Club Pilates, Pure Barre owners say Xponential left them bankrupt

https://www.bloomberg.com/news/features/2023-12-07/club-pilates-pure-barre-owners-say-xponential-left-them-bankrupt

by rayrrr • 3 years ago

22 38 3 years ago

pinewurst• 3 years ago

As sure as the sun rises in the East, "Suburban Moms (and Dads) Get Suckered By Over-Promised Sales Projections" is the headline that will never go away (see LulaRoe, MonaVie, just about any other MLM scam, not to mention other over-hyped franchises like Quiznos).

At the same time, though, the franchisees had plenty of greed of their own. The article states "They also say it promised them the ability to run businesses as investors rather than as hands-on managers." If your only contribution to a business is giving it money, you are essentially always better sticking that money in the stock market. If you have some special talent, skill, connections, etc. that you can leverage, sure, go for it. But the idea that you can beat the market with no special benefit that you bring to the table is a fantasy as old as capitalism.

hash8724• 3 years ago

If your only contribution to a business is giving it money, you are essentially always better sticking that money in the stock market.... the idea that you can beat the market with no special benefit that you bring to the table is a fantasy as old as capitalism

I feel like EMH is increasingly becoming a strange & unfalsifiable quasi-religion for some people. I believe even the strongest forms of EMH cover publicly traded stocks, and not investments in privately held companies. Are you saying that it's literally impossible for me to invest in a local gym, real estate development, plumbing company, landscaper etc. and not beat the US equity market's average return of 9% a year? Because that's obviously ridiculously untrue. The main reason why I can't price say Apple better than the stock market can is the absolutely staggering amount of global competition to do so. But there's exponentially less competition to invest in a smaller, privately-held local business- I'm not competing with hedge funds and so on.

I'm a Boglehead, and the good parts of EMH have a lot of wise things to say about the impossibility of pricing individual publicly traded companies better than the broader stock market. But super-strong EMH has become a bit of an intellectual cult, and I see people way over-extending it into domains that it was never supposed to cover. It's becoming like a learned helplessness 'it's impossible for anything to be profitable because EMH'

gnicholas3• 3 years ago

In case anyone else was wondering, EMH = Efficient Market Hypothesis (which is a reason people think that investing in an ETF is the best way to go, since trying to pick individual stocks is a losing game).

smogcutter• 3 years ago

I think you’re missing parent’s point, which is about these sort of “business in a box” pitches sold to the aspirational middle class, and not some kind of statement that it’s impossible to profitably invest money.

hn_throwaway_992• 3 years ago

That's not what I'm saying. Two points:

1. Obviously some people with zero unique insight or skill in a business will make out big (i.e. "beat the market"), just like some people will win the lottery. But drastically increasing your risk/volatility and then saying "some people beat the market average!" is not actually a counterpoint to EMH, which primarily says something about risk-adjusted returns.

2. More importantly, though, if you do have some special insight into why a private business may outcompete its competitors, by all means, go for it. But TFA is basically highlighting that the vast majority of these people had no special skills in business, marketing, etc. beyond "I like fitness and once took one of their classes!" If you're in that boat, on average, you're better putting that money in the stock market. If you're a gambler and think you can, literally, beat the odds with nothing but luck, again, go for it, but I'm not going to have sympathy for you if you decided to, essentially, put your life savings on double-0.

lotsofpulp4• 3 years ago

Are you saying that it's literally impossible for me to invest in a local gym, real estate development, plumbing company, landscaper etc. and not beat the US equity market's average return of 9% a year?

Yes, without taking additional risk. SP500 is risk free, everything else, you need to be pricing in additional risk OR you need to have an edge other than providing money (which you can do buy buying VOO). hn_throwaway_99’s second paragraph explains it well.

One common arbitrage opportunity is to be part of an immigrant diaspora. They won’t have access to credit, but will be willing to work 100 hours per week. You can take advantage of that and basically use the fact that you are getting under minimum wage labor that is very invested in the business to get better than public equity returns.

t_mann3• 3 years ago

Not defending EMH in any way, but there's a logical flaw in your argument: your wording implicitly pits a cherry-picked example against a broad average: "it's literally impossible [to invest in a small business and beat the market]" - that's not the point. There will exist examples where that worked, but there will also exist some where it failed (like in the article). You have to consider all those cases to compute an average return. And even if you do come up with a higher expected return for a private investment (I don't have the data), you also have to consider the variance/risk: a bad outcome for the S&P500 is maybe minus 20-40% in a year [0]; a bad outcome for a franchise can look like bankruptcy and/or eviction, like in the article.

I'm with the GP poster: if you're thinking about running a business in passive mode as an investment, as it seems it was pitched to those franchisees, you're highly likely better off keeping it in boring investment products. That's not even saying that sane (ie positive risk-adjusted return) passive income opportunities don't exist, but they almost certainly won't look like what's described in the article, with no strategic freedom (you're not allowed to close an unprofitable shop, wth?); apparently coupled with personal liability and massive fixed and upfront costs, that's an absolutely deadly mix. More generally, they will almost never come to you as a pitch, which should be self-evident.

