Every year at the Two-Brain Summit, I grab 10 minutes with John Briggs of Incite Tax.
He says something truly profound in every conversation. In 2018, he told me about Mike Michalowicz’s then-upcoming book, “Clockwork.”
This week, Briggs is on Two-Brain Radio to talk about his own upcoming book, “Profit First for Microgyms.” It will be out in January 2020. In our interview, he talks about the mindset you need before you can become more profitable, the actual numbers you should be applying to your business and how to leave a legacy in the world. You can preorder John’s book here.
“Profit First for Microgyms” is a niche adaptation of Michalowicz”s game-changing book “Profit First.” Mike is also the author of “The Pumpkin Plan,” and both are recommended reads in our Incubator program.
Michalowicz’s “Queen Bee Role”—or QBR—made a huge difference in my life in 2019.
First, I worked really hard to identify my most important role in Two-Brain Business. I actually needed some help. In the end, I had to ask other people a question: “Where do I make the biggest contribution to our success?” Because we have over 60 staff members spread around the world, I had trouble identifying the one role on which I should focus.
But the answer was probably obvious to you: My QBR is creating content—looking at data, thinking about it and then telling stories about what we know in the “Help First” ethos.
The next step was to get me into that role more often.
Working With a Mentor
When I visited my mentor, Todd Herman, in New York City in October, we rebuilt the organizational structure of Two-Brain Business. We identified a few key hires to make and identified a few people on the team who no longer aligned with our values or vision. The overall goal was to get me into my QBR more often—and help others get into their QBRs, too.
Over the next few months, we made some big hires and had some hard conversations with friends who no longer fit the company’s mission.
If you’ve been following these love letters, you’ve seen the effect: better focus, more help and more options. Here are our podcast (Apple and Stitcher), our YouTube channel and our blog.
We’ve spent over $20,000 per month building better downloads that we give away for free (here’s the library—help yourself).
I love the stuff we’re creating now. And I love Two-Brain more than ever: It’s the company that I want to build again.
Michalowicz will be the host of our fourth Tinker Mastermind workshop this year. He’ll join Chris Voss, Linda Kaplan Thaler and Todd Herman as our quarterly leaders in the program, with Jeff Smith, Josh Price and me as the leaders of the mastermind.
The key lesson of “Clockwork” was the Queen Bee Role. And I didn’t get it at first.
But now I know Michalowicz could write an entire book about it.
Other Articles in This Series
Best Lessons of 2019: The Alter Ego Effect
Best Lessons of 2019: The Power of Nice
Best Lessons of 2019: Never Split the Difference
I recently bought a treadmill.
I took the advice of other people like me online. I don’t know them, but they do the same sports I do, so their recommendations were worth a $3,000 purchase.
On Tuesday, I received a shipping notification from the treadmill company.
On Wednesday, I got a little email showing me how to unbox the treadmill, how to set it up and how to start out.
On Thursday, I got one more email: some tips to start (and stick with) a walking program—because most treadmill buyers are first-time exercisers.
I used to sell treadmills for a living. I know that most treadmills turn into clothes racks within a month and garage-sale items within a year. I know that the industry was front-loaded: People bought one treadmill in their life, and the transaction ended there.
But home fitness equipment companies have new opportunities. They can sell ongoing subscriptions to training plans or online classes or games like Zwift, Aaptiv, Mirror, Tonal, Hydrow … and they can call it “coaching.”
But we can turn it around on them.
First: The Tools You Need
When I found online scheduling software in 2005, it was a huge epiphany: We could throw out our messy day planners and let clients choose their own appointments. No more no-shows or last-minute cancellations. And then, in 2006, we found MindBody, which tied payments to bookings! Hallelujah: no more awkward “you owe money” talks with clients!
But since then, software tools in the fitness industry have morphed into slow “scoreboards” with appointment tracking and payments tacked on as an afterthought. (There are a few good ones bucking the trend—read our detailed report here.) But what do gym owners really need to run a business?
I think it’s:
- A client relationship management (CRM) platform to track clients and leads (we like UpLaunch).
- An appointment scheduler that integrates with payment processing.
- Something to track client results and show their progress.
By the end of next year, you’ll need:
- A way to deliver programming to clients who aren’t in the gym and have them track their progress.
