295: How 12RND Fitness Founder Tim West Beat His Competitors to the Punch

Nathan: The first question that I ask everyone that comes on is how did you get your job?

Tim: You know what, this is a question that I get asked a bit. It’s almost just by default because I’m almost unemployable from a traditional sense. Now, the way I see the world, the way I see business, the way I see the building of businesses, it doesn’t make me entirely compatible with being employed. So the best way for me to control that and to do what I love is to own my own businesses. Therefore, now I’ve got to build them.

Nathan: So was 12 Round first company or what is your background? Where do you start? What is your first business?

Tim: Yeah, look, 12 Round is the most relevant because I’ve been the janitor through to the owner, so to speak in fitness. So starting out wanting to be a professional athlete but not having the ability, wanting to be in strength and conditioning because I wanted to be involved in sports. But pay my way through study with personal training. Then into gym ownership, in franchising, and gym operation, and then into franchise development, a few steps along the way with technology.

Nathan: So what was the first gym that you owned? Are you able to share that, the franchise?

Tim: Yeah, yeah, the first franchise gyms that I owned were some of the first jets clubs, the first 24-hour clubs in the country. So I was working for good life at the time. Then friend of mine introduced me to the concept of 24 hour gyms which of course, I thought would never work at the first pass. Then looked at a little bit more and realised that it did satisfy an issue in the market, a customer’s need. So we opened the third or second 24-hour club in the country after the founders clubs. How long ago was this? It was 2008.

Nathan: Okay, yeah, wow.

Tim: Great right timing as you Which was October 2008. So the very day that the GFC was announced.

Nathan: Yeah, wow.

Tim: So what happened next? So we open three in quick succession. It was really successful from the start. So that’s when really understanding the growth power of franchising, Good Life was a company-owned franchise. Yes. So that had a different group of restraints, they had capital and HR restraints. When I saw Jets and the opportunity it gave to fitness professionals to step up into bricks and mortar businesses, and the power of club ownership and operation, aligned with the investment, and the potential that that has has for quick growth and I was hooked on that franchising model from that point.

Nathan: Yeah. Interesting. You said you opened up three. Over what period of time?

Tim: Over about nine months. Wow, okay, that was pretty fast.

Nathan: Yeah.

Tim: Then how did you get the capital to launch all three so fast?

Nathan: Well, it was It was interesting.

Tim: It was friends of mine working away. They had capital and I had no idea. Yes. So that’s where that came together. With a syndicate investment approach, yes, we were able to get the capital. Given we had operational backgrounds that were complimentary, we were able to roll them out fairly quickly.

Nathan: That was in Brisbane?

Tim: In Brisbane, correct.

Nathan: Okay. Then what happened next?

Tim: Well, I always had a strategy when they stopped selling franchise territories in our area, our area being Brisbane. I knew from that point that that supply and demand would have a positive effect on the exit value. So I’d always strategize the day that Jets stop selling territories in Brisbane, I put all three on the market.

Nathan: Yeah, wow, interesting. When was that?

Tim: So that was that was 2010.

Nathan: Okay, so only a couple years.

Tim: Pretty quick, you know, and in between that, I’d invested some capital into a software solution that I thought would help service providers have repairing booking businesses like PTs, where they’re able to do the things that PTs were bad at? Take your manage bookings and take payments, and charge people for not showing up.

Nathan: Yes.

Tim: I build a platform that enabled PTs initially to book clients in in recurring schedules and charge them in advance for it.

Nathan: Yeah, like a mind body software as a service.

Tim: Yeah, software as am service product. We call it the what if of service providers at the time because no one was really doing it except what if at that point. That was my foray into into tech and also billing. So the the tech and infrastructure around billing, the regulation around billing, and also the tech, and understanding how tech can support scale which is where I think its primary place is.

Nathan: Interesting. So you sold the three Jets that you had and then you moved into software?

Tim: Yeah. Correct.

Nathan: What happened then? What happened ever since?

Tim: Then moved out of software, ultimately. The same investors is the gyms. When you do that and you lack a technical investor in an entirely technical business, you’re really at limitations. So we migrated out of that tech space. I started cooking away with the model behind the 12 Round product.

Nathan: How long did you work on the software product?

Tim: Well, concurrently, midway through owning the Jets clubs. I was in tech and then we invested in more tech, which was Go One, the fastest growing learning management software in the world.

