and there's women and men of all shapes, and I don't mean just up to Size 16," says the actress Kathy Najimy, after delivering a keynote address on the convention's opening morning. "Diverse people of all colors. Lots of gays. Lots of straights. Single people. Married people. All dancing together. It's like a Star Trek convention, they're so into it."

These instructors understand what many noninitiates don't: that Zumba is not some organic cultural import like salsa or yoga but rather a U.S. company with a multifaceted business model and an aggressive growth strategy. Based in an upscale shopping mall in Hallandale, Florida, Zumba Fitness has 250 employees and a reported valuation of more than $500 million. (The company does not release revenue figures. CEO Alberto Perlman says it grew 4,000 percent from 2007 to 2010 and 750 percent in the past three years.) More than a decade after its launch, the business--co-founded by Perlman, Perez, and a third Alberto, that one surnamed Aghion--is suddenly ubiquitous. Seventy thousand locations in the United States--including roughly 95 percent of major gym chains--offer its programs. TV characters toss off references. Classes take place in the Pentagon.

Another thing outsiders don't realize about Zumba is its breadth. Yes, this is a fitness company. But it is also becoming an influential player in the music world, striking deals with such artists as Wyclef Jean and Pitbull to promote their songs in its classes and feature them on its CD compilations. In June, Billboard hailed Zumba as the next major music platform. A creator as well as a distributor, the company has commissioned and produced close to 400 songs; the 60 tracks available on iTunes have been downloaded a million times. "It's hotter than MTV in any of the hot years I saw MTV," says William Roedy, the former chairman and CEO of MTV Networks International, who is an informal adviser to Zumba. "They have this perfect synergy with music that is great for the whole industry."

And watch out, Lululemon: Zumba has a thriving workout apparel line as well and expects to sell 3.5 million units in 2012. The Zumba store at this convention occupies 30,000 square feet. Half an hour before it opens on the first day, more than 600 instructors are already in line, including a couple of white-haired seniors camped out on folding chairs. In the women's restrooms, I see attendees slicing the shoulders off their new shirts (fans have plastered YouTube with videos demonstrating how to customize Zumba apparel). The stalls are littered with tags left by people who couldn't wait to get back to their rooms to don their new togs.

Other offerings include video games, DVDs, and fitness concerts at which thousands of dancers perform choreographed moves to live music. But Zumba's core products are also its core customers: the instructors themselves. Zumba doesn't make money by helping people get fit. It makes money by preparing people for a trade--by licensing and supporting the folks who teach Zumba classes. Some of those instructors teach part time for fun and extra cash; others find jobs with gyms; and still others start businesses. Although the Zumba economy isn't big enough to ding the unemployment rate, it has created many thousands of jobs beyond its walls. "This is all about the instructors," says Perlman. "Everything we do is to drive people to their classes, so they can be successful."

Perhaps the most fascinating thing about Zumba is the way it sits at the nexus of so many dominant trends. Like some great Zeitgeist cocktail, it is a frothy blend of Latin culture, social networking, globalization, weight consciousness, a feminizing society, solo entrepreneurship, and the maker's movement. It is tempting to call Zumba the quintessential 21st-century business. Given that it traffics in health, joy, and community, that is a hopeful sign for the species.

Alberto Perez makes slow progress across the hotel restaurant. Every few yards, Perez ("Beto," as he is universally known in the Zumba community) is swarmed by convention attendees eager to pose for pictures. Part Casanova and part Peter Pan, Perez wraps an arm around their shoulders, smoldering and grinning simultaneously.

Over dinner, discussion turns to the fitness concert set for the convention's opening night. The Zumba team has erected two stages, one on each side of a vast hall. The action will switch between them so no attendee gets stuck at the back. Perez, who will perform on both stages, had been agitating for a harness that would let him sail, Spider-Man-like, above the audience. "It is $35,000. I say, 'OK, I pay,' " says Perez in his pretty-good English. But after his partners consulted Lloyds of London, "I find out the insurance is like $300,000," he continues, assuming a crestfallen expression. "I say no. I cannot do it."

