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In this episode, Craig discusses how independent gyms can take on the Goliaths of the fitness industry and come out on top.
Craig is what we call a CrossFit OG, he’s been in the game a long time. In 2004, he started the MadLab Group, a business consulting network of gym owners, with the main goal to professionalize the fitness industry. Craig is passionate about what he does, and he wants to show independent gyms owners that they can take on the Goliaths of the fitness space.
Dan Uyemura: Welcome to The gymOS Podcast, helping fitness professionals become better business owners, one episode at a time. What’s up, everybody? Dan Uyemura here from PushPress with another episode of The gymOS Podcast, where we’re helping make you a better business professional, one episode at a time. Today we’ve got Craig Patterson or Patty as he’s known in the industry. Craig has been working on the MadLab group for quite some time. It is a business mentoring program that has a very unique insight on how you should run a gym. However, today we’re not gonna talk so much about those. I’m sure if you paid attention to stuff Craig’s talked about, you understand that he believes in making the coaches the center of your your business, making sure that they’re paid well and making sure that your coaches are incentivized to make sure clients have a great experience because that’s gonna trickle into a great business, help you make more profit along the way and create a business that’s ultimately sellable, which is the goal. Today we actually talk a lot of things about how franchises work, how private equity and venture capital are creating competing businesses in your market like an Orangetheory or F45, and are those really threats to your business or might they help? We have some thoughts which we dive into in this episode, among other things. So let’s just jump to it.
All right, what’s up, guys? Welcome back to The gymOS Podcast from PushPress. Once again, this is Dan Uyemura here, CEO of PushPress, helping try to make each of you better business owners one episode at a time. Today I got with you, kind of a legend in this space, at least in the CrossFit functional fitness space, Craig “Patty” Patterson. I, myself, my gym was a member of his group, MadLab group, many of you probably already know about this group in the past. We’re here today to talk about a lot of the aspects of business, the business of running a gym and kind of the stuff that happens under the hood, behind the scenes, the follow the money type stuff in the gym industry that I know a lot of you guys aren’t really thinking about. Included in this dialogue, we’ll start to dive down some of the concepts of how to run a more professional gym, how to get your coaches paid a little bit more, we’ll give you some tips and tricks on that and maybe give you some resources to click off to to get a deeper dive if there’s something that you’re interested in.
You know, like we’ve been working on parallel paths, and I think we’re going to keep reconnecting because both of our passions and mission here is to help gym owners really raise their businesses, get paid, get their coaches paid, help their clients better. So again, like, quickly, why don’t you give us a brief recap like you’ve been in the CrossFit space forever now, like when did you come along?
Craig Patterson: Well, we were just talking about it, like I was a mechanical engineer for a decade and maybe half. I worked for a couple Fortune 100 companies and it was on sustainability really, you know, we worked on building design. I started my own green building sustainably an engineering firm in 200, and we were looking at buildings that lasted, like 100 years, 150 years, 200 years, and what the return on investments were like, 25 years long, stuff like that. Like looking at things, you know, we go into architects in schools and hospitals and places that cared about things like that, you went to the developers, they didn’t give a shit. They’re making money quick, and it turns around, and, like, I start to see the similarities in our industry, like what is quick, what is long term versus what is short term.
Anyway, I started in 2004, there was only one CrossFit gym at that time outside of Greg’s in Santa Cruz. I was in Seattle and I had friends, I just had sort of a hostile takeover from my best friend of my engineering firm, I busted my ass for 3-4 years on that thing, and then I got a pay out, and I didn’t know what I was gonna do. I went down to Seattle and went to Dave Warner’s gym, and it was like, fuck, you couldn’t find someone to pay, there was no class, you couldn’t determine who the coaches were. It was people fooling around on pommel horses and rings and doing pull ups off of bars, and throwing shit, and I was like, “Wow, what the fuck is this kinda thing?” Then, you know, a few people would hobble together and say, “Let’s do the workout of the day,” I’m like what the hell is that, you’d have 4 or 5 people going crazy, doing all kinds of stuff and like throwing Olympic weights around, I’d never seen Olympic weightlifting in my life, I’m from a small town. Anyway, Greg Glassman was in town, and that night there was some function, I just met him and we started talking, we talked for seven hours straight, spent the whole next day together, and he convinced me not to go back and start another engineering firm, and that the world needed professional coaches and the biggest healthcare issues. every Western nation is gonna be bankrupted by Type II Diabetes and fucking obesity, and that was that was the mission, the mission was to professionalize this coach thing, and also, you know, it’s fun, and we’re gonna get jacked. I was only 33 at the time, and Greg was a personal trainer, I went down to Santa Cruz and just hung out with him probably every month for, shit, the next six months, nine months. I talked to him on the phone a couple times a week, sometimes every day, and I started personally training people, and he taught me how to be a really good personal trainer, and I went from charging $5/hour at a park to, then raised my rate to $10 bucks and lost half my clients, got kicked out of every community center, just training people, and eventually, I gave up my engineering business and license and just said, “Fuck it, I’m gonna do this full time.” At that point, I was in a high tech office building and they had a nice gym that we bought a bunch of equipment for, they had open spaces, and I started to personally training people, and eventually I got $50/hour, and then I trained them 5, 10, 15, usually 10 to 15 personal training sessions, and then Greg was, like, “Yeah just put them in a little group class.” He was doing the same thing in Santa Cruz. He went from having a whole day full of personal training to having three or four hours and having three people, then five people, and then, never 10, but maybe smaller groups, and we kind of did parallel paths and kind of figuring out how this beautiful thing called CrossFit that he developed was going to be implemented into the world’s gyms or what they were going to look like, no one had a clue how to fucking deliver this thing. It was totally wide open and after awhile, I had 30-35 clients, and all the personal trainers got together and kicked me out of this space and I had to start my own first gym. So that was 15 years ago, Dan.
