The $1 Million Gym Built by Two Guys Who Once Rationed Paper Towels

Jared & Peter - Blog
 

Chris: 00:02 – Welcome to Two-Brain Radio. I’m your host, Chris Cooper, here every week with the best of the fitness industry. Got a sec? We would love to hear from you. I write emails to my mailing list every day, and it’s a highlight when somebody takes the time to respond. If you’ve got feedback on my show or a guest you’d like to hear on Two-Brain Radio, email podcast@twobrainbusiness.com and don’t forget to subscribe to Two-Brain Radio wherever you get your podcasts. What does it really take to build a $1 million gym? Peter and Jared from NapTown Fitness are here today to talk about owning an actual million-dollar gym. As business owners, we’re bombarded all the time with Facebook ads highlighting gyms that do a million in ARR. And I’m really skeptical when I see those ads because since I’ve owned a gym for, you know, 15 years, I’ve been bombarded with similar ads, talking about people who have a million in projected revenue, or maybe they did 80,000 time and so now they are a quote unquote million dollar gym because of course they’re going to do that forever and ever now, and there are even some cases where people talk about having a eight-figure gym where they must be talking about the decimal points because they’re nowhere near having $1 million in gross revenue.

Chris: 01:16 – Also, having a million in gross revenue isn’t rainbows and lollipops. It comes with a lot of responsibility. And so today we’re going to talk with Jared and Peter about what that responsibility means and how having $1 million in gross revenue doesn’t make you a millionaire. And also how having a gross revenue of a million might mean nothing because you don’t have any profit. These are smart, experienced gym owners who have made mistakes. They’re very transparent about it and I think that you’re also gonna learn what it takes to become $1 million gym the right way. They’re great role models for gym owners everywhere. They’re very humble. They’re very quick to share mistakes and lessons learned and I think you’re going to really enjoy the next 45 minutes.

Chris: 01:58 – Jared and Peter, welcome to Two-Brain Radio.

Peter: 01:59 – Thank you for having us. Very excited.

Chris: 02:03 – Yeah, I’m really pumped to have you guys. We’re going to have a lot of great insights here, but let’s start off with the NapTown story.

Peter: 02:09 – We have to give you the fastest version we’ve ever given somebody and I usually have the gym timer behind me while I’m going. Jared and I are very fortunate, many would say at least. We’ve known each other since we were five years old. We are actually currently neighbors. We have dogs that we found together that are brothers and it goes that far in between and our whole life we’ve been able to push each other’s buttons in the right way to accelerate the other one’s thirst for knowledge and fitness and everything throughout life. And through our first jobs out of school, we both went to the corporate world and tried some things in there. And I think that’s a really important part of knowing who we are now. But then through that we stayed with fitness and like many people’s cool stories about how they found CrossFit, we lived in Chicago at the time where I was and I met one of the original CrossFit guys. I think you know him a little bit, Rudy Tapalla, and he was one of the first 500 gyms and he really helped shape and mold us into our first like CrossFit mentor. And I beat Jared in the first workout I ever showed him. And that was a no go. And that’s the quickest version I can say about like how we found CrossFit. It was just living in Chicago and finding Ruby. Jared could fill in a lot of those gaps here.

Jared: 03:30 – Yeah. So it was early 2011 I was actually kind of a reverse retirement living in St. Croix at the time. Just decided to move out there with a friend who was living out there. And then Peter, as he had mentioned, and I had been training for some triathlons and then Peter told me about this CrossFit thing, got really into it, came out to St. Croix and crushed me in a bunch of different workouts. I finally a couple of months later moved back to Chicago and that’s when the idea of like, OK, this CrossFit thing’s really cool. We both started kind of coaching at CrossFit Chicago and then like, let’s open up our own gym. And that’s when the kind of story started. We started looking, you know, in the Carolinas, we started looking in the South, we started looking all over the country of where this could work and there was potential of us opening in Chicago and the cost of square footage, cost of living just didn’t make sense.

Jared: 04:16 – And finally we were like, why don’t we go to where we, you know, grew up playing soccer in Indianapolis, you know, during our college days and utilize those networks. And so we actually started taking the Mega Bus from Chicago down to Indianapolis. And that way we can answer emails and do work on the bus and started looking for spaces and found out there’s not a single CrossFit gym downtown. There wasn’t then and there still isn’t now. And we’ve kind of secured that market thus far in that sense and worked hard finding spaces, finding a space and two or three of the original letter of intents we had fell through and finally found a space on a shotgun lease that really kind of, you know, kind of catapulted us to where we were. And it was literally an FBI building and they told us, you have six months at $500 a month, and after six months we’ll find out whether we’re going to renegotiate with you or if we’re going to kick you guys out. Don’t touch anything, don’t break anything, see what can happen. And that’s the story.

Chris: 05:16 – That’s crazy. But part of what makes your story so interesting is a lot of us took partners just because we were scared. You became partners as a strategic move, but that also meant that going into this you, you knew that you’d have to make more money than like an owner/operator gym, right?

Peter: 05:32 – Yeah. That’s a huge part of it. And I do all the money side. So current day as we restructure, Peter, I talk as the CFO and COO of the business and Jared focuses more on the marketing side and we gave him more of the CEO role because he cares a lot more about what shade of red we’re using, our logo and things like that. And I care a lot more of does the bottom line makes sense to rebrand or whatever it is. So I look at the financial side, but that started with our first business plan and Rudy I think gave us, what’s the first entrepreneurial book?

