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Latest move by Berkshire CutFit (franchising models survey)
@grace4nan I’d agree, but it seemed like @thunderstruck was conflating the two.
I’ve got no doubt this will disrupt the affiliate space.
But I’ve also got no doubt that this will not make any significant change in the amount of people who subscribe to the methodology.
I’ve got no doubt this will disrupt the affiliate space.
But I’ve also got no doubt that this will not make any significant change in the amount of people who subscribe to the methodology.
@grace4nan That I don’t know and I guess time will tell. I have no connection to the brand, but I know of Iron Tribe Fitness. It’d be interesting to see what their profit model is. There are far fewer but that’s likely because they weren’t first in the game.
I also know Deuce tried creating a franchising model in the early 2010’s that HQ was not pleased about because Logan was, at the time, an SME for the strongman cert.
I also know Deuce tried creating a franchising model in the early 2010’s that HQ was not pleased about because Logan was, at the time, an SME for the strongman cert.
@caleb_m What's interesting is that Berkshire seems to have switched to getting more from existing affiliates instead of trying to create more affiliates globally. I guess they realize that that is hard if not impossible. If it has not happened 20 years into the game, and 3 years into owning it...
@grace4nan The developed world is capped on affiliates, if not still slightly oversaturated. GG was crazy about a lot of things, but his free market narrative did its job for the most part although (based off this sub) there is seemingly still a good portion of owners who have little to no idea how to run a business.
@grace4nan The owners of CrossFit are struggling to really do anything with the brand because it has never operated like a normal company in regards to franchising. I know gym owners love the term affiliate owner, but you're a franchise location. You're paying to use the brand name and sell the brand's product.
Normal franchises like McDonald's sell the name & enforce a quality standard. They also usually own the land & building the franchise occupies. This does not happen in CrossFit. For a relatively small "Affiliate fee", you get access to the brand name but that's it. There is no quality standard or enforcement. There is no access to shared resources like business development, onboarding, training for new employees, etc.
I've dropped into gyms where the class had a 10:1 coach ratio, sometimes with 2-3 coaches in a large class. Other coaches or staff were cleaning the gym/equipment. There's a PT clinic in the gym or next to the gym. Shit, sometimes there's even a PCP in the gym or next to the gym. The offering is ROBUST.
I've also dropped into gyms where the "coach" sat in a camp chair next to the TV whiteboard the whole hour & worked on college homework while yelling out basic instructions on warming up, prepping for the strength piece (3x3 deadlift), and then the METCON (deadlifts, cleans, wall balls, T2B). I've dropped into gyms that had a 5 AM and a 5 PM class. What the fuck? You need to have a product on your shelf for customers to buy it. You can't complain your gym isn't growing while only coaching 2 classes a day (before and after you go to your 9-5 job).
What CrossFit HQ is struggling with is trying to find a way to make money from just the franchise fee. Glassman fucked up by not following McDonald's & buying the land that gyms build on so that gym owners pay rent to CrossFit & not some random landlord. CrossFit is also missing out on all of that real estate depreciation on its taxes. My retirement investments are in real estate. I'm 30 years from cashing out and getting a big check, but I'm only about 5 years away from no longer paying any taxes as the depreciation I get to claim on my taxes will exceed my revenue. CrossFit HQ is missing out both on an additional revenue stream from rent payments as well as all of the deductions from property depreciation. A company as old and large as CrossFit should be making billions & paying 0 in taxes just like every other commercial gym company, Amazon, Target, McDonald's, you name it. It should not be in a position where it needs to use things like the Open to generate revenue. They should have so much fucking money that they can fly onboarding Affiliate owners to HQ for 3-6 months of heavy duty business & customer service training. They should be blasting ads on prime time TV about CrossFit like McDonald's & Budweiser do. The CrossFit Games should be on the airwaves so much in August that the average person has no choice but to at least check it out.
What Affiliate owners are struggling with is not doing anything to get better at being a business owner. The average CrossFit gym is barely open (2-3 morning classes & 2-3 afternoon classes, usually closed 99% of the weekend or 100% of the weekend). The average CrossFit gym does nothing to promote their gym to the community: if fucking MCDONALD'S sponsors the local 5k city race each year, why isn't the CrossFit gym also there? The average CrossFit gym is also usually totally disgusting & unappealing to the NARPs who may walk in/drive by to consider registering.
Most importantly, the average CrossFit gym does nothing to develop its coaches. CrossFit coaches are the representation of your product to your customers (current and future). I own my own healthcare practice. Some of my time is spent treating my own patients, some is spent on backend admin stuff, but a large portion of my time is spent on mentorship with my team, ensuring they are the best providers they can possibly be both in their delivery of medical services, but also in customer service. They deliver my product (healthcare) to my customers. It's imperative that they deliver unbelievable quality. As I'm making money each time my providers treat a patient, it's in my best interest to spend my time developing them. If they start treating Frank's calf for the burning feeling in his leg without first ensuring they screened the low back for referral, they're going to waste a lot of Frank's time & money treating the wrong region of the body. It is my primary priority to ensure my folks know exactly how to deliver the product, and deliver it in a manner that sees the customer satisfied so that they keep coming back. A satisfied customer repeats business at an ROI of 600-1400%. This almost never happens at a CrossFit gym.
