WEBVTT 1 00:00:00.000 --> 00:00:05.360 When I was doing gym watch, which is when I started the original gym watch version of my company, 2 00:00:05.360 --> 00:00:11.360 this is after I had my chain, I would fly out to facilities and fill them up, right? 3 00:00:11.360 --> 00:00:15.120 And then we scaled up to a team and then we'd fly out to those facilities and scale them up. 4 00:00:15.120 --> 00:00:21.840 And what's interesting is, when I had my chain of gyms and I built them not to make money, 5 00:00:21.840 --> 00:00:26.080 I built them to build a business, right? That was kind of the mindset, 6 00:00:26.080 --> 00:00:30.000 like I want to build a business and so what's interesting is I continue to grow the business, 7 00:00:30.000 --> 00:00:35.200 but I didn't make much money. I mean, I made it enough, but I didn't make a ton of money, 8 00:00:35.200 --> 00:00:40.160 but I will say this is that whenever I got into a hard spot, right? And this made, you might 9 00:00:40.160 --> 00:00:42.960 identify with this, whenever I'm going to do a hard place, I was like, I didn't have enough money 10 00:00:42.960 --> 00:00:48.480 and there was payroll coming up, I always found a way to make money, right? And like, never failed, 11 00:00:48.480 --> 00:00:52.560 I never missed payroll, I never missed rent, you know what I mean? Like I always found a way. 12 00:00:53.440 --> 00:00:59.120 And the same thing happened with gym lunch. When we were flying out, we always found a way. 13 00:00:59.760 --> 00:01:04.960 And what's interesting is when gym lunch was growing, I got into this horrible position. 14 00:01:04.960 --> 00:01:09.680 And so what ended up happening was I, you know, when I was selling, you know, we'd fly out and I 15 00:01:09.680 --> 00:01:12.960 talked to the gym owners and we'd kind of help them with their business, shift everything around, 16 00:01:12.960 --> 00:01:17.600 et cetera, right? But then as I scaled up and then I had sales guys, you know, flying out and 17 00:01:17.600 --> 00:01:22.560 doing the sales at these facilities, right? For 30 days, we'd fill their gym up. And the thing 18 00:01:22.560 --> 00:01:26.320 is, they didn't really have the same, you know, rapport with the gym owners, they weren't gym owners, 19 00:01:26.320 --> 00:01:30.720 they're like, hey, I'm here to close deals. And which is fine, that's, that's, that's okay. You 20 00:01:30.720 --> 00:01:36.320 don't even mean it happens. But the problem was what would happen is they would sell people on, 21 00:01:36.320 --> 00:01:42.800 you know, a challenger or a program. And the gym owners would, after they left, after that, 22 00:01:42.800 --> 00:01:46.720 you know, we'd already fronted the cost of the marketing, the hotels, the commissions, everything. 23 00:01:46.720 --> 00:01:52.240 And so all these people in their gym, some of the gym owners told all of the clients that we 24 00:01:52.240 --> 00:01:57.440 had sold to refund and then, and then buy it again through them, which you might be thinking, 25 00:01:57.440 --> 00:02:02.320 that sounds dishonest. And the answer is, you are right, it is dishonest. And so I think in a matter 26 00:02:02.320 --> 00:02:06.240 of a week, I had like two gyms do that. And I think I had like a hundred or 150 thousand 27 00:02:06.240 --> 00:02:10.160 dollars in refunds. And mind you, like, I think I had a total of 150 thousand dollars saved up. 28 00:02:10.160 --> 00:02:14.080 And so this was like everything I had. And it happened in a week. So just imagine losing everything 29 00:02:14.080 --> 00:02:18.560 you have in a week. It was horrible. And this is just after I had kind of come out of my barely, 30 00:02:20.960 --> 00:02:25.520 barely getting out of bankruptcy situation. So I got rid of the gyms. I'd start the new enterprise. 31 00:02:25.520 --> 00:02:30.640 That money had disappeared because the partner had taken it out. And then I was basically left 32 00:02:30.640 --> 00:02:34.400 with $1,100 and I started gym launch the way this company had grown. I was able to grow it back up 33 00:02:34.400 --> 00:02:40.640 at 150 thousand in savings. And then boom, it's all gone again. Right. And so I share this with you 34 00:02:40.640 --> 00:02:45.760 because I know what it's like to lose everything. But what's interesting though is that when 35 00:02:45.760 --> 00:02:50.320 that happened, the reason this got worse and worse is that even before I had those two gyms that 36 00:02:50.320 --> 00:02:54.240 told everyone to refund, there were still a high percentage of people that were refunding. 