Franchise QB

Episode 55: Stephen Smith- CEO, HOTWORX

• Mike Halpern • Season 1 • Episode 55

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In this episode of the Franchise QB Podcast, host Mike Halpern interviews Stephen Smith, CEO at HOTWORX. They discuss Stephen's journey from bodybuilding and arena football to becoming a successful entrepreneur in the fitness industry.

Stephen shares insights on the evolution of his business from Planet Beach to HOTWORX, highlighting the unique aspects of infrared technology and the benefits of their fitness model. The conversation also covers growth plans for Hotworx, community engagement initiatives, and the importance of franchisee support.

Takeaways

-Franchising empowers entrepreneurs to achieve their dreams.
-Stephen's background in fitness shaped his business approach.
-HOTWORX offers a unique infrared workout experience.
-The fitness industry has faced significant challenges and changes.
-Community engagement is a core value for HOTWORX.
-Franchisee profitability is key to growth.
-HOTWORX has expanded rapidly in a short time.
-Customer experience drives five-star reviews.
-Diverse workout options enhance member satisfaction.
-Philanthropy is an important aspect of HOTWORX' mission.

Chapters

00:00 Introduction
01:14 Stephen Smith's Background and Journey
06:01 Transitioning from Planet Beach to HOTWORX
12:10 Understanding Infrared Technology
17:46 The Unique Concept of HOTWORX
24:05 Growth Plans and Franchisee Support
30:08 Community Engagement and Philanthropy
34:05 Conclusion

www.hotworx.net

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Contact me and my team with any questions along the way. www.calendly.com/franchiseguy
Mike Halpern, CAFC
mike@franchiseqb.com

