Transcript of Franchising Secrets Behind $60M+ Net Revenue, Growth Without Guesswork - Michael Ramsey

Welcome to The Proven Podcast, where we don't care what you think, only what you can prove. Less than half of all franchises ever reach 25 locations, and only 5% make it to 100. Michael Ramsey, co-founder of Strong Pilates, got there in 7 years and now runs 120 locations in 15 countries. Today, he explains how to pick a franchise that lasts and why AI could push a lot of people toward owning one. The show starts now. All right, everybody, welcome back to the show. Michael, man, I'm excited to have you on.

Mate, it's good to be here.

So I wanted to chit-chat about the people, uh, because a lot of people don't know who you are. They don't know what you've done. Give them a quick debrief. Who are you? What have you done?

Yeah, I think the most relevant thing here today, I, you know, I own a franchise. I started 7 years ago, co-founded it. Today we have 120 locations in 15 countries. We do about $75 million per annum, and we're scaling quickly across the US. I think the most important thing in this conversation is that I'm a huge advocate for franchising. You know, I opened my first franchise at the age of 26.

Mm-hmm.

Um, I scaled that with my business partner who's still my business partner today, over 12 years. We scaled that to 6 franchises and then, you know, we got the multiple, got the exit. And the reason I'm advocating for franchising so much is I remember, you know, 26 years old trying to climb the corporate ladder. I'm a marketer by trade. You know, I'm, I'm, I had no financial freedom. I had no, and I think that's what, you know, financial freedom just means time, right? I had, I had nothing of that degree and I was sort of trying to drive further and further in my career and I really wasn't getting anywhere. And what franchising did was give me the opportunity to finally hit my financial goals. get some time back and actually like become really passionate about business. So, you know, this is why I like to have these conversations because it's something that changed my life and now I'm trying to do the same for other people.

One of the things we were talking about before we started recording is why franchising is going to be so big in the future. And a lot of that's because of AI. And I think what people don't understand is some huge things about AI that people don't understand. First off, AI does not stand for artificial intelligence. It stands for always incorrect. So get that out of the way right now. The second thing is that AI is to us as the asteroid was to dinosaurs. It is going to completely wipe out employment and it's gonna be wild. But we've done this before. This is, you know, this is during the Industrial Revolution. We had massive changes during the tech boom. We had massive changes when we went from being nomadic to, you know, agricultural-based. These are things that we've done a lot of times. However, I believe it's going to change the entire platform. We were talking about this offline. Could you speak to how you think AI is gonna kind of change the ballgame and why franchising matters?

Yeah, I mean, there's already almost 9 million jobs in franchising in the US right now. You know, franchising accounts for about 3% of GDP in the US. And I think, and I'm already seeing this in my own business where there are, there are roles that you simply don't need a person to do anymore. And it's not that they're unskilled roles. These are very, very skilled roles in areas like legal, marketing, You know, copywriting, there's, there's a lot here that seems to be just getting swallowed up by AI. I think, you know, not only are we seeing from a franchising perspective, jobs growing year on year and compounding, but I think what we're going to see is very intelligent, very well-educated people that are no longer going to have positions and, and they're not going to be able to make similar income to what they're making. So this is where I see Franchising coming into play. You know, I think these people will have business experience, but they won't have experience in running a business. Best part about franchising is you are given all the tools. You know, you launch with a great franchise. You've got the brand equity there.

So you've obviously got an existing client base that will come and see you. And very, very quickly, you can make money. You can scale that business and you can do quite well. So I think, you know, in probably 2, 3, 4 years' time, when jobs are being made redundant, people are going to look to franchising. And, you know, a good question to ask, I guess, and I don't know if you have an opinion on this, Charles, but, you know, what, what do you think is the benefits of, you know, starting a franchise compared to say starting your own business? Right. Because there's arguments for both, you know, I could just start my own business or I could. Yeah.

So I think there's, there's a huge difference that most people don't understand being an employee. is very different than being an entrepreneur. And transitioning over is the equivalent of saying, hey, I'm an ice skater now. I'm going to start swimming. Yeah, you did deal with water at some point. One was in a frozen state, one was in a liquid state. It is not the same. The people who are employees should not be entrepreneurs. And entrepreneurs make really crappy employees. We do. We have problems with authority. We think we're better than everyone else. It is what it is. We're workaholics. People are like, hey, you know, I don't want to have a 9 to 5. Congratulations, you now have a 5 to 9. So it just— it is what it is as entrepreneurs, and that's 5 a.m. So I think that transition that most people don't get, we're like, hey, I want to start my own business. If you're an employee, you don't have the knowledge and the reps in to go and do a business. So having something that does have that structure that you come into a franchise and like, hey, here's the systems, here's the SOP, here's what you need to do.

