Strongman PresidentSteve Nero has ledStar Trac to grow and diversify

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Once best, and primarily, known as a sourceof high-quality treadmills and stationarybikes, Star Trac has, in just four years, rein-vented itself as a full-service equipmentprovider and, in the process, become one of the industry’s fastest-growing privatelyheld manufacturers.

“The way Star Trac has turned itselfaround has been pretty stupendous,” notesTherese Iknoian, the cofounder and editor-in-chief of SNEWSnet.com, a retail-fitnessonline news service. “The company alwayshad solid, reputable treadmills, but it’s trans-formed itself into a company with sparkle.

“It’s not just the new products thathave differentiated it,” she observes. “It’s the energy exuded by the people atthe company. There’s an excitement, ingeneral, about everything they’re doing.”

The qualitative shifts have yieldedimpressive quantitative leaps:

Four years ago, in 2004, Star Trac hadmanufacturing facilities in its hometownof Irvine, California, and in Taiwan.Today, it has seven plants, including onein Irvine and two in Murrieta California,plus sales and service locations in Europe(the U.K., Barcelona, Spain, and Munich,

Build, Grow, BRAND!

In a few short years, Star Trac has quietlybecome one of the industry’s fastest-growing,privately held equipment manufacturers

By Jon Feld

iIt is one thing to build a business. It is another thing to growa business. The things that the right team can achieve may be critically important. The ends that the right individual canaccomplish may be awe-inspiring.

These are facts of life that apply equally to health clubs, consultingfirms, industry associations, and fitness-equipment companies, andones that Star Trac, in particular, has come to appreciate deeply.

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Build, Grow, BRAND! continued

Germany) and Singapore. Back then,it had annual revenues of approxi-mately $80 million; this year, itexpects to double that number and topost much better overall margins.

Although he’d likely deny it, SteveNero, a newcomer to the industrywho was named president of StarTrac in June 2003, has had much todo with the metamorphosis. “It’salways great to have new peoplecome into the industry,” says DavidDinerman, the executive director ofthe Fitness Industry Suppliers Associ-ation (FISA), a manufacturers’ tradegroup. “The new management teamhas had a positive impact both on thecompany and the industry. Nerodeserves a lot of the credit, but he’dbe the first to point out that he didn’tdo it by himself.”

A NEW COURSEIn 1987, James Doody, a Californiabusinessman and investor, becamethe majority shareholder in Star Tracand, subsequently, its CEO and chair-man. Over the years, he watched,with satisfaction, as the companysolidified its foundation, reputation,and success. But, as time passed, he

became increasingly concerned aboutthe disparity between Star Trac’s performance and what he regardedas its true potential.

The company, he felt, was both the beneficiary and victim of its owngenetics—its past history, strongindustry roots, and its sense of itselfand its prospects.

“We’d been in business for quite awhile, and had sort of grown likeTopsy in the sense that we had agroup of people experienced in, anddedicated to, their field, but most ofthem hadn’t come out of large formalorganizations,” Doody explains. “We’dmade our way to where we were bydint of enthusiasm and sheer perse-verance, but without the sophisticatedbusiness processes that would allowus to grow beyond a certain size.”

The market, Doody was convinced,was healthy and would continue togrow, and he was determined that StarTrac match—or surpass—its progress.

“I was looking to upgrade,” he says.“We had to develop a strong infrastruc-ture of procedures and processes inorder to become a larger company.”

Doody began to study other firmsand executives, and his search to“upgrade” eventually led him to Nero.“When I heard about his background,”Doody recalls, “I thought, ‘This isexactly what we need.’”

At the time, Nero was the executivevice president of marketing and engi-

neering at ADAC Laboratories, amedical imaging company

in Silicon Valley. Theindustry he was in was

of less interest to Doodythan how Nero had grown

the business. During his 12-year tenure, he’d taken it from an$80 million-a-year company to onewith annual revenues approach-ing $500 million and increasedits market share from 10% to 50%—a particularly impres-sive achievement given competition from such glob-al heavyweights as GE,Siemens, and Hitachi.

“He’d taken a relatively small business and grown it into one of thebest-run, best-organized companiesaround—evidenced by the fact that, in1996, it won the prestigious MalcolmBaldridge National Quality Award.”

“Doody contacted me and asked meto come look at Star Trac,” recalls Nero.“At first, I was apprehensive—it was adifferent market. But the day that Iwalked in the door, I recognized thesame passion, energy, and commit-ment that I’d seen at ADAC 15 yearsearlier. I knew that I wanted to be apart of it!