Nathan: Yeah, yeah. We interviewed the film.

Tim: Yeah. So Andrew and Vu, they were actually builders that first prototype.

Nathan: Ah, there you go.

Tim: So in that, they introduced us to the concept of Go One and we invested in that as seed investors.

Nathan: When you say we that was the original investors that you pulled together for Jets?

Tim: Correct. Yeah, the same block, yeah. So I was an executive non executive director of Go One in its first few years.

Nathan: You were?

Tim: Yeah.

Nathan: I see. Okay, so you’re working there, but then you kind of had this idea for 12?

Tim: Tech, although tech would be the answer. Yeah. Then when I realised that there’s limitations in non tech owners of tech businesses, no tech founders, I went back into what I know, which was getting back into bricks and mortar fitness businesses.

Nathan: Interesting. So whatever happened to that company? Because one thing we try and do here at Founder is you have an extensive amount of experience, starting and growing and scaling businesses. It’s always incredible and helpful for people to learn from your experiences. Was there anything you could share that you wish you had have known because I know, literally I was at a wedding in Bombay this weekend. I met a guy. He has a similar kind of situation, he has a few, 45 franchises.

He said to me, “You know what? Look, Nathan. It’s just not the scale that I’m looking for.” Right? You get capped out, right? You can only fit in let’s just say 150 to 200 members per club. But then after that, it’s just you’re capped out, right? You can’t do anything more. So he’s working on literally a software solution that he believes is infinitely scalable, right? So it’s the same kind of thing, searching some more, right, or how do you build a bigger business that’s extremely scalable, that you don’t have these limitations. So what can you learn? Because a lot of people do try and move into building a software company. It’s really difficult or they try and move into a brick and mortar and it’s really difficult or e-commerce. You think because you’ve done it once or you’ve had some success, that sometimes you get tricked. So I’d love to hear what experiences do you have with that moving and transitioning. How did you end up going? Is that the company of 12 Round or …

Tim: Okay, so few things. There’s definitely really valuable lessons in it. In the tech building, you really have to apply very strictly an agile development methodology. I’m sure you’re well familiar with that. But you really need to validate the customer and the customer needs prior to spending the money on building the infrastructure. One of the really big issues we faced was, we didn’t stick tightly to a scope of works and scope creep kills most projects. You ask an architect, and they quote on a project, then the owner says, “Just move that door a little bit there or we’d like the deck a little bit longer or bigger.”

Well, tech projects have that but it’s really easy to spend money quickly. You don’t even understand the implications of the changes you’re making on the quote or on the scope of works. That’s where a tech co-founder, if it’s going to be serious tech at serious scale. Now, above the template platforms, the WordPress websites or or e-commerce.

Nathan: Yeah, off the shelves. Shopify off the shelf, yeah.

Tim: If it’s going to be bigger than that.

Nathan: Yeah, so custom.

Tim: What you what you need to do is really look at what is the minimum viable product required to validate the customer? One of my favourite quotes is that no business plan survives contact with the first customer. Now, Mike Tyson puts it in a boxing context. Everyone’s got a plan until I punch them in the face. The ultimate scenario is that until you reach that first customer, what’s in your head is the perfect solution is just that, in your head, until you validate that with customers. So we cause big issues with our business by building a Ferrari to take the kids to school.

We build an infinitely scalable, completely, RESTful APIs, proper scale infrastructure, enterprise level security and scale. We didn’t have a single customer. What that meant was the cost in delaying that launch really chewed up the capital required to acquire customers at the other end that we had validate. Then we struggled to find investment because we didn’t have a tech founder, a tech co-founder. So for your friend, my advice would be to find a really seriously capable tech co-founder that has a cultural fit, a shared set of beliefs and a shared set of values that isn’t you, and apply some different knowledge. That way, you have a chance to build things lean enough to get to the stage of validating customers in scale after that.

Nathan: Yeah, interesting. So what happened to that product? Is it still around or are you shutting it down?

Tim: No, the product is not around. I think that it still is an applicable product now, I actually think it would work still. I think it was a really solid business plan. But the fact that we used all of our capital before we started acquiring customers, and we couldn’t go and find money because we didn’t have the criteria of a tech founder, I remember sitting down with Blackbird VC when they first launched. Nicky was a friend of Cannon Brooks. He just said, “First criteria, you’ve got a scalable tech business, we believe in the business case.”