We've already handled the marketing. That makes sense. The part that I've always had resistance to is, hey, I'm going to do all this work and then I'm going to lose 40 to 60% of it. Yeah. Now, so that's my hurdle. But if that's your cost of being, hey, I'm not an entrepreneur because it's not the same. An employee is not the same as an entrepreneur. And it just is what it is. And I've always walked people through a test on how to figure that out. I think if you're an employee where your job is completely redundant, then it makes sense that, okay, let's look at franchises. But I've never seen a franchise model work out successfully long term because you, you have to do it in multiple. Like if you have one franchise, one McDonald's, you're not making any money. It's adorable that you have one. You need a multiplier of that. You need 3 to 5 of them. And then how do you get to that point has always been my experience with it.

Yeah. Well, 60% of franchises are owned by 20% of franchisees, believe it or not. So it is, it is a multi-unit play. Yeah. It's a multi-unit play for a lot of people. And, and I mean, that number is skewed because PE is now coming in and buying up franchisees and franchisors. Like it's a high cash flow business. So it's, it's very attractive to PE to come in and do that. But the opportunity for a lot of people is building those multi-units and you can do it off your own cash flow and then selling to PE, getting the exit and doing whatever you want, going and sitting on a beach, whatever you want. So, um, yeah, I find that all very interesting and, you know, when you compare your own business to you know, starting just a random business to a franchise, there really is no benefit beyond 2 years. So all the data tells us that from 0 to 2 years, you're far more likely to succeed in a franchise than you are just starting your own business. You know, 1 in 3 businesses fail in the US. That's a fact. Um, within 2 years.

So we know that, you know, franchising will get you that leg up. It will get you to a certain point, but it doesn't mean that you're not gonna be doing the work beyond that. Right.

So I think, you know, when you have someone come in, let's say they're an employee, 'cause I agree with you, AI is gonna change it. You're an employee, you've never run your own business before. You have no idea, like let's say you're a marketing person. You have no idea about numbers. You have no idea about the accounting side. You have no idea about the customer service side. You're just purely the marketing dude. You don't understand all these other hats. How does franchising fill those gaps when you, when you've seen this and what are some of the major mistakes most people use when they go into franchising?

Yeah, the biggest mistake people make going into franchising is, is thinking that it's, it's passive income. You know, you are buying a P&L. So, so you do have to work in some capacity. Um, I'm yet to see a fully automated franchise. So that, that's the biggest mistake that people make. The biggest mistake that franchisors actually make is opening up the checkbook to absolutely anybody. you know, anyone that wants to buy into the franchise. It's, um, it's a slippery slope and, and culture is very, very important. Right. Um, we had, I remember our first conversation, we talked a little bit about, well, no one's really going to care about Pilates, but they just care about making money. Right. And that is true to some extent, but let's say, let's look at an industry like, geez, home services is flying right now. So think about like HVAC.

Mm-hmm.

you know, plumbing, you know, uh, house restoration. It's, it's effectively recession-proof and that industry is booming right now in the US. But if you were to buy into that franchise, you know, it's sort of boring, right? Let's be honest. It's whether you're doing the work or you're managing it, it's boring, but it's going to make money. And then you look at the area that I'm into with wellness, it's a $7 trillion industry and that's another booming industry, but You know, you get to be a hero within your community. You're, you're doing things for people every single day that's making them healthier. And culturally, you're going to be more bought into that style of franchise, right? You know, you can spend $2 million on a McDonald's, but you're feeding people burgers and maybe that doesn't sit well with you. Maybe it does. I don't know, but culturally it's super important. And this is what stops the volatility within the franchise network breaking down because if someone doesn't want to be there, They're locked into a 5-year franchise agreement and they're committed. So, um, it is really, really important that you pick the right franchise that suits you.

So I guess that's my biggest point in all of this. Um, but yeah, I mean, there's plenty of things that franchisees get wrong that we can absolutely talk about.