- A better camera and microphone.
- A nutrition program for everyone you coach.
- A fluency in tools available to you outside your gym.
In our report on coaching software, we found that Trainerize has a lot of this covered. It’s not perfect, but it’s probably the best option for personal trainers, and maybe the best choice for gym owners, too. At least for now: Several others were close.
But the tools don’t make the coach. Tools should extend and scale your care, not replace it. In the end, your success will be determined by the personal care you extend, not the emails you automate.
And new tools give you the opportunity to extend that care into new markets. Below, I’ll tell you how to see these tools as opportunities instead of competition.
Second: The Tools You Don’t Need
Many gyms sign up for things they don’t need and then fail to use them.
Then, when they do an expense audit, they add up what they’ve spent and regret the purchases.
Here’s what you shouldn’t spend your money on in 2020:
- Marketing agencies that will “do it for you.” Every marketing agency is incentivized to increase ad spend. They’re a lot like mutual fund salespeople: As the market gets worse, they tell you to spend more. It has a ratchet effect that costs you more and more for fewer results. And without skin in the game, marketing agencies really never have to get creative with their own money. Learn to do it yourself, teach a staff person, and continually track and improve your funnel instead.
- Coaching courses that teach something beyond the scope of fitness. Partner with local health-care professionals instead. Read “Scope of Practice” here.
- Equipment or education you can’t tie directly to more revenue. Too many box owners are over-educated and poor. Plan to upgrade your coaching education in 2021 and your business education in 2020.
Third: The New Opportunities
Online spin classes, Zwift, remote trainers—they aren’t your competition. They’re a breeding ground for your next clients.
Every time a spin bike company sells a monthly “coaching” subscription, it’s doing you a favour. The company is teaching its clients the value of coaching.
You don’t have to do that part anymore. All you have to do is reach those people and tell them that you’re the next step.
Now, I’ve screwed this up. When I brought CrossFit to our city, I thought I was competing with P90X. Remember that? A bunch of DVDs that people followed for eight weeks.
A couple of firefighters told me “I don’t need to do CrossFit. I can do P90X at home!” so I thought I was in a life-or-death battle with the program.
What I should have said was, “That’s great! I hear good things. When you get bored, give me a call.” And then I should have called them eight weeks later—because everyone got bored with P90X. They would have been ready for CrossFit. I could have said, “You’ve taken Step 1! Here’s Step 2.”
People sign up for at-home coaching programs for many reasons. One is that they’re scared to exercise in front of other people. They think, “I’ll get started at home and then join a gym.” But if you tell them that’s dumb (like I did), they’ll just stay in their basement. If you pit yourself against the treadmill company, you’re also pitting yourself against its user.
Here’s another story: I used to publicly denounce laparoscopic surgery. I thought our government was crazy to subsidize “the easy way out.” I thought people were wasting their time having their stomachs cinched off with rubber bands. I thought they should exercise instead.
One day, as I was working up a good rant about it to a couple of clients, one of them touched me on the arm to interrupt.
“Chris,” she said kindly, “I’ve had the surgery.”
I was shocked: “You, Cathy? I don’t believe it!”
Cathy was one of our most hardcore CrossFitters at the time. She followed every blog, watched every video. She’d usually be the one to fill me in on the CrossFit Games gossip.
But she’d had stomach-reduction surgery. And she changed my viewpoint with what she said next:
“I needed to feel good about myself before I could join a gym.”
Laparoscopic surgery wasn’t my enemy. It was my on-ramp!
Peloton isn’t your enemy. It’s your on-ramp!
Bowflex isn’t your enemy. Strava and Zwift aren’t your enemies. Orangetheory isn’t your enemy. They’re all on-ramps to your service!
Instead of “us, not them,” we should be saying, “Would you like a bit more?”
Leveraging the New Tools
Think about online coaching the way you’d think about a library.
“Here is all of the information you’ll ever need organized in one place.”
But nobody learns how to do open-heart surgery at the library. No one quits smoking after reading a book about it. And no one reads the same book every day. Eventually, people need a teacher. And then they need a coach.
If I wanted to attract local cyclists to my gym (and I do, because I am one of them!), I would start by posting my own rides on Strava.
In my Strava profile, I’d post a link to a local group ride. I’d create the ride if none existed.
