Chris Cooper (00:01):
How do you grow your business without doing more and more work yourself? One of the ways is through partnerships. I’m Chris Cooper. I’m the founder of Two-Brain Business. And I’m hoping that I can teach you today three different levels of partnerships that can work in your gym business. If this episode is helpful to you, please hit subscribe on the platform you like best so that we know this is the kind of content that you want to hear, and we can keep producing free stuff. No matter how big your business is, no matter how old your business is, you have a very valuable asset that other people want to benefit from. And that’s your audience. The people who train with you, know you, they like you, they trust you. They will follow your judgment in fitness and in health, but also in other areas. And over the years, we’ve explored a number of these areas in my gym, but also in our media.
Chris Cooper (00:52):
So we shared examples of how to put up a banner program in your gym, where you recommend the services and products of people that you trust to your clients, and you help your clients find these trusted people. We’ve shared strategies where you just allow your clients to put their business card on a cork board so that people in your community can buy from other people in your community—people who they already know like and trust. But there are more formal ways to do this, too. And today I’m gonna share three different levels of partnership so you can consider what level is appropriate for each individual case. So when you’re considering partnership with people, you have to consider primarily the balance of the risk that you put into advocating them as a partner and the reward that you get out of it.
Chris Cooper (01:47):
The biggest risk you face is not reputational risk. The biggest risk that you face is time risk. And that is where you will have to invest your time and how much time you’ll have to invest to get a decent reward from this partnership. Now I’m not talking about cross referrals here. I’m not talking about, you know, you’ve got a chiropractor and you wanna work exclusively with them and make a deal where they only send you clients. In those cases where you’re not even going to make a few hundred dollars per month, the best thing that you can do is just have a good relationship. You don’t need to formalize it. You don’t need to set up referral fees or cross-referral structures or rules or any of that stuff. You just have to send your clients to them.
Chris Cooper (02:33):
So you’re not going to formalize or set up any kind of deal, unless this deal is going to be worth at least a few hundred dollars per month to you, because there are always other things that you can spend time on. Okay? There are three levels of partnerships I want to talk about today. And I’m gonna give you examples and reasons for each one. The first level is they are building something off your platform. The second level is you are growing your two platforms together, right? So you’re both growing your pies at the same time. The third level is you are investing in them directly. So you’re taking equity. So let’s talk about the first level. First, in this case, somebody is going to build off your platform. That platform could be your client list. It could be your location. It could be your brand.
Chris Cooper (03:21):
And in this case, they’re not really going to be able to grow your business much, but they’re gonna benefit from having access to your business, your clients, your equipment, your space and your brand. They should just pay you rent. All of the deal is completely front loaded for them. It’s one sided. They get access on Day 1. You get nothing else. Here’s a great example: A massage therapist wants to rent space at your gym. The best thing that you can do instead of working out like a rev-share program or taking a share of their company is to just rent them the space. Let them pay that way. You don’t have to invest time in helping them grow their business. You don’t have to audit their books every month. You don’t have to tell them to clean up their space. You’re just renting the space to them.
Chris Cooper (04:06):
Okay? These deals are usually under $500 per month, and they’re not really worth investing time in. How I’ve screwed this up: I had a jiu-jitsu school who wanted to rent space. They were brand new startup, close friends of mine. I really liked them. One of the owners was actually coaching CrossFit at my gym, too. I thought, “This is a great deal.” And I expanded my space and rented it to them but quickly realized like these guys were brand new entrepreneurs and they needed a little bit of help. And so I took equity in their company to help grow them. And hopefully I got them off to a good start, but I eventually realized that I didn’t wanna own a stake in a jiu-jitsu school. I couldn’t devote the time to helping them grow that jiu-jitsu school. And so I wasn’t doing anybody a service by owning equity.
Chris Cooper (04:52):
They should have been a tenant. And that was it. In the second level, you both grow together. So the pie grows for each of you in this partnership. And this is usually where you’re doing revenue sharing or an affiliate deal or licensing or something like that. And this example that I’ll give you, you know, maybe we’re talking about like a nutrition coach or supplements. How does this deal work out? It should be worth at least $500 per month because you are probably going to want to invest time in growing this program. However, you should see a direct correlation to the time that you put in versus the reward that you get out. What is that balance? If you’re working with a nutrition coach or a personal trainer or another coach, that balance should be that they keep 44 percent of the gross revenue generated from your audience, space, equipment insurance and all those other things.
Chris Cooper (05:49):
Really all they’re bringing to the picture is their expertise. You’re providing all of the hard stuff—the insurance, the booking and billing software, right? The stuff you love. Getting all the clients for them. You’re probably doing all of that. And all they’re doing is establishing their brand from your existing platform. So in a gym business, that’s why we teach the 4-9ths Model or a concept called “intrapreneurialism.” Another example might be supplements. So in this case, if you sign up with a supplement company, you’re making a rev share, and maybe it’s 30 percent, let’s say, on all the protein that you sell from this supplement company. So you’re growing their brand, but you’re also growing your revenue as the two brands grow together. And when you invest time into promoting supplements, you get a direct return on that time. If you don’t spend any time promoting the supplements, you probably won’t get much outta the relationship, but it won’t cost you anything either.
