Club Pilates, Pure Barre owners say Xponential left them bankrupt | Hacker News Reader

Club Pilates, Pure Barre owners say Xponential left them bankrupt

bloomberg.com

22 pointsrayrrr38 comments

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.

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?

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).

Yeah, I think Golds and CrossFit could benefit, at the expense of places like 24 Hour Fitness, which are more about losing weight (IMO).

I agree there appear to be non-trivial side effects to these drugs, and I certainly won't be first in line to try them out. But I expect that they will be refined substantially, and that elimination of side effects will be a key goal. For example, if the drug can be administered via pill instead of injection, it would be easier to do a lower, steadier dose, which presumably would mellow out some of the side effects. Pharma companies undoubtedly see the huge pot of gold at the end of the rainbow and will do whatever it takes to get there. The best drugs will likely always be more expensive than the earlier generations, which will be used by larger portions of the population.

But to the extent that tastemakers are the elite, I think we'll see a cultural change regarding desirable traits even if mere mortals like me aren't on the medications. The change will accelerate as the drugs become cheaper and more available to the masses.

A couple more things to consider:

1) I'm having trouble finding a good citation, but I remember it being a minor scandal at some point that statistically, the real-world weight loss from semaglutide was found to be roughly half what it was in the trials, probably because the trial populations were unrepresentative (younger and fewer comorbidities than the real-world population, IIRC).

2) In the face of shortages of the standard branded Ozempic/Wegovy products, a lot of people are turning to compounding pharmacies. But according to Novo Nordisk, there is no legitimate supply chain of semaglutide for them to use, so these pharmacies are apparently selling people a semaglutide salt that is manufactured as a research chemical rather than a licensed drug [1]. The FDA has also warned of outright counterfeit Ozempic getting into the supply chain, complete with fake serial and lot numbers [2].

[1] https://www.nbcnews.com/health/health-news/ozempic-wegovy-we...

[2] https://www.fda.gov/drugs/drug-safety-and-availability/fda-w...

Regardless of the exact effect magnitude, the GLP-1 agonists are very effective relative to other bariatric treatments across all patient populations. Tirzepatide appears to be even more effective than semaglutide in that regard. The concern is not so much over the magnitude of weight loss but over unfavorable changes in body composition and serious side effects such as gastroparesis.

https://peterattiamd.com/ama45/

Novo Nordisk appears to be spreading FUD to some extent. While there are scammers selling fake or adulterated semaglutide (same as with any popular prescription drug), legitimate compounding pharmacies are producing the real thing that is medically equivalent to the branded Ozempic/Wegovy products.

https://time.com/6301552/weight-loss-drugs-compounding-pharm...

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

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.

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.

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

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?

"Gig work" when dependent on a single major market mediator, such as Uber, Door Dash etc. is clearly a form of masked employment, your criteria notwithstanding.

The fundamental feature of freelance work is that you get your own customers and you are not dependent on a market maker who cuts you in.

Some of the other criteria seem arbitrary. Of course companies want to pay their employees per task, only if a customer is present, they love zero cost employees that are available as a reserve workforce to pick up any sudden demand. A monthly base salary is a labour protection for the employee, forcing the employer to take the business risk and distribute revenues from the peak times to the slow times, ensuring a stable revenue for their workforce.

It's a choice of the freelancer to work for only one app. Drivers in my city usually use multiple - Uber, Bolt, a local taxi company app. I had many Bolt rides in an Uber branded car and vice versa, and many Uber/Bolt rides in a "normal taxi" car. I saw the drivers switch between the different apps, choosing which one offers them the best rides right in that moment.

Food delivery is the same - I saw drivers have multiple different branded bags in the car when they delivered food to me.

I really don't see how it's masked employment if this can be done without any issue.

> The fundamental feature of freelance work is that you get your own customers and you are not dependent on a market maker who cuts you in.

