In April 2014 South African entrepreneur Tumi Phake clocked out for the last time from his job at Rand Merchant Bank (RMB), where he worked as a structured-lending specialist, to start his own business.
Despite his experience and having studied a BCom finance degree, it wasn’t the financial sector that Phake had his sights set on.
He is now the sole founder and CEO of Zenzele Fitness Group, a gym management business which operates fully-equipped health clubs for, and in partnership with, various large companies and universities.
Interestingly, RMB – part of the FirstRand group – was founded by three of South Africa’s most respected entrepreneurs, Paul Harris, Laurie Dippenaar and GT Ferreira. In 1977, they established Rand Consolidated Investments with just US$10,000, which later became RMB. Known as the three musketeers, the founders subsequently laid the foundations for the FirstRand empire, with today includes First National Bank, RMB, WesBank and Ashburton Investments.
Despite quitting a job at one of their companies, Phake draws some inspiration from these South African banking pioneers. “Working at a corporate was very valuable and necessary – especially around understanding the governance of running a successful business… But I always knew in the back of my mind that I wanted to have my own company that I could grow and potentially have scale to becoming half-a-billion to a billion-rand business – and that’s my vision. And if someone else has done it on their own, such as FirstRand – why can’t I give it a shot?”
Exploiting a gap in the market
South Africa has a relatively well-developed health club industry, with Virgin Active and Planet Fitness standing out as some of the prominent chains. Virgin Active controls at least 60% of the market. It was established in 2001 when Nelson Mandela reportedly phoned Richard Branson to ask him to save thousands of jobs by taking over the liquidated gym brand Health and Racquet Club. Branson agreed and set in motion what was to become one of South Africa’s most recognisable brands. In 2015 Virgin Active was acquired by investment holding company Brait, in which South African billionaire Christo Wiese is a significant shareholder. Traditionally operating in the premium space, Virgin Active has also launched its lower-cost Red brand.
Zenzele was partly started because Phake spotted an opportunity to service a larger percentage of the population. He says established health-club brands, such as Virgin Active, predominantly cater for high-income South Africans, ignoring “the man on the street”.
“An example is we’ve got three health clubs at a brewery, where it is predominantly a blue-collar workforce and those guys would not ordinarily be able to afford to pay R600 ($45), R700 ($52) a month subscription for a gym membership. And suddenly we’ve built a world-class facility that looks and feels like anything you’d find anywhere in the world, but at an affordable price,” he remarked.
“We had a 50% uptake on that workforce. So essentially half of the workforce is actually utilising the facility. And for me that proves that people are very aspirational, but what has blocked them from being able to access these facilities is that they are expensive.”
Zenzele’s unique business model is structured around offering gym facilities for the staff of large companies. Its clients typically provide the premises and subsidise some of the other costs of running the gyms, allowing Zenzele to pass these savings on to its members.
Companies which currently use Zenzele’s gyms include Hollard Insurance, Alexander Forbes, Discovery, De Beers, and South African Breweries, to name a few. Zenzele is also now present at the University of the Witwatersrand (Wits) in Johannesburg.
But simply offering cheap gym fees, according to Phake, isn’t enough as there is plenty competition in the industry. He said what further distinguishes Zenzele is the quality behind its low price. For instance, he highlighted the fact that it uses Technogym equipment, an Italian brand also found in Virgin Active clubs.
“From a quality point of view, they are among the top three premium brands in the world… There is a lot of technology around Technogym equipment which I really liked. It is very much aligned with my business offering.
“We benchmark ourselves against international standards… You could put us anywhere in the world and we would meet those standards. And I think when people physically come to our facilities, their jaws drop. And I think what makes it exciting is that it is actually affordable at the same time. At the facility at Wits, when people find out how much it is – it’s R167 ($12) a month for the students – they started asking: ‘How? Why is it so cheap?’ And that is our intellectual property – the magic in us being able to make it look amazing, but still be affordable… We are able to produce world-class services, but the man on the street is able to afford it.”
Zenzele also aims to offer more than just gym equipment – it wants to promote corporate wellness. It works with medical experts to develop personalised programmes for members based on their individual aspirations and wellness needs. In addition to incorporating fitness goals, these programmes can also focus on disease intervention for those with ailments such as high blood pressure and cholesterol.
“Essentially going to a fitness centre used to be seen as a ‘nice to have’, but it has actually become a necessity for a lot of people. And a lot of chronic illnesses are mitigated by exercise – exercise being the cheapest form of medication to treat some of those health issues and prevent them,” said Phake.
Another factor giving Zenzele an edge is that it is a black-owned company, which proves advantageous when it comes to corporate procurement. South Africa’s Broad-Based Black Economic Empowerment (B-BBEE) codes incentivise companies to procure from black-owned businesses.
Becoming a pan-African player
Phake started the company with a R5m ($373,000) investment from the Awethu Project, a Johannesburg-based start-up investor and incubator. He said even though he had no experience at that stage, Awethu was impressed with the homework he had done. Three and half years later, Zenzele runs 13 facilities across South Africa.
Now Phake and his company are looking towards expanding outside of the country, with Zimbabwe and Lesotho possibly the first non-South African expansions in early 2018. But Southern African isn’t enough for Phake. His dream is to go pan-African. “In the next five to 10 years we definitely want to have a footprint in Africa – and then basically take over the African space,” he said.
In addition to serving corporates and universities, Phake is also eager to get into the public sector market, where he sees “a massive opportunity in government to basically bring a holistic offering that shows real return on investment”.
However, it isn’t entirely smooth sailing. Phake says he is faced daily with the challenge of consumers placing more trust in foreign brands, than in local offerings.
Phake’s business advice
“No money in the world can help if you don’t have the right people to execute your idea.”
Phake said working with the right team is one of the most important factors for business success. “Having the ability as a founder to identify the right skill set to launch your business is critical.”
Even though he didn’t had any experience in the fitness industry, he was still able to hire the right people to help him launch the company. “Without that the business wouldn’t be where it is right now.”
He further added that business owners need to be motivated by more than money. “Because when things go wrong and you don’t have the resilience to follow through – if the drive is money – you’ll very much quit quickly.”
According to Phake, having the ability to execute a business idea, is much more important than the idea itself. “That is what investors look for – they don’t look for a great idea or an idea that gives people goosebumps, they look for an execution plan. And if you’re able to sit in the room and clearly show [them] an execution plan that will sustain the business for five, 10, 20 years – you are probably on your way to having a successful business.”