What are the key ingredients to building a successful franchise business? Michelle Seiler Tucker sits with Peter Taunton, founder of Lift Brands and Snap Fitness. Peter explains that the number one ingredient is product relevance. Is your product something people would want? Number two is simplicity. If your business is too technical, you’ll need to dumb it down a bit. Next, can it run on one manager and 12 to 15 part-time employees? More importantly, will it thrive even with a semi-absent owner? If you want to get into more details, dive into this episode.
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The Key Ingredients To A Successful Franchise Business With Peter Taunton
You’re going to be so excited to read this episode as we have a very special guest, Peter Taunton. Peter Taunton is a pioneer in the fitness industry. His expertise includes building a franchise system, international franchising, bootstrapping a start-up expansion, and rollout strategies both domestic and international.
He is the Founder of Snap Fitness. Snap Fitness has over 6,000 in over 26 countries. Peter is also the CEO of Lift Brands. Under Lift Brands, he owns 9Round, Farrell’s, YogaFit, STEELE Fitness, and Fitness On Demand. Together with Snap Fitness, they comprise the world’s largest wellness franchise organization servicing over 165 million workouts and counting.
His philosophy is, “Success is 10% of what happens to you and 90% of how you react to it.” His companies have also been featured in prestigious industry lists such as Entrepreneur 500, Inc. 5000, Top Global, and Franchise 500. He is also the author of the book Impossible Hill. When it comes to Peter’s philosophy on success in business and his personal life, he has one word. It is passion. I am passionate to have Peter join us on this episode of the show. Thank you, and welcome to the show, Peter.
I’m so excited to have the one and only the truly amazing and the truly passionate Peter Taunton on my show. I’m so excited. How are you?
I’m good. I’m happy to be here. How have you been since the last time we spoke?
I’ve been fantastic. I’m getting deals done. Let’s get this show started. I’m pretty sure everyone has heard of Peter because Peter is a pioneer in the fitness industry. His expertise includes building a franchise system, international franchise, and bootstrapping. You’re the Founder of Snap Fitness.
In the industry, I’d like to think that I’m fairly well-known because I’ve been around for a long time and had a fair amount of success along the way. I don’t want to take all the credit for that. I’ve had the chance to work with some amazing people, which is the other half of building a great company.
I love the thing that you always talk about. You always say 90% is what happens to you and 10% is how you react to that.
It’s so true for all of us in so many things. In general, I love studying human behavior. I love seeing how people react in certain situations. The people in leadership roles have to be able to maintain a certain level of poise when things are unpredictable. I always say anyone can run a company with the wind at your back, but how do you roll when in times of strife and unpredictability?
In business, every time you turn around, you’re getting blindsided. That’s the nature of being in business and being an entrepreneur. One of the things I talk about in winning and having the right mindset is being prepared when these moments come and understanding that you will survive and get through them intact, and you have to keep your dignity and poise.
What I like to do is rewind and go back to Peter’s beginning. Tell our audience a little bit about you. You found Snap Fitness, Lift Brands, Fitness On Demand, YogaFit, and many other brands under Lift Brands. Tell us a little bit about your background. How did you get started? What was 90% of what happened to you versus 10% of what you did with it? We’re curious and want to find out more about Peter.
I started at a young age. I grew up the youngest of seven and went to school in a two-room schoolhouse. I quit college and had ADD like a lot of successful people have. I grew up with a fairly normal life. Being the youngest of seven and going to school in a two-room schoolhouse was unique in its own right. My father owned a small grocery store in the hometown where I grew up in. When I was eight years old, he gave me an opportunity to sell popcorn in front of his grocery store. That was a rite of passage. All of my brothers and sisters before me had done that.
I was looking forward to that day when I could sell popcorn because I grew up in the country, and for me, selling popcorn also meant that I got to go to town. I did not realize that there were going to be so many life lessons that I was going to learn at eight years old being able to watch my father at work visually. Some of those lessons I learned at a young age are the cornerstone of who I am now. Things like work ethic, integrity, and character are things I learned along the way, watching my father as a role model in his grocery store.
That’s great that you had a role model because so many entrepreneurs and business owners never had that role model. They just bootstrapped themselves along the way and learned as they went.
That’s a lot of what I did. Being the youngest of seven in my household, you didn’t get a lot of attention. My parents were fried. They were trying to make ends meet with seven kids. I paid close attention to what I was doing and what was going on around me. I’ll be honest with you. I learned at a very young age that with money came freedom. Even at a young age, I said, “I want to be successful someday.” I deemed a success financially.
Now, I have a much different perspective on it, but here’s the reality. When people say, “Money can’t buy you happiness,” the only people would say that are people that are rich. I always say, “With all things being equal, being poor or rich, take rich. You’ll deal with it. You’ll figure it out.” I chased money for most of my adult life because that brought me freedom and choices. Having some amazing success, I realized now that money can’t buy you happiness, and there are so many more important things in this world than being financially successful. I don’t know if I would have that same perspective if I were not sitting in the seat where I am now being unbelievably successful.
You grew up with six siblings and watched your dad run a grocery store. How did you go from that upbringing to getting into fitness and becoming the Founder of Snap Fitness which is in 2,500 locations in 26 countries? That’s pretty amazing.
Between all my brands, I have about 6,000 locations or licenses in 28 countries. It’s simple. When I was a young kid, I played all the sports. I played football, baseball, and basketball like everyone did back then. When I was thirteen, I picked up a racquetball racket. That was a sport that came very easily to me. For some reason, it was a sport that I excelled in.
