Why We Stick With Zen Planner

Around 2007, we started using Mind Body. I am unable to recount the specific problems we had with that product back then, and I’m not sure that it matters anymore. Those bugs have probably long since been fixed. Around 2009, we switched to Zen Planner, because our desk staff was simply having too many problems getting their job done using Mind Body.

We went through a difficult transition. For six months, all of our new members went on Zen and all of our old members stayed on Mind Body. At the time, we were still small enough that we could manage two platforms and not really worry about the consequences of people booking slots in the same class via different data bases.

To make sure that Zen was working correctly, we opened a separate checking account for all money billed via Zen. We wanted to know with certainty that Zen was better than what we had before we committed to switching our entire membership. (I strongly recommend this approach for anyone considering changing their billing software. It insures that you don’t disrupt current members unless and until you are sure that the new product works better than the old, which is by no means a certainty.)

Our staff was far happier with Zen, and I was able to get a clearer picture of our business. We ultimately migrated all of our members to Zen. As an owner, I had two primary concerns: (1) that everyone was getting billed correctly; and (2) that our members were able to register easily for classes. To this day, I do not consider a third function (3) WOD tracking, to be a matter of enough importance to justify moving 1600 members to another platform. Our customers expect only (1) and (2) and they use to Beyond the White Board for (3) WOD tracking. (We pay BTWB a monthly charge for our affiliate and allow all our members to use the software for free.)

From a software design perspective, (1) and (2) are almost entirely distinct functions from (3), and I believe that any vendor trying to do all three of these things is going to have a problem. In general, there is a large market for software packages that do (1) and (2). Once a software company tries to add (3) they have cut their market down to CrossFit in general and to CrossFit affiliates that are willing to switch in particular.

It is difficult for me to imagine a compelling enough reason to switch all of our  members from Zen and BTWB to an integrated package, even if that package were certified as extraordinary. The switching costs are simply too high for us at this point.

Basically, I have come to feel about Zen Planner like a famous author felt about his word-processing program (the now discontinued) WordStar: "I'm told there are better programs, but I'm also told there are better alphabets." 

This is not to say that Zen is necessarily the best option for a new affiliate. I have several problems with Zen. Though their customer service department is polite and responsive to most issues, there are some bugs that I expect will never be resolved.

Zen allows people to register only once for a free class. If someone registers and does not show, they can never again register for a free class, unless we go in and delete them from the class they missed. 

The dashboard for Zen is pretty much meaningless. There are tremendous inconsistencies in what constitutes a “member” and what constitutes a “membership.” For example, if Zen says we had 10 memberships drop and 20 members join over a given time period, that does not mean we have grown by 10 members. This is because members can have multiple memberships in Zen, and the terms are used indiscriminately in reports. When a member drops his current membership (and therefore next month's "pending" membership)  I think I lost one member, and Zen thinks I lost two memberships. This issue extends into all our historical data, so there is no way to track member (as opposed to "membership") changes over time without maintaining a separate spreadsheet. 

If you look at almost any Zen report and analyze it by hand, you will find that things don’t balance. Nonetheless, Zen bills correctly and it handles signups correctly, except for a weird bug that allows some people to get on a wait list but never get upgraded when a spot becomes available. That bug has been around for years, and I have all but given up on its getting solved.)

The Economics of Owning an Affiliate, Part 1: Defining Costs

An athlete doesn’t need to understand physics, but a good athlete moves as if he understands physics. Similarly, a business owner doesn’t need to understand economics, but a successful owner will behave as if she understand economics.

We tell our athletes to move the bar straight up, and it becomes immediately obvious that doing so allows them to move more weight and do so safely. It is not necessary or useful to explain that

• Work = Force x Distance x Cosine of the angle between the applied force and the direction of movement.
• Applying the force in the exact direction of the desired movement causes the angle between the two to be 0 degrees; the cosine of 0 is 1; and this maximizes the work.

On the other hand, affiliate owners don’t typically have coaches guiding their business decisions. So, it is may be helpful to discuss the economic forces that affect an affiliate. The odds that you will make decisions as if you understand economics go up if you actually do understand some basic economics.