They got their own customers - the gig work platform is the customer. How do you even define "getting their own customers"? Do I have to take them out to nice dinners? Is an ad in newspaper sufficient? What about an online ad? And what about an ad on a job platform? I worked for a private jet Air Operator company - their entire business was done through Avinode platform, that's basically Uber but for private jets. Are they masked employees of Avinode too?

Would you say that developers working through Upwork or Toptal are not freelancers? I specifically asked my tax government office this question - they said it doesn't matter whether there is a marketplace, what matters are the criteria I listed above.

> that are available as a reserve workforce to pick up any sudden demand.

That doesn't sound like "set your own schedule".

> you are not dependent on a market maker who cuts you in.

Is the software freelance market created and dominated by Upwork, which arbitrarily sets prices and defines the product? No, they are just one of the many marketplaces. Customers don't expect "an Upwork solution" because there is no such thing, they are fully aware a myriad small developers sell their services there. The small developers take on business risk and they are rewarded with market freedom.

Compare that with Uber, where customers are interacting with the company as a finite product, they "get an Uber". In many cities, there is no such thing as a "ride sharing market". Uber might compete with other transport solutions, but the individual drivers clealry do not have market freedom, they are a fungible workforce.

The notion that drivers have Uber as a customer is just silly. By that standard, any employee has their employer as a temporary important client, erasing any distinction and employee protection. The clients are clearly the riders who use the aps. Can Uber drivers compete with Uber and short circuit their fees by establishing direct to customer relationships? If it's generally no, then Uber is not a marketplace, it's an end product and the suppliers of the services are either employees or other subcontractors that have their own employment law obligations.

> A monthly base salary is a labour protection for the employee, forcing the employer to take the business risk and distribute revenues from the peak times to the slow times, ensuring a stable revenue for their workforce.

This sounds like it should be the concern of the government, not a business. Such as a universal basic income.

The government takes care of that need by regulating tha labour market and shifting the burden onto the private sector, which in turn passes it over to the consumers through prices. It's a functional system more than a century old that is politically feasible today, unlike most UBI proposals. So until we can have superior alternatives in place, companies aren't really free to "disrupt" that social model.

The government is clearly not taking care of that by regulating the labor market, given the difficult it has in classifying “gig work”.

For example

> The fundamental feature of freelance work is that you get your own customers and you are not dependent on a market maker who cuts you in.

Are electrical/plumbing/painting/etc subcontractors hired by a general contractors freelancing?

> get paid for tasks, not hourly

That would be a problem for a huge number of lawyers in the US.

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...

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.

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...

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)

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!

Hugh is much better and more honest.

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.

>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'

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).

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.

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.

> 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.

>SP500 is risk free

I'm sorry, what?

Compared to an equity investment in a local business, sure. On a 5 or even 3 year timeline, the federal US government is not going to let the broad market indices fall. And if they do, Americans have bigger problems to worry about.

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...

If you don't have data on private investments, how can you say anything about how they compare with an index fund? As a passive investor in a local business, my losses are pretty limited by their corporate structure.

I've been self-employed for about 6 years now, and my return on my original invested capital is hundreds of % a year. My potential losses are highly limited by being incorporated- I can always just close the business and walk away. I think it's ridiculous to compare my little company with an index fund, but I also think it's pretty silly to make sweeping statements comparing public stock markets with private investments. It's OK to say that 2 completely different things are apples & oranges

I'm saying what data you should be looking at when you're comparing investment opportunities, not doing the work of assessing specific investments for you.

Being self-employed isn't a financial investment, it's a form of labor and most certainly not passive, hence why the comparison fails.

What is the body of evidence that leads you to think you can't exceed a (totally unrelated) benchmark when investing in privately held companies? Can you cite some studies? The reason we know EMH 'works' for public markets is decades of research. What research lead you to a similar conclusion for private markets, can you link some of it here?

I haven't said nor implied that, I've made a nuanced statement, but you seem hell bent attacking some strawman, good luck with that strategy and bye.

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