Jared: 06:03 – Oh, “The E-Myth.”

Peter: 06:05 – “The E-Myth.” Yeah. And he’s like, read this before you do anything, which I know is one that you’ve also recommended multiple times, Chris. And we took that old org chart, you know, everything from who’s cleaning the toilets and whose responsibility is that and filled in Jared and Peter’s name all the way through. So yeah, we were splitting the money, but we also were able to split the roles from day one and be very clear with that.

Chris: 06:24 – That is a crazy good piece of advice if you’re listening now and thinking about starting a business, starting by defining the roles in your partnership first. You know, that’s a huge mistake that I made and it took me years and thousands, hundreds of thousands of dollars to fix that. But I guess that probably shaped your vision for how big this gym would have to get to be able to support the two of you. So like what was that picture of success in your mind as you were coming close to opening up?

Jared: 06:51 – Yeah, for me, it’s funny, when we first opened up, I was the person that was like, we’re going to have a North location, we’re going to have a South location, we’re going to have an East location, a West location. And then we’re going to go somewhere else and build out more gyms. And then Peter was the one like, yeah, let’s pump the brakes on that a little bit and let’s focus on this first spot and see what we can do. And I think one of the biggest pieces of advice we learned early from a real estate mentor of ours here in the city, was every single time you open up a new location, you open up new problems. So if the toilet breaks on the North side, who’s going to fix that toilet? You. So now you have to drive up there and spend the time, 40 minutes and drive up there 40 minutes back and same thing goes with all the other problems that happen with different locations. So those are the things that kind of allowed us to pump the brakes because it made us realize, well, maybe we shouldn’t be doing this so quickly. And you know, again, focusing on our core product of our one space, which is what we did originally,

Peter: 07:46 – One of the things we didn’t have early on that is very common now, at least in Two-Brain gyms, is using profit first. And if I would’ve had that, it would made a lot of decisions earlier easier, because we did have to make a certain amount of money and we both agreed, we gave each other a handshake, hey man, for six months, we’re investing everything back into this place. And we both said before we open, do we have enough reserves? And fortunately at that time I had a girlfriend, now my wife, had a really nice job, uh, and she supported me and she actually was the first catapult. Her and Jared were like, let’s go be entrepreneurs. Let’s get out of Chicago. Her name’s Shannon and Lululemon was just opening a new store in Indianapolis and they moved her down as a manager. It was their first Indiana store. And for me, that was a very fortunate situation. And Jared was actually able to live on one of our friends’ couches. So he’s like, I’m going to move to Indianapolis and live on a couch. So I have no expenses. And so the first six months were really important to us because we did have a $500 a month lease. Like there was no—we couldn’t fail. We’re going to lose what, $3,000? Like it didn’t matter. And then our overhead was, there’s a quote in the local newspaper from me, I just read it other day. It says, we’re going to keep the lights off and the heat low for the first few months as often as we can. And we even have a picture of a sign on our bathroom and says, no more than two paper towels, please.

Chris: 09:03 – That’s amazing. That’s Chris Cooper 2008. I can see the left-brain sign shining through there. Peter. That’s amazing. And all that to $1 million gym. Now is that kind of like the vision that you guys had right when you started?

Jared: 09:25 – Yeah, you know, obviously when you start some sort of project or start some sort of, you have like the end in mind. Right? And you know, for us, I think $1 million just always sounds like that sweet, sexy number. So yeah, I mean, I think early on we talked about it and I know certainly a couple of years in, we definitely talked about it and once we started seeing, you know, hitting 100,000, hitting 200,000, I’m like, man, could we ever make a million in a year with revenue? And then once we, you know, a couple of five years in or so, we were like, Oh yeah, we’re totally gonna do this. So I think it evolved over time. So the answer to that is yes, like we thought about it. And now being there, it’s just like, OK, it doesn’t really mean anything, to be perfectly honest. So.

Chris: 10:06 – That’s funny because I was, my next question was, are you millionaires?

Peter: 10:10 – Not even close, not even close. What spurred this whole conversation with Chris today was I wrote a blog post, a Facebook post and said, one of my first thoughts is, could I ever spend $1 million in the year? And spoiler alert, it was like, absolutely. So yeah, we’re making that money. But anyone that’s listening that has any knowledge to finances, we all know like profit margin is king. And if we don’t have a profit margin, then we could have made $2 and spent $1 and still only had a dollar. Or you could spend $999,000 after a million. So profit margin is king.

Chris: 10:46 – I think a lot of people are really gifted at spending money and they might not realize it until they have some money that there are lots of really fun ways to spend it and some not so fun ones too. So we’re going to talk first about how you guys got to a million in revenue. Then we’re going to talk about the responsibility that comes with a $1 million gym. So the first question is, you know, did you get to the million in revenue by having a whole bunch of different ideas or were there really two or three core ideas that you just kept?