At the group ride, I’d mention how much my climbing speed had improved since adding front squats.
Then I’d say, “Hey, all of you guys keep asking me about front squats. Tell you what: Let’s just start the ride from my gym next week, and I’ll show you what I mean.”
And then I’d book 1:1 appointments with each person who showed up.
People seek out groups of others like them. The key to marketing is “finding the others.” The key to sales is showing “the others” how you can help them.
I searched for “Peloton” on Facebook and found dozens of open groups and forums. Here were a few categories:
What if I told you that the next 20 clients for your gym were waiting in those groups? Would you dive in and grab those gold coins?
How to Take Action in 2020
Forget about ads: Start 20 new conversations next year. (Actually, run your ads, too—and retarget the new audiences you create through these conversations. Your ad spend will go down and your conversions will increase.)
Write love letters to the people in these groups.
Talk to them on video. Record a podcast—whatever. Show them you care and how you can help them.
If I had an Orangetheory franchise next door, I’d be happy. Orangetheory is great at taking average people who are scared of intense exercise and introducing them to our world.
Over time, the thing these people once considered “extreme” becomes normalized in their brains. And then it’s easier to introduce something that’s just a little … bit … harder. Instead of taking them from a zero to a 9 on the “things I’m willing to do to lose weight” scale, we can allow Orangetheory to take them from zero to six and then accept the baton.
Microgym owners who open next to globo gyms are also very smart: People can try to exercise on their own and then add coaching when the results slow down.
Turning these potential competitors into new opportunities doesn’t require a pivot in your business model. It doesn’t require a rebrand. It requires a new perspective. That’s really what a mentor is for.
Other Articles in This Series
State of the Fitness Industry: 2019
State of the Fitness Industry: Your Brand
State of the Fitness Industry: The Disappearing Middle
State of the Fitness Industry: Rebirth
Earlier in this series, I wrote that gym ownership is a positive-sum game: that every gym makes it easier for future gyms to open.
And if the gym is owned by the right person—with an abundance mindset—he or she will help your gym grow.
Best of all: If a new gym opens and shares your brand, your values and your pricing, everyone rises together. We all can win.
I was the third personal trainer in my city.
It took me about three months to fill my schedule. I was employed by the second personal trainer in my city, who took about a year to fill his. And he was friends with the first guy, Shane. Shane took three years to fill his schedule. As the third one in, I benefited from the hard work done by those who came before me.
Shane worked at a globo-gym. As the first personal trainer in Sault Ste. Marie, he had to teach the members what a “personal trainer” was; then he had to convince them they needed one. He had to sell—hard—all day and night. It took him around three years to build his business.
When I showed up five years later, everyone knew what a personal trainer did, and there was a surplus of at least 40 people who wanted one. I know, because those 40 signed up with me instead of Shane. But he did all the hard work for me back in 1997.
In 2008, it was my turn to carry the water: I became the first CrossFit affiliate in the city. The CrossFit brand attracted one client, a friendly early adopter named Joe. I had to teach 80,000 other people what CrossFit was, what it wasn’t and how it could solve their problems. I’d say I’m about halfway through those 80,000 now.
When another local gym affiliated in 2009, I panicked: They were going to build on my foundation! All my hard work had created a funnel into their gym! I saw the posts from earlier affiliates through a different lens: Yeah, I wanted a protected territory that I owned! I panicked. I compared my rates to theirs. I called them out for copying me. I tried to rip their coaching, condemn their programming and tear down their business.
Of course, that created a lot of animosity.
They did just fine. They’re still around, getting good results for people and making people happy. And obviously we did really well, too.
But what if we had worked together from the start?
When More Is Better for All
In Baltimore, in Denver, in Houston, in Atlanta and in more cities, entrepreneurs in the Two-Brain family are beginning to gather together.
They’re collectively educating the local population using the Help First philosophy. They’re inviting others into their boxes. They’re not competing on price, not running each other down, not texting each other’s members.
When everyone is doing well, and when no one is desperate, we all do better.
When everyone’s healthy, no one has to resort to dirty tricks, lies or price wars.
We call this “collaborative competition,” but it really means eliminating the bad actors. Wrestling with a pig just gets you dirty; lifting the pig out of the dirty sty creates a better life for everyone.