So why is there no tech founder sitting at the table with us? He said, “Well, because we knew the problem. We didn’t necessarily know how to build the solution.” He said, “Well, I can’t invest on the basis of that.” They’ve gone find a tech founder and come back to us. By then, we’d burnt through the capital and didn’t have the money to keep the business going. So that’s probably, on two sides, it’s a great and really valid experience. Then it filled in my gaps in payments, which for gyms, are recurring payment businesses. International payments is one of the biggest issues with international growth of a gym franchise.

Nathan: Really?

Tim: But that’s actually my backyard now, that’s something that I understand as well as a fintech founder. Through through that experience, it really turned into a huge asset because not only do I understand the mechanisms of scale for tech, but I also understand the mechanisms for scale for bricks and mortar. So therefore, they’re complimentary when you look at moving into international markets, where that inability or lack of knowledge would mean that you just simply can’t do it without selling a lot of capital to acquire that or equity to acquire that knowledge.

Nathan: Interesting. So you shut that product down in the end, unfortunately, it didn’t work. But to your benefit, you took a lot of lessons away that you put into 12 Round. When did you start conceiving? How long did it take you to conceive 12 Round? Yeah. Can you give us context of what 12 Round is for everyone watching and listening?

Tim: Yeah.

Nathan: When did you launch it? So how long did it start? How long did it take you to actually get it up and running?

Tim: So at the very start of 2014, I was out of my non-compete with Jet. I was at final stages of the product that we built, the software product. I really needed to get back into my comfort zone. I had the capital still to do that. I started to think well, what were the things you loved about fitness? What were the things that made you successful in PT or in gym ownership? I thought, “Let’s embody that.” Then what are the issues that fitness businesses face? So let’s avoid those.

Let’s incorporate all the good things and try and avoid as many of the bad things. My time with good life and PT, one of the big issues with the fitness products or the group fitness stuff was timetables. You’ve been a member so you understand this. So over 80% of complaints across the counter are at a big box gym, a good life of Fitness First, regarding group fitness, regarding the timetable. I knew that boutique fitness, small group training was on the move. It was huge in the States. It was exploding. I had 42% growth in one calendar year. But it seemed to me to embody the issue of timetables.

So first of all, that was the problem I’d set myself to answer and to solve. The second part is that I felt that exercise was penance or punishment for most people. I thought, “Well, the only time that doesn’t feel like that is when you’re playing sports.” So I tried to break down that part. So you’ve got sports, why do sports a feel different exercise? Why does going for surf feel different to go and swimming laps or playing a game and touch football feel different to running laps or a treadmill? The answer was skill.

So it’s team, team building and skill. Now, group fitness has the team element innate in its nature. But it doesn’t always have this skill building element. This skill building is what distracts you from the exercise. So if you can embed a skill where you can work towards mastery, you forget that you’re actually meant to be focused on the calories or meant to be focused on the weight loss for that period. So that means that you’ve got the next piece, which is engagement over a long period of time. So working on that, discarding the things that I thought were going to be issue, enhancing the things that I loved about sports meant that I wanted to build a group fitness product that avoided the pitfalls of time.

So it was convenient, that would drive adherence. Then I would also focus on the skill development. I had a background in boxing, very low level, more of a hobby. Yes. But I loved it. I just didn’t necessarily like getting punched in the head all the time. It was a situation where I thought boxing in all of my S&C, strength and conditioning background is used in all sports. It’s not a preseason for a league team, or a union team or an AFL team, or a netball team, or swimmers where they don’t use boxing for conditioning. So that made sense. Very low skill level to start, but a lifelong of skill acquisition. So that meant a long engagement cycle for members.

Then I thought, “All right, well, my S&C background delivers on the results piece.” If I use boxing, it’s got an inbuilt mechanism for managing the class timetable fluently, which was round. So I thought. “Well, maybe that solves that thing I was trying to avoid.” So that kind of brings together an exercise mode that felt like team sports, gave results to members and was fun and convenient. That’s really the kernel of it. When that all came together, I started using Steve Blank’s quote of, “No business plan survives first contact with the customer.” We then just set out to bring as many fitness friends as I could together and and run different programmes over a 12 Round, which is a championship bought.