Jared: 11:16 – Yeah, CrossFit was it. CrossFit was king for us on the front end, you know, back in 2011, 2012, even 2013, like solely focused on CrossFit classes. Growing, I mean we’re the typical story you hear of, you know, we started off on one side of 2,500, 3000 square feet, started doing 30 people in a class. We were able to renegotiate the lease and the space when the space next to us was open, so we knocked a hole in the wall. Were able to build out into that space. Now we could run either two classes at the same time or two big classes and just separate on what side people are using. So it started off super small with focusing CrossFit first as a product. And then once that was successful, that’s when we started dipping our toes into Peter’s wife, Shannon, was a yoga teacher, yoga instructor. And she’s like, well, let’s try some yoga classes. So that started off, you know, yoga class on a Wednesday night, one yoga class. That was it. And then it turned into two yoga classes and then three yoga classes. Then she had her, and this was just in our general CrossFit space on ugly black matting floors. Then finally we built out a small little space. We had a small room within our space that they actually started on carpet, which was this gross, nasty carpet, probably for 30 years. And then finally we built a, you know, a nice cheap floating, pergolo or whatever, Pergo floor, and started running actual classes there. And that’s when we started coming up with the ideas like, well, yoga is super successful because Shannon’s the champion of it.

Jared: 12:46 – She’s the leader of it. She’s taking it, you know, as an intrapreneur essentially. And then that’s when we’re like, well, let’s start looking for spaces for yoga space. And then that’s where I think for us, I think that was for me at least, and I’m sure Peter would agree, that’s been the highlight, the change that’s propelled us where we are because that allowed us to start looking for other buildings that we were going to rent and come to find out, we ended up finding a building on auction that we ended up purchasing. And that’s what’s changed kind of our thought process as entrepreneurs of how important it is to own the building. Being an owner/occupied building or a tenant I guess you’d say, has been a game changer for us. And that’s what we ended up doing. And buying 11,000 square foot building in 2014. And then moved our yoga studio practice into yoga, into that space. But then at that same time we did that, you know, yoga only needs 2,000 square feet. We have 11,000-square-foot building. What do you do? So that’s where we created our boot camp class. It’s called Sweat With Indiy For Time, SWIFT. And grew that product out of that kind of almost out of a necessity essentially that we had this space, what do we do? And that was a hit for us. So rather than doing like a CrossFit light or something of that nature, we went straight to this boot camp concept, which was super important for us. So yeah, these core products, core ideas were, were definitely important.

Chris: 14:17 – So what are your core products now then guys? Like let’s go down that list.

Peter: 14:21 – So now we have core products and then we have kind of branched out core products from that and we really believe in the intrapreneur opportunity for our staff. So our main four there probably more than four products. Like we definitely have CrossFit, group fitness is still huge. And then we have SWIFT, which is again a 45-minute smaller version of CrossFit. And then we have a yoga program that’s super successful that has its own building. We have a nutrition program that’s having a phenomenal year, our kids program, we have one of the best leaders we could possibly have running that right now. And she has proven some concepts with kids programs going into schools that have been phenomenal. So really those are it, CrossFit group class, SWIFT group class, yoga, nutrition and kids. And then we have a bunch of smaller auxiliary things that are doing, that have great futures. Our longevity program for 50 and older is doing really well right now, but it’s still in its infant stage. Olympic lifting has taken another form. Our third or fourth forms since we’ve had the gym open, but still doing very well and attracting different clients. We do a lot of personal training as well still. But for us, personal training kind of came in later, which if it would’ve came in earlier, I think we’d be in a better spot for some of our employees. But it’s still there too. So really there’s the five main ones and three of them we’re still working on. From a structural standpoint.

Jared: 15:45 – Yeah. And one thing I want to throw out there was, you know, it’s all about starting super, super small and growing from that perspective because I mean something, we recently created a class called Move, it’s a move class. The concept behind it is just like a boot camp class where are you using a lot of the cardio equipment and using a lot of body weight stuff, so you can think of it as your Orangetheory, you can think of it as your F45, whatever it is, and people love this class. But it started off literally as a Sunday morning, I went in with my wife and kind of little hung over, probably a little hungover, probably started and we did this workout and I was like, OK, well let’s invite a couple more people, invited a couple more people and then before you knew it it turned into an actual class, and then this actual class turned into two classes. Now this actual class is turning all days on Sundays and now we can see this becoming a core product or a bigger product for us in the future with this class. But it all started super, super small. And that’s one thing I always give advice to people who are starting different programs.

Chris: 16:45 – So another piece of advice that I think that you guys could maybe, or some wisdom you could share is it’s really tempting for a lot of entrepreneurs to start up and start diversifying maybe too quickly. You know, and I’ll take some blame here. You know, I wrote in “Two-Brain Business,” here are 30 classes that we’ve run at Catalyst and so a lot of people interpreted that as to be successful, I need to have 30 things going on. What’s your experience been with, you know, starting these new programs and diversifying?

Peter: 17:16 – Yeah, for us that proving our concept. Like we’re not afraid to fail, but I’d rather fail if I had four classes and close those back down as opposed to having 30 classes of a new program. And the number one piece of advice I could definitely give Chris is you have to have a champion of a program. We cannot—we are idea people, but we also can’t have an idea and then go create it as the owners, especially at the level that we’re at. So our yoga program’s a great example, right? My wife, Shannon, she was the absolute champion and she was like, as long as I have 10 people in the class, like she defined success early for that program. 10 people in a class means success, I can start looking at a second class. 10 people in that class, I can start looking at another class.