This is the Franchise QB Podcast, where we empower entrepreneurs to win big in franchising. We huddle up weekly to educate our audience about the most successful small business model ever created. Franchising! Welcome to the Franchise QB podcast. I'm your host, Mike Halpern, a 20-year industry veteran and entrepreneur. My mission is for listeners to achieve their American dreams of creating wealth and independence through franchise ownership. Every week we speak with franchisees, franchisors or vendors that support the industry. Thank you for joining us and let's get started. Joining us in the huddle today is Stephen Smith, Principal CEO at Hotworx. Welcome to the show, Stephen. Yeah, thanks Mike. Good to be here. Yeah. So before we get into the Hotworx brand, let's talk about your background. You're a former bodybuilder and arena football player with a master's degree in management. So back in the day, you operated and sold multiple Gold's Gym locations. Then you founded the Planet Beach concept, the tanning salon and wellness spa. franchise that you still own today. So take us back to the bodybuilding arena football days, and then we'll kind of get into how it works. Yeah, I guess. I guess I have DNA that, that is competitive, right? My, my dad played football and from the time I remember being alive, I remember hearing war stories from him about how to win football games. And so I, I've been in and around athletics my entire life. and After playing football, Pee-wee all the way through two years of junior college, I found myself having to do something because I got to keep doing something athletic, right? And that's when I fell into bodybuilding and spent a few years in that sport, won some titles. And it really, I guess, endeared me to fitness. That's when I really developed a major passion for fitness. and the health club business. Got it. So tell me how you got involved with Gold's and how eventually you transitioned into kind of the planet beach concept. Yeah. Well, you know, as a, as a bodybuilder, main head, whatever you want to call that, I developed an affinity for this brand called Gold's Gym, you know, and when you see images of Arnold Schwarzenegger, Lou Ferrigno training in this gym over in California, in Venice, California. You you kind of, endear yourself to that brand. I still to this day love going to Gold's Gym in Venice and work out to me. That's a magical gym. And if you can't get motivated in there, you just can't get motivated. But, so as far as the business, I opened a gym in Oxford, Mississippi. dropped out of grad school at Ole Miss because I was done with school at that time. Eventually I went back and got my master's degree in business around my 40s. But then I was done and ready to do something and I've always had an entrepreneurial spirit. Didn't know a whole lot about what I was doing back then, but opened a gym in Oxford. It was called Bodyplex. And a few years after that, I sold it. by myself moving to Jackson, Mississippi and open up a goals gym in Jackson, Mississippi. And then a couple of years after that, opened two locations in the New Orleans market. And so that's how I got into, I guess, my first foray into franchising as the licensee of Goals Gym. Got it. And so how long did you get into the planet beach space while you were still an operator or do you exit from that business to kind of pursue the planet beach model? Yeah, I, had opened a tanning salon. Originally it was called Electric Beach at this location, uptown New Orleans on this road, Tchoupitoulas. It says a weird spelling and a funny way to pronounce it, but, good location and had a partner. I wound up buying her out. I wound up selling out of the Gold's Gym business and had this one tanning salon that I decided that industry had no franchise. And I had this experience as a licensee and now I want to try the other side of the equation and become a franchisor. And that's what we did. My general manager at one of the Gold's Gyms, Nancy Price, who's still my business partner to this day, I invited her to come in and be the sales membership sales and eventually franchise sales expertise of the business. And to this day, she's still senior VP of sales and team that really knows what they're doing when it comes to franchisee recruitment. But that was 1926. And so I bought out my partner at the standing salon, got out of the Gold's Gym business and decided we're going to turn the standing salon into a franchise. And so I changed the name, got a cool logo, and we called it Planet Beach instead of Electric Beach. And that's how we began as a franchise over 1996 on April Fool's Day, 1996. Very cool. At its peak, what was kind of the size of the franchise system back in the day? Yeah, we were right at 370 at the peak and that would have been around 2007. And then not too far after that, you had a one, two punch that really cratered the industry. It started with, along with a lot of other, other businesses with the financial crisis of 2008. There was that breach in the dam and I could see it in the numbers. And a few years later and tanning was already in decline and falling out of favor, I guess culturally, if you will, always had Achilles heel, the problem with the associated with skin cancer. No matter what you think about the reality of it, the issue is that if you overexpose yourself to UV, you... alter your DNA and