Nathan: See, that was your MVP.

Tim: Yeah, it was my MVP in a big box gym, in between treadmills with 24 friends.

Nathan: Yeah. Wow.

Tim: And a programme written on whiteboards. So that was it. That was what investors invested in.

Nathan: I see. That was in 2014.

Tim: At the start of 2014. About March.

Nathan: Because you strike me as someone that’s like … Because I’m a member, but I say the business side of it, I think the model is very, very strong. I think it’s very, very smart. I think it is playing on there are some really strong trends as well. I was in New York and I go there, and there’s these cool, funky, funky, orange theory type boxing style things. I don’t even know what they’re called. It is a trend, boxing is very cool now. So I think you’re obviously a strong strategic thinker. How long did it take for you to work that out? I’m just curious, like sitting there thinking about that, because it’s really well thought out.

Tim: Okay, so the other thing was in order to engage people, there has to be an element of emotion. Yep. I remembered back to childhood of watching the Rocky movies. Rocky always goes through a period in every movie where he doesn’t know what he’s fighting for, doesn’t know if he wants to fight. Some dramatic event happens and he gets his head into gear. Then the training montage, the classic music starts. He starts doing all that hitting sides of beef, running up mountains, doing all that varied stuff. So that little bit of a motive was what I needed to really be the catalyst. I didn’t have that originally. I knew that I liked that. But I didn’t know how we make that manifest the product with that spirit and with that energy, that emotion.

From the very start where the idea was conceived in March 2014, it took me till October. You mentioned strategy. My past experience slowly killing a product over an agonising number of years. I decided that I was going to put my prototype. I fully briefed the investors. I’m going to fail this as fast as I can or it’s going to survive the trial. So I profiled Brisbane, and it came up with two areas that had the most representation of fitness providers.

Yep, so it had a hot yoghourt, it had normal yoghourt. It had hot Pilates, it had normal Pilates. It had CrossFit gyms, it had three different 24 hour gyms, it had a Fitness First, it had group fitness providers everywhere, boot camps in the park, even a community gym. I thought, “That’s where I’m going to put it.” That was Tuwong in Brisbane. So then I spent that time trying to find a location in Tuwang in that isolated area because I’d wanted to fail it as quickly as possible.

Nathan: Yeah. Really stress test.

Tim: Really stress test.

Nathan: The strategy, the model, the offering, the product, everything.

Tim: Everything because it’s no good if you’re going to scale a product to put it in an area that has to avoid competition to win. So yes, there’s blue oceans, we all understand that concept. But there’s also red oceans. It’s altruistic to pretend that my market is not going to come by cannibalising existing providers. It’s unrealistic. I needed to prove that I could effectively target existing provider’s products. You mentioned there are 45 isn’t it, 45 there as well. It really needed to do that. Then I wanted to have a strategy where actually we look for areas that had great representation and demonstrated spending on fitness because inevitably, as areas develop, fitness providers go there.

So we want to always be looking over our shoulder. It demonstrated that incredibly quickly because of the start, we’re still looking which is the primary motivator for members to come in. We still thought is it equally boxing and no start times? Is it equally you know these things? No, but no start times is the thing that once you experience, you can’t get back to normal bookings. So it almost ruins you for every other fitness model. So that was the one we sort of went, “That’s actually really aggressive in terms of acquiring customers because it not only creates a point of difference for those that need this shiny new thing, but it kind of ruins you for going back to a restricted version of group fitness.”

Nathan: Yeah, agree. As a member, q new member, that was one of the best things for me. Yeah, probably music to your ears, you probably hear it all the time, right? Yeah. Because you hypothesise that.

Tim: We are lucky that we do here that all the time. Otherwise I would be telling you a different story.

Nathan: So you stress tested the MVP version. How long did that take for you to to really know that the model was ready for scale and then start putting, setting up the franchise model?

Tim: Yeah, that’s a really good timeline of events because you can validate the customer. But businesses are made up of fixed and variable costs. The two drivers of that are normally the size of the place that you need or the size of the physical tendency in bricks and mortar. Your variable costs, you can fluctuate. Being an owner-operator, you can tweak the staff cost, you can tweak all those things, but you can’t change the location. I didn’t know what was the most efficient size to generate revenue.

