On this episode, Tom Scarda, Franchise Academy, shares how he got his start in franchising, what it really takes to be a franchise owner, and actionable steps you can take to expand your fitness business.
“In order to be successful, you need to be working ON the business and not IN the business every single day.“
Tom Scarda is a nationally recognized small business and Certified Franchise Expert (CFE), motivator and dynamic speaker, not to mention he’s authored three books! He’s seen great success in franchising and he’s also suffered great losses, and now he’s here to help you avoid the mistakes he’s made so that you can thrive as you look towards expanding your fitness business.
On this episode, Tom shares how he got his start in franchising, what it really takes to be a franchise owner, and he even does a little myth busting. If you've ever imagined one day owning a fitness business that could rival some of the current franchise Goliaths, this is the episode for you! Tom offers years of experience in the franchise world and now he's here to share this knowledge with you.
Dan Uyemura [0:03]
How many of you guys look across the landscape of your local fitness competition and you see F45 in OrangeTheory fitnesses and it intimidates you. Today we talk with Tom Scarda, who works in the franchise space. And we kind of go over how this playing field can be leveled the pros and cons of being a franchise and competing against them. And also some things that you guys should understand and know as you take to market to compete against franchises. Quite accidentally, we didn’t even plan it we uncovered in this episode. I think maybe one of the keys to actually operating a small boutique fitness single or, you know, small location count fitness facility. And yeah, check it out. Listen to this episode. It’s in here. It’s in this episode, and it’s actually one of the big Things you can think of and it relates to like, how you make the decision between buying a burger at five guys or McDonald’s versus buying a burger at something a Michelin star rated chef owns. So check it out. I’ll catch you on the other side and let me know what you guys think.
What’s up everybody? Welcome to The gymOS Podcast, Dan Uyemura here, CEO of PushPress, we got another exciting episode for you today. Today, we’ve got Tom Scarda, Tom Scarda.com, he actually is a franchise expert, certified by the International Franchise Association. He’s owned and operated franchises, as a franchisee himself, and now he kind of trains and helps people build franchises themselves. If you’re listening to this, I’m gonna be completely honest. 99.5% of you are not in the position to build a franchise today but I’m a big believer in the fact that if you are going to go somewhere Where you got to have that intention in mind. And then you have to take steps daily to put yourself in position for that goal. So if your goal is to expand out of one location and maybe go to two locations, or three locations, five locations, or hell maybe open a franchise and figure out how to do that. This is your podcast right here. And I’m a big believer in setting big goals and moving your direction towards them instead of setting short goals. I think the way the saying goes is aim for the stars and land on the moon instead of aiming for the moon and never getting out of the Earth’s atmosphere. However, it goes something like that. So anyways, really quick, Tom, why don’t you take it over and introduce yourself real quick to our guests? I mean, to our audience.
Tom Scarda [2:45]
Sure, absolutely. So I’m in New York. I’ve owned and operated franchises been in the industry for 20 years prior to franchising. I was actually a subway conductor in New York City. Opening and closing doors in New York City. subway In one day, and old timers said to me, Hey, you know what, kid, this is a great job because you’ll always have a shirt on your back. He said, it’ll never be a silk shirt, but you’ll always have a shirt. And I was like, wow, that’s mediocrity, man. And it took me like, literally 13 years. In that moment, I decided I’m going to be a business owner because business owners were disappointed shirt, if you will, they will live in the lifestyle I want to live. But trans work is we’re not I don’t have anything against trans work is I love them. I’m still friends with them. I wanted something more. So I got into franchising, and we’ll talk more about that.
Dan Uyemura [3:32]
Yeah, I mean, I think that’s it, that’s a, that’s a cool point that most people here will resonate with is that there’s a life of stability that’s out there. And I think 90% of the population that’s for getting your paychecks and doing your thing and playing your role in society and then 10% of the world like me, you and probably most of the people listening to this are more interested in carving their own path and reaping the benefits of you know, the work that they put out and I applaud everyone here for doing that. And that’s kind of the purpose of this podcast is to help you reap more for your efforts and ideally even put in less efforts over time, right? Allow yourself to scale.
Tom Scarda [4:11]
That’s the hope. Absolutely.
Dan Uyemura [4:13]
Absolutely. So, I originally brought or started talking to Tom, because I wanted to have a discussion about how franchises work and kind of dive into how private equity works and these big franchises that you’re competing against as a gym work. But in doing so, I kind of realized that it’s, it’s kind of a scarcity mindset to try and talk about how to pick apart your competition and worry about what they’re doing as opposed to focus on what you’re doing. But one topic I wanted to talk about just right off the jump is how how about like, my typical listener here owns one gym, maybe two, ideally, maybe three, but not more than much more than that. They’re a local purveyor of fitness, and maybe they have dreams of going bigger than that or not, but they are not orangetheory fitness, and there’s a lot of differences between my clientele and orangetheory Fitness. And the analogy I’ve been going to market with lately is basically it’s a David and Goliath scenario, right? You’ve got franchise franchises that are backed by big money competing again in coming into markets that a lot of single owner operators are running in. How do you see this this landscape playing out? And how do you see like my type this the audience, the typical audience member person here, competing in this market?