Most companies would plant such a charismatic showman brand-center. That Perez shares the spotlight with Zumba's citizen instructors testifies to the business's democratic ethos and marketing confidence. But if Beto is not the solo face of Zumba, he is indisputably its father.

As we eat, Perez relates his life story, a Hollywood-ready narrative of perseverance and pop culture. Growing up poor and fatherless in Colombia, he discovered dance at age 8 while watching the movie Grease. At 13, Perez and his friends were reenacting Michael Jackson's Thriller on the streets. His devout mother disapproved but came around after Perez showed her the scene from Footloose in which Kevin Bacon reads passages about dance from the Bible.

Many dramatic anecdotes follow: a shooting in a grocery, a chance meeting with a beautiful model who recruits Perez to teach dance to other beautiful models, triumph at a national lambada contest. By the mid-'90s, Perez was teaching dance and aerobics all over Bogotá. One day, he forgot his aerobics tape and resorted to what he had handy: salsa music recorded from the radio.

"Up until this moment, aerobics is aerobics and dancing is dancing. I would never think to combine," says Perez. "But this moment, I didn't have other options. I have to dance. And the reaction of the people: Wow! They loved it."

Calendar pages fly. Perez moved to the United States in 1999, at 29. In 2001, he was teaching in Miami, and among his adoring students was Alberto Perlman's mother. At the time, Perlman was recuperating from the demise of Spydre Labs, an Internet incubator that had launched nine companies, including a unified messaging service and an online community for expectant mothers. Aghion, a childhood friend, had worked at one of those ventures.

"So now we're both out of a job and looking for new things," recalls Perlman, taking up the story. "We would meet at Barnes & Noble and read biographies of entrepreneurs to see if we could find any ideas."

Perlman's mother suggested he talk to Perez about starting something together--possibly a gym. They arranged to meet at a Starbucks. Intrigued by Perez's life story, Perlman then sat in on a class at a nearby Olympia Gym. "There are 120 people, packed in like sardines," says Perlman. "They are screaming and smiling. No one looks tired. No one is showing any pain. I thought, We've got to do something with this."

Their first crack at something was selling tapes of the class. With Aghion on board to manage operations, they recorded Perez and 200 of his students dancing on a beach and played it for the CEO of Fitness Quest, an Ohio company that sold Total Gyms and similar products. Fitness Quest produced a collection of tapes and DVDs and marketed them through an infomercial. "They are selling a few hundred thousand units on TV," says Perlman. "But their call center keeps hearing from people who say, 'I don't want to buy a video. I want to take a class.' " The Albertos realized then that instruction might be at least as good a business as DVDs. (They later bought back the video rights.)

The partners expected 30 or 40 people to show up for their first training session, in a Miami hotel in 2003. Instead, they drew 150, from as far away as California and Kansas. Most were fitness instructors or dancers who wanted to teach Zumba at their gyms. They needed licensing, but even after several classes, some weren't very good. The Albertos didn't want to deny a license to anyone who took the training. "We thought, If we test them, they will fail, or we will have to lower the bar so much that it becomes kind of a joke," says Aghion, Zumba's president and COO. They decided to license all comers and let the market decide who would succeed.

By 2005, the company had trained roughly 700 Zumba instructors, who were pollinating the country. But many kept returning to Miami. "They wanted to meet with Beto and get a new routine or film his class or talk to him about new music," says Perlman. "In training, we teach you one or two classes, but students get bored. They want new routines every month. They want new songs.

"We decided to turn these instructors into entrepreneurs," Perlman continues. "They need students. They need ongoing education. They need music and choreography." So the Albertos created the Zumba Instructor Network, or ZIN, a community and educational platform. They also produced new infomercials and began plowing money into media designed to drive consumers to classes. (That investment continues. The company will spend $50 million on advertising in 2012 and $63 million in 2013.)

