Franchising Your Fitness Business

Until recently, franchises were most commonly associated with convenience stores and coffee shops, not gyms and fitness programs. Now a new crop of highly successful fitness franchises has entrepreneurs sizing up franchising as a viable and lucrative venture.

Franchised businesses generate jobs for more than 18 million Americans and account for nearly 10% of private-sector economic output in the United States, according to a 2004 study released by the International Franchise Association Educational Foundation.

Franchising is flourishing. But does this “off-the-rack” business structure really fit in the fitness industry, where a personalized approach is the norm? Many successful franchisors and franchisees think so!

What Is a Franchise?

Are you wondering if franchising is right for your booming fitness business? The first step to answering that question is to examine how your company might fit into this model.

While numerous business relationships operate under the name franchise, most retail franchises are the traditional type called business format franchising, explains Joseph L. Hiersteiner, an attorney who assists franchisors and franchisees with business and disclosure issues at Seigfreid, Bingham, Levy, Selzer & Gee in Kansas City, Missouri. This type of franchise involves the following three elements:

• The franchisor allows the franchisee to use a trademark or commercial symbol associated with the franchisor.
• The franchisor provides significant assistance to or exerts significant control over the operations of the franchisee.
• The franchisor charges a franchise fee.

Who Should Be a Franchisor?

Perhaps you own several profitable clubs in your state or province or teach sought-after specialty classes around town. Does operating a successful business in your area make you a good candidate for starting a nationwide, or even international, franchise? It’s certainly a start.

“Franchisors are generally entrepreneurs who nurtured and cared for a business for years before thinking about franchising. Through trial and error, [they] have learned what it takes to make a specific business successful,” says Hiersteiner.

However, in-the-trenches experience with building a successful business does not guarantee a successful franchise or even mean that franchising is the next best step. “The talent and skills necessary to teach and train others to be good operators of a specific business are not necessarily the same as [those required for] being a good operator of that business,” says Hiersteiner. For some, either licensing (see “Franchising Versus Licensing” sidebar) or expanding by opening and personally overseeing more outlets might be a better approach.

“If you’re looking to have just a few locations in a small area, then franchising, with its heavy legal and regulatory costs, is not the expansion vehicle of choice,” says Steve Beatty, vice president of franchise development for Curves for Women®, headquartered in Waco, Texas. However, for some business owners, the prospect of franchising holds enormous promise.

The benefits of franchising are abundant. For example, franchising fosters small-business growth, builds a business into a brand that’s recognizable in the marketplace and creates income and revenue streams, according to Michael Scott Scudder, chief executive officer (CEO) of MSS FitBiz Connection in Taos, New Mexico, who has trained and advised more than 10,000 club owners and managers worldwide.

Beatty puts it this way: “Franchising allows a business to become much larger, more quickly, than if a person tries to expand his or her business one location or unit at a time.” Plus, franchising has the potential to save you more money up-front and lead to more profit in the long run. “Although franchising your business is quite expensive, it is usually less expensive than it would be if you grew outlets and managed them on your own,” says Lisa Druxman, MA, founder and CEO of Stroller Strides LLC, based in San Marcos, California.

“Other advantages [of franchising] are growing your brand through motivated franchisees, group purchasing power and marketing power. It is much easier to get great exposure when you have franchisees around the country touting your brand,” Druxman points out.

Franchisees around the country—and perhaps beyond your national borders—not only tout your brand but also pay out of their pockets to help build your business. “The majority of the capital for [franchise] expansion is provided by the franchisee,” says Beatty. “Therefore, a franchisor is using other people’s money to expand.”

And those who have a stake in your company are especially motivated to make it a total success. After all, the franchise becomes their investment too. “It is difficult to find managers who could operate and grow your locations with the same enthusiasm, passion, drive and motivation as a franchisee brings to the table,” Beatty says.

Finally, the more keen franchisees you have reinforcing your company vision and brand, the more end-users (i.e., fitness consumers) can benefit from what your business has to offer.

Peter Twist, MSc, is the president and CEO of Twist Conditioning Inc. in Vancouver, British Columbia. According to him, “Franchising allows company and brand growth by . . . empowering our advocates [to become] partners who . . . make a positive impact in their communities. So we have an impact on many more clients than we possibly could on our own.”

Big Business, Big Challenges

Considering the business-boosting benefits associated with franchising, many fitness pros regard it as a shoo-in for growing a fitness company—and a bank account—in a relatively short time. But franchise experts emphasize that such a complicated undertaking comes with its share of challenges and complexities. “The bigger the business, the bigger the problems,” says Druxman.