Tom Scarda [5:32]
So there’s, first of all, if you are a single gym owner, I congratulate you. Because, you know, like you said at the outset, you could just be a personal trainer, get a paycheck and be happy with helping people one on one. But if you’re choosing to own the gym, you know, I congratulate you for taking that on. And if you ever get a chance, I highly recommend a book called The E Myth by Michael Gerber. So in The E Myth, they talk about the difference between being a technician and your business. Maybe being the personal trainer in your business and being the business owner, two different mindsets, two different roles on a daily basis. And you can mix them a little bit. But in order to be successful, you need to be working on the business and not in the business every day. If you’re working with a client eight hours a day, you know, various clients doing Personal Training, you never have time to do a social media blast or or do whatever it is you need to do to, to, to expand your business. Right. I also want to make the point that orange fit orange theory as an example everybody’s talking about orange theory these days. Our theory was a single gym on by, I can’t remember her name, Natalie, who owned it. Before she sold out to the bigger conglomerate. She was just a gym. You know, she was just a gym owner. She was just a personal trainer open up. I mean, it’s possible you could do that. And we’ll talk about that and how that gets done.
Dan Uyemura [6:54]
Yeah, man. I mean, this is America. And I think that’s one thing. I want our audience to really grasp on to is, I mean, I mean, I guess you could be listening from outside of America, this is the free world basically. And you have the opportunity to take any vision and dream you have and expanded as far as you decide you want to. It’s just gonna be a matter of risk and how much you’re willing to put yourself out there and how hard you’re willing to work. Right. Yeah, so no, no, so it’s all good. So, I think that’s a really good point. And I and I, I do encourage you if you’re, if you’re running a gym, I’m not encouraging you to go and open a second gym immediately. I am encouraging you to pave pave that vision and put put it on a wall somewhere, write it down, like I want to own 14 gyms. I want to open a franchise, whatever it is, like dream big, and then figure out how to get there.
Tom Scarda [7:45]
Right. Right. So let’s talk for a second about the difference between doing it yourself and doing it the franchise route.
Dan Uyemura [7:52]
Yeah, well, actually, I want to put the global we’ll do that one second. I want I still want to dive into this David Goliath thing because we before this call, we talked about a person good analogy that I want to expand on. And you were talking burger shops right and that’s the same thing. Why don’t you give give the audience what you kind of talk to me about what the burger shops?
Tom Scarda [8:10]
Well, you know of a franchise if you think about a burger shop. Everybody knows McDonald’s no matter where you are on the planet right now listening to this, you’re not McDonald’s, and I got news for you McDonald’s does not sell hamburgers, they don’t sell french fries, they don’t sell shakes. What they sell is the dependability and reliability. Yeah, consistency. They sell the pizza when you go in and you own and you order a Big Mac, you know, you get into all beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun, period, you know it and so that’s what you’re buying. So if I’m in a car and I’m driving on vacation, and and I see two gyms one is orange theory, and one is you know, Joe’s local gym. I’m going to go to orangetheory Today only because I know what I’m going to get out. I don’t know, Jim, and I don’t know his technique of working out. I don’t know what that gym looks like what is so I’m just gonna go to what I know. That’s in essence franchise.
Dan Uyemura [9:10]
Okay, yeah, so the franchise model, they build that out, they build the brand, they build the image, they build the message in the tone, they build the consistency, right, you go to orangetheory you know you’re going to get on a rower at one point for 15 minutes, you’re gonna get on a treadmill probably for 15 minutes and you’re do some weights for 15 minutes, someone’s gonna be screaming at you and there’s gonna be dim lights and orange lights, and that’s all consistent right? Now. That could be that could be an Achilles heel if you do it right, because like, let’s go back to the burger shop analogy. I may want consistency one day, I also may want the best fucking burger I can get one day and I know that’s not McDonald’s. Right?
Tom Scarda [9:46]
That’s right. You hit the nail on the head. You’re exactly right.
Dan Uyemura [9:49]
So but the problem is if I’m if I’m if I’m either out of my area, or if I’m new to the area or if I haven’t done if I’m if I’m new to the market, right let’s This is more of the fitness center. Let’s say I’ve just never eaten a burger before. And I don’t pay attention to restaurants near me. And I’m like, okay, I want to I want a burger. I’m gonna go to McDonald’s because I don’t know anything, right. But if I’m familiar with the market, and I’m familiar with the area, and I’m familiar with the product scenario, then I’ll have a better ability to make a choice based on what I want. Right? Right. So this is why in the fitness space, it’s super important for you to be totally out there putting content out putting your message out, you have to build your brand, because you don’t have a franchise behind you. And like, like Tom mentioned earlier, you might have the best fitness training and results oriented system in your region. But if your people don’t know they’re gonna go to orangetheory. Right?