In the Affiliate owner's defense, they don't have any help, because it's not like when you reach out to open a gym, you go through a 3-6 month training program to learn how to run a CrossFit gym. This is part of the franchising process at every major company but it does not happen at CrossFit. When you call McDonald's, you go through an EXTREME vetting process to make sure you're a good fit with the company but also to make sure you're competent enough to run your own business, and then you go to Hamburger University to learn how to run a business and more specifically, a McDonald's location. Only 1% of people who apply to open a location are invited to continue forward to Hamburger University. As you grow your business & train employees underneath you, the folks you promote to manager also go to Hamburger University. The investment in training and the focus on quality & consistency is on a different level. You can say what want about McDonald's, but you have the same customer service experience at every location across the planet & the food tastes the exact same.
CrossFit franchising is so far in the opposite direction it's hard to even compare it to any other model run by any other company. The lack of initial investment in franchisees from HQ combined with "the best gym wins" model where 13 gyms can open in a 1 sq. mile radius only ensures a race to the bottom that forces gyms to compete against each other for a portion of the local market share that is so small it is hard for owners to even pay basic operating costs. Combine this with a relatively niche market (only 10% of human beings exercise compared to 100% of human beings who eat food everyday) and you have a recipe for at best, a plateaued market, and at worst, a slow decline into obsolesce.
TL;dr - The CrossFit "Affiliate"/franchise model is fundamentally broken in a manner that will prevent CrossFit HQ from growing significantly while simultaneously ensuring most local "Affiliates"/franchises will fail.
Edit - I'm aware CrossFit is not a traditional franchise. The "Affiliate" phrasing is simply to denote that all the money funnels to CrossFit (directly to Glassman prior to 2020) with no expectation of reinvestment in the company, the brand, or the franchises. This is the exact issue with making CrossFit a sustainable platform.
Normal franchises like McDonald's sell the name & enforce a quality standard. They also usually own the land & building the franchise occupies. This does not happen in CrossFit. For a relatively small "Affiliate fee", you get access to the brand name but that's it. There is no quality standard or enforcement. There is no access to shared resources like business development, onboarding, training for new employees, etc.
I've dropped into gyms where the class had a 10:1 coach ratio, sometimes with 2-3 coaches in a large class. Other coaches or staff were cleaning the gym/equipment. There's a PT clinic in the gym or next to the gym. Shit, sometimes there's even a PCP in the gym or next to the gym. The offering is ROBUST.
I've also dropped into gyms where the "coach" sat in a camp chair next to the TV whiteboard the whole hour & worked on college homework while yelling out basic instructions on warming up, prepping for the strength piece (3x3 deadlift), and then the METCON (deadlifts, cleans, wall balls, T2B). I've dropped into gyms that had a 5 AM and a 5 PM class. What the fuck? You need to have a product on your shelf for customers to buy it. You can't complain your gym isn't growing while only coaching 2 classes a day (before and after you go to your 9-5 job).
What CrossFit HQ is struggling with is trying to find a way to make money from just the franchise fee. Glassman fucked up by not following McDonald's & buying the land that gyms build on so that gym owners pay rent to CrossFit & not some random landlord. CrossFit is also missing out on all of that real estate depreciation on its taxes. My retirement investments are in real estate. I'm 30 years from cashing out and getting a big check, but I'm only about 5 years away from no longer paying any taxes as the depreciation I get to claim on my taxes will exceed my revenue. CrossFit HQ is missing out both on an additional revenue stream from rent payments as well as all of the deductions from property depreciation. A company as old and large as CrossFit should be making billions & paying 0 in taxes just like every other commercial gym company, Amazon, Target, McDonald's, you name it. It should not be in a position where it needs to use things like the Open to generate revenue. They should have so much fucking money that they can fly onboarding Affiliate owners to HQ for 3-6 months of heavy duty business & customer service training. They should be blasting ads on prime time TV about CrossFit like McDonald's & Budweiser do. The CrossFit Games should be on the airwaves so much in August that the average person has no choice but to at least check it out.
What Affiliate owners are struggling with is not doing anything to get better at being a business owner. The average CrossFit gym is barely open (2-3 morning classes & 2-3 afternoon classes, usually closed 99% of the weekend or 100% of the weekend). The average CrossFit gym does nothing to promote their gym to the community: if fucking MCDONALD'S sponsors the local 5k city race each year, why isn't the CrossFit gym also there? The average CrossFit gym is also usually totally disgusting & unappealing to the NARPs who may walk in/drive by to consider registering.
