Social Deals - The Real Thing (for Some Businesses)

There's a lot we have to learn at Five Star Martial Arts, and I don't just mean Karate. A big part of my job is to leverage my business experience to pave over some of the bigger potholes and speed bumps before we hit them, but a lot of what we face is new to me as well. I've never been responsible for advertising, for example, so now I have to draw on what I've learned in my MBA program and what I've seen my friends in the Marketing Departments do.

And some of our challenges are just plain new, because they involve technologies and services that simply didn't exist before. Social Marketing is one big one - using Facebook to serve existing customers by providing a constant (daily) stream of news, events, motivation, encouragement, recognition, articles and other information. It also serves potential new customers, giving them a taste of what we're all about, showing how active and dynamic we are, and showing that we're "hip," using this new technologies that a lot of our competitors either don't bother with or don't use with energy and consistency the way we do. Sadly, it's hard to draw conclusive effectiveness data from social marketing on Facebook. Did we actually get any new students or retain any existing ones because we were using Facebook aggressively? I have no way to really tell, but it seems like a good idea anyway.

The other brand-new technology is the "Daily Deal" form of social marketing. I'm referring of course to tools like Groupon and Livingsocial (among many others). I'm not personally responsible for using this tool at my business, but I have input and I try to account for it in my strategic business planning. And a powerful tool it can be, if used for the right purposes. Sort of like The Force, I suppose.

I read an article recently about how Groupon, as a company, is more or less one big Ponzi scheme, paying today's bills with the deal they're going to offer tomorrow, and so on. Moreover, the article argued that companies dealing with Groupon were at severe risk of digging themselves into a hole, relying on the sales of new Groupon offers to pay for the supplies they needed in order to fulfill the previous ones they'd sold. Well, here - you can read the article for yourself: Why Groupon is Poised to Collapse.

I can't entirely disagree with the article, because I just don't have enough facts. But I can sort of disagree, because I've personally seen some incredible results using these tools. I even left a comment about it on that article. Here it is:

Like any other business tool, companies need to be smart about how they use Groupon. It's not going to be for every business. You can only afford to sell at or below your cost for a very short time before you overload yourself and go under. The business I work with - a martial arts and fitness center - has been EXTREMELY HAPPY with Groupon and LivingSocial. They bring us QUALIFIED LEADS in the form of customers who have already paid for the privilege of trying us out before they've even walked in the door to see the place. Read that again - they PAID for the privilege to come see what we're all about. And what we give them back in return effectively costs us nothing (at least in terms of inventory or product) - it's the service of our knowledge and our classes, both of which were going to be there anyway. Granted, when we sold over 200 fitness classes the first time - expecting to sell 20-30 if we were really lucky - it stressed us out a bit and we needed to buy some extra equipment in a hurry, but it was totally worth it and then some. The cash we got from Groupon itself was a pittance, but the new customers we gained - especially those we've been able to convert into long-term clients under contract - are irreplaceable. PLUS, we've managed to get in the game early and beat our competitors to the punch. We consistently see them showing up AFTER us with similar deals that sell much worse than ours - because we've already captured that market.

I'm positive that a lot of companies would lose their shirts using Groupon. That may arguably even be Groupon's fault if they're overselling their own product and not divulging the ristks, but I can say with confidence that it's a tremendous service for the right industry, and we're thrilled we got on board with them when we did.

I'll tell you, success feels good, and these new "social" tools feel like they're successful to me. They're working like crazy for us, anyway. Every business struggles with basic challenges like building brand identity and getting the word out to potential new customers. How can anybody find out how awesome you are if they've never heard of you. Advertising is expensive, but Groupon (as one example) PAYS YOU for the privilege of advertising your services to a broad range of customers. And it pulls them in by the truckload. If you're the right kind of business to take advantage of that without losing more than you can afford in the deal, maybe you can win with social deal marketing, too.