John Gennaro is the founder and president of Cuts™ Fitness, a franchise headquartered in Clark, New Jersey. At print time, Cuts Fitness had burgeoned into more than 200 locations in 32 states and five countries—in only 21/2 years. Despite this impressive track record, Gennaro cautions fitness entrepreneurs against pursuing franchising simply as a get-rich-quick scheme.

“On the surface,” says Gennaro, “[franchising] is a home run.” In reality, however, it’s a very thorough and expensive process that takes time to develop and refine. “You need to have staying power in the form of financial resources, or it won’t work,” he advises.

“Staying power” extends from financial strength to the nature of your business and its services. “The biggest challenge in franchising a fitness company is to find that niche in the fitness industry that will stand the test of time,” says Beatty. “The fitness industry has many large and well-established franchises. It is a very competitive environment.”

Even with a sure-fire market niche, however, your franchise could be a miss without the right franchisees—professional, dedicated and business-minded individuals who loyally adhere to your company’s vision and high standards.

Choosing Franchisees

At first glance, finding suitable franchisees might seem as simple as announcing your franchise to the world, especially since this expansion model is so popular. But franchisee selection is more than a matter of attracting widespread interest. You must distinguish between franchise applicants who are just “tire kickers” or people looking for a quick buck and those who are serious businesspeople, willing to uphold your business image and wholeheartedly contribute to the franchise’s success.

Careful franchisee selection also involves avoiding the temptation to create growth that’s too diverse and, consequently, veers away from your initial vision. Twist Conditioning faced this challenge when it received more than 400 inquiries from 15 countries before the franchise was even marketed.

“Receiving a volume of interest is easy,” says Twist. “An important challenge is identifying quality franchisees committed to fully delivering our high operating standards and embracing our culture. In the end, the success of our detailed system is dependent on finding the right people to be our strategic franchise partners.”

With the right franchise partners in place, the onus is on the franchisor to deliver uniform and meticulous training and business support to those carefully selected individuals. This process poses another challenge.

Providing Structure, Training and Support

“Franchisees expect substantial business support in exchange for the up-front and ongoing fees, so franchisors need to provide detailed operations manuals that cover all aspects of the franchisees’ business operations,” says Mark Horler, the Sarasota, Florida–based chief operating officer for Baby Boot Camp LLC. “Ensuring that franchisee systems, tools, processes and documents are kept up-to-date can be very demanding, especially for the smaller franchisor.”

Having detailed documentation and company systems firmly in place helps ensure you can deliver the support materials your franchisees ultimately expect. It also makes the process of adhering to franchising rules and regulations more efficient. These accomplishments begin with the three Rs of successful franchising: refining, researching and replicating.

The Three Rs

“It is vital that [your] business model has been carefully researched and refined,” says Beatty. “It needs to be simple and easily replicated, with every aspect of the business clearly defined and documented into systems the franchisee needs to be successful.”

Building a solid foundation for a winning franchise includes three steps:

1. refining your own business model and systems
2. researching your target market (including both prospective consumers and franchisees), as well as the process of franchising
3. replicating your company’s systems so they can be easily learned and reproduced

Refining. Before you can enter the fitness marketplace with a franchise, you must first demonstrate that your business model works. “Have documented systems of all facets of operation before you franchise, and have a management team that can support multiple locations,” says Scudder. In other words, says Druxman, “Get all of the bugs out of the system.”

Researching. With franchising, as with any business venture, it’s wise to know your target market and competition inside and out. But research more than the prospective customers in the regions where you’d like to establish a presence. “You need to understand not just the needs of your end customer, the fitness client, but also [the needs] of your franchisee [who will] serve that client,” explains Mark Horler of Baby Boot Camp®. And Kristen Horler, the founder and CEO of the same company, adds, “Research other franchises in all industries to learn more about their processes, support systems and brand value.”

Finally, analyze your organizational and business readiness to franchise. “Find an experienced franchising consultant, who can help put a road map in place for your success,” Mark advises.

Replicating. Your ultimate success in the franchise marketplace hinges on your capacity to reproduce your business into a format that is reasonably simple to implement, which can be a meticulous task. “We packaged the precise process of what we do within our company on a monthly, weekly, daily and hourly basis in order to teach it to another team for implementation,” says Twist.

The business model you’ve worked so hard to build from the ground up should be easily sustainable without the immediate presence of you or your key managers. “Overall,” says Hiersteiner, “the franchisor must have a developed system that will travel well and can succeed without the intimate day-to-day involvement of the founder in operations at the retail level. In general, this means that before commencing to franchise, the franchisor must demonstrate that the system works in multiple locations, with multiple managers. The easier it is to replicate the operations, the easier it is, generally, to franchise.”