Most importantly, the average CrossFit gym does nothing to develop its coaches. CrossFit coaches are the representation of your product to your customers (current and future). I own my own healthcare practice. Some of my time is spent treating my own patients, some is spent on backend admin stuff, but a large portion of my time is spent on mentorship with my team, ensuring they are the best providers they can possibly be both in their delivery of medical services, but also in customer service. They deliver my product (healthcare) to my customers. It's imperative that they deliver unbelievable quality. As I'm making money each time my providers treat a patient, it's in my best interest to spend my time developing them. If they start treating Frank's calf for the burning feeling in his leg without first ensuring they screened the low back for referral, they're going to waste a lot of Frank's time & money treating the wrong region of the body. It is my primary priority to ensure my folks know exactly how to deliver the product, and deliver it in a manner that sees the customer satisfied so that they keep coming back. A satisfied customer repeats business at an ROI of 600-1400%. This almost never happens at a CrossFit gym.
In the Affiliate owner's defense, they don't have any help, because it's not like when you reach out to open a gym, you go through a 3-6 month training program to learn how to run a CrossFit gym. This is part of the franchising process at every major company but it does not happen at CrossFit. When you call McDonald's, you go through an EXTREME vetting process to make sure you're a good fit with the company but also to make sure you're competent enough to run your own business, and then you go to Hamburger University to learn how to run a business and more specifically, a McDonald's location. Only 1% of people who apply to open a location are invited to continue forward to Hamburger University. As you grow your business & train employees underneath you, the folks you promote to manager also go to Hamburger University. The investment in training and the focus on quality & consistency is on a different level. You can say what want about McDonald's, but you have the same customer service experience at every location across the planet & the food tastes the exact same.
CrossFit franchising is so far in the opposite direction it's hard to even compare it to any other model run by any other company. The lack of initial investment in franchisees from HQ combined with "the best gym wins" model where 13 gyms can open in a 1 sq. mile radius only ensures a race to the bottom that forces gyms to compete against each other for a portion of the local market share that is so small it is hard for owners to even pay basic operating costs. Combine this with a relatively niche market (only 10% of human beings exercise compared to 100% of human beings who eat food everyday) and you have a recipe for at best, a plateaued market, and at worst, a slow decline into obsolesce.
TL;dr - The CrossFit "Affiliate"/franchise model is fundamentally broken in a manner that will prevent CrossFit HQ from growing significantly while simultaneously ensuring most local "Affiliates"/franchises will fail.
Edit - I'm aware CrossFit is not a traditional franchise. The "Affiliate" phrasing is simply to denote that all the money funnels to CrossFit (directly to Glassman prior to 2020) with no expectation of reinvestment in the company, the brand, or the franchises. This is the exact issue with making CrossFit a sustainable platform.
@dawn16 I appreciate your analysis, I did read the whole thing.
You write "affiliate" and franchise. No, it's affiliate. CF had a founder/sole owner and he wanted it this way. He made a lot of money personally (if he was not asleep at the wheel in terms of Games spendig a lot of the time, he would have made even more).
I think Glassman knows at least deep in his heart that there's nothing special to sell here, it's gym activity for 45 minutes. The business can't really be bigger beacause there is not a huge market for it like there is for coffee or junk food.
As others said here many times, if you want a franchise CF, you already have the Orange Theories and F45s of the world.
CrossFit franchising is so far in the opposite direction it's hard to even compare it to any other model run by any other company.
You write "affiliate" and franchise. No, it's affiliate. CF had a founder/sole owner and he wanted it this way. He made a lot of money personally (if he was not asleep at the wheel in terms of Games spendig a lot of the time, he would have made even more).
I think Glassman knows at least deep in his heart that there's nothing special to sell here, it's gym activity for 45 minutes. The business can't really be bigger beacause there is not a huge market for it like there is for coffee or junk food.
As others said here many times, if you want a franchise CF, you already have the Orange Theories and F45s of the world.
@dawn16 CrossFit is not a franchise. Greg Glassman deliberately set it up not to be a franchise. Its business model has its disadvantages, but also its advantages. It is not likely to get into the problems that other gym chains have, like F45 which is now in trouble (it lost $372M in two years even with celebrity backing.)
The main issue now is that Berkshire bought it perhaps thinking that it would make more money than it is (I suspect Eric Roza probably oversold the potential for growth to Berkshire). CrossFit is making money, just not as much as Berkshire wants, and whether what Berkshire expects is reasonable or not we don't really know (we don't even really know how much they paid for it, some numbers have been bandied about, but we are not really sure.) It is not an issue with CrossFit, it is an issue with Berkshire.
The main issue now is that Berkshire bought it perhaps thinking that it would make more money than it is (I suspect Eric Roza probably oversold the potential for growth to Berkshire). CrossFit is making money, just not as much as Berkshire wants, and whether what Berkshire expects is reasonable or not we don't really know (we don't even really know how much they paid for it, some numbers have been bandied about, but we are not really sure.) It is not an issue with CrossFit, it is an issue with Berkshire.
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