Like CrossFit, affiliates are infinitely scalable. Most start out small, where the consequences of missteps initially are not great. It is also possible to start out large, and seriously screw up. I am doubtful that it remains possible to open an affiliate in Manhattan without investing $1.5 million, and I am certain that there are affiliate owners that have managed to spend two to three times that amount. Between the two extremes, there is still room for considerable financial risk. Most new affiliate owners struggle with the decision to sign a lease, and quit a job.

To have a general discussion of an affiliate business model, it is necessary to define five types of costs:

• Fixed Costs
• Variable Costs
• Sunk Costs
• Opportunity Costs
• Externalities

The classic fixed cost is rent. If you’ve signed a lease, the rent is the same, whether you have no paying members or 100 paying members. If you have an Internet provider, that bill is also fixed, regardless of membership, shirts sales, or anything else. Your annual affiliate fee is also a fixed cost.

The first calculation a small affiliate usually does is to take the monthly rent and divide it by the number of people they need to pay a monthly membership to estimate what they will need to break even. If the rent is $6,000 per month and the membership is $150 per month, the hope is that with 40 members, the owner (who usually starts out teaching all the classes himself) will not need to pump more money into the business. This is a significant oversimplification, but it is a start.

Variable costs are proportional to the number of members. When the owner starts out teaching all the classes herself, it’s easy to imagine that there are no variable costs unless and until it comes time to hire the first coach, so that the owner isn’t all but living at the box. For a large affiliate like CrossFit NYC, we have a clear model for our variable costs. For every five members, we run about one class per week.  A class costs us about $75 (explained here) so each new member has a variable cost of about $15 per week ($65 per month). This is not an exact science. If we add 10 members next month, we may not add any classes. (We certainly wont add another Front Desk person.). But if we add 100 members over the next six months, odds are we will add about 20 classes per week and a corresponding amount of support staff. There are other components to our variable costs (bathroom supplies, barbells, etc.) but salaries are probably the primary component of variable costs.

Sunk Costs are costs that cannot be recovered if you go out of business. If you spend $10,000 on equipment, you will get something back if you close your doors, but certainly not what you paid. If you spend $200,000 to build out a warehouse and turn it into a nice box with showers, that money will probably be gone, if and when you close. In Manhattan, sunk costs (much of it legal, for getting permitting and zoning approval from the government) can now run $1 million. In theory, a legal CrossFit affiliate in Manhattan can get something subletting their facility to another gym business, but for the most part, it’s all a sunk cost.

Opportunity Cost as it applies to affiliate ownership is the income you give up when you quit your job (or when you choose to teach for free rather than pursue other income opportunities). Before he left us, a young coach showed me his business plan to leave New York, return to his home town and open an affiliate. Conspicuously absent was any acknowledgement that he was giving up a $75,000 per year income to pursue his plan. He had himself teaching all the classes, and thus decided he would have zero labor costs. It was the simple model of rent on one side and membership income on the other. His $50,000 in projected profit was less than he was earning doing far less work for us.

Externalities are one of the least acknowledged costs associated with a CrossFit affiliates. Externalities are costs that are paid by outside parties as a result of your operation. The externality that is most relevant to affiliates is the noise and general nuisance that can be claimed by neighbors. Neighbors tend to insist their suffering is great, and affiliates tend to believe that it is minimal. In Manhattan, the reputation of CrossFit affiliates being a nuisance to the community has resulted in the local government applying a level of scrutiny during the zoning process that had previously been reserved for bars and nightclubs. When we opened our second location, we paid in excess $400,000 in sunk costs (legal and building) to guarantee that our operation would have no negative externalities on our neighbors. We got off cheap. I estimate that another affiliate has spent five times as much—all sunk costs.

A Good Affiliate Doesn't Need A Strategy.

In 1979, Michael Porter published a seminal article in the field of business strategy: “How Competitive Forces Shape Strategy." Porter identified five forces that affect corporate strategy within any given industry:

• The treat of new entrants
• The bargaining power of suppliers
• The bargaining power of buyers
• The treat of substitute products or services
• Rivalry among existing competitors

Porter argued that these forces result in three generic business strategies; and that the most successful businesses were those that stuck to one or at most two of these:

• Overall Cost Leadership (compete on price)
• Differentiation (create something unique)
• Focus (on a particular type of buyer)

Dozens of books and hundreds of case studies followed. Entire business school courses revolve around Porter’s work and to this day, Michael Porter is probably the best known and most cited academic in the field of business and economics.