By the time I was eighteen, I was a professional racquetball player. I was a touring pro. I was sponsored by one of the largest racket manufacturers in the country. That afforded me the ability to travel around the country. That’s what put me inside of health clubs. When I was 22 years old, I was given an opportunity to go back to my hometown and try to turn around that club that I played at every day as a kid. They said, “We’d like you to come back and try to turn this club around.” They paid me $16,000 a year, but they told me, “If you can turn this thing around, we’ll let you buy us out with the profits.” There were five owners at the time who wanted out of business. The business was not cashflowing, and they wanted out.
I always tell entrepreneurs that sometimes, opportunity doesn’t shout. It whispers. A lot of people say, “Why would you ever want to go and take a job making $16,000 a year to try to turn around a failing business or a business that was losing $200,000 a year? Why would anyone in their right mind do that?” All I saw was an opportunity, and that’s important.
I said, “I didn’t look at the $16,000.” I said, “This could be my shot at being a business owner.” The mistake that those five owners made is they underestimated the work ethic of somebody who has grown up poor and wants to succeed desperately. I seized the opportunity and the moment and got creative. I was able to turn that business around and then expand that business over the next years.
How old were you?
I was 22 when I was given the opportunity.
$16,000 a year for a 22-year-old. What year was that? It might not be so bad.
It was bad. It was a snip above poverty. I promise you.
How long did it take you to turn it around?
It took me eight years. Within four years, I took a business that was losing $200,000 a year to where it was making six figures a year. Within eight years, I had turned that club around to a point where I went to a bank and bought everyone out. I then refinanced the business to get myself some working capital, and then I was off to the races. I ran that business for twenty years. Eight years of it was trying to get equity. In the remaining twelve years, I expanded that 1 club to 7 clubs and then sold them all after I’d been there for twenty years. That’s when I started Snap Fitness.
Putting into perspective, my life savings at that time was about $3 million. After I sold all those clubs and after all the dust settled, I had about $3 million in the bank. That was my life savings. I was about 40 years old. I took what I knew from that. I was thinking, “What do I want to do next? What is the next thing that I want to do?” Every time I deviated from health and fitness, I seemed to always get pulled back, so I finally accepted that was going to be where I was going to build my career and make my living.
Leaders have to maintain a certain level of poise when things are unpredictable.
I came up with this concept. It was a club that was 3,000 to 5,000 square feet. Within it was everything that you needed to get fit. There was 24-hour access. If you belong to one, you belong to them all. I built one out, and when I built the first one, I didn’t know I was going to build thousands of them. I wanted to build a business that had fewer employees and was a business that was relevant to what people were looking for, like 24-hour access and no contract. To my surprise, when I opened my first club, I sold enough memberships in the first three months to cashflow it for the year. The business ran so leanly that I didn’t need to have thousands of members for this thing to make money.
I always tell people that it’s not what you’re taking out the front door. It’s what you take out the back door. These businesses were making great money. After the first one did so well, I built another one in a little bit smaller market. It performed the exact same way. The unit-level economics were there. I built the third club in a town of 3,500 people. It was a one-stoplight town. That club had the same thing. I sold enough memberships in 90 days to cashflow it for the year. It was at that point that I knew I had the tiger by the tail and had an opportunity in front of me. It was mine to grab if I wanted to. It was going to take a lot of hard work. I had plenty of cash in the bank. I didn’t need partners to do it. To my surprise, things fell into place. The harder you work, the luckier you get. It’s hard work.
Many people have this dream and mentality that you build it, and it will come. That’s not how it works.
It does not work like that. There are a lot of sacrifices, commitments, discipline, accountability, and consistency in how you want to show up every day. All of those things are the blended ingredients to bring success in whatever it is that you’re doing. I was able to work hard. I was able to come up with a concept that was relevant in the eyes of the consumer and hire some good people. To my surprise, I was able to build an amazing business over the next twenty years.
What you’re describing is what I talked about in my book, Exit Rich: The 6 P Method to Sell Your Business for Huge Profit. You have to have the right people in a place or the right people in the right seat. You got to have a management team. You got to be in a product industry that’s thriving and not dying. You got to have your processes all fine-tuned, in line, and designed for the customer experience. You built a lot of proprietaries, and then patrons are profitable. Were you the first one to market with that concept of 24/7?
No. It was under our noses. Hotels have been doing it for years.
In the fitness industry, were you the first one?
There was a lot of independence out there. It was there. What I did is commercialized it and brought it to the doorsteps of families across America. I opened 377 new clubs in a year.
Was that the first year you started, or was that the second?
That was the fourth year.
What you brought up is a huge point, but I don’t know if people caught on to it. It was that hotels have been doing this for years, and you’re right. They have been. I always tell my clients, “Don’t just learn from your industry or the competition. Most importantly, learn from other industries.”
There’s no question. We both consult and meet with a lot of people. I’d say, “If you’re coming up with an idea, it’s got to be this raw idea that comes out of thin air that we see happen fairly often.” More so, people are taking something right under our nose, and they enhance it, commercialize it, and roll it out. That is a heck of a lot less work than taking something from a raw piece of clay and trying to mold it into this $200 million-plus business.
That’s what Amazon did. Amazon didn’t create anything. Amazon was a book fulfillment company and then asked themselves, “What business are we in? What’s our superpower? What business should we be in?” They said, “We should be in a fulfillment. These are fulfilling products for everybody around the world.” Amazon doesn’t create anything. They’re in the fulfillment business. They took other people’s products and created a multibillion-dollar corporation.