Tom Scarda [10:47]
Just by default.
Dan Uyemura [10:48]
By default, because that’s all they know. So what can a gym do? What can a gym owner do right now or a martial arts studio do right now, to compete against the big boy around the corner to let them know the differences that they hold and give their audience the ability to make a choice.
Tom Scarda [11:03]
Yeah, you know what I think it’s easier than you think. And I and this day and age, of course, with social media and everything, it’s much easier. The very first thing you need to do is is listen to a couple of podcasts or read a book on telling your own story. Let people know and people like, I grew up I went to, you know, I got a, what I call an a bachelor’s degree in physical science. I became a personal trainer, got together some money opened up a gym. Nobody wants to hear about that. No, we do want to hear about that. I want to know how, you know, Jane got from there to here. And now I’m buying Jane. I’m not buying Jane’s gym. I’m not you know, and that’s how you can really hone your message locally. And and people want to support their local business owners, and they want to get into your gym, but they need to know who you are. Once I know who you are. I’m so ready to do business with you.
Dan Uyemura [12:01]
Yeah, that could be the advice of the year right now, in my opinion. It’s like you said, it’s something a lot of people are humble about and modest about, and like, no one wants to hear my story. But you’ll be surprised. Like, when I actually tell the story of why I opened my gym, or why I started PushPress people stop what they’re doing and listen. And it’s because this is my opinion. And this is how I’m taking it. Everyone deep down inside, wants to start a business or wants to do their own thing, and they get inspired by somebody who does, right. And even if you’re your own gym owner, you still get inspired by the story that other people have in the path they took because you’re living that life too. So it’s inspirational no matter who you talk to, right. And it does create that emotional bond and gives them the information to know like, I want to do business with this person because I relate with them and they can’t relate with you if they don’t know you.
Tom Scarda [12:53]
Yeah, and that’s why I’m out there talking my talk, you know, I’m not you know, Nobody great. I you know, I’m a regular guy. I never played professional football. I never drove a NASCAR. I never, you know, I’m just a guy, but I was able to buy into a business. I was a subway conductor. I told that story for a reason that set up. So now you know who I am. And my father was a cop. I didn’t come from money. But I bought a smoothie franchise. And, and I was making per month what I used to make per year in my my job, but I worked my butt off. Don’t get me wrong, it was the toughest thing I ever did. But it was so satisfying. And that’s what you gym owners are all about right now is that that that satisfaction of changing someone’s life and somebody coming in, they’re overweight and you change I mean, that’s cool, tell those stories. People want to hear those stories, how people transformed how you transformed Why did you get into fitness, you know, tell that story? That’s gonna resonate.
Dan Uyemura [13:57]
Yeah, I was gonna bring that back up. I’m glad you touched on that again, like You opened with the fact you were a subway conductor. And I guarantee you are like if you’re listening right now, you probably stopped and went, this guy who’s going to teach me about opening franchises and understand it, you know, as franchise experts certified by the International franchise association was a subway conductor, opening doors, right? That like you have a story, hone it, write it down, practice telling it, make sure you get it out there, right.
Tom Scarda [14:28]
Part two, Dan, I’m interrupting you again. But I’m very excited to help gym owners because I’d love you know, I work out so I’ve been working out since I’m 14 years old. And I feel very strongly that you guys are really helping people in this nation, obese factors over to the roof. I mean, all that stuff. So you guys do great work. The thing that I like to also share that somebody kind of drew out of me I was embarrassed to talk about it is the first franchise I bought was through the roof. I killed it. I sold in 2005 bought a second franchise, which was what they called, make and take you come to our location, you make meals, you take them home, freeze them, and then you make them on a day when you’re busy. And you don’t have time instead of ordering and pizza, you can throw this in the oven.
Dan Uyemura [15:14]
I need that now.
Tom Scarda [15:15]
I wish we had it now. But in we opened it in 2006. Before 2008 hit it. We lost it. I lost almost my entire life savings on that business. That’s what made me a franchise expert. And I wrote the book franchise savvy about that. But my point being I that’s what made me an expert. That’s that’s the story I need to share with people. You know, yeah. So I was successful in the smoothie thing and I made money. No big deal. Nobody wants to hear that. But when I say I failed, I had the repo guy coming to get my truck. And I recovered from that. People who were like, whoa, wait a second. Yeah, tell me more about that I want to hear about that.
