Why better leads to bigger and why I tell people to close locations... ..and how to grow VERTICALLY not HORIZONTALLY Ep 87

Summary Notes


In his discussion, the host emphasizes the pitfalls of gym owners expanding their businesses based on ego rather than financial logic. He observes that owners often rush to open multiple locations after initial success, leading to diluted efforts and financial strain rather than increased profits. The host advocates for a focus on maximizing the potential of a single location, suggesting that owners should only consider expansion after consistently high profits and minimal personal involvement. He shares that those who heed this advice, prioritizing financial stability over status, tend to be more successful, advising owners to cut losses and consolidate if they're overextended.

Summary Notes

Decision to Close Locations

  • Gym Lords community often advised to close locations.
  • Business owners and entrepreneurs frequently open additional locations based on emotion and ego, not math.
  • The objective of business expansion is often misunderstood as an ego boost rather than profit maximization.
  • Entrepreneurs are reminded that status doesn't pay bills, unlike money.
  • Expansion can dilute focus and effort, leading to decreased performance in existing locations.
  • The challenges of managing multiple locations can lead to financial strain and stress.

"And it's why I tell people to close locations."

This quote highlights the speaker's counterintuitive advice to business owners, particularly within the gym industry, to consider closing down locations to maintain or improve their business's health.

"A lot of gym owners, or really business owners and entrepreneurs in general, tend to open locations not based on math, but they open it based on emotion and ego."

This quote explains the common mistake entrepreneurs make by allowing emotions and ego to drive their decision to expand, rather than relying on financial calculations.

"You can't eat status, you can't pay rent with status, right? You can't do anything with status, but you can with money."

The speaker emphasizes the impracticality of pursuing status over financial stability, pointing out that money, not status, is what sustains a business.

"The thing, though, is that what it takes to make one location really, really good is a lot different than what it takes to take two locations or three locations or ten locations, right?"

This quote underlines the complexity and different skill sets required to manage multiple business locations effectively compared to running a single successful location.

"And so what happens is they start another location and then that one does usually not even as high as the first one does. It does maybe two thirds of what the first one did."

The speaker illustrates a common scenario where a second location underperforms compared to the first due to divided attention and resources.

"And now both of them are basically running at break even. And so the gym owner says, okay, well, if I open a third location, then now I've kind of covered this, and then I'll be able to make a little bit more on all three of them."

This quote outlines the flawed logic that can trap business owners in a cycle of expansion and diminishing returns, mistakenly believing that opening more locations will solve profitability issues.

Misconceptions About Expansion

  • A single successful location often prompts owners to consider opening more, forgetting the original objective.
  • Owners mistakenly equate more locations with greater net income, disregarding the complexities of scaling.
  • Opening additional locations can lead to a decrease in net profit due to increased operational demands and reduced focus on each location.

"And then within twelve weeks, the gym owner is like, hey, man, I'm looking at my second location and it makes me want to run my head through the wall because they forgot what the objective was."

This quote captures the speaker's frustration with gym owners who quickly consider expanding without recalling their primary business goals.

"The reality is that most times what happens is if they go and open the second location, the amount of time and effort that they can put into that first location goes down, and then within the margin of the industry right."

The speaker explains the common consequence of opening a second location, which is the inevitable reduction in time and effort dedicated to the original location, leading to decreased performance.

"Even if you split your attention, having a 25% decrease in sales is actually fairly normal, especially if you go from owner operated to remote."

This quote emphasizes the significant impact that divided attention can have on sales, particularly when an owner's direct involvement in a location is reduced.

Consequences of Overexpansion

  • Overexpansion can lead to a cycle of opening more locations to cover the underperformance of existing ones.
  • Gym owners may find themselves in a stressful situation due to the demands of managing multiple locations.
  • The pursuit of status through expansion can result in financial instability and continuous stress.

"And then obviously they stretch themselves extremely thin and then obviously they get into this really horrible situation where they're stressed out all the time, continually."