I’m a huge fan of Amazon. They get a bad rap, but what I love about those guys is they pay attention. You’re right. Their core business was fulfillment. They don’t have to take a position on inventory, but they’re sharp. They don’t make mistakes. They start looking at the algorithms of what people are buying and start taking positions on those things and selling them themselves.
They have the benefit of owning the company, and that’s why they got themselves in a little bit of trouble on the federal level because they are monopolizing some of it. That’s why they have to allow other sellers, but these guys do it great. I’m a huge fan of Amazon. In the future, you’re going to see Amazon do travel and car dealerships. You’re going to go to Amazon for nearly everything. They’re good at what they do. They have a distribution. They used to parlay out some of the delivery services. Now, there are Amazon delivery trucks on every corner. They’re fantastic.
They bought a bunch of jets so they could do one-day delivery instead of two. I thought it was fascinating when they acquired Whole Foods because that helped catapult them to the next level. It is the reason why he’s the second richest man in the world, according to Forbes.
I believe it, and rightfully so well-deserved. He has been patient and has doubled down in all the right places. It wasn’t a straight line up until the right. They had their moments.
Every company and entrepreneur does. It’s never a straight line. Your story demonstrated that you have a lot of grit because going into that little fitness center, turning it around in eight years, and then staying for twenty years is pretty amazing. That demonstrates you have a lot of grit. Many people would never take up that opportunity because of the pay. They would pass it immediately instead of seeing a big opportunity. They would never stay in the game.
Grit is a great word. It’s one of my favorite words, and you’re right. To be an entrepreneur, you need to have grit. You need to have confidence. There are so many people out there that think about getting into business, and they never do. They never make the launch because of their fear of failure. The fear of failing is a dream killer.
Every single person who has succeeded at any level will share with you a litany of failures they had along the way. It’s so important that in these failing moments, you take a step back, almost step outside yourself, and look at what happened. What is it that you did that got you to that place of failure? Acknowledge those things, retool, and then try again.
There are so many people that have done that. They maybe had 3, 4, or 5 tries, and many of them more, before they finally got it, and that’s the key. Once they got it right, they doubled down, and it was full steam ahead. They didn’t sit around on their hands. They realized they had great potential, had a business that had merit, and then the trajectory was unbelievable.
To me, people quit too quickly. One of the number one ingredients I’ll look for when hiring people is grit. I’ll take grit any day over a degree. There’s a book out there titled Three Feet from Gold. Too many people quit too soon. Look at Thomas Edison. He didn’t quit.
The mindset of the four most important things includes discipline and accountability. Without one, you don’t get the other. If you don’t hold yourself accountable to some level, that takes discipline. If you don’t have those two, you have no chance. The third is consistency in those good habits to keep yourself in line on the day-to-day grind that we all do.
The fourth word that a lot of people don’t think about is perspective. Many people lack perspective. I can’t tell you the number of people that I consult and mentor, and they say, “I feel stuck. I feel like I’m not going anywhere.” I ask, “What’s going on?” We try to unpack it a little bit, and I tell them, “You’re not stuck in the least. What you lack is perspective. You don’t realize how long this takes.”
I always share my story with my health clubs. Had somebody told me it would take me twenty years before I started Snap Fitness and started making real money, I would’ve said passed and done something else. I would never have stuck it out. It’s having the discipline, accountability, perspective, and grit to keep pressing forward through those tough moments. Lo and behold, it happens, but it doesn’t come without a heck of a lot of road rash and carnage along the way.
Did you have mentors along the way other than your father?
No, I didn’t. There were a lot of people that I read about that I certainly respected, but my father taught me that if you want anything out of life, you got to get it. He never sat down with me and said, “You got to do this, this, and this.” That was not his style. I was very inquisitive as a kid, and I would observe. I put it together quickly. I would see my dad get up early in the morning and come home. He’d get up when it’s dark out and get home when it’s dark out. He was doing everything he could to provide for his family, which is very noble of him. I saw what hard work looked like. That’s the only lens I ever saw work through.
I only ever worked for my dad. When I went to college, there I played racquetball. The only employer I had, for the most part, was my father. What I appreciated about him is his employees would walk on fire for him, and that was due to the fact that they knew he had their backs. Even though he owned the business, you would see him at the checkout stand ringing people up, stocking shelves, shoveling the sidewalk, and carrying out groceries.
Sacrifice, commitment, discipline, accountability, and consistency are essential to success.
He put himself above nothing. That’s a very admirable quality when somebody is willing to roll their sleeves up and get in the trenches with you when things are difficult. His store was busy. Don’t get me wrong. It was not some sleepy little grocery store. He had that thing humming, and he sold multiple semi-loads of groceries out of his store every week. He probably had ten semi-loads of groceries sold out of there a week. It’s amazing.
He was your mentor.
He was a hardworking, salt-of-the-earth guy. He’s old. He is the most honest, straight-shooting guy with a lot of grit. He’s a bit of a cowboy. He’s a rancher out in South Dakota. He’s a great guy. You’d appreciate him.
Did your siblings turn out to be entrepreneurs as well?
Yes, in their own right. My twin brother is certainly an entrepreneur. He’s a hardworking and very successful guy. When he was 22, the same time that I was trying to turn around this health club, he opened up an athletic shoe store. It was similar to Foot Locker. He called it Athletic Fitters. With his own money, he built that up to 103 or 104 stores over a 10 or 12-year period and then ended up selling it to Foot Locker for about $35 million. Now, he runs another company that he’s building and growing. He’s very entrepreneurial. My next older brother owns a cookie and nut company he acquired here a few years ago. He’s doing great with it. They’re all in their own right. They’re doing their own thing but making it happen.
