Transcript

The business case for wellness, with Wellhub CEO Cesar Carvalho

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0:53 Hey folks, Jeff Berman here. I am thrilled to share some of the new names who will be joining us at this year's Masters of Scale summit. This may be our biggest stage yet. Reed Hastings, Meredith Whitaker, Van Jones, Amjad Masad, and more. Will be there with us October 20th through 22nd in San Francisco. If you're building something great, or you want to build something great, We want you there with us too.

1:20 Join us at masters of scale dot com slash apply twenty six. That's mastersofscom slash apply. Twenty six. Working from client to client. Many hours not being able to prioritize.

1:42 Well being physical activity at all. This is a real problem. А за реценковорки Culting Firm McKinsey in Brazil. Cesar Cavallo's work days were long. Epically long.

1:57 For the first time in his life, he wasn't making time for physical activity. His health started to suffer. І реаліз і кун суд і не карі. If he didn't make some big personal changes.

2:11 The business case to me is quite clear. Resilience. is probably the most important quality that every single employee needs to have. More active employees. They get sick less often.

2:26 And there's no way to have great resilience if you're not sleeping well, if you're not active, if you're not at your best and well being. Cesser realized he wasn't the only one with this problem. It's why he co founded Wellhub. The B2B service that gives companies a way to provide their employees with access to everything from gym memberships.

2:51 It took a significant pivot. And a very big name change for Cesar's company to survive its early days. Today. It's valued at two point four billion dollars.

3:07 You gotta have incredible talent at every position. Huge push. There are fires burning when you're going out. Can you believe it? Such an idiot. And then you go back to this is totally gonna be amazing. There are so many easy ways. Sorry, we made a mistake. But you have to time it right. Oops. Not ball ten years later, well that's just how you do it. We haven't made just how you do it. This is masters of scale.

3:42 I'm Jeff Berman. Your host. Cestar Cavallo built Wellhub from the ground up. And it now serves about four million people in eleven countries. We talk about how he worked through a barrage of challenges, including a once in a century pandemic, and scaled Wellhub into a global leader.

4:06 Sessar welcome to Masters of Scale. Thank you for having me, Jeff. I'm thrilled to have you. I've been very excited about this conversation for a whole bunch of reasons. like many of the founders we have on Masters of Scale, you're an immigrant, you're from Brazil, your grandparents were, as I understand it, they delivered milk for a living. How is it that we're here today having this conversation? It's

4:29 A story that shows the power of education. My grandparents were illiterate delivering milk door to door, and my dad and mom were the first ones in our families to get an education and they move to what they thought was a large city. This tiny town in the countryside of Brazil. And where I was born and grew up.

4:48 When I got to college age, I moved to Sao Paulo, the largest city of Brazil, went to the Saint Paulo University to study business, ended up working for McKinsey, and I think that was when A lot of things in my life changed. One because I was working. Fifteen hours a day. As one does at McKinsey early in a career. Exactly. And I was into All this

5:10 work, the stress, and I couldn't even Get my head. understand uh what was happening around me. Not long after starting at McKinsey, his bosses encouraged Cessar to get his MBA.

5:25 He went off to Harvard to do that, and that's where the idea for his wellness business first hit him. It was in the middle of an HBS class. It was a strategy class, and we were discussing a gym chain in the US. And Can we name the gym chain? They don't exist anymore. It was belly fitness. But it was a story about how important

5:48 New members was for belly. Essentially. Yeah. cost structure of a gym is rent, the equipment, so it's mostly a fixed cost structure. And there's an incentive to bring as many members as possible. And I said, What if

6:04 There could be a solution. that would bring back to the industry people that at some point in time in the past had a membership didn't use potentially, got frustrated with it. But now if this new method using this technology that would bring them back.

6:21 And therefore generate incremental revenues for gyms studios. And so that was They spark, you know, in the middle of the class. I logged off. Started writing. the idea the value proposition uh on a piece of paper

6:35 And You know, six months later I was dropping out. What was that initial vision? As you sat in that classroom and you're tuning out the class and you're feverishly scribbling out, what did you see exactly? So the vision there. Was For

6:49 a platform that would sell Day passes To consumers. So it was a direct to consumer business, not what we have today. We're full B2B today.

