Fingers burnt, lessons learnt
A cautionary tale from the world of fitness franchising
Earlier this year the team at New Zealand chain Club Physical experienced what many club owners would consider a nightmare. To help ensure other fitness business owners don’t find themselves in a similar situation, Paul Richards recounts the events that led to him fighting to retain control of the brand he had built from scratch.
I founded Club Physical in 1981 when I renovated an old athletic club. The early years involved incredibly long hours, no days off, and no salary to speak of – it’s a story familiar to many passionate fitness professionals who have pursued their vision of opening their own club. Since then, Club Physical has grown to become one of New Zealand’s largest privately owned health club groups, employing around three hundred people at 10 locations, several of them franchises.
A new franchisee
Three years ago the franchisee at Botany requested to sell his location to a visiting South African contact, Stuart. My wife (and Club Physical co-founder) Tina and I met with Stuart and his wife and they seemed like a nice couple. Stuart said that he was a successful businessman in South Africa, employing over 8,000 staff, but like many of his countrymen he was eager to leave and to apply for New Zealand residency. As part of this application, it was vital to Stuart that he had our support and that he was able to have a positive impact on the business. After consideration, we gave the green light for him to buy the Botany club from the franchisee.
Stuart knew little about our industry, but said he did have a passion for fitness. Fortunately, the club had a team of well trained professionals and Club Physical offered a strong support program with monthly marketing meetings, and on-call operations, sales and service guidance.
After his initial twelve months at the club Stuart made enquiries about purchasing a second location, Club Physical Three Kings, which he did. A few days after the purchase, however, we were shocked to discover that the team at that location had been asked to sign an employment agreement that also required them to not speak openly with the Club Physical Operations Team when they visited.
We were told this was because the new owner didn’t want ‘interference’ as he felt that the Operations Team visited too often and exerted too much influence on the team. (Interestingly, more recently in court the Club Physical Operations Team was accused of not visiting enough – a contradiction that our lawyers quickly highlighted.)
Over the next twelve months the team in Club Physical Support Office was in regular daily contact with Stuart, who sent a number of daily emails requesting assistance: ‘We always gave Stuart priority’ says Club Physical general manager, Derek van Beynen.
Similarly, Tina, whose role it was to supply the clubs with trained instructors for the extensive group exercise program says; ‘I would put Stuart’s clubs before our own. If someone was away sick on his club schedule, I would replace them first, then work on our own clubs.’
In May 2011 Keith, the Westgate franchisee, met with Stuart to discuss a sale and purchase agreement. Stuart then approached us to request approval for a third franchise. By this time, however, our experience working with Stuart had made us reluctant to approve this. He made it known that he was very unhappy with this decision, so we arranged a meeting at which we cited his abrasive business manner as the reason for not wanting to grant a third franchise. He apologised, said he was still trying to fit into the Kiwi culture and way of doing things, and said he would be more aware of his manner in the future. The meeting was positive and, giving Stuart the benefit of the doubt, we approved the third franchise, giving him three branches around Auckland, strategically West, central and South.
Unfortunately, Stuart’s way of communicating didn’t improve, and the volume of emails appeared to increase. It was now mid 2012 and Stuart asked, as a final step towards his New Zealand residency, if Club Physical could write a testimonial for him, which we duly did.
At this time a couple of unusual things happened. At the November marketing meeting Stuart introduced his father, who he said was visiting to help with ‘some business’. He then failed to attend the January marketing meeting claiming he was busy with a business meeting. Then he proceeded to urge Derek, Club Physical’s general manager, to quickly update and check all of the maintenance on the machines and equipment at Stuart’s three clubs.
‘I felt like I had been stabbed in the chest’
At 4pm on Friday 8 February 2013 I received an email with the subject line ‘Cancellation of three franchises’. As I read it I felt like I had been stabbed in the chest. The email had obviously been timed so it would be difficult to meet with solicitors before Monday.
At 4:30pm Tina telephoned me demanding to know why she was being refused entry to Westgate gym, and why she was being informed that it was no longer a Club Physical gym and that her services were no longer required. Tina and I had originally mortgaged our home to fit-out the Westgate club several years prior, and although it was franchised, Tina liked to go the extra mile and promote new classes and programs at the club.