Your dad would be classified as the rich dad in Rich Dad Poor Dad because instead of just going and getting a job, he owned his own business and taught the kids entrepreneurship. That’s what’s lacking in so many homes now.
I don’t think he even tried to. We just observed it and said, “I want to be my own boss. I want to do my own thing. I want to chase it for myself rather than chase it for someone else. I want to go chase my own dream.” I often say that I’d rather fall on my own sword than fall on the sword of someone else’s trying to grow their business. I’d rather do my own thing and see if I can make it happen.
A lot of people say, “I don’t have the capital.” You got to keep thinking about ways to get access to cash. A lot of people don’t understand that. Even with a concept that I’m launching, I get franchisees that are coming in and saying, “I don’t have the money.” I said, “You can raise the money. What you have to understand is if you’re going to take other people’s money, then there’s going to be dilution in the equity. If you’re not bringing any money to the table, you’re not going to own 70% of the business.”
I educate them on what real life looks like. They say, “I’m going to be running the business,” but understand that will be your second location. If you’re going to run it, but somebody else is putting it up, they’re taking all the risk. If they’re putting up the money and this doesn’t work, they’re on the hook. It’s not only for the cash that they put in, but the landlord is going to go after them in case the business fails. They’re not going to go after you because you don’t have anything to go after.
It’s a blank canvas, and I paint the real picture for them so they can grasp it. I say, “I’m not here to be insulting to you, but I want you to understand that you have no risk and downside in this thing. All you’re thinking about is the upside.” Believe me. The richer you are, the more deals get thrown at you. For every deal I look at, I make sure that I can live with the downside. I’ve never seen a bad business. Every spreadsheet is always up until the right.
You haven’t dealt with me then because when I look at businesses, I paint the real picture. That’s very interesting. I’ve been in the franchise world too. Before M&A, I did franchise sales, franchise consulting, and franchise development. I have equity and different franchisors. I’ve seen so many franchise stores completely go out of business.
What do you think were your key ingredients to success? Taking Snap Fitness and selling 350 locations in 4 years and then going into 2,526 countries, many franchise stores wished they could do that. What do you think makes a great franchisee versus the ones that go out of business? What’s the key to success? What’s the key ingredient there?
First of all, the products got to be relevant. The first thing that I look at is product relevance. Are the dogs eating the dog food? Is it something that people want? That’s number one. Number two, is it too technical? I probably get 100 companies thrown at me a year. Honestly, 90 of them who want to be a franchise, I tell them, “You’ve made this business way too technical. It’s confusing. We need to dumb it down. Is it relevant? Is it easy to understand? How much cash is required? Can I be a semi-absentee owner?” These are the things that I look at.
If I bundle this business in a box, I got to be able to have a strong narrative about why I want what’s in this box. Take Nautical Bowls in the concept that I’m launching. It’s an affordable business. It’s $100,000 cash to get into the business, and we will finance $200,000 to $250,000 of the balance. It’s a very low cost to get into business. That’s number one. Number two, how does a business perform? Not one of our franchise locations has required a dime of working capital. That in itself is unusual. Number three, it’s a simple business to run. It can have 1 manager and 12 to 15 part-time employees. That’s validated.
Ninety percent of my franchisees are semi-absentee owners. Meaning they didn’t want to buy a job. They’re just looking for investment portfolio diversity. They say, “I want a business that I can get into, that I don’t have to bang my head against the wall, and that I’m going to make a great return.” Here’s the reality. My Nautical Bowl concept performs twice the national average of other businesses in the fast, healthy, casual space.
These are businesses that are dropping $100 to $200,000 annually to the bottom line after debt retirement. If I can get into a business and invest $100,000 into the business and pull $100,000 plus out of it every year after debt retirement, it’s a 100% return on my cash annually. I do that any day. The reality of it is even if I could invest $100,000 and pull $50,000 out after debt retirement in a business that I could be a semi-absentee owner, even that in its own right is a great business.
Franchises are all about systems, too, because if they’re going to be owned or non-operated, then you got to make sure you have the right systems in place. I’ve had friends of mine who are attorneys and doctors that buy franchises, and then they call me a year later saying, “I can’t take this anymore. The cook didn’t show up. The front desk person didn’t show up.” I always tell my clients, “When you go into a franchise, make sure those systems are there. Make sure you’re not going to have employee issues, etc.”
It’s great advice. For me, it is systems processes, but then also the leadership. If we were working together, you would hear me all the time talking about staying in your lane. You got to think about what these things are getting everyone to stay in their lane. I look at myself as a head coach. My job is to recruit great athletes, people, and talent and then see where their skillset lies and put them in the right role. I then make sure they understand my vision of what I want to accomplish with the brand and what their role is within that path that we want to take because everyone plays a different role, but we’re all pulling deep on the oars in the same direction.
Where people lose it sometimes is when people get out of their lane and start looking at what other people are doing. They’re like, “Joe needs to do this. Joe needs to do that.” I’m like, “You don’t need to worry about Joe. I’ll worry about Joe. You stay in your lane.” The one year that I opened 377 stores, more than once a day every day, a new club was opening somewhere around the world. Get your head around that. I’m not talking about signing 377 leases. I’m talking about every day, there was another gym opening and selling memberships. You can’t do that.
You have to work with them to get their location, demographics, equipment, and employees in place. That’s a tremendous amount of work. How do you recruit in this climate? Every business owner’s number one concern is they can’t get the right people, and then there doesn’t seem to be as much loyalty as there once was because people are jumping ship for $1 more an hour.