you put yourself at risk to develop skin cancer. So there was always that problem. And we fought it and we pivoted and, you know, we did made decisions to try to do the best we could to survive. But that industry lost 80 percent of its customers and its locations. And in 2010, along with and attached to the Obamacare bill that was passed, they added a piece of legislation that now required a 10 % excise tax on indoor tanning. Now how that relates to Obamacare, never knew, but that was really the nail in the coffin on that industry, if you will. So you knew you had to do something in order to survive. So, you know, what was your solution and how did you come up with it? Well, We managed the company very well as it was in decline, managed to continue to be profitable even in a state of decline. But all that time, it was like a black cloud that I lived in over my head trying to figure out how are we going to find growth again. I got this great team of individuals down here in New Orleans that branch housing is our core competency, but we're in a really crappy industry. So I... I spent many years there, four years trying to figure a way out, tried things that didn't work. And then finally in 2014, in August, was inspired to design this workout sauna that we now know as the Hotworx Infrared Workout Sauna. And we now hold a patent on that. But I was on a vacation with with colleagues who were down in Jamaica. One of my best friends, Nancy's husband, Nancy, my business partner, her husband, Jerome, who's a big ex bodybuilder and fitness fanatic like myself. And we're talking about working out on this trip to Jamaica one day on a cliff, this place called The Caves. And very sunny day and we're having a cocktail, a rum drink, I think it was, and we're talking about working out. couple of meatheads talking about working out, and then I was telling Jerome, I started doing hard yoga, doing this stuff called Bikram yoga, but it's 90 minutes, man. It's a grinding, grueling workout, great workout, but it's 90 minutes. And then it's like, know, and I also have been using infrared saunas for recovery. And somewhere in that conversation, Jerome made a statement, said, you know what, dude, they should do yoga in a sauna. And that took me back right there. And my comment back to Jerome was, know what, Jerome, I'm going go back to New Orleans and design a sauna for that purpose. And that's how it started. was in August of 2014. And in that next summer, we brought the first prototype to market at a trade show in New York City. at the Javits Center of Franchise Trade Show, the IFE actually. Yep, I've been there. So let me jump in, Stephen, and just ask a quick question. I'm going to put you on the spot here. Back in the day, high school physics, this electromagnetic spectrum, I'm a layman. Help me understand the difference between what you guys are using in this infrared light therapy and what you hear about. which is a different product called red light therapy. What's the difference between those two things? light travels in waves, right? And this electromagnetic radiation is light, you know, playing in something. And light has colors and also comes at you in invisible manner, right? On the spectrum, you go from one end, the violets, and on the other end, the reds. And when you get all the way to the end of the red spectrum, that's red light. But once it becomes invisible, then it becomes hotter. And that is infrared. And infrared is Greek. The word comes from infra, which means invisible. So you go from visible red light, which is used for some certain types of therapies and a lot of skin care, laser treatments, et cetera, into infrared that is also electromagnetic radiation. But the wavelengths are different, which makes the effect on the body different. The cool thing about infrared, as opposed to, let's say, UV, all the way back to the UV that you get when you're entertaining better when you're in the sun and if you overexpose yourself, it can damage your DNA. but that doesn't happen with infrared because the, the length of the wave wave is longer and there's no negative effect on your body as it travels through and penetrate your skin by inch and a half. It is utilizing this. type of infrared light, you completely get over that challenge where you have customers super concerned about utilizing your product. They get the benefit of looking good with their tan, but there's the drawback of potential cancer, things like that. let's bring it full circle. So you have this idea, you go to the Javits Center, this is about 10 years ago, and you come up with this concept called Hotworx. So tell us, what is Hotworx? Well, Hotworx is the franchise aspect of this new technology that we developed. In the beginning, we called the sauna the hot box detox, if you can imagine that. And we were placing these inside of planet beaches, getting rid of tanning beds and overcoming the negativity of that machine, replacing it with the positivity of hot exercise. And for three people instead of just one, so was a good business move. But the name, was cute but not quite on the mark, right? I changed the name to Hotworx. It went through a creative wormhole to get to that name. And it's a long story behind that. Don't have time today to talk about that. And then when we got Hotworx and knew that we can then get a trademark on that, we got the logo and