Dan Uyemura [16:02]
It’s super easy to be successful when when the markets are going up and everything is easy it to see somebody I mean, and on top of that people love failure stories. They love Phoenix stories rising from the graves. They like hearing people be human right like to have a setback to get punched in the face. I mean, it’s a common movie. That’s how movies work, right? Like your, yeah, your hero has a huge setback. It looks like everything’s going to end for them and they figure out a way to make it work. That’s the story that I mean. So right now we’re going through Coronavirus. I don’t want to date this podcast, but we’re right in the middle of it, right? A lot of gym owners are like, oh, man, this is terrible. But I promise you if you get through it, and you start telling the story about Oh, remember the lean times when I was doing remote coaching and I was doing this and I was doing that and I barely got through and here I am today and I’m still alive. People will hold on to that story. It will be big. Right? Right. Okay, cool. So okay, let’s let’s move past that the point I want to make is your story is super important. You actually have a massive advantage over the franchises that are coming into your town because your your story is personal their story is not right, their story, their selling reliability and what was the word I use earlier? Like? dependability, consistency, consistency, right? Yeah, there’s there’s selling something that you have been the message has been pounded in your consumers head. What an orange theory is what an F45 is what occurs is they all know what that is through. You know, all the money that’s been spent on marketing. You need to compete with that you need to get your message out in other ways in more cost effective ways and make sure your audience understands what you’re selling, and why it’s better because it is and and work in that direction. Okay.
Tom Scarda [17:47]
And it’s not vanilla. That’s the last thing I want to say.
Dan Uyemura [17:49]
Yes, exactly. You’re selling birthday cake ice cream, and they’re selling vanilla, right. So that’s that’s a huge takeaway right now, right off the bat, but where are we Rule what we got together to talk about was putting your eyes on the future putting your eyes on. Fuck it, let’s just say it like opening becoming orange, the next orangetheory turning your training facility and your training mechanism into a billion dollar company because it’s in it expands to 1000 locations over three years. Right? That seems crazy. But if you don’t set your sights on that, you can’t even come close to that. So, Tom’s the guy to talk to you about this. So if I opened a gym, and I woke up one morning, and I’m like, you know what, my stuff is better than everything else out there. And I want to expand to all of SoCal by the end of the year, all of California, all of California, Nevada and Arizona by the end of next year and nationwide by the year after that, what do I got to do?
Tom Scarda [18:43]
So, um, you know, I love franchising, so, you know, yeah, everybody has these vanilla boxes, I get it in these gyms. There could be some personality to it. The franchise owner could put their own personality in it. But let’s talk About how you’re going to build the next giant Planet Fitness, you could do it. All of these businesses started from one. So there’s two ways to expand the business. Either you do it yourself with your own money, or you do it with other people’s money. That’s called franchising. That’s the definition of franchising, by the way. So it’s really, really simple.
Dan Uyemura [19:22]
So to jump in really quick I if I can get these analogies, right, I think Starbucks is not a franchise, right? Okay, so with the exception of maybe their Albertsons and Ralph’s type locations, but they Starbucks has done the first part of what you’re talking about, they’ve built the company to where it is owning every location that they’ve built.
Tom Scarda [19:41]
Dan Uyemura [19:42]
Right. And on the other hand, like Jamba Juice is a franchise, and they’ve opened up a model where as an investor, you can open one and pay them money. F45 is a franchise, right?
Tom Scarda [19:54]
Dan Uyemura [19:56]
Okay, keep going. I want to make that distinction to people.
Tom Scarda [19:59]
Yes. Very well said. And the bottom line in my opinion is you could go and open up your own places, you go to the bank and you’re going to get loans and you got to expand that you’re going to put your brother in law in the first place, you’re going to put your neighbor in the second place, and it’s not a franchise is much easier to operate, to get to be a franchise, you do need to start with some money. So you need to have your systems in place you’re going to have to have in franchise Handbook, you’re going to have to somebody who’s your blueprint is your baby, but they’re signing a contract that says that we’re going to abide by these rules and I’m going to pay you X percent. Right now. It’s about 7% of gross sales back to you on a monthly basis for your help, because of the great, you know, system that you have whatever that system is. There are companies that will help you hone this and And make it and really make it franchise a bowl if you will. Now, the thing that’s interesting is that the franchise industry is regulated heavily by the government. So the Federal Trade Commission oversees franchising, and I’m not to get too much in the weeds or bore people, but every franchise no matter what it is, if you want to sell a franchise in America, in any state, you have to have what’s called the Franchise Disclosure Document. All that is is making the company transparent, telling, you know, the buyer, what you’re going to provide, tell them what their parts going to be. But also if there’s any litigation in your history, if you ever had a bankruptcy, all that has to be disclosed, according to the Federal Trade Commission.
Dan Uyemura [21:43]
Um, is that stuff public or is that only made accessible if you’re like you’ve gotten into the funnel of becoming a franchisee?
Tom Scarda [21:52]
Good question. You could buy these fdds on some sites, or you go to the state of California is website california.gov. They haven’t the FDDs they call them for sure the Franchise Disclosure Documents for any franchise that’s being sold next day, which is almost every franchise. Um, but that’s that, you know, the other thing is is that if you’re looking at buying a franchise you have to have that document in your possession for two weeks, 10 business days give or take a changes by state but but you have to have that document before you permitted to sign a franchise agreement. There’s that due diligence window and so it cuts down on the buyer’s remorse and, and and scam kind of sale the high pressure sale gets thrown out the window with that and the government regulates that.