I’ve been fortunate. I’m a very passionate guy about what I’m doing, and passion can be contagious. I love what I do. I don’t have to do what I’m doing now. I do it because I love getting up every day with purpose and something to do. I love helping people. Even in my consultant role, I love doing that because I feel like I owe that to society. How did I get to where I am? It has been a lot of divine intervention and great choices along the way. The Bible even says, “For those that a lot has been given, a lot of it is expected.” Giving back that way is what I want to do. There’s nothing that brings me more gratitude than helping people invest in one of my concepts and then find their way to the promised land of financial independence. That is so rewarding when people stop me and say, “What you did for me there was life-changing for my family. I appreciate it.” That’s my whistle.
I believe in sharing equity. Nautical Bowls is a baby company, but at some point in time, every one of the employees will have equity in our company. I’m a firm believer in that, which gets them to feel like they’re part of a family. They’re part of something bigger than just the job that they’re doing. When I have my first liquidity event, everyone should benefit from that and along the way as they go. I’m a big proponent of sharing in the success of the business. When I do that and treat people with respect and let them know that I sincerely appreciate their effort and passion, they stick around.
You’ve learned it. I’m not the only one saying that. That’s why McDonald’s and all these different companies are going on automation because it’s so difficult to recruit these days. People are walking out, etc. Moving on from that topic, let’s go into liquidity exit. You always say success is great, but true success is what you can sell your legacy for maximum value to not just cash on and get great money for it, but to also sell it to the right people that can continue to go in your legacy, take care of your employees, and take care of your clients. That’s when you truly exit. You were able to accomplish that not once but twice with Snap Fitness.
When people come to me with their companies and bundle them to put them in a position to exit, I ask the founders, “We made some changes to that business. That business grew four X very quickly.” I suggested to the founder that I would not liquidate all his shares because we put together a good leadership team, so I would sell a portion to what they think is meaningful for them. Changing it now into my context, when I started Snap Fitness, I grew the business to a certain point and wanted to pull some chips off the table. As an entrepreneur, you owe that to yourself.
I can’t tell you the number of people that I’ve met in my lifetime that have had a great company, they write it to this crescendo, and then it’s like a toboggan down the other side, and they’re trying to exit the business when every year, the numbers are getting weaker and weaker. Nobody wants to jump onto a sinking ship. I tell them, “You don’t know what’s going to happen. Look at COVID. Look at what that did to our society and not only the business side of it but the mental psyche of people in general.” I sold 40% of my company for $47 million. That was five years after I started it.
Selling 40% for $47 million is quite epic, and I’ve been doing this for years with hundreds of transactions. All buyers always tell me, “I’m not buying less than 51% or less than 60%.” That was pretty amazing because most buyers would never do that.
Truly, it wasn’t because when they would spend some time with me in the room, they’d say, “We want more equity. We want to have 51%.” I would look at them like, “You want me on that wall. I got 60% equity in here. The best thing you can do is stay out of my way.”
Most buyers would never do that. Most buyers would never set that amount of money without controlling interest.
You need grit to be an entrepreneur.
These guys made the right bet. Think about it. They came in and wrote their check. We put no debt on the company.
Did you sell it for $47 million cash with no seller financing?
Nothing, because I said, “I’m not putting debt on my company. If I’m going to put debt on my company, what do I need you for?” They gave me $47 million. They made the right bet. When they bought into the company, I was doing $5 million of EBITDA. I traded that at twenty times multiple. The valuation was $100 million. Here’s the punchline. Five years later, I took that company from $5 million of EBITDA to $22 million. Those guys made a bet on the right horse. Why? They looked in my eyes and knew I had the heart of a lion. When you are betting on a business, bet on the person running the company because that is the bet, does that person inspire others? Is that person an expert in the space that they’re running? I was motivated. I owned 60% of the company.
You got $47 million in your pocket and still owned 60%. Of course, you were motivated. They didn’t buy the company. They bought you.
A normal concern for someone would be, “This guy has never had that money before. What if all he wants to do now is golfing, fishing and hanging out with his friends? What if that’s the case?”
You could do whatever you wanted unless it was written into the bylaws.
When they would bring up conversations like that, I would be offended by them because I’m not some punk kid. I’m like, “I know exactly what I have here. With or without you, I’m going to build this into a multi-hundred-million-dollar company,” and I did. In five years, I built it into a $200 million-plus company. I was like, “You’re insulting me,” and they would sit on their hands. I’m like, “I don’t need you to motivate me. Stay out of my way. If I have any questions, I’ll ask you.” They got two seats on my five-seated board. I completely controlled the board and ran the company. I grew the company into one of the largest brands in the world.
That’s a unicorn right there because that transaction doesn’t happen often. They bought you because you are so good.
It may very well be, but they made the right choice. Let me tell you where I made a mistake, the second bite of the apple. The company’s valuation was $200 million-plus. I sold 20% of the company for about the same amount that I sold the 40%. Why did I only sell 20%? It’s because I thought, “I’m going to keep growing this thing.” I pulled close to $100 million out of my company. You’re not going to see me in the soup line any day soon, but here’s the problem. I went from 60% owner to 40%. When that happens, it doesn’t matter what your private equity partner says. At any point in time, they can change the direction of the company.
Do you know what they did? They went and re-levered the company and put $50 million of additional debt at 8% against the company. I’m saying, “If anything happens in this economy or the environment, we’re paying over $1 million a month with just interest on our money, so be careful.” What happened was COVID came along.
That went so bad for you.