found a... a graphic artist in Indonesia that came up with that logo. And that's another story for another day. But we got Hotworx, we got the logo, and I changed the name from that Hot Box Detox to Hotworx. then- And the first founding location was where? First Hotworx franchise, or actually the first location, which is still crushing it and, you know, making more and more profits every year. It was in Oxford, Mississippi, back in Ole Miss. It was like full circle to me. The funny thing is where that location is, you can walk out the front door and look to the left, and you can see where my old gym was back when I dropped out of school at Ole Miss in the late 80s, and it's now a full-fonds. It used to be body-clean. That's crazy. But completely full circle on that one. Yeah, and what's amazing to me is that Hotworx has grown in the past seven and a half years from that one location there in Oxford, the 700 open units in four countries. Like that is astounding growth. And when I think about what you guys achieve with planet beach, you know, you've been through this before, you know, you've watched something that had the band and you created a great brand and grew it, but that's incredible growth. Like congratulations on the first seven years. I'm excited to see where it goes. So. tell me a little bit about like what makes Hotworx unique. I mean, you mentioned a moment ago that in a tanning bed, one person gets in the bed in an infrared sauna. can have three members every session get in there. So tell me some of the unique attributes of a Hotworx set up. Well, there are many unique things about it, but for the customer, it's really about getting them more work out less time. And we can save customers time and give them more for that time than they can get elsewhere. I don't think that's ever going to go out of style no matter what type of product you have. For fitness, works well too, right? So I know because I used to do Bikram yoga for 90 minutes that I can get the same result in 30 minutes that used to take me 90 minutes. When I combine the right postures into, let's say yoga, they're... many other types of isometric workouts that we've created, but we do have hot yoga, hot bloodies, hot bar, et cetera. And I can get the same calorie burn and the same physical result. And another cool thing about Hotworx is you're getting an active recovery in your workout as well. You don't necessarily get that when you're training in an air conditioned gym. But when you're combined with penetration of infrared radiation, the good form of radiation, I wanted to say earlier, it's a non-ionizing form of radiation, which means it will not alter your DNA. So it's perfectly safe for you to use, right? And it's very beneficial. It's like if you're- Well, one thing you mentioned, if I could jump in, Steve, and that I think will resonate with a lot of- potential members is the availability. Like if you multiply the number of infrareds on as you guys have in a shop and or in a studio by three, you have all these sessions. Like my wife, I won't name the brand, but she goes to a boutique fitness concept and there's many times where she's like seventh or eighth on the wait list and can't get the workout in. And that's a problem, you know? She's paying a premium to be part of that and she can't get the workout in. So I see a benefit there in Hotworx is like, pretty much you're gonna come in there and be able to do a workout. That is correct. For example, I mean we're open 24 hours a day and customers use their app and they set up their workouts through the app, whatever workout they wanna use, the station inside the sauna, et cetera. But we never have complaints about availability of workouts even if let's say Hot Yoga is full during the time they want. They can do Hot Pilates or they can do Hot Bar None or they can do Hot Bands. We have 12 different workout types that they can utilize. And we're always promoting cross-training, very important to cross-training. what's really cool about how it works is to have that many different modalities under one boutique roof, rather than just relying on one modality, like let's say hot yoga, or let's just say we're just the Pilates studio. And you get the opportunity to cross-train. at Hotworx, which is I think an important aspect to any workout program. Yeah. Variety wins in fitness. cause modalities fall in and out of favor in the fact that you have the flexibility to kind of change what that looks like inside the shop without having to build a new place or relocate is pretty sweet. So, you know, I told you like before we started the interview that I went to my first Hot Works location this week and got a a tour by Melinda, who's the local operator in Chantilly in my market, blown away by how you guys figured everything out. I was like, well, what if you need a mat? You don't have a mat. Well, there's a vending machine, even if there's no, you know, manager on duty because it's off hours, you just buy the key, open up the locker and you got access to all your stuff. And I'm like, man, you guys really thought of everything. So a really cool footprint, really cool concept. So talk a little bit about your virtual instructor because I know that staffing is a challenge in fitness, especially boutique fitness, because you need someone that's skilled in that discipline. How do your virtual instructors