Episode #11


Business Turnaround: Why You Should Purchase an Underperforming Franchise, with Kevin Easterly

If you’re looking for a franchise opportunity, consider investing in a business turnaround—an underperforming franchise can make money in the right hands. If you’ve got experience and the necessary drive and willpower, it can be a great opportunity. Listen to this episode as we talk about purchasing underperforming franchises, changes that need to be made to management structure, and how to make a failing franchise profitable.

Kevin Easterly got his start in flipping houses and purchasing rental homes and apartments. He was given an opportunity to purchase a few struggling franchise stores. Now he’s created a portfolio of 10 franchise locations with Club Pilates and CycleBar as well as over 105 rental properties. Listen to this episode as we talk about how he took underperforming franchises and turned them around.

Outline of This Episode

  • [2:30] Kevin’s start in franchising
  • [8:10] The mindset you should have buying into a failing location
  • [12:38] What day #1 at an underperforming location should look like
  • [17:47] The interview process & hiring new staff
  • [22:38] Where Kevin’s investments have taken him
  • [26:34] Raising Capital and structuring a fund
  • [31:55] What Kevin would have done differently
  • [38:38] Advice for those who want to sell and those who want to buy

The #1 thing to consider when looking at franchises for sale

When Kevin was given the opportunity to purchase a few locations of Club Pilates, he dove in head-first. While he had a good mind for business and this worked out for him, he definitely recommends starting small and building some experience in the industry. There was one thing he learned quickly:

Location. Location. Location.

You’ve probably heard it said a million times, but in the case of retail fitness, it holds true. His first purchase was in the back corner of a shopping center. If he had done more research ahead of time, he would’ve invested in something in a better location. He ended up spending more money, but learned a lot in the process.

When buyouts and business turnaround opportunities align

At the time Kevin bought into Club Pilates, the franchisors were pretty absent. There was little support from the top and he had to embrace the ‘fake it til you make it’ mentality. Shortly after he bought-in, the entire franchise was bought out by Exponential and they began to turn things around. They called him out on things he was doing wrong, but also set up good business practices.

Here’s the takeaway: If the location is struggling and there’s little to no support it creates a downward spiral. If a franchisee has no support, it trickles down to the management and the staff—creating a snowball effect that will take time to fix. “The fish rots from the head down” isn’t far from the truth. Come in with the mindset that big changes will need to be made, including restaffing. Keep listening as we talk through the issues you may face and how to overcome them.

The art of takeovers and makeovers

So you’ve talked with the franchisee about why their location isn’t performing well. Perhaps a family issue arose, they had disagreements with their partners, or they just didn’t know how to operate. Whatever the reason, you’ve decided the issues are things that you can overcome. You’re ready to take on a challenge, and make an investment into what could be a great opportunity. So you take the leap and decide to buy out the franchisee. But... now what do you do?

Meet with the management, meet with the staff, and truly assess why they are failing. Ask yourself, what’s going right? Who are the key employees holding it together? But remember that you’re coming in to fix a broken system—and it’s time for a makeover. Do whatever you can to revamp the customer experience. More often than not, new ownership is well received because positive changes are being made. Continue with us as we talk about hiring new staff and what you can do to incentivize the workplace.

Upping your marketing budget can be a catalyst for improvement

Oftentimes when a franchise is failing, they begin to try and cut costs wherever they can. They let staff go, or lower their marketing budget, or cut it all together. These are all big mistakes. Instead of letting good employees go, motivate them. Instead of cutting marketing, invest in it. You have to convince members and customers that things will be getting better, then show them.

If you don’t specialize in marketing, add someone to your team who is an expert. Send them to events or bring some to your location. Have them bring in sponsors. Whatever you do, you have to understand that you got a deal on an underperforming location, so it’s going to take a little monetary investment to turn it around. Listen to the rest of the episode as Kevin and I talk about raising capital, tax strategies, and making the right investments.

Resources & People Mentioned

Connect with Kevin

Connect With Erik

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