Chris Cooper (00:02):
What does a successful exit from your gym business look like? I’m Chris Cooper. This is “Run a Profitable Gym,” and I want to start a conversation about people who finish the right way. When we all open a gym, we think we’re going to own this forever. This is all we’re ever going to want to do. I can even remember when we moved from our personal training studio to a CrossFit gym turning and saying to Mike, “I just want to do this for the rest of my life.” It felt great, but eventually we might change our minds. We might decide to do something else. We might decide that it’s time to exit because we’re burned out, or we’re broke, or we’ve got a job offer from a software company, or we just want to go sell real estate. Other times, we’re forced to close down. Maybe the landlord changed our lease, or maybe the lockdowns from a global pandemic forced us to close the doors, and we just couldn’t get through it.
Chris Cooper (00:51):
We couldn’t get open again. Maybe the fifth time you have a total staff turnover, you just think, “You know what? I give up. I’m done with this. I’m wasting my time.” There were certainly times when I felt like I would sell my business for $13. There were also times when I thought, like, “I need to go get a real job and feed my family.” Today’s guests, though, had good exits. That means that they reached a point where they were ready to close their gym, sell their gym, pass it on to somebody else. I’ve got two guests today: One is Taryn Dubreuil, and one is John Franklin. And both of them had very different exits from their gym. John, in fact, had three different types of exits out of his five gyms, and they’re going to share everything with you: how they came to a valuation, who they sold to, how they had that conversation.
Chris Cooper (01:37):
But more than anything else, they’re going to share what helped them make the decision to sell, what made them realize now it’s time. There are a couple things that they have in common: Number one, they both had a clear next step. Both of them would say that if you don’t know what your next step is going to be, don’t sell your gym. Number two is they knew what their gym was worth. And they would both tell you also if you don’t know what your gym is worth or if your gym is worth very little, spend six months making your gym saleable and valuable so that you can get some money for the hard effort that you’ve put into it. If you’re anything like me, you see these posts on Facebook and LinkedIn, and it’s a gym owner closing his gym or her gym, and they’re trying to put a happy face on it.
Chris Cooper (02:23):
“Ah, it’s been a great 10 years. I’m going to miss it so much.” But deep down, you know something failed, something went wrong. They’re not deciding to quit. Something is forcing them to give up and go get a job at a software company or go sell real estate. And then you see their post on LinkedIn, and it’s like, “Hey, I’m looking for clients at my new thing.” And your heart kind of breaks because it feels like their dream maybe didn’t come true. So, I want to share with you some stories from people who’ve had good exits, who moved on to something even better. And hey, who knows, maybe they’ll open up a gym one day, or maybe they won’t. Maybe their legacy will continue; maybe their impact is actually growing. I can’t wait for you to meet these two if you haven’t met them on our podcast before. If you want to chat about this, just go to gymownersunited.com. I always love this conversation and that is a caring, thoughtful group that will give you great feedback. Without any further ado, let’s start with Taryn Dubreuil. Welcome Taryn Dubreuil to the podcast.
Taryn Dubreuil (03:23):
I’m super hyped to be here. I love being on the podcast.
Chris Cooper (03:26):
Oh, that’s awesome. So glad to hear it. Let’s start with: Why did you open a gym in the first place?
Taryn Dubreuil (03:31):
It’s actually a really cool story, but it boils down to, like everyone else, I had this life-changing, pivotal moment from finding CrossFit for the first time that I wanted to share with everyone else. My family—my brother had a near death experience with type 2 diabetes, and my parents weren’t trending on the best path either. And I came across CrossFit, and it was just like this thing that completely changed my life in that moment. You couple that with our local gym was burning down, and I was standing on the top of another building across the street with a guy I used to work with and CrossFit with who just happened to turn around and say, “You know, there’s no better time than right now.” And the next thing I knew as a 20-year-old, I was opening a gym. It’s the same storyline that most of us have. You have this thing, it has the potential to change a lot of people’s lives, and you just want to take that opportunity because who wouldn’t want the opportunity to create that type of influence in the world, right?
Chris Cooper (04:33):
Yeah. And not every gym owner we talked to in this podcast was a CrossFit gym owner, but I’ve shared this with you before: I think Greg’s biggest gift was not fitness. It was the opportunity to be an entrepreneur, you know? So, you started that gym kind of from scratch. Literally it was burning down. I think a lot of us say, “Ah, the thing was burning down,” but literally you watched it burn. You took that jump. We’ve had this on the podcast before where you shared like the first couple years you thought you were just going to figure it out, it didn’t go well, but you did turn it around, right? So, at its peak, how, how good was the gym? Give us some numbers.
