The opportunity to invest in YourZone45 came through our personal network in mid-2018. This is often a good sign, it means one of your peers has had a look at something and thought ‘interesting’. The YZ45 founder needed investment to continue to expand the franchise network, this was a master franchise company. We had no experience in actual franchising, but let’s come back to that later.
The YZ45 Product
The core product was one that was certainly familiar to us as it centred around health and fitness, specifically in boutique studios offering High Intensity Interval Training (HIIT). The studios were branded YourZone45 and it had an interesting concept at the core of the customer offering.
Every single member had to have a Myzone heart rate belt and every session consisted of small group training with a coach who would use the Myzone data displayed live on screens in the studio. This added a dimension to the training offered as the customer was being educated as they trained, and it also meant the training could be highly personalised.
This was starting to stimulate the investment appetite.
Closer Look
The fact it had wearable tech at the heart of the product gave it a unique angle; this was on trend even in 2018, as per the ACSM survey. So was group training, body weight training and HIIT, which were all part of the offering; the optics looked good in terms of product.
The franchising aspect seemed attractive enough and was a successful model used in health & fitness. It felt pretty good and initial meetings with the founder went well enough that we agreed heads of terms and started due diligence on the parent company.
The closer look told us this was a bit of a mixed bag; yes, there were franchises operating but they did not seem to be thriving. We found some complicated leasing arrangements in there and the projected cash flow looked optimistic. We could hear some some alarm bells, but we convinced ourselves we brought enough expertise to overcome these problems and silenced those alarms. We invested in 2018 and set about bringing some structure and discipline to the company and also meeting and starting relationships with the current franchisees.
Our assessment was thorough, but we were light on a crucial piece of the jigsaw.
Tough Learning
That last sentence alludes to one of the most difficult areas for all of us in business, and in life, the ‘people’ bit. We spent too much time on the company and not enough time on the people. Perhaps this happened because we thought we had all the solutions for what was not going to plan for this company. Whatever the reason, it transpired that the founder did not possess the skill set we thought they did and that made for a bumpy and ultimately unsuccessful relationship.
Another element we underestimated was thinking that our extensive owner-operator experience could translate to franchise operator expertise. This was not the case, running a franchise network is deeply different to running your own operation. That may seem obvious now but at the time it looked superficially the same; it turned out to be quite foreign to our experience and this led to operational and sales issues.
Then talk about timing, we had just hired someone with experience in selling franchises and COVID-19 hit. The shutdowns hit the studios hard and the parent company harder but we made it through by the skin of our teeth. Post-lockdown we had to move quick as the lenders for our sector had gotten nervous and this hollowed out our sales pipeline.
We made the decision to sell the studio network and pivot to a low-cost outdoor fitness franchise product. This would widen our target demographic in terms of franchisees and outdoor exercise had exploded during lockdown. We created a new vehicle and retained the right people to get this moving and quickly; a franchise expert and a product expert. We wanted wearable tech kept at the heart of it, we viewed this not only as a USP, but one which genuinely helped customers get results. We wanted a product with integrity and in RISE we had one.
Ultimately though we decided to exit the business. Why? A major part of our investment philosophy is that we are in it to enjoy every aspect of doing business. That plays a key part in the week in, week out effort that we put into our portfolio businesses. When you lose a bit of love, it is time to look in the mirror and ask the question "Is the business better off without us". We asked that question and decided that it would. Luckily the management team were in a place where they wanted to take on the business 100% and take it forward; we completed an MBO June 2022.
Key Lessons
What did we learn from this investment? The first thing to look at is the people, the second thing is the people and then have a long hard look at the people. And that cuts both ways, sure you need to check the team is a strong one and have the energy and drive to make a success of the business but check if your skill sets, knowledge, experience and passions are right for what you are buying into.
Other than that, have the courage to take a decision even when it feels like a really tough option. It is generally the right one.
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