7:00 The name was Jim Pass, not Wellhub. And uh The last component of it was that there was always this focus of bringing back to the industry people that were frustrated by something, uh, with either gyms or studios or apps, whatever it was. And our idea was to Find

7:19 A more efficient way for people to pay less and still have access to Gyms and Studios. We learned a lot. We pivoted the business several times, but that was the original concept. And day passes were not a new concept. What was your spin on the day pass concept as you were formulating the idea? Yeah. Because for gym and studios, most of the revenue comes through subscriptions and their right to push people to subscriptions and not the day passes. Recurring revenue is a beautiful thing. Exactly. So what they rightly did at that time was to charge

7:49 Extremely high fees for day passes. And It made sense, you know, because then you're not cannibalizing what is what should be the main product. Our pitch to them at that time was like instead of selling it directly and risking cannibalizing your own subscription module, sell it through us. And it should be a fair price. You know, we wanted to price the day passes at that time at in such a way that if you are going twice a week,

8:16 You're indifferent between a subscription And Buying their passes. From what was Gym Pass then. And they accepted. They wanted a new channel.

8:26 None of the gyms and studios at the time were big on internet, on online marketing, on digital marketing, and we provided all of that to them. Yeah, and you're also a marketing channel, right? Because someone might discover a new gym through you was part of the value proposition, I assume, for the gym. It was most of the value proposition. They would be willing to give us day passes for free if we were promoting uh their gyms as they were. So you have this epiphany, the clouds part, the angels sing as you're sitting there in class and and you are getting it out on paper.

8:56 What happens over the intervening weeks and months that you get the confidence and the funding To drop out of business school and go launch Gym Pass properly. The first part was getting my co founders on board. I'm a first time entrepreneur. I've been doing this for almost thirteen years now. Still feel like it's day one, but

9:15 I think The confidence. The support. And the relationship I got with my co founders was probably the most important thing.

9:25 One of the co founders dropped out of his MBA at MIT with me. the other one had a job offer to start working at Baynin Company, one of the main consulting companies out there. And he also gave up on the offer and the fact that we were all Making this commitment together.

9:42 meant a lot. One of my co founders worked with me at McKinsey. He was the smartest he is the smartest person in the room. There's no one that is brighter than him, that has such a Logic

9:57 deduction process to making decisions, et cetera. He's the best one at that. And my other co founder Went to the same university I did. and has the biggest heart I have ever seen. Like it's the person that is the happiest person I know And it's someone I look after when I'm thinking about how can I become a better person as well. So really head and heart were the two co founders. Yeah. Wonderful. So you're at

10:20 one of the very best business schools in the world. You are on this path at McKinsey, but you have this vision, you find these co founders What was the must for dropping out of business school and pursuing this full time. It was Going to be a very difficult decision.

10:37 But It turned out It wasn't. And the reason was That I had

10:44 such great connections with people from from HBS And They wanted to incentivize employ the the students to let go and start ventures and it in the end, HBS gave me up to five years. to come back at any point in time if I wanted. Mm-hmm. And

11:01 So did McKinsey. Mm. It was one year. On McKinsey's side. Five years on HPS. And that really helped me because

11:09 Coming from the family. I came. And having the parents I had, I don't know if I would have made that decision if it wasn't for the support from both HBS and McKinsey. It's quite a safety net to have two safety nets. A free call option everyone should take if they have the opportunity. And if they have an idea, if they have the right co founders. Yeah. So you need money to start a company. Where does the seed funding come from? First round was when we're still

11:36 At PowerPoint, not a product at all. And essentially it came from friends And people I worked or one of my co founders worked with in the past. And that was very fortunate. that we got that because we needed that money. We had to pivot the business a few times before finding product market fit. If we didn't have the money, probably, you know, the company wouldn't be here. How much did you raise in that in that first seed rate? Uh two hundred thousand dollars. One of the challenges of a two sided marketplace like this is

12:08 it it's a little bit like opening a nightclub. You you've got to have the the DJ book to show up and and provide the music and the entertainment, but you need the customers there also. And how did you balance trying to sign up gyms that would be your partners on the one side and customers because there's sort of a chick and egg problem there, isn't there? Yeah. There is and When we made our first pivot to B2B, it got even worse because we needed to convince not only

12:38 the subscribers, people and the partners, but also companies To invest on the well being for their employees. But in the early days. It was brute force on both sides. Sign as many partners as you can. Be very smart about which partners you're signing first, in which locations, which neighborhoods.

12:55 And trying to get every single data. You can too. prioritize the right ones. We were distributing pamphlets on the streets. We did online marketing. It was brute force.