To work everything around with the banks, my equity went from 40% down to 22%. That’s why now I own 22% of the company. On the first time, I sold 40%. The second time, I should have sold another 40% or maybe even 50%, but I didn’t. That mistake cost me $30 million, but it’s okay. It’s a great life lesson. I share that lesson with people when they’re exiting their companies. I tell them, “Not every deal has to be like this, but you’ve got to be able to have some rights in there that in the event that they do certain things that trigger certain events, you got to be able to get liquidity because they’re doing something that you’re hard-and-fast against.”
Were you on the hook for that liability as well?
The company was.
Was there no personal guarantee involved with that debt?
Not at that level. Here’s the reality. When COVID came in, the banks had hundreds of very good businesses in their portfolio that were experiencing the same things we were. Rather than coming to us and saying, “We need to call the note,” the last thing they wanted from us was for somebody to give them the keys. They didn’t want that, so they came to us and said, “How could we restructure this?” They didn’t want the business because there were 100 of us. What happened was they took a write-down on the debt. They immediately whacked $40 million off the balance sheet. In return, they got the equity in the company. That happened across the board to thousands of companies across this country during COVID.
That’s why you want to meet the need and not put that on the company, as you said.
Money is cheap. I’m a big advocate of some debts, but I am 100% against over-lever because if anything goes sideways in the economy or within your environment, you are on a sinking ship. We got lucky that the bank was willing to work with us.
How is Snap Fitness looking now?
It’s great. They’re back open. Every one of our clubs around the world was closed at one point for several months.
How many clubs are there all around the world?
Between open clubs and licenses, it’s somewhere between 5,000 and 6,000. When something comes along that shakes up the business, in many cases, that’s good for the brand because you get some of those operators that are hanging on by a thread to close. It gives those people a reason to close. The landlords are saying, “We’re going to give you relief.” Everyone was trying to reset. It helps. Brands can come out of that much stronger because you don’t have some of the weaker operators pulling down on the oars.
That’s a story to tell when you’re FDD because you have to report every closing, so it’s good to say, “We had to close because of COVID.”
That’s right. Those are honest statements. Some people say, “I’ve been at this a long time. I want out,” and that happens.
How did all of you survive COVID if you had to close 6,000 locations? I know business owners that had 2 or 3 locations, and they’re like, “I don’t know if I’ll ever recover.”
These are temporarily closed due to COVID. These owners were sitting at home and couldn’t open their businesses. For us, if somebody is not operating their business, we were well within our right to charge them royalties, but you don’t do that. That’s not the right thing to do.
Everybody loses money on every level.
When COVID was coming through, that event probably cost us $15 million of cash to keep the doors open. It was brutal. It was every business owner’s worst nightmare.
With fitness, you feel better and look better.
What did you do to innovate at that during this pandemic? You were closed for 2 to 3 months. What did you do to innovate to get people in and get the business back up and running?
In that business, normally, you do your cleaning during the slow times and at night. When COVID hit, you were very deliberate with your cleaning. You did it during times when people were there. People wanted to see that you respected what was going on, your machines were disinfected regularly, and you constantly had somebody walking around with a spray bottle and wiping things down. It was borderline ridiculous, to be honest with you. This whole COVID thing has got to be over. It has got to get on with it. Don’t even get me started with it, but everybody has completely ignored science. The fact that we’re still wearing masks on airplanes is asinine for me. We got to get on with it.
Was there any innovation that you did to grow revenue streams on Fitness On Demand or something else to drive people to the club and get people back to working out?
Once our doors were open, our marketing was all about, “We’re open again. We’re practicing hyper disinfectant actions. We’re on top of it,” you didn’t have to sell people on coming back. People wanted to get back in the gym because they were sick and tired of working out at home. They were over it. They were tired of it. They wanted to get back to their normal workouts.
Did you have a hard time getting employees back during that time?
The workplace has changed forever, and COVID did that. The reality of it is if I went back to every one of my employees now for Lift Brands, I’d probably have 120 employees. If I went back to every employee and said, “Effective May 1st, everyone’s got to show up in the office,” I would lose half of my employees. It’s not necessary. This is a great lesson for me.
I was old-school, saying, “If I’m going to pay people these wages, I want to make sure that their butt is in their seat and they’re being productive.” I had to see with COVID when we were forced to shut our office people working from home, and there are certain things that you can implement on the computers where you can manage keystrokes and what they’re on.
The bottom line is you can get productivity out of people from still working from home. The other side of it is you need to quit evaluating people by how long they’ve been with the company. You have to start evaluating them from their performance. If somebody can do the job half the time working from home, what’s the difference? Some people would say, “If they can finish the work in half the time, then I’m going to give them twice as much work.” If you do that, you’re going to lose them.
To me, you can’t micromanage them. In this day and age, all the employees I have for Nautical Bowls know their jobs. They know that when I call them, they need to answer the phone. That’s my criteria. If you don’t answer, call me back in a reasonable amount of time or shoot me a text. Don’t mistake kindness for weakness. We are launching a brand here. If you want to go to your son’s little league game, I could care less. I’m not going to micromanage you. I’m not going to have this false sense of visualization that you’re sitting at your desk from 8:00 AM until 5:00 PM or 6:00 PM. That’s not realistic any more.
COVID changed the landscape.
My daughter works for a marketing company that I thought was interesting. They are on Zoom. She can’t leave. She doesn’t have the flexibility because every one of the employees is sitting, logged in, and doing work. It’s ridiculous.
It’s almost worse than walking in the office.
One of the benefits of working from home is you can walk out of your PJs and still accomplish the same.