Dan Uyemura: Quite some time in the industry, so fast forward to today, 15 years later, you’ve been working on the MadLab Group trying to professionalize gyms and coaches, and in this quest of things, I feel like you and me and some other people in these positions have seen a lot of industry trends. One trend I really want to dive into, because to me, one of the reasons I wanted to start PushPress was it pissed me off that merchant account companies were taking advantage of gym owners who were unsophisticated and didn’t understand the game of merchant processing, and thus they were ripping them off on their fees, and I could say this because at my first gym, I thought I was paying 1.5% processing fees, and when I did the math, I was paying 4.5% and all this hidden shit was everywhere, and I was getting billed for it, so that really made me mad. One concept I like to really dive into, as I’m working here to protect gym owners from industries, is the idea of “follow the money.” One trend we’re seeing right now, in my opinion, is private equity is getting involved in fitness. You have some experience in this. Can you speak to some of like what you’ve seen and maybe some of your experience in terms of private equity dipping their toes into our world, which is fitness.
Craig Patterson: Yeah. So, you know, we got criticized in the past for criticizing CrossFit and stuff. You know, I love CrossFit, I’ll always love it. I look at this thing now, I got out of corporate America because it was ugly, people didn’t take care of each other, the shareholders, I mean, I worked for a company with 7000 employees, it was really kissing up to your boss to go up the chain of command, it wasn’t based on merit, and the way they treated their people, in their charter, they shored their shareholders first, people are second right, which is now, you look at Orangetheory and F45 that was Curves and Bikram yoga and Zumba, and all these things, all these franchises, you know, we can beat them. Independent gym owners can beat them. In my town and a lot of the towns, MadLab gyms are in there doing things very differently, and they don’t see those guys as a threat at all. We love them, actually, because they’re bringing, they’re highlighting what expensive products and they’re churning so many people out of there that they’re coming to us, right?
So I just want to talk a little bit about how those franchises are run, why they’re run that way, and it really is, Dan, is simply, it’s an investment strategy. It is not designed to professionalize the coach, that’s for sure. It is not designed for the clients to stick around, get what they need and be healthy and stay in a gym for a long period of time, and it’s actually not even designed for the franchise owner themselves to have a long term, sustainable business. I mean, this is an investment strategy, so I’ll give you a little story. I’ve recently only just had a profound conclusion or profound understanding of how this really works with F45, Orangetheory, I have some people deep inside those organizations that are explaining to me what the real play is here. But I should have known this quite some time ago. I mean, I’ve been telling people that they should be doing it different than the traditional group class model for a long time. I get in a lot of trouble for saying that maybe I haven’t said it properly, but I firmly believe there is a better way for the independent gym owner, and that is looking at long term thinking. So anyway, two years ago, I met a guy who’s a private equity guy. I’m doing a speech over London, England. He goes, “Listen, man, I want to come to your talk. I want to bring some investors.” I’m like, “Okay, what are we doing here?” He goes, “Man, we got this thing, we’re looking at a franchise for all of the UK, and I just been following you and geeking out for years, and I really love what you do, you know, we want to have professional coaches (and blah blah blah).” And I was like, “Okay,” so he came to talk and he took me out for dinner, after we had a bunch of drinks and had some nice food. and he says I want to introduce you to these hedge fund guys and so you know, they got me an audience with a guy, he was literally a billionaire, you know, it was really intimidating. Dan, have you ever sat down with a billionaire?
Dan Uyemura: I haven’t yet, but I plan to, soon.
Craig Patterson: He looked kind of dumpy, and I didn’t really want his life. It would be awfully interesting to have that life for a month or something, and maybe, you know, maybe I’ve become a billionaire. I don’t think that’s gonna happen, but it was just It was kind of crazy sitting in the room, anyway, they started with their play, “Yeah, this is what we do, we did with a bunch of other franchises,” The name franchises, I didn’t know because they’re English franchises, and I can’t tell you who these are because my guy will get burnt, but they’re there, and they’re doing it now, so they come to me and say, “Okay, we understand that you really got it running these things and (blah blah blah), our last guys didn’t run it quite as well, as efficient as we wanted.” I was like, “Okay, what is your plan?” He goes, “Well, you know, we’re gonna find coaches, and we’re gonna come to them with, basically, ‘Do you want to be a business owner?’” Which, you know, we’ve kind of seen all over the place, and I know with Orangetheory, it’s a little different, it’s $900,000. You buy all this equipment and franchise, and you get locked into a really expensive lease, this kind of thing, but I said, “Okay,” he says, “We get a 50% tax credit from the government for setting up bricks and mortar.” Okay, that makes a lot of sense right off the bat, and then I was like, “Okay, well, how are you gonna run these things? What’s your client development process gonna be in there?” They looked at me like “What?” And then my guy is kind of like “shhh”. Well fuck, what are we doing here and they’re like what are you talking about, and I started kind of hinting around what a client development process was, they go, “Well fuck, we just give them a 15 or 20 minute indoctrination, but then we throw them into a class. I was like, “Okay, what are we actually gonna be doing in this class?” And it was sort of like a CrossFit lite it looked like to me. I was like, “Okay,” and they had their own spin on branding, and they were still working out the branding and the marketing and their whole message, but it’s not much different than what you’re seeing out there in North America. I was like, “Okay, you realize if you do that, you’re gonna churn, what we found is you’re gonna churn 70 probably 80% of the clients in the year,” and they’re like, “Huh,” and then they got Jeannie in the back to go run numbers and they fucked around with that for 1/2 an hour while we talked about all kinds of things, then they came back and said, “Yes, he’s right.” I go, “That’s not a problem? You lose 70 or 80% of your clients year over a year?” They’re like, “It doesn’t turn out to be,” and they go, “We usually pre-sell 300 or 400 memberships,” and I was like, “Holy fuck.”