Over the weekend, the Two-Brain family grew by eight entrepreneurs. They came from:
Georgia, United States
Phnom Penh, Cambodia
Arizona, United States
Indiana, United States
Some were referred by other gym owners in the Two-Brain family.
In Winnipeg, new clients routinely call the wrong gym to sign up. The Two-Brain gyms send the new client where they should be going. But general awareness helps them grow together instead of fighting over scraps.
In Stockholm, gym-owner meet-ups led by Two-Brain family members occur regularly. They share, teach and help one another grow in a positive way.
You can choose to make enemies or you can choose to make a difference.
Good fences might make good neighbors, but families don’t need them.
Other Articles in This Series
Playing the Infinite Game
We Can all Win
Never Have Competition Again
The Mindset Necessary for Success
1,000,000 Fitness Entrepreneurs: The Two-Brain Plan
We are fitness coaches.
CrossFit’s “Sickness-Wellness-Fitness” model highlights our opportunity to help humanity.
But it also shows us the limits of our practice: As a client moves to the left, from fitness to sickness, our expertise is diminished. We are not doctors. We are not physical therapists. We are not dietitians. And we don’t want to be.
Of course, we still care a lot. We desperately want to help people with Type 2 diabetes. We want to cure the lame, heal the injured, bring sight to the blind. Of course we do!
But the best way to help is to partner with true experts, not to replace them.
The Missing Piece of the Model
The real “far left” of the Sickness-Wellness-Fitness Continuum is death. But the relationship between fitness, sickness and death isn’t linear. Very fit people still die. Very fit people still get injured. And “well” people still get sick.
Greg Glassman, who created the Sickness-Wellness-Fitness continuum, said this:
“Physicians are lifeguards. Trainers are swim coaches. When you need a lifeguard, you need a lifeguard, not a swim coach. But, if you need a lifeguard, you probably needed a swim coach and didn’t get one.”
We, the swim coaches of health, applaud that message.
But that doesn’t mean lifeguards are bad.
And it really doesn’t mean we’re the lifeguards.
A Bad Image for a Good Reason
You’ve heard this one, right?
“CrossFit has been a huge gift to my surgical practice.”
It’s an urban legend, but it sums up the reason many coaches don’t trust therapists or doctors. The current medical model is full of problems: treating symptoms instead of causes, overmedicating, treating people only when they’re really sick.
I spoke to a local entrepreneur and physiotherapist about the problem on our podcast:
Episode 168: Exercise Over Opioids
On the flip side, many doctors, therapists and health-care professionals don’t like trainers. And I really don’t blame them.
Imagine your client told you, “My tooth hurts.” You sat him or her on an incline bench, pulled out a little pocket mirror and flashlight, and found a cavity. Then you said, “I can fix this; you don’t need a dentist!” You rigged up a little drill you bought online, mixed up some MortaRx and filled the cavity.
How would you expect local dentists to react?
Why would we expect physical therapists, massage therapists or dietitians to be any different?
And are we any different when a family doctor tells our patients to eat less fat or just walk more often?
When a client gets injured, we want to take action. We don’t want to wait. We don’t want to expose the client to negative messages about exercise or diet. We don’t want the client to lapse back into the cycles that made him or her unhealthy. And we don’t want to lose the client.
Our relationship with registered health-care practitioners is fractured. No one trusts anyone else.
But we all need each other. And our clients need us to work together.
Why You Shouldn’t Do Therapy in Your Gym
A client complains:
“My shoulder hurts when I do this.”
Being people of action—exercisers! entrepreneurs!—we take matters into our own hands. We watch some videos on Instagram, light a scented candle and proceed with the Laying on of Hands.
I’ve done it a thousand times—and definitely shouldn’t have. Here’s why.
You Really Don’t Know What You’re Doing
I’m a critic of most educational institutions. I’m a skeptic of credentialing and an opponent of most licensure in health care.
But let’s face it: DPTs, massage therapists and even dietitians know something you don’t. They’ve practiced diagnosing and treating injuries. Their education isn’t all fluff. Your duty to the client is to guide him or her to the best care. It’s hubris to think that you’ll always be the one to provide it.
You’re Not Insured to Treat Injuries
What if you misdiagnose? What if you miss something? What if you make the problem worse? Will the client miss work because of it or suffer because of it? Will he or she sue you because of it? And then what?