[0] https://www.macrotrends.net/2526/sp-500-historical-annual-re...

sema4hacker• 3 years ago

The article is mostly about franchisees getting ripped off, but I think an important theme is that any business focused on physical fitness often is the fad of the moment, and can be difficult to sustain itself for long because of the need to have customers paying memberships forever. Customers start out thinking they'll always go to the gym or dance studio or whatever, but most inevitably drop out. My advice: stay away from fantasies of owning or investing in membership physical fitness businesses or venues.

gnicholas3• 3 years ago

I guess this is why it’s so hard to cancel gym memberships. I wonder how these places will be affected by ozempic/etc. On the one hand, people won’t have to exercise to lose weight at much as before. On the other hand, perhaps there will be a cultural change that emphasizes muscle mass/tone more than now. That is, being not-overweight will be the default, and the way people will stand out will be muscle tone, perfect skin/hair/etc. What franchises will pop up to serve these needs?

nradov2• 3 years ago

Gold's Gym and CrossFit already exist to target consumers who want a more toned, muscular appearance. They have been around for a while and should be sustainable as long as they don't do something stupid like take on huge debts to fuel rapid expansion. Any new market entrants will have to come up with a unique angle to compete against those established players. Tonal also appears to be getting some traction in the home strength training market but it's not clear whether they can survive.

GLP-1 drugs like Ozempic can be very effective for rapid weight loss but I think (hope?) that consumers will eventually become disillusioned with them. There are significant side effects in many patients, the weight tends to come back when the drug is stopped, and much of the weight lost is lean muscle rather than adipose tissue. There is a growing body of evidence that having a large amount of skeletal muscle is crucial for maintaining metabolic health (glucose sink) and preventing disabling falls later in life (sarcopenia).

mistrial92• 3 years ago

oh real life gets better than that - a very expensive gym in a large coastal city was founded, profitable, and sold in the go-go 1990s.. expensive memberships and stable, large clientele in an excellent location started a sequence of ever-further leveraged purchases by new owners. The early 2000s saw homosexual prostitution, advertised on CraigsList, mixed into the otherwise upper middle class regulars. In fact, Ron Dellums was a member there at one time. Guess it all went "poof" under covid-19 ? run away

bdcravens• 3 years ago

My sister-in-law owns a Pilates studio in an affluent area north of Houston, but she has kept it small, approaching it more from the hair salon model: 3-4 instructors, each with their own book of clients they do one-on-one sessions with. As for her clientele, almost all of them have been with her long-term. I don't even think she does any marketing, other than minimal social media.

ryandrake• 3 years ago

My parents got suckered into Amway back in the 80s and a lot of their generation repeatedly fell for other "run your own business" scams. I always hoped future generations would prove to be more cynical and less gullible and these kinds of things would die. But the next generations seem to be falling for them too, in even greater numbers, plus the modern versions like leadgen and dropshipping "businesses," NFTs, and other online scams. Not sure what can be done about it. It's not technically illegal for a fool to be parted from his money.

uoaei• 3 years ago

The rhetoric aroung gig work routinely repeats this "be your own boss" language, too.

throwaway660232• 3 years ago

My country has a list of criteria to distinguish self-employment from closeted employment (which is tax evasion where I live):

- use your own tools (laptop, phone, vehicle)

- set your own schedule (work hours/days)

- get paid for tasks, not hourly

- have the ability to decline jobs without losing the customer (within reason)

To me it seems like gig work is in the clear. Why is it not?

toyg• 3 years ago

It's the dark side of the cult of entrepreneurship built into the reaganite American Dream.

If the path to happiness is material success, and the path to material success is entrepreneurship, anything that looks like a shortcut to entrepreneurial success must be Good.

I mean, even here on HN there are plenty of people who put money into startups that predictably died - often not very different from thinly-veiled scams to provide founders with income. And let's not even get into cryptocurrencies...

mistrial92• 3 years ago

what about actually running your own business? This totally negative take on Amway is one-sided. There was some young woman in MBA school in California and her Mom made lots of money on Amway to pay for that school, etc. Upon questioning, I believe that her Mom had two or three jobs at once, and some military service time, too.

petsormeat• 3 years ago

The Conspirituality podcast episode "Coaches Coaching Coaches" discusses how the wholly unregulated "life coaching" trend operates very much like network marketing, and cons buyers with similar claims to freedom from wage work.

What seems constant is how many people dislike being employees.

https://www.conspirituality.net/episodes/coaches-coaching-co...

wharvle• 3 years ago

I'm currently watching a friend's wife get scammed for large amounts (well into the five figures at this point, maybe pushing six) of money in the self-employed "coaching" (life coach, business coach, that kind of thing) field, and now she's finally—evidently desperate for her "business" (sigh, if only she'd accept business advice from people she actually knows who aren't randos promising her easy money) to finally start making any money—joined them, as part of what appears to be an obfuscated affiliate program for some minor player in that world—you pretend you're selling "how to start making money coaching" content that's part yours and in part belongs to your "partner" and that you're involved, but really it's 99% their content (which they may well themselves have bought...) and you're just selling it and serving as customer support so they don't have to work, for a little cut of the action. At a subdomain on "your site" but it clearly redirects to their CMS with a custom landing page.

It's been a wild ride watching this happen. A whole world I didn't know existed, and lots and lots of people getting scammed out of tons of money (there's a whole Reddit ecosystem discussing this stuff, it's both fascinating and horrifying)

scandox• 3 years ago

Feeling fat, tired and flat! Milo Janus is where it's at. Keeping trim, healthy and slim, Milo Janus you're in the swim.

Your new life is waiting to begin at Milo Janus, Get in shape will see you through thick and thin. Everybody! Start your day, shed pounds away.

It's all for your common wealth.

The only thing you have to gain is your health!

bombcar• 3 years ago

Hugh is much better and more honest.

Club Pilates, Pure Barre owners say Xponential left them bankrupt

Related Stories