work? Yeah. So we, we hold a contest every year. like last year we had like 162 applicants from all over. We narrow it down and we ultimately picked the top seven every year through a contest that goes through an online phase. And then we bring the top 15 into our convention every year. And they go through these heats of competition. And ultimately the last day we have a two hour finale on stage and we select the top seven. Every year, the quality of that team gets better. And so that's how we found the talent. And then we take those seven and match them to the right workouts. you know, we're always tweaking and adapting workouts to different times and needs for the customers. But we come up with a query. a graph routine for each workout. And we film about 40 new workouts out of those 12 different modalities twice a year. And then we make available three, four, five new workouts every month that we release. So it always remains fresh, right? And then that's delivered via software that we own. We own almost all of the software that we use. So we're very... highly vertically integrated in that way. I don't know, I would call us a tech company, but we do, we kind of are, you know, we're definitely tech forward when it comes to fitness. We have a team of developers and we're always improving, writing new softwares to do different things to make the experience for our customers better. But this software that we created serves up the videos into those songs on the precise schedule that they're set up in the app. Yeah, that's really cool. Like I was asking questions about, know, as a user, as a member, are you able to like pause the instruction? And it's like, no, because we're on a schedule. We've got to make sure that the next person coming in has their availability. So that made perfect sense. Kind of run it like a oiled machine. so, I mean, I, know you guys pride yourself on kind of five star reviews. what, what are in your mind, some of the reasons why people like how it works so much to leave those kind of. reviews for you guys. Yeah, and I've read thousands of them and every year I read hundreds and hundreds before the convention to keep myself updated on why customers leave us a five star review and it always falls into three buckets. Number one, in 50 % of the reasons why they'll leave a five star review and because I want to understand customer experience and how to make it better. But 50 % of the reason is because they love the workouts. So we're going to continue to double down and create new workouts and innovate. We just released Hot Stretch last December. It's now more popular than Hot Yoga. It's unbelievable. But we were listening to the market for that one. And we were able to create a workout and make a workout out of a stretching routine, not just have a stretching routine as an adjunct to a workout. So I think that's why it's so popular. yeah, we ensure that the workouts are awesome. And the second reason, they love the concept in general, from the 24 hours to the inviting environment, the decor even, just the vibe that the place has. So we'll continue to keep the concept fresh and innovative as well. And then the third reason is the customer service. And by customer service, to me, that's two things. having spotless environment, clean, smells good, no clutter, and coupled with great hospitality. So those are the reasons. I gotta tell you, I'm a non-member, but just step and foot in the franchise the other day, Hotworx, place was sparkling clean, well lit, well organized. know, the GM, Melinda, could not be more hospitable. You know, she just let me in, told me all about it, told me all about you, gave me a tour. I mean, it was just awesome. So I could see how members feel kind of a sense of pride about that being like their place to go. So let's talk a little bit about kind of your growth plans. I mean, it's funny to say that when you've gone to 700 units, but what are your growth plans over the next couple of years? So Mike, know precisely what our quote white space looks like, meaning our runway of what's left open in the United States. from day one, I always said that the ratio, the proper ratio for this brand process, one location for every hundred thousand people in the population in the U S as a rule of thumb, our rule of thumb has proved out to be almost just spot on and all the markets that we've gotten close to saturation with like Memphis, New Orleans, Dallas, et cetera. So that's the ratio right there. that means we should have. over well over 3000 locations by the time we reach this sort of amorphous saturation level. And we know we can do that. You know, Planet Fitness even has just recently come out and said they plan to open 5,000 units at 5,000 units in the United States and they're a big box. You know, so we're a reasonably priced boutique and we feel like that we will stick to our strategy of that one for every 100,000. And the way we'll get there is we continue to focus on the one thing that we focus on, which is franchisee profitability through the bliss of the customer base. That's it. That's way. you can't. Yeah. Yep. And the way to get there is to have great leadership. aside from yourself, who's on your team that's kind of helping to support this growth to kind of get on those two benchmarks you just mentioned. Yeah, we have, you know, we have a number of great executives.