13:07 I just wanna understand when when you're going to I don't know. Equinox or Core Power, orange, whatever fitness group you're going to talk to, I presume that the person you're talking to is saying, Well, how many people do you have? What's the market size for your your customers? You don't have customers yet. What was your pitch that got them to to get on the platform? I shared division. And and in the end

13:32 What we proposed was almost risk free for them as well. You know, because if we didn't bring any members to them, like it wouldn't cost them anything as well. And we spoke to something that really mattered to them, which was bringing new members. Still ahead, how listening to a single customer inspired a pivot to a different business model and unlocked a whole new level of success for Wellhub. Humans will never be more intelligent than AI. There's gonna be two types of companies. Those were great at AI and those that went out of business because they weren't. How do we build a future? That is human centered.

14:29 I'm Rana El Calyubi. And on my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week I sit down with the pioneers shaping our future. and we take you behind the scenes of the AI that's transforming our lives.

14:54 Find pioneers of AI wherever you tune in. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show because every Friday we release a second Rapid Response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely. From Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. Welcome back to Masters of Scale.

15:39 You can find this conversation and more on our YouTube channel. Cessar's startup wasn't growing fast enough as a service that connected gyms to individual customers. He needed to make a big change in the business model if the company was going to survive. Mm.

15:58 Things were not going well. As a B to C as a B to C company. It wasn't working and then In trying to figure What to do?

16:08 You know, I started answering. Customer calls. And one of those calls. was a great one and like was this guy

16:18 A user. And he used five different gyms using the day passes we had. And essentially he was the HR director of P W C Pricewater House Coopers in Brazil, and he said, Look I love what you guys do.

16:33 I'm on different places all the time because I have to visit the different offices. And My employees are now asking me like for Some sort of gym wellness benefit. And I don't wanna go and sign contracts with all these gym and studios. I don't wanna give them just a reimbursement.

16:51 Because I know they need flexibility and they need options. And essentially he pitched the business model, the B2B business model to us, he said, look, I wanna offer this to my employees. But you know, I don't want them to be paying for every single time they use. Just give them a membership, unlimited access to different locations. We're gonna deduct something off their payroll. to make sure that they appreciate this and they sign up to this benefit and I'll pay the difference.

17:17 And When we launched In three days. We triple the number of users we had on our platform. And for the first time.

17:26 Everyone was happy. And that was because of P W C alone as a as a first client? Because PWC alone is a first client. They had ten thousand employees in Brazil. And PWC was happy. The employees were super happy having access to all those partners for a lower price. And our partners, the gyms and studios, suddenly they saw thousand people coming to them that were not members. And at that time we kind of stopped doing Everything else we were doing direct to consumer.

17:55 And funneled. all our resources into getting more companies To offer Wow Hub to their employees. So I'm guessing if you'd called one of your Harvard business school professors and said, we're gonna move to a B2B model. They would have warned you. that selling in through the HR function is one of the most difficult things to do.

18:14 And this is gonna be an uphill battle. Did you have an instinct that that might be the case? For sure. No. I think every single B2B channel. You open.

18:24 or client you want to serve. It is Indeed an uphill battle. Like it takes months to sign every single deal. Like There are number of people you need to sell into. Like it's not only HR.

18:36 It's finance, it's the purchasing area, uh, vendor management, infosec. And I guess it's when not knowing helps. We just had one And it was so magical to see we wanted to see more of those cases.

18:54 And It took some time, a few months, to get the next client to sign. And to perfect our strategy. What we found was that it would be Very hard to get a company that

19:07 was very distant from PwC to sign. Right. But If you hire people from PwC If you were competing with them head to head.

19:18 And if all the other employees of your competit are seeing that that's a great benefit, that would naturally make the next best client for us to sign. And that became a little bit of our commercial strategy. We went from PWC to all the other players that compete on the same space and got them as clients as well. So UI came next, KPMG and Deloitte came next. This is a concentric circle theory of growth. And our second large client was Unilever in Brazil. Then we got Procter Gamble, J N J, all the other ones to sign afterwards.

19:51 And It has been a strategy we used. Not only escale no Brasil, mas to to expand internationally. Because

20:00 The next step for PWC was to launch PWC in Mexico. Then we launched a Spanish bank in Brazil, in Mexico, and in Spain as well. And eventually signed a global deal with another client that led us to launch the US. And did you just then start laying it out category by category? Here are the top players in the categories. If we can land one, then we'll go hit the others in that category. Was that was that how you approached it? One hundred percent. And we normally would start with the company

20:29 That was perceived to be the company that appreciated employees the most. Like because Those are the More

20:41 Higher margins. And that they're growing faster because they appreciate their employees. They offer this type of benefits to their employees. And when they looked that the value proposition, the solution that we're doing, they were the easiest ones Uh to convert. Well, and I love that filter. It's not necessarily the perceived market leader or the the market leader by revenue. It's the one that is is known for treating its employees the best. And they may well also be the market leader and the other on the other factors, but I love that as the filter for what you were taking to market. It's a It was unique to your business. One hundred percent.