Dan Uyemura [22:46]
Gotcha. Okay, so I guess kind of going down this route I either way if you want to own all the locations yourself or if you want to end up franchising, you have to get to a point where I think this manual you’re talking about that you would hand out to somebody to operate has to be in place. Like there has to be a playbook that basically defines how to run this business, to a point where any outsider can come in and run it, whether it’s someone you put into place and you fund or someone else buys into, right, so that that seems to be a very key central point. So all your operations have to be documented and streamlined. Right?
Tom Scarda [23:24]
Right. Just make believe. So start I mean, take out a notebook, you know, and every day, you know, as you’re driving to your gym, this is what I do. I wake up and I get to the gym, I turn the light on. I turn the switch on for the air conditioner. I you know, whatever it is, I mean, yes, we that mundane, so anybody could walk in and just follow this playbook and walk around the gym and you know, to put it in very simple terms that would be that defined.
Dan Uyemura [23:56]
And it seems ridiculous, but really, it’s like, if you want Like put it this way, even if you never expanded your gym, but you wanted to go on a vacation for two weeks and not have to worry and you handed and you hired even a babysitter to come in and take care of the gym for two weeks. If the manual has to be so detailed that anyone can step in and be able to figure out what to do in any circumstance and how to hand how to open how to close how to sell a membership, how to cancel it, you know, everything has to be on this manual.
Tom Scarda [24:25]
All of it. And then what’s good about a franchise if you bought a franchise, but you have to be prepared for as a franchise owner. It just comes with experience of course if you own the franchise outfit, so you tell them all that stuff, but then there’s stuff that does that Coronavirus happens or they decided they’re gonna change all the sewers on the street of your gym and they’re gonna rip up everything and now there’s no parking or anything. Now you call the franchise or or if you’re the franchise that your franchisees are going to call you and you got to have answers. And so, you know, just as an example, with this pandemic that’s going on. The International franchise association is a giant multi million dollar umbrella over all of franchising. They’re handling all the SBA stuff for us to do and everything. You know, it’s we literally have lobbyists in Washington for the IFA and, and a lot of what got put into the SBA loans and all that stuff was all because of the franchise Association. You know, because whatever is good for franchises good for small businesses.
Dan Uyemura [25:32]
Well, we thank you for that service.
Tom Scarda [25:35]
Yeah, no, it was really a he wasn’t me at all. But, but I was in meetings. Coincidentally, I happen to be at a franchise conference about a month ago, three weeks ago, and the lobbyists were there, they were going to do a presentation for us. And all of a sudden it became up to up to the hour updates and what was going on on Capitol Hill with as all the stuff was being shut down. We didn’t have any effect. Think about Oh, you Release ago there was nothing going on. Yeah, it’s pretty crazy. Yeah.
Dan Uyemura [26:04]
Right. Okay, so yeah, and if you’re if you’re out there right now, and that seems very intimidating to you, it you know, to document everything you’re doing. Just try it. It’s really all in your head already. You’ve already just naturally worked through all of these things. And the problem with running a business where you’re the only one who understands how everything works is just that, like, you’re the weakest link, right? You’re the only one who understands how everything works. So if you feel like you’re swamped, if you feel like you’re overwhelmed, or you can’t get anyone to do anything, right, or whatever, you have to document everything and start delegating things to people. Now, again, this is why I like this process. Because if your end goal is you want to have 20 locations, you have to start with being able to give a job to a person, right? It just starts to that simply. And unless you look at things from that lens, where this is my goal, and these are the things I need to do to get there. You’re never going to do it. If you’re never going to write down all your documentation and start having people do work for you. And it’s a huge flywheel. It’s a huge snowball, right? Like the minute you get someone else to do some work for you, because you’ve documented that job, you can document another job, you can spend that time document other job, get someone else to help you. And then you can take both of those jobs time and start working on marketing or content and then you get more clients and more money and you start working on planning for something else. And you flywheel this thing instead of continually being stuck in this process of doing personal training for eight hours a day.
Tom Scarda [27:29]
Right. Right. And, you know, let’s talk about the downside of being a franchise owner and being a franchisee you know, the franchise company, because it’s not all, you know, I mean, the first five years is a startup just like any business. So, your your, you got to hire a lawyer to write that Franchise Disclosure Document for you. So that’s going to run you know, thousands actually $50,000 probably. And now you’re open, you’re established. You’re recognized as a franchise by the Federal Trade Commission. Now you have to sell franchises. So why is somebody gonna buy your gym instead of orangetheory or instead of Planet Fitness or, you know, whatever it is, so, um, so a lot of marketing has to go into that part of it, so that it gets expensive. The cost of acquisition for a franchisee somebody buying a franchise is you know, 10,015 up to $20,000 cost of acquisition.
Dan Uyemura [28:34]
That’s just a buy in.
Tom Scarda [28:36]
That’s that’s that’s for you to sell a franchise.
Dan Uyemura [28:39]
Oh, I see. I see. I see.