meet with them every morning at 8:

30. We call it home. It lasts an hour. Everybody, that's on the executive team. We'll take a few minutes and explain what they're doing today and what's important and what they need to get done for the day and anything else that needs to be communicated. also very, the worst thing that a company can experience is when the right hand doesn't know what the left hand is doing. And that's why we all meet as a team every morning in this hall, not only to understand what each department is doing, but to keep each other motivated. but a great team, you know, starting with my business partner, Nancy Price, she's a senior VP of sales. she's an extraordinary leader. and when it comes to not only owning her own franchise locations, you know, her and I, but we, lot of the executives own their own franchise. going over to home of Louisiana today because our vice president of IT family from down here. And she went in with. with her mom and stepdad to open a location at home, but she lives in Dallas. So a lot of the team owns its own location of how it works, right? And, that's cool. I mean, if they can have their role at corporate and also operate a studio, then clearly you allow, you know, a semi absent ownership, multi unit ownership. that accurate? We strongly urge. I won't even say advise. We strongly urge franchise owners not to manage their own location. Rather, be the owner. The role of the owner is one of holding management accountable. Right? there's just a few. I don't even know if we have any left that have owners. I'm thinking of one that is an owner. and they only have one location, they're happy with that, it's fine, but you're never gonna have two, three, four successful locations if you let yourself get caught up in that mentality of, I wanna be my own manager of my store. If you only wanna have one for the, to your life, then well, okay, maybe it makes sense. But if you have aspirations to own multi-units, it'll never work. Yep. So let's talk about, you someone really loves your model. They want to jump in and become an owner. what is the cost range to get started? I know because it's different real estate footprints and I'd imagine your FF and E package is pretty consistent. What's kind of the general range we're looking at to get into a hot word. That's a question. And you know, it's answered up a little bit along with everything else in the marketplace due to inflation. But, and I would. refer everybody to the actual range of numbers that are in the franchise disclosure document, right? Because that's the real range. But in general, it'll run about 400,000, know, on the high end in some suburban markets, maybe towards 500,000. If you're in a place like Manhattan, you're going to be up there in the 7, 800. Right. but I would refer any, anybody listening to check out the range for that in the FDD. Yeah. And then as it relates to item 19, I'm assuming it's the same. any financial performance they can get out of the document, is there anything you can share with us or is that all going to be document driven? no, I would encourage anybody that might be interested in opening a Hotworx to get that FDD from Nancy's department and go. go straight to the item 19 and look at the EBITDA of the chain and what we're averaging and what the high end, the top performers are doing and the low end and everything. then, you know, it takes about a 10 week journey to get to the discovery of whether or not we think you're a fit or if you think you're a fit, you know, it's a two way street when it comes to franchisee recruitment. And we walk them through every step of the way. Yeah. I think just evidenced by seven years and seven hundred units, the item seven and item 19 must be pretty attractive to kind of, you know, have this many owners joining the system. So that's great. So let's shift gears a little bit. Tell us a little bit about the program you have to raise money for military veterans, especially this month in Breast Cancer Awareness Month in October. Yeah. So this month we will be raising, we're going to raise precisely $28,000 from one program that we're doing. We bought 28,000 specially printed pink camo yoga towels, right? And we almost sold them all out and we will sell them out. So we're donating $28,000 a dollar per towel from corporate. to American, breast cancer foundation, I believe it is. And they have a special program where they just in all of that 20,000, 100 % of it goes to veterans that have experienced, unfortunately breast cancer. And they're each going to get a $500 check just to show that we care. And that's, that is a part of, there's a program within that. American breast cancer foundation. That's awesome. That's really nice. You guys are doing that. So, I know we're going to wrap up here in a minute. Okay. I'm sorry. No, there's another program that they'll raise a few more thousand dollars on as well, but it goes through it. Tell us about that. It's just a program through one of our vendors that we partner on every year. And, you know, it'll be around the eight to 10,000 mark on that one. That goes to different, charity for breast cancer as well. That's great. Awesome. So, tell us a little bit about your book. You wrote an Amazon bestseller called hot exercise. When did you decide you wanted to write a fitness book? I mean, you have this story and history and in fitness you've done, you've kind of done it all, but, you know, I guess in the midst of your run here with Hotworx, you, you authored a book. So tell us a little bit about that. Yeah, that was, a labor of love yet. It was a lot of hard work to get that thing done. And when you release a book, you want it to be perfect. And that takes a lot of editing and proofreading, et cetera, making sure all the references are perfect. And then just the technical aspects of getting it uploaded to Amazon and all the things it takes. That was a two-year project from the, I think for about a year I had this name, Hot Exercise in my head and sort of the concept whirling around in my brain. And then one day I said, you know, it is time to launch this project. So in two years, I had the luxury, guess, if you want to say it that way of a lot of blog content, but it was all over all over the place. But it was a lot of good content about the topic of hot exercise. Right. And then the tagline is Hotworx and the bold new infrared fitness frontier. So. It was a book, think, who its time was right and people needed to have somebody come in and compile the research that's available online. There's a lot of it. You know, you can Google infrared saunas and just, man, the list goes on and on. And there's tons of scientific research. And, you know, I was able to comb through all that and, you know, put together a book and I found an editor, a book development, developmental editor in London, England, of all places. I've never met her face to face, but she, she really helped me a lot to help put that table of contents together. And then once the table of contents was right, then I could start plugging in the content and then really tweaking it, writing tons more. And then finally, getting the complete version of that manuscript, but it was quite a project. That's awesome. Well, congratulations on the accomplishment. Anything else you want to add to the mix before we wrap up today, Steven? Man, you've covered a lot, Mike. I appreciate the opportunity to speak with you today. I've enjoyed it. There's tons of other war stories, but I can't really think of anything else right now, but other than to say thank you for having us on. Yeah, no, it was great. It was really cool to be able to go visit your shop and spend this time with you today. So I appreciate you coming on. And if anyone listening would like to connect with Stephen and his team to learn more about becoming a Hotworx franchise owner, contact me at franchiseQB.com or on X at QB franchise QB. I'll get you connected. Thank you, Stephen, so much for taking the time to get in the huddle today and discuss Hotworx with us. Thank you, Mike. I like that name huddle. I really appreciate the opportunity. Yeah, I picked up on that when you were speaking before. both have that in common. So appreciate your time, Stephen. Thank you for listening to the Franchise QB podcast where you're at the helm of your future as a franchise owner. If you enjoyed the content, please rate the show and recommend it to anyone that might be interested in franchising. Make sure to visit FranchiseQB.com to subscribe to my newsletter and for an actionable playbook to go from walk-on to legend in your new business. Follow us on Twitter @QBFranchiseQB and join us every week for a new episode. See you next time. Visit franchiseqb.com. take the next step of your journey towards wealth, independence, and franchise ownership. And remember, when working for the man gets old, you must do something bold. Thank you for listening.