Today I’m going to teach you guys how to have more fun in your business, how to completely re-invent your business category, and take your business to a whole new level. Now, that sounds like a lot of brave talk, I know, but here’s how we’re going to do it. We’re going to use time tested principles that have been proven in completely unrelated business categories to yours. Things that are known and standard procedures in other business categories, but they will be completely revolutionary in your business category.
I’m going to give you three examples. Thirty years ago, it was about thirty-two years ago, I had a friend named Nick. He said, “My tennis coach, he needs some help.” I said, “What kind of help?” He said, “For 11 years he was running this big fitness center and then he decided to risk everything. Everything he owns, everything his parents owned, this mortgage that they held,” and he told me the location. I said, “Oh, that’s a gorgeous location. That’s really an upscale area.” I even knew the building that he had taken over. It didn’t used to be a gym, but it was the perfect place for an incredibly amazingly upscale gym. On top of a hill top surrounded by these big beautiful trees, in a city that had very few hills, and very few big trees. I said, “What’s the problem?” He said, “Well, just go talk to him.”
I went in there and the first thing he wanted me to understand was, “My customer. You have to understand my customer.” He talked and talked and talked, and I said, “Fine. What kind of a problem do we have here?” Let me give you a snapshot about what gyms were back in those days. We’re talking 1980-ish. It wasn’t like today. Back then you would buy a 2-year membership, and most of the gyms would take you on this amazing dazzling tour, and at the end of the tour, “You came in today and we’ve shown you everything, and we need you to make a decision, and if you don’t join right now, then you’re off the list forever. You can never be a member. We’re not going to fool with you anymore. We’ve told you everything there is to know. What do you decide?” A high percentage of people back in those days, high-pressure still worked, would go ahead and they would sign up.
That wouldn’t work today, but back then it was standard procedure. It had been since the 70’s. What happened was he had signed up over 80,000 members to this gym where he had worked for 11 years. That gym closed down because everybody got sick of going back to the gym that they had just joined and finding out there’s these long lines and not enough equipment and it wasn’t the magical experience that they had had when they had this tour during a window of time during the day when the place wasn’t crowded.
Hmm. I’m looking at him and I’m saying, “How does your deal work here?” He said, “Well, this is really upscale, and a 2-year membership is $1,000.” When you got a gym membership for $1,000 back in those days, they would finance it. When you quit paying your monthly membership or you thought you were no longer paying your monthly membership, what you were actually doing is defaulting on a note to a finance company, because the finance company would buy that paper from the gym who sold you the membership. The gym has their money from the finance company. The finance company doesn’t care what you borrowed that money for. You owe them $54 a month for the next 2 years.
People were always furious about having to make these payments on a gym they didn’t want to go to, and so that’s when he chose to go into the gym business. I said, “Okay, it’s $1,000.” He goes, “Well, the platinum membership is $1200.” “Okay, what’s the difference?” “Tanning beds.” I said, “All right. How many memberships have you sold?” I’m not making this up. He had sold 1 membership in 3 months. He said, “I had $100,000 operating capital. It takes about $1,000 a day to keep this place open.” I said “$30,000 a month?” He goes, “Yeah, plus a $5,000 ad budget.” $35,000 to break even. I said, “You’ve sold one membership.” “Yeah.” “You’ve been open 3 months.” “Yeah.” “You started with 100 grand in operating capital. Sounds like you’re out of money.” He said, “Yeah, I am.” I said, “Okay. If I bring you every month, beginning immediately, more than $35,000 a month, do you care what happens to the $5,000 ad budget?” He said, “No, no, no. You bring more than $5,000 a month, that ad budget is yours to do whatever you want.” I said, “For every month that I bring you more than $35,000, if I just put the $5,000 in my pocket, we’re still okay, as long as I’m bringing you more than $35,000 a month.” “Yeah, do that.” “Okay, good.”
Here’s the thing I want to teach you. I had to ask myself why do people come to the gym. Maybe today everybody’s going there to feel better, look better, you live longer, etc. Back then, I was pretty sure that it was just a place to see other people and be seen. It was a place to belong. It was a young persons’ country club. Nobody thought about it that way, but that’s really what was going on. I said, “How many members could you have if everybody in the family was going to be a member on one membership, and we want the place to always have people in it so it’s never empty, but we don’t want it to be crowded either. What’s the maximum number of members we could have to keep this facility a happening place, but never really overcrowded? Give it some thought.” He thought about it for a while. Remember, he had sold 80,000 members to this other gym in an 11 year window. He goes, “All right, if we had a total of about 6,000 members, that would be the right number to keep this place feeling good. What are we going to do after we sell 6,000?”