That’s right, but she gets paid well, so she puts up with it.
One of your biggest words is passion. You’re so passionate about everything. I’ve always pondered this question with entrepreneurs because I’ve been asked this question. Were you passionate about fitness, or was fitness just a vehicle?
What I was passionate about was the thought of fitness and everything it stood for. We all know the byproducts of fitness. You look and feel better, and you’re healthier. All of those attributes that come with being around fitness are good, positive things. Generally speaking, most of the people in that environment are fairly positive. Early on, when I started at 22 years old, I was fired up that I found a job that landed within a space that I was knowledgeable about and that I appreciated.
I should’ve never asked you if you were passionate about fitness because you like racquetball. My question that I wanted to dive into a little bit more is, do you have to be passionate about that business and industry or passionate about just entrepreneurship in general? I have buyers that say, “I can’t get anything out of this. I’m not passionate about that.”
I look at that in a couple of different ways. I can buy a business that I’m not passionate about, but I’m passionate about diversity in the businesses within my portfolio. I will make sure that whoever is running that company for me is passionate about it. They’re going to bring passion to the table. My passion is going to come from the thought of pulling the trigger on making an acquisition of a company.
I’m the CEO of Nautical Bowls and an equal partner with the two founders. Even though we’re eight months old and got 70 plus locations under construction and in development, I want to be there for those critical decisions because the decisions that are made now are the foundation for this brand many years from now. When I have 500 locations, these fundamental decisions are going to carry weight years from now, and there’s no one out there better suited to make those calls than me. You’re making those calls in real-time as they come up.
I acquired different companies. I’m not necessarily passionate about the particular industry, but I’m passionate about entrepreneurship and diversity.
In your business, being that you help people exit their business, you get a chance to see a lot of different businesses and different owners are passionate, and probably many of them are not.
Many of them were when they started, and then they burned out and lost their passion. I’ve had the opportunity to walk into every vertical you could imagine. I always said I wanted to do that because I get bored very easily. I know there are a lot of franchisees, especially franchise owners, that I still work with to this day. What advice do you have for somebody wanting to start a franchise? What are your biggest tips from that?
If you want to be a franchisor of a concept, you have to be patient because that concept has to come to you. I didn’t wake up one day and go, “I’m going to come up with a concept.” I don’t do that. What I do is I look at what’s around me. I pay attention to what’s around me in my every life. When I see something that could be better, then I look into it.
If I go into a small restaurant or a small business and it’s very simple, effective, has steady traffic, and scalable, those are what I look for. I pull the owners aside and say, “You’ve got a franchisable business here. What I mean by that is it’s technical enough to keep everyone out of the space, but it’s very simple. It’s an affordable business. We can make a go of this concept.” I see that all the time. That’s what I would look for. I would never get up, nor have I ever got up and said, “I’m going to come up with a concept.” It doesn’t work that way.
I wasn’t speaking about somebody coming up with a concept from the ground. I was talking about somebody who already has 2 or 3 locations. That would be a restaurant or retail store, etc. That’s what I was referring to.
When I see those, I like to see that they’ve got a few stores under their belt because they’ve got some of the fundamental stuff out of the way. Normally, I’d like to see them have about 10 to 15 locations, but it doesn’t always work that way. With Nautical Bowls, they have two locations open, so there were some things I had to iron out, like the distribution centers around the country and making sure I had distribution. I’ve got 63 different distribution centers around the country, so I can deploy the products to make the bowls. I had to put all that stuff in place. It was no problem and easily done. That’s what I look for, a simple business that’s easy to have a good trajectory.
Do you ever see yourself retiring?
People who are driven like to get up with purpose.
I don’t. One thing that I did learn from my father is work can be fun. I truly love what I do. If I wasn’t doing this, if my to-do list was blank every day and it said, “Go fishing, golfing, or hang out with your buddies,” I would get so tired of that. I got a feeling that you probably would too. People like us that are driven like to get up with purpose. We like to feel that we’re in the game and contributing. I’ll do this until I take my last breath.
I always say to retire is to expire. I always tell my clients, “You know that you’re winning when you love what you do, and you’re still doing it even if you weren’t getting paid for it.”
I love what I do. I happen to make money doing it, but I’m not in it for the money. I’m in it for a lot of what we discussed. Nothing lights my fire more than when I can help people square their shoulders and get them pointed in the direction of that financial freedom and independent wealth.
That’s why you’re consulting for the Forbes Corporation. You are one of their consultants.
I love it. It’s an interesting dynamic of helping people with their pivot in their business or getting into business, but then also helping people exit their business with the mindset. It’s difficult when people say, “Poor baby.” Sometimes when people exit a business, and that business was something they started, they conceptualized the business, grew the business, or been doing it for the last 30 or 40 years, and it has been their whole identity, and now they sell it, there’s a fair level of depression that takes place for people that go through that if you’re going to be honest with it. I help them understand what’s coming. We need to find another purpose for you because you’re going to wake up one day and say to yourself, “What the heck did I do?”
You must have read my book.
I have not. You haven’t sent it to me.
I talk about the seller’s sanity check. If we don’t help the seller plan their beginning strategy, they’ll never follow through with their access strategy. They’ll have so much tolerance for remorse that they’ll sabotage the transaction.
They start thinking, “What am I going to do?” There is life after exit, and I don’t care what the dollar amount is. It has nothing to do with the money. It has to do with the purpose. There are these inherent common threads of true entrepreneurs that they’ve got to get up and feel challenged. There are certain things in their day that they got to feel. It doesn’t have anything to do with the money.