Tom Scarda [28:40]
That’s where you get to sell the franchise is going to cost you $20,000 because you have to do also marketing and you’re going up against not only every other fitness franchise, but every franchise. So like, you know, if I’m a middle manager do fitness franchise or do I want to buy you know, five guys burgers and fries. Um, so there’s a lot to think about in that realm. And then one of my friends really said it well, opening a franchise and this this probably shut everybody down right now, but I have to share with you because I want to be transparent. When you start a franchise. It’s like marrying someone who has six whining kids. You go from single to six wanting kids overnight. Right? So that’s so you know, you’re, you’re the you’re the guy, they’re calling you. This is not working that didn’t how do you do this? That’s not going on. Wait a while, you know, and, and your, your support mechanism. That’s what they’re paying you for. So that’s the downside. The upside is eventually somebody will hopefully come to you because you got a great concept. You might have 30 units open. And someone’s going to write you a check for 10 times your EBIT ah as a as an investment firm and buy you out and turn you into the next orange theory. That’s how it happens. Right?
Dan Uyemura [30:06]
Okay, so let’s let’s kind of step into that since you kind of talked about this leading into this. Why don’t you discuss the pros and cons of franchising? Or have you kind of just done that?
Tom Scarda 30:17
Well, so I kind of hit on it a little bit, that so only to be the franchise or right so you’re a gym and you want to start selling franchises of your concept. The downside in my opinion is that it’s a long ramp up is, you know, what happens is you’re pouring money into it until you hit around 100 franchises. When you hit 100 franchises, now you’re living on the stream of royalties coming in. So 100 franchises are paying you 7% of their gross sales on a monthly basis times 100 So that could start adding up to $9. Now move it to 500 units you have now that are paying you 7% of whatever it is, what do you make now, if you make a 500,700% of that 500,000 a year 7% of that times 500 of those, you’re making some nice money. That’s the that’s why people do it. Then the equity firm comes. And then they say, well, you have, you know, X amount of franchises. And and it’s guaranteed, by the way, so when you sign a franchise agreement, if I buy your franchise, I’m guaranteeing you royalties for a 10 year period that’s in the contract. And it’s usually what they would they call personal guarantee. So if you’re not doing well need to get out you’re selling whatever but but if you’re in a franchise, it’s an annuity for the private equity firm. It’s one of the best deals that they buy is a gym because it’s a membership.
Dan Uyemura [32:09]
So let’s let’s actually dive into this, um, this is interesting, you’re signing a 10 year contract for, like, let’s say 7% of my end where my monthly revenue goes to the franchisor what happens in year 11? So I get to keep it?
Tom Scarda [32:24]
You keep it you renew, usually pay a very small fee. They do paperwork and now you got another 10 years renewable contract usually for three 10 year terms.
Dan Uyemura [32:36]
And it will be 7% again?
Tom Scarda [32:38]
Um, it depends on the contract. Usually it goes down, whatever is in place, a lot of times it goes down. Absolutely.
Dan Uyemura [32:48]
Okay, but they’re still getting they still have their hooks for some royalty ongoing if they’re using to the brand.
Tom Scarda [32:53]
There’s always hooks for that. And there’s, you know, a lot of franchise owners veteran franchise owners I would say that that’s the downside to franchising. So I’m in this thing seven years or 10 years or 12 years, I still gotta pay these guys, you know, and I don’t really need them because I know what I’m doing.
Dan Uyemura [33:09]
Because after the first two years, you kind of figured it all out.
Tom Scarda [33:13]
Right? Yeah. So, but you’re kind of like stuck. Now, of course, you could sell it digitally a non compete for a year or two, you can’t go back into the gym business. But, you know, but you can in other ways, you know, whatever. But I don’t want to get into all those legal. Yeah. But it’s, the thing is, one, when the equity firm comes, and they want to buy you out, you’re going to get round numbers, about 200,000 for every franchise owner in your system. Plus goodwill, equity, you know, other things, but you could either make a pretty penny out of it, and then go do something else.
Dan Uyemura [33:55]
Right. Okay. All right. Cool. Um, let’s talk about myth busting and franchises. That was a topic I wanted to touch talk on. Is there any any myths that you see out there that people have this preconceived notion like Like for instance, I’ll tell you this on the gym side, a lot of people will come into like a small gym. They’ll do some quick math and be like, oh gym owner this guy’s got must have 200 members they’re paying him must be 200 bucks a month. This guy’s making $40,000 a month Why isn’t he driving like a Rolls Royce or whatever, but they don’t they don’t understand like that simple math doesn’t hold up. Are there any myths in the franchise world that like? Like, I’m sure people have the same type of simple math type situations and stuff.