So the next test that I had to do as quickly as possible was to test the size. So the first one was 240 square metres in Tuwong which is fairly big for the boutique fitness market. The second one was 115. Now, a franchisee, potential franchisee actually came to me. He’s a long term friend and said, “I know you’re not really the franchise, but I want one of these. I want it closer to home.” He lived in Paddington, so Milton’s next door.

I said, “Mate, I can’t let you take that lease, because I don’t even know if it’s going to fit.” So I said, “Look, I’ll take that lease. So you’ll have the gym close to you, but I’ll operate it and I’ll own it.” So tested that and even now up until the very last day, I was terrified it wasn’t going to work. But I needed to bookend the sizes. Of course, it’s going to work in a bigger space. Maybe not economically, but certainly, from a practical sense. But I didn’t know how small it could go. When you have aspirations of going into Southeast Asia or in really expensive real estate, say in New York or LA, you have to know just how economical you can be.

Nathan: Yeah, that’s a big selling point to like franchisees as well, right?

Tim: Of course. It’s like really big. But you can’t say that unless you’ve tested it because otherwise, you’ve got franchise agreements going out there and leases being signed. The franchisee is holding the baby, so I wanted to validate that. So then we sort of worked in from that. It is a little bit tight. So the minimum is now 130 square metres, just to give that bit of overflow. But no shortage of sites in that bottom range because they’re just so damn efficient. I would argue that we are probably the highest yielding per square metre franchise in the world. Given the 115 square metre footprint in boutique fitness because we generate a lot of activity within that small amount of space. We do 300 members at Milton. That’s more than 120 sessions a day for members.

Nathan: Interesting. So how long did it take you, so in terms of timeline, was it about a year and a half before you could actually start getting franchisees and even the documentation and working out the systems and all that, that must take ages, right?

Tim: It takes ages. I was really lucky that having been a franchisee, I had a head start on the terms and condition side of that. Because that’s a really complex minefield.

Nathan: Yeah. what do people need? If someone was looking, watching this right now or listening, what are some key things or things to avoid when you say a complex?

Tim: Yeah. One of the things is if you can’t, if it’s not clear from what the franchisee is telling you of the intentions of the franchise, look at the outcome of the cause and work your way back to find the intention. What I’m talking about there is royalties. As an example, the intentions of a fixed fee royalty must be to get as many locations as possible, must be because there’s no other way to grow that revenue. So I look for things like, and so I wrote this in from day one. 8% of revenue royalty because then I’m equally invested in growing your revenue. As a franchisee, that’s the biggest doubt that you have, the level of investment in your success. Right.

So straight away, I wanted to throw that flag up and say, “If you don’t make any money, we won’t make any money, but we’ll still have to service you.” That was a really important piece. To go back, we waited until March 2016 was the timeline. So it was effectively two years of testing, of launch and testing.

Nathan: Yep. During that time period, you weren’t just testing the offering, you were testing like the operation, the systems, even your lead offer I think is genius. You’re 28-day challenge, but you want people to form a habit. Then if you do form that habit, then you get, there’s a light at the end of the tunnel. You get the heart rate monitor which I didn’t get.

Tim: How did you go with that?

Nathan: Yeah, I didn’t get it. It was hard for me. Yeah, but I thought it was so genius because people can learn that. I was even thinking, literally I was thinking because I don’t know how much you know about our business, but sell other products, right? Obviously, we’re a media company, we sell online courses and magazines and books. I was thinking, “Okay, well, if someone purchases the course from us and we know that we want to make sure they finish that course because it’s in their best interest and it’s in our own best interest.” We have this really awesome refund, no questions asked guarantees. A lot of time, it’s in our best interest. We know it’s an incredible product. So we want to get people to go through it. So what kind of like thing an we put out to incentivize people to actually go through the course. I thought that was just such a … It was so smart. Yeah, where’d you learn that?

Tim: Well, it was it an interesting mix of of psychology and commercial sense. Right? I’d be lying if I said this was totally my idea as well. Yeah, of course. Yeah. Yeah. Obviously, the marketing team and the franchisees high performance network, and everyone works for this. But we tried to again, just like creating a business model, think about what are the things that we want to avoid, the behaviours that we don’t want to encourage and influence? What are the ones we want to enhance? Anytime that you give something away, you are making the assumption that price is the issue, where it’s never the issue.