“I was convinced that I could helpwith strategic planning, productdevelopment, and leadership andorganizational skills, but, otherwise,the company had all of the rightingredients,” he continues. “Star Tracis selling to a club owner to providea better experience for the member,as opposed to what I was doing atADAC, which was selling to a hospi-tal to create a better experience forthe patient… but it was still aboutcapital equipment; and the sellingstyle was similar.”

PRODUCT DEVELOPMENTDuring his first six months at Star Trac,Nero got directly to work—acclimatinghimself to the industry, developing astrategic plan, and fabricating a newproduct-development engine. “I cameat it with a fresh set of eyes, and discov-ered what I thought were some greatuntapped opportunities,” he explains.“As far as I was concerned, the marketleaders weren’t really pushing the ballforward in terms of bringing newmembers into clubs; they were simplyaddressing the needs of the people whowere already participating. I realizedthat, to fulfill our mission and to betterserve the needs of the deconditionedand seniors markets, we were, first,going to have to become a full-serviceplayer, offering cardiovascular andstrength equipment and entertainmentoptions. Then we could begin address-ing the unmet needs of people whowere already in clubs, as well as thosewho were on the cusp of joining.”

Star Trac increased its leveraging ofits partnership with Mad Dogg Athletics

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HumanSport is StarTrac’s functional line

Star Trac has made wise use of partnerships in a numberof ways to grow and otherwise improve the business and, now, is relying on them to help it build its brand. “In

particular, we like to support events and organizations that promote fitness as an integral part of a healthy lifestyle. It’sconsistent with our mission,” explains Randy Bergstedt, thefirm’s vice president of marketing “Each event or organization is geared toward maintaining healthy habits, and we want to bein a position to help make healthy lifestyles a priority around theworld.” A sampling of its initiatives includes the following:

• Teaming up with Shaq—The company supplied cardio equipment for Shaq’s Big Challenge, aprimetime reality show that aired this pastsummer on ABC-TV. The goal of the program was to transform six obese middle-school children from Florida intohealthy, fit kids, with NBA SuperstarShaquille O’Neal providing the motivation andhis own handpicked team of experts. Star Tracdonated several Pro Series treadmills and steppersto the YMCA of Broward County in Hollywood, Florida, where the show was filmed. Each child alsoreceived a stepper for use in their home. At the endof the series’ first season, all six children hadreduced their weight, body-fat percentage, and BMI,and had improved on their stress tests.

• Working with SANO LA—Partnering with “The Dumbell Man”(CEO Michael Garvey), a Los Angeles fitness-equipment dealer, Star Trac is assisting the University of California’s SANOLA (Strength and Nutrition Outcomes in Los Angeles) study. Theprogram is designed to provide minority youngsters and

their families with a new attitude about exercise and nutrition, and, at the same time, to identifyactivities that might help eliminate childhood obesity. Star Trac and Garvey donated equipment

for use in the study and both are supporting theprogram in other ways.

• Supporting AIDS research—StarTrac, in support of the AIDS Research

Alliance (ARA), donated several Spinner Pro bikes for Crunch Fitness’ recent “Revolutions

3–Cycling for Research” fundraisingevents. All of the funds raised went

toward HIV/AIDS research.

• Outfitting football’s “Masters”—Asthe official outfitter for the Fitness Areas

of the Masters Football tournament in the U.K., Star Trac is helping the tourney’s320-plus ex-pro players remain active in the game.

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BUILDING THE STAR TRAC BRAND

Big Challenge from Shaq

to be the exclusive manufacturer of itsSpinner bikes, and embarked on aseries of important acquisitions andalliances. In 2005, it acquired theassets of Flex Fitness, a strength-equip-ment company; in ’06, following itsacquisition of HumanSport, it unveiled66 completely new products, includingits Impact, Instinct, and HumanSportstrength lines; and, earlier this year, itpartnered with MYE Entertainment to offer its clients a wide range ofentertainment solutions.

“At one point, Star Trac lookedaround and realized that, if they weregoing to grow, they had to round outtheir product lines. What they did, in acquiring Flex, for example, was similar to what Cybex, Nautilus, andPrecor have done,” assesses Diner-man. “They’ve been careful andmethodical, and have grown veryintelligently—that’s clear.”

And the hoped-for results haveaccrued: “We judge our success byboth market share and market per-ception,” points out Nero. “In Spin-ning, for example, we now have abetter than 50% global share. Instrength training, we went from zerounits sold to more than $30 million inannual sales in just two-and-a-halfyears, and now enjoy a 10% marketshare—which is a pretty good start,given the entrenched competitionthat we’re up against.”

