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All Set To Muscle In On Moscow


Enterprise -- International: BUILDING ABROAD

ALL SET TO MUSCLE IN ON MOSCOW

It took raw nerve--and youthful brio--to bring a Gold's Gym to Russia

Dressed in baggy khakis and a rumpled blazer, 25-year-old James "Jake" Weinstock might be mistaken for a struggling actor. When he stabs at his unruly locks and gushes about hitchhiking in Zimbabwe, he projects the boyish charm of Tom Hanks in Big. In the Wild East, however, where the high-octane capitalism of the post-Soviet era has turned convention on its head, appearances can be deceiving.

Though he looks like a slacker, the history major from the University of Pennsylvania could teach a Harvard MBA a thing or two. Straight out of college and with little experience in business, Weinstock and two other partners raised $2.5 million to realize a dream of starting a business in Russia, a country Weinstock fell in love with while roaming the world during a year's leave of absence from Penn. In the year and a half of teeth-grinding frustration since the enterprise was conceived in a Moscow bar, he has hopped across continents in search of startup capital, boned up on accounting and contract law, and staved off the Russian mafia.

RATTLED RIVALS. The result: a soccer-field-size, state-of-the-art Gold's Gym in Moscow's center--the name licensed from California's renowned Gold's Gym, which has 500 franchisees around the world. The facility has shaken up the city's sluggish health-club industry and rattled its once-complacent Russian rivals. With Astroturfed tennis courts, a Nike-built basketball court, high-tech Cybex workout machines, tanning salons, a Western-style emphasis on service, a day-care center, and in-house medical staff, Gold's has fired up the city's fitness-starved business community. In the runup to February's grand opening, the gym has been taking members at reduced rates, which include hefty corporate discounts. Weinstock has fielded hundreds of calls from affluent Muscovites and expatriate residents, signing up more than 400.

"I'm biting my nails. We're just this close to the end," says Weinstock in the gym's bare-bones office, his words almost drowned out by the rattle of jackhammers and the roar of blowtorches as workers race around the clock to meet the opening deadline.

DREAMS. Weinstock was merely upholding his family's independent streak when, after only six months of employment, he chucked his comfortable marketing job at Moscow's Ernst & Young for "plain pasta dinners" and heady dreams. Both Weinstock's parents are also boss-dodgers: His mother, a freelance editor, worked for The New Yorker, while his father runs his own small consulting firm. Weinstock's brothers are writers. "I wanted to do my own thing," he says. "And the fact that it's so difficult here makes success that much more rewarding."

An avid sports fan who claims he would join a pickup basketball game anywhere, Weinstock got the idea for a gym venture on his second day in Moscow. An expat fraternity brother introduced him to 31-year-old Paul Kuebler, at that time financial director at Andersen Consulting. "The project was a perfect fit for both of us: making money while having fun," says Weinstock. Kuebler had been at Andersen for almost eight years and was itching for something more adventurous. In May, 1995, he brought on board a Russian friend of two years, Vladimir Grumlik. Then things really began to roll.

Weinstock isn't unique in the New Russia. Other brash, adrenaline-charged Generation Xers, both Russians and Westerners, have braved the chaos and rampant criminality of post-Soviet Russia to follow their stars--opening diners, movie theaters, casinos, and even banks, and transforming the city's landscape in the process.

Weinstock and his partners are among the few entrepreneurs, however, who braved quitting their jobs without the security of prior backing, simply hoping venture-capital might emerge in time to save them.

Their gamble paid off. But raising capital was much tougher than just passing the hat. Despite a licensing agreement with Gold's and an upbeat business plan that promised a 60%-70% return, few investors in either Russia or the U.S. took the bait. "Our proposal was a bit offbeat: too small for the big funds and too big for the small ones," says Kuebler, who admits that he naively expected things to fall into place within three months of leaving Andersen last October.