It’s always value. If you don’t know what the product is, and boxing has some misconceptions. Particularly, you’re our version of conditioning for boxing as opposed to sparring. There’s misconception still. So the idea was, we were getting 85 to 90% conversion of free trials because the only thing that people were still scared of was the product, what they thought it was, or were they’re going to end up boxing. So we realised that we needed to get people into the door with the lowest possible barrier to entry, but we couldn’t erode the value because just dropping your price, it doesn’t give people confidence that you believe in the value of your product.

So we were looking at, how do we get people in? We know that 28 days is a routine building period. The behaviour we want to encourage is three visits a week. We know that the behaviour is when you first buy, that’s when you’re most motivated. So we implemented the system where each week, you’d get a call from the staff in that first four weeks to make sure you’re on track. Then at the end of that, we wanted to give people a prize that use technology to motivate because that’s more scalable. That was where the heart rate monitor, the My Zone Heart Rate Monitor came in.

So we were simultaneously trying to get more people to try the product. But over a period that was going to validate them with the product, we’re going to build a routine. They get to build relationships with the member, with the other members and the staff. Then we’re using this engagement product like wearable tech, to then enhance that ongoing. So the only other piece was that people didn’t necessarily own boxing gloves. I know you did. But not not everyone does. In some cases, that’s offered with gloves as well, because we can’t do the guarantee because we can’t give you anything back. It’s time. So what we said is look at the end of the time.

If at any time during this 28 days, it’s not for you. You can keep the gloves. We’re really grateful that you came in and gave us a go. It’s okay. It’s not for everyone. But given out conversion of free trials was so high nationally, I’m pretty confident that if they tried it, they were going to stay. Netflix had already pioneered the opt out. option. It’s actually a blessing for members because they get decision fatigue, I don’t want to have to physically do something to keep going, I just want to keep going. So that opt out mechanism at the end. So removing barriers for entry over an intentional period of time that built routines really targeted following up to make sure that routine is set. Then if they’re getting value, then as long as we’re exceeding their expectations, then there’s no reason that a high percentage of them wouldn’t convert.

Nathan: It’s really smart. So I’m curious like you guys are growing really, really fast now. How are you scaling or like this franchise model how you how do you acquire so much interest?

Tim: Well, we’re really lucky at this stage. Majority of the sales are advocacy based. So one of the main barometers for whether you’re exceeding members expectation or meeting their expectations is how hard they’ll advocate for you. So we know the net promoter score. If you’re investing in tech, one of the key numbers you want to know is what’s your net promoter score. What percentage of your current members are so happy with your product that they will actively advocate for you? So we made a decision that majority of our growth, the majority should be advocacy-based,. That is members telling their friends, members, investing, staff telling their friends or staff investing, existing franchisees helping us to recruit new franchisees.

That’s why there’s a cluster effect. So when we open a club in a new territory, they very, very quickly cluster because they’re all around that sphere of influence. But that’s finite. Just like referrals in a gym driving gym membership sales. That might be enough in the long run to manage attrition, to get you off the start and then manage attrition. But it’s not enough to accelerate growth in the true sense of scale, the hockey stick that everyone that does startups talks about. So that is currently the place we’re investing the most amount of time and money is answering the question of, “Okay, well, how do we open up new markets? How do we get New Zealand off the ground? Singapore off the ground? The UK and US off the ground?” You can’t just rely on advocacy. So you need some sense of cost of acquisition of customers, sales process on a franchise level as well as our franchisee level.

Nathan: Yeah, interesting. Are you guys just in Australia now or you’re international too?

Tim: We opened our first club in New Zealand. We have franchisee opening at the end of this year in Singapore. I hope we sign off this week on a site in Twickenham in London.

Nathan: Oh, wow.

Tim: Potentially Orange County in the US if we find the right franchisees.

Nathan: Interesting. So those international franchisees, is that inbound or that’s paid acquisition or what is that?