Peter: 18:00 – Same with our SWIFT program. Same with our kids programs. It’s like she won’t start a new class or a new option on a Tuesday night until her Monday night is at eight people, and for me I’d run all the numbers. I could tell you our break even for almost every class based on the revenue that we’re running. Like yoga, yoga, because it’s a little bit of a lower price point, we need to have at least eight to nine people in a class for it to be a break even class. Whereas our CrossFit classes only need six people in a class and it’s considered a breakeven class. And so we start small and I have break evens for every class size before I let the coach say I want to have three classes every day and it’s going to be a big class and out of control.

Chris: 18:41 – So how do you identify these champions and then what tools do you give them to succeed when they have an intrapreneurial idea?

Jared: 18:49 – A lot of that starts with trying to build careers or staff members, you know, giving them an opportunity to bring in revenue on their own. You know, for us at NapTown, the core areas where people can make money are group classes. So coaching, you know, fitness classes, it’s personal training, it’s doing our foundations program, which is our onboarding system. And then the fourth one, the key one there is intrapreneurialism. And so those are the four pillars that we have of building careers for people. And so we tell them from the get-go like your earning potential is unlimited depending on what kind of program you can build. So that’s how our kids started, it’s how longevity started, it’s how NapTown Nutrition started. And it’s how all these programs started. We’d reach a point where we would ask our staff members like what do you enjoy?

Jared: 19:37 – What brings you joy? Doing an energy audit. Like what are the things that light you up and make you excited and let’s build a business from that. And then that’s what Peter and I have been able to do, been fortunate last couple of years is to then mentor those individuals and guide those individuals and help them figure out the obstacles that we have to figure out in order to make these actual businesses. And that’s where, you know, we sit now in our roles is essentially meeting with our staff members to help guide them. I think one of the issues, personally I’ve been running into a little bit more, is now that we have a lot of these different programs and offerings available, new staff members coming on are like, well, I’m actually interested in this, but it’s already taken by this person. Like, you know, I’m interested in nutrition. It’s like, well, you might not be able to be the owner of nutrition program, but you can definitely be a nutrition coach and make plenty of money doing that. So there’s still opportunities available for even new staff members to help build their careers, which ultimately for us, like the thing that keeps me up at night is making sure that our staff is happy and making sure our staff is making the money they want to make.

Chris: 20:41 – That’s great guys. And I think you’ve, you know, you’ve said a few times now that you’re successful because your staff is successful. That also means that your gym generates more revenue. So you know, what problems does having $1 million in revenue solve that maybe the average gym owner has, you know, if I’m making $30,000 a month instead of $85,000 a month, what am I worried about that you’re really not anymore?

Chris: 21:07 – One of the biggest things I would say is like new members or new clients. We are fortunate that we could keep working on our average revenue per member or our ARM and making sure that we’re taking care of the people in our doors. And if we don’t see any No-Sweat Intros for a week, yeah, still want to push that, but I don’t have to stress about it. And the people that we do get in the doors, we can be very specific about making sure that they’re right people for our gym. So, I do read a lot about people like, Oh, what about these clients, and that’s a big worry we don’t have anymore. It’s like, yeah, I would still love to have another 50 members, but at what cost? I think that’s the biggest thing we don’t have anymore.

Chris: 21:48 – Hey guys, Chris Cooper here. I wrote the bestselling fitness business book of all time, but I often think about taking it off the shelves. Here’s why. Business evolves quickly and while the ideas in my book “Two-Brain Business” still have value, my program has evolved. That’s where my most recent book comes in. In “Founder, Farmer, Tinker, Thief” I break the entrepreneur’s journey into stages because the things that work in the first stage don’t work in the second and vice versa. Everything I put in that book is based on thousands of hours on the phone with gym owners and tens of thousands of dollars in research. I know what works, when it works and why it works. I’m not just going to try and inspire you with pie-in-the-sky philosophy and memes about grinding and hustling. I’m going to give you step-by-step instructions based on what the best gyms in the world are doing to succeed. You can spin your tires like I did 10 years ago as a struggling gym owner or you can avoid my mistakes by reading a book based on a decade of knowledge. Check out “Founder, Farmer, Tinker, Thief” on Amazon. I wrote it to help people like you. And now, back to Two-Brain Radio.

Jared: 22:51 – I would say some of the lower responsibilities and I don’t know if that’s the right word I should be using, but you know, like I don’t worry about cleaning the floors anymore. Which I know I used to worry about 2011, 2012. I don’t worry about equipment anymore because we have people who are staffed to be in charge of those. We have a facilities manager who is in charge of running our cleaning crew, which we hire out and contract out. He’s also in charge of another staff member who in charge of fixing our equipment when our equipment breaks. So those are the things that like me personally, I haven’t touched anything facilities related in three years now because we have people who are in charge of those. But yes, when we first started, he and I were in charge of those and then we’ve worked ourselves out of those roles and then filled those roles with other individuals to take those on.

