She Spent $14K a Month on Ads That Did Nothing

0:00Alexandra. I sell Pilates education. So I co-authored a comprehensive 550 hour comprehensive school of Pilates along with a physical therapist and professor at Oakland University in Michigan. We also I also used to have four Pilates studios so individual sessions and Pilates classes as well. I now have two and I'm trying to offload the second right now to come back to the roots of what was working.

0:26And so I think my biggest constraint like last week I fired my sales I fired my marketing my entire team because I learned that despite the $14,000 a month that we were spending on ads everything was still coming in from word of mouth. >> it off and nothing changed. >> Yeah. And ads used to work though. Like >> [laughter] >> But ads used to work. I used to break even on like that $14,000 a month used to get me about $14,000 worth of intro offers and then our conversions at like 86%.

1:01So I do 1.5 in revenue now. I'd like to be a billion dollar company. I think 500 studios globally with a school and a studio will easily accomplish that. More important than that I'm mission driven. I want to change the way humans feel and move in their bodies. I've been broken so many different times and people have a right to feel at home in their bodies. And also I'm education driven. I left home at 17. I didn't get to go to college and it was robbed from me despite all the scholarship anyway.

1:29So I want to provide opportunities for people so that cuz I would love to be a physical therapist but I'm not. >> So you have a school >> Mhm. >> and you have a facility where customers come in. So you have two of these dual setups. >> Mhm. >> Okay. The B2B side where you teach how to do Pilates. >> Mhm. Teach teachers how to teach. Yeah. >> it. So you teach teachers and then you graduate the best teachers.

1:55>> love entrepreneurs in the area instead of supporting my flywheel. >> You take the best ones, they come to your thing, and then when they get good they leave with your customers. Something like that. Okay. Um Okay. So, [sighs] you want to scale >> epicly. >> this business. Hm? >> Epically. Yes. >> Yeah. So, having been in I still consider this the gym space.

2:23Um Same same. >> Yeah. >> From a customer perspective. Um I feel like I have some credibility talking about this. Um >> That's why I'm here. >> What's really difficult about that space particularly is that you sell low skilled labor that you then train into high skilled labor that they can immediately earn more somewhere else. >> Mhm. >> It's very hard.

2:50>> Mhm. >> And so, you have to build some sort of widgetized system, if that, to make it somehow more difficult for them to try and do it on their own. So, for example, an Orangetheory trainer has a harder time leaving because they can do some hopscotch in the parking lot, but they don't have the vibe, they don't have the lights, they don't have the equipment, and so it makes a little bit of a moat for people basically in terms of making your own competition.

3:19>> Mhm. >> But, if we look at like how many really successful micro gym boutique models have you seen scale? >> Um I mean the the one that comes to my mind is Solidcore. >> Okay. >> Yeah. >> And so, what's interesting about that? Do you know what the unit economics are for Solidcore? >> No. >> I'm going to bet they're bad. >> Mhm.

3:44>> I could be wrong, but I'm probably not. And the unfortunate truth about how most brick-and-mortar fitness works is that the person who makes the most money is the franchisor. >> Mhm. >> And I have yet to see someone really hack it with the exception of Alloy, which is um a semi-private model. Um I have yet to see someone have impressive unit economics because of the issue that I just stated.

4:11The reason that you can have a Quiznos and a Subway is because the food is all there. The person's not The sandwich artist isn't like, "I'm going to start a different like You're like, "Oh, I'm going to follow Rosie." You know, like you have no affinity for the sandwich artist, unfortunately, right? Um and so those models are incredibly replicable. And the chicken is the chicken, the bread is the bread, so it's it's so it's so easy Not easy, but it's easier to get consistent. Whereas even with the same coach, they can be have a good day and a bad day, let alone differences between coaches. And so the consistency of the model is incredibly difficult. And typically, you have an owner-operator who has lots of razzle-dazzle, and everyone loves them.

4:47I'm guessing that's what's happening with you. But as soon as you get people around you, if you create enough razzle-dazzle, you can't pay them enough. And if you don't create enough razzle-dazzle, your product suffers. It's an incredibly hard business. And so I'm not saying this to dissuade you. I'm saying that the reality is that the unit economics has to be there has to be a more defensible moat within the business. Like the actual four walls of the business that that prevent a trainer from starting their own thing. And it's not like I want to be defensive. I'm just like the reality of it, right? Um in order for it to scale, because you have to have basically career growth and retention for It's a service business.