Plus, you must demonstrate widespread applicability. “Your business model needs to be repeatable and transplantable, meaning that it will work equally well in California, Florida and Texas—and overseas if you choose to pursue international franchising,” according to Mark Horler.

The more you refine, research and replicate, the more solid the franchisor-franchisee relationship will be. But before you establish business relationships with franchisees, you must make headway with the myriad costs, legalities and regulations of franchising.

Your hard work ironing out the three Rs prepares you for the definitive laws and strict rules of franchising. Expertly refining and replicating your business model helps cut through layers of red tape. The U.S. Federal Trade Commission has very strict franchise laws, as do various states, according to Druxman. “You need to prove that you have a model that can be replicated, and that you can support your franchisees,” she says.

Researching your business readiness to franchise will help you determine whether franchising is a viable option logistically and financially before you get engrossed in the process. It’s no secret that this business venture requires you to have money in order to make money. Franchising is a very capital- and labor-intensive effort. “It doesn’t come cheap!” warns Mark Horler.

Says Hiersteiner, “While franchising is a time-tested method of raising capital through franchise fees, the franchisor needs a fair amount of start-up capital just to get to the point of beginning to sell franchises.”

How much start-up capital is typically needed? “Assuming your current business is mature and well systematized, budget at least $100,000 to even consider getting off the ground,” advises Twist, who points to the costs of legal fees and paperwork, franchise consultants, staffing, collateral materials, intranet software, marketing, travel, franchise associations and trade shows.

In addition to expenses, be prepared for the paperwork needed to meet certain legal and regulatory standards. For example, says Kristen Horler, in the United States “the primary legal considerations for the franchisor are federal and state regulations surrounding the sales of franchises. These vary from state to state, but everyone requires a very specific franchise agreement and a [Uniform] Franchise Offering Circular (UFOC). The primary costs involved relate to legal fees to produce these required documents, the price of federal and state filings, and the associated costs [for] your support systems (website infrastructure, support team, etc.).”

Consider, also, that legal and regulatory expenses and procedures expand as your franchise expands because you must retain specific legal guidance for each jurisdiction. “You have to deal with standard state filings on an ongoing basis. You also have trademark issues to address, both domestically and internationally,” explains Gennaro. “As you enter international domains, you will have to retain local counsel [regarding] country-specific legal requirements.”

“Additionally,” says Hiersteiner, “federal laws in Canada and the United States, as well as state laws in the United States, regulate the relationship between the franchisor and franchisee. For example, federal laws in both Canada and the United States regulate certain aspects of the franchisor-franchisee relationship to ensure that antitrust laws and other principles of fair competition are not violated.”

Considering the ongoing stream of paperwork and legalities, many fitness entrepreneurs might worry that the act of franchising will take them away from what they enjoy most: inspiring the world to fitness.

Not necessarily so. With the assistance of consultants, attorneys and other qualified staff, you can focus on the crux of your company and its health and fitness offerings. Kristen Horler explains how it works for her franchises: “Baby Boot Camp has a support team in place to maintain compliance with the various guidelines so that the rest of our corporate team can focus on the needs of our franchise owners, our students, our partners and sponsors, and the execution of our key initiatives.”

Although Hiersteiner admits that franchising can be a complex and involved process from both an operational and a regulatory standpoint, he points out that the potential benefits are high if the system succeeds.

If you think you and your fitness business are up for the challenge of launching a franchise, now is the time to make sure all aspects of your primary business are highly refined, systematized and replicable, says Twist.

Step back and examine your current system. “If one of your key senior employees left, could someone else seamlessly step in tomorrow?” Twist asks. “Do you have a proven and replicable process for everything?” Even if you decide that franchising is not an appropriate expansion vehicle for your company, your primary business will benefit tremendously from the homework you do to find out.

What if you do decide to try your hand at franchising? “The possibilities for growth are as wide as the appeal for the product or service being sold,” says Hiersteiner. “It is this upside that convinces many entrepreneurs to take the leap.”

Fitness professionals who might not be good candidates for starting a franchise could benefit from this lucrative business venture by buying one. Buying a franchise ensures that you are not left to fend for yourself in the competitive fitness marketplace. “There is a saying in the franchise industry,” says Steve Beatty, vice president of franchise development for Curves for Women. “When you own a franchise, you are in business for yourself, but not by yourself.”

Being part of a larger, well-established business means that the franchisee “leverages the mistakes that [the franchisor] has already made and paid for,” says John Gennaro, founder and president of Cuts Fitness. As a franchisee, your chances for success increase because you benefit from the training and support that an experienced parent company provides. This level of support—in areas such as training, product supply, advertising and marketing—can range from fairly minimal to quite complete, according to Michael Scott Scudder, CEO of MSS FitBiz Connection.