Taryn Dubreuil (05:06):
It was about a 600K a year gym. It was producing me an income that was unlike anything I had ever believed I would be able to do personally. We had a GM; we had full-time staff. Like we checked all the boxes of what a definition of a successful gym and gym owner would look like. And that’s an incredible thing, right? Coming from the storyline of how my gym went. So yeah, at the peak, it was phenomenal.
Chris Cooper (05:35):
In fact, one of my favorite stories about you is showing up to your gym in a brand-new Land Rover and the staff getting mad about the rating increase.
Taryn Dubreuil (05:43):
Yeah, that’s a lesson of things you’ll never do again.
Chris Cooper (05:48):
Yeah, exactly. But the gym was good to you, and you even had a really awesome section in the book “Millionaire Gym Owner,” but eventually, you know that that peak had passed, and you decided to sell anyway. So maybe you can kind of guide us step by step through that transition from millionaire gym owner to “I’m ready for the next thing.”
Taryn Dubreuil (06:09):
You know, people ask me this question a lot, like, “Why would you—why exit from the gym if it was doing so well?” And it’s an interesting thought because there’s a thousand business books out there about how to sell a business, how to exit successfully from a business. But somewhere out there, there’s this unwritten book that denotes that as a first-time entrepreneur or whatever, your business needs to be the thing that you just do for the rest of your life. Like, I knew that I didn’t want to be a gym owner for my entire life. I wanted to be an entrepreneur. And so, that’s going to look like different things. So, at the end of the day, the way that I chose to exit out of this is because the storyline played out in exactly the manner that I wanted it to.
Taryn Dubreuil (06:57):
You build this successful thing; the successful thing allows you the opportunities to go invest in other investment opportunities. Together, those two things buy you money and time, and you go and find other interests with that money and time. And then at some point you come back full circle and you’re in a position to make decisions on where your time and money and energy and attention are best spent. So as far as I’m concerned, this is an immense success story for how I wanted that business to serve me in the exact way that it did, if that makes sense. But I get asked that question a lot, and I just don’t see exiting it in the way that I did as a negative thing. I see it as a very successful opportunity that I was even in a position to consider this. Right? And that’s an important asterisk on the story is the business was as at a point and checked all the boxes to put me in a position to be able to consider this option, right?
Chris Cooper (08:00):
Yeah. So, when you started, you were 20 years old and did you think, “I’m going to own this for a decade”? Did you think “I’m going to own it for five years,” or did you think, “I’m going to own it forever?”
Taryn Dubreuil (08:09):
I mean, at the time I thought I was going to own it forever. And what that looked like—the overall goal has always been the same. When I opened it, I was training so hard to try and punch my Games ticket, and I was working with CJ Martin, and I had been in San Diego for so long. Like San Diego was kind of where my heart laid. And I knew that at some point in my life I wanted to live there. Like that was—San Diego was amazing. So, my goal has always been to get the heck out of the Canadian winter and whatever that looked like. And so, that was kind of what I knew was the end game, and I just thought that the gym was just going to be a piece of that. Turns out it’s not, and that’s OK. Like it helped me check the box on being able to relocate my life and build my businesses in the way that it could support that thing or that dream, I guess.
Chris Cooper (09:00):
I think as 20 year olds, we just don’t have the perspective to make decisions like that. So, when you finally decided, like, “OK, it’s time to exit the gym.” What—did you first try to sell? Let’s start there.
Taryn Dubreuil (09:13):
Yeah. I mean, you always want to try and make an income off of this thing that you have worked very hard to build, right? So, the most logical place that I started was offering it to my GM. You know, she made the most logical sense. She had just as much, if not more, passion than I did in the business and who we were serving. She had been working with mentors for the last two years. So, she understood from a business perspective the moves that needed to be made to continue to grow the gym. But you know, her life circumstances were different. She just had a brand-new baby. And I can understand not wanting to bring this type of risk into your life that comes with being a business owner when you have a brand-new baby. So contextually, it didn’t make sense for her.