Yeah, I think we started with those, which is, you know, you're not buying a cash cow. You're buying a job for a little bit. You're going to have to work in it. And then as you, you take the profits from the first one to buy the second, third, and fourth, then all of a sudden you have more of that exit. But you have to understand, this is, it's very much like getting a degree. You're gonna be investing in this for the next 4 years. You gotta dig in, you gotta do the work, you gotta, you gotta really, really get there and get it rocking and rolling. Now, I'm a person who likes to buy boring things. I own multiple companies, I've exited multiple companies. I like boring, I love boring. I live in Florida. I love things about ACs. Oh, it makes me so happy. People are like, climate change isn't real. I'm like, aha, okay, cool. Let's have that conversation another day. Uh, because right now it's 90-something degrees outside. It's, you know, we're in, we're in August right now. It's, it's 90-something. There's 100% humidity down here. Everything that touches HVAC is, is, you can't keep up with the amount of demand that's here.

And it just depends on marketing and customer service that still needs to happen. But that does mean that if you're going to buy an HVAC franchise, you're sitting on somebody's roof and it's 100-something degrees up there because you're getting cooked and you're fixing something. So you have to understand you're digging into this and this isn't a set it and forget it. What are the other things that in a franchise, I'm just curious, because you experience this a lot more, what are the other mistakes that most franchisees make?

I think it's, it's particularly now that we're sort of, we're getting franchisees that come from other brands. We hear horror stories and you see horror stories through the selection process with, with franchisees. There needs to be a certain element of diligence that's done on the franchisor. And you said it yourself, you know, I don't want to lose 40 to 60% of my profits to a franchise, right? So, you know, and you see these scenarios in franchising where, you know, we think about the big ones, we think about KFC, McDonald's, all of those ones. But the reality is that, you know, less, less than 50% actually make it to 25 units. So there's a huge selection of franchises available, but a lot of them are selling hype. And then once you get to 25 to 100 units, Only 5% of franchises actually do that within 10 years. And we're very lucky to be part of that 5%. But, you know, you need to ask yourself, why is that happening? And how can I sort of guardrail myself to not buy into the wrong franchise? I've seen this a lot and it's where the franchisor spends way too much time and effort on scaling as opposed to the product and the business model.

So there's really, as a franchisor, you've got 2 consumers here. You've got the franchisee and you've got, you know, which is B2B, and then you've got the consumer, which is B2C. And you need to be looking after both of those clients. So, you know, what we often see is someone gets a concept right from 0 to 25 and wow, everything's great. Let's scale this business, but they forget about the consumer. And like how many products or services are you a fan of that you've seen stay the same for the last 10 years? Like it'd be practically none, right? They're constantly innovating. Yeah. And, and, and this is what, this is what tends to happen. And we're sort of seeing it with Subway now, you know, they're closing thousands and thousands of units. The franchisor forgets to innovate, you know, product or business lifecycle. You don't innovate, you will recess and you will die. And, and the franchisee, the franchisor focuses on scaling. So I think it's really, really important. that you select a franchise that is consumer first and then, you know, everything else second. The best metric I can advise for people to look at, there's a metric of average revenue growth per unit, right?

And that is, okay, year on year, how much are our average stores increasing in revenue? And that will tell you whether they're investing in the product, whether there's demand for the product, whether there's good lifetime value of the consumer. And that's probably the number one thing that I would be looking at when I'm looking at a franchise. Um, you know, there's, there's a number of other things that you need to get right. The business model is super important. Quite often franchisors will not have a great business model where literally the costs are hidden. You know, you're only making 5, 10% margin, or you're, you're, you're creating your own business model from a piece of paper they gave you, but there's all these hidden costs. So a lot of it, and they are, you know, you can go through the FDD, which shows you, you know, all of the costs. They actually tell you like, we're spending X percent on software and we're getting it as a rebate. We're spending X amount on this, on that, on marketing, on lawyer fees and getting it back as a rebate. But sometimes there are hidden costs that can absolutely drown a franchisee.

And so there's so many of these little things you need to look for. And my suggestion is speaking to other franchisees in the network, right? And that's, that's a common sense approach.

So what are the questions you would ask those other franchisees? Because I agree with you. I mean, looking for leading indication of retention is a huge thing I always look for. But when you're having these conversations with other franchisors, like, hey, I want to open, you know, I want one of these Pilates, or I want to open the McDonald's or anything else. What are the questions that you ask other people to have? Like, what are the things that you want to ask other franchisors?