Dojo vs Dojo part 2 - The Mom & Pop

Analysis of the second of the two main types of karate school

Yesterday, I wrote about the karate school where my family's been training for the last several months. We like a lot of things about the school - the large, well-equipped, convenient facility, plus the nice, friendly people who run it. But they're driving us away with a 3-year contract and a generally high cost to train that's simply outside our budget. But the whole question of what to do next and where to train got me thinking about the business of operating a martial arts school. I concluded that there are two types - the Supercenter model and what I'll call the Mom & Pop model. My current school is a Supercenter. Now I mostly seem to be looking at Mom & Pop schools, and I'll cover those today.


The Mom & Pop dojo

The other end of the spectrum from the "Supercenter" dojo is the smaller, more traditional school. There's no reason that a school couldn't combine small size with the glitz and glam of the Supercenter's marketing model, but in my experience that doesn't seem to happen. The marketing fireworks seem to come later, when the school's proprietor has made a decision to not only turn their school into a steady source of income, but to turn their school into a business that can both grow over time and make them actually wealthy. In my experience, the Mom & Pop school doesn't display a lot of interest in the business aspects of the school. Sometimes business is clearly just a means to an end - the owner of the school needs to make enough money to pay for equipment and to pay the lease on the facility, but any money they make beyond that isn't a priority. In fact, it seems to me that often the business part of running the school is an annoyance and an inconvenience that the owner would completely avoid if they could.

They want to train - that's their focus. They're excited about the martial arts, excited to run their school, and they're looking forward to sharing their knowledge with, and learning from, their students. Contracts, exchanging money, paying the rent, insurance, and all of that other stuff is at best a distraction for them, and at worst makes them feel as if they're dirtying the purity and traditions of their art. These are the folks who really put the artistry in the Martial Arts - they seem to see themselves as part of a long chain of people going back many years (sometimes centuries) to the beginnings of their style of hand-to-hand combat. It's a spiritual journey for them, one they'd prefer not to sully with business considerations.

There's a trade-off, though. In the movies, Mr. Miyagi can have a gorgeous Japanese garden with a koi pond and nice landscaping on just a handyman's salary. In the real world, if you want to operate a Martial Arts school, you need to pay for the facility, the utilities, the insurance, taxes, fees in various governing bodies and organizations, and for equipment like mats, body shields, hand targets, and so forth. To grow into a "supercenter" costs even more, since they tend to have a paid, professional training staff and people "working the front desk" throughout the day.

So the Martial Arts traditionalist, the one with so much enthusiasm and excitement for their discipline and a spiritual connection to all of the masters and teachers who have come before them, has to make some decisions about the extent to which business will be allowed to factor into their school's operation. For many, their preference will be to treat the commercial aspects of the business as a necessary evil, doing as much as they minimally have to and then washing the filth from their hands and getting back to training. They may even contract with an outside service to manage things like dues and bookkeeping so they can focus on their art.

There's a benefit to this approach. While the facility may not be as luxurious as at a "supercenter," the Mom & Pop dojo gets the minimum equipment that they need to operate and then stops. These approach costs less, which lets them keep dues down. Also, the instructor may not be operating the school as a full-time job, so they're not trying to draw a salary from the school's operation that pays for their own personal bills. It's a labor of love, and that attitude will tend to rub off on the students.

An advantage of the spiritualist, "the art is more important than the business" approach is that students are often inclined to feel this way as well. They're more likely to volunteer to help with things like the upkeep of the school, saving on expenses for repair, improvements and cleaning. As some students become senior members of the school's community, the owner may be able to expand their class schedule by drawing on the knowledge and experience of those senior students and having them teach classes on the owner's behalf. Unlike a paid, professional staff, this instruction both costs the owner nothing AND benefits everyone. The senior student learns and perfects their art by teaching others, which has long been recognized as an optimal way to gain mastery and expertise. The junior students benefit through an expanded, more convenient class schedule. And still, costs are kept low.

The Mom & Pop school offers other advantages to the Martial Artist as well. They tend to have smaller class sizes, for more personalized instruction. One big complaint I've had about my current school is the number of mid-level students I've seen repeatedly making rookie mistakes and not being corrected. I suspect this is a function of class-size - the instructor just can't stop and work with one student when there are a dozen others who need attention, too. In a Mom & Pop dojo, the master instructor has more opportunity to impart their expertise directly to even novice students.

