|Originally Posted: 08/26/09
This year has been totally flat out with more teaching and more workshops than we have done in years. During a brief respite, I was sitting with the famous singing insurance guy, Ken Reinig, talking about life and business. One of our constant sources of amazement is that we have been on the road for over 20 years as friends and that I have been out doing some sort of seminar somewhere for almost 30 years.
Thirty years on the road translates into thousands and thousands of students passing through your life. For example we just finished a workshop last week in Chicago with about 100 students in attendance representing about 170 clubs. If you figure a slightly smaller average and take it times the amount of work we do through the NFBA and that I have done in the past, you can guess that about 60,000 people have passed through our business not counting outside events or speaking engagement.
One of my most sacred personal beliefs derived from years on the road is something I found written better than I could have ever done it in a Hugh Macleod cartoon:
Stay ahead of the culture by creating the culture
I have worked to do this by watching the industry carefully; stripping out what doesn't work and replacing these dated ideas with practices that better represent what any small business should be doing to make money. Small business is defined here as any single business that has less than 100 employees and does less than three million a year in revenue. Get bigger than that and the rules do change slightly.
We have been on such a mission for all these years to change the industry from sleazy business practices designed to punish those who trust us to ones that allow a young owner to make a lot of money ethically and professionally while still helping the clients who trust us with their money.
The speed of change in this industry has been painfully slow but in recent years things are picking up as the practitioners of the old methods begin to fade. Still, there is huge pressure for a new owner to question his processes, especially if faced with a competitor that is doing many things most of us think is wrong and ineffective. The following is a letter I just received questioning the system and even my sanity. Although I thankfully don't receive letters like this one too often anymore, I respect Pete and think his inquiry is worth an in-depth answer, perhaps with more information than he really asked for when he sat to write me this email.
I hope this email finds you well. I recently joined the NFBA and I have been enjoying the benefits of my membership.
I have been reading all of your stuff and I have put many of your ideas into practice. I have certainly benefitted from your expertise but I have to ask you a blunt question.
Thom, what if you're wrong?
I strongly agree with your methodology regarding marketing and membership sales. That is probably because it resonates with my own values and philosophy. However, it is challenging to maintain the proper course when I see competitors doing ALL OF THE THINGS THAT YOU SAY NOT TO DO and packing the house with members.
These things include:
• "Insulting” marketing images
• Price ads
• Misleading advertising-baiting with a low price(only good for limited hours) and then switching to a higher priced membership
• Warehousing rows and rows of fixed joint equipment
• Drop Closing
• Pressure sales
It is sincerely like someone attended a Thom Plummer seminar and then did everything that you say not to do! The frustrating thing is that IT IS WORKING!!!
So the logical questions is why should I stick with the Thom Plummer way if the BS works?
Maybe people are not as sophisticated as you give them credit for?
Thom, I'm sticking with your way but I thought that this was a fair and interesting question that many of your clients and seminar participants likely also have.
Pete Longo – Owner
Anytime Fitness of Asheville
P.S. I've copied my business partners on this. You come up quite a bit in our conversations and this is a question that we struggle with in both of our respective markets.
First of all, I can never answer this question in a way that will give a young owner an answer he will feel secure with in his business, but I will try here to at least lay a foundation for future growth by asking a few questions myself.
Why do you think everyone else makes money?
Since this business began in the modern era, usually assumed to be about 1945, someone has done something and everyone else copies that person assuming that the other guy must be making money.
In the 60's, we all copied long-term memberships because the chains did it that way.
In the late 60's and early 70's, we all bought Nautilus and practiced High Intensity Training. Everyone had to have the stuff and everyone finally realized that if doesn't work over time. Imagine today telling our members that we have equipment where one size fits everyone. We have grown and stability, total body strength, and agility are more important as fitness research progresses.
We keep trying it, or some form of circuit training, in the industry. It doesn't work but people still buy it because they trust us to provide the answers they need to reach their goals. We sell it because it is cheap to offer in a business and questionable owners always think there is always another stupid person who will replace this one once they realize that going in a circle only works for six weeks and then fails the consumer. We copied it, and had to have it although, and while it was a break through at the time it eventually failed.
In the 80's everyone jumped on group and priced their memberships with a group upgrade. Sounded good but didn't work. And let's not forget the first generation of semi-naked model ads that appeared in these years. Looked good and we all did it but how well did it really work?
In the 90's we all copied the guy who sold memberships on a bi-weekly plan so he could rip the consumer for an extra payment a year. Sounded good but where was the ethics in this one?
This year we are all copying the enhancement fee because someone claims, usually in a bar, that he made a ton of money and got no complaints from his members. He lied but we copied it anyway.
Why do we copy?
We copy because we are always looking for the easy way. This business is hard. It is service intensive. It is capital intensive. It has staff turnover that rivals banks, which has the highest turnover in the service sector.
But the guy down the street, and he swore to me in the bar that it worked, tried this cool price sheet and it worked. In fact, he is opening more clubs now based on that damned sheet.
I even copied this in my own career. For years I believed that there had to be a magic combination of words that would lead to a higher sales percentage. Once I threw that crap away and spent time getting to know the client and what she wanted my sales did go up. I stopped copying sales people in our industry and started following Xerox sales practices. Huh, a lesson there?
The bastards are lying. They lie in the magazines. They lie to their board of directors. They lie in the bar. They lie to their spouses. They lie because statistically they can't be telling the truth. Everyone claims to have found the magic but if it is too easy, and too perfect, and you don't have to do any work, then start with the assumption that the bastards are lying. Here is how real life looks in all small business, including the fitness industry. Remember here that his is true for the chains as well.