You Have to Protect Your Clients, Coaches and Gym From Liability
I remember watching a coach take a client of the opposite sex through a workout. At the start of the workout, the client complained of neck pain. The coach had the client roll the area with a lacrosse ball, but it didn’t help. The coach guided the client through six neck stretches, but the tightness persisted.
Then the client said, “Let me show you exactly where it hurts,” took the trainer’s hand, guided it to the right spot and said, “Yeah, right there.”
You’ve seen the end of that movie, right?
The client probably had no ill intent. The trainer certainly didn’t. But you just never know.
These are exactly the situations that cause problems down the line: complaints about unwanted touching, claims of harassment—there’s no limit to where these things can go. And when they do, people lose their reputations and their businesses.
We live in a litigious society. If you give people a reason to sue you, they eventually will.
Partnerships > Replacement
As I said earlier, I’m guilty of trying to be a therapist. I probably went way beyond my scope of practice in the early days because I was scared. I thought the regulated health-care providers would tell my clients to stop training with me.
But in reality, when I started sending clients to local therapists, I built a foundation of trust that eventually got me far more clients than I referred.
I created a referral form for my clients. When I sent them to see a physiotherapist, massage therapist or dietitian, they took the form with them. In almost every case, I got a call back from the practitioner to talk about the client. And when that happened, I always got the client back.
Here’s the kicker: No other trainers in town were doing this. So when a physiotherapist told a client, “You need to lose 30 pounds to take weight off your knee,” they didn’t trust anyone else to help them. I started getting referral forms back. That’s right: A tiny bit of trust got me a lot of referrals.
In fact, when I started taking sandwiches and coffee to local chiropractic offices, my gym membership grew faster than ever before. That’s how I met Andre Riopel (interviewed in the podcast episode above). And we’ve made hundreds of thousands of dollars off that relationship to date. I’d like to say it’s because Andre thinks I’m smart. But the reality is that he probably doesn’t trust anyone else.
Josh Martin, co-founder of Two-Brain Coaching, works with EXOS specialists when his clients need rehab. And they send athletes to him when that’s appropriate. Each partner knows the opportunities—and limits—of each practice.
The Best Solution
I could say that “the best way to make sure your clients don’t need rehab is to just stop hurting people.” But we all know that’s glib: Many new clients are on the borderline of “sickness,” and if we accept them into our care, we have to take them as they are. They might have existing problems we can’t see. Or they might be overdue for an overuse injury—or predisposed to one.
The best solution, in any case, is to build a network of trusted health-care professionals. Then prove that you are a professional by referring your clients to them, instead of trying to do their jobs.
Other Articles in This Series
Training Coaches: How to Find New Coaches
Training Coaches: Internships
Training Coaches: Continuing Education
Training Coaches: Building Careers
As Two-Brain gyms become more successful, they’re often approached to “buy out” another local gym owner. Or, after building replicable processes, they see the opportunity to expand to a second location.
As the gap between profitable gyms and unprofitable gyms widens, these opportunities will become more common.
So which is better: to start a new gym from scratch under your profitable brand or to buy an existing gym—and its revenues and problems?
Setting the Baseline
Let’s start with the cost to start a gym and compare the benefits and challenges of buying an existing gym against that anchor point.
You can start a new gym for under $30,000, including $5,000 for mentorship (to make sure it works), $20,000 for equipment (that’s more than enough), and $5,000 for space upgrades.
(You can get our free Ultimate Business Plan template here.)
But there are some cases where it makes sense to buy an established gym. Just make sure you answer the questions below first.
Questions to Answer Before Buying
Why do you want to own a second gym?
If I hear: “I just want to help more people. My first gym doesn’t take any of my time,” then we proceed with the purchase.
But usually, I hear this: “It’s a great opportunity. There are no other gyms in the area. My members could choose where to visit. It’s almost profitable. I know I could fix it.”
That last one is in bold because I hear it a lot.
The problem is that it takes three times the effort and three times the time to fix a problem than to avoid the problem. Here’s a case in point: Two-Brain mentor Kaleda Connell built a profitable gym and reached functional retirement in three years. It took me 10. She started from scratch; I had to fix my early mistakes.
Click to listen to Kaleda’s story.