Tom Scarda [34:37]
Well, it’s expectations right? So people feel like Allah if I buy this franchise, I’m going to be successful just because it’s a brand name, it says franchise. And that’s like saying, I’m gonna join a gym and get in shape. Just because I joined the gym. Um, you can’t you got to do the work. It’s business, whether it’s a franchise or not. It’s really the same amount of work. The only thing that you have as a franchisee is it’s a business with training wheels, there’s somebody to hold your hand and somebody to ask questions of your other fellow franchisees are willing to help. You might trade employees, you have a slow day and the other person doesn’t, you know. So, advantages like that. I think the biggest myth is that you’re tied to the store, you know, all day, seven days a week. And there’s nothing further from the truth than that. They teach you how to scale it, they don’t want you to be in that business. They want you to be working on the business. They don’t want you to be training people. Yeah. And also money wise people like, Oh, you need a million dollars. I could never do that. And it’s not I mean, you know, there’s franchises you can open for as little as you know, $25,000 if you you know, and you know, those are more like hobby businesses, but, you know, open up a boutique gym, you know, 200,000 Not a million.
Dan Uyemura [36:00]
Right? Yeah. Okay, so let’s say there’s some owners right now listening to us who kind of want to set their aspirations high that want to either at least put it in this in the universe that they want to open a franchise or become a, you know, a major regional player, nationwide player in the fitness space will be the first steps that you recommend that they do.
Tom Scarda [36:20]
Well, the very first step is to look at the franchises in the fitness space and see kind of what they’re doing. You could get involved without being a franchise in some seminars that teach you how to franchise your business. Those are often held by the International franchise Association. There’s also some franchise attorneys that will franchise your business for you that hold these seminars and I go to I attend those two help people and then answer questions and it also will We talked about before start writing down every little system, everything that you could think of, and if it doesn’t have a system make a system for it. And there’s so many different, you know, there’s like 17 different things to run a business that you got to be thinking about, I mean, literally 17 so you need a system for all of it really, to make it work. But in addition is companies that will help you franchise out your business, and they take an equity stake, like 1% of the business, they’ll sell the franchises for you. They’ll give you all the advice that you need for a back end equity stake in the in that business.
Dan Uyemura [37:40]
Right. Okay, cool. Any, any books that you recommend people listen to and again, this doesn’t have to be specific to franchising more just expansion or systemization things that we get along the path of expanding.
Tom Scarda [37:59]
So on I don’t know if anybody wants a copy of my book Franchise Savvy, which has some of this information in it, but not all, how to franchise your business. Surely my story, I’ll give anybody, any of your listeners, I’ll give them a copy for free, a real copy, not a downloadable copy, and then email me at Tom@thefranchiseacademy.com. Again, Tom@thefranchiseacademy.com today, you heard me on this podcast and I’ll give me your address and I’ll send you a free copy of my book.
Dan Uyemura [38:30]
That’s super nice gesture, Tom. Thank you.
Tom Scarda [38:32]
Oh, that’s that’s because you’re a super nice guy. So I appreciate you having me on. That’s my little Thank you. I want to recommend again, The E Myth by Michael Gerber. I don’t think there’s a more important book to read before you start franchising. If you did want to find out the real nuts and bolts is a book called So You Want to Franchise Your Business? The author is Harold Kestenbaum. Harold was at An attorney for in House Counsel for a little outfit called subway 30 years ago. So he’s been in this racket for 40 years. The book is great, really well done. So You Want to Franchise Your Business Howard Kestenbaum it’s a great one to read. My personal favorites you know, um, anything by Steven Pressfield the the War of Art…
Dan Uyemura [39:29]
Oh I’ve heard about that recently the War of Art.
Tom Scarda [39:32]
Dan Uyemura [39:33]
I haven’t I haven’t read that one yet. But someone else on the podcast recently just said recommended that as well.
Tom Scarda [39:39]
I highly recommend that book. And I’m not like an avid reader. I’m not one of those people that read a book a day or book a week or book a month. I try to read because we you know, readers are leaders as they say, but um, that book I read in like two days. It’s short, it’s sweet. And man, it is so good. I can’t I could. I do. Did my own podcast just on that book?
Dan Uyemura [40:02]
I’m gonna buy that right now.
Tom Scarda [40:04]
You definitely need to buy it right on. Steven Pressfield Steven actually endorsed Franchise Savvy my book, so check that out.
Dan Uyemura [40:12]
All right, cool. I mean, I’m I’m a huge believer in books and reading and podcasts and basically absorbing any information that you can get from people who have liked, you’ve spent, you know, half a lifetime now, dealing with franchises and stuff. So anytime you get the opportunity to absorb someone’s like life work in two days, like if you wanna talk about efficiency of learning, that’s the way to go. You won’t be perfect, of course, but you’re gonna get like, you know, 80% in 20% of the time, and that’s always the level of efficiency I’m looking looking for myself. So, on that note, are there any podcasts that you listen to regularly that can help people along these along these same routes?
Tom Scarda [40:53]
Um, you know, anything by Tim Ferriss, you know, Four Hour Workweek, The Tools of Titans. I mean, great stuff. His podcast is phenomenal. So many great leaders on that podcast and so much information. It’s just, I just walk away from those and just shake my head like, Wow, I can’t believe what I just learned. These people are so inspiring. So I definitely recommend that that particular podcast. I can’t think of any really, I mean, I have a podcast Franchise Savvy. And it is geared towards franchise owners. People looking to buy a franchise but also people wanting to franchise your business. I have some franchise attorneys on there pretty often actually.
