If Your Business Needs You Daily, You Can't Expand

0:00that you used to run gyms. I run a music school. >> Cool. >> And um yesterday >> Pardon? >> Works the same way. >> I feel I in some ways >> Same exact model. >> Yes. >> [laughter] >> So, I yesterday we learned about 5 mil EBITDA. That means you get a five times um multiplier. It blew my mind. I cannot fathom how I could get a music school to get to those numbers. Not saying it's impossible, but I don't know what the strategy is. I'm aware that my current model, yes, my current model is good. It can be better.

0:36>> Sure. >> Which we will continue to work on. And I am also aware that jumping from one location to the next location is the hardest jump. Once you know that, then we can replicate the rest. So, my question to you is what do I mentally need to be prepared for for my first jump so that the multiple jumps afterwards are successful? >> So, this I'll give you the litmus test that we have for gym launch. So, you guys should remember this. Which is number one, the location has to operate on its own without you for 6 months.

1:11That means not that you're not in the facility, which is what people mistakenly think that it operates without them. That just means you're not doing anything. But you're absolutely running the facility. You're just not teaching music lessons. Big difference. So, it needs to run without you. As in, you have a manager, and you say, "Here's the deal. You get 10%, and this is my phone, and this doesn't ring. That's the trade."

1:35Make sense? So, let's role play. Uh pipe breaks, what do you do? And they're going to be like, "Call you." And you're like, >> Go to the playbook. >> Go to the playbook. >> because what am I going to do? I'm going to pick up the phone and say, "What do you think I would do? I'm going to call a plumber." Great, call a plumber. >> [laughter] >> Right? And so, I had um I'll tell you a fun story that you can tell the the that you're going to hire. Um my godfather uh manages a gazillion dollars and he has this rule like if I if I ever call, he immediately asks, "Is it an emergency?"

2:07And if I say no, he's like, "Then why are you calling?" If I say yes, then he's like, "Then call 911." >> [laughter] >> And so it has to be it has to be kind of the same setup there, right? So, number one is it has to run without you, truly without you. As in you're not making decisions, problems are not escalating to you. You just own it and you get a check. That's number one. Number two is that during that 6-month duration, it has to at least maintain or grow in profitability. During that 6 months.

2:33>> Mhm. >> If you can do both of those things, then it's just a question of what's what how much cash flow do I need to open up my next facility and that becomes your your timeline for opening up. >> That's it. >> I mean the first one's harder than you think. >> [laughter] >> I can do I think I can I can just go on holidays for 6 months, right? >> Yeah. It's a great test. I would start with like a month. >> Yeah. >> [laughter] >> One week, two weeks, three.

3:00>> See you later. No, I yes, it it really is that much and just having the the thing is the first location has has your fingerprint on it, right? And so there's a lot of special things that you did there. Everybody knows who you are and so you have to try and replicate that to a really great degree with the next location. But the next location, if you really want to do it, you want to open up with you not even being on the floor to begin with, again. And so that's where like at the original location, that's why we have to maintain or grow in profitability over that 6-month period because it demonstrates that the that the machine that you have built is a good fundamental unit. The last part, the third one, is a banger grand opening strategy.

3:42Every single privately owned four-wall kind of service-based business that I'm aware of like I was referencing earlier, um, has a killer grand opening strategy. Like they have to know, like if you look at I mean you look at anything, Krispy Kreme, you look at Chick-fil-A, you look at Orange Theory, it's a matter of what you look at. Like if they're if they're a 1,000 location chain, they have how you open dialed down to like this is what we do at 120, this is what we do at 90, this is 60, this is 30. This is how much we're going to spend, we don't open until we hit this number. Like everything is dialed in. And so I would recommend figuring out how to get to at least 50% capacity of the facility before you open.

4:21>> Mhm. >> So you'd want to have a grand opening strategy. And if you're like, well, how do I do that cuz I can't do that at my existing facility? There are a couple things you can do. So one is do you run ads or how do you get customers now? All word of mouth? >> I only just started doing ads and I realized it works. No way. It's crazy. [laughter] Um, no, so I launched a new program to try and maximize my space, um, and it's blown up. We created a wait list, so then we started it early and now it's opening and operating on its own, which is great.

4:49>> Great. >> So I've learned that it exists. One of the challenges is do you leverage your current location and open somewhere that's kind of close so that or you go into a complete different >> I wouldn't I wouldn't want to cannibalize my existing location. >> Mhm. >> Yeah. No, I like you'd want to open across town. >> Okay. >> So that it's just it's a different market. Now, you probably have, call it, four sub zip codes within your larger city that you could open up in.

5:16And so the the highest return test that you can run. Who here's working more Okay. But please pay attention to this. Is rather than like sign the lease, do the build out, and then run your first ad, and then be like, oh this market blows. Run the ad first. >> Mhm. >> See what the lead cost is in four different areas. It's like it costs you a thousand bucks in each market to test to test your ads, see see how they do. Like take your highest performing ad now, run it in each of those three markets, look at the average lead cost. It's very common to see like a five x difference even within the same city.

5:47And so like if you can cut CAC by 80% in one place, that will be the largest discrepancy that you can even have. And that's why market selection for brick and mortar is so important. And so to recap this, you have your 6 months, you have your I don't remember my second one. You have uh you have a grand opening strategy that's banger. Um and then you'll want to have some sort of incentive plan for your manager uh who can get again 10 or 20% of the

6:15>> profit of the facility. >> And would that be more beneficial than going franchising? Cuz after three you could potentially franchise cuz ideally your model would work better. >> one. >> Would the 10% be smarter? >> [sighs and gasps] >> Franchising is a totally different business. Different monster. Most of the time I unwind franchises when I come across them. Cuz most people franchise for the wrong reason. They franchise because they have some sort of ego thing or some arbitrary like I want to be a franchisor.

6:43Um but if you actually do the math on a franchise, so when we did so we we we acquired um a franchise recently uh or recently a year ago that uh that had 14 corporate locations, 18 uh franchisees. And so when I looked at the economics of the business and this is what I did prior to the purchase, I said, "Listen, when I buy, my plan is to never open another franchise." And they were like, "Ooh, that's that wasn't our plan." I was like, "Okay, well, we want this exit, right?"

7:10And they're like, "Yeah." I was like, "Okay, let's do the math at how many franchise locations need to be open for us to get that exit." And it was like 400 locations. And I was like, "Okay, now how many do we need to own private or corporate in order to get that same exit?" And it was like 67. I was like, "Which feels harder to you?" And they're like, "Man, the 400." I was like, "Right, so let's stop doing that." And so over the next 12 months I bought all the franchisees out and so then we're at 32 locations corporate, so we're halfway there. Then we'll we'll we'll open up the other 32 or whatever, 35.

7:42>> Excellent. >> were business owner and you're not growing as fast as you'd like, I'd like to give you a free gift. So, my team and I put together the $100 million scaling roadmap, which is basically 200 hours of us looking over all the portfolio companies we've had and what stages of growth they went through and more importantly, where they got stuck and how they got past it. And so we broke it in these 10 stages and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at and the most important part for you, what to do for each of functions of business across human resources, and finance. And so no matter what you're struggling with, someone else has already struggled with it and solved it. And so I'd like to give you this thing absolutely free.

8:21You go to acquisition.com/roadmap, plug in your business information, and if you want us to actually help you deconstruct your business and you're trying to scale, we'd love to help you out. On the thank you page, you can just book a call with my team and we will look at the business, see if we can help, and if we can, we'll invite you out to Vegas and we'll do this in person live.