Taryn Dubreuil (09:58):
And I get that, and I knew that. I knew that going into it. But you make that offer anyway. I offered it to my client success manager, to my coaches, and under the same lines too; they all have full-time jobs, and they’re comfortable with their lifestyles. They’re all much older than I am, and I knew it was a shot in the dark, but you do it anyway because they’re passionate about it. They love what they do, and you just, you take those moves. I asked a few trainers who I knew in town who might want the opportunity to own their own gym. And I had asked a few investors as well who I know were looking for great investment opportunities, which those conversations never amounted to anything. But at the same time too, and I’ll be the first to admit this, I actively was not trying that hard either. I think once I had made the decision that it was time for me to part from what it—like to part towards what my next chapter was going to be, it came more down to a decision on time than it did on money. And so, I chose not to search actively too hard for a buyer, and that’s a conscious decision I made.
Chris Cooper (11:04):
We’re going to come back to that, but I want everybody to just kind of put a pin in that—like, eventually, your time is worth more than money. And I know if you are running a gym right now, maybe if you’re struggling, that concept might just not land because you just don’t understand how it’s possible. We are going to talk about that with Taryn. But Taryn, I know some gym owners when they have another opportunity or they want to move, they’ll take any option to sell. They might finance the gym themselves and let people make payments. Like why did you choose just to exit? And that’s it. The story ends here.
Taryn Dubreuil (11:37):
It came down to time was truly what it was. At the end of the day, that’s what it was about. I knew that if I were to sell it, there was going to be some involvement of myself in it for a period of time. Being a small town, you can’t get away from the icon factor no matter how hard I tried. I owned this business for 14 years in a small town. And so, I wanted to make sure it was successful if I was going to—like that transition was successful if I were to sell it. So, the whole concept of me having to stick around to ensure that transition to be successful really did not weigh heavy for me. It was—when it came down to it, the difference of what I could sell it for versus what I would make if I just closed it and sold the assets was 100K. And to be in a position to look at 100K and be like, “You know what? That’s just not worth my time. I can turn around in my other business and snap my fingers with 100% attention and effort and produce that 100K much faster.” It was a no-brainer for me. And that’s ultimately what came down to and that 100K not being worth it.
Chris Cooper (12:48):
So just to reiterate what Taryn just said, she could sell her equipment for whatever that was, 30 or $40,000 or whatever, and then like for another 100K, she could sell the whole business, which is like all the members and the lease and all the other assets you have. That difference of 100K, Taryn realized, was not worth staying tied to the gym for now because she could make that 100K easier somewhere else. And I just want to restate that because it’s important that Taryn actually broke this down to a number. A lot of gym owners will say, like, “Oh, maybe I should just sell.” But the reality is that number one, their business isn’t worth anything yet. It’s not worth it to sell. And number two, they don’t have anything else that’s worth more to go to. So, what actually was it that made it worth it to you to exit and walk away from the 100K sale that you might have earned?
Taryn Dubreuil (13:40):
I mean, let me walk through kind of the steps. It literally boils down to five steps. It was build the gym to support my income needs and my lifestyle needs, which I did. Check. Build a business to allow me to invest in other income sources, other passive income sources. Check. I did that. I built an Airbnb empire. The next thing was take the time and attention and go and find other things that interest you. Check. I did that. I was like, “Hey, I’m going to become a mentor. I actually really love coaching in this space. Take that interest and potentially start another business,” which is what the path I chose was. So, I started Perfect Day business mentorship. And that ultimately puts you in a position for step five, which is now review all of the commitments that you have and things that are running: Does it align with your perfect day or whatever it is that you’re moving towards? And you have this opportunity to choose cost of opportunity versus time. And so that’s my logical reasoning of how I went through everything and put myself in a position to have that opportunity to even take that chance, right? If you skip any of those steps, or it’s not necessarily you have to open another business, but if you skip any of those steps, you’re not going to be in a stable position to be able to make that decision. Right? You’re probably making that decision emotionally rather than logically.
Chris Cooper (15:04):
So, it’s not that you have to start another business, but there has to be another opportunity that’s larger than the delta between what you have now and what you could get for it. I think that makes sense. And so, your opportunity was worth more than 100K dollars, more than you would earn if you kept the gym for another six months trying to find a buyer or did like an owner-financed buyout.
Taryn Dubreuil (15:30):
Yeah, I mean, because trying to split my attention between multiple things—which I mean, hey, I was on your podcast a year ago talking about how I’m an expert at doing this, and I still abide by those things like 100%, but putting 50% of my attention and energy into this new company of mine was still growing it at an exponential rate. And I knew that without 50% of my attention going towards the gym, just how much faster that would go. And so that opportunity was just greater than staying in the gym just to stay in the gym at that point.