The speaker warns of the stressful outcomes for gym owners who overextend themselves by managing too many locations, which often leads to a perpetual state of stress and business instability.

Importance of Simplification in Business Expansion

  • Simplification is key when considering business expansion.
  • Focusing on one successful location is preferable to opening multiple ones prematurely.
  • A single, profitable location can be more beneficial than several underperforming ones.

The solution for that is not to, like, let's double down. The solution a lot of times is to simplify, is to get rid of locations so that we can focus on one location and make it better.

This quote emphasizes the idea that instead of aggressively expanding, businesses should focus on simplifying and improving their current operations to ensure they are successful before considering expansion.

Benchmarks for Opening a Second Business Location

  • A business should consistently net $20,000 per month for six months before considering a second location.
  • The owner should not be actively involved in daily operations, limiting their time to a maximum of 10 hours per week.
  • The business should continue to grow even in the owner's limited presence.

I don't even want to hear you talk to me about, you want to open a second location until you have made 20,000 a month net for six months in a row without being there.

This quote sets a clear financial benchmark for business owners to achieve before they should even contemplate opening an additional location, ensuring the first business is stable and profitable on its own.

Financial Stability and Risk Management

  • Personal financial needs should be met before investing in expansion.
  • Accumulating significant savings is critical before taking on the risk of opening another facility.
  • Expansion can lead to increased liabilities and divided attention, potentially harming both locations.

The $20,000 a month net, it also assumes that you've already taken care of your personal need for money.

This quote emphasizes the importance of personal financial security before considering business expansion, to avoid personal financial strain as a result of business decisions.

Realistic Expectations and Stress Management

  • Multiple locations often lead to increased stress and reduced profitability.
  • Owners of multiple locations may appear successful but could be struggling financially.
  • Simplifying to one location is often more profitable and less stressful than managing several.

So if you go to one of these conferences or these events or these masterminds that sometimes get held, and some guy's like, yeah, I've got four locations. You should immediately be like, cool. This guy's probably not making anything, and he's probably really stressed out.

This quote challenges the common perception that owning more locations equates to greater success, suggesting that it may actually indicate financial stress and overextension.

The Misconception of More Locations Equating to More Profit

  • Owners often mistakenly believe that opening more locations will linearly increase profits.
  • In reality, each new location can dilute the success of the original, leading to overall reduced net income.
  • This misconception can lead to a cycle of opening more locations in an attempt to increase profits, which may result in financial distress.

I'm guessing you had your first location that was making ten, maybe 15,000 a month net. You open your second location and now it drops down to two, making five or two, making 2500.

This quote illustrates the common pitfall of business expansion where the net income of the original location decreases as new locations are added, which can lead to a counterproductive cycle of opening more locations to compensate.

Encouragement for Listener Engagement

  • The speaker employs humor to encourage listeners to rate and review the show.
  • Listener engagement is important to the speaker, and they make a light-hearted plea for support.

Hey, if you're a return listener and you have not rated or reviewed the show, I want you to know that you should feel absolutely terrible about yourself and everything else in the world.

This quote uses hyperbolic humor to remind listeners of the importance of engaging with the show through ratings and reviews, which can help increase the show's visibility and success.

Growth Strategy for Entrepreneurs

  • Entrepreneurs should focus on improving their existing business before expanding.
  • It's crucial to prioritize profit-making over status when making business decisions.
  • Efficiency and repetition in successful strategies are key to sustaining profitability.
  • Scaling vertically within a single location can be more profitable than expanding horizontally to multiple locations due to fixed costs and higher marginal returns on additional revenue.
  • Breaking perceived limits in business can inspire others to believe in greater possibilities.
  • The concept of 'better leads to bigger' emphasizes quality improvement over mere expansion.

"And the decision was made based on status and not money, right?"

This quote emphasizes the mistake of making business decisions for status rather than financial viability, which is crucial for long-term success.

"Do it again and do it more efficiently."

