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Posted May 17, 2016 12:36 pm by

Ten Reasons NOT to Buy Into the Fitness Franchise Pyramid Scheme

Ten Reasons NOT to Buy Into the Fitness Franchise Pyramid Scheme

In contrast I’ve received random and unsolicited calls from the other camp. DM’s, emails and IM’s from a growing tribe of fitness players applauding my message. They run the gambit from NEW independent developers, previous franchise owners (YES), gym consultants, and fitness industry spokespeople.

That Message: The big-box gyms, the chains, the boutique studios, all of them, can be usurped, out positioned and reduced to secondary-gym-non-events if you deliver a superior model to your marketplace.

The big-box gyms, the chains, the boutique studios, all of them, can be usurped, out positioned and reduced to secondary-gym-non-events if you deliver a superior model to your marketplace.   Cuoco Black

Why would I jeopardize my reputation and argue counter to mainstream rhetoric the idyllic propaganda of rainbows and unicorns relentlessly fed to us by these players? Perhaps, just perhaps, my platform has been tested.

So, in my opinion, here below, the 10 fitness fails one might encounter if they’ve bought into the fitness pyramid scheme.

ENCROACHMENT: This is a gnarly and seditious marketing disadvantage. When “like” gym models enter into the same demographic competing for the same consumer, hello, as if this isn’t happening. Encroachment validates my premise that this industry is flailing in a “death spiral of better sameness”.

ROYALTY FEES: My goodness, why you would turn over what? 5% of your monthly revenue to the “Franchisor Wizard of Oz” so he can buy his wife that new Tesla or put his kid in Harvard defies logic. Wake up developers! Reinvest that royalty revenue in a dazzling facility of your own or on an advertising campaign that renders your competitions marketing laughable.

A TRUSTED BRAND: I love this one. There is NO consumer gym brand loyalty. If you think a brand name will carry your gym model in this era of consumer consciousness “courtesy of the Internet and social media” you haven’t gone to the gym auction web sites replete with numerous brand names on the “fitness chopping block” .

INFLATED PRICES ON SUPPLIES AND EQUIPMENT: Bruce Axler of Spruce Point Capital recently reduced Planet Fitness’s pedigree from that of an IPO fitness superstar to (in his words) ” a glorified equipment reseller”. If you think that your franchisor isn’t getting “kick-backs” across goods and services that you are contractually obligated to purchase you aren’t entrepreneurial-centric, you’re a sheep being led to slaughter. Remember that thing called the Internet? I’m suspect that there’s goods and services, offered by a galaxy of vendors, that would result in savings on those line item expenditures to your P&L.

LACK OF LEGAL RECOURSE: As a franchisee, you have little legal recourse if you’re wronged by the franchisor. Most franchisors make franchisees sign agreements waiving their rights under federal and state law, and in some cases allowing the franchisor to choose where and under what law any dispute would be litigated (ref: NOLO.com). In real-time. A competitor comes to town with a superior gym model, better marketing, better equipment, better programming (the newest and coolest). A: You change your gym to match or exceed the new competitor. B: Acquiesce to your contractual agreement and remain tied to the franchise model enabling the franchisor to keep his brand consistent. Market revenue moves where?

RESTRICTIONS ON POST TERM COMPETITION: So you got “a learnin”. Your franchise model’s faults and all the painful lessons have brought you to the realization that you now know how to beat your competition, and how to dismantle your former “employer/franchisor’s” business model. Unfortunately, due to non-competition clauses built into almost every franchise agreement, franchisees are not allowed to become independent business owners in a similar business after termination of the franchise agreement. By purchasing a franchise, you may be unwittingly limiting your business opportunities for years after the expiration of your contract.

ADVERTISING FEES: (Say 2% on top of the Royalty Fee.) It’s 2016 fitness family and if you’re not marketing like the A+ players you don’t belong in a consumer driven business model. The ad campaigns and marketing generated by these brands are non-specific and globally molded by marketing firms 1000’s of miles away. They have little sensibility of your community and your member base. In contrast, a stealthy independent and shrewd gym owner can craftily dance around the franchisee’s generic marketing with their own organic ad campaigns that are targeted to the local demographic. Reinvest that 2% monthly royalty fee into geo-specific marketing that keeps your brand engaged and top-of-mind in your community. Don’t give it to the franchisor and their Madison Avenue marketing agencies.