Chris Cooper (06:47):
So it’s really up to you at this level over $500 per month. And you’re looking at rev share. It’s really up to you to decide how much energy and time you can afford to put into promoting this program. Right? And that’s a good deal for most people, especially with supplements, but it’s a good intrapreneurial relationship between the business owner and their staff, too. If the staff works hard, they can do great with no ceiling. If the owner wants to really help the staff grow and therefore grow the pie for both parties, they can invest some time mentoring the staff on how to grow on the owner’s platform. If the owner doesn’t have time, it doesn’t cost them anything because they’re not committed to like a salary or inventory in the case of supplements. Okay? So the, the first level that I said is they’re building off your platform and they’re paying you rent.
Chris Cooper (07:36):
The second level of partnerships in your gym is you’re both growing together and you’re doing like a rev share. The third level is you’re investing in the other partner directly, and this is an equity stake. You are going to own part of their business. There’s only two reasons you would ever want to go the equity route. The first is that you’re going to get paid when the company sells. So that means that taking equity right now is going to pay off in the long term because you’re gonna go through a startup period maybe where you’re not getting paid at all, or maybe you’re only getting paid every quarter, but you’re still having to invest your time. And you’re gonna be expected to participate and do some of the work if you own a share of this company. But the hope is that when the company sells, you’re going to make a high multiple.
Chris Cooper (08:26):
So a good example here would be you’re going to invest in a staff person’s software company. They’re gonna build a new CRM or something, and you’re gonna take 10 percent. You’re going to loan them $20,000 to get started. And when they sell it 10 years from now, you’re going to get a high multiple back. This is tough to do in the service industry. It’s tough to wait for a payout like this. So taking equity in another service-based business is usually only done for one reason. And this is the second reason that you would take equity, which is to have control. Okay? So let’s say, for example, that your gym is doing great. You know, you’ve got 200 members, a very high, ARM, great retention, everything systemized. You don’t really wanna open another gym, but one of your coaches is a real go-getter who thinks they wanna be an entrepreneur.
Chris Cooper (09:15):
And so they say, “Hey, I’m gonna go open my own gym.” The best play that you can make there is to share your hard-won and mistakes and mentorship, and to share your brand with them, which probably does have some influence in the local market. Share your processes, your procedures, so that they don’t have to come up with this stuff. And they can cut three years off the journey to profitability. And you also share your support and enthusiasm with them. You can act as a mentor. And so if your coach wants to go open their own gym, the first question would be, “how can I invest in your new venture?” And part of that is, yeah, you’re gonna make some revenue, probably, if you set up a good profit-sharing agreement in the beginning, but more than anything else, you’re going to have some influence and control.
Chris Cooper (10:03):
So instead of the new coach, starting a new gym and then emailing all your members or DMing them on Instagram and saying “come and check out my new place” and you losing members and you creating this environment of competition, you can create an environment of collaboration, where if a member wants to go to your other gym across town, that’s okay. No problem. It’s great for everybody. If a coach at that gym has an amazing nutrition coach and that nutrition coach can serve both gyms, wonderful—a win for everybody. And this is the only case where you take equity: It’s to have some kind of control and influence. So I’ll give you a few examples of like how I’ve screwed this up. So I gave you the example of the jiu-jitsu school and me screwing up the first level of partnership, which is where they should just build off your platform.
Chris Cooper (10:51):
But there been other examples, too, where two companies are trying to grow together, and where I really see this gets screwed up is the owner not understanding how much a tenant is getting from them. I’ll give you an example. Let’s say that you own a microgym and a personal trainer comes to you and says, “Hey, I wanna move out of the big globo gym. I wanna set up my personal training in your gym. I’ll do all my training during your quiet times. And I’m only just gonna train my own clients.” That sounds like an amazing win, right? Like, “Here’s revenue for nothing. There’ll be somebody in my location at 10 in the morning using my equipment. Great.” Here’s the problem. When you lease out space, you are in a partnership. And if they’re selling a service that is similar to yours, if it’s not dramatically different, if your clients can’t explain the obvious difference between your service and theirs, then it’s the same service.
Chris Cooper (11:50):
And in this case, what’s happening is your client will perceive their service to be either delivered at your level or better. So first example, their client comes in, they get a new client, the client signs up for their service and the client has heard of your gym. They’re gonna associate all the good things that they’ve heard about your gym with that trainer. So they will expect the doors to open on time. They will expect fair billing practices. They will not expect to get scammed. They will not expect the trainer to put the moves on their wife. And so everything the trainer does will reflect on your brand, but not in a positive way. If the trainer is amazing, they’re building their own brand and your clients will just gravitate to that brand. This happened in a couple of gyms years ago.