At any one time, they are fighting these numbers in their pile of clubs along with the independent guy:
20% make money and show a profit of about 15-20% pre-tax net
50% make a little; lose a little, and run average businesses that can go on for a long time
30% are too stupid to own their own businesses and never will make money burning up their money, their parent's money and the bank's money along the way. These people are in it for the wrong reasons and simply can't figure it out
The guy down the street has the same issues you have. If you think running a single business is hard, imagine running 300. Your morning person didn't show? Now take that times 300 hundred units. Your club is worn out but you don't want to spend $500,000 to make it competitive. Take that times 300 clubs and see where you are, especially using the numbers above that reflect the true state of small businesses everywhere in the country.
Another factor to keep in mind is that the chains are mostly in the going public business. They are not, and never will be, in the same business you are. Their goal is to show little debt, high revenues and sales and hope they can go public before they have to reinvest in their clubs. To do this you have to constantly open new clubs that are fresh and generate cash to feed the dogs that have reached the two-year plateau where they are flat.
You can as an independent, keep growing almost forever, but the chains don't seem to work that way. I believe they get flat because they use such aggressive price driven marketing when they open that they burn down the market and do little to create new customers in their marketplaces.
The rules are the same for all of us
There are things call foundational truths that are the same for all of us. These are the basic rules of running any small business and have to be followed to make money. If you aren't making the money you want, check your practices against this list.
• You have to develop a product that differentiates you from your competitors. For example, one of the worst things you can do in a market as an independent is to become nothing more than a shrunken version of a big chain club. Keep in mind that, "The same but smaller” is not a good business plan and also kind of sucks if your girlfriend is using this line on you comparing you to her last boyfriend
• You have to develop a marketing system that creates enough leads to feed your business. Most owners won't budget to get leads, won't do the guerilla stuff to drive in new business and just wait for people to come through. Marketing is so hard that most owners just refuse to play beyond sending a few cheap mailers once in a while. They never master the art of lead generation and just blame the guy down the street for draining leads
• You have to train your staff to convert these leads, at least 60% in our businesses, or your marketing is wasted. The national average for sales conversions is 38% meaning that the typical owner doesn't have enough money for marketing to cover a lousy sales effort
• You have to create a system that allows you to collect the most money from the most members, meaning using a third-party financial service specialist
• You have to master service/retention because competitive markets force us to keep the ones we have. There is a limit to new business in a competitive market.
The tactics listed in the letter are the ones we have used for 40 years in the business. Why do we assume they still work when there have been so many failures using those tools? If this nonsense still works, why don't we have more than four public companies in this industry? If this out of date garbage worked why do so many chains post such big losses annually? Why are the investment people trapped in club chains when VC guys have to flip in three years or they never get their money back? Why are there so many local failures, using these same mentioned tools, if running a club was as easy as using a picture of a big chested model in a skimpy outfit and running a two-for-one price special?
Most importantly, if drop closing, pressure sales, bait-and-switch tactics and sleazy marketing worked so well why is it that after over 60 years in the modern fitness era do we only have 16% of the total population in this country as members of gyms? The number is low because we have created an industry that insults the consumer and then can't get him in shape once he is in the door.
In other words, that guy down the street looks good but if he were really tearing up the market every investment guy in the country would be funding clubs and the members would find us without marketing. Think about it, if someone really had a cure for baldness do you think you would have to advertise it on TV? If we had the cure for a bad case of fat ass, you wouldn't have to market and beat people so badly when they do come through the door.
Fitness was, and will still be, a local affair based upon servicing clients that live three miles or so from your business. How do you stand out and how you are different are still the foundational truths of our business and these rules apply to the guy down the street too. Don't assume he is making money and that what he is doing makes your life easier.
We have proven our system works for over 20 years and we have literally thousands of clients making money using our ideas. But what makes one client successful and the next, using the same stuff, less successful.
The key is execution. Good owners simply get more done and more effective in their businesses. They set a plan, follow it, and ignore the competition to a certain extent, especially if it interferes with their plan.
Good owners are driven business people first and fitness people second because they are in it to make money while providing a needed and ethical product. Most owners who are not as efficient as they hope can't sell memberships, don't practice modern training systems, won't spend money on marketing and won't study best practices in the industry, meaning the ones that do work with the numbers to back up the bull.
We begged an owner who was failing last year to get out and at least do door hangers near the club. She refused saying that there was more important things, like paperwork, to do in the business. She rode it down because she felt that since she opened her business she had a right to make money. Good owners simply make business happen compared to bad owners who wait for business to come to them. If you don't know the difference then you are not in the 20% who is making real money in your business.
What all this means is that you can only master and run your business. You are responsible for your own success and failure but the grass is always greener in the next yard and it is so tempting to seek the fast way to success.
There was a famous columnist in San Francisco named Herb Caen. When I lived there a local radio station ran a billboard of one of the most beautiful women in the world. Herb received over 4500 letters from readers wanting him to research her. Who was she? Where did she live? Why was she not more famous? He ran about 30 of the letters in his column selecting the best lines from a lot of letters. His answer was simple: Your fantasy is someone else's pain in the ass.
In the end, though, it doesn't really matter because Pete, it's your business and you should try all those things to see if they work for you. There are no absolutes and there are many ways to make money in the world beyond what I teach. Experiment and see if these things will draw the way you think they will for your business but always return to the foundational truths because they are the only things that will determine your success in this business.