6 September 2021, by Andreas Bechler

Starting up in the fitness industry: Franchise vs. your own company – what makes sense?

Start-ups in the fitness industry continue to be popular, but what is the best way to run your own fitness club? Should you be subordinate to a franchise system or instead establish something of your own?  

Start-ups and self-employment are popular in the fitness sector. Until the beginning of the COVID pandemic every year approx. 3% to 4% of new operations joined the fray – primarily driven by the comparatively small micro clubs. Although the COVID period initially slowed down this development, this trend will, of course, not last. COVID has made people aware of the importance of their own health and this, in turn, opens up space for people who want to build a business with matching fitness offers.  

When you think about founding your own company, you will naturally often associate this with an idea that you are “on fire about” and would love to put into practice. Especially in the fitness industry, however, this is not the only avenue you can opt for. In the fitness industry, in particular, so-called franchises are widespread offering an alternative option to start-up prone industry players.  

 

What is a franchise? 

Before we compare the two options with each other below, let us first explain the term franchise. The authors of the “DSSV-Eckdatenstudie” (Deloitte, DHfPG and DSSV) define franchise as follows: 

 

“In franchising, a franchisor provides a franchisee with the (regional) use of a business concept in return for payment. The franchisee is economically independent.” 

A founder therefore buys (for a fee) a finished business concept and builds his legally independent company on the basis of this already developed business idea. As a rule, he is supported by the franchisor in all steps of the start-up process. This support, as a rule, also continues in the following day-to-day business so the founder can fall back on support in such areas as bookkeeping, marketing, HR etc. This, of course, comes at a price, which is usually to be paid in the form of a monthly (mostly turnover-related) fee. This means, establishing a franchise costs additional money but simplifies many steps in the start-up process and subsequent routine operations.  

Andreas M. Bechler is an author, consultant, lecturer and podcaster in the fitness sector. In addition, Andreas is the spokesman of the “Arbeitskreise Fitnessbranche des VSD – Verband für Sportökonomie und Sportmanagement e.V.” (Working Parties Fitness Industry of VSD – Association of Sports Economy and Sports Management). You can contact Andreas via LinkedIn at: https://www.linkedin.com/in/andreasmbechler/

The current position of franchises on the fitness market

How widespread are these concepts on the fitness market already? Here again the “DSSV-Eckdaten” provide a good overview. 44.3% of clubs are run as franchises or licenced operations and 55.7% as own companies. With micro-clubs almost half, 49.4%, are run as franchises.

 

The vast importance of franchise systems in our industry becomes clear quite quickly. Needless to say the independent clubs remain the backbone of our industry despite all of this, but especially the two growth drivers – chain outlets and micro-clubs – are strongly determined by franchising. The picture becomes even clearer when looking at the ten biggest vendors among the club chains and micro-clubs. Among fitness chains, franchise systems already account for 59.9%, among micro-clubs the percentage is even as high as 95.7% (compare DSSV-Eckdaten 2021). 

 

The reasons for this are obvious. It is especially the franchise systems that, as a rule, train a high percentage of young talents (especially work-study students). During the multi-year sandwich training they learn about and get to know the system and its success potential inside out. Often the end of training seamlessly blends with their own start-up based on the previously experienced system. You could say that franchise systems practically “grow” the next generation of franchisees.  

 

Benefits of franchising 

The high demand for franchise systems on the fitness market is, of course, caused by the numerous advantages that franchise systems can offer. Below are just some of the many arguments our colleagues at fuer-gruender.de have put together that might make a franchise system interesting for you as a founder:  

 

  • (As a rule) proven business model
  • Easier market entry
  • (Partly) known brand and marketing
  • Reduced start-up risks
  • Know-how transfer between franchisee and franchisor
  • Network benefits: purchasing benefits, exchange of experience in the network etc.

 

In a nutshell you could say: the essential benefit is that the franchise spares you plenty of work as a founder – especially the aspects that are often perceived as being cumbersome and time-consuming. In addition to this, such concepts give your business associates, investors and bankers a certain degree of assurance that your start-up will be successful. This, in turn, means that you as a founder will find it easier to raise funds.

