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When fitness industry veterans Dennis Lee and Tim Porth founded Brooklyn Park-based Octane Fitness, they didn't set out to build a better elliptical trainer. They wanted to make the best, the sturdiest, smoothest-working machine possible.
Like the exercise experience the company aims to provide users, Octane Fitness has enjoyed a relatively smooth, stable run, growing despite the recession.
Octane Fitness, which designs and manufactures a dozen standing and seated low-impact elliptical cross trainers, saw revenue rise 15 percent to $40 million in 2010. In response to falling consumer sales, the company accelerated plans to pursue commercial and international sales, which now account for roughly 35 percent of revenue.
New commercial customers include Snap Fitness and Gold's Gym. Internationally, Octane Fitness has an office in the United Kingdom, a subsidiary in the Netherlands and handles sales in Asia and Latin America from its headquarters here.
In December, Octane Fitness moved into larger offices, which include a showroom and more space for testing and research and development. The company has 55 employees, 38 locally, after making nine hires last year. It plans to add up to nine more this year.
"We're very fortunate that we grew in '10 but we really had to do it a different way," said Lee, president and CEO of Octane Fitness. "We've outperformed the market by quite a bit. But the market was bad. At the same time, we've grown exponentially in commercial and international."
Porth, executive vice president of product development and marketing, said the company took a more direct approach to the commercial market, developing products specifically for health clubs and hiring staff to sell to them.
The company expects to introduce six new products this year, including a 15-inch touchscreen monitor for some machines. Features include Internet access, exercise and other videos, iPod/iPhone connectivity, workout customization and cloud-based storage of use and favorite programs.
Popular products include the xRide, a seated elliptical machine that created a new product category, and the new Cross Circuit model, which offers a time-saving combination of cardio and strength training.
Lee and Porth left fitness equipment maker Life Fitness to start Octane Fitness in September 2001. "There was an opening in the [consumer elliptical trainer] market and there was a price point at $2,000 to $2,500 that nobody had filled," Porth said of their decision to launch the company. "We rolled the dice."
Manufacturing in Taiwan
Concentrating on product design, development and engineering and sales and marketing, Lee and Porth have the machines built by experienced fitness equipment manufacturers in Taiwan.
Along with their own savings and home equity, they raised $1.25 million from 13 investors. Those included Jerry Dettinger, CEO of Torque Fitness, a strength training product company in Andover. Dettinger had hired Lee at fitness equipment start-up ParaBody and worked with both Lee and Porth at Brunswick Corp.'s Life Fitness division after it acquired ParaBody in the late 1990s.
"I saw a great dynamic in those guys, Tim being such a great product person, Dennis such a great sales executive and with such great leadership skills," Dettinger said. "They have done a great job building this business, building great products with an emphasis on taking care of the customer."
In January 2005, Lee and Porth sold a majority of Octane Fitness to North Castle Partners, a Connecticut-based private equity firm that focuses on small-cap consumer companies in health, wellness and active living.
"They're a great example of entrepreneurs who when faced with a difficult environment in their core business have diversified into related adjacent products and distribution channels to continue to grow the business," said Chip Baird, North Castle's founder and managing director.
Pat Regan, senior director of purchasing for Lifetime Fitness health clubs, said elliptical trainers from Octane Fitness are getting more floor space in new and remodeled clubs.
"The Octane elliptical time and time again is chosen over other ellipticals," Regan said. "We continue to hear, 'Buy more Octanes, buy more Octanes.' The majority of our members feel that the movement fits them well and their programs are very engaging. From an operator standpoint, I can tell you they don't break."
Peter Tauton, president and founder of Chanhassen-based Snap Fitness, said customers like the many workout settings of the Octane Fitness machines from standard cardio work to special "arm blaster" and "glute blaster" modes.
"Part of keeping people motivated is giving them variety," Tauton said. "Customers enjoy the experience they receive when they use the equipment. Tim and Dennis have a good understanding of the industry and of the needs of the customer."
The expert says: David Deeds, director of the Morrison Center for Entrepreneurship and the Schulze Chair of Entrepreneurship at the University of St. Thomas Opus College of Business, said Lee and Porth are examples of businesspeople who saw an opportunity and had networks and contacts to help them succeed.
"The real lesson is that they have focused where they have their knowledge, their skills and their competencies," Deeds said. "What is smart is that they were flexible enough to recognize that the consumer market, given the downturn, was slow and flexible enough in their business model to move to the adjacent market to succeed."
While offering some diversification, the move into the commercial market for elliptical trainers raises their risk somewhat, Deeds said. "They do need to keep building on their core but looking at ways to diversify away enough so that they can build additional revenue streams," he said. "When you're in a fairly narrow niche, you run the risk of that niche being co-opted with a killer product or going away if consumer preferences change."