But how to differentiate Zumba from classes already in gyms? Up to that point, the company's message had focused on weight loss. Then, one day, Jeffrey Perlman, Alberto Perlman's brother and Zumba's chief marketing officer, spied a poster for a David LaChapelle movie called Rize. It depicted a man and a woman lost in the ecstasy of dance. He photographed it and showed the partners. Instant epiphany. Zumba wasn't about weight loss. It was about emotion. Joy. Release. The company captured its new identity in a tag line: Ditch the workout. Join the party.

I have gone walkabout at the Zumba convention. In one room, scissor-wielding attendees sit at long tables carving Zumba shirts into Zumba scarves. In another, a standing-room-only crowd peppers a speaker with questions about buying insurance for studios. In auditoriums and banquet rooms, the neon hordes, sweat and tassles flying, practice new routines. A wide range of abilities is on display, but that's OK. With Zumba, keeping spirits and energy high trumps mastering merengue. Perfection is the enemy of perspiration.

The music, like the instructor base, is global: kitsch-exotic. One class is conducted to sprightly Russian tunes. Another teaches belly dancing. I am too late for the Bollywood session but find a long line of people waiting to have photos taken with the instructor. It turns out she is Bhavna Vaswani, wife of The Sixth Sense's director, M. Night Shyamalan. I ask several people whether the class had a twist ending, but no one knows what I am talking about.

Zumba won't disclose how many instructors it has licensed--in part, one source at the company suggested, out of fear of discouraging prospective instructors, who might worry that the market is saturated. But The New York Times put the number at more than 100,000 last spring, and Zumba says the ranks swelled 5 percent in July alone. Zumba is taught in more than 140,000 locations around the world. Roughly 65 percent of instructors are employed by fitness facilities. The rest--including the 2 percent of instructors who operate their own studios--start businesses, renting space in community centers, schools, and hospitals. "They will go to a church and say, 'I want to rent your basement,' " says Perlman. "And the church will charge them $40. And they'll charge each student $8 and get 40 people. And they have $280 in profit for that hour. It's a pretty cool model."

Instructors pay, on average, $250 to be licensed. Once licensed, 85 to 90 percent of them sign up for the ZIN, the razor blade in Zumba's Gillette-style business model. For $30 a month, ZIN members receive CDs of new music and DVDs of new choreography; marketing collateral, including posters, fliers, and punch cards for class regulars; website hosting; educational videos; and access to a global online network that covers dance steps, business tips, and job openings. Through a new affiliate program, ZIN members earn 10 percent of each sale when their students buy Zumba apparel online. About 50,000 ZIN members log on to the network each week.

Another new venture is the ZIN Community Council, a way to formalize the amorphous United Nations of Zumba. Bilingual instructors from around the world are elected to represent their countries, passing along problems and requests to the home office and forging relationships across cultural divides. "We'll see, for instance, that the Middle East needs a different kind of marketing material, due to more modest cultural nuances," says David Topel, Zumba's preternaturally cheerful community manager. "Our European markets consistently request television spots that feature fitness and strength rather than weight loss, because weight loss is not a primary concern."

Zumba's international business represents roughly 50 percent of revenue, a percentage expected to grow substantially. At first, the company hired business people to establish overseas offices; now, that is handled by top-tier instructors in each country, with plenty of online support from headquarters. It's an unusual strategy: in essence, enlisting customers to create your global presence. But it is low cost and low risk and fits nicely with Zumba's DIY philosophy.

I take advantage of the convention's confessional tent-meeting vibe to approach dozens of instructors. Most work for gyms or offer a handful of classes in the margins of their "real" lives. But I also meet peripatetic entrepreneurs who teach Zumba full time, scuttling like hermit crabs from dance studios to rec centers to nursing homes. No one I talk to had considered a career in fitness prior to Zumba. Most had not planned to work for themselves. Explaining the curious turns their lives have taken, they unconsciously echo Warren Buffett's observation: The ultimate luxury is getting to do what you love every day.