37 00:02:54.240 --> 00:03:00.960 Like an egregious amount. We were at like 25%. And the reason was because we had a satisfaction 38 00:03:00.960 --> 00:03:05.040 guarantee with the program, but I had no control over the fulfillment. So I had, you know, 39 00:03:05.040 --> 00:03:09.360 gym owners who were coming to us who were struggling. So they probably weren't that good if a 40 00:03:09.360 --> 00:03:12.800 fulfillment. And then we would sell people into their gyms and then they weren't that good if 41 00:03:12.800 --> 00:03:16.080 a fulfillment. And so people would just say, like, just give me a refund. I don't want to do this. 42 00:03:16.080 --> 00:03:20.160 Right. And the thing is is they had no skin in the game because it was all my money not theirs. 43 00:03:20.160 --> 00:03:24.080 Right. And so they were like, yeah, whatever refund. And so we started a huge refund rate. 44 00:03:24.080 --> 00:03:28.720 And what ended up happening was the refund rate basically surpassed the margin of the business. 45 00:03:28.720 --> 00:03:32.880 And so let's say I had a 25% refund rate and the margin of the business was 12 and a half. Right. 46 00:03:32.880 --> 00:03:38.800 And so all of my margin was gone based on these refunds. And so in order for me to make up the 47 00:03:38.800 --> 00:03:44.480 additional 12 and a half percent, I had to sell more in advance to cover the deficit. And if 48 00:03:44.480 --> 00:03:48.640 you're thinking ahead here, you know where this is going. Basically every month, I had to sell more 49 00:03:48.640 --> 00:03:52.960 to cover the refunds from the last month. And so this is what is called a death spiral. Right. 50 00:03:52.960 --> 00:03:56.720 I didn't know how to get out of this trap that I had woven for myself. And it was horrible. 51 00:03:57.360 --> 00:04:03.200 It was horrible. I mean, it was I could bear I was stress sleeping. It was it was really not fun. 52 00:04:04.240 --> 00:04:08.320 And honestly, I just was like, I was like, I went from having nothing to now having less than nothing 53 00:04:08.400 --> 00:04:11.600 and not knowing how to get out of it. It was just an unbelievable feeling of being trapped. 54 00:04:12.560 --> 00:04:17.680 It's it anyways. I thought I was like, I just have to make money. I was like, I just have to make 55 00:04:17.680 --> 00:04:22.560 money to get myself out of this. And so what was interesting is I made this shift. And I said, 56 00:04:22.560 --> 00:04:27.600 you know, and this is where Leila, she had a little side business selling fitness online. And I 57 00:04:27.600 --> 00:04:31.600 said, why don't we why don't I put all my my marketing and sales efforts towards your business 58 00:04:31.600 --> 00:04:35.840 instead of this business? Because we can, you know, basically cut the the middle man out of it. 59 00:04:35.840 --> 00:04:39.920 We'll just sell direct to consumer and it'll be fine. And so believe it or not, we ended up doing 60 00:04:39.920 --> 00:04:43.920 about a thousand a day within 14 days directing all that attention to her business. I was like, 61 00:04:43.920 --> 00:04:48.560 this is awesome. We've got these, you know, eight guys. We can shift them over and we'll do 8,000 a day. 62 00:04:48.560 --> 00:04:53.280 And this could work. We can make this pivot. And so, but I still need to cover this huge deficit, 63 00:04:53.280 --> 00:04:56.800 which at this point was probably like a hundred thousand dollars that I was going to have to come up with. 64 00:04:56.800 --> 00:05:00.560 And I had nothing because I discovered the last month. I decided to come up with a hundred thousand dollars 65 00:05:00.560 --> 00:05:05.120 of profit, right? Not revenue. I'd have a hundred thousand dollars of extra juice to be able to put towards 66 00:05:05.120 --> 00:05:11.200 this, you know, throwing the logs of this fire, right? A refund monster that was growing. 