Twenty five years later, Bruce Greenwald (who had been my favorite professor in business school) and Judd Kahn published Competition Demystified. Reading it today, I can see the influence Greenwald had on me.

“We agree with Porter that the five forces—Substitutes, Suppliers, Potential Entrants, Buyers, and Competitors within the Industry—can affect the competitive environment. But unlike Porter and many of his followers, we do not think that those forces are of equal importance. One of them is clearly much more important than the others. It is so dominant that leaders seeking to develop and pursue winning strategies should begin by ignoring the others and focus only on it. That force is barriers to entry—the force that underlies Porter’s Potential Entrants.’”

Any affiliate owner knows that there are not significant barriers to entry for new CrossFit affiliates. There is a great deal of complaining among box owners that it is too easy for new affiliates to pop up down the block. Many affiliates try to develop a unique competitive strategy that distinguishes them from everyone else. Such strategies are a waste:

“If there are no barriers to entry,then many strategic concerns can be ignored. The company does not have to worry about interacting with identifiable competitors or about anticipating and influencing their behavior. There are simply too many of them to deal with.”

“Life in an unprotected market is a game played on a level field in which anyone can join. In these  markets, often but mistakenly identified as ‘commodity’ markets only the very best players will survive and prosper and even they will have to be continually be on their toes. Without the protection of barriers to entry, the only option a company has is to run itself as efficiently and effectively as possible.

Operational effectiveness might be thought of as a strategy, indeed as the only strategy appropriate in markets without barriers to entry. However, operational effectiveness, identified by Michael Porter as doing what rivals do but doing it better is an internal matter. According to our definition of strategy it is tactical rather than strategic. That does not make it insignificant. Operational effectiveness can be the single most important factor in the success, or indeed the survival of any business. . . . [T]he pursuit of operational effectiveness does not require the consideration of all external interactions that are the essence of real strategy.”

What this means is that it simply doesn’t matter what other affiliates or other gyms are doing in your neighborhood. You cannot make any significant moves to preempt your competitors. You cannot make it costly for your customers to switch. You cannot lobby the government or CrossFit HQ to keep competitors out.  The only thing you can do to survive and thrive is run your affiliate as efficiently as possible.  All you can do is pursue excellence.

When we started CrossFit NYC, we were the only affiliate in Manhattan. Now there are twenty four, six within about a quarter mile of us. We have about another dozen boutique gyms within walking distance, all offering various “high intensity” programs. Every time another gym opens, we ask ourselves how we should respond in the market, and the answer is always the same: we shouldn’t respond. We should look internally and get better at what we’re doing. Better at coaching. Better at scheduling. Better at cost control. Better at customer service. Better at facilities management.

The answer is never to match or counter our competitors. We aren’t adding yoga or boot camp classes just because other gyms have yoga and boot camp classes. We aren’t going to compete on who can have the most luxurious locker rooms or the best shampoo. (Yes, this is a thing around here.) We aren’t going to worry that a nearby affiliate is sending a team to the Games. We aren't adjusting our pricing based on anyone else's pricing. All we concentrate on is on getting more efficient.

How We Pay Our Coaches

CrossFit NYC is in the coaching business. Our coaches are our product. We compete for coaches, not only with other affiliates, but also with other sources of employment. We’ve had several people give up high-paying jobs to coach for us. In order to keep good people, we need to make it worth their while to be here—and we do.

A part-time coach starts at $25 per hour, and shortly after making it to twenty hours per week (usually over two to four months) goes to $30 per hour. Our top rate is about $50 per hour. An average coach works 22 hours per week for about $40 per hour. Taxes and benefits for coaches cost us about $12 per hour. We pay everything on the books. All our coaches are employees, no independent contractors, no 1099’s.

We maintain a separate checking account to cover payroll, so there is zero chance of a check bouncing. We outsource our payroll, so that all taxes are filed correctly and on time. Meeting payroll is our number one priority. Everyone gets paid on time each week via direct deposit.

