The year 2020 is littered with the failure of too many gyms now gone…and the sad thing is many of those closures could have been avoided, and many of those businesses saved, if the owners had clung to a few basic concepts.
Gyms are emotional businesses. We get close to our clients, live the lifestyle ourselves, and quietly believe what we do matters to those we help. But this emotion also deceives us into thinking we are different than other businesses, and that we are entitled to play by a different set of rules. And we are wrong.
Gyms are businesses, and these businesses live, and fail, by the rules that govern all small business concerns, but because this gym is our dream, created and loved by us, we come to believe these rules of business are for drycleaners and flower shops and have nothing to do with what we own.
Even the huge fitness concerns, with multiple units and investment money, fall prey to this emotional trap. We stop innovating and adjusting and then begin to hang on to the past, but we fail to realize what made us successful is the very thing that is killing us today. The client changes, the market changes, the tech changes, yet we cling to business systems from a decade earlier, which in the fitness world is a hundred light years in the past.
“Change comes whether we want it to or not”
Change comes whether we want it to or not, and often from unexpected sources. Pressure, an element of change, is a mysterious force of nature. When pressure is applied, it can turn a skyscraper into a heap of rubble on the ground, yet if applied long enough it can also turn a piece of coal into a diamond.
Pressure, especially like that we all encountered in 2020, revealed the cracks not only in our businesses, but in ourselves as well. Many small businesses can hang on for years, barely making it but making it, nevertheless. The owners work long weeks, take out enough money to start a family, buy a decent car and maybe a home of their own. The business isn’t financially strong, but the owners make it work out of the sheer force of their personal strength and belief in what they are doing. It isn’t a solid business, but it is a sustainable one as long as the owner doesn’t break or ever want more than a week a year of vacation.
The bigger players are like this too. They limp along year-after-year, raise a new round of investment money, fire the CEO of the week blaming him for every mistake, and maybe even close a few units to look like we are taking control. And these businesses are sustainable as long as nothing big changes in their environment, but when pressure arrives the cracks appear.
Many fitness businesses, such as team circuit training and several of the big chains, were either already fading, or in trouble, before 2020. The virus, the pressure applied in this case, revealed the weaknesses and accelerated the downturn path of these businesses.
Here are five mistakes owners made going into 2020. As always, hope for the best for your business, but plan for the worst day of your business life. Learning from these mistakes will keep you safer in the future, and you must assume the pressure will keep on coming for years ahead as all of us in the fitness business have to adjust to a new reality and changing client:
Too much dependency on just one product/single methodology
If did not matter if you are a training gym or big box, if you only had one product to sell you were hammered in 2020. The circuit team gyms, again already mired in price wars started in 2019 as numerous new imitators entered the arena, were particularly hurt last year. Hard to sell the idea that thirty people standing shoulder-to-shoulder, sharing breathing space and sweat, is the way to train in a virus.
Since the circuit is your only product, you have no retreat. The training gyms which had small group training and one-on-one, along with a team concept, had a much higher survival rate because it was easier to pivot away to products that still produced high revenue in lockdowns. Imitators, through the form of competitors, usually only attempt to steal one part of your business. If you have a successful business, built upon different layers of offerings targeted toward different consumers, you have a chance to fight back when the wars begin.
The big lessons of this still apply to a virus free business environment. If you only have one product, you are always susceptible to price wars. If your gym is circuit only, and the guy down the street is doing the same thing, but for $40 less a month, you are in a price war whether you want to be or not.
The bigger players suffered from the same meltdown. If your primary product is just a simple membership level at one price, you were hurt because single methodology always, and I stress always, is dependent on volume sales and not a return-per-client. This means either the competition drains you, or you burn up your own immediate market since everyone who wants a membership at that price, and who lives within three miles of your gym, has purchased one.
Some of the bigger players believe they are beyond this since they offer programming such as one-on-one training, but the reality is that most of the chains have less than seven percent of their clients doing any type of higher revenue generation.
In a virus, if you need volume to succeed, instead of return per client served, you again die from a slow starvation of leads and sales since you are too dependent on only one demographic in the market. Remember, about eighty-five percent of your clients live within three miles of your business. Why only appeal to a limited number of them by only offering one target specific offering, such as team circuit, that we know primarily attracts the 24-35 market?
Sessions, packages and month-to-month clients killed a lot of gyms
The gyms still in business used twelve-month contracts as their primary tool. The ones that failed still used tech from last century, including selling sessions, packages and month-to-month memberships.