“Franchising minimizes the risk that is inherent in opening a new business from square one,” says Beatty. “Buying a franchise allows the franchisee to follow a proven business system, a system that has been tested, with all the potential pitfalls and problems removed.”

And the financial risk is also minimized. “In almost all cases, it would be far more expensive to start your own business than to purchase a franchise, because you don’t have to hire lawyers to review each form or hire Web designers,” says Lisa Druxman, MA, founder and CEO of Stroller Strides LLC.

Entering a franchise partnership also allows you to become a business owner without the typical aggravations and learning curve inherent in more traditional business start-ups. “If there are 10 steps to do something, at least nine of them are done; fitness professionals who buy a franchise don’t have to slowly learn from their mistakes,” says Peter Twist, president and CEO of Twist Conditioning. “They can work on getting and keeping customers rather than spending time developing their business model. They can focus on the things that immediately have an impact on their bottom line.”

Becoming a franchisee is a bit like buying a business in a box. Of course, this doesn’t mean that you don’t play an important role in launching and running your franchise business.

Two successful franchisees—Beth Holdhusen, franchise owner of Liberty Fitness in Chanhassen, Minnesota, and Martha Moore, owner of three locations of The
Little Gym®, as well as the company’s vice president of franchise support for the Western region—share their perceptions by answering some basic questions.

Q: What is the benefit of buying an established franchise outlet?

A: Holdhusen: “I don’t have to suffer through the growing pains. As a franchisee who is part of a larger system of owners, I have a built-in support network. I can share ideas and constantly tap into the knowledge of my peers in the franchise system.”

Q: What challenges might one face as a franchisee?

A: Moore: “You have to be able to make the financial investment and the time commitment. You need to recognize the value that the franchise provides and be willing to follow the standards that have been established.”
Holdhusen: “As with owning any business, the idea of being your own boss is empowering, but also a monumental responsibility. Ultimately, the success or failure of the business in entirely up to you. Your franchisor provides you with a solid base, but you have to work really hard, especially at the beginning, to get it off the ground running.”

Q: Becoming a franchisor entails a lot of expense and paperwork. How costly and complicated is it to become a fitness franchisee?

A: Holdhusen: “It’s really not that complicated, but it’s a good idea to have a professional business consultant and a lawyer to walk you through the process. I would say that buying a franchise is a realistic and attainable goal for most fitness professionals as long as they can obtain the necessary capital and have an entrepreneurial spirit and a certain level of sales and networking skills. In addition to your usual start-up costs for any business—such as ‘build out,’ phone, computer, employees, equipment, etc.—most franchisors charge a one-time franchise fee to cover the initial costs of training and support, and then monthly sales royalties moving forward.”

Q: What qualities contribute to being a successful franchisee?

A: Moore: “You need to have the mindset to be able to provide great customer service. You need to be willing to make the time commitment to get your business off to a great start and operate it effectively. We’ve realized at The Little Gym that it’s more important to have business acumen than a gymnastics background. As a fitness pro, you can surround yourself with the team you need to deliver the product or service.”

Q: What advice do you have for fitness professionals who are thinking about buying a franchise?

A: Holdhusen: “Take the prospect extremely seriously. It’s not something you decide to do on a whim. You need to carefully research what concept out there best suits your skill set and personality.”

Moore: “Preserving the brand is key to the franchisor’s and franchisee’s success and longevity. It’s important that you do not go into this thinking like a maverick. That’s one reason you purchase a franchise: to tap into the collective wisdom of the franchisees and [franchisor].”

The difference between licensing and franchising can cause confusion in the fitness industry. How are the two similar, and what sets them apart? Michael Scott Scudder, CEO of MSS FitBiz Connection in Taos, New Mexico, sets the record straight:

“A general answer is that a license exists when the owner of a trademark, service mark or other intellectual property grants the right to use that trademark, service mark or other intellectual property for a particular purpose. All franchisees are licensees because all franchisors grant franchisees the right to use their trademarks or service marks to identify their businesses.

Amanda Vogel, MA in human kinetics, is a fitness professional in Vancouver, British Columbia. She is the owner of Active Voice Writing Service for fitness professionals and creator of How to Write Winning Queries, an online workshop that shows fitness pros how to succeed with writing health/fitness articles for magazines and newspapers. Her writing regularly appears in IDEA Fitness Journal, SHAPE, SELF, Fit Pregnancy and Health. You can reach her at [email protected] or www.activevoice.ca.