Jared: 23:38 – And that’s essentially, I mean, one of the things I do in life, and I just did it recently was you know, my little loves and loathes and as soon as I start to find out that there’s something that just I cringe at and I start sweating at and I just hate doing, I’m going to find a staff member who might enjoy doing that and pass that task off to them and then they’ll get paid doing that and now I can go do something else that I enjoy doing or that brings in more money to the business. And that’s essentially what’s helped us solve that problem that I think in the beginning, some gym owners can’t do because the money’s not there.

Chris: 24:10 – But turning that around on you, Jared, I mean, could you guys have reached this level of success without moving those lower-value tasks onto other people like cleaning?

Jared: 24:18 – Absolutely not. I don’t think. No, no, no way in my mind could that have happened. And I think I actually, and I don’t know if he’ll agree with this, but I think I actually had to kind of twist Peter’s arm a little bit on that. Because he was stuck in a mindset couple of years ago where it’s like, I need to personal train, I need to personal train, I need to personal train to make more money. And I’m like, stop doing that. Let our staff do that because we’re also making money when our staff does that and now you go out and get us a corporate client and now you go out and get us something else and do more for us in a different way. And I don’t know if you’ll agree that kind of like clicked for you one day, but I feel like it did.

Peter: 24:55 – I think when you talk about money and you talk about owners’ responsibilities, what are the more important things is we do need to replace ourselves in lower value roles, but you have to do it strategically. And that’s where my left brain, my financial side of the brain comes into play. It’s like, Hey, I will keep cleaning these floors until I know I need to go take on something bigger. But I will replace myself at a $15 an hour cleaning floor job with a $30 an hour new personal-training client. And I will keep that personal-training client now and not 30, like $85, 4/9ths model and things like that. I will keep that client as long as I need to until I can have two staff members having personal-training clients because now they’re bringing in and I can go in and find a corporate client. And so that’s where I was slow to adapt to some of the philosophies is I like to make sure that the lower-value roles were replaced correctly and not just off the whim. And as I leveled up where the jobs I was taking on, the task I was taking on, bringing in more value and also challenging me as an owner.

Chris: 25:59 – There’s a lot of discipline that has to be developed there too, I think. But just so that I’ve got this clear, so you started off by replacing yourselves in low-value roles financially. So the cleaners first and then Jared mentioned doing the love and loathe exercise, which we sometimes call the energy audit. Did that happen later as, as you worked yourself into more of a CEO role, you started handing off things that you didn’t enjoy as much anymore?

Peter: 26:26 – Yeah, one thing we haven’t talked about at all, this is CrossFit after all, we actually went to the CrossFit Games in 2014 as a team, and for the first three or four years, you better bet we spent 15 hours a day at the gym, but five hours a day we were working out, and we had an amazing team around us and we went to CrossFit Regionals every year for the first few years. And it was an amazing personal experience. But one day, after we got back from the Games, we kind of stared at each other. We’re like, that was cool. Was it worth it? And that’s when we actually found Two-Brain Business for the first time, I think we read Two-Brain 1.0 and then 2.0 and read some of those books on our own. And that’s when Jared was like, we need to find a mentor and we need to right our ship, because it was a cool hobby still for the first three years, but we were just lucky. And finally it was like, we need these systems and processes in place to replace ourselves in some of these lower-value roles that I was still holding onto so that we can act as CEOs and CFOs. And that’s when things really started to change. So I would say we were five years into our gym and now we’re in year nine. We were about four, definitely four to five years in enjoying the personal side before we were like, wow, we have something special, we can really start taking it. So in 2015 we were 700,000, and then this year we were 1.25 million. So, and that was all through strategy. And that was after we went to the CrossFit Games, after we gave up that hope as an athlete and just enjoyed that part of it, that’s when the revenue really started to change direction.

Chris: 28:04 – That’s amazing. And when you think back on what going to the Games cost you, it was more than more than the bus tickets, right. So to kind of go 180 on that question, I said, you know, what problems does money solve, but what kind of pressures do you face that smaller-scale gym owners probably don’t?

Peter: 28:23 – I do all the money.

Jared: 28:26 – I spend all the money.

Peter: 28:29 – And that for me it’s a whole—I love numbers, but I’d never went to any specialty schooling for it. I did go to a business school, but it was more for marketing and operations. So for me, knowing that we need to make 80, I think it’s just under $83,000 a month just to keep everybody paid and the doors open is a very stressful thing. And also it’s amazing that we have all these revenue streams, but now I have managers or entrepreneurs, intrapreneurs in roles that require money for their programs to grow. So I might sit in four meetings back to back to back meeting one be with Jared about future visions of the gym, meeting two will be with Shannon, my wife, about yoga and their needs, nutrition and they’re needing to buy new paper for the InBody and then talk about the kids program who needs new kids barbells. So I can sit in four meetings in a row, leave with an ask list of $10,000 worth of equipment. Well, we don’t have 10,000 extra dollars, so now a thing that I never knew I’d be in charge of is how do I prioritize who needs money? Who needs the budget now?

Peter: 29:41 – Did yoga bring us in a ton of money last month so do they deserve more money now ,or is it more of a balance game where we have to just share the funds and not worry about it because we are NapTown Fitness overall, and this is my stress and this is what’s turned me and more gray hairs than ever is like, how do I go through four meetings and then to have to tell two of those four people I can’t give you anything right now. Can you guys make it another month? Here’s what we have for the other two programs. We don’t have $10,000, we have $6,000.