DESIGN: I’ve resisted talking about design because it’s not my intention to throw a right hook (in the wisdom of Gary Vaynerchuk). I’m trying to help independent developers sift through the onslaught of hype directed at them by the investment groups and their marketing agencies who benefit from you buying into their “schist”. I will say this. When gym design looks like a boutique hotel, or a sexy restaurant, or bar, or nail salon, it says nothing about fitness or a gym brand. When a gym design looks like a washed out Home Depot with a sea of exercise equipment, it says nothing about a unique and organic brand. All of the preceding gets me angry because I haven’t done a good enough job in delivering my message to my fitness family. Before you buy into the smiling faces and the success stories of the franchisors, ask yourself. “Will hard work, in-depth research, detailed analysis, scientific inquiry and emotionless strategy, before I make this investment, lead me to a place (sometime in the future) that sustains my investment or puts it in a position of vulnerability?”

HIGH START UP COSTS = YOUR INVESTMENT. I recall reading the initial investment to buy into a franchise can fall between 55K and 3.9M. Really? You’re going to sign that investment over to a franchisor and be locked into their business model. Again, every feature of a franchise model: equipment, programming, software, marketing, insurance, and design is accessible at trade shows and on the internet. You need to think unemotionally here.

1. Is turning over 55K up to 3.9 M, for goods and services that you can purchase yourself make sense? (PS those goods and services don’t show the kick-back monies that went to the franchisor when you bought into the game).

2. Don’t forget. Part of this investment is graft “skimmed off the top” for nothing other than buying into the franchisor’s brand name. (Your investment in their brand name is their graft and how they pay for those Tesla’s and college degrees for their kids). You’ve been “sold”. The franchisor illustrates all the bells and whistles, but you can bet that my list is not part of their presentation package.

3. Systems. Part of the franchisor’s sales pitch is that they provide Support and Systems. This is marketing/sales hype, don’t be seduced. Support and Systems are useless when a superior gym model comes into your marketplace. Really? A super-bad-ass-gym comes into your market and the franchisor will rescue you? There is nothing in the franchisor’s goods and services that will usurp a superior gym model, it cant happen, you bought the template, templates are locked-down. As often happens these clubs are bought back by the franchisor, kept as a corporate owned facility, or as a loss leader, or repackaged for another “franchisee”. There are many outstanding gym consultants in the market, and software providers, and ancillary systems available that will provide you with equal, if not greater, support and systems than the franchisor.

4. You have little control over your franchise model if any of the disruptor’s in this post impact’s your club. Remember, you turned over control of “your investment”and how it’s managed to the franchisor when your legal council authorized your endorsement to the franchise agreement.

5. DO THIS. Invest these same monies in your OWN gym model and dominate those who were seduced into buying into the franchise, big-box or boutique studio brands. Create your OWN brand name and business model and out market the franchisee in your target demographic. Retain trusted fitness industry consultants to help you set up shop, plan pre-sale, strategize marketing, put systems in place, and train staff. Shop the marketplace for goods and services (you won’t be losing money to kick-back commissions in this scenario). RESULT = A superior gym model that you can tweak, adjust, change, adopt and differentiate from the static brands in the market.

THE BRAND: I recently blogged: “The Fitness Industry’s Core Problem Is Better Sameness – At the core DNA of the problem is a fitness industry looking in at itself counterfeiting design, amenities, programming, to wit, the business models of its competitors. This is the alchemy of better sameness that dooms any one brand in a market”. What’s happening is the brands are trying to one-up each other, they’ve become B2B focused, rather than B2C focused on the consumer. This is prime opportunity for those developers who wish to dominate their markets. Strategy: Don’t adopt ANY features of the existing brands simply deliver your own superior gym model to the marketplace.

 

“The Fitness Industry’s Core Problem  IsBetter Sameness – At the core DNA of the problem is a fitness industry looking in at itself counterfeiting design, amenities, programming, to wit, the business models of its competitors. This is the alchemy of better sameness that dooms any one brand in a market” Cuoco Black

Learn more at: www.fitnesscenterdesign.com

 

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