 

Benefits of your own operation

However, there are also downsides to franchising. The drawbacks of franchising are the advantages of your own operation in this case.

  • Entrepreneurial freedom
  • Realisation of your own ideas
  • (Often) more adaptable to the local market
  • No extra costs (esp. one-off and running licence fees)
  • No responsibility for network partners’ actions

 

It becomes clear: When you run your own operation you act more independently and are in many ways not dependent on and/or impacted by others’ actions. You can “do your own thing” as they say and you are only responsible for yourself (and probably your employees).

 

Another aspect to be considered by all founders in their decision-making processes is the question of future orientation. More often than not the idea is to get started with a franchise and part ways with it later. Which often is not as easy as one might think and can also entail legal issues. A classic example: If you still feature images of the franchise network on your social media channels after the termination of your franchise contract (even if these were taken during the contract period). We know of cases where warning letters were sent by former partners – which does, of course, not mean that franchise systems would act like this as a matter of principle. So do not be mistaken – leaving a franchise system is not that easy: it will cost you some time and money.  

 

Tips for decision-making 

You may now be wondering what makes most sense for your very personal start-up project. As so often in life, the answer is unfortunately not so easy and there is definitely no one-fits-all recommendation. To find the optimal solution both the personal intentions and the founder’s personality should be taken into consideration. The following tips are meant to help you in your decision-making process. 

 

Tip 1: Include your local market situation in your consideration

 

The most important criterion for taking this decision should always be the local market situation. Markets that are still to be developed for specific concepts, are – as a rule – noticeably easier to handle with franchise systems than markets that have already been penetrated by a wide variety of fitness offers. In the second case, concepts need to be individually adapted to the local market to be successful – requiring a degree of flexibility that franchise systems often do not allow. 

 

→ How well is your local market already penetrated by similar concepts? 

 

Tipp 2: Always look into several options

 

Regardless of whether you have already opted in favour of a franchise system or prefer to plan your own project, do not become obsessed with just one option in your research. It always makes sense and pays off to take a closer look at several systems and to compare them to pinpoint the advantages and drawbacks of the individual systems as well as of you own start-up idea. 

 

→ Which three to four franchise systems qualify as an option for you? What would your personal concept look like by comparison?

 

Tip 3: Talk to colleagues, franchisees, founders, franchisors etc.

 

Benefiting from other people’s experience is of particular importance in the start-up process. Talk to as many people as possible to hear different perspectives. Include, if possible, founders from both realms (own and franchise) and ask them about their personal experiences. Talk to different franchisors and ‘quiz’ them on their systems. Have one conversation too many rather than one too few.  

 

→ Do you have people in your network who you could interview about your start-up and the various options? 

 

Tip 4: Consider how much entrepreneurial freedom you would be prepared to give up

 

Once you have collected all this information and have talked to many different people, what remains for you to do is to decide for yourself. Think carefully about this decision – it will determine your own economic action over the next few years (maybe even longer). Do not treat any concerns lightly.

 

→ How prepared are you to subordinate yourself to an existing system and/or how much would you like put your own ideas into practice?  

 

Follow these fundamental tips and you will be on the right track to successfully putting your start-up project into practice. But always give yourself the time you need to reflect on all relevant points. “Rome was not built in a day” and this also applies to your start-up project.  

 

Summary

Establishing your own company is not necessarily easy. Franchise systems can support people willing to build a business but do not allow for the degree of self-fulfilment that their own operation would permit for implementing their own ideas. Both options have benefits and drawbacks that founders have to carefully weigh. At the end of the day, both ways can bring success in the fitness industry. But no option is a guarantee for success. Which way you decide – ultimately you as a founder will count! 

 

 

About Hashtag Fitnessindustrie

“Hashtag Fitnessindustrie” is a podcast on the German fitness industry covering all its facets and actors. It aims to promote knowledge transfer between interviewees and listeners for the benefit of the industry as a whole. Current trends and developments are just as much part of this podcast as are basic, strategic questions arising in the daily business of fitness service providers. For more information go to: https://hashtag-fitnessindustrie.de