Tim: At the moment, it’s still inbound. It’s still advocacy. But it won’t be when we go to populate those areas in clusters. Now that we, we know a lot more about what our customer is and who they are. When I say customer, I mean customer for each stakeholder. For a franchisee, we’re spendiRng a lot of time and money in analysing who their customers are. Where do those look alike audiences exist? ather than saying to a franchisee, “Here’s a map of Melbourne, and you pick the area because you live there,” we’re saying here are the best areas that you should invest in. So our strategy for international is seed populate with the first and then profile the community with the knowledge that we have of Australian consumers, and then actually nominate the best 10 sites around Twickenham as an example and not let them set them up in areas that aren’t the most likely to succeed.

Nathan: Interesting because a lot, I don’t know much about this space because I’ve never looked at buying a franchise. But usually is it how it happens is I like this brand. I want to open up my own and I get to choose the location.

Tim: It is.

Nathan: Yeah, okay.

Tim: More often than not, it’s where you live.

Nathan: Interesting. So you guys, so you get inbound and you find the one, right, just start off and then you’re going to analyse that area and you’re going to create this cluster all around so then it kind of spreads.

Tim: Yeah, and cherry pick not the emotional preferences of the franchisee, but the areas that profile as the most likely to succeed. So what we know about the analysis is that we can generate an estimate of performance and that the operator will influence it 40% down or 40% up in performance.

Nathan: Yeah, wow. Interesting.

Tim: But we need to pick the ones that have the highest estimated performance. That comes from data. Data is king in franchising. I mean, the old way to do it is to let them choose the suburb they live in. The new way to do it is to analyse them and give them some indirection because you need to be the authority and the expert, even when it’s an emotional decision.

Nathan: Interesting. So when it comes to the the model, are you able to talk numbers around like you said you guys don’t do a fixed fee, you do a percentage of revenue. Are you able to share kind of what that model looks like to someone here?

Tim: Of course, of course. This is something that’s moved significantly over their life because part of the validation model is to make an assumption about price point. Now that will work and then to continually flex that against the number of average members that franchisees were able to acquire, the breakeven numbers that you’re targeting. So you go over this constant state of flux and franchisees that come in at the start, bear witness to this flux. Those that come in later. Now in our third year, they’re getting the benefit of the accumulative of knowledge. So we have to cohort them. Yeah, we have to put them in buckets. A club that launches now breaks even based on our approval of their lease had 120 members. Now average pre sale is 90 members.

Nathan: Yeah. Wow.

Tim: With a minimum presale of 70 or you can’t open.

Nathan: Wow, you make them test.

Tim: Yeah. So we handhold that entire pre sale period, because you will have to keep pushing your date of opening back until you get to 70. Yeah.

Nathan: And you’ve got a playbook for how to do the pre sale.

Tim: Yeah. And it’s prescriptive. This is one part of time where it’s one part in their journey where it’s literally day to day task driven. So dedicated staff that are with you for that whole period. So we know from the formulation and the results what we can yield out of that. So 120 member breakeven is our criteria in our modelling as to whether you can sign that lease or not because if we wouldn’t sign the lease, you can’t sign the lease because you can’t move the location as easily as you can change your operator.

A club that opens at 120 then gets 30 to 50% growth of that membership base in the first six months. Yeah. So you can see it at a capacity of 250, 270, maybe 300 depending on the maturity because obviously people visit a lot more than they start. So a more mature club can have a higher capacity because people have dropped into their natural rhythm a little bit more. But if we look at that, you can understand how achievable you know those numbers are. That’s the model as a new franchisee signing up today will see it.

Nathan: Yep. Okay, interesting. When it comes to, I guess, the marketing side of things, do you guys charge a marketing fee or do you help?

Tim: No, we incorporate that. It’s all incorporated into this single fee.

Nathan: Yep.

Tim: So we see our job in as two. There’s two fundamental systems when you open. That is to keep members and to get members. So in keeping members, you’ve got to exceed their expectations in product delivery, environment, and supporting them in their journey. All right? Because, as we all know, it’s cheaper to keep members than to get new members. In getting members, you’ve got to tell the story. You’ve got to close the sale. It’s that simple.

But in order to give them the material, and the system, and the tactics, and the strategy to close the sale, like the 28-day results pack, you’ve actually got to give them a compelling narrative story and content that is of a level which you would expect if you’re investing in a significant franchise. It can’t be Clipart on a poster. It’s got to be professionally sought content, curated videos, curated content that is consistent with the narrative. Our narrative is what are you fighting for? Because that ties into the emotion of you’re there for a reason and everyone’s got one. Our content is that, then our strategies low barrier to entry offer. Then our tool to keep them is exceed expectations. That’s it. It’s a pretty straightforward formula. You just got to execute.