I said, “Calm down. Calm down.” I said, “We’re going to get a mailing list of all the doctors and lawyers and car dealers and everybody else who feels that maybe they are a cut above the rest of us.” I mean that in the nicest possible way. I said, “We’re going to send them an engraved invitation with a little tissue in there, hand addressed, with a live stamp.” I said, “Answer me this. How long do you think it would take us to give away 6,000 memberships for life?” He said, “I’m not following.” I said, “We’re going to give away 6,000 memberships for life. These lifetime memberships are completely transferable. You can borrow money against them. You can sell them. You can lose them in a poker game. They’re fully transferable lifetime memberships.” He said, “Why would we do that?” I said “Because, in the finest country clubs in the world, there haven’t been memberships available for decades. If you want to become a member, you have to find a member who’s willing to sell you their membership, and they can charge you whatever they want for that membership.”
I said, “We’re going to run this club according to the rules of an exclusive country club, because you have that kind of a location and that kind of a feel. We’re also going to tell these people, ‘We’re going to allow you to give as your gift, lifetime memberships to everyone that you would like to be in this club with you because we want to make sure you’re comfortable here. You’re the kind of people we need in our club, and so you and your family are members for life, and anybody that you would like to have be members here with you. You’re going to give them as your gift, a membership for life to the club. How long do you think it will take us to give away 6,000 memberships?”
As it turned out, it took about 30 days. He said, “Where are we going to make the money?” I said, “We have to wash the towels and stuff. We have to wash the towels and we have to clean the equipment and have little maintenance things.” I said, “In every country club, you have to pay dues,” and I said, “Becoming a member is the big money, and the monthly dues is chump change. It’s only going to be $20 a month.” I said, “We’re going to bang their credit card for $20 a month so that we can wash the towels, and they’re not in debt. They can quit paying that anytime they want, and we’ll reassign that membership to somebody who doesn’t mind paying the $20 a month for the whole family.”
If you’ve done some quick math, you realize that’s $120,000 a month. That story actually ends very badly. I’ll tell you about that next week. By the way, remember, what I want you to take away from today’s session is this. Time tested reliable rules, policies, methods, procedures, certain protocols that are just completely standard operating procedure, in an unrelated business category, can be completely revolutionary in your business category. All you have to do is step outside your category and look at it from a different perspective. If we were going to pattern our behavior after, and as a mental exercise, you can pick anything. Anything. Any organization. Any business, and said, if they were going to get into this business, how would they do it? The crazier the idea, the more you frighten yourself or make yourself laugh, the better the idea probably is.
The next time I did it, just about a year later, I had a fellow that was a friend of a very successful client, and he had been a banker, and he said, “I have this fertilizer company.” “What are we up against?” He said, “It’s a 5 step program.” I said, “Okay, a small yard. Give me an idea of how much this costs.” He says, “About $30 for a really small yard per application.” I said, “Okay fine. How many applications?” “Well, there’s 5.” I said, “What’s the problem?” He goes, “We’re always having to call them up and get permission to come out and do application number 2. Then we have to call them up and get permission to come out and do application number 3, and it’s time for application number 4. If you pay for the first 4 applications, application number 5 is half price.” He said, “Most people just get one or two applications and then don’t continue, because they figure, ‘It’s fertilized. It’ll be fine.'” He goes, “That’s not really how it works. They really need number 3.” He was getting all frustrated. He says, “What really makes me crazy is after the 4th treatment, they always say, ‘Isn’t the 5th one supposed to be free?’ We say, ‘No, it’s half price. It’s not free.'” He says, “I’m so mad. I want to make sure they remember that the 5th application is half price, not free.” I said, “Okay, fine.”
I said, “How much do you hope to grow this business?” He says, “I want to grow about 10% or 15% per year.” I said, “That’s a pretty low bar to jump. How many clients do you have?” He said, “About 1500.” I said, “You’re only asking for 150 to 225 new customers each year.” He goes, “No. It’s going to take more than that, because we lose about one third of our customers each year.” I said, “Hang on. You have to replace 500 customers each year?” He said, “Yeah.” “Then we would need to grow it by another 225.” He said, “Yeah.” I said, “Wait a minute. I’ve got to find 725 new customers to grow you 15%.” “Yeah, but don’t worry about that because it’s standard. Everybody in this category loses about one third of their customers each year.”