Yeah. So I would, I would ask firstly, what, what is, what does your unit economics look like? So, you know, globally, and this, this cannot be argued with, the number one thing that will fix all franchises is unit economics. So how well are they performing financially? So, so that is, that is the first thing that I'd be asking. How, how well are you actually doing? And I'd be speaking to the top performers within that network. And I'd also be speaking to the bottom performers, you know, There's always going to be high and low performers in a franchise. You need to make the decision when you're looking to buy, is that low performer low performing because of maybe they're not invested, maybe they're not doing the work, or is it the franchise itself? So that's what you sort of need to figure out. So I would certainly speak to sort of both of those cohorts. One thing that we're really big on with our business is making sure we have like a franchisee advisory board. So Does the franchisor actively work with you or have they just created a ton of guardrails that, you know, you cannot do anything outside of this box?

Do they get feedback off you regularly? Are they constantly trying to improve their systems? Like, these are super important. You cannot pretend to know it all as a franchisor. You cannot simply just say, I know how this franchisee is feeling. I know what systems to use. It needs to be a constant learning curve and a constant feedback loop. So. That's, that's another big question, um, that, that I would ask. And then, you know, it's a really good one to ask franchisees is what's your exit plan as well? You know, and, and people don't think about this a lot. It's, it's very much like, okay, let's buy in. I've got a 5-year franchise agreement. Let's see what we can do. But, you know, if the franchise, um, if the franchisee is a multi-site owner and they're able to roll cash flow in and, and grow their portfolio, this is a very, very good sign. I think 80% of our franchisees in the US are multi-site owners, right? So they're just constantly reinvesting in the brand. If, if a franchisee is saying, no, this is my one and only unit, this is all I can do, maybe they're lying a little bit about their financials.

That is not a good sign that this franchise is scalable. So yeah, there's, there are really 3 sort of key things I'd be asking.

Gotcha. Now my next question is we talk about recession-proof, you know, we were talking about HVACs and plumbing and the boring companies. What you do isn't boring, right? This is, it's very sexy. It's Pilates and people love it. They want to get in shape. Those industries by default normally aren't that recession-proof. If we have, if we both agree that the economy's going to just get crushed by AI and people aren't going to have disposable income, one of the things they first cut out is kind of fitness and gym memberships and all of that. How do, if someone's coming to you and like they want to open a gym or Pilates or something else, How do you speak to that? Because obviously, you have these guardrails in place, but you also have an advisory board. But, what are the other things that you have going on? How do you protect against that fear?

Yeah. Look, we're very unique. We're solving a problem. So, our concept is Pilates, strength, and cardio in one. Our new campaign is actually around stop collecting memberships. We're aware of the financial squeeze people are feeling at the moment. So, for us, it's a very easy conversation. You need strength training, to, to live longer. That's, that's well noted now. Pilates is good for you. It helps with mobility, stability, core, and cardio is great for your heart health, etc. So we're trying to offer a 3-in-1 concept with, you know, patented technology and whatever else. And, and for us, it's a very easy conversation because people that are dropping off, you know, their gym membership, then their Pilates membership, then their spin or cycle membership, they're going to get strong all in one. What we actually saw, uh, in, in the last recession was fitness held pretty strong. So, so fitness actually, um, yeah, people are now seeing, and this is why the wellness industry is such a great one to invest in. People are now, it's not, do you train? It's where do you train? You know, fitness is a necessity now. And, and, and there's a huge cohort of people that, um, you know, there's still a cohort that don't train at all.

There's a huge cohort that, uh, it's, it's It's the last thing that they're going to probably drop off outside of, you know, the fundamentals. So, um, you know, for us, it's a, it's a pretty simple conversation, but, um, it's, it's trendy. You know, we see concepts going in and out and it's very science-led. So for instance, cycle, which is only really cardio, that is now sort of really dipping within the fitness space.

Yeah.

Um, people follow the science and where the science is going. So Um, yeah, I wouldn't say that it's, it's not, it doesn't have its volatilities, but it's a lot safer than, than people think. I think, Charles, like my main point is like, we're solving a problem and there's, there's, there's other franchises that are solving problems too. Like, you know, another really good one right now is aged care. So it's something like 10,000 Americans every day turn 65, right?

Mm-hmm.

So there's these amazing franchises coming through. that are providing this extra care at home that are, you know, taking advantage of a certain market. Now, will that last forever? I don't know. You know, that's going to peak at some point, but you do need to be aware of those sort of macro trends, those macroeconomics, just to see what the opportunities are.