Chris Cooper (16:06):
And I think that’s what makes your story so interesting, Taryn, because in the fitness space, we see this a ton on Facebook. Wow, I got so emotional, I hit my keyboard. But we’ll see people and they’ve got a gym that looks successful from the outside and then the next thing you know on Facebook, they’re like, “Wow, it all comes to an end. Mission accomplished. We changed all these lives. Eight great years. Thank you so much.” And then on LinkedIn, their profile is like, “Hey, I’m looking for a job as a realtor” or something like that. Like, it just doesn’t feel like that was a successful exit. And the difference I think is that you’ve got a clear plan for the next step that’s maybe going to have even more impact than what you’re currently doing with the gym. So, let’s just like—what is that next step for you, and what do you tell people who want to sell their gym but don’t have that next step mapped out yet?
Taryn Dubreuil (16:53):
The next step is—it’s like do the thing, get good at doing the thing, turn around and teach the thing and then you can teach a broader audience the thing that it carries over to, right? Because the concepts are the same. And so, the next step for me is continue building Perfect Day Business Mentorship, relocate my life to Arizona because I now have the opportunity to do that and be able to run my business from anywhere in the world and build my lifestyle in the way that I wanted to. You know, the concept of like, you build this thing to do this thing so that you can turn around and continue doing other things, like that’s an amazing—that’s the opportunity you want to get caught in, right? And so, that’s the next step for me is like, I’ve done those things, let’s turn around, let’s teach other people how to do those things. And so, I’ve had people come to me and we’ve had this conversation, people who are thinking about closing their gym or whatever it might be. But the first question is like A, what replaces that income? Like you worked hard to get that income from the gym. It needs to be something that you’re non-dependent on as you turn around and start focusing on other things. And can you supplement that with something else? Or is that opportunity greater thereof whatever your next thing is, right?
Chris Cooper (18:13):
Yeah. And that’s exceptionally rare. Like I want to make this clear, like even though Taryn is like—she’s got this mapped out step by step; she’s still an absolute unicorn. Glassman explained this to me years ago where he said, like, there’s a massive difference between being a good bricklayer and being a good teacher of bricklayers. And to be a good teacher of teacher of bricklayers is a magnitude harder. And Taryn is good at every one of those steps. So, if you’re tempted listening to this to say, “I’m going to close down my gym and just start mentoring other business owners,” you probably want to make your gym successful first, you know?
Taryn Dubreuil (18:49):
Yeah. Coop, let me redirect this though. You know, when I first started as a mentee in Two-Brain, that’s what it taught me to do, right? It was like Two-Brain taught me how to build a successful business. And then when I joined Tinker, it taught me how to be a successful entrepreneur. Tinker gave me the opportunity to turn around and find my next interest, to build the gym into a position where I had time and money available to me to do those things. You know? So, the trajectory of the storyline of how Two-Brain Business builds successful gym owners is exactly how this played out. Just because I don’t own a gym at the end of the story doesn’t make it any less successful or less off the path of how that gym ownership progression is supposed to go. Like, this is exactly how the storyline plays out. It might look a little bit different for others, but the process of how I got here is exactly what we teach inside, you know? I didn’t do anything different than anyone else has the opportunity to do.
Chris Cooper (19:47):
But you did it better than almost anybody else. And I think—I don’t want you to miss that because you’re too humble to admit it. So yeah, that’s awesome. And that’s what the next step is for you: You’re working with other entrepreneurs locally and worldwide who own different types of businesses. That’s super awesome. What, to you, was it worth to exit in the end? We know it was more than $100K.
Taryn Dubreuil (20:10):
There’s nothing tangible on it, but just this is—I actually really like—this question is hard to answer, but I really like this question. I spent two years thinking about this decision. I’ve worked really hard with Bonnie Skinner to come to why I was even entertaining this decision. And when it all, when I peeled away the surface level layers of, “Well this is all I’ve ever done. I really love health and fitness. I’m a coach. This is all people know me. This is my identity.” Like when you peel away all those surface layer things, at the end of the day, owning a gym for me and the things that I got away from owning a gym was a platform to create impact. I love helping people. Like I love helping people win. I don’t care what that looks like. If that’s you getting on your bike and riding today, because you made a commitment to me to do that.