Jared: 30:09 – Yeah, it’s been an interesting battle because NapTown as a whole, as a business, I kind of equate it to like we’re a venture firm and we’re funding a lot of these different projects and some of these projects, to be honest, aren’t profitable yet. They’re on their way to becoming profitable. But like, you know, we had to invest essentially an entire year, almost a year and a half of partial salaries as well as equipment for our NapTown Nutrition business to get to where it’s at right now. And it’s, you know, it’s getting its legs underneath it and it’s doing well now and we’re really excited about 2020, but like technically hasn’t been profitable yet. And those are the things that people don’t really see or understand or don’t know. But we’re so pro on what it can do for, you know, NapTown as a whole, but also our community and the change it can provide Indianapolis. So like that’s why we’re pushing it and excited for it.

Chris: 31:05 – So obviously you guys have a really clear mission because you brought that up a few times about saving the community, but how do you manage that stress? You know what, I’m specifically looking at Peter here because if it really kind of falls under your purview of make $83,000 a month, you know, how do you deal with that? How do you sleep?

Peter: 31:26 – I sleep at night by pure exhaustion still. So that’s not a hard part. And I have two kids too. I have two young kids, a four-year-old and a one-and-a-half-year-old and Jared has a nine-month-old as well. So there’s that whole side of personal life. I manage the stress by continuing to focus on a schedule. My wife is a tremendous goal-setter vision board person and schedule person and she will bring us back together at least once or twice a year and say we need to set goals. And this is personal, this is for our family, but we also work together so it blends. We tried to split it up, we can’t. We blend it all together a lot. And by having a clear personal mission and vision allows me to keep level headed at the gym. And also I think I’m a really good communicator with our staff and I’m pretty vulnerable and I’ll tell them. And vulnerability for me is something that I’ve been kind of raised with. My parents were good about making me understand emotions and so I could tell a staff member like, Hey, I really care about you. This is what you’re asking me. Is that clear? And kind of restating the questions and then making them understand where we’re moving. So Jared and I do a lot of internal mentorship with our staff, which actually makes me less stressed because our staff knows where we’re trying to go and they don’t overwhelm me with a lot of problems.

Jared: 32:47 – Yeah, we’re pretty open with everyone, like this is the first time we’re here, you know, like this is the first time I’ve ran a business that makes $1 million in revenue. So like to our staff specifically, like help us learn as well. And if you learn something, teach us, because we’re doing this all together and this is we, we’re a team. We’re trying to figure this out together. It’s not Peter and I like sitting at top and like making, you know, throwing money around. Like that’s not happening right now. Like, what we want to do is make sure we’re working together and having open conversations to achieve success.

Peter: 33:19 – And I still work out, I do a lot of yoga now. I do an OK amount of meditation. I want to do more. And I still work out pretty regularly so that can maintain my stress there.

Jared: 33:32 – Yeah. Chris, this is, I give you props on this, but I actually played tennis for the first time in seven years yesterday and a lot of it comes to reading some of your stuff about, you know, getting on a bike and not being stressed out if I don’t do CrossFit today or I don’t do, you know, a boot camp class today, it’s like I can do fitness in other ways. So I enjoyed it thoroughly yesterday.

Chris: 33:51 – Oh that’s great. And you know, I think that it’s a common characteristic of great leaders that they are vulnerable like that. And in one of my first in-person interactions with Greg Glassman, we were at this Mexican Cantina style bar and there was nowhere to sit. So I got to sit beside him and his head legal counsel at the time, Dale Saran, and Dale was, you know, complaining about this unforeseen problem that they were dealing with in this massive company. And Greg says, he turns to him and he says, Hey, Dale, next time I start a $1 billion worldwide movement in my garage, remind me not to fuck up. It was, yeah. So guys, I really want to turn to, you know, shining a spotlight on some numbers here because in the fitness world, I think we’re all bombarded by these ads for like million-dollar gyms or we create a, you know, a six figure, eight figure if you count the decimal points, gym every 40 seconds. And I kind of roll my eyes because it’s like, who cares? If they’re not actually paying themselves, it doesn’t matter. You know? And I know, Peter especially, you really focus on this. So let’s talk about some of your breakdowns here if you don’t mind. Like, you know, what are your expense and profit ratios like?

Peter: 35:08 – Yeah, that’s something that we worked on very thoroughly. And just again, talking about surrounding yourself with the right team.

Jared: 35:16 – Yeah, this is huge.

Peter: 35:16 – So we’ve been open for nine years and we are actually on our fifth accountant or, kind of outside CFO consultant or financial consultant, because as we’ve grown, this has been a very difficult thing for us to manage. And so we just this year, 2019, came back locally to Indianapolis with a person that we can meet with. And she has helped us really turn it around because with all of these layers, we knew we needed a budget. Talk about stress, I needed a budget so I can tell nutrition, this is exactly what you’re allowed to spend and this is what it’s gonna look like and this is what yoga is gonna look like. And one of the other problems I’ve dealt with that caused me stress is, and you know, cause Two-Brain’s covered this thoroughly, is there’s no perfect CRM out there. And we use a software right now that we made work for us and we really like it a lot. I wouldn’t change. There’s no way I would change in the world at this point. But when yoga brings in money, it just tells me that, and yoga, nutrition and CrossFit all bring in money, to separate those out is very difficult.