That’s why we always have to figure out the beginning strategy. Did you use any advisor when you exited Snap Fitness twice?
I did. I was represented on both of my events, which you have to be doing nowadays to get it done.
Representation is key. You give that advice to everyone thinking about selling their business to hire an advisor.
Preliminarily, helping somebody pick the right partner on their exit is where I can bring a lot of value. Some shops are boutiquey, and other ones are bigger because your audience is going to be depending on the size of your exits. There are different buyers for every level. My buyer when I sold $47 million was a much different buyer than a $200 million buyer.
I always say there are five types of buyers, and then there’s more in between. I have one other question. You’re highly successful. You read the book The 7 Habits of Highly Effective People. What are your daily habits?
I’m starting my day with a workout out all the way. The first thing to do is have a cup of coffee. I sit down on the terrace and reflect. I chill for about 30 to 45 minutes and go workout, and then I’m back here in front of my computer either doing Zoom calls, interviews, or making calls and making things happen. I do that every day, but I try to find balance. I’m like, “I’ll be done here at about 5:30 PM.” I’ll take my dog for a walk. I might go for a bike ride. I’ll enjoy the outdoors for a bit. I do what I want to do.
You are at this place where you can do what you want to do. You spent twenty years in that fitness club. You probably learned so much there.
With financial freedom comes choices, and now, you’ve got balanced as well, whereas before, when I was chasing it, I didn’t have as much balance because I was so driven.
Tell the audience about your new book.
My book, Impossible Hill, lays a perspective. It’s about a mindset about the common threads of winning. I’m living proof that the American dream is alive. I grew up the youngest of seven, poor, went to school in a two-room schoolhouse, had ADD, and quit college. If you had to bet on me, it would be a small bet. If I was a stock, you’d have shorted me for sure, but there are some things that I had that were in my DNA and how I was wired that allowed me to overcome a lot to win in a big way.
I’m very blessed. I think about, “How did I ever get here? How did I get from that two-room schoolhouse to private jets, yachts, and multiple homes? How does that happen?” For that, I’m forever grateful. A point to all of your audience is to not lose yourself in the journey. Money doesn’t make the man, so don’t get so caught up in that. I’m happy. I learned from my father. My father is not a wealthy man. He has probably $8 million to $10 million. That’s wealthy, but it’s not unbelievable wealth. Even in that, he’s a very humble guy. You never know it. That’s an important lesson for everyone. Work hard, pull people up along the way to your success, bring people along with you, and you’ll have a life that you never dreamed of.
Zig Ziglar talks about that.
It’s so important. How do you show up every day? I talk about that in my book about how you want to show up and how you want to present yourself. Let’s face it. None of us are getting out of here alive.
You’ve been an amazing guest. Do you have any last words of wisdom for our audience? How can they find you and order your book?
You could follow me on Instagram. It’s easy. It’s @Peter_Taunton. I’d love to have you as a follower and chime in. I answer all the messages. To get my book, you can go to Amazon. It’s right there. It’s titled Impossible Hill. It’s a great book. It’s a short read, but it’s on point.
Thank you so much. You’ve been an amazing guest. Thank you for all the golden nuggets and the words of wisdom.
Thanks for having me. I appreciate it. It was nice meeting you.–
Thank you so much, Peter. You were amazing. You dropped so many golden nuggets and words of wisdom. You were truly inspirational. Thank you to all of my audience for tuning in on another episode of the show. Make sure you share this episode in your circle. Share with your community, co-worker, and entrepreneurial friends. This is truly an inspirational, profound episode. You are going to learn so much from Peter’s story. Thank you, and I’ll see you next time on another episode.
- Lift Brands
- Impossible Hill
- Peter Taunton
- Exit Rich: The 6 P Method to Sell Your Business for Huge Profit
- Three Feet from Gold
- Rich Dad Poor Dad
- The 7 Habits of Highly Effective People
- @Peter_Taunton – Instagram
About Peter Taunton
Peter Taunton is a pioneer in the fitness industry. His expertise include building a franchise system, international franchising, bootstrapping a start up, expansion and roll out strategies both domestic and international.
In 2003, he had a vision for Snap Fitness: to create an affordable, 24-7, results-driven gym differentiated from the impersonal, expensive big-box experience. Today there are Snap Fitness franchises in 2,500 locations in 26 countries. And Taunton, CEO of Lift Brands, didn’t stop there.
Taunton is an expert at understanding consumer desires and fulfilling them. In recent years, he has acquired and founded several brands to round out the consumer-fitness experience: 9Round, Farrell’s, YogaFit, STEELE Fitness, Fitness On Demand. Together with the Snap Fitness brand they comprise the world’s largest wellness franchise organization, serving 165 million workouts and counting.
Taunton, who prior to founding Snap Fitness owned nine America’s Fitness Centers, has designed a franchise-development operation that is the envy of the industry. He leads with infectious enthusiasm, which attracts prospective owners from all over the world. He provides them affordable financing, world-class support and an easy turnkey process. Most importantly he teaches them his own management philosophy, “Success is 10 percent what happens to you and 90 percent how you react to it.”
Taunton’s accomplishments have been well-recognized by the business community. In 2010, he was named an Ernst and Young “Entrepreneur of the Year.” His companies have also been featured for six years running in such prestigious industry lists as Entrepreneur 500, Inc 5000, Top Global and Franchise 500.
For Taunton, it comes down to one word: passion. He has it, he teaches it, and the results speak for themselves. Even as his operations expand, he remains ever-committed to providing owners and members with the tools and programs they need to reach life-changing goals.