It started to remind me of CrossFit back in 2012, you open a gym, put a shingle on it and 100 people show up. Anyway, so I was like, “Okay, well, what about coach development?” They’re like, “Coach development?” How are you gonna pay them and how are you gonna train them? And they’re like, “I don’t know, I think that we have a two week course, and then there’s weekly catch ups” and I go, “How do you pay them?” It was like, whatever it could be 11 pounds an hour or 8 or something like this. I was like, “You realize all the coaches are gonna leave at basically twice the churn rate of the clients.” And they’re like, “Yeah, we do know that, so what?” So I’m like, “Well, do you understand what I do, I’m in this room because I do that all differently.” I go, “Every client is precious, we don’t bring in 300 at a time or 400 or even 50. A coach can probably only handle 3 to 5 a month, and 5 would be a lot.8 We take them through a three day assessment, we have a proper consult with them to find out why they’re there. We’re gonna do probably another 15 or 18 personal training sessions to really get to the bottom of their health, fitness, wellness, access their pain, make sure they get out of pain, and then they can actually go into a group class, and they see their coach once a month. They’re like, “Fuck, that would take too long, we can’t do that,” and then they go, “What about the coach training?” I go, “It’s a two and 1/2 year process,” and they’re like, “What?” Then they both looked at me then looked at the guy I was with and they threw their arms up, and that conversation was over.
Dan Uyemura: That meeting was over right there.
Craig Patterson: Yeah. I scuttled out of the room and my guy’s, “What’d you tell him that for?” I go, “Well shit man, why the fuck did you bring me to the meeting for? This is what I’m doing, I’m trying to professionalize the coach.” Before I got into the room, though, Dan, what they really explained was listen, “We don’t care about any of that, we can churn those clients, we can churn those coaches. We need 20% return on investment each year for five years, maybe seven if it doesn’t go right, and we’re out.” That’s it. That’s the whole set up. And it was shocking. It was was fucking… dude…I didn’t talk for a couple hours. This is what drives our industry. These are the investment strategies that drive our whole industry.
Dan Uyemura: So I actually wanna really dive into that because, like you said, this is what’s driving our industry and what the small mom and pop brick and mortar does is they look up chain to Orangetheory as role models because they assume they’ve got it all figured out. But what gym owners don’t realize is that private equity is behind these companies, and if you actually research it, private equity companies own massive Orangetheory franchise groups, right, like regions. They only care about, like you said, short term return on investment. They don’t really care, like, to the extent that they care about the client getting results, is how long they’re gonna pay them, right?
Craig Patterson: Yeah. I mean, I can’t speak to whether they’re good people or bad or evil or not, but it is…
Dan Uyemura: I’m not saying they’re good or bad. It’s just their incentive, their direction is different.
Craig Patterson: Well you look at it, they need to take on, so you go, so now I’m flabbergasted. I don’t know what to think about it. And I’m actually a really slow learner, and it takes me a long time, and then once I get it, I’m like a dog on a bone. But you know, maybe six months ago, eight months ago, we had a new guy that joined us, he’s like, “Man, I’ve been following you for years and I have actually sold,” he actually recruited coaches for Orangetheory, and he knows everything that goes on them. He’s been doing the franchise thing for years, and he opened up his own gym. He’s like, I know I gotta do it differently than them. He goes, “I love what you’re doing. I love the client development process and retaining 80% of your clients, having a long coach development process where they can make $80 to $100,000 a year,” I said, “Dude, we’re onboard,” and I just started talking to him more and more about why Orangetheory is doing they’re doing, and he said, “Fuck, it’s pretty clear, man, we used to presell 300 memberships, sometimes 400 before they opened. How in the hell are we gonna handle doing it the way you do it?” And I go, “Fair enough,” and he goes, “Well, what we gotta do is have a really simple system. Super simple, anybody can implement it. We have to have really simple coach training, and we have to have a really simple payment of the coaches, and, more importantly, I need to be able to handle 300 members Day 1, and the branding and the marketing is so attractive that we can find members for years to come into that thing, and then we can also find coaches to come in because it’s shiny and bright and people love it.” And I go, “But dude, ya know,” and he’s like, “Yeah I know. And I was like, it’s basically two different industries, Dan. One’s churn machine that is designed to handle a ton of volume to get shareholder’s value back. The other one, we’re trying to professionalize the industry, we want to be, and this is the biggest thing right here, we want to be the gap between F45 or Orangetheory or fucking globo gyms and the healthcare industry because the most critical application in the human endeavor right now is there a lot of sick people all the way from Type II diabetes, obesity, all these kinds of things, no fucking endocrinologists in their life is going to take their client and tell them to go to fucking Orangetheory. No Physiotherapist who’s working on or orthopedic surgeon, we work with a lot of surgeons it seems like, neurosurgeons too, they’re not gonna prescribe their client to go into that, they know they’re going to get killed. They’re gonna get a terrible experience. I mean, that thing is for the hip new crowd and 20 somethings and 30 somethings, it’s like the new bar that opens up and they capitalize upon that. We need, for me, I want to be the gap, and we’ve got coaches in my facility, I got four of them, they’ve been there for more than 10 years. My first coach, T Bear, who I was an engineer with, he’s been there 15 years. He’s got a civil engineering degree. He can talk directly to doctors, he’s got three doctor patients right now. They’re sending him clients, and we’re doing studies on Type II diabetes in West Virginia. We’re doing that stuff in the government carousel. I’ve got coaches, they’re basically physiotherapists, and then they take people, put him in the general population over six months, right? So anyway, not to toot the horn, but I really think that’s the two different industries. One needs to assess the critical application, the healthcare system is gonna be collapsed in every Western nation in 20 years with the way it’s going. We know you can cure Type II diabetes in 90 to 120 days with proper exercise and diet, but again, it is the drug companies that are the ones that are talking to the doctors.