Peter: 36:18 – So I need to do a lot of work in Microsoft Excel. We found a new CFO or a financial consultant that’s helped us really break down those numbers this year to show us where we’re at. And so this year we were running, and I’m scrolling through over here because we’re running an 18% profit margin, which I think is pretty reasonable for where we’re at. And ideally we’re just aiming for more of a 30% profit margin and I do too much reading. So I don’t remember where I read this, but what I read recently was between 25 and 35 is like the gold standard, or 28 to 35 is an absolute gold standard in our type of industry. 15 to 25 means you’re doing fairly well. Anything below 15 means you better start fixing things because you’re getting too close to zero. And that’s kind of the philosophy I’m running. So an 18% profit margin is where we’re at right now. And if I take into just payroll, take it out of there, we’re actually running closer to 51%. So the payroll is taking up a huge majority of what we’re doing because we do actually have a staff of 44 people. When you take all of our yoga instructors, all of our CrossFit coaches that are part time and then all of our middle, the full-time people. So our staff breaks down like this. We have eight to nine that we consider like very full time, three to five that are full time, but they need to work their tails off. Probably could take a second job to really make ends meet, but they don’t yet. And then everybody else is completely part time. So there’s about 15 or 16 of us that require, require NapTown Fitness to pay us, and then everyone else of the 44 just do it part time.

Chris: 38:02 – OK. That’s really interesting. And I want to be clear like that 18% is after you guys have paid your own salaries too. Right?

Peter: 38:09 – Absolutely.

Chris: 38:09 – So if we were, you know, most of the time when we talk about profit margin is net owner benefit, which would include like an owner salary. So 18% is actually pretty remarkable after owner salary in the service industry where your labor cost is high. In fact, I think Michalowicz was saying in the original “Profit First” that 15% was the goal after wages and taxes, including your own. So that’s really, really great. All right, so how do you guys control expenses? Other than putting up signs that says, you know, two paper towel limit, you know, what do you do to make sure that your expenses stay in line and you stay profitable?

Jared: 38:50 – You get screamed at by Peter when you ask for money and that solves the problem. No, I’m just kidding.

Peter: 38:57 – In all seriousness, I mean it’s become just a difficult internal brain process right now. There is no perfect way of how we handle the expenses. This year, 2020 we have a budget for the first time, like an actual budget to control all of this. So that’s going to be our biggest focus and we’re sitting down with our nutrition director and our yoga director in the next week or two weeks to show them what the budget looks like. Cause essentially one of the ways in order to handle the money that we needed to do was because it’s an intrepreneur and Jared talked about us being venture capitalists, we needed to create a program of which basically nutrition is going to pay rent to NapTown, and yoga is going to pay rent to NapTown. This is what we’ve come up with right now and we’ve talked to a lot of professionals on this. We think it’s going to work. So, and we had to use some numbers that we just decided on. But that’s one of the big ways we’re going to manage it this year is just we came up with a number that nutrition owes us this much money a month for being their investor.

Jared: 39:52 – Yeah. And also, I mean we’ve gone through the “Profit First” steps and strategies. We’ve cut up our credit cards, we don’t have credit cards, we have debit cards only. There’s only a couple of maybe one or two of us actually get use of those credit card or those debit cards we’ve gone through and scrubbed our entire QuickBooks of reoccurring payments that don’t necessarily need to be or don’t need to be on there and scrubbed that clean. So we’re only paying for things that we need to pay for, cutting off those extra Spotify accounts and Pandora accounts and those things that we don’t need to be in there. So those are definitely, I mean I guess I consider those as simple ways of cutting expenses, but we’ve gone through those processes as well.

Chris: 40:33 – How often do you review your expenses? Like do an audit?

Peter: 40:36 – Actually review them like an in depth review? I’d only say once a year, but I still am looking at our numbers at least once a week. But again, that’s the way we’re structured right now. I am acting as a CFO. So at least once a week I’m looking at things and then twice a month, I love profit first calculations, I’m doing it twice a month, like deep look. Cause we did cut up our credit cards, but we still have to pay off a credit card that we have from various things.

Jared: 41:02 – And that’s another thing. I mean, being vulnerable here on this podcast. I mean we’re floating $20,000 on credit card for the last, I don’t know, many a years just because it just kept happening. It just kept happening. We just, oh we need to buy this, we need to buy that. Like we need this certification and we’ll put it on a credit card, put it on a credit card. So like, yeah, $1 million, but we’re still trying to work ourselves out of some debt. You know what I mean?

Peter: 41:26 – Well Chris, to your point too, about us leveling ourselves up over the years. I didn’t act as the CFO until about two years ago, and that was the first time we hit $1 million. I did the financial work, but it was just cause that was on the org chart and someone was supposed to do it and my name landed in the box. As we grew, we understood the necessity of making sure that we handle these expenses because we own a building. We actually just bought another building in 2019 that won’t be open until later 2020. And the strategy of finances has become so interesting to me about buying a building and paying rent to ourselves. And then we can take some dividends from that building and invest them into different ways. And then we refinance the building we own so we can get extra capital out of it so we could buy the newest building we bought. We strategically went into a partnership with our newest building with a local high profile construction gentleman who owns a construction company. So we basically, we think, at least, we hope we bought ourselves a long-term insurance plan of if the building has issues, he owns a construction company, we could fix it. So we’re really strategizing our money for the long term. And it’s hard for our employees to see this, but like once we can clean this up in 2021, I think there’s huge opportunities for our employees to see a big increase in their salaries or in their payroll calculators for the future. But right now we need to really solidify the future of NapTown with diversified like huge diversified money streams.