New York City has a sick-time policy that mandates one hour of paid sick time for every 30 hours worked to a maximum of 40 hours for an employee who works 1200 hours in a year. We improved on the system, with no upper bound on time-off earned. For employees who have been with us two years or longer, we give one paid hour off for every 20 hours worked.

We offer medical to coaches who work 20 hours per week and to administrative people who work 35 hours or more per week. We pay the first $400 per month on policies that cost about $750 per month, so the weekly copay for the employee is about $75.

Overall, it costs us just over $50 per class for the coach and an additional $20 per class hour for administrative overhead (head coach, operations manager, customer service manager, Front Desk personnel, etc.) Our goal is to keep payroll expenses below $75 per member per month.

When it comes to personal training, we borrowed a page from Greg Glassman’s “least rents” model. We take next to nothing from our coaches who train personal clients. Its money we leave on the table. CrossFit NYC is not in the personal training business. We have conceded that market to our coaches as either their primary or their secondary source of income (their choice). CrossFit NYC is strictly in the business of running group classes, about 360 classes per week. (We are also not in the business of renting our facilities to people who want “Open Gym” memberships.)

A full-time coach at CrossFit NYC (20 hours or more of scheduled classes) pays us $2.50 per hour per private client. A part-time coach pays $5 per hour per client. The charge is mainly to insure that there is a process in place. Private clients check in at the Front Desk, so we can make sure they have a waiver on file; and they sign a logbook, so we have a record in case of an incident. Beyond that, private clients pay their coaches directly.  Starting this year, we will require that anyone doing private training have a separate personal policy with the CrossFit Risk Retention Group.

At the high end, we have a coach who teaches five classes per day, two days per week, and gets paid an additional weekly salary to manage our mentee program. Along with our head coach, she acts as the gatekeeper for new hires. She has maybe twenty five personal client hours per week, for which she pays us about $60 total. Another senior coach who manages our blog and social media chooses to work a bit under twenty hours over four weekdays. In addition, he gets a salary for his administrative role. Our head coach teaches about fifteen classes per week and gets a separate salary for doing our programming and managing the coaching staff.

We do our best to accommodate our coaches’ preferences for when they want to teach. With the number of classes we run, we can be fairly flexible—to a point. As a general rule, we respect seniority in making scheduling decisions, and our ten most senior coaches pretty much have the exact hours they want. New hires start out taking what we can offer them, fewer hours at first, often on the weekends, gradually more hours. Many senior coaches cut back on their days and hours, so that they can handle more privates, which is where the money is for them. This is fine with us, because it allows newer coaches to gain hours, and it keeps great coaches on our staff.

Inside The Black Box

I am the principal owner and general manager of CrossFit NYC, aka The Black Box. When I bought out one of the original partners in 2007, my hope was simply to stay in business. I expected CrossFit NYC would be a hobby in my early retirement. At the time, I was president of a mid-sized company (about $100 million in sales and 500 employees). Back then, CrossFit NYC had about 50 members.

Today, CrossFit NYC is one of the largest affiliates in the world (about 1600 members and two locations in Manhattan). My retirement hobby has become a full-time job.

I am not an exceptional athlete or coach, but I do have an extensive background in managing businesses. My undergraduate degree is in electrical engineering from Polytechnic University (now part of New York University) and I have an MBA from Columbia Business School.

At CrossFit NYC, I have probably seen nearly every problem of every affiliate and seen it on a larger scale. I periodically get questions from box owners about how we do things at CrossFit NYC.  Here, I hope to address those questions in an organized way.

I will try to explain not only what I do as an affiliate owner, but why I do it. I think an explanation of why as opposed to what is critical. Most of our operation was not arrived at arbitrarily, but is the result of trial and error; the rest reflects my perspective and that of my closest staff.

I am acutely aware that every affiliate is unique, and I do not intend to argue that I know better. If you ask a bunch of Games athletes about their diet, you will get a range of answers, but the range will probably not be that great. Similarly, while many of the top affiliate owners do things differently than CrossFit NYC, the difference are probably also not that great. And where there are significant differences, they probably reflect the specific resources available to the owners and the demands of the local marketplace.

Welcome inside the Black Box.