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Over Reaction is NOT a Good Business Plan

Originally Posted: 06/22/09

It has been one of those summers. Each year I swear I will travel less but I always seem to end up doing even more. This week I just finished a few days with a Gold's Gym Alliance Group comprised of a few guys who have been successful for over twenty years and a handful of newer guys just making their way in the business.

One of the key points worth mentioning that emerged from the group was the constant urge for experienced owners to overreact to market conditions. Over reactive is when you respond to competition, or to market factors, too aggressively instead of applying the appropriate response that would protect your business. Too much too soon can often weaken the business instead of providing the stability and protection you are seeking.

There is an old adage that is very important to consider here: your perceived fears are usually worse than what actually happens. Put another way, the more you think about how bad it could be seldom matches the reality because your mind almost always comes up with the worse case scenario. An owner especially magnifies the possible horror when he starts using absolutes, such as, "That new guy will take all of my business, or if I rewrite my memberships and adjust the price I will lose money because everyone will want to do that.

Someone usually overreacts to a situation when he or she is running the business in a totally reactive mode instead of driving the business to dominate the market. For example, if I constantly react to a competitor I will make mistakes. Reacting to his plan, rather than trying to run my own business dictated by running my own business plan, forces me to make short-term reactive decisions based upon something that is happening today, rather than trying to set my business in motion over time to weather anything that might come my way.

One of the owners in the meeting is a very sophisticated businessperson in other businesses but runs his club in a totally reactive mode. When he encountered his first batch of low price competitors, he immediately lowered his price to meet theirs. At first this seems to make sense, but in reality you have now changed your business plan to match theirs, and in this particular case, the owner's facility and type of club didn't warrant the over reaction to the market.

Keep in mind that price is the last thing you should adjust but it's usually the first for owners who don't have a tight plan in place to grow the business. If all you do is worry about maintaining your business, then you make mistakes because every decision is based upon doing what you cannot to lose business. If you focus on growth as the core of your plan, you make decisions based upon constantly trying to increase market share and keep competitors locked into their own niches and out of yours.

If you are running a proactive business, you may still get rocked temporarily by a new competitor but the damage is usually less significant and, most importantly, you have time to react without panic.

Proactive business management is defined as building a plan and then driving revenue and the business every single day based upon that plan. For example, if you have a four million dollar investment in your club, you should be running that business very aggressively. Aggressively means you are marketing every week, you continually work to develop the club's money zones (see previous blogs), you adjust the prices as needed every two years, you train and develop staff daily and in other words, you run your business as a business driving the market rather than reacting to others in the market.

Most owners don't do any of these things and then seemed shocked that they get their ass kicked by a new player in their game. Staffing may be the biggest indicator. Most owners pay too little for desk staff attracting idiots, try to use too many part timers instead of trying to hired a few skilled full time people, and then only train their team a few hours a month. Let's see, I hire stupid kids, pay them little, offer them part time so they don't have any real loyalty to my business and then don't train them. Then let's bitch a lot about how unfair it is when a low price guy moves in and takes my members.

Proactive assumes there is always a competitor coming and that he will be good. Preparing your staff to retain your members is a fundamental truth of business. Hiring idiots and not training them is what you do when you want your members to leave you. Miss your spouse's birthday a few times and blow off your anniversary to go out with your friends and you'll see first hand what happens when you don't work on retention in a relationship, which is all a club really is if your price is $39 a month or higher. Why should a member stay when you offer weak service and rent the same brand of treadmill for $30 more a month than the guy down the street?

You can't compete on fields of equipment based upon price. You can run a proactive business and dominate a market based upon differentiation, constant service, and a better club, but it is harder, which is probably why most owners prefer to bitch about how easy it was in the early days and how hard it is now to make money. They are right, it is harder, but that is the new reality that drives the current market.
Other things of note

Do what you can now to get ready for September forward. Remodel and paint, add equipment, convert to functional and gear up for heavy marketing through the entire remainder of the year. Run hard and fight for every member. If you need help with your physical plant, call Rudy Fabiano's team. He is adding new people on his staff allowing him to help smaller owners with colors and economical remodels.

Get to a seminar. We have updated the material in the workshop this year to reflect what is going on with pricing and most importantly, the shift in the market toward a more functional driven business plan. If you don't know what I am talking about, you should come see us soon.

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