5:26Um and so that is the difficulty of this particular model in terms of how do I get to 500 locations? You can, if you look at the Solidcore's and the the Power Yoga's and whatever else that that has scaled over the years, typically, you've got a really good marketing and sales entrepreneur that gets one location that they just crush ads through. And then they sell off the unit economics of that one and sell 200 uh locations. They scale to open 50 as fast as they can. They're usually in year one, year two max. They're a little bit new, trendy, hip, fatty, and then they immediately sell a private equity who then holds the bag, and then the franchisees who own all these locations never even open them up. The unit economics drop, and then their item 19 sucks, which is basically where you disclose how much money each location makes, and then all of a sudden their franchise sales die, and the and the cycle repeats.

6:11That is 90% of franchises, unfortunately. So, this is me painting the biggest doom and gloom uh version for you, but um >> So, with the school being a $13,000 ticket >> Yeah. >> at uh I think >> I'd rather you do that. >> Well, yeah, that's what I want to do, and that's what I'm doing. >> then can we get rid of the the individual locations for the customers, and is Okay, let me let me ask this differently. Do you just use the locations as a way for them to practice?

6:40>> They I need a location for them to be able to practice. >> Yes. >> Okay. That's So, it's more of a you have a you have a Pilates teaching school. It's less about the other side. >> Yes. >> I'm fine with that business. The other business is very hard. >> But that's Oh, yeah, I agree. >> Yeah, yeah, very hard. Yeah, yeah. Yeah. >> Um so, so my next question then would be So, my competitors in the industry, the people who are $200 company, Balanced Body, Polestar, Bosu, um they are doing it scaling their education systems through host locations, right? And And so, what my brain did instead, because like for instance,

7:16>> As in like you find a local shop and say, "Can I >> Yeah, and then like a region gets sold. So, like when I tried to a scale or hire in my own community, I went back to where I got educated, and like, "No, your region's already sold. We can't help you." And so, that was the driving force to create my own school. I was like, "Fine, [ __ ] you. I'll do it myself. >> All right. >> And I'll create my own people that are qualified." So, um so, I did that. And but now I have these 12 local entrepreneurs in in my area. So, I'm like, "Fuck, I should have thought of a licensing model. I should have sold them my playbook. I should have sold them like, yes, here's how you teach Pilates, but now here's how you have a marketing model. Here's how you do this. Here's how you do this." And then keep going.

7:53>> you want to start a franchise. >> I don't think a franchise cuz I've read all the books and that seems really hard and sucky and >> Well, I mean, bro, you want to get to a billion and you're like, "It's hard." >> No. Well, [laughter] I want I uh yeah, hard is the wrong word. Um Yeah, what about licensing? Like I guess I'm trying I mean, I joined the thing. I bought >> Yeah, yeah, no, you're It's not like I'm not going to help you for free. >> [laughter] >> like, yeah, help. >> No. Um it's

8:17>> want to do this alone. I am alone. So. >> much cash do you have? >> None. I am so out of cash. >> Okay. >> Like Yeah. >> Got it. >> Yeah, that whole exercise yesterday was like nearly impossible because my EBITDA is like way in the [ __ ] >> you. Okay. Um all right. Okay. >> [laughter] >> So, no, you're good. You're good. So, the difficulty is that you don't have a true model yet because right now you have a your business is teaching and you use a store just so that you have a test kitchen, but it's not because the business is the store.

8:55So, said differently, if you if you had the true store model nailed, then the education of the Pilates owner is just part of the franchise package, which is you train the staff, you train the owner on your systems and whatever. And so, like, you're looking to build like everything you're saying is looking to build a franchise. I'm saying what's difficult about it and I want to be very clear. You can absolutely make a ton of money doing it. I just ethically have some issues with it because I have seen 99% of franchises, the franchisor leaves with the money and the franchise user left with the bag, right?

9:26>> all the money, but it's not actually my >> Got it. >> purpose. >> Got it. >> But I want it all still. >> Yeah, yeah. So, we >> Sorry. >> You're good. You're good. I'm trying I'm trying to unpack this thing. So, Leila has this great friend which I'll I'll share with you which is like, are we are we talking about solving a missed opportunity or we solving a problem? And most growth comes from solving problems, not lamenting missed opportunities cuz there will always be infinite missed opportunities. But, there's a more finite set of problems that you can solve and there's one problem that's going to be the most valuable to solve which by the way is how you grow.