The venture seemed doomed when the Communists swept to victory in December's parliamentary elections, just when Weinstock was in New York seeking investors. Potential financiers, already wary of both Russia and Weinstock's youth, lost interest when the specter of communism reappeared.

CHARACTER. The partners didn't despair, however. Smashing open their combined nest eggs of about $150,000--Weinstock claims that even his high school ball-boy savings went into the project--and with a little help from friends and relatives, they persisted. When a Boston real estate developer, Commonwealth Property Investors (CPI), decided to pump in a cool million last June after a presentation by the two Americans, things began to click. "Jake and Paul's character was crucial in our decision. They're mature, level-headed, dedicated, and complement each other well. I was impressed that they staked their nest eggs on this project," says CPI's Moscow rep, Greg Getshow. He added that although Gold's was not in CPI's line of business, it was excited by the idea.

With CPI's $1 million paving the way, 10 other private investors jumped on board, a Russian among them. The savvy partners say they made sure, however, to keep a controlling interest in the business, which is registered as an offshore company in Cyprus with a local Russian subsidiary.

Keen to upstage Reebok International Ltd. and increase its visibility in Moscow, Nike Inc., while wary of sponsoring an exclusive gym, agreed to build a basketball court, on the condition that it be made available on demand for company-sponsored sports clinics for the young. It is also providing staff outfits.

Investors agree that the Americans' fluency in Russian helped. More important, their extensive contacts with Moscow officialdom through a trustworthy local partner helped seal their backing. Vladimir Grumlik, an intense, no-nonsense former athlete who once sold Nikes in Russia's caviar capital, Astrakhan, got to know Moscow officials through his earlier business ventures. He has been crucial.

Grumlik scoured Moscow for potential gym sites, helping find a crumbling but spacious soccer arena belonging to the Stadium of Young Pioneers, a now-privatized wing of the Soviet-era youth organization. They got the building under a 25-year renewable lease. "I love working with Paul and Jake. They're more responsible and farsighted than the Russians I've dealt with," says Grumlik. And with his sports mentor, Alexei Spirin, a World Cup Russian soccer referee, he helped them strike the kind of deal that in Moscow keeps the mafia at arm's length. A power-broker back in Soviet times, Spirin is cozy with Moscow's elite and knows well how to make things happen in Russia.

"On Spirin's recommendation, we hired a security firm tied to the former KGB," says Kuebler. "We pay them above-market rates plus a `consulting' fee, and they make sure no one messes with us." The cost is no more than 5% of revenue.

NO POOL. While the security issue may be resolved for now, the partners still have plenty to worry about. Competitors have their knives out for the brash American upstarts. "They're just a bunch of kids with no experience," sniffs Olga Antonova, manager of their biggest rival, World Class Fitness, which has more than 3,000 members. Spurred by Gold's debut, World Class has spruced up service, extended hours, and is rushing to open a new gym.

And while Gold's equipment might be a notch above its competitors', Gold's lacks the clincher--a swimming pool. Then there's the cost: A year's membership, while $500 cheaper than at many rival gyms, still runs $2,500. Says Greek businessman Konstantinos Tsakonas: "[Membership in] the Gold's franchise in Cyprus costs $600. Why are they charging me four times more?" Many of the city's wealthy, including expats, prefer working out in cheaper Soviet-style sports clubs. And while the partners are chummy now, Russians have been known to fall out, often violently.

Some outsiders, however, are cautiously optimistic. "This city could absorb scores more world-class gyms. If Gold's doesn't alienate Russians by being too American, it could take off," says Andrei Kulikov, a correspondent for the Russian sports daily, Sport Ekspress.

Even before liftoff, Weinstock is amazed by what's happened. "I never imagined we'd come this far," he says. "When I can have a cafe latte and watch people enjoying themselves, then I'll finally be able to relax."

Maybe. But if members sign up in droves and if branches appear in St. Petersburg and Ukraine as planned, Weinstock shouldn't count on relaxing for long.By Vijai Maheshwari in MoscowReturn to top


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