And if you’re opening a second location to make more money, you should be sure that you’re maximizing revenue at your first location. Because a second location doesn’t double your workload; it quadruples it.
Is There a Third Option?
Here are the questions I ask next:
- Is there a chance you could get the gym’s members even if you didn’t buy the gym?
- Is there an easier way to increase your income in your current gym in less time than you’d require to fix the other gym?
- Are clients in the other gym accustomed to lower rates? Do they match your target demographic?
- Why is the other gym failing? Are you buying the problems that are killing it?
- Does a higher membership count move you closer to your “perfect day”?
- What liabilities are you also buying? (For example, a lease.)
After thinking it through, many owners decide not to buy out another owner. Here are some reasons I’ve heard recently:
“It would take me months to fix that gym. If I calculate the value of my time, it would be a lot easier to just increase my sales by $2,000 per month at my current location.”
“I’m pretty close to my perfect day already. I can’t imagine dealing with all the discounts and student memberships that killed the other gym.”
“I know I could fix the culture over there, but it would cause me a lot of stress in the meantime.”
“They want a lot more than their valuation. No thanks.”
“I realized it was just my ego saying, ‘I want to be the guy who owns two gyms.’”
Many decide they don’t want to buy the other person’s problems. But they do want to help. So sometimes they offer the other owner a job or pay for the client list or even buy the equipment.
There are ways to help that don’t involve sacrificing your perfect day (or your income!) to save someone else. But kudos for wanting to!
What’s the Other Gym Actually Worth?
If you’re sure you want to own two gyms and you’ve examined the less expensive, easier options, the next step is to anchor the conversation with numbers. You can use our valuation tool:
Rigquipment Finance DCF Worksheet for TwoBrainBusiness.com
Forget intangibles like “community” or location. How profitable is the gym? How long has it been open? How much of my time will this second location require?
If the gym has been open for 10 years and the owner earns $30,000 per year, take a hard pass—you can make more than that in your first year if you start from scratch with a mentor. And you won’t have to go through the work and pain of trying to change the gym.
After all, there’s a reason the owner is selling—and it’s not because he or she wants to “pursue other opportunities.” No one sells a profitable gym that runs itself.
Do I Have to Buy It NOW?
If you do want to buy out another, we’ve been through it many times. The path is clear. Just make sure your own house is in tip-top shape because you’ll have to focus your full attention on the second gym for a few months.
Clients who have been through the Incubator are generally successful when they buy out another gym—unless they decide they’re doing just fine with one.
After all, no one needs a second gym when the first one pays well.
You can download the two free guides “How to Buy a Gym” and “How to Sell a Gym” here:
If you have questions, don’t leap before you talk to us for free. Click here to do so.
Short answer: probably not.
Entrepreneurs accept partners for three reasons:
- Complementary knowledge.
In some cases, partners can help a business launch and scale more rapidly. But in an owner/operator gym, there’s really not much room for two owners.
In this post, I’ll share why you might not want (or need) a partner and how to find a good partnership if you do. I’ll also give you the tools you need to make the partnership work.
Why We Take Partners
I started Catalyst with two partners. I couldn’t have started without them.
My first partners served two important functions: They removed the obstacle of choice by basically dragging me into a lease on some gym space. And they loaned me $16,000 to buy equipment.
In return, they wanted a recurring return on their investment: $1,000 per month forever, plus the loan payment. In hindsight, this seemed like a bad deal. But I wasn’t thinking logically at the time: I was thinking emotionally.
What I was really buying was a way around my fear. I thought, “These guys are my parachute.” Also, subconsciously: “If I screw up, it won’t be entirely my fault.”
But two years in and $24,000 paid, I started to resent their partnership. I was doing all the work; they were getting paid in good months and bad. Even when I missed a paycheck, they didn’t. The novelty and gratitude wore off, and I started to ask, “How do I get out of this?”
The truth is, it’s really hard to get out of a partnership. So before you enter one, here are some easy alternatives to the three benefits of partnerships that I mentioned earlier (knowledge, investment and fear):
In tech companies, it’s sometimes wise to have a partnership between a visionary and a technician. One person sets the course and the other puts in the hours programming.
But in a microgym, that’s not really necessary: The owner is always the first coach, and the gym was built to fulfill his or her vision.