So when you're walking in, what are the top like 5 mistakes that as soon as you get your franchise that most people make? They're like, okay, these are the 5 that will screw you up. And then on the opposite side of that, what are the top 5 things that people can do to reverse that so they don't Don't screw things up. Okay.

Um, number one, and this is very clear, once you have purchased the franchise, so let's, let's talk, let's say you've gone through the selection process and you've decided on what you want to do. If it's service-based, you know, bricks and mortar, the number one success factor for you is going to be what you do before you open the business. So presale for us is the number one thing. And this is the same in really any service-based industry. You need a high, high volume of clients coming in the door. And we know once businesses are busy, people bring people. So it's much easier to scale. So that sort of presale lead up to launch is where people need to invest money. You know, what, 1 in 2 of our franchisees in the US achieve $1 million revenue before the first year is up. So they have presold so well that they're able to open the doors with huge communities, you know, with, with enough recurring revenue that they're going to hit those targets. I think the biggest mistake that a lot of franchisees make is they're so focused on the fit out. They're so focused on hiring the right staff.

They're focused on all these other things that you need to do to get the business to, to, you know, to be operational that they forget to invest in the presale and they get so caught up that they just want to open the doors. So my advice there is You know, don't, don't forget about the presale and don't get too busy. Um, you know, through the selection process, again, I think this goes back to our conversation of, you know, are we okay with boring or are we okay, or is this something that we're passionate about? When you look at all the different franchises that exist and you can validate probably one or two in every single category, you know, whether it is burgers or fitness or whatever else. I think it is important to align with the franchise that suits you culturally because again, it's like a marriage. You're stuck in it for, for 5 years. And I think where people make mistakes is they chase the dollar and they don't actually chase something that they're going to want to be in and work in every single day. So, you know, that's a, that's a really, really big one.

Not getting, number 3 would be not getting external financial advice. So getting accountants in to actually build a business model and, and you doing your own diligence, you know, um, a lot of franchisors will just give you a highlight reel. Okay. It's a highlight reel of, of all their best performing studios, of all the things they're doing, all these metrics, you know, but you need to build this model out and get the model right. If you cannot make the model work based off the rent that you're looking at, based off your wages. You know, maybe, maybe this model that the franchisor gave you is for Texas and not California, you know, where your wages are going to be increases, more tax issues. There's, there's all sorts of things. So you need to build out your own model and get that model right. Like I cannot stress the importance of modeling out your business before you open it. Right?

Yep.

The fourth thing, but this is super important, mate. Uh, it's, it's capital. So what happens in my worst case scenario if, if, if I do not open the doors with X amount of members and I'm going to be losing money for the next 18 months? Capital is super, super important here. Um, most franchisees will get an SBA. You know, it's pretty standard, but having that sort of funds in reserve is important, but it's also the franchisor's responsibility to make sure. that person has the capital behind them. Yeah, I'd have to sit on number 5 for a minute, but they're the main ones. Yeah.

Let me ask a couple questions about that. So when you're going into this environment and you need to have a bunch of extra money, how much money should you have in reserve? So should you have 6 months in the bank? Should you have 8 months in the bank? How much more money should you have in reserve based on what's going to happen and based on what you've seen? Because everyone thinks, hey, I'm going to invest this in this, And the franchise itself is, I'm good. I bought the franchise and they don't understand about operating income and they don't understand about reserves. How much should they have in the bank?

I think 12 to 18 months of whatever your OpEx is, you know, whatever, whatever you can potentially bleed. I think that's super important. Now, would you need it? Probably not. But I think when you're signing leases and your liabilities through the roof and you've got SBA loans, You want to make sure you have those reserves or you have an asset or cash that you can pull from. You know, it's very case by case and it's hard for me to say you have this much, have this amount because it's not one size fits all. You know, some franchises are millions and millions of dollars to buy into. Others are, you know, you can get in for 10 grand, you know? So it really depends on the franchise, but really I'd say rule of thumb, Survive, if you can survive 12 to 18 months with very minimal cash flow and clients, that's, that's a really safe, smart place to be.

If you're someone who knows nothing about franchises, is there an event or a meetup or something where you can go and talk to all these different people and have those conversations? You would recommend that? What would you do? Because again, I agree with you. I'm trying to give somebody an escape when AI just beats the crap out of them because it's going to. Where do you go to an event and San Diego or where would you go? What would you do if you're completely just green to this?