Dan Uyemura: Right, Right. So there’s an interesting analogy that you made me think of as you were speaking there that I think kind of relates to what we’re talking about. Not necessarily the doctor and medical thing you’re talking about, but just in general, we’re operating on different planes, so an Orangetheory, a big box, globo gym or whatever who are trying to maximize sales, maximize profit, maximize customers coming through versus a CrossFit gym is akin to, I would say, Starbucks. When Starbucks first came out, everyone in the industry, because I pay attention to just the financial industries in general, everyone in industry was like, “Okay, all the mom and pop coffee shops are done, gone.” And that kind of did happen for a moment, right? Almost all of the small coffee shops went out of business, Starbucks took over, but what happened was they just created a whole generation of people that love coffee, became addicted to coffee, needed coffee every morning, stopped by Starbucks every morning, and then what happened? People who said this coffee isn’t actually that good, they’ve made a system where anybody could just come in, pour an espresso and serve me a coffee, and it’s, as a result, it’s not good, the experience is okay, and it’s very manufactured, right? And that’s, in my opinion, what an Orangetheory fitness might be. Now we have Blue Bottle Coffee coming up, Intelligentsia, we have all these third wave roasters that are coming up, and now they’re focused on experience, they’re focused on product, they’re focused on delivering a better overall product than a Starbucks would. But now they’ve got 10 times more customers because Starbucks introduced the idea of drinking coffee to this degree to the world, so a lot of people look at this trend and they go like, “Oh, boutiques are in trouble because Orangetheory is coming in, the F45s are coming in,” there’s a place, and Starbucks are doing just fine, with the advent of Blue Bottle Coffee, right, they’re probably doing better than ever. There’s a place for both of them. But like you said, I think personally the product that boutique gym owner is gonna put into it because they care about their clients and they care about their coaches and they care about their community is gonna be different than the product that rolls in on a franchise train. And therefore, you can actually capitalize as a gym owner in the boutique space to orders of magnitude more by actually placating and learning from Orangetheory, doing what they do well, this is kind of my working thesis, learn what they’re doing, adopt some of that stuff in your gym and keep focusing on the community and the customers to the degree that you do and and you’re gonna actually be in a way better spot in a couple years then you were before Orangetheory came in. How do you feel about that kind of concept?
Craig Patterson: Totally. I mean, I never go to Starbucks, only time I ever get Starbucks if someone gets it for me because in Vancouver and most urban centers now you could get a way better cup of coffee that tastes better, way better experience if you go in there. I just came from one, meeting Tom, one my top coaches in Vancouver, we meet at this little coffee shop over here, my son Braxton came in, there’s an I Spy book, Dan. He loves this I Spy thing, all the little kids come in there and they look at this book. I remember taking tape over there, fixing it up, so we ordered a new I Spy book, Braxton signed his name, we brought it over to the coffee shop owner, they have a little place for it and it’s got Brax written on it, and all the other kids are allowed to play with it, and that wasn’t even the setup, they did that when we showed up this morning. That’s not gonna happen at Starbucks. They wouldn’t allow it. I mean and the churn of the people in there would just be forgotten about. Next thing you know, his book could be sitting in the garbage or thrown on the floor or something, which would devastate you. Independent gym owners can win this game. I fucking love it. We could easily win this game. Not easily, it’s hard, right? But we have to do things differently than they’re doing. I mean, if we started following them, the worst thing I see on the forums now that people are trying to follow fucking Orangetheory, and I’m like, dude, don’t you realize that thing’s gonna be fucking shut down in seven years, right? All the people that started that, invested in that, are out. People used to laugh at Curves. You remember how many fucking Curves there were at one time?
Dan Uyemura: Oh, yeah, there was over 5000. They were everywhere.
Craig Patterson: So when that was happening, Greg was stoked about that, right? Greg was like, “Well, look what they’re doing, we could do that too,” because he had that dream of going to 10,000 gyms quickly. But when I look at it, I have had one woman who she owned three Curves and she came into my gym in 2005-2006, and people poo-pooed it because it was machines and all this kind of stuff, but I believe Curves would still be around if they were independently owned and they operated it differently. I’m sure of it. Now you’ve got a fitness protocol as potent and powerful as CrossFit, sometimes too potent and powerful, and I think, you know, the world has softened that thing up around the edges in the last 20 years. When I started doing it, we killed each other, now I go into my gym, and it’s not like that at all. I think most gyms are learning moderation, learning that you can’t have snatching…
Dan Uyemura: It’s about selling to the longer tail now, right? Like you’re not telling that to the policeman and ex-military. It’s about getting people healthier.