Taryn Dubreuil (21:03):
Or you go out there and you build this successful business. And that’s the thing that—it doesn’t matter. If I have this opportunity to help you take one step in the right direction in your life in any way, shape, or form, then that’s what gives me purpose. And that’s what the gym—it gave me a platform to do that. And so, what I came to realize is that I have this platform; it exists in many different forms. And so, all this is is the next step to keep continuing influencing people and impacting them in just a different way. But the premise is still exactly the same. It just looks different nowadays.
Chris Cooper (21:40):
So, Taryn, I’m tempted to leave it there, but I’ve got one follow up question: When you sign up an entrepreneur for Perfect Day Business Mentoring and they’re not physically active at all, like they have no fitness—they own whatever company, right? They’re the CEO of IBM. How often do you tell them to start working out?
Taryn Dubreuil (21:59):
I mean, it should be part of the process. Yeah. Like we—your business is only going to take you so far. And I think one of the things I said the other day is that at the end of the day, your health is the only thing that’s irreplaceable. Like your business could tank; you can build another business. Your marriage could break up; you can get another—you can make another marriage. Obviously, these are things I don’t want to happen, but like everything is replaceable except your health. So, if you don’t take care of your health, your business doesn’t matter.
Chris Cooper (22:31):
Got it. So good. Alright, thanks Taryn. Hey John, welcome back to “Run a Profitable Gym,” and we’re going to get into your history, but where I’d love to start is: Why did you open a gym in the first place, and then how big did you build your gym empire? And then we’re going to get into why and how you sold.
John Franklin (22:51):
Wow. First time, maybe not the first time, but first time in a long time on this side of the microphone. And as always, thanks for having me. Yeah, I started my gym because I was 23 and wasn’t good at making life choices. I had found CrossFit like many other people out there. It had transformed my life. I was working a corporate job that I hated. And a CrossFit gym just seemed like an easy way to make a living while you’re hanging out with your coach friends and your members who you all love. And that story is one that I’ve heard a lot talking with Two-Brain gyms and one that doesn’t play out as well. But the one thing I did have going for me was timing. So, I started in my first gym in 2013, which I think was the best time in history to start a CrossFit gym.
John Franklin (23:40):
So despite having no clue what I was doing, I opened the door of my first gym with 100 members. I opened a second gym six months later, and that had 200 members from the get. And then from there, just continued to make stupid mistakes and learn as I go. At the peak, I had five gyms. We were doing just under about 2 million in annual revenue across the five locations. So that works out to 400-500,000ish per location, which was at the time really good for CrossFit, but now we hear gym owners doing way more than that. And yeah, that was it. That was peak gym owner empire. So, I don’t want to go too long. And so, you can steer the conversation, Mr. Cooper.
Chris Cooper (24:25):
Sure, man. But obviously with five gyms, you are not coaching classes anymore. You’re being a CEO; you’re a good CEO. I know personally, like you love that work. And at 2 million in annual revenue, you’re doing pretty well. So, what led you down the road of selling the first one and then eventually selling all of them?
John Franklin (24:45):
Yeah, so doing pretty well. Like, I wasn’t making insane money, so I was operating out of New York City, so I wasn’t operating in like 40% margin as some of the people here are. You know, I was more in the 10 to 20% depending on where we were. So, 10 to 20% of 2 million, still pretty good. But if you’re living in New York City, that doesn’t go a long way. Right? Where some of you would hear that and maybe if you’re in Birmingham, Alabama, you’re the third richest guy in the town. In the New York City area, that gets you a starter home, maybe. So yeah, I was doing alright, but I was never somebody who was particularly passionate about programming, and I’d always been particularly interested in the business element.
John Franklin (25:34):
And I kind of found my corner of the world just doing the marketing and sales for gyms. Like I love doing that for my gyms. That was the last piece of work that I delegated. And you’re right, I was not coaching classes. In fact, when I started to sell, I lived in a different country. So around five years of operating, I got an opportunity to do some marketing work for a much larger business. And they made an offer I couldn’t refuse basically. And so, I had a great management team in place, and I literally picked up my family and moved to Canada. Yeah, yeah. Canada. And I noticed that there was a little more opportunity for me there. And while the gyms were running themselves, there was no issue; there were other opportunities coming my way.
John Franklin (26:20):
So, at the time, you were approaching me about taking a more serious role within Two-Brain, there were some opportunities to buy some businesses that looked intriguing. And I was scared that I was one catastrophic event away from being pulled back into the gym and derailing all this opportunity that I had coming at me. And so, obviously I didn’t have a crystal ball, but we can talk about how I went through the sales process. I sold my last gym at the end of 2019. And so had I held onto those, which seemed like passive, no-brainer investments to hold onto, I probably would’ve got my teeth kicked in because having five gyms in the New York City area during COVID and not living in New York City sounds awful.
