The business case for wellness, with Wellhub CEO Cesar Carvalho
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Head to attio.com slash MOS for 15% off your first year. That's A-T-T-I-O dot com slash M-O-S. Working from client to client, many hours not being able to prioritize well-being, physical activity at all. This is a real problem. As a recent college graduate working for the consulting firm McKinsey in Brazil, Cesar Cavallo's work days were long, epically long.

For the first time in his life, he wasn't making time for physical activity. His health started to suffer and he realized he couldn't succeed in his career if he didn't make some big personal changes. 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.

And there's no way to have great resilience if you are not sleeping well, if you're not active, if you're not at your best at well-being. Cesar 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 to meditation apps. 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 $2.4 billion. You've got to have incredible talent at every position. It's like this 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 going to be amazing.

This is Masters of Scale. I'm Jeff Berman, your host. Cesar Cavallo built WellHub from the ground up, and it now serves about 4 million people in 11 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. Cesar, 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 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 moved to what they thought was a large city, this tiny town in the countryside of Brazil and where I was born and grew up. When I got to college age, I moved to Sao Paulo, the largest city of Brazil, went to the Sao 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 15 hours a day. As one does at McKinsey early in a career. Exactly. And I was into all this work, the stress, and I couldn't even get my head off the water and kind of look around to understand what was happening around me. Not long after starting at McKinsey, his bosses encouraged Cesar to get his MBA. 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. Can we name the gym chain? They don't exist anymore. It was Belly Fitness. But it was a story about how important new members was for Belly's.

essentially the 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 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,

and therefore generate incremental revenues for gyms and studios. And so that was the spark. In the middle of the class, I logged off, started writing the idea, the value proposition on a piece of paper.

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 a platform that would sell day passes to

to consumers. So it was a direct to consumer business, not what we have today. We're full B2B today. The name was Gym Pass, not WellHub. And the last component of it was that there was always this focus of bringing back to the industry people that were frustrated by something with either gyms or studios or apps, whatever it was. And our idea was to

find 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 gyms and studios, most of the revenue comes through subscriptions and their rights to push people to subscriptions and not to day passes. We're

Recurring revenue is a beautiful thing. Exactly. So what they rightly did at that time was to charge 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, you know, 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 in such a way that if you are going twice a week, you're indifferent between a subscription

and buying their passes from what was Gym Pass then. And they accepted. They wanted a new channel. 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 gyms. It was most of the value proposition. They would be willing to give us their passes for free if we were promoting their gyms as they were.

So you have this epiphany, the clouds part, the angels sing as you're sitting there in class and you are getting it out on paper. 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 13 years now. Still feel like it's day one, but I think...

the confidence, the support, and the relationship I got with my co-founders was probably the most important thing. 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 Bain & 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 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, determination,

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. You know, 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 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, but it turned out it wasn't. And the reason was that I had such great connections with people from HBS.

And they wanted to incentivize the students to like go and start ventures. And in the end, HBS gave me up to five years to come back at any point in time if I wanted. Mm-hmm.

And so did McKinsey. It was one year on McKinsey's side, five years on HBS. And that really helped me because 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 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 the company wouldn't be here. How much did you raise in that first seed round? $200,000. One of the challenges of a two-sided marketplace like this is...

it's a little bit like opening a nightclub. You've got to have the DJ book to show up 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 chicken 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

the subscribers, people and the partners, but also companies to invest on the wellbeing 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 and which locations, which neighborhoods and trying to get every single data you can to prioritize the right ones. We were distributing pamphlets on the streets. We did online marketing. It was brute force.

I just want to understand when you're going to, I don't know, Equinox or Core Power, Orange Theory, 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 customers? You don't have customers yet. I had none. What was your pitch that got them to get on the platform?

I shared the vision. And in the end, what we proposed was almost risk-free for them as well. Because if we didn't bring any members to them, 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.