Yeah, there's, there's a couple of big franchising conferences around the US. One that I really like, it's, it's called Multi-Unit Franchising and, and it really is the franchisors go there to sell to multi-unit operators. These, these are the really savvy people that may have a portfolio of 10 to 100 locations. So they're the ones that I like. It's, it's not the, It's not the little ones that are, you know, everyone come in, anyone who's got money, here's your checkbook, you know, whatever. It's, it's the big ones with the really savvy operators that you need to get around. And what most franchisors actually do is they have open days as well. So they will have, maybe they'll have 30 leads, you know, 30 franchise leads that will maybe attend, you know, an event or attend that franchise's headquarters. And, and I think that's always a really, really good one because you can ask the tough questions and you can ask all these questions about, you know, average revenue growth per location. You can ask them about how involved they are with the franchisees, you know, and it's in a group format. So there's, I guess, uh, you know, there's probably less bullshit, you know, in, in a group, you've got more people there, you can talk about it.

So I'd be looking at the, you know, the multi-unit franchise conferences and I'd be looking at the you know, the, the sort of brand-led conferences with the franchise that you're interested in.

What are, what are some of the, the tough questions that you get nervous when you get asked about your franchise? If someone comes in and says, hey, I want to know this number or this thing, what are some of the tough questions that, you know, need to be asked that you're always like, oh, okay, this is going to be a longer answer?

Yeah. I mean, the tough questions are always as a franchisor, they're always around Why is this location in, in, in LA not doing very, very well? You know, what's happening here that, that is, you know, because you, again, you're always going to have these low performing, um, low performing franchises. So they are always the hardest questions. So if, if you have someone within your network that doesn't want to be there and they're putting no effort in and that franchise is not doing well, you need to explain that. And that's very hard to do sometimes, and you don't want to throw people under the bus either. So that's always the hardest question, I think, for a franchisor. For a franchisee, when a franchisor is asking a franchisee, are you actually suited to this brand? A lot of the questions are around what they're passionate about. What does their financial situation look like? It can be sometimes awkward trying to find, you know, I need evidence of financials. I need evidence that you can actually make this work. They are some of the awkward conversations that you have, but a lot of it is around culturally, what are you trying to achieve out of this?

And if they say, you know, I just want passive income and I want to sit on a beach, for the franchisor, you run for the hills, right? But if they're, if they're like, I want to work hard, I may not be the most experienced person, but, you know, this is something I really want to do and I have some capital behind me. That, that's a really good start.

We have bashed a lot on AI on this one because that's just normal for me. How are you seeing AI as a benefit in the franchise world? Because again, we pooped on it a lot. I love AI. I can't do 90% of what I do anymore without it. And it's going to get better because, and I don't think people understand, today is the worst day that AI will ever be. It'll never be worse than it is today. Today's the worst day that robots will ever be. It'll never be worse than it is today because It's just, it's just going to progress and that's, that is what it is. Um, where are you seeing that AI is a huge value?

Yeah, it's 100%. Like, this is where I'm, it's everywhere, right? But the, the best place that I'm seeing it right now is analyzing data and consumer behavior, right? So again, going back to this point of like franchisors not focusing on, on clients and what the, what the consumer wants, needs, and values. That changes so often and we have so much data being, you know, we own the booking systems, we understand their patterns. And, but over, you know, we have 50,000 members and millions and millions and millions of bookings. We cannot analyze everything, right? You can use the gut feel and you can look at overarching data, but to use AI to really analyze consumer behavior and then make strategic decisions based off that consumer behavior. is, is the number one thing. And it's, it's constantly why every year we deliver a major innovation to our network. It's, it's actually part of our core competency. Our staff have to deliver 1 to 3 major innovations, any department, right? And the way that we figure out what we're actually doing is, is through consumer behavior and data, um, analysis. So that, that is the number one best place that I'm seeing it operationally.

You know, you can put it into gyms and you've got AI concierges and AI membership consultants and things like that where they text you and it sounds like a real person. That's great, but I want to use it for strategic decisions and I'm a bit old-fashioned. I still like using people as well.