67 00:05:12.320 --> 00:05:17.120 And so the thing is, is that when I thought from that perspective, I ended up coming up with a 68 00:05:17.120 --> 00:05:20.080 solution really quickly, which is like, well, you know what? I'll just bundle all the stuff. I'll call 69 00:05:20.080 --> 00:05:24.400 all those gyms back up and say, hey, you remember how I put all those people in your gym. Want me to 70 00:05:24.400 --> 00:05:28.880 just show you how to do it. And then you can just buy the information from me. And I did this as like 71 00:05:28.880 --> 00:05:33.840 I'm getting out of the gym industry concept because we were doing well with the online thing. 72 00:05:33.840 --> 00:05:38.240 And what was crazy was when I thought from the perspective, and this is the entire point of this 73 00:05:38.240 --> 00:05:43.600 podcast, all right? When I thought from the perspective, man, I really just need to make money. 74 00:05:45.840 --> 00:05:46.640 I made the money. 75 00:05:49.120 --> 00:05:53.760 Real quick guys, you guys already know that I don't run any ads on this and I don't sell anything. And 76 00:05:53.760 --> 00:05:57.120 so the only ask that I can ever have are you guys that you help me spread the words we can 77 00:05:57.120 --> 00:06:01.920 not more entrepreneurs, make more money, feed their families, make better products, and have better 78 00:06:01.920 --> 00:06:06.480 experiences for their employees and customers. And the only way we do that is if you can rate and 79 00:06:06.480 --> 00:06:11.040 review and share this podcast. So the single thing that I have to do is you can just leave review, 80 00:06:11.040 --> 00:06:14.640 let's say 10 seconds or one type of the thumb. It would mean the absolute will to me. And more 81 00:06:14.640 --> 00:06:20.800 importantly, it may change the world or someone else. And it was one of the most profound lessons 82 00:06:20.800 --> 00:06:25.440 that I've that I've learned as an entrepreneur is that most entrepreneurs don't think about it like 83 00:06:25.440 --> 00:06:29.920 that. And so what I mean by that is like, I'm sure there have been times like I said earlier that 84 00:06:29.920 --> 00:06:33.920 like you needed to make payroll or you need to make rent or you needed to you needed to buy 85 00:06:33.920 --> 00:06:38.720 something and you had to go generate cash, right? And then you boom, you went and generated the cash. 86 00:06:40.160 --> 00:06:44.960 What I can tell you between the people who I think who I've who have observed were very successful 87 00:06:44.960 --> 00:06:49.280 with lots of money and people who who have businesses but don't make that much money is that the people 88 00:06:49.280 --> 00:06:57.920 who are really successful always earn that mindset. They're always trying to think about how they can 89 00:06:57.920 --> 00:07:01.920 make more right from the business. And I'm not saying that from a from a selfish standpoint 90 00:07:01.920 --> 00:07:05.360 thing like that. Obviously you have to do that provide value, you know, et cetera. Like that's 91 00:07:05.360 --> 00:07:11.280 that's a that's a foregone conclusion in this conversation. All right. But simply making the extra 92 00:07:11.280 --> 00:07:15.440 effort, right? So this is this is like when you're you know, if you have a business and you know, 93 00:07:15.440 --> 00:07:20.720 you run a you run a flash sale or something like that and it works well. Well, why aren't we doing 94 00:07:20.720 --> 00:07:25.680 this once a quarter? Rise in this systematized. If we know that doing this extra little promotion and 95 00:07:25.680 --> 00:07:29.680 we do this on a 12 week cadence, we can get four times these amount of pops and we can do this on a 96 00:07:29.680 --> 00:07:34.880 regular, you know, like cadence, then then we're going to make a lot more money. And so it's it's like 97 00:07:34.880 --> 00:07:39.680 think about the thing and this is a good exercise that I do a lot, which is like if I really needed 98 00:07:39.680 --> 00:07:46.080 to make money like I had to make money. What would I do? Think about it. Like if you can think about 99 00:07:46.080 --> 00:07:50.640 that within your own business like right now, if you had to go pay for something that's that's a lot 100 00:07:50.640 --> 00:07:54.560 of money relative to whatever your income is. Let's say let's say it's three times what your normal 101 00:07:54.560 --> 00:07:59.040 monthly owner cash flow is like what you take out of the business or whatever that number is 102 00:07:59.040 --> 00:08:02.960 think about if you had to double or triple it, right? What would you actually