Dan Uyemura [41:41]
Awesome. Yeah. So if you are thinking about you know, at least exploring this, maybe check out that podcast, poke through some old episodes. See if there’s any topics that make make interest of you and see if this is something like it’s great to explore right like let your mind wander if this is the direction you want to go or no.
Tom Scarda [41:59]
For everyone, so you know, you got to know what you’re getting into before you go down this road. There’s a lot to franchise you got to really know your stuff.
Dan Uyemura [42:06]
Yeah. All right, any parting ideas, thoughts, concepts you want to drop on any gym owners out there.
Tom Scarda [42:13]
But my biggest thing really is the advantage that you have as a single unit or maybe one or two three unit local operator is is that it’s your blood sweat and tears right there ain’t nobody out there that’s gonna represent that better than you. So get out there tell that story and do just do a lot of networking even though you have to do it at six feet distance these days. But um, but get out there tell people who you are what you’re doing and it’ll sell.
Dan Uyemura [42:44]
Yeah, I think I think that is going to be the biggest takeaway from this podcast and I appreciate you so much for coming on. Really good episode. And yeah, man. Best of luck with all this Coronavirus stuff going on everyone out there. Thank you. Give Tom Scarda a huge thank you for coming on The gymOS Podcast today. Our mission here is to help make better business owners out of fitness professionals. And I mean, this is just such a huge topic in that because if you want to think about scaling your business beyond just one location, it’s going to force you to become a better business owner or you’re gonna fail, you’re gonna fall flat on your face. So my official recommendation for most homeowners is like you don’t want to start opening a second gym until you’ve really worked through a lot of systems and processes and figured a lot of things out. But if you at least set that intention, you can begin to start thinking about things that way. All right, Tom, thank you so much for coming on. Appreciate your time and everyone out there. He has made a super generous offer to send you a copy of his book franchise savvy. If you email him at his at Tom@thefranchiseacademy?
Tom Scarda [43:51]
Yep, thefranchiseacademy.com Great.
Dan Uyemura [43:56]
All right, Tom, thank you so much for your time and we will see you later.
Tom Scarda [44:00]
Thank you, Dan.
Dan Uyemura [44:05]
Boom. What do you think? Man? Again, I think we unpacked there probably one of the biggest takeaways of 2020 that we’ve had so far on this podcast in the fact that man, your story is everything and your story is what is going to get you. Above and Beyond the definitely above and beyond all the franchise fitness competitors and big box fitness competitors in your space. I think it’s so important to understand that a 24 Hour Fitness and an F 45 cannot tell the same story that you can and all things being equal your your market, there’s a certain percentage of your market that will gravitate towards your story versus an F 45. Just like you would gravitate towards a well built hamburger or a boutique coffee versus McDonalds. Starbucks. So I mean, if you relate to that message, then you’re your own target market. You understand it. There’s times when a Starbucks or McDonald’s comes into play. I mean, McDonald’s a bad example, because it’s fast food. But there’s times when the Starbucks comes into play. And that’s like, if you’re driving across country and you don’t know what coffee shops are around, you know what you’re going to get with Starbucks every time. And that’s why people kind of will gravitate towards 24 Hour Fitness. But imagine if you had the ability driving across America at in any city to immediately know what the best coffee shops were, if you were into coffee, you would never go to a Starbucks, you’d always choose something that’s better. So I think that’s just a huge concept to understand that your story matters and getting it out there matters and getting out and meeting people and telling that story matters. And start doing that. Now. Blog podcasts, get out, meet people. Fist bump, don’t shake hands anymore. Network. Get out there and tell your story. Alright guys, I hope I hope this helps. Cast help you help see you. Help, do you guys see a few things. Another another big point was, you need to think big and aim for the stars so that even if you fail, you’ve gone pretty far. If you’re, if your goal is to become more than one location, you have to have that site, always in mind and act accordingly. And the first thing you’re going to have to do is start planning, how to systemize every process, so you don’t have to do it anymore. And you can start hiring people. The next problem you’re gonna have is how can you make enough money to hire the people to do those jobs so that you’re not spending more money than you make? These are all just fundamental things in the business that you’re gonna have to start stepping through. And honestly, if you want to become 100 locations, 20 locations, two locations or one location, the sooner you figure that out, the better business you’re going to have. Alright guys, so if you’ve figured something out in this podcast, if we brought some value to you, this is the ask. I ask that you like Subscribe to our podcast it would really help us to continue delivering high value content and bringing the best guests that we can onto this show to bring you, the gym owner. Some really good tips, tactics and advice on how to run your gym better. So please do that. If you can leave us a review, subscribe to this podcast where everywhere you like to listen, iTunes, we’re on Spotify, we’re on every other platform that there is out there. And until next time, you guys keep writing on your business and we’re gonna keep working hard to support you. Catch you later.
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