I said, “I’m reminded of something Zig Ziegler said many years ago. He said, ‘Every year Black and Decker sells something like 100 million quarter inch drill bits, but no one has ever wanted a quarter inch drill bit. They all want quarter inch holes.'” I said, “People aren’t actually buying fertilizer. They’re buying green grass. They need you to take responsibility for making the grass green. You’re selling treatments, and they don’t want treatments.” I said, “In the same way, nobody wants a diamond. They want the reaction of the woman they love. They want that look on her face.” I said, “A woman wears a diamond because she’s imagining everybody else’s reactions. Don’t describe the rock. Describe the reactions. Don’t talk about the fertilizer. Talk about the lawn.” He says, “I’m not sure I agree with that.” I said, “Okay. Do you only have 5 things you do?” He goes, “No, we have 3 other ones, but we don’t need to advertise though, because nobody ever buys those.” “Tell me about them anyway.”
I said, “Your fantasy, your goal here, is you only get paid 4 and one half times whatever the size of the yard is. If it’s a $30 yard, you’re going to get paid 4 and one half times per year because the 5th application is half price. That would be, what, $135 a year?” “Mm-hmm (affirmative).” I said, “Okay, fine. That’s perfect outcome, $135. Tell me what these other three things we do.” He said, “One is core aeration, and then there’s liquid lime, and then there is grub worm control. We don’t want to advertise those because nobody ever buys those.” “Why do you have core aeration?” “To loosen the soil.” “If you don’t loosen soil, what happens?” “Soil gets compacted and he puts fertilizer on, and you water it, and it all washes off into the ditch.” I said, “What causes soil to get compacted?” He said, “Gravity.” I said, “This is an optional treatment? This is optional? It’s not really going to work very well unless we loosen the soil first?” He says, “Yeah, but people don’t want to do that.” I said, “Therefore, we let them experience an outcome other than what we promised, and then we say, ‘It’s just standard, don’t worry about it.’ Then we lose a third of our customers each year. I’m having a problem with this business model.”
He goes, “Don’t worry about it. It’s standard, nationwide. It levels the playing field. Everybody has that problem.” I said, “Then everybody’s an idiot. I reject having that problem. I don’t want that problem. Tell me more about this liquid lime.” He says, “It restores the pH balance in the soil.” I said, “Okay. Why do we need to restore the pH balance?” He says, “Because when soil gets acidic, it creates nutrient lockup and the grass can’t use the fertilizer because the soil is acidic and it’s like you’re eating this nutritious food but you’re starving to death because your digestive system isn’t working.” I said, “Oh, that sounds serious. What causes soil to become acidic?” He said, “Fertilizer.” “Great. This is an optional treatment and you don’t require people to do this.” He said, “Yeah, but nobody ever wants it. They don’t understand.” He was putting down an application and the grass isn’t as green as it should be.
“What about this thing?” He said, “Grubworm control.” He told me why we needed to do that. I said, “Okay, look. We’re going to offer an unlimited service program. It’s going to do two things for us.” He said, “What’s that?” I said, “It’s going to move us from the unbudgeted side of the checkbook over to the budgeted side. Does the water company call you every month and ask you if you want to keep your water turned on? Does electric company call you and ask if you want to keep the electricity turned on? Does the cable TV people call and ask if you want to keep your cable TV for another month? No. You give those utilities a yes answer. You tell them yes one time, and it’s yes for life. They just keep sending you invoices. We’re going to move to budget. We’re going to have a flat monthly rate. We’re going to charge the same amount 12 months in a row.” He said, “People aren’t going to pay for that all year long.” I said, “Sure they are, because we’re going to give them unlimited service, and we’re going to be working on their yard year round.”
He says, “Why do you suggest we do that?” I said, “This core aeration and this liquid lime that needs to be done, we do it in the winter time. We can send out the trucks and we can set things up regionally because we don’t have to call and get people’s yes answer anymore. We get one yes answer, it’s yes for life, and then we just show up and do, on our own schedule, what needs to be done, and then every time we show up, we leave a little doorhanger saying, ‘Hey, we were here today. Here’s what we did and here’s why we did that, and here’s the benefit you’re going to receive from that.'” I said, “Besides, mine’s cheaper than yours.” He said, “What do you mean?” I said, “I’m charging full price for all 8 treatments, but then I’m dividing it by 12 months. You have a $30 expense that’s not budgeted. Mine is $20, and it’s budgeted. You were hoping to get $135 best case scenario. I’m getting $240 from the same client, and it’s budgeted, and it’s every month, and it’s less money.”