Craig Patterson: Foundations have changed the whole world, and it’s a great, more potent exercise protocol than Curves. But let me explain something, if I got this simple thing (it’s funny you lead into this), but I’ve been working on this thing for a couple of months. We’re gonna release this pretty soon, but it’s the five shifts that independent gym owners can do to beat the franchises, and the first is just simple, short term thinking versus long term thinking. You need to look at this differently than them. They’re looking at this as a quantity game over 5 to 7 years. People that run it, they’re designing it are pushing this thing. We need to shift away from quality of mass scalability. I still think you need a decent facility, it needs to be clean, but you don’t need to worry about every fucking napkin and blanket, every piece of equipment being labeled the brand. That’s what they need to do. You don’t need to do it. You can do it a totally different way. It’s gonna be way cheaper and way better. So the goal is to develop a sustainable business, one that if you keep your clients and keep your coaches step one, keep your clients, they’re precious. That’s called retention, so in every business you’re ever gonna be in, every business. I mean when I was in a Fortune 100 company, it was “keep the client and charge as much as you can.” So that line of “charge as much as you can” might sound unethical, but it’s really you need to provide a service, a high value service that they are going to keep on paying for life.
Dan Uyemura: Let me interrupt you right now, just to interject. For gym owners, that’s a huge concept. You need to think it’s not about just raising your rates for the sake of raising your rates or charging them as much as you can for the sake of that doing. You need to put a product in front of them that’s so valuable to them that it’s worth more money to them, and that opens the door to charging them more money.
Craig Patterson: I mean, I’ll go down the path of what we do because I’ve been studying the data for 15 years and I’m convinced that this is the way to do it. But I mean, franchises are trapped into a model that they can’t get out, they gotta put people straight into a group class or some little group onramp or some little indoctrination, they can’t get away from that. There’s no way they could do a really hands on experience one-on-one with a client because they will never be able to scale it fast enough. They need to sell a 1000 of these franchises, they make all their money selling franchises. They don’t make money from the gyms being successful, right? That’s out of their hands. They make their money selling franchises. So if they had to slow this whole thing down and take in every client one at a time, do a three day assessment with them, make a real relationship with them. I mean this thing, what we’re trying to do all comes down to basically deep, meaningful relationships, and you might even want to get as corny as to say love, and it builds community like anything, it retains its clients at 80% a year instead of 20 or 30 like they have to do. They’ll be lucky if they get 30% retention rate, really lucky doing what they do, so you can do it differently, which is how we do it. We do a one-on-one assessment, one-on-one consult to see if they’re a good fit, I mean, a lot of coaches just turn people down. If you’re new and struggling and hungry, probably can’t turn anybody down, I know when I started, I couldn’t turn, I got all kinds of freaks and club footers and hair lippers that I learned to love, and I got more choosy with my clients as I went, but at the end of the day, if you can give them that one-on-one awesome experience and they’re willing to pay you $275 bucks for a three session assessment, and then after that, you really get into their lives, and we do another 12 or 15 or 20 personal training sessions, usually an average is around 18 total. And when you do that, you make these deep, meaningful connections that last and they change your whole community when they finally get around to a group class. We sell hybrid memberships where they see their coach once a week or every two weeks or once a month, I think the maximum where you can call yourself a coaching facility is once every six weeks, that changes the group class dramatically. Now you’ve got people that are really well trained, that have been nurtured, fostered, and the group class changes completely, where if you went to Orangetheory nobody knows each other, and it’s like a fucking different group every day, and that’s gonna churn, where yours won’t. And then that first shift to long term thinking versus short term thinking and doing stuff to retain your clients, and if they’re paying you $300 a month and they’re not leaving, you’re gonna have a good business.
Dan Uyemura: Let me actually tell you another factor of that too is creating these real relationships with your customers is going to do something else other than just stop churn. It’s gonna create referral systems, right? So you could start naturally getting customers out of your customers because they love you so much, they value their relation so much, and they want their friends to experience that too.
Craig Patterson: 100%, Dan, 70% of our new clients, we never run challenges, we never run ads, and we got a couple 100 gyms in our network that are all in different states of training. Most of them just focus on organic stuff and referrals. Your reputation is everything. If you’re not losing clients, they’re having great experiences, they tell people that. If they’re coming in, they’re having a terrible experience and 70 or 80% are leaving a year that builds another reputation. If you look at what Orangetheory or F45 or any of these things, they’re gonna eventually create a negative perception for people to go there, and for coaches to work there. You couldn’t do those things in a small town, they have to just be run differently, and the irony is, F45 started in Australia, they’re not doing so well over there, I’m told. So much so that we have gyms coming to us and we’re actually changing their whole model inside of it, specific ones, I can’t say. I don’t know when I’m gonna get in trouble for that or when they’re gonna get in trouble, but they fight their head office all the time. It’s just really interesting that the place where it came from, gyms are moving over to what we’re doing.
Dan Uyemura: Because those gyms are the most mature now because that’s where they started.