What this translates into is the gyms with a strong receivable base, and managed it ethically through the pandemic, kept an income stream intact, while the others who sold simple usage memberships, such as sessions or putting every client on a month-to-month plan, lost most of their paying clients the first few months of the dark days of March through May of last year.
Members obligated to the gym, through a contract, give the gym stability and the ability to project the gym ahead into the future. I would classify not using contracts, therefore not creating a receivable base, as one of the biggest mistakes any gym owner makes, and this mistake took down a lot of good gyms last year.
No reserve capital
It takes discipline to run a good gym business. You have to have the ability to plan for a time when all hell comes walking through your gym on a Friday afternoon. One of the planning tools is creating a reserve capital of at least three months of your normal business expenses as a minimum, with at least six months reserve as the eventual target.
Stuff goes wrong. You get sick, a kid gets sick, a virus hits, you get divorced or a hundred other mind numbing, soul wrenching things can happen to you. Reserve capital gives you time to fight back. Most of the gyms that failed, and most of the large chains, had less than then a month’s operating reserve available going into the first lockdown.
You can’t fight without cash, and you need the discipline to save enough cash, and then leave it alone, to give your business a chance to live when others die. If you don’t have the cash, and are still in business, try to create three months of reserve in the next eighteen months of operation and then extend it to six months over the following three years after that first saving spree.
This advice also applies to the larger players, but it would have to be modified. If you have a hundred gyms, you do not need three months reserve per gym, but you would benefit with a forty percent coverage, meaning you sustain at all times a reserve totaling the total operational expense of three months for forty of your gyms in this example. Yes, it seems like a stupidly high number, yet how many chains filed bankruptcy because three months sitting dark killed their reserve capital?
“Gyms are emotional businesses”
You have to have more than one source of income
Many owners used online coaching as a tool to survive, then abandoned it when they got back into the daily operation…and this is a mistake. Online training should be part of your business plan forever no matter if you are a single unit or a chain.
Besides supplying additional income, online coaching can extend your brand beyond the boundaries of a brick-and-mortar operation. This online component should be treated as a separate business, with separate statements and a derivative name of your current business and run it as a stand-alone.
You should also look at nutrition as a separate business within a business. Many gyms offer nutritional guidance, but few understand the power of running it as a business that can stand separately. The client is looking for leadership into today’s fitness world and accountability through guided nutrition is a great way to deliver it.
Ego took down a lot of owners…and will take down more before we are through with this
Angry owners mostly lost their gyms. When you spend all your time fighting with the city and state, you fail to serve the client.
I don’t care about your politics; I do care you stay in business. As I said earlier, this is an emotional business. Stating a fact here, and not an opinion, many gym owners who decided to not wear masks, or force their clients to wear them, reopened at about forty percent of their membership. Yes, they kept that handful of clients happy who also refused to wear masks, but they also kept about fifty percent of the rest of their clients out of their gym, many never to return.
Owners cited this as a personal choice and as their right…and I agree it is and I respect that right. But as a client, if I do not believe you are keeping me safe, then I will stop paying you. Yes, gyms are safe places and the data backed this up as the year progressed, but you telling me is not the same as you giving me leadership and proving you are trying to keep me safe. Every owner has the right to run his business as he sees fit, but when the business fails you have to question your own decisions and not blame others because your plan was a failure.
Angry owners make bad decisions. Owners who spent all their time ranting against a system that does not bend often failed last year. Owners who worked to prove they were willing to do what is necessary to keep clients safe came through it will much of their membership intact. Again, your choice and I respect your choice; I am just here to tell you how it all turned out. If your life is your business, then put the business above your emotions.
What does this all mean?
The fitness industry got reset last year. Pressure was applied and many of us broke. The business model we have used for decades proved to have some severe cracks in it and the pressure of 2020 revealed those cracks resulting in failure. I anticipated at least thirty percent of all gyms would fail, and if we include the chain closures, along with the small studios, I think we probably exceeded that number.
There are always good times in the industry, along with the dark days. I anticipate May of this year through May of 2022 to be perhaps the best run in the modern history of fitness, yet many owners are not ready.
Too many of you are clinging to the idea 2019 is coming back. Many consultants are trying to teach us to get back to the basics of that era. Many investment groups keep spending money on business concepts that were dying prior to the virus. I believe they are taking us down a bad path.
What’s the secret? Let go of what was, understand what your current reality is, and embrace what the future of the industry can be if you change and adapt.
And learn from the mistakes that took down so many gyms. This is a business no matter what your emotion tells you. Run it that way and there will be good days ahead.
With thanks to Thomas Plummer for his permission to share this piece.
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