21:15 You'd be surprised by how positive the correlation is of those two. So you pivot to this B2B model. Your Brand is still Jim Pass. I remember learning about you as Jim Pass.

21:27 It's a great brand. It does exactly what what it says it does. And it's not easy to build a brand. You made a decision to abandon a brand that had pretty darn good name recognition. People knew what it was. And rename the company.

21:43 Why'd you make that decision? Look. It started With Covid. Up until then.

21:49 All we had as part of our offering was about access to gyms and studios. In person. When gyms and studios closed Our mission to

22:03 give people access to physical activity became even more important at that time. And what we're our clients wanted was also the same. You know, like when companies send their employees home Getting the employees engaged with well being and a great state of mental health, et cetera, was even more important than before. So

22:22 In response to that, we started signing. The same way as we had partnerships with gyms and students, we started signing different wellness. Eps. And aggregating them to our offerings. Strava, if you like to run outside, Apple Fitness Plus. If you like to exercise at home.

22:41 We also started signing Apps on meditation. And mindfulness. Headspace is an amazing example of a partner. On the nutrition side of the house. My fitness spell.

22:53 Nutrium, nutric. They all offer access For people to go and do appointments with nutritionists so that they eat better. Sl Sleep sleep cycle is an amazing partner. So the offering expanded to all these different verticals of wellness. And very quickly.

23:11 Our clients would have this moment in the conversations with us saying, Wait. But you became way more than just a gym ass, right? You have all these other a parts of your offering so much more holistic than before. And we noticed that from clients, we noticed that from investors, from subscribers. Everyone was saying, look, it's way more than this. When I

23:32 No, made the decision we needed to change the name because the brand was somewhat restricting the message we wanted to share with everyone. And it took two years. To find a name that was equally descriptive. as Gym Pass was when it was just about access to gyms.

23:50 And then came Wellhub. Well hub being the hub. for everything related to wellness. We are a ear into. The transaction.

23:59 In in the majority of the markets people search more for Well Hub than for Jim Pass. All right. One of the stories that we saw a lot as we went through and then coming out of the pandemic. from fitness and wellness companies was demand was pulled forward. Right. This is Peloton probably most famously. There was enormous demand pulled forward.

24:18 Um, you're seeing this hockey stick growth. And then as COVID restrictions came down and we started going back to gyms and socializing more The trend line went in the wrong direction. How have you all managed the coming out of COVID? Let me take a step back. I've been working on this space for thirteen years.

24:37 And There's something very interesting I realized. Being on the space for all this time. Every two years. There's a new trend in this space.

24:48 When I started what was Jim Pass back then. Zumba was the thing. Everyone was talking about Zumba every single day. It was the activity everyone did. And There's still a die hard fan base of Zumba today. It's an amazing solution. We partner with Zumba. I love them.

25:05 They're still there. And then CrossFit. started being the thing. Everyone was talking about CrossFit all the time. And it peaked, and now we're seeing the rise of the racket sports. Picobo, pedo, and in different countries there are different flavors. And the true recipe for longevity in this space is working with all of them, is being the platform that's gonna be relevant no matter what.

25:28 I don't know what's gonna come next. You know I don't know what the new trend will be. Do you have a prediction? No, I don't. No, can you see your data? Can you start to see Things rise from what what people are using? We can and I'm seeing I wouldn't call this a prediction, but I'm I'm seeing

25:45 A few changes in user behavior. One is towards strength training. We're also seeing a trend. Uh. when people exercise

25:55 It's changing. It used to be always in the mornings and on Mondays and Tuesdays We're seeing people replacing happy hours with wellness hours. So the most use time for physical activity now is on weekdays, but at five or six pm after work.

26:16 And it's such a healthy habit and we're seeing companies more and more push for that. Eliminating alcohol in Company Gatherings and pushing for those type of activities. Well it's it's interesting and it may be correlation. It may not be that may be causation, but

26:31 We're seeing a lot more data come out more more scientific reports about the importance of muscle mass, right? And and about the harms of alcohol. And so is your instinct that those are tied together? Yes. And they're here to stay. Yeah. Wellness and well being they have been a secular trend.