Craig Patterson: If I can just say one more thing to that. If you don’t lose your clients and they pay a lot of money, that’s a really good place, right? But it’s even simpler than that, if you base every decision on this, so I know, Dan, we want to give people good hardcore things to go away from, and if you never join MadLab School hey it’s cool, I really want to professionalize this industry. So it’s hard to push it in a certain way, but a lot of people look at doing PT first now, but essentially you boil down every decision, Dan, into three things: it has to work for the clients, has to work for the coaches and has to work for the business. We did sustainability and buildings where we looked at 25 year return on investment of the decision we’re making. I think the same thing has to apply for gyms. What do you want 10 years from now, 15 years from now, 20 years from now, and if it’s only five years from now, you need a look at it. What do I want five years from now? Well, I want my clients to stick around and I want my coaches to stick around, and I want to make money. So the client needs to win, coach needs to win, the business owner needs to win. Then how do you measure that? Well, if the clients are sticking around (i.e. retention), they’re paying a lot of money, average client value, they’re doing good. They’re not gonna pay $300 a month if they’re not getting what they need. Then if you’re doing that part right, then it goes down to the coaches, how do the coaches win. Well, shit, the dollar per hour, they need to be paid at least as good as a journeyman electrician. I’m looking at $40-$45 an hour. So how do you do that? You can’t pay them by the class or any of this stuff because it’s not incentive, the incentive has to be tied to the client. The client’s sticking around, and they’re paying a lot of money. We tied the coaches compensation and the training and everything directly to the client’s success, then you got something. At the end of the day, if the coaches could make 60 in some markets, 80 in some markets, 100, 110, Tom did 111,000 in Vancouver last year in a housing crisis. They’re gonna stay, and then that’s what changes the industry, then you got coaches around for five years, 10 years, 15 years, hopefully 20 or 30 then they can bridge that gap to be able to talk to a doctor or a physio or whatever, and then you’re truly making a difference in the world. And then the last piece is the business needs to make money. You set this all up and the business doesn’t make money, it’s gonna fail. So our measurement is a 20% EBITDA. Last year, mine, I wish I could talk about every gym in our network, but we have a few, they’re better than us now, financially, because I’m often on the other side of the business. But, you know, we’re almost one million, we were 940,000 last year, and I had 9.8% EBITDA after everybody’s paid. That’s a good business. That’s a business worth investing in. As it turns out, I’m getting my 20% return on investment. It took 10 years, and every year it gets better, you know? So it’s a long game at the end of it. Can you sell this business? The guy with that franchise after seven years, and all the equipment’s beaten up, and all that fancy, shiny stuff is beaten up, the reputation of the place is beaten up, coaches don’t wanna work there, clients “I don’t know, I’ve already heard about that,” can you sell that? You know what I mean? Is that thing sellable in seven years? 10 years?
Dan Uyemura: Maybe to another bag holder, you know?
Craig Patterson: Yeah. I mean, where as yours, like mine, I know I can sell it for five times EBITDA, I’ve already got approval by the Business Development Bank of Canada five times my EBITDA, you know, 19.8% of a 1,000,000. That’s a million bucks. So I got one thing that has its reputation, has its integrity, has its dignity and it’s now a great business to sell and that’s what I’m passionate about. I’m really passionate about coaches succeeding, my four oldest coaches, three of them, one of them, I’m sure hates me actually, but he appreciates me. The other three are my best friends. I get passionate about it because I really love what we’re doing here, it’s made a difference in the world, and it really pains me when I see independent gym owners trying to play the game that the franchises are doing because you need to have that enlightenment that that game can be beaten.
Dan Uyemura: So one thing I want to dive into that came up a little bit back was about, so a lot of gyms don’t think of their coach as the centerpiece of their business, and in reality it is. And if we want to talk about bridging the gap between wellness provider, physio, whatever, and somebody’s health, just some place that they can refer to or even the client’s referring, very rarely if you’re connected with an individual person, like let’s say I’m connected with my barista per se at this coffee place and he or she is super good to me, knows my coffee, knows what I like on Monday versus Wednesday, etc., etc., I would be more likely to say, like, “Hey, you want a good coffee? Go talk to Cheryl at this coffee company because she kicks ass” as opposed to “Go to this coffee company.” Referring someone to your gym for one of your clients is doable and easy, but if they’re connected to your coach and their coach loves them and knows their movement patterns and knows their weaknesses, and knows their strengths, and knows their goals, and is working with them passionately, I will be 10 times more likely to say, “Go see Joe at Torrance Training Lab,” because I have that personal connection.
Craig Patterson: Well, that’s great. That’s been the dream of ours to show every other gym how to do that because what it is, if you can stick around in the industry for 10 or 15 years, you make those relationships at a deeper level, deep within your community, all the way through to the doctors and physios and this kind of thing. The problem the coffee shops have is they can’t keep their people either because that model still runs on minimum wage, so all those people are gonna leave. I mean, I have a local bar I went to religiously, maybe too much, for three or four years, to celebrate our wins, and I’d take my whole team there, we rack up like sometimes from $500-$800 dollar bills, when I was going through the city of Vancouver, they were trying to shut me down for two years until I turned everything into a school, but I mean all that staff has turned over three times now, I don’t even care to go to that place, as I know, no one’s gonna know me in there and I don’t bother going back.
Dan Uyemura: Actually let me give you a better example than that because this is actually perfectly in line and actually paints the picture. A local accounting firm or a local real estate agents firm. Let’s talk about professional service providers who are actually building relationships with their clients, which is what our coaches should be doing. You don’t go like, “Hey, hey, go sell your house to ReMax,” you say, “Go talk to Joe Johnson at ReMax because he kicks ass.” And that’s what you need to make your coaches do at your gym, right? Like, create that relationship and become the sales person.
