Manny thank you so much for joining CEOwise.
Thanks for having me Dan. I appreciate it. Now you’re the founder and CEO of Planet Fitness,
and your goal when you started in 1995 was to take on the Health and Racquet Club which
you did quite successfully. But how did you start when you had no credit
record and no one to lend you money? It’s quite interesting. So what we did initially,
was that we will go to a, the last time I had a job was when I was 20 years
old, and I left that and started consulting. I was in the gym business in New York, but
as an employee and for quite a big chain. and I learned sales and marketing. That was my background and eventually I learned how to run a business, but I learned many lessons
during that journey, and my wife is South African I met her in New York and that’s my
connection to South Africa, and I’m dressed like this cause I just finished
training in my gym, I practice what I preach, but, I would walk into a gym owner and say to him… Mr. Smith, this is who I am and what I do, how much money you’re making and they would say, they always pad it so they’ll say they’re making R50 000
a month profit. I say great, I’ll tell you what I’ll do for
you, this is my background. In New York, this is what I do and what I’ve done. I’d say keep that
and let me do marketing for you and implement systems and sales and what not, do training
sales and development for marketing programs for you. And whatever we make above that,
we split. And after 10 years I own this business. And he thought about and he said you know, OK. And that’s how we bought the first business
with no money, and that’s having no office and no staff and
what not, the margins were big, and that’s how I started breaking into the business.
And understanding the playing field. At that stage, there was only one big player, Health
and Racquet. You went from one club in Benoni to two clubs
in Springs. Was it easier to get your second club off the ground, and is it easier from
here on every time you open up a new branch? Growing now, the landlords want us, they come
to us, and we’re getting some of the best real estate in South Africa in terms of doing
business, and we deal with all the major landlords, all the institutions, but that’s where we
are today, in the beginning, no one knew us at all. So knocking on doors was impossible.
They only wanted to do business with our competitor, which was a listed company at
that time and they were huge, and they had the market in the palm of their hands, they really did, and they were very dominant. And when you only had three clubs, you were knocking on Discovery’s door when they had just launched
their Vitality program, but they ignored you for quite a while.
How did you have that persistence just to carry on when most entrepreneurs would have just
given up saying they’re not interested? You know, it’s a funny story because, you know,
who are we? But I was walking around telling people we’re taking on Health and Racquet, and people were saying whatever happy pills you’re on give me some because you’re delusional.
Sure. But that’s called passion. And I believed in it, I really did. I really truly, truly
believed and we did, and we did it. Back then, people were like, this guy’s loony.
So, they wouldn’t see us and what not, so I wrote this hand-written letter, this whole
letter, and I sent it in and I think Neville Koopowitz got it. He was like a chief operating officer
or like two or three IC to Adrian Gore. He actually called me and I think he got a
good chuckle out of it, cause I said if you don’t see us I’m taking you to the competition board
and this and that. And he said we just need to meet this guy. And I think just out of
curiosity. So I went there with my other founding partner, Mannee de Wet, who owns a minority stake in the company, and, you know, I’m a salesman and said listen
we’re taking on Health and Racquet which he was like OK.
And I said we are, and we’re expanding it’s going to happen and somehow I convinced him
to get his people to come to see the three clubs. And they said yes, and if it wasn’t for that,
they been fantastic partners, a very strong loyalty program. But it would’ve been a very
difficult space to compete against a Goliath, but then having that loyalty program in us not. So, that was a profound moment
in the history of the brand. And your plan was to open one gym every single
month. Now, I know, from having a small business, your team, to get that right is quite critical,
and it’s a challenge in itself. So when you’re expanding so rapidly, how do
you cope with getting the best team? You know, that is the differentiating factor,
the people of the business. But I think, you know we just got accredited as a school, as an academy.
Particularly for that reason, because we have a country that has massive unemployment, and
we’re growing, and we’re creating jobs, and so we’re going to teach them ourselves, and
our philosophy is that you can start as a cleaner, or maintenance technician, or receptionist
and become a general manager and maybe become CEO one day.
But that’s how we wanna grow, we wanna grow organically, from the inside up.
We wanna teach them ourselves as an accredited institution. We’re focusing on the people
side of the business in a big way. Seems like it. Most businesses are looking for that
illusive annuity income and your industry is accustomed
to that, being the fitness industry. So, what made you go against that model in the beginning?
I know you’ve changed it now, but in the beginning, what made you go against that model? Yes, well Planet fitness back then, as you said, was not an entity. So, the institutions,
wouldn’t even give us a meeting to try to raise funding. Private equity and venture capital
is the most expensive cash you can get, so you end up working for someone, and I can’t
work for someone. So we needed to sell enough cash to sustain ourselves because we had to,
we had no choice. Fortunately, we were very good at it, so we were making significant
profits. So we were able to do that until we got a proper balance sheet and we got a fourth
and fifth club and so forth and then eventually the banks started looking at us seriously,.
and today, they chase us actually, to be honest. But when you started, you wanted the premiums
upfront? Yes, we would take cash upfront. That worked for us back then, but it became
a disfunctional model because the market doesn’t like that. No one wants to pay 5/R10,000 upfront,
they want to pay a little joining fee and pay monthly annuity, and guess what, it is
a better model, I like the annuity, I sleep well at night, because I know that annuity is going to come through. Sure. Cash, you have the tendency
of spending it, you need to manage it differently. But, we try to avoid, if we can avoid doing
something, we don’t do it. And if we do it, if I’m gonna borrow R10, I gotta make sure
I’m gonna make it R20 out of that R10. As with most businesses, there are ups and downs
and you too have had your downs. What went wrong and what factor led you turning things
around? You know, I think, I’m not an academic, I went to university, I dropped out. I’m very
ADD, but I’m not stupid. Clearly. I kind of learned from the school of hard knocks. One
of the things that is important for people to understand, is that it’s OK to make a mistake, but you need to learn from that mistake, and that mistake is actually my school fees. I
learned a lot, so when I made my mistakes, and I made a few of them, but I learned a
lot from it. Not overcapitalizing, not making the gyms too big, not paying too much rental,
wrong location, people. There are so many things that you learn, not making the same
mistake twice if you can help it, cause then you’re just stupid. Then you really are. You need to learn from it. So, I think that’s the biggest thing I got from
that, from those situations where things didn’t go well. It was a university for me.