On the four-hour drive between Zumba's Hallandale headquarters and Orlando, Perlman guides me through Zumba, A to Z. There are a lot of Zs. The company is constantly expanding its core curriculum with classes like Zumba Gold (for baby boomers), Zumbatomic (soon to be renamed Zumba Kids), Zumba Toning (body sculpting), and Zumba Sentao (choreography with a chair). There are different levels of instructor, including ZINs, ZESs (Zumba Education Specialists), and Z-Jammers (instructors of instructors). Zumbathons are classes and larger events where the money goes to charities.

I try to tease out revenue, but Perlman's not biting. ("Nine figures," he says, laughing. "So between $100 million and $999 million.") That said, if you accept the estimate of 100,000 instructors and use Zumba's claim that 85 percent of them pay $30 a month for ZIN, you start with recurring annual revenue of at least $30.6 million. Three and a half million pieces of apparel at an average price of $30 is another $105 million. That begins to give a sense of the scale of the company--though the picture is far from complete, missing things such as training and licensing fees, events, DVD sales, video-game licensing, and other revenue streams.

Perlman is especially chuffed at the rising profile of Zumba's music business. Its new CD, Zumba Fitness Dance Party, recently went platinum in France. "Universal, EMI, Sony--they're calling us and saying, 'Can we put this song we're launching out on the ZIN network?' " says Perlman. "Because they know 14 million people are going to hear it. We have artists saying, 'I don't need a record label. I'll just put my song up on iTunes, and Zumba can be my promotional vehicle.' "

But the industry most influenced by Zumba is still fitness. Its classes are a staple in the major chains: Curves, 24 Hour Fitness, LA Fitness, and others. When negotiating those contracts, Perlman turned down offers of licensing fees, stipulating only that the gyms hire licensed Zumba instructors and participate in joint marketing. David Giampaolo, a Zumba director who is a founder of several health-club chains, predicts that 50 to 60 percent of exercise classes in gyms globally will eventually go Zumba. "Health clubs have been very good at speaking to the same type of person over and over again," says Giampaolo. "Zumba has opened the dialogue to a much wider audience. Their first motivation is enjoyment, so they do it. It's kind of like a miracle."

In March, the company took its first venture money, tapping Insight Venture Partners and the Raine Group. Outside investment is a natural evolution, as Zumba seeks to expand dominion over the worlds of music, fashion, and entertainment. Perlman describes some of the opportunities, including retail-stores-cum-fitness-clubs and the proliferation of fitness concerts. Other companies flood the Hallandale office with proposals for licenses and partnerships. The ZIN community is a fertile source of ideas.

The executive team views all these proposals through two lenses. One: Does it help the instructors? Two: Does it deliver FEJ-which is pronounced fedge and stands for Freeing, Electrifying Joy? It is impossible to talk to any Zumba staff member for more than 10 minutes without that vaguely Yiddish-sounding word popping up. If you understand FEJ, everyone tells me, then you understand Zumba.

In the Orlando Center, FEJ is so pervasive that it delivers a contact high. In a corridor off the hotel lobby, Vida Thorington, back for her fourth convention, greets friends with hugs and happy shrieks. ("Girl, you look so thin! How are you doing?") She spreads a pair of white cargo pants on a table and hands out marking pens. As her friends crowd around to sign the pants, Thorington, a clerk in a Cleveland natural-gas company for 28 years, tells me about two recent trips to Brazil: one to study the music, one to volunteer at Mother Teresa's shelter for women and children. She credits Zumba for exciting her curiosity about other cultures and giving her the confidence to explore the world.

"You see all those people wearing those crazy colors?" asks Thorington, waving to a scene that resembles Halloween in Greenwich Village. "That's what I had inside of me. Society tells you to walk inside the lines, but not here. There aren't any lines in Zumba. There isn't any right or wrong way.

"Zumba is where you get to be yourself," says Thorington. "It opens your spirit."

 

The digital version of this story, about Inc. Company of the Year Zumba Fitness, has been updated to report that Zumba's growth was 750 percent in the past three years, not two.

Last updated: Dec 4, 2012

LEIGH BUCHANAN is an editor-at-large for Inc. magazine. A former editor at Harvard Business Review and founding editor of WebMaster magazine, she writes regular columns on leadership and workplace culture.
@LeighEBuchanan




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