Craig Patterson: Totally, and my point being is that the way the industry is paying their people now doesn’t work. Same way as the coffee shop won’t work for them long term, not saying it won’t work, I get a lot of trouble with this people want to criticize and stuff, dude, if you just want to have a simple system that’s really simple to figure out, and you’re putting a lot of your own energy into it, and it’s a good job and you’re happy with that. Cool. Now, I know there’s a whole industry of software and consultants and marketing companies and everything, they’re all tied into that old model, which is the volume game and bringing in a lot of people and having coaches accept a lot of people at one time. Fine. Do your thing. My job, my mission is to find people like Dan, and other people that think similarly to me, to us, to make a difference in this industry, and if the clients are leaving and the coaches are leaving, more importantly, if the coaches are leaving, I think the coaches leave because two reasons the clients leave and that’s really depressing, I know every time someone leaves our gym, it’s like a mini funeral, and I know my coach will sit down with that person, dig into everything in their life and find out why they’re leaving or how we failed them or maybe they’re in trouble or divorce, we get into some deep stuff. If a coach is watching these clients leave, and he can’t make an effect, he’s not paid on that effect, even if he did make that effect, he’s still gotta go teach his class and make $20 bucks, and in that hour, it’s depressing, an the coach will leave, and then that’s the real tragedy of the industry. You look at our industry, they’re mostly just talking about marketing, how to get more leads in and stuff like this. Every marketing company that turns into a business consultant, they’re not business consultants they’re showing you how to get leads.
Dan Uyemura: I think one of the other reasons coaches leave from my vantage point, and I feel this is the same for a lot gym owners is everyone’s like one life event away from quitting their passion. So, like there’ll be a lot of coaches, I’ll see, that are young, they might live at home or whatever, they don’t have huge bills, and then they get their girlfriend pregnant or their wife pregnant or they marry somebody or whatever. And then it’s like, “Okay, it’s time to be a real adult now. I can’t work for $25 bucks an hour and I gotta go.” Or they go into the Fire Department and Police Department, which CrossFit coaching seems to be a theater for Police Department and Fire Department employees, from my vantage point.
Craig Patterson: Yeah, I mean, there’s nothing wrong with that stuff, I just, we talk about CrossFit, and CrossFit is a lot of things to a lot of people, like there’s 24 hour CrossFit, there’s, there’s the one we’re doing at the highest end of the market, and there’s one in the middle, and there’s the one that’s doing it in a park. I mean, it’s just such a broad spectrum that CrossFit means now, what we’re talking about is a professional, independent gym. So I’m an advocate for a professional gym that has professional full time coaches and professional full time owners. I mean, we do have some in our network, we have one great gym that does over a million a year, and it’s got all the professional coaches and it’s run by financial people, but those people are in there mentoring the people, but anyway, if I could add one thing to that, that last event, like one big event away from quitting, I don’t say this stuff, we don’t put a very good job of telling people what we do because it’s some of it’s so sensitive you don’t know if you have permission or not, and so I know I have had a coach that had to take personal leave for nine months and we paid him to stay home, take care of that and he made $5000 a month, all the other coaches took care of his clients, his classes and he came back right and that was 5-6 years ago. Another coach had a terrible loss, he lost his son and he went on bereavement leave for a solid nine months again, and I’m telling you, during that time, people in our community and these clients, fellow coaches, they never cooked a meal and they didn’t clean the house. We had people going there, our community arranged this, it’s beautiful. It’s only a few years ago. It’s one of my one of my favorite people in the world, and he went through this tragedy, and our community cleaned their house, cooked their meals, did everything they could so these people could grieve. It’s a terrible tragedy, and we paid him to stay home, and everybody took care of his clients, and he made that money legitimately. It wasn’t like I had to take it out of my pocket, that was still there, like it’s almost like paid vacation, $3500-4000 month, not working because that was the profit from his tribe of people. So when you saw that one event away from disaster like, I don’t think those two people could have gone through anything worse to be honest, and they’re still here.
Dan Uyemura: And that’s all very specific to the MadLab model, which I mean, honestly, I’ve inspected a lot of models. I think many models can work, and I definitely think the MadLab model can work to a high level of success, but it is also a high level of work. So nothing great comes without putting in some work, right?
Craig Patterson: High level of commitment, I would say and work, but it’s working smart I would say.
Dan Uyemura: I think it requires a little level of organization and sophistication, which I think everyone could, everyone who wants to be a real business owner can grow into and should grow into, but yeah your perfect client isn’t every gym owner. I’ll tell you that.
Craig Patterson: It’s not, we’re probably, maybe I want to talk about it being a top 10% of people that really want to go after this industry for full time living, and, you know, I really don’t want to get the stream of criticism around, if people want the part time coach and you got a part time gym owner, and you’re doing your thing with CrossFit, that’s fine. I mean, it’s fine. I’m just looking to do my thing. I’m not looking to embarrass anybody or criticize anybody. A lot of people want what we’re doing, you know, that’s fine. I don’t need to be criticized for it either. You know, like we’re trying to do the right thing here.
Dan Uyemura: Yeah I mean, there’s just different ways to run your gym, and your model is for somebody who wants to step away from the gym, maybe entirely, let the gym run itself, sell it for five times the earnings later on down the road, make their coaches a livelihood, maybe let their coaches buy it off, it’s a different model from the other gym models, and it’s fine.
Craig Patterson: I mean, I’ve trained a bunch of guys, Garth Cooke just recently is like, “Man, I’m just bagged from this, I need to get out.” Okay, let’s give me two years, build up your coaches, and we’re gonna find someone to buy it, and we did, and they sold it five times even and both sides were happy a year later, and the guys who bought it are up 25% already in nine months. Another one’s in Austin with Wes Kimball, came to me five years ago and said, “Okay, I want to move away from town.” There’s people that just want, they need a move, and Tim and Genevieve did the same kind of deal, and there are up like 50% in three years, and they’re happy. That’s fine. I mean, I’m not gonna want to do this my whole life either, but I would like to be able to sell it and retire on it, ya know what I mean?