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Welcome back to Masters of Scale. You can find this conversation and more on our YouTube channel. Cesar'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. Things were not going well as a B2C company. It wasn't working. And then in trying to figure out what to do,

You know, I started answering customer calls and one of those calls was a great one. It was this guy who was a user and he used five different gyms using the day passes we had. And essentially he was the HR director of PWC, PricewaterhouseCoopers in Brazil. And he said, look, I love what you guys do. I'm on different places all the time because I have to visit the different offices and

And my employees are now asking me for some sort of gym wellness benefit. And I don't want to go and sign contracts with all these gyms and studios. I don't want to give them just a reimbursement 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 want to offer this to my employees.

but 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 going to 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. And when we launched...

In three days, we tripled the number of users we had on our platform. And for the first time, everyone was happy. And that was because of PwC alone as a first client? Because PwC alone as a first client. They had 10,000 employees in Brazil and

PwC was happy. The employees were super happy having access to all these partners for a lower price. And our partners, the gyms and studios, suddenly they saw a 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 and funneled all

all our resources into getting more companies to offer WellHub to their employees. So I'm guessing if you'd called one of your Harvard Business School professors and said, we're going to 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. And this is going to 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 or client you want to serve is

It is indeed an uphill battle. Like it takes months to sign every single deal. Like there are a number of people you need to sell into. Like it's not only HR, it's finance, it's the purchasing area, vendor management, infosec. And I guess it's when not knowing helps. We just had one case of success and it was so magical to see. We wanted to see more of those cases. And yeah,

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 was very distant from PwC to sign, right? But if you hire people from PwC, if you are competing with them head-to-head, and if all the other employees...

of your competitor 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. 100%. And our second large client was Unilever in Brazil. Then we got Procter & Gamble, J&J, all the other ones to sign afterwards. And it has been a strategy we used not only scaling in Brazil, but also to expand internationally. Because 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 U.S.

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 how you approached it? 100%. And we normally would start with the company that was perceived to be the company that appreciated the employees the most. Because those are the, as a consequence, are the companies that are performing better, are the companies that have more

more higher margins and that are growing faster because they appreciate their employees. They offer this type of benefits to their employees. And when they looked at the value proposition, the solution that we're doing, they were the easiest ones to convert. When I love that filter, it's not necessarily the perceived market leader or the market leader by revenue. It's the one that is known for treating its employees the best. They may well also be the market leader on the other factors, but

I love that as the filter for what you were taking to market. It was unique to your business. 100%. You'd be surprised by how positive the correlation is of those two. So you pivot to this B2B model. Your brand is still Gym Pass. I remember learning about you as Gym Pass. It's a great brand. It does exactly what it says it does. And it's not easy to build a brand, right?

You made a decision to abandon a brand that had pretty darn good name recognition. People knew what it was and renamed the company. Why did you make that decision? Look, it started with COVID. Up until then, 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...

give people access to physical activity became even more important at that time. And what 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 in response to that, we started signing the same way as we had partnerships with gyms and studios, we started signing different wellness apps, right?

and aggregating them to our offerings. - What are some examples of those? - Strava, if you like to run outside, Apple Fitness Plus, if you like to exercise at home. We also started signing apps on meditation and mindfulness. Headspace is an amazing example of a partner. On the nutrition side of the house, MyFitnessPal, Nutrium, Nutric, they all offer access for people to go and do appointments with nutritionists so that they eat better.

Sleep, sleep cycle is an amazing partner. So the offering expanded to all these different verticals of wellness. And very quickly, our clients would have this moment in the conversations with us saying, wait, but you became way more than just a gym pass, right? You have all these other parts of your offerings, 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 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. And then came WellHub.