Nathan: Look, we have to work towards wrapping up. But a couple last questions. One, I think another thing you guys did very smartly and I’m sure strategically, is getting an ambassador for the brand, which is Danny Green and associating. You’d seen him on the screen and he’s customising the workouts and all that side of things. I think that’s really smart from a trust building standpoint because he’s a well-known boxer, and then also aligning with his brand elevates you guys as … Yeah, so that was the first thing. I’d love to hear. Do you think people should be doing that in it when they’re trying to take on any industry or align with an ambassador?

Tim: Yeah, it’s not always easy given the cost implications. I was very fortunate that Danny had a mutual circle of friends. I was able to do some work with him to get to know him in launching some of his concepts. When I pitched the idea, he was authentically excited because it was the training that he did. From a sports science background, I knew that, but I needed him to validate that. It’s like singe-songwriters, critical acclaim is more important than the customers acclaim or the fans because it has to come from someone who’s lived and embodied that. If they can honestly say, “This is like the training that I used to do, and that’s where you get the trust,” but they have to be genuine, and he was. His personality is uncompromising, so it wouldn’t be any other way.

Nathan: Yeah, lovely. I think that was very smart. So you think if you can do it, definitely 110%?

Tim: If you’re confident that they align with your values and your culture.

Nathan: Then talk to me around kind of company-owned. Do you have many company-owned, can you share that?

Tim: Now, we’ve got none. Except for the ones that I invested in originally. which aren’t company-owned. They’re privately owned. So there are none. From time to time, we’ve owned clubs as we’ve reshuffled them, as we’ve taken them over and then had high performance take them off us. But we all as an executive group own clubs. So the CEO, Michael owns a club. Yeah, the COO, Jonah owns a club. The GM owns two clubs. I own one and the sharing in other club. So decisions we’re making are affecting us, and that’s critical.

Nathan: Yeah. Because that’s how you test, further test then.

Tim: Yeah, and you’re selfishly making decisions in favour of franchisees as well. That’s critical because if you don’t have empathy, just like a good trainer has empathy for members, a good franchise should have empathy for franchisees and not rule from afar and make arbitrary decisions that affect other people and not them.

Nathan: Interesting. Okay, so last question. What’s next and what’s exciting for you? Yeah, any parting words of wisdom that you’d like to share?

Tim: Oh, what’s next for us is using technology. So again, leveraging my skills, even those in pay off at the time, leveraging that experience, to bring technology to bear. To bear I mean in areas not for the sake of taking the technology box, but for the sake of scale, for the sake of quality assurance, right, they were I think that they can genuinely improve the experience of the customer and the franchisee. So we’ve got customer facing technology being released in November, December, be available at the start of next year. We’ve got a suite of technology making the manager and the franchisee’s job easier and more rewarding. Simplify, amplify has been the theme of this year. I can honestly say that by the end of the year, we’ll be a long way towards meeting those objectives.

Nathan: Amazing. Any parting words? Where’s the best place people can find out more about 12 Round or yourself or any words of wisdom you want to share?

Tim: Well, I think that first one, 12RND.com that I use the best place to go to find information about franchise. Obviously I’m available on LinkedIn or by phone and email, as well. Hopefully, not too much phone. The final piece, I think would be two things. Leonardo da Vinci’s, “Simplicity is the ultimate sophistication.” It’s the most difficult thing to get into business model. Simplicity and hands up, I’m not there yet. We’re not there yet. But we work towards it every single day. We think about what we can subtract, not what we can add.

Nathan: Love that.

Tim: The other is to not avoid the problems because the problems are the reason you have a job and a role. So a quote from one of my long term clients and friends was that be grateful for your problems because if they didn’t exist, someone with less ability would have your job. I think from the point of view of business owners, we seem to think it’s avoiding problems that makes our job enjoyable, but it’s actually solving them that adds value.

Nathan: Yeah. Putting out those fires.

Tim: Yeah, exactly.

Nathan: Awesome. Well, look, thanks so much for taking the time, Tim.

Tim: Thanks for having me.

Nathan: Yeah, it’s been a great conversation.

Tim: Cheers. Thank you.