Chris Cooper (12:41):
There’s one in particular I’m thinking about in Boston, where a trainer came into the gym, he had his quote-unquote “clients.” He would set them up in the back corner and he was really energetic. He was enthusiastic. He was knowledgeable. And gradually all of the gym’s clients started to go back into the back corner and train with Tony, and they would cancel their gym memberships and just start paying Tony. And so for the price of 500 bucks in rent, the gym owner was losing about $10,000 a month in client memberships. Yeah. You know, it should have prompted him to get better or whatever. But the bottom line is like he did all the work to get those clients in the first place. He had all the risk associated with renting the equipment. And in the end, it works out to being like allowing a hot dog vendor to push their cart through your restaurant.
Chris Cooper (13:29):
That’s exactly how this works out. So it’s really easy to screw that up. When you have somebody who wants to perform the same service as you on your location in front of your clients, under your brand, they should be working for you or they shouldn’t be there. Third example, you invest directly in them and you take equity. So the real risk here is time, right? Especially if you have a little bit of money. And I’ve seen this go awry many times. So let’s say that you’ve got a member who’s a great chef. And they wanna provide done-for-you meals at your gym. And you say, “This sounds awesome. I’m gonna invest. What do you need for startup money?” And they’re like, “Well, we think we need about $10,000 so that we can like buy the first round of groceries and a couple of coolers that we can put in the gym.” And you say, “Great, I’ve got 10,000 bucks. Let’s do it.” And so you invest in this company and then, you know, the company loses money for the first two or three months. And the chef comes back to you and says, “Geez, I don’t know what to do, but you own 10 percent of the company and we need cash. So we’re all gonna have to put more cash in.” There’s a cash call. You think, “Okay, well, you know, in, for a penny, in, for a pound. I’ll invest another a thousand bucks.” So you put more money in. And then two months later, the company’s still not making money. And they’re like, “Hey, Chris, what’s going on? Like, we’re not selling any food and we’re losing so much money on the wastage and you own 10 percent, but we’re outta money.” And you think, “Well, okay, I gotta float them until they can turn the ship around. So I’ve gotta do two things. I’ve gotta invest more, which means I’m gonna buy more equity in the company because they don’t have the money to match what I’m putting in. And I need to kind of take control of this thing and sell it for them.” And so what you find is that you’ve bought yourself a job that takes more time than you have and makes you less money than you were working for before. Taking equity is a real vanity play. Even if somebody offers you 10 percent of their company for free, and you will feel like an owner, you really have to ask yourself “is this worth the time investment that I’m going to get out of it? Or is this the best use of my time?”
Chris Cooper (15:46):
Here’s another example. A client says, “You know, Chris, I’ve got this, this empty building across town. It would be awesome to have you put a gym in there. Now it’s only 2,000 square feet, but you know, it might add another $50,000 in revenue to your bottom line every year.” And you think “that’s amazing. I’ve won the lottery. This client has given me an amazing gift.” What you should really be asking yourself is “how much of that $50,000 is profit first?” So yes, it’ll add $50,000 in revenue, but if 30 of that will get eaten up by overhead, now you’re opening a second location to earn $20,000 in profit. The next question you wanna ask yourself is “how else could I just earn $20,000 in profit from what I’m currently doing?” And the answer is “well, it’s probably a lot easier than opening a second gym.” And what this always comes back to is the time investment required for equity.
Chris Cooper (16:39):
So here are my basic rules. If you’ve got a potential partnership and it’s going to be worth less than 300 bucks, just do it on a handshake. Be friends. “Yeah. I’m happy to refer to you.” If you’ve got a potential partnership where they’re building off your platform and they’re benefiting from your time and your audience, your clients, they’re benefiting from maybe your insurance, your payment gateway, just charge rent. You do not have any time available to invest into their business at this price level. If somebody says, “Look, we can both grow together. Here’s an affiliate deal. You sell my supplements. You’ll make money. And it’s something that your clients need anyway.” Or somebody wants to set up revenue share with you. That’s wonderful. Take a rev-share split. Okay. The third level is you invest directly in them either because you’re hoping for a big multiple when they sell or you wanna have some kind of influence and control over their business.
Chris Cooper (17:39):
In that case, you still want to ask yourself, “What is my time going to be worth here?” It’s very easy to fall into the trap of investing a lot of time into something that won’t pay you and takes away from the thing that does pay you. Hope this helps. There are so many opportunities out there when you connect with people. when you work together and when you forge partnerships, you can both grow together. The key is establishing a good contractual agreement, understanding the expectations, and setting up the payment processes and ownership structure right from the get-go. Hope it helps.
Announcer (18:12):
Thanks for listening to Two-Brain Radio. Please subscribe for more episodes. Now, Coop’s back with a final message.
Chris Cooper (18:18):
We created the Gym Owners United Facebook group in 2020 to help entrepreneurs just like you. Now, it has more than 5,900 members, and it’s growing daily as gym owners join us for tips, tactics and community support. If you aren’t in that group, what are you waiting for? Get in there today so we can network and grow your business. That’s Gym Owners United on Facebook or Gymownersunited.com. Join today.