26:50 A topic that no one would talk about 20 years ago, but now it's more and more prevalent. And if you look at the youngest generation, it is their most important. attribute when we survey Employees in general, not only clients. You know, they're ranking wellness and well being as being as important as salary to them. And to me it i it is a dramatic shift and with the new generations coming and valuing it even more, you know, like it's gonna be a business imperative in the future. And is this true globally, not just in the US? One hundred percent. Globally. In every single country.

27:25 And Wish wellness and well being the Interesting thing is that uh uh the needs are the same across the board. Every single company wants healthier and happier employees, every single person wants to live better. have better mental health фізико And this is why I get so motivated.

27:44 doing what I'm doing. It feels like Um the more we grow, the more we help Access to wellness should be like a universal right. It's a profound mission. Um how big is Well Hub today?

28:03 We Now work in eleven countries. We partner with more than twenty two thousand different companies. Offering. Well hub to their employees.

28:14 And we have about four million subscribers, employees of those companies that are visiting our different partners in all these different countries. We have sixti tausen. Gyms and studios partnering with us. And we partner with the one hundred best. Digital apps.

28:31 For wellness. Available in Apple Store or Google Play. Uh, we normally have three of the top five in every single category, and they're all included in the same membership. The company has Wowhub has about two thousand employees.

28:45 And we've been growing really fast year over year, following this trend that everyone's talking about. Wellness for everyone. what in as you look at this next phase for Well Hub. What's your biggest challenge and what's your biggest opportunity?

29:00 They're correlated. Growth for us comes In two ways. And Spreading our mission to more companies.

29:08 We have twenty two thousand clients, as I said. We should have two hundred thousand clients. This should be a standard benefit that every single company offers. So there's a challenge on how to spread the word faster, how to get more companies to talk about this and to implement. to invest in the well being of their employees.

29:25 The second one. It's more related to the employees themselves is how can we get More people. to subscribe. Now one of the best things we do is whenever we launch a client. We triple the number of active employees.

29:39 because our plans are super attractive, flexibility, lower prices More options. Everyone loves that. But You know, we're still

29:50 Engaging. Forty percent of all the employees of a given client, thirty to forty. There's no reason why it shouldn't be one hundred percent. You know, everyone would benefit from sleeping better. Eating healthier. From exercising.

30:04 from meditating. So driving that enrollment rate up. Is a second thing that I'm uh I'm deeply passionate about and I'm working hard to have uh made it you get to do good and do well at the same time. Um I want you to imagine a CEO calls you as soon as we wrap this conversation and he says, Uh look uh or they say I I know that the the number one thing we can do is sign up for Well Hub and number two thing we can do is encourage our team members to participate. Number three is to sign up for multiple services, but outside of working with Wellhub. What can I do? What can we do to best promote

30:40 wellness among our team. What's your guidance for that CEO? My guidance would be That Well being is not only about offering the resources.

30:54 It is about the culture create. in your company and to your employees. So what we see is that The employees that are at a great state of well being they tend to stick longer. With their employers? They're forty percent more likely to stay.

31:10 than employees that are not engaging with well being. And They are better co workers. They collaborate better and they Interact better with each other. And when I see

31:22 A culture of Trust. Empowerment and feedback. I see companies thrive. And I'll touch a little bit on trust in like when

31:33 Leaders trust their employees and trust deeply trust. Trust like a trust. Your spouse. Right. You don't need to be checking on everything that your spouse is doing all the time. You don't need to know where your spouse is at one hundred percent of the time. That level of trust. When you have that level of trust, you naturally empower the employee to make the right decisions for them.

31:55 and making the right decisions for them and for the business. makes that that employee Reach the optimal point of Their well being. regardless of how they get to that.

32:07 the right trade offs between social well being, physical well being, mental health, and delivering results for the business. And To that CO would say you would be surprised. Bye. how much happier people would be.

32:21 And how much more you'd get from them. For your business. I can't think of a better place to wrap our conversation. Thank you so much. Thank you so much, Jeff, for having me. Cesar's unrelenting belief that

32:38 Everyone deserves access to wellness options was instrumental in his company's meteoric rise. He merged passion with purpose and built a massive and massively influential company in the process. It's an inspiring mission. And he cleverly tackles a gap in the benefits of most companies with a service that makes prioritizing health more flexible. And more fun.

33:05 I'm Jeff Berman. Thank you for listening. Masters of Scales await what original. Our executive producer is Eve Tro. Our senior producer is Trisha Bobida.

33:19 The production team includes Tucker Legirski, Masha Makutunina, and Brandon Klein. Our senior talent executive is Stephanie Stern. Mixing and Mastering by Aaron Bastanelli and Brian Pew. Original music by Ryan Holiday. Our head of podcasts is the tall Malad.

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