10:02It's not fun, but that's how you actually grow. And so, right now I want to go all the way back to basics. You have an education business where you teach the Pilates. What stops you from doing more of that? >> Uh I am doing more of it. Like this my goal this year is to sell out three So, I'm the first company or first school to do uh a daytime cohort >> What's stopping you from doing it? >> What's stopping you from doing more? I am doing more. I'm already doing more.

10:28I'm I'm probably going to be at the capacity that those two locations can't do this fall. >> you can't do more. Correct? Okay. So, are those locations profitable? >> Uh my Berkeley location's very popular pop- profitable. My Rochester one is not at all and that's the one I'm trying to exit and sell to one of my students. >> [laughter]

10:54>> She don't know yet. >> You're [clears throat] meant to be a Uh >> [laughter] >> I'm just kidding. Uh >> I did that with my third location. I sold that to one of my students. >> Okay. All right. Um Jesus. Uh All right. >> Should I go home now? >> So, no no no, you you have this education business and I I I want to I'm trying to I'm trying to solve this. So, uh you have this education business and you're It's just It's because you have two models that are getting mixed up.

11:26You have this brick-and-mortar model of the teaching model. There's nothing that stops you from just opening more teaching stores, whatever you want to call it, classroom, whatever facilities. >> And I have six educators that I've trained to now teach the school. >> I mean, if I were you, do you have a way of reliably producing Pilates people who will pay you money to get certified in your style Pilates? >> Yes. >> Great. So, I think it would make a shitload of sense for you to just partner with people, use the off hours, sell a shitload of customer students, students who want to become teachers into those businesses. You don't have to take the build-out risk, you don't have to take the rent risk, and that is super profitable.

12:07>> But then I'm just like my competitors, so then I got to beat Goliath. >> money for a reason. >> to beat Goliath. >> Hm? >> I got to beat Goliath. Like if I'm going to do that >> you want to be a billion-dollar company. >> Yeah. >> You got to beat Goliath. That's the game. >> Okay. >> I'm being real as [ __ ] with you. Like you want to be a billion-dollar company. >> I would do it differently than Goliath's and therefore better. Goliath is Balanced Body. >> So, most of the time Goliath is actually not that hard to beat. The biggest part about Goliath is hard to beat is the idea of Goliath.

12:39>> Yeah, I look up to them. >> Yeah, you I think you show them too much respect. And what I mean by that is that also means that they have a ton of blow, they have a ton of overhead, they're not adapted to AI, they're going to be super slow on all this new stuff that's coming out, and there's always room for a new player because the new player always is more up to date and is always leaner and always faster. And that is the cycle of business. And so, like there's no like Rome didn't lose to another Rome, they lost the barbarians, right? And so, like you are the barbarians right now, and I think that that's probably the strategy that you should take cuz if right now you believe that you're Are you beating them in your current market?

13:15>> Yes. >> Then why can't you beat them in another market? >> Uh capital. >> Well, you're not beating them then because you need to make money in your business. >> Mhm. >> So, real talk, I think we need to zoom all you know, I'm glad we're happy to help, but like we have to fix the like you're you're here. We're trying to solve like it's like a weight loss customer is like I'm going to have to change all my clothes once I lose 100 lb. It's like let's lose 100 lb first, then we'll worry about the clothes, right? So, you're like I got to get to a billion. I'm like I hear you, but like let's make money here first so that we can do that.

13:51>> Yes, you asked where I wanted to go. >> No, you're fine. You're fine, but we got to get these four walls to print cash. >> Yes. >> Once these four walls print cash, you will have oxygen to breathe and you'll have optionality. At that point, we'll be able to make the call of maybe maybe the store itself is a franchisable model. The the the teaching part, which is different. B2B, it's cool. That could be a franchisable model. You could just do the kind of flying out in the host version of that. That's also super profitable, but until we nail these four walls, nothing else matters.

14:25>> Mhm. >> So, this is what we have to focus on. >> Mhm. >> And we'll help you focus on it, but that's that's that's what we have to solve and thank God we got to there, but that's that's where it is, okay? That's what we have to do. >> Yeah. >> Forget everything else. >> Yes. >> Nothing else matters until this thing prints. And then you'll have lots of options. But you have no options cuz you have no money. >> Right. >> So, we need to go make money. >> Yes. Okay. >> Yes. >> [applause] [laughter] [panting] [snorts] [clears throat]

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