Dan Uyemura: Alright. Well, we’re gonna cut it short here or not short, we’re at 45 minutes already, so a pretty solid episode.
Craig Patterson: That’s pretty good for me, Dan.
Dan Uyemura: There’s one key topic that I want everyone out there listening to you to understand in today’s conversation, actually, there’s many, but I’m gonna hone in on one because this one, I think, is one of the important ones. If you haven’t read the book David and Goliath, I would suggest you read it because, right now, in our industry, we have a Goliath, we have Goliaths coming in and they’re playing a different game. And if you know the fable, everyone knows the fable of David and Goliath, you know, David’s [Goliath’s] this huge warrior who’s a hand to hand combat guy and David challenges him, but what Goliaths assumes is he’s gonna fight hand to hand, and David starts picking him off from far away with a slingshot. And the reason I tell this story is because as these Goliaths enter our world, who are backed by millions of dollars of money and have these big, fancy, shiny gyms and are running a different model than you are, if you try to fight them with their tactics, you will lose. If you try to embrace what you do well, if you’re a slingshot or when this big Goliath is a spear fighter, you need to fight him with your sling from 30 yards away, right? So hone in on what you do well, figure out how to fight Goliath not on his terms, but on yours, and you’re gonna be fine. And that’s why I am personally so excited that Orangetheory and F45, and all these franchises are coming in because they’re gonna raise the tide for everyone. And then as long as you understand how to fight them on your terms, you’re gonna do just fine. You don’t need 500-1,000 clients like they do, right? These guys need a lot of clients. You need a lot less, you can do just fine.
So with that, we’re gonna wrap up this episode. Thank you, Craig, so much for coming on. I mean, this guy has so much information that I would implore anyone if Craig has time in his schedule, just take 30 minutes and talk to him, he’ll drop so many knowledge bombs, I’ve learned a lot from him over the years. Smart dude, knows his shit. Very passionate about helping gym owners, which is why I got him on the show today. Craig, do you have any last words? Oh, if people want to learn more about what you’re doing, this model you’re doing, where can we have them go?
Craig Patterson: Well, it’s interesting, I’ve been kind of working on something for two months, and I know you got a hold of me because we haven’t talked for a while and you listen to Mike’s podcast, so I’m building the thing out, it’s called The Five Shifts to Build a Professional Gym, and it details out how independent gym owners can beat franchises, and it’s gonna be an ebook and a webinar, so I know this is probably backlogged like a couple of weeks, so if you go on MadLab.com, you’ll be able to find it, it’s called The Five Shifts, and if you just DM us, we don’t have any bots anymore, you’ll be talking directly to a person, probably Mike Manning, on how to get you that information, so it’s free training that probably a 45 minute webinar that really goes into what this is all about and what we can do to beat those guys, I’m here for the independent gym owner to win, bro. And, Dan, I agree with you totally with what you just said there with the David and Goliath thing. We can win this game.
Dan Uyemura: We will win this game. All right, guys, so they have it. I would encourage, even if you are or are not interested in engaging in any type of business consultant, mentor, whatever. I would encourage you to go check out this free webinar on their website, at least get to understand the things that are being said. I’m a big believer that you soak in as much information as you can and be smart enough to throw away the things that don’t work for you and sponge up the things that do work for you.
All right. Another episode done. Thank you all so much for joining us. Every episode, we’re working hard here to turn you into a better business owner at The gymOS Podcast from PushPress until next time, keep on grinding, guys.
There we go, another episode fresh off the press and into your ears. Hopefully, you liked that one. I’ve known Craig for a long time. I used to be a MadLab client at my gym myself , and I truly believe he’s here to help, and he wants gym owners to do better. That’s why I had him on the show. He’s had, I feel like he’s had a rough go of it sometimes on social media because he feels so passionately about what he does, sometimes people take offense to it, and I want to defend that. I think you need people who are passionate about what they’re doing, and they’re passionate about you as a gym owner to be in the seats that he’s in, trying to drive this industry forward. It’s honestly, really no different than you standing on a soapbox preaching to your community because you believe so much in the product that your building and that it can help your community, that’s really no different than what he’s doing. And I’ve seen it firsthand. A lot of gym owners catch hate from the people in their community because they feel like whatever fitness thing you’re selling isn’t necessarily the best thing for them, and this gym owner really believes that. So try to see things in the light of that. Patty really, really wants to help gyms, and he has been in this industry and he has been exposed to a lot of things for a lot of time, so anyway, hopefully, you enjoyed that episode. I’m a believer that as long as you pick one or two little things out, if not 100 big things out of an episode, it’s worth your time listening to because all those things stack. Over time, all the knowledge and information you gather, process and digest stacks, and that’s what’s gonna make you a better business owner over time. So I hope you got something out of that. If you did, make sure you give us a like you give us five stars on whatever podcasting engine or platform you’re listening to us on. Make sure you give us the thumbs up, let me know you’re enjoying these guests. Let me know that you’re enjoying the content that we’re putting out. Give us a subscription, make sure you subscribe, so that way, this stuff gets dropped right to your podcast listening device. As we drop them, we’re going to start releasing them a little bit early for our subscribers so you can catch them over the weekend as opposed to Monday when we’re going to release them to the public. So you have another reason why you’re gonna want to subscribe if you want to get this stuff hot off the press.
Alright, guys, I hope you enjoy this until next time you guys keep grinding on your business and I’m gonna be here, going to bat for you guys.
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