Chris Cooper (27:05):
Yeah. So, you developed skills in your gym first. You saw how those skills could translate to other things; that created other opportunities for you outside of the gym. I’m guessing this is probably around 2018.
John Franklin (27:17):
Yeah, I mean, I was building up expertise as someone who was a decent writer and marketer in that 2016 to 2018 timeframe. Like 2018 was probably when I wasn’t embarrassingly bad. Like I was starting to be OK at the skill of marketing, and I was getting better at sales. And yeah, I refined those crafts, and I worked a corporate job for less than two years, so I have no formal sales and marketing training. It was all stuff learned through the school of hard knocks. So, all five of my gyms were completely bootstrapped. New York City is one of the most, if not the most, competitive gym market in the world. We’re going against venture-funded concepts that were spending literally millions of dollars trying to get revenue or trying to get members.
John Franklin (28:12):
And I need to keep my doors open, my staff people paid, and the only way I could do that was by getting more members. Because we had pretty high churn, like for context, it was like 7% monthly churn where we were in the Lower East Side. And I’m sure there were plenty of things we could do better operationally, but the reality is where that gym is located, like that’s where you go—you work a job for a year or two and then you leave. So, you’re just kind of fighting gravity there. Even if you’re the best operator in the world, like you’re not going to have 1% churn in a gym in the Lower East Side. So, you had to be good at marketing, or you would go out of business.
Chris Cooper (28:51):
OK. So, as we’ve heard from the other guests on this show too, like one of the keys for them to decide to sell was that they had this other very clear, established opportunity. They weren’t just going to get a job working for a software company or something or become a realtor. They already knew that this other thing was like clearly waiting for them, and they weren’t jumping off a second cliff. You discover that and then you say, “OK, that’s it. I’m going to sell.” When you make that decision, are you thinking like, “I’m going to sell them all,” or is it like, “I’m going to sell one or two, buy back some time”? Like what went into that thought process?
John Franklin (29:28):
Well, I sold four, and I shut one down. So, I had one that was just a dog, and from the moment I opened it, it was a dog. And that’s a story for a whole different podcast. But that one was more of a liquidation, and that happened before the other four. But I think I learned how fragile—even though the business was running well, that experience taught me how fragile some of this stuff was. Like, you’re one operator away from just being dragged back into it, even at five gyms. And so yeah, I was looking onto the next thing, but I knew I wanted to sell all four of them, but I wanted to sell them one at a time because there’s two ways you can think about your exit.
John Franklin (30:13):
You can maximize for dollars and then you can maximize for the transition as well. So, in two of my—actually in three of the sales, I sold to the general manager. So, I sold to somebody who was on staff, and two of the three of them, they were already equity holders in the gym. And so, while I didn’t get top dollar for those sales, it provided me with a quick close. It provided no disruption to the community, and it gave somebody who helped me succeed in the front end, which, while I was off in Canada making money, doing what I love doing, they were supporting me as my business partner operating the gym. So, I felt like it was just better to do that and faster and worked out well for them and worked out well for me. And then one of them I just went for as much money as I could possibly get. And so that one was the New York one with the higher churn.
Chris Cooper (31:11):
So out of the five, one you decide, “I’m just going to close down, not worth fixing.” Three you sell to a staff person or an equity shareholder, and the last one, the fifth one, you sell to somebody else,
John Franklin (31:26):
An outside party. Yeah. So that was a strategic buyer. That was someone who was just buying up gyms in the New York City area and had heard through the grapevine that mine was for sale.
Chris Cooper (31:35):
OK. Let’s start with just maybe going a little bit deeper on selling to an employee or an equity partner. Like where did these equity partners come from, and how did you approach the employee about buying you out?
John Franklin (31:48):
So they came from existing gyms, so from a very early stage in the business, and for better or for worse, I was almost all-in on salaried staff. And so, I had people who stayed with me for a very long time and developed well, and this was like the era when everybody was leaving to start their own CrossFit gym. Right. And this was when CrossFit went from a couple thousand to like 10,000 in a four-year span. One of my locations, we literally had a CrossFit, like across the street. Like you could see the sign of both gyms if you were standing on the sidewalk. So, I would hire people and say, “Hey.” I like—when I was in the key hiring phase, I had those two gyms I talked about initially that were successful. And I said, “Hey, I’ve got these two gyms that are successful.”