On that same day, new signage was being simultaneously erected at all the locations franchised by Stuart. Our first thought was, ‘how can we communicate this to the members and the team?’ Members would be arriving at the club, bewildered to find it completely rebranded. That night we stood around the kitchen table with our kids and decided that the best thing to do was to place a frank and honest post on the Club Physical facebook Page.
Initially the three page letter from Stuart’s lawyers looked daunting. Yet upon studying the reasons given it was realised they were very weak, partially untruthful, and featured several exaggerations and some contradictions. Club Physical’s lawyers immediately applied for an interim injunction. It was a stressful eight weeks, but we won.
Club Physical’s facebook Page and subsequent updates drew the attention of tens of thousands of people. Business and franchise groups from around the world called for interviews and updates. Progress with the lawyers and the court was updated daily in the New Zealand Herald and myself, Tina and Club Physical members were twice interviewed on the prime time current affairs TV show Campbell Live.
It was a difficult and stressful time, and several ‘stays’ were granted to enable members to continue using the clubs while leasing issues were sorted out. On 27 March an agreement was arrived at, and the ownership of Three Kings, Botany and Westgate clubs was transferred back to us, the founders of Club Physical.
We are now taking full advantage of this situation, viewing it as an opportunity to ensure that each location has the very best possible team of people – people of integrity with a passion for wellness. We’re sad for the team members caught up in the situation, but we realise that there’s more to be achieved by looking forward than looking back.
Important lessons learnt
The lessons myself, Tina and our team have learnt from this experience have been remarkable;
- Fight for what you believe in. On the night of 8 February, with the thought of legal fees and the associated stress, I was ready to turn away and take it on the chin. But I sought the advice of several wise people in my life and they all said ‘FIGHT!’
- Trust your instinct. While we are a lot less enthusiastic about franchising, we are actually more motivated to grow. We have thought a lot about the power of the ‘gut feeling’. This applies to hiring a new staff member or taking on a franchisee. From now on, if our core management team doesn’t have a good gut feeling about someone, we won’t be doing business.
- Implement strong agreements and rigid checks to ensure no compromise with systems. For years we have attended both FILEX and IHRSA and as a result were able to develop many successful systems. The previous franchisee had not been following these and this was a source of constant stress within our group. Then, because his business wasn’t as effective he pressured us to resort to price-discounting. Now we’re training those teams as fast as we can to bring them back up to speed. Never compromise the systems you believe in, and have an agreement that is strong enough to prevent those you are working with from re-interpreting the ‘rules’.
- Train your team. As a result of the above we have become re-enthused and somewhat zealous about training our team with regular updates, and regularly hiring guest presenters.
- Appreciation and dedication. For years Tina and I have known that when we work hard on any project in the gyms, the only ‘well done, you’ve done a great job’ usually comes from one another. But pretty much for the first time, we have been overwhelmed by positive support, encouragement and endorsements from numerous members. Now I know that members appreciate what we do it has greatly boosted my own commitment to honouring them in return by giving the best service and facilities that we can.
- Use facebook. I was personally frustrated with the focus on social media at Business Roundtable, FILEX and IHRSA. Weren’t we trying to get people away from sitting behind computers? I didn’t like or know how to use facebook. But this was a David and Goliath situation. The opposition reportedly had millions of dollars behind them. We did not. How could we communicate to the mass? I immediately became conversant with facebook and have never looked back. Its impact is immediate and at almost no cost. I also believe that YOU, the club owner should be involved with this ‘daily’.
- Solution for stress. I learned many years ago that the solution for stress was to workout. Throughout this period I never compromised my twice daily workouts. I always advise this to others – never compromise.
- Faith. Finally, on a more personal note, we found advice and wisdom in the Bible. While we were on the cliff edge, Tina and I read it with increased passion and discussed its relevance to the problems we were experiencing.
Franchising is becoming increasingly popular in the fitness industry, and it can be a mutually beneficial arrangement. Both parties, however, should exercise due diligence, and trust their instincts regarding whether the business relationship feels right for them.
Paul left school at the age of 15 and didn’t voluntarily read a book until he was 25, when he picked up Napoleon Hill’s 1937 classic Think and Grow Rich. Since then, reading and learning has been a passion. After ‘kidnapping’ Tina to prove a point, she agreed to date him – it worked and, happily married, they have five daughters and one son. Most of the family have black belts in taekwondo and karate and workout twice daily. Paul and Tina now own seven health clubs, franchise two and license one.