This quote underlines the importance of replicating successful strategies and continuously improving efficiency to maintain and enhance profitability.

"Because there are fixed costs within the gym. And then as you scale up, a higher and higher percentage of the revenue contributes to margin."

The speaker is explaining the financial advantage of scaling up within a single location where fixed costs remain constant while the additional revenue largely contributes to profits.

"Is this really the best I can do? Is this the best business I can possibly make? No. Well, then don't open another one."

This quote challenges business owners to critically assess their current operation's performance and to focus on maximizing its potential before considering expansion.

"Once we had gyms who broke the four minute mile and hit 83,000, hit 100,000, hit 120,000, a month in recurring, then all of a sudden everyone believed it was possible."

The speaker uses the analogy of breaking the four-minute mile to illustrate how surpassing perceived revenue limits in a single gym can shift the mindset of what is achievable, encouraging others to aim higher.

"You need to make your gym better, and then only when you truly have a full bank account... would you then and only then be allowed to even think about the concept of."

This quote concludes the discussion by reinforcing the idea that business owners should focus on perfecting their current operation and achieving consistent financial growth before considering expansion.

Shifting Business Focus

  • The discussion emphasizes moving from a status-driven approach to a bank account-driven approach in business.
  • It suggests that expanding to multiple locations may not always be beneficial.
  • The speaker shares personal experience of stress and mistakes made from pursuing status over financial stability.
  • The advice is to concentrate on making one business location profitable rather than expanding prematurely.

And so it's really shifting your main driver from a status driven driver to a bank account driven driver.

This quote highlights the central idea of changing the primary motivation in business from seeking prestige to focusing on financial health.

Benchmark Criteria for Expansion

  • The speaker suggests using specific benchmarks before considering a second business location.
  • Indicators of a successful single location should guide the decision to expand.
  • The speaker cautions against opening additional locations if the current ones are not financially successful.

And so for anyone who's out there who's like, man, maybe I'll open a second location, like, okay, I would use those benchmark criteria.

The quote suggests that business owners should meet certain performance benchmarks before expanding to another location.

Analyzing Multiple Locations' Performance

  • The speaker highlights the potential pitfalls of operating multiple locations.
  • There's an expectation that more locations should lead to increased profits and economies of scale.
  • If multiple locations result in lower earnings than a single one, it indicates a flawed business model.

I'm making less with two locations than I was with one location. That should be an indicator for you.

This quote points out that earning less with more locations is a sign that the business expansion may not be going as planned.

The Strategy of Refocusing

  • The speaker advises on cutting back and refocusing on a single location if multiple locations are not profitable.
  • Simplifying operations to one profitable location can lead to significant financial and operational improvements.
  • The goal is to create a successful and vertically growing business before considering further expansion.

Because every time we have done this with a gym and they refocus their attention on one location, I'm like, imagine how easy it would be.

The quote implies that concentrating efforts on one location can simplify business operations and lead to better financial outcomes.

Decision Making from a Place of Abundance

  • The speaker stresses making business decisions from a position of financial abundance rather than scarcity or ego.
  • By focusing on making one location successful, business owners can make more informed decisions about expansion.
  • The speaker encourages taking a step back to evaluate the true motivations and goals behind business decisions.

You don't need to work as much on the facility, and then you can make the decision from an informed standpoint of abundance rather than from a scarce ego standpoint of, like, I need more stats.

This quote encourages business owners to make decisions based on a strong financial position and not out of a desire for status or ego-driven reasons.

Content and Engagement

  • The speaker apologizes for being light on content due to other ongoing projects.
  • There is an anticipation of new content and developments to be shared with the audience.
  • The speaker encourages interaction and sharing of the video with others who may benefit from the message.

I'm sorry, I've been light on the content. We've got tons of amazing stuff that's going on in the background for us that is coming down the pipeline for everyone soon.

The quote explains the reason for the recent lack of content and teases future updates and projects that the audience can look forward to.

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