WellHub being the hub for everything related to wellness. We are a year into the transition and in the majority of the markets, people search more for WellHub than for Gym Pass already. 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. You're seeing this hockey stick growth

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 13 years and there's something very interesting I realized being on this space for all this time. Every two years, there's a new trend in this space. When I started what was GymPass 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 diehard fan base of Zumba today. It's an amazing solution. We partner with Zumba. I love them. They're still there. But then CrossFit started being the thing. Everyone was talking about CrossFit all the time. And

and it peaked, and now we're seeing the rise of the racket sports. Pickleball, paddle, 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 going to be relevant no matter what. I don't know what's going to 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 in your data, can you start to see things rise from what people are using? We can, and I'm seeing...

I wouldn't call this a prediction, but I'm seeing a few changes in user behavior. One is towards strength training. We're also seeing a trend of when people exercise is 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 5 or 6 p.m. after work, 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 interesting, and it may be correlation, it may not be, that may be causation, but

We're seeing a lot more data come out, more scientific reports about the importance of muscle mass, right? Yes. 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, 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. Yeah.

And to me, it is a dramatic shift. And with the new generations coming and valuing it even more, it's going to be a business imperative in the future. And is this true globally, not just in the U.S.? 100% globally, in every single country. And with wellness and well-being, the interesting thing is that 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, physical health. And this is why I get so motivated doing what I'm doing. It feels like the more we grow, the more we help people and that access to wellness should be like a universal right. It should not be based on salary, where you live, what's your position with a company. It should be for everyone. It's a profound mission. How big is WellHub today?

We now work in 11 countries. We partner with more than 22,000 different companies offering WellHub to their employees. And we have about 4 million subscribers, employees of those companies that are visiting our different partners in all these different countries.

We have 60,000 gyms and studios partnering with us. And we partner with the 100 best digital apps for wellness available on Apple Store or Google Play. We normally have three of the top five in every single category. And they're all included in the same membership.

The company has, WellHub has about 2,000 employees and we've been growing really fast year over year following this trend that everyone's talking about, wellness for everyone. As you look at this next phase for WellHub, what's your biggest challenge and what's your biggest opportunity? They're correlated. Growth for us comes in two ways, in spreading our mission to more companies,

We have 22,000 clients, as I said. We should have 200,000 clients. This should be a standard benefit that every single company offers. So there is 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. The second one is more related to the employees themselves is how can we get

more people to subscribe. You know, one of the best things we do is whenever we launch a client, we triple the number of active employees because our plans are super attractive, flexibility, lower prices, more options. Everyone loves that. But, you know, we're still engaging clients

40% of all the employees of a given client, 30 to 40. There's no reason why it shouldn't be 100%. You know, everyone would benefit from sleeping better, eating healthier, from exercising, from meditating. So driving that enrollment rate up is the second thing that I'm, uh,

I'm deeply passionate about and I'm working hard to have made. You get to do good and do well at the same time. I want you to imagine a CEO calls you as soon as we wrap this conversation and he says, look, they say, I know that the number one thing we can do is sign up for WellHub. 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

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. It is about the culture you 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 40% more likely to stay 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 a culture of trust, empowerment, and feedback, I see companies thrive.

And I'll touch a little bit on trust. Like when leaders trust their employees and trust, deeply trust, trust like you 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 100% 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. And making the right decisions for them and for the business makes that employee reach the optimal point of their well-being, regardless of how they get to that. The right trade-offs between social well-being, physical well-being, mental health, and delivering results for the business. And to that CEO, I'd say you would be surprised

by how much happier people would be 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 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 it cleverly tackles a gap in the benefits of most companies with a service that makes prioritizing health more flexible and more fun. I'm Jeff Berman. Thank you for listening. The Lobatical is for any employees who have been with us for five years to take a vacation. They get a week of extra PTO. They get to pick anywhere in the world that they want to travel, and we allow that to happen for them.

That's Brooke Wright, Capital One business customer and chief people officer at Local, a change marketing company that works with huge corporations in order to facilitate meaningful communication between C-suites and their frontline. We wanted to celebrate them for the time they had invested with us. We liked the idea of a sabbatical, and so we made it us. It's the Lobatical. Local practices what they preach, caring for their employees with the same rigor they instruct their clients to enact.

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