Franchise Founders Hope They Have A Fit Concept

Sunday, March 21, 2010

Michael Wood hands me a tiny, black digital music player as I climb onto an elliptical machine at a Needham gym, ready for a morning workout. On the MP3 player is the voice of Wood himself, exhorting me to pick up the pace, dial up the level of difficulty, keep my arms moving, and breathe.

Discuss COMMENTS (10) Wood is a $125-an-hour personal trainer who has been lauded by Boston Magazine and Men's Journal as among the best, and his guidance is built into a new gym concept called Koko FitClub. For most members, Wood exists only as a voice they hear while on the treadmill, or instructing them to add 10 pounds before their next set of leg extensions. But today, he's walking me through an introductory session of cardio and strength training at the tech-centric gym. At one point, a member recognizes Wood as the face who greets her on the flat-panel displays attached to the exercise equipment, and she asks him to pose for a photo.

The premise behind Koko FitClub LLC, a franchising business based in Rockland, is that the personal trainer is ready to go virtual. While a session with a live personal trainer might cost $50 or more per hour, Koko tries to capture the same benefits like encouraging proper form and pacing, and mixing up the activities in each session in silicon and software, for a $59-a-month fee. Mike Lannon, who started Koko with his wife, Mary Obana, is convinced that Koko has the potential to be the next Gold's Gym or Curves, at a moment when gyms find themselves competing with devices like the Nintendo Wii, which melds exercise with video games.

When members join Koko (today, there are just nine locations open, including two in Massachusetts in Needham and Pembroke) they receive a little USB drive attached to a lanyard. This device stores information about who you are (such as age, height, and weight) and what you have done in previous workouts. At the Needham franchise, there are three treadmills, two elliptical machines, and five of what Koko calls its "Smartrainer'' strength training machines, which can run through 96 different programs to exhaust your legs, arms, and abs.

When you insert your USB drive into one of the Smartrainer machines, it greets you and then serves up a customized 30-minute workout, telling you how many times to repeat each exercise, when to add weight, and importantly, Wood explains, making sure you don't rush through the motions: Going slowly makes your muscles work harder. (The machines prompt you to complete each repetition in sync with a graphic that moves up and down, to get the pace right.) When you are finished, the LCD screen tells you how many points you have earned for exercising at the correct pace and intensity. A 1,000-point workout is the goal, with points corresponding to how closely you follow the guidance of the virtual trainer on the screen.

Koko has asked Wood and two other well-known personal trainers to design different programs for members who might have different fitness aspirations. These programs go by alluring names like "Beach Body,'' "Performance Golf,'' and "Beautiful Bride.'' Discuss COMMENTS (10) But Koko's big challenge is finding a way to set itself apart from other gym franchises seeking to expand.

There are unstaffed gyms like Anytime Fitness, open 24 hours a day, and boxing gyms like LA Boxing. Just down the street from Koko's Needham club is the headquarters of Get in Shape for Women, another franchise concept; it aims to bring down the cost of personal training to $20 or $30 a session by having women work out together in small groups. (Get in Shape, founded in 2006, has 37 locations so far.) Then there's Curves International Inc., a Texas franchising company with nearly 10,000 locations that serve women only.

"People think it's just another Curves,'' says Adam Landry, who owns the Koko club in Needham, which has a spa-like vibe. But he says that when prospective members come in for a trial workout, "90 percent of them sign up.'' As is the case with many start-up stories, Lannon and Obana initially planned to do something different. They raised about $6 million from a bevy of individual investors to build the Smartrainer, thinking they would sell thousands of the machines to gyms around the country.

"We designed the device, the software, and the exercise programs that would run on it,'' Lannon says. To demo the product for gym owners, they rented an old 18-wheel truck and drove it around the country for a year. A 2007 deal with Star Trac, a California-based maker of spinning bikes and treadmills, resulted in an order of about $1 million (the Smartrainers sell for $10,000 each).

But the strategy of selling the Smartrainer to existing gyms didn't catch fire.

"They'd put it in the corner, and usually they'd charge members an extra fee to use it,'' Lannon says. "It was an oddity.'' Just as the economy was unraveling in the fall of 2008, Lannon and Obana decided to transform Koko into a franchise business. A single location costs about $175,000, including all of the equipment, Lannon says. Franchisees also pay a monthly royalty to Koko of $395, plus $4 a month for each member. He says the company has sold the rights for 90 locations so far.

Franchising guru George Naddaff, who helped launch the Boston Market and Ufood Grill chains, says that franchises really take off when there are enough locations in a given area that word-of-mouth starts to spread, and franchise owners can spend enough on marketing to generate awareness.

Another key is ensuring that the earliest franchisees do well and can serve as references for others who are thinking of buying franchise rights.

"Their prospects can call the franchisees and ask them a few questions, like are you making money, what was the training like, and would you buy this franchise again,'' Naddaff says.

Landry says that after opening the Needham location in December, he has been signing up about 50 new members each month, meeting his expectations. He declined to say how many members the gym has.

"By this month, we should be covering our operating costs,'' he says. Landry is planning to open his second Boston-area location in the western suburbs by September, and Koko operates a corporate-owned location in Pembroke.

Lannon had a close encounter with entrepreneurial success in the late 1990s, when he built Send.com, an e-commerce site focused on corporate gift giving. But the company turned down several acquisition offers at least one of which was north of $100 million, Lannon says and its business imploded in 2001.

Now, though, Lannon is convinced that the fitness world is ready for Koko's high-tech exercise regimen. "2010 is our last year of incremental growth,'' Lannon vows. "In 2011, we think this will really take off, when our existing franchisees start opening their second, third, and fourth locations. We absolutely see this having thousands of gyms worldwide.''

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