John Franklin (32:40):
“I’m going to open more. If you come work here, you can get a stable coaching job. But if you want to develop into an owner and your dream is to one day own a gym, like I want to facilitate that for you.” And that’s what I did. So, three of my staff members from those two locations went on to partner with me to open gyms, and then, I had a couple who went and did their own thing as well. So, but of those three, I always had the conversation like, “Hey, I will partner. I’ll facilitate the finance. We’ve got the sales and marketing thing dialed down; I can help you with that.” And when we set those partnership agreements from the onset, we had exit provisions. So, when we sat down at the table, we had very thorough agreements and it’s like, “Hey, if one partner wants to sell, this is how that process would work. This is how the financing would work.” And that was a result of being burnt in a different business endeavor by a guy who actually went to jail for being a bad human being. So, I picked up that scar the hard way, but I knew going into these relationships that you want to have an eye on the exit, even if you don’t have any plan to exit.
Chris Cooper (33:43):
Smart to lay it out in advance. At least, like, “Here’s how we will put a value on this business.” I think one of the smartest things that I’ve learned in our own Tinker program is when you take on a partner or even talk to somebody about potentially buying you, you don’t have to agree on the price upfront, but you need to agree on “Here’s how we’ll determine the price” in advance. And then it’s not even a negotiation, it’s just like, “Here’s the price.” So, when you sold to the person who was just buying out gyms, like an outside investor, did they approach you, or did you see it happening and you went to them?
John Franklin (34:16):
I had tasked one of my more resourceful staff members to do some outbound. So just “hey mistering” a bunch of other gyms in the area to just say, “Hey, we might be in play. Are you interested?” And they heard about that through him and that started the conversation.
Chris Cooper (34:34):
How do you do that without your members finding out and just jumping ship and devaluing your company?
John Franklin (34:39):
Well, there wasn’t an icon problem, right? So, I hadn’t been in that gym in over a year. So, the fact that I was selling or the ownership was changing hands, like I don’t think they cared because they weren’t going to that gym because John Franklin owned it. And dealing with a strategic buyer, their intention was to keep the facility open, and they’d probably want to keep the staff in place. Like the gym was doing well, and it was profitable. And so, there’s no reason for them to fire the staff or make dramatic changes to the community. And yeah, the reason there are so many good deals to be had off market with the gym space is because people are deathly afraid of listing their business on the internet. They don’t want people to find out that they’re looking to sell. If you go through a business broker, there’s like pieces of—you can have a little bit of anonymity, but I don’t think that’s like a huge deal if your members find out, especially if you’re transparent about why and your intentions, right? Like I don’t think just because you are thinking about selling or you’re transitioning into a different career or you want to move or anything like that, like that’s instantly the reason why everyone’s going to leave—unless you’re somebody who’s coaching every single one of the classes, in which case your gym isn’t worth anything anyway.
Chris Cooper (35:49):
A good point. You know, I think a lot of gym owners, they’re so secretive about it that like only one person knows about it. And so, they’re really weighing only that one bid, you know? So how did you determine a number in the last case where the outside buyer came in, you didn’t have a preexisting contract that said, “Here’s how we’ll determine a value.”
John Franklin (36:10):
So, business valuation I’ve learned is more art than science, but the reality is if you’re selling a single location gym, your sales price is going to be somewhere in the neighborhood of one to three times earnings. So, if the gym—so not revenue. If your net owner benefit—or seller discretionary earnings is what the business buyer community would be—but you know, it’s the profit plus whatever perks you get from owning the business added back in. So, if that number is 100,000, depending on a bunch of different variables, your gym’s roughly worth somewhere in the neighborhood of 100,000 to 300,000. And so, for mine, obviously I was an absentee owner, so I wasn’t taking a salary from the business. That was a huge advantage. It had good staff in place, and there were strong systems. So, there was an operating history and a history of profitability.
John Franklin (36:59):
So, my sales prices were more towards the higher end of that range for that particular instance. For the ones where I was selling to staff, it was more towards the middle to lower side of that range because I was prioritizing speed and a good transition, right? So, the way I was thinking about it was kind of like going through a process that would take six months to a year and a bunch of stress—like for context, the one that I sold to the other party took more effort and time and stress and legal fees than the other three combined by a massive margin. And so had I done that process for another four times to maybe squeeze out an extra 100,000 to 300,000 throughout the process, where I was at the time and the opportunities I was looking at, that wasn’t worth it to me. But depending on your specific circumstance, that’s what you need to consider as well because selling a business is not like selling a car. It is a pain in the ass, and it takes an incredibly long time.