Chris: 42:55 – It’s interesting, like you say diversify, but it sounds like you’re solidifying a lot of them too. If you’re locking in the profit margin that you need to make on these programs like nutrition and yoga, then you’re really moving the responsibility for success onto the champions of those programs more. So that’s cool guys, I kind of see an evolution of thought here. What do you—what’s next for you? What’s the next stage?

Jared: 43:20 – I think it’s continually to surround ourselves with people who are better than us in specific areas. One thing that’s happening literally right now, I just had a really big meeting on it yesterday and we almost have finalized is we’ve hired an HR consultant to come in and help us just blow up our organization and build us an org chart that makes sense for where we’re currently at. Because right now there’s no clarity on who people report to and whose responsibilities are whose cause over time we just kind of like, Hey, like you can make a couple extra bucks by doing this. Go ahead and do our social media and post on Facebook and you can make a certain dollar amount doing that. And so now it’s like, OK, here’s our org chart. We actually even joked yesterday about firing every single staff member and then posting those and rehiring for those positions.

Peter: 44:09 – Well rehiring those staff members in their newest roles.

Jared: 44:11 – So I’m really excited about this org chart, which we’re working on. We’re working on potential rebranding and creating a message, not only for Peter and I to be able to share with our staff, but then for our staff to be able to share with our members who then our members can share with the rest of the Indianapolis community. And that way we’re all clear on what the message of NapTown is as a whole as well. And then as Peter already mentioned, we bought this building that’s overall 17,000 square feet, 8,600 on the main floor, 9,000 in the basement. And the original idea was buy it, throw down rubber flooring and open up another NapTown location. But the more we thought about it is it’s becoming a mixed tenant use property.

Jared: 44:52 – So I’m now serving as a leasing agent. We have seven to eight tenants of this building and we have five letter of intents signed already. So we’re working towards the leasing process and actually having leases executed. So we’re really pumped to, you know, have that available as well of you know, our future wealth and future success being built off of this new building. So that’s keeping us super, super busy. And then obviously our NapTown business will have about 4,500 to 5,000 square feet in that building. So hopefully that can help grow that part of the business as well.

Peter: 45:26 – When you asked the question, what’s next to me right now, because again, I’m such a financially focused person is really solidifying the staff. When I made this blog post that spurred this whole thing, I said like something still feels like it’s missing, something still feels empty even though we have this much revenue, and Jared will agree on this, like we still want to make our staff, especially the eight to 12 people, they should be making that very livable wage. And I know you’ve talked about this in some of your stuff in the past, like each city has their own livable wage and happiness index. Yeah, our staff can be there. Jared and I still need to lead a couple of things to get them there and then they need to start believing in themselves to maintain that.

Chris: 46:09 – It’s so funny, like you guys are just such classic Tinker Phase. You’re creating cash-flow investments that will secure your financial independence. You’re mentoring your staff more than you’re in the trenches and doing your own work and stuff. But you’re never, never bored and you’re never running out of work. Well congrats guys. You know, I’m really proud of you. I hope that you take some time to get some distance and actually see what you’ve built here and the platform for the future is just amazing. So congratulations to both of you guys and thanks for sharing this journey and this insight with other box owners.

Jared: 46:45 – Awesome. Thank you for having us and thank you for all you do as well as team of Two-Brain. I mean we wouldn’t be where we’re at today without a lot of that guidance. So very, very appreciative.

Peter: 46:54 – I have one quick closing remark. You know, we hit $1 million last year in 2018 and we are kind of asked a little bit to be on the podcast and we were very nervous to do so and so we just didn’t feel like we had proven anything yet. Happened to do it again in 2019 and show an increase in revenue in 2019, kind of Jared and I looked at each other and took at least a 30-second moment of congratulations like, you know what? We’ve proven ourselves two years over now. When you asked us to be on it again this year, we were like, we felt more confident to talk about this because we really believe our staff, we believe in the people around us, we believe in the city of, Indianapolis, and we want to invest in all of those things to make the future here as best as possible.

Chris: 47:33 – It’s not a fluke. Well, hopefully next year when you hit 2 million, you will take five minutes of intensive like eye contact, reward each other with that. Congrats a lot guys. You deserve it all.

Andrew: 47:54 – Thanks for listening to Two-Brain Radio. Be sure to subscribe for more great episodes, and if you’d like to learn how a mentor can help you build a successful business, book a free call twobrainbusiness.com. Chris Cooper’s team will show you exactly how you can add $5,000 a month in revenue and move closer to your Perfect Day. Visit Two-Brain business.com today.

 

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On Monday, Two-Brain Radio presents marketing tips and success stories. Chris Cooper delivers the best of the business world on Two-Brain Radio every Thursday. 

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