do? 103 00:08:04.480 --> 00:08:08.720 And what's interesting is that for me, I think very differently when I'm posed that question 104 00:08:08.720 --> 00:08:13.040 rather than how would you grow the business, right? And what's interesting is that they shouldn't 105 00:08:13.040 --> 00:08:16.960 really be separate questions, but they are because growing a business versus making more money 106 00:08:18.640 --> 00:08:23.840 are for some reason, at least for me separate concepts, right? But the thing is is that 107 00:08:23.840 --> 00:08:29.680 it takes money to grow a business, right? And so when I start from that perspective and when I 108 00:08:29.680 --> 00:08:35.760 lead with like, okay, if I had to make money, I had to because my life depended on it. What would I do? 109 00:08:36.560 --> 00:08:44.480 Oftentimes that focus and clarity cuts through all the noise of all the extra due dads and 110 00:08:44.480 --> 00:08:50.080 BS and progativity stuff that we just put on our calendars to just get straight to the gold, 111 00:08:50.080 --> 00:08:55.600 right? That you cut straight to the middle and grab what you need. And then it's that mindset, 112 00:08:55.600 --> 00:09:01.760 at least repeated, systematized over the span of a business will make you significantly more money. 113 00:09:01.760 --> 00:09:07.840 And so ultimately, obviously, we made that shift and we made a tremendous amount of money. 114 00:09:07.840 --> 00:09:13.280 What was ironic to me was that when I started gym lunch, I had learned the lessons from my gym 115 00:09:13.280 --> 00:09:16.960 business and from the gym and from the first version of the gym lunch business, which was 116 00:09:16.960 --> 00:09:24.720 building a business does not make you wealthy. Now, sure, I had enterprise value, but what I had 117 00:09:24.720 --> 00:09:28.800 forgotten about was the massive operational risk that I was taking on, right? So whenever you're 118 00:09:28.800 --> 00:09:32.560 running a business, you are always exposed to operational risk, which is, I mean, every gym owner and 119 00:09:32.560 --> 00:09:36.960 any every small business owner who's brick and mortar and COVID experience this, right? Is that 120 00:09:36.960 --> 00:09:42.240 there are risks that are unforeseen that you are exposed to unknowingly that you take on while you 121 00:09:42.240 --> 00:09:46.800 perform business, which means that next month something might happen that could cost you everything 122 00:09:46.800 --> 00:09:52.160 you have, right? And so this is where I transitioned from, I'm going to spend everything I have to 123 00:09:52.160 --> 00:09:57.600 reinvest into business to, I'm going to pay myself and I'm going to make money while this grows, 124 00:09:57.600 --> 00:10:02.160 because if I don't, it could end and I could be left with nothing, right? And that's exactly what 125 00:10:02.160 --> 00:10:06.720 happened after I had, you know, my, my chain of gyms. I mean, I wasn't left with nothing. I had 126 00:10:06.720 --> 00:10:10.240 some money, but like it wasn't, it wasn't a lot. And then I ended up making a poor decision and 127 00:10:10.240 --> 00:10:16.000 then losing it, right? And so at that moment, I had, I had built, I'd put all my, my energy and my 128 00:10:16.000 --> 00:10:20.240 sweat, my tears, my time and sleeping on the floor and all of these memories, right? For nothing, 129 00:10:21.040 --> 00:10:24.480 but it wasn't for nothing because I got the experience. And so this is why I'm telling you this, 130 00:10:24.480 --> 00:10:29.520 is that hopefully you don't have to do that for four years and have nothing, right, to show for, 131 00:10:29.520 --> 00:10:33.520 except for one lesson, right? And that's what I'm trying to explain right now is like, if you can 132 00:10:33.520 --> 00:10:39.760 keep this lesson of like, I should pay myself, right? And I should think from that perspective, 133 00:10:40.400 --> 00:10:43.840 how, how can I actually make money from this thing rather than just building this thing? 134 00:10:44.320 --> 00:10:48.400 Then I think it'll be much better off. And so I, I didn't even learn it the first time, right? I had 135 00:10:48.400 --> 00:10:53.600 to learn it, I had to learn it after two really big failed businesses, failed, you know what I'm saying? 