Right. So I think people don't understand that behaviors and understand that your business is just a behavior modeling, sitting down and saying, okay, what makes it so that my consumer does X, Y, and Z that radically increase the chances of retention? And then you study those behaviors and then you feed that. There's one of my clients that I work with, he runs an accelerator, which is another fancy word for mastermind, And we found out very quickly that his people who stayed beyond the 8-month churn rate that he had, which is better than the industry— most, most of them were around 90 days— was because they stayed because they wanted this type of community. So we started implementing community events. We started implementing community events that they wanted to go to because we'd like, oh, we'll just throw a bunch of hot dogs together and give them a bunch of beer. They did not want that. They wanted a workshop environment where they could sit with each other. So studying the behavior of your clients. of your customers is important as much as it's important to study the behavior of your best performing employees. And AI does that exceptionally well.

So if I'm coming in and I'm like, hey, you know what, I want to be— because I really don't think, and correct me if I'm wrong, and this is where you and I have some pushback. You're about being passionate about that product because you have to dig in and you have to do that. I'm the guy who's like, boring work. I don't care. I have a capital rate that I have to hit every month. I have to have my MRI. I'm going to hit my MRI. If that means that I have to put dresses on flamingos, I'm going to put dresses on flamingos. If that means that I'm going to open and go after Pilates, then I'm going to go after Pilates, whatever that is, I'm going to do that. My question is, when you go into that environment, why would someone invest in— because you're all about success for your franchisees. Why would they invest in specifically what you're doing? And can you explain more about what your franchise is?

Yeah. So it's, it's a really, really good question. And sometimes, again, I'm going back to the culture fit here, but sometimes we're not the best option and that's okay. But you know, what we do is, so our company is called Strong Pilates. We, I effectively broke my ankle a long time ago. Uh, I couldn't run, I couldn't do anything like that, and I needed a low-impact training format. And I fell in love with Pilates, right? It's great, but I found it a little bit boring. I felt like I need to go for, for a run, need to lift heavy weights, all that sort of thing. So I literally built a concept with a RowFormer and a BikeFormer. So this is a rower attached to a reformer bed and threw in some really heavy dumbbells and some tech overlay and made the customer experience seamless and put it all into a franchise concept and said, this is the future. Um, and, you know, very, very quickly we were the most controversial Pilates brand in the industry. People hated us, you know, the traditionalists, you know, what are these guys doing? There's a rower and a bike and heavyweights and whatever, but the consumer loved us, right?

And we've got these raving fans all over the world and that's why we've been able to scale at the rate that we're scaling. So, you know, we brought this really unique idea to a fitness industry that's highly, highly saturated. It is volatile to some extent in the, in, in the sense that concepts come and go. There's flavor of the month, there's all these sorts of things. And, and we're a science-led concept, so we know that, you know, strength training is key. We know that Pilates is super enjoyable. We know you need cardio for your heart health. And all these things are not going away. Um, so yeah, we've got a gap in the market. The traditionalists hate us, but the consumer loves us. And there's a lot of longevity in this. So yeah. And from an economic standpoint, you know, we've got the numbers to back it up. And that's, that's super important as well because there are going, as we said, like earlier, there's going to be situations where, do I pick boring? Do I pick KFC? Do I pick, you know, fitness and wellness? It's Maybe they all make a similar amount of money and a lot of them really do.

Once you look at these bricks and mortar businesses, there's, there's really like a lot of them are sort of hitting that $700,000 to $1 million mark at 30% EBITDA. And that's pretty standard across the board. So it does become a preference game.

Gotcha. So with you guys, when you talk about showing the numbers and I, cause I'm going to dig into it cause this is about Proven. What are the numbers that you're seeing a franchisor make in the first year, second year, third year? You know, what, how are they surviving? Those hits as you go through that. If someone comes in and like, okay, I bought your franchise, this is the amount of money I'm gonna make year 1, this is your money. And again, let's just say this is a, a decent performer. We're not talking about the single mom who's gonna burn herself out at 90 hours a day type of thing. Let's talk about the person comes in, what realistically is the investment? And then the ROI they're gonna get on year 1, year 2, year 3. What does that look like for you guys? Because you guys have those numbers.

Yeah. So I think any, any good franchise anywhere globally is going to get you a return within like 2.5 to 3 years, right? We're seeing payback with, call it like our top 50% in the US. We're seeing payback within a year and a half, 2 years, the way it's modeling out. So, you know, they're going to open the doors in their first year. They're going to be generating maybe $80K a month. You know, one of our studios that's been open for a year did $128K last month. So, you know, $80K is good, $83K a year is $1 million, but $120K plus is even better, right? You generally work on, in fitness, it's 25 to 35% EBITDA, right? Costs are generally fixed other than wages as you add more classes and whatever else you need to increase wages, but the costs are generally fixed. So What I like about what we do is, and this is what I loved about the first franchise I was in with F45, was the earning capacity. Like you can buy into a low, you know, something might cost you $200 grand to open up, but you're only probably ever going to make $600K a year on it.