MANUFACTURING PROGRESSNero’s background in engineeringand quality control has paid specialdividends for Star Trac’s manufactur-ing component—both in terms ofprocesses and acquisitions. The com-pany’s choice of Flex Fitness, forinstance, was as pragmatic as it was

promising, observes Dinerman. “StarTrac was smart enough to acquire aline that they needed, which was alsowell-manufactured, so that they couldget it to market quickly,” he says.“They didn’t have to do a lot of reengi-neering or distribution work. It wasn’ta perfect or seamless process—but itwas close.”

The move into strength equipmentwasn’t without its challenges, Neroacknowledges. Learning the inventory,distribution, and lead-time require-ments consumed a lot of management’stime, but, he says, it’s allowed the com-pany to offer more applications andtraining on a wide range of products.

Nero has also pushed hard on themanufacturing quality and efficiencyfronts. One of his first steps was tobring in a quality-control leader fromGE with extensive experience in SixSigma production. “The entire organ-

ABC/MARK ASHMAN

Build, Grow, BRAND! continued

ization is now dedicated to quality control,” reports Nero. “We’ve madehighly accelerated life testing, temper-ature and power testing, and vibrationtesting part of our overall process. Ifwe take care of quality first—it makeseverything else easier.”

Star Trac has also employed itspartnering skills to good effect inmanufacturing. Of its seven manufac-turing facilities, only its two Californiaplants are corporately owned. “Whileour manufacturing partnershipagreements differ somewhat, thebasis for each is a shared-net-incomemodel,” he explains. “Our partnersshare both the risks and the rewards.It’s a structure that allows us to createa dynamic, efficient, flexible infra-structure at a lower cost. With achanging global economy, you don’t

want to be locked into a single manu-facturing infrastructure. With sevenfactories, we have some built-inredundancies in case one goes down.”

AN ENDURING LEGACY“What we’ve really done over the pastfour years is to transform ourselves from a manufacturing company into aproduct-development company,” reflectsNero. “Our next evolution will involvebecoming a market-leading brand withnew products that leverage technologyto improve the enjoyment, efficiency,and effectiveness of exercise for both fitness participants and nonparticipants.With only 12%-14% of the populationcurrently working out, we see a hugeopportunity to create rapid, substantialchange in the latter market.”

Jason Buelna, Star Trac’s globalservice technical manager, no longerhas any doubts about Nero’s grand,or grandiose, goals. “What I’velearned from Steve is that we canaccomplish more than we think wecan,” he says. “Each year, I’ve heardhis presentations to the company, andhe talks about all of the things thatwe’re going to be doing. And I sitback, and think, ‘Yeah, right—if allthat happens, Customer Support isgoing to get buried.’

“And then a year goes by, and wehave another meeting, and Stevepoints out where we were, and wherewe are now, and, sure enough! Wedid what he said, and we didn’t getburied. We made it happen! It justblows me away.”

If Nero’s forward-looking manage-ment and optimistic predictions hold,what will that mean for Star Trac? Isthere a limit to the investment group’simpressive patience? Does an exitstrategy exist? Is a sale or publicoffering in the cards—soon or at anypoint in the future? “The ownershipwants to build a great enduring company. We’re not looking to beacquired or to launch an IPO,” insistsNero. “But I’ve been around longenough to know that you never saynever. For the moment, though, we’recompletely focused on both our short-and long-term goals.” Those includetripling the company’s strength revenues and doubling its total revenues within the next three years,and tripling the company’s size—viaorganic growth, partnerships, andsmall acquisitions—by 2010.

“Star Trac was always a good solidcompany, but now it’s somethingmore,” concludes Iknoian. “Nerocame in, and took it to another level,and now it’s clear in every productline they produce.

“I have to give Jim Doody a lot ofcredit,” she says. “He was willing tolet go—let the company grow up andbecome something else. He was theone who saw the possibility and,then, made it happen.” n

JON FELD is a contributing editor for CBI and can be reached at jon@trendline-co.com.

Full circuit Instinct line includes nine multi- and 12 single-function machines

What makes the rapid growth Star Trac has achieved even more impressiveis that it’s all been self-funded via earnings generated by the business. Howhas that been possible?

Incredibly, over the past two decades, Jim Doody, the company’s CEO and chairman, and its 14 other investors haven’t taken a single dime from Star Trac’sprofits, choosing instead to reinvest in the business. “They want to make a difference in the world and create a true legacy,” observes President Steve Nero.“I feel privileged to be involved with the company and to be part of an industry thatcan help people make a meaningful change in their lives. It’s rare to have an ownership and management team that isn’t overly focused on the short term—it’sreally unique and freeing. As a result, we’re able to make better choices regardingthe company’s long-term best interests.”

FIVE-STAR INVESTORS

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