Instead of giving up a share of your money forever, hire a mentor. You’ll get industry-specific knowledge, much higher ROI and step-by-step processes instead of just a sympathetic ear. And you won’t tie yourself into paying someone forever.
A partner who provides startup funding in return for equity might seem like an angel. But if someone has $20,000 to risk on a fitness business, he or she is probably not dumb: the investor expects a return. And every investment he or she makes should provide an outsized return. If it doesn’t, the investor can always put the money somewhere else.
That’s fair. But, like me, many first-time entrepreneurs don’t see the long-term payments they’ll be making and eventually get mad about the agreement.
“He’s made enough money off me!” they think, as they open the door in the dark at 5 a.m. But the investor just assumed the operational partner understood the agreement and provided the opportunity.
This is why you should borrow money from a bank instead of seeking an investor in your gym: The bank might charge some interest, but the bank eventually goes away. The bank doesn’t want to talk about your programming. The bank doesn’t want $500 per month until the end of time. The bank doesn’t want to treat you like an employee. It just wants its tiny fee for giving you the money.
I’ve worked with several gym owners who decided to “spread the risk around” by opening with multiple partners. This is almost always a catastrophe: four people become exhausted and impoverished instead of one.
A microgym isn’t an investment-grade asset. But the people in many of these partnerships just haven’t done the math to figure out how many clients they’ll need (at what rate) to pay everyone involved.
Worst of all: Everyone ends up hating one another. And broke, and tired.
Entrepreneurship is scary. But if you want to do it, hire a mentor. Instead of having four people guess and argue, talk to one person who has been there, done it successfully and will eventually go away until you need him or her again.
How to Get out of a Bad Partnership
OK, so you’ve determined that you’ve outgrown your partnership. The simple way out is to get a valuation and then purchase the partner or partners’ shares.
If the company isn’t doing well, this is great news: You can buy the shares for very little. Just use the Shotgun Exit term you’ll see in our Sample Shareholders’ Agreement.
But if you don’t have the money (or you don’t have a shareholders’ agreement that spells out the terms of your exit), you’ll have to leverage something else. What do they care about more than ownership?
In my case, I was facing a court battle with city hall over an occupancy permit. I couldn’t afford the HVAC upgrades they insisted we needed. I was ready to go to war because it was the only way to keep my box open.
But my partners did a lot of business with city hall and didn’t want to tarnish that relationship. I explained that I didn’t have much choice but was willing to buy out their shares and let them avoid trouble. They immediately and graciously agreed.
If all else fails, use your failure as leverage: “Look, Bill, we both had the best of intentions when we started this thing. I know we’re partners, but I feel responsible. The business isn’t doing well, and I don’t expect you to take a loss here. I would feel better if you’d let me take on your share of the debt and then try to figure it out from there.”
How to Set up a Great Partnership
Great partnerships aren’t born; they’re made.
Before you enter into a contract that’s more binding than marriage (no joke), you should talk about your relationship.
Who will do which roles in the new company?
How will each of you make money in the new business?
How will you make decisions?
How will one of you eventually exit?
Download our Sample Shareholders’ Agreement here.
Equality Versus Equity
Who gets paid? How much?
There’s a difference between owning 50 percent of a business and being paid 50 percent of the profit.
The operating partner (the one who’s in the gym every day) should be paid a wage before profit is calculated.
It’s also fair for the lending partner (that mythical “money guy”) to build a loan repayment structure into the business’ expenses before profit is calculated.
But the important part is this: You don’t have to get paid based on your equity stake. You should be paid based on your role in the company.
If both partners will be working in the business, that’s fine—break down your roles, assign a value to each, and pay yourself based on the value you bring. Just don’t say, “We’ll split it all 50-50!” because no two partners are ever 50-50 contributors.
It might sound like I’m down on partnerships, but I’m not: I love partnerships. I just hate unnecessary servitude and expensive mistakes. Listen to my podcast on the topic here:
Two-Brain Radio Episode 81: Partnerships
Get a loan, get a mentor—make your debts short-term and grow your confidence forever!
Other Articles in This Series
How to Start a Gym
Starting a Gym: Location, Space and Equipment
Starting a Gym: Scaling Up
Starting a Gym: Adding Staff
Starting a Gym Marketing