That didn’t work out either, and next week I’ll tell you why that didn’t work out. By the way, gyms are now run the way that I suggested they be run over 30 years ago, and the fertilizer companies are doing something very similar to what I was completely ridiculously revolutionary 30 years ago. I’ll tell you why both of those businesses completely fudged that up. I learned some big lessons in both of those. A much smarter and a much brighter friend is Scott Fraser. He’s a Wizard of Ads partner and Scott decided that he would start running his convenient store according to the rules of a business other than convenient stores. Let’s have a listen to what Scott has to say.
Scott: Scott Fraser from New Minas, Nova Scotia, Canada. I owned a bar, actually, in Moncton, New Brunswick called Spanky’s. Came to the Wizard Academy and I was going to be opening up a convenient store, and I thought it would be a really neat way to try some of these principles that I’ve learned here at the Wizard Academy. What happened next was I built it based on the principles of marketing to women. We used a lot of Michele Miller’s techniques. We’ve got a geothermal heating and cooling system. We’ve got earth tone colors throughout. We’ve got more lights than normal, and we also extended our canopy from way the other side, all the way to the building, so that in the evening, they feel protected.
In the beginning, I thought I was starting a new environment. Then the first part of Roy’s trilogy, and actually, I think it’s the 2nd page in or 3rd page in, it’s the 7 laws of the advertising universe. It said, “Time and money are interchangeable.” I knew we were selling time because it’s convenience. Then we talked about business models and knew that it was path dominance and in a path dominance situation, your product becomes a commodity. People will go anywhere. They’ll buy anywhere they can. Not necessarily at your place, just because they need it. We had those 2 things.
Then we started talking about business topology. How can you apply principles from one business to another? That’s when I started thinking, “Wow, that’s maybe how I can make this place different is take the principles of a nightclub, which I was running in Moncton, New Brunswick, very successfully, and moving it over to the convenient store. The bar we ran in Moncton was really successful. One of the main reasons why it was successful was our doorman didn’t stand there and grunt at you when you came in. They were asked to open the door for you, welcome you in, and then when you left, they’d open the door and thank you for coming. They’re the first impression and they’re the last impression.
I automatically took that doorman, called them the Milne Court ambassador, and that’s what he or she does. They open the door for you. They’ll go to full serve. They’ll help you wash your windshield. They’ll check your tires for you. They’re your first and last impression. The other thing we did was we turned the cashiers into bartenders. We know that when people usually go to a bar and come back happy, and we wanted you to go into Milne Court and come out happy, laughing, smiling.
One of the other things that we did when we adapted from convenient store to nightclub, is in a nightclub you do nightly themes. At Spanky’s we had Jam Night Monday night, and we had Comedy Night Tuesday night, and Ladies’ Night Wednesday night, Student Night Thursday night, and on. What we do is we’ve taken that theme and we have Monday morning Muffin Mania, where you get a fresh Graham’s muffin free when you buy a coffee. On Tuesday, it’s Seniors’ Day, so they get two cents off a liter and they get a free cookie. Wednesday is Free Cookie day. People just pile in for that. You buy gas, you get a free cookie. Doesn’t matter whether you buy 10 cents worth of gas or $10 or $100. Thursday it’s Three Cent Off Thursday, off supreme gas, because a lot of people like to put that in their vehicles. It’s a nice discount. Then on Friday, we’ve got some really creative people in our bakery. What we decided to do was just do a surprise that we gave away in the mornings when people came in. That’ll go from scones to if it’s around Halloween, it’ll be Halloween cookies or Christmas cookies, you name it. It’s just a surprise when people come in.
The results were basically we’re doing almost 3 times what was projected in fuel for that site by the oil companies. We’re doing 12 times what was projected in the store. How many people? That is actually about 50,000 people a month that come into the store. One of the things that we believe at Milne Court is we believe that everybody deserves respect, and we believe people are worth it, especially you. Repurpose the proven. Y’all come back now.
Roy: Remember, a standard practice in one business category is completely revolutionary in another. Don’t run your business according to the standard, predictable practices of your category. Find a business model and import proven, reliable business practices that can be completely revolutionary in your category.