136 00:10:53.600 --> 00:10:59.680 Like, it didn't make me independently wealthy. And it was when I started this business that I, 137 00:10:59.680 --> 00:11:05.040 that I came into it with the perspective of, okay, I'm going to grow this thing, but this thing 138 00:11:05.040 --> 00:11:10.560 has to feed me to, right? I'm not just going to take on all the risk for everyone, for everything and, 139 00:11:10.560 --> 00:11:16.160 and have no upside for me because hoping and dreaming that you're going to sell your business as 140 00:11:16.160 --> 00:11:22.880 your way of profiting, less than 1% of businesses sell. It's, it's just, it's, it's such a small 141 00:11:22.880 --> 00:11:27.120 percentage, it's laughable, right? And so if you think that you're going to bet everything on the 142 00:11:27.120 --> 00:11:31.440 1% chance that you're going to, you're going to be that 1% that sells your business. And I don't 143 00:11:31.440 --> 00:11:36.800 even know the metrics, to be fair, I'm quoting a quote that I was given, but I would bet like, 144 00:11:37.520 --> 00:11:41.680 if it's that 1% then I would say it's the 1% that like the sale is meaningful, you know what I mean? 145 00:11:41.680 --> 00:11:47.440 Not just like an asset sale or a garage sale. So if you're betting your entire business or your 146 00:11:47.440 --> 00:11:54.880 bet your entire future and your income on this 1% shot, I don't think it's the right mindset to take. 147 00:11:54.880 --> 00:12:00.800 And so you should get paid while you grow. And this is a concept that Warren Buffett talks about 148 00:12:00.800 --> 00:12:07.360 a lot, which he calls it owner earnings, which is how much money after reinvesting in the business 149 00:12:07.360 --> 00:12:13.760 to keep its competitive advantage, can I take home his profit, right? And that is what he values 150 00:12:13.760 --> 00:12:18.960 a business off of, which is how much owner earnings from now until infinity, right? Until the end of 151 00:12:18.960 --> 00:12:24.560 time, will this business produce, right? Because it's not fair to just say, well, this business produced 152 00:12:24.560 --> 00:12:28.640 a million dollars in profit, but I have to reinvest a million dollars into new R&D, you know, 153 00:12:28.640 --> 00:12:32.080 research and development to keep us competitive. Well, if that's the case, then you're not really 154 00:12:32.080 --> 00:12:36.400 making anything besides your salary, right? And so then that business doesn't have really much value 155 00:12:36.400 --> 00:12:40.720 and Charlie Munger and Buffett talk about this extensively. And I think it's like you have to 156 00:12:40.720 --> 00:12:45.760 experience it firsthand for these things to be real for you, but I'm trying to hopefully give you 157 00:12:45.760 --> 00:12:50.560 the experience via this story so that you don't have to. But if the best investors in the world 158 00:12:50.560 --> 00:12:56.000 think about owner earnings, and when you need to make money and actually take cash out, you know how 159 00:12:56.000 --> 00:13:02.080 to do it, you have the ability, you just don't have the belief. And if you can make that shift, 160 00:13:02.080 --> 00:13:06.160 like it wasn't like I became more skilled, you know, I mean, literally I started one from 161 00:13:06.160 --> 00:13:11.120 from launching gyms in person to showing gym owners how to launch their gyms within within a 162 00:13:11.120 --> 00:13:15.840 week or two. It wasn't like I got that much smarter. It was simply because I had a shift in beliefs. 163 00:13:15.840 --> 00:13:19.600 And as soon as my belief shifted, I was able to make a hundred thousand dollars something, you know, 164 00:13:19.600 --> 00:13:24.480 in profit, in that next like couple weeks to cover all these refunds. And then I was like, 165 00:13:24.480 --> 00:13:31.600 holy cow, wait, I can have a business and make money. And that was kind of the light ball moment 166 00:13:31.600 --> 00:13:36.080 for me. And I was like, oh, I'm never doing business the other way again. And so I tell this story 167 00:13:36.080 --> 00:13:41.040 to hopefully, you know, share that experience with you as that you don't have to go through. Like I 168 00:13:41.040 --> 00:13:47.040 did, but anyways, if you if you are a business owner, you have it within you, you already know how 169 00:13:47.040 --> 00:13:57.200 to make the money because every time you need it, you always do.