Um, maybe maximum. What I like about our business and what I like about F45 when I, when I started as a franchisee is you can push those limits. So what is the actual earning capacity? You know, can I get this to $1.5 million, $2 million a year? If the answer is yes, and you're someone who's motivated and you're someone who's hardworking and you want to, like, you want to do something epic, like they're the franchises I'd be going for. You can be a safe passive investor and, you know, go for those cheaper ones that get you standard returns. That's fine. But, you know, with, with risk comes a reward, I guess.

Absolutely. So when there's also smart risk versus stupid risk, what are the things that you have seen that has a better ROI? If you're like, hey, I'm gonna go do this and I'm gonna hunt the marketing and I'm gonna push or whatever it is, what are the returns or what are the things that you're seeing that really kind of push that envelope that have that better ROI?

Yeah, it's investing in marketing. That's number one. It's, see, you know, As a, as a franchise, so we take 8% royalty and then a 2% marketing levy. So 2%, we put back into, into group marketing. The franchisees that spend more and more on marketing do better. It's a formula, right? X amount of dollars costs you X leads, conversion, X amount of clients. So that's, that's, that's number one. Um, number 2 is Certainly the community aspect, which is a really hard thing to quantify. Like how, how do you build community? How do you create a good community? Um, and, and what we're seeing, the, the, the franchisees, like we have a, we have a franchisee that bought 100 units in the US and they're not actively in those stores, right?

Mm-hmm.

But we have franchisees that have 2, 3 units that are in there. They know the client's names. They know the name of their dog, when their dog's birthday is. They know, Like they know all these little things about the community and they care. And those intangibles are what we're seeing, like huge financial performance off the back of them. Tough to quantify, but you know, you put the effort in, you get the reward.

Yeah, I think those little small things mean the world to things. Like when I had an IT company and we knew every single birthday, every person's birthday in every single one of the offices that we had. We 5,400 people that we served. We knew all of their birthdays, all of their kids' birthdays. We had to manually sit down and track down on people's Facebook and track down like, when is their kids' birthdays? When is their dog's birthday? When is, when is their anniversaries? We tracked all that down. And at the time, because this is back in the early 2000s, we put that all in a spreadsheet and I hired someone who, that's all they did, would send out the cards, would send out the emails. And our business kept scaling because it was that personal touch. And I don't think people understand How powerful that personal touch is. And I think for you, when you're talking about 100 units versus one, what you guys offer is a very— you're building a community, not just a fitness center. Because I can go buy a rower, which I have in my own house. I love rowing. I've done it for a really long time.

I don't do the cycling anymore. I was a triathlete. It's not a comfortable thing for me anymore. But the rowing I love, weights I adore. But having that community was what would make me go and go back because You then have that accountability. So if you're building that community, it's huge. Michael, if someone wanted to track you down and they wanted to kind of connect to this and they wanted to learn more about your franchising and spend more time with you and connect with you, what is the best way to do that? How can people find you to learn more about how to be successful in franchising and maybe even possibly take a look at your franchises?

Yeah. So if you do want to have a look at Strong, it's strongpilates.co. There's an owner Strong page where you effectively fill out a mini survey and And then, you know, you can connect with us directly. I'm always answering, like, I'm really passionate about this space. I think you could see that. So I think feel free to DM me. My Instagram's Rams Legit. So find me on social media. Um, and yeah, I always love chatting about this stuff, whether you're interested in buying a franchise or not, like I'm super passionate about it. So yeah, love to connect.

Thank you so much. I really appreciate you coming on and connecting with us and sharing this because I think People don't understand how important franchising is going to be. And then also working with people who understand franchising and what actually works, because there's a lot of people who will sell the garbage, but they haven't been franchisors before. So I think it's really important. Michael, thank you so much for coming on. I really appreciate it.

Thanks for having me. That was a great conversation, Charles. Appreciate it.

That's Michael Ramsey, co-founder of Strong Pilates. A franchise hands you the system, but it won't do the work for you. Check the unit economics before you buy. Pick a brand you can live with for 5 years, and keep 12 to 18 months of cash in reserve. After that, show up every day. The person who wants it most usually beats the person with the best resume. Thanks for listening, and we'll see you next time.