This article first appeared in The Edge Malaysia Weekly on May 29, 2017 - June 4, 2017

AFTER leaving Groupon, Joel Neoh jumped back into the start-up world to build fitness platform KFit as a Southeast Asian version of US-based ClassPass.

The value proposition was simple. For a monthly subscription fee, KFit members could access a myriad of gyms, fitness studios and classes.

Things were going well for the first year after KFit’s launch in April 2015. The start-up signed up over 4,000 gyms and fitness studios that, Neoh estimates, covered 80% of such facilities across Southeast Asia’s key cities, namely Kuala Lumpur, Singapore, Manila and Hong Kong. KFit eventually added beauty services and spas to the mix.

But the rapid growth was ultimately unsustainable.

Neoh admits that KFit’s mistake was in underestimating the number of times people would use the platform. This is crucial because the more members used KFit, the more it had to fork out to the partner facilities, which affected its cash flow and margins.

KFit charged members a fixed subscription rate and paid a variable fee to gyms and fitness studios each time users accessed a facility or class. This means KFit was essentially subsidising very active members who accessed the facilities more often than estimated.

The pitch it made to gyms and fitness studios was that they could sell their excess capacity to KFit.

“In the first six months, we realised that the better the product that we built, and the more gyms and studios we got on board, the more consumers would use the product. It wasn’t sustainable,” says Neoh.

What KFit did next was to impose a cap of 10 visits a month. Eventually, it increased the monthly subscription price from the RM99 it started off with to RM139 today. It now also sells one-off access to classes.

The numbers were clear. Around 8% of the members were using KFit between 20 and 30 times a month but 92% were using it less than eight times.

“We had to sacrifice the 8% to make sure the product remained true to what we wanted to solve, which is fitness for everyone. That was one screw up, but we had to make a tough call,” Neoh says.

KFit was not the only one grappling with this issue. Similar platforms in the US and Europe too were facing the same problem, as Neoh found out.

The decision to cap the number of monthly visits caused several sleepless nights. He made multiple calls to other operators in developed markets to find a solution.

“We had to make a hard call — either increase the [monthly] price tremendously, pay the gyms and studios much less, or put a cap to it. Paying the studios much less would make them unprofitable. Increasing the price tremendously would make KFit a niche product,” says Neoh.

KFIt was the first to make the tough decision, and later on, ClassPass also had to make a similar call.

A lot of the time, being able to  make hard decisions and make them fast is like a bonus, Neoh says. “The reality and facts are in front of us. I think just bite the bullet, move fast.”

KFit is still operating and has several thousand customers in each of the cities it is present in. But by year end, KFit will be integrated into the Fave platform, under the fitness category.

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