Chris Cooper (38:01):
So, what are some things, John, that would erode that value? So, let’s say, like, I’m making $100,000 a year in profit for my gym, and I’m going to sell for 300,000. What are some things that would knock that number down from the 300,000 mark? I guess you mentioned that—
John Franklin (38:17):
You’re the face. Yeah. So, it’s called—so Chris Cooper training, Chris Cooper classes, everybody wants to train with Chris Cooper. I’m definitely going to be, as a buyer, I’m going to say, “Well, if Chris Cooper leaves, that’s a problem.” You know, that’s definitely a risk I don’t want to take. So, putting your name on the door and being the icon of that business is definitely a negative when it comes time to sell. And then people are going to look at your lease. So, if you have a lease that is month to month, then you can get kicked out at any specific time. Or if you have an above market lease, or the landlord in transition requires some buyer to take on some massive personal guarantee—that is something that hurt me in a couple of my sales where the lease wasn’t as good or optimized as it could have been.
John Franklin (39:07):
And that’s not something you’re thinking about ahead of time. There’s systems and processes, so will the gym run well for the new owner? And profitability is a reflection of that. Like if you’re over $100,000 before your salary kicks in, you have to have decent systems to hit that with a small brick-and-mortar gym. And then contracts are another one. So, I think the prevailing wisdom in the CrossFit community is everything should be month to month, which is fine, right? Like you have confidence in your community, but—and if you’re selling to a strategic buyer, they may overlook that, but if you’re selling to someone who isn’t from the gym space, they’re going to have more comfort buying, and they’re going to be comfortable buying at a higher price if they know 97% of the membership base is locked into a one year contract and can’t leave. So that’s something to consider when you’re making the decision of whether to go month to month or enforce contracts in your business.
Chris Cooper (40:03):
OK. Yeah, that’s great stuff, man. You know, another thing that I think you kind of alluded to is that it’s not just that you’re the face of the business, but if you’re actually working in the business, and you’re paying yourself for doing some of the coaching, that is not going to be appealing to an outside investor who doesn’t want to buy themselves a job.
John Franklin (40:22):
Right. And there are certain elements where it’s easier to tell a story, right? So, if I’m the guy doing the sales and marketing, and I’m selling my business, I can just spin up like, “Hey, there’s an agency down the street that does exactly what I do. It costs 1,000 bucks a month. Let’s bake that into the proforma and calculate earnings off of that.” Right? Where if it’s like you’re the guy on the floor, it’s just such a relationship business that there’s no way I’m kind of getting around that as a potential buyer.
Chris Cooper (40:49):
Well, John, thanks a lot man. And I think a lot of people are going to be really interested in this interview because you touched on like, what are the prerequisites for you to sell? You had a bigger opportunity; you had somebody that would kind of carry on a legacy of the gym and had passion to grow it. And also like the timing was right. And I really want people to understand that too. Like, just because you are ready to sell your gym for 13 bucks today, it’s often a good idea to take six months, build it up into something really great, and then sell it so you get the reward you’ve been working toward for the last decade.
John Franklin (41:22):
Hey, happy to help. And if anybody wants to shoot a question by me: john@twobrainbusiness.com, I’m happy to help you out.
Chris Cooper (41:31):
Hey, if you’re thinking about should I sell my gym, should I exit, you want to ask yourself: What’s the next step for me? And if you can’t figure out that next step, if there is no clear next step, keep your gym, make it big, and then sell it. Make it worth selling. For a lot of people, that process looks exactly the same as fixing their gym. And to be honest with you, over 100 times, I’ve had gym owners sign up with Two-Brain and say, “I want to make my gym saleable. Right now, it’s not worth anything if I’m not here.” They go through the program, four months into it, they’re like, “Actually, I like my gym again. I love it again. I want to keep it.” This happened to me, and I was 20 years into gym ownership, so I get it. But whether you want to build it to sell or build it to keep, hey, the process is largely the same. You’ve got to make your gym successful, or it’s not going to be worth anything. I’m Chris Cooper. This is “Run a Profitable Gym,” and if you want to talk more about this, go to gymownersunited.com. That’s our free Facebook group. There are 9,300 gym owners in there from around the world talking candidly, openly, and without judgment about these very topics.
