A version of this article was published in Club Business International.

The fitness industry is growing up. It was once the exclusive province of fitness buffs and family-owned companies. Now the fitness industry has become large enough, and profitable enough, to attract the attention of outside managers and professional investors. Like it or not, the arrival of new people and new money to the fitness industry is going to have profound impacts on fitness clubs, their members, and equipment manufacturers. Those who are able to figure out these changes ahead of time will have an advantage over those who don’t. Here are a few things to think about.

First, recognize that the fitness industry is living in an outside economy has matured too. Seven years of continuous growth -- and extremely low unemployment mean that people have steadier incomes, and less time to devote to staying healthy, than ever before. This makes it easier to sell memberships but harder to get members into the gym – bad for member retention. And it makes it more difficult to attract and keep talented people to work in the industry; they simply have better alternatives than they did before.

Finally, the stock market has now risen almost nonstop for the past eighteen years. This has put enough cash in many people’s jeans to make them think about owning their own equipment at home. And it has dramatically increased the availability – and lowered the cost -- of funds to finance capital expansion, acquisitions and working capital needs for club expansion.

It is going to take a different business model to be successful in these new conditions. In particular, clubs in the future will use investor and owner capital, not their members’ capital, to finance operations. These changes will dramatically expand the industry’s reach.

In the good old days -- that means when I was young -- a person who wanted to stay fit either did sit-ups on the living room floor or joined the Marines. A complete circuit of fitness equipment – if there had been one – would have cost too much money and taken up too much floor space for any single person to afford.

Then came fitness clubs. The genius of the fitness club concept – essentially a members’ co-op – gave the fitness industry the capital it needed to flourish. Members pooled their money through up-front charges to pay for the fitness equipment and other capital expenses to open a club. And they pooled their monthly dues to pay the rent, salaries, and other operating expenses to keep it running.

This model worked for club owners too. Getting their capital from their customers allowed owners to open large numbers of clubs.

But there is a hitch. The co-op model needs a steady flow of new members, which frequently leads to high-pressure membership sales practices and price wars between competing clubs. This reduces resources used to care for existing members and leads to high rates of member attrition, which further reinforces the need for new members. And the co-op model does not appeal to all potential customers, limiting the growth of the industry. I believe that’s why we are in the current situation in which clubs trade the same twenty million members back and forth every year. We need a model that will dramatically expand the customer base by making it affordable to more people.

The co-op model, with clubs drawing their capital from their own members, is going to die. Instead, in the not too distant future, clubs will draw their capital from long-term, patient professional investors, and customers will pay for the use of the club services as they use them. Clubs will also provide many services they don’t provide today. And clubs will cease to only be a physical place, instead becoming a service business to their customers wherever they are. With cable modems, big-screen televisions, and smart card hookups available, the virtual fitness club is not that far away.

Think about it. Customers don’t pay membership fees to buy food at the supermarket or a meal in a restaurant. And they don’t pay monthly dues to fly on an airplane or go to the movies. All of these companies need capital to build and operate their businesses, just like fitness clubs. The difference is that they are all old enough and big enough to have figured out how to tap cheap permanent capital sources.

These changes are already starting. In both the club and the fitness equipment industries the scramble for capital is on. Public companies, with a 10% overall cost of money, and private equity firms, with 15-20% cost of money, have a real advantage over family-owned or member-financed operations where the cost of money can be 20-30% or more. This says to watch for more consolidation, with large fitness chains continuing to increase market share at the expense of small companies.

Consolidation will happen to manufacturers too. I believe that one day three global, full-service fitness product companies will dominate the market, controlling three quarters of all sales, with niche players making up the rest. The big players will all be capable of filling and financing a complete club, will have extensive education programs for club managers and trainers, and will all sell a complete line of lighter-duty equipment, as well as training support services, to the home user. Clubs will pay less for equipment, brand-building arenas where branded manufacturers compete for floor space to build brands for their retail businesses. Clubs will be manufacturers’ partners in the retail sale.

But the big expansion in the industry is still waiting to happen. Both clubs and fitness equipment manufacturers still concentrate too much on the customer who is already fit, i.e., the one who is already going to the gym. But for every fit person there are ten others who could be helped if we would just focus on getting them involved in fitness. Our research makes me believe that aging baby boomers want exercise that is simpler, and less strenuous than typically available in clubs today. And they want more social and group interaction -- more software and simpler hardware -- to motivate them to stay fit.

The person who solves that puzzle will be the first billionaire in the industry.