On the other hand, I have yet to find a Mom & Pop dojo that perfectly fits my schedule. This is a natural by-product of having fewer instructors - it's hard for a single teacher to run 4-5 classes in a single day, covering all of the different student levels and training styles (such as kata, sparring, weapons, cardio-fitness, and so on).

As I noted at the end of Monday's article, there's one place where the analogy between Martial Arts schools and retailers breaks down. In retail, the "supercenter" tends to be the "low-cost leader," using volume to drive down costs. In the Martial Arts, the "supercenters" rely on high volume, but it doesn't seem to translate to low costs. Instead, it's the Mom & Pop operations that seem to be the least expensive and to eschew long-term contracts that might tend to drive up the overall cost of the training (by charging you for services you didn't end up wanting or needing).

I do suspect, however, that there could be (or will be) a middle-ground. I believe that a traditionalist, spiritualist karate school probably could borrow some savvy practices from the business world (and thus from the supercenter dojos) without necessarily violating their moral sense of what's appropriate for their school. I'm don't think I've seen this in practice, but if somebody, somewhere isn't doing it, I'd be shocked. For instance, there are lots of ways to build a brand without packaging and productizing your art. Just having a slogan can build brand awareness in potential students, even if the slogan reflects the traditionalist nature of the dojo. For instance, a Korean Tan Soo Do school's slogan might read "A Thousand-Year Tradition of Korean Martial Arts." That's a pretty impressive (and, to my understanding, not inaccurate) claim that might entice potential students who are interested in a style both for exercise as well as for its ties to ancient history, yet it still emphasizes that this is a school rooted and grounded in tradition that's going to take their discipline very seriously and cut no corners.

Likewise, while a traditionalist instructor might (understandably) balk at using pizza parties and buddy training to turn their youthful students into junior recruiters, there's nothing unseemly in reminding their students (both young and old) that if they like the training at the school and would like to help the school to grow, they can and should recommend the dojo to their friends. Moreover, assuming that the addition of more students would be a long-term benefit to the school (allowing it to afford a nicer facility, better equipment, a more flexible schedule, etc.), then the owner might be well-served by offering incentives because it will ultimately benefit their whole community. Even more, I'm baffled at the number of martial arts schools that either don't have a website or have a really crummy one. It's one of the cheapest, easiest ways to advertise, yet it's often either under-utilized or poorly implemented.

I suspect that this middle-ground is likely going to become more prevalent in the future as more people think about ways to match their desire to teach Martial Arts with tried-and-true business practices that have been successful at other business enterprises. The challenge for prospective students will be to identify whether a school meets all of their needs, from the instructional philosophy to the physical operation to the total cost of training. The challenge for the owners will be to match their business and financial capabilities and preferences against the realities of their expenses and the demands of the marketplace. I also wouldn't be surprised if there are or soon will be consulting services available to dojo operators that help with the business and marketing (such as bookkeeping, dues tracking, website content creation, and other key functions), thus freeing the instructor up to focus on their school.

Meanwhile, my family's got some options and we're making sure to explore a variety of training venues before we make a final selection by the end of July.

Dojo vs Dojo part 1 - The Supercenter

Analysis of the first of the two main types of karate school

I've mentioned previously my family's history with the martial arts (such as it is) and our current experience training at a local school. There's been a bit of turbulence lately, and it's gotten me thinking.

Here's our situation - we're training at a "chain" school, one of 13 in the Lavallee's family of dojos. The school has a long history in the Syracuse area, but not necessarily an entirely positive one. We went there at first because it was close and it had an extremely inexpensive "intro" program for the elementary kids. We went back as a family because it's a really nice facility and the instructors are ver personable.We like the facility, we like the instructors, and it's very close by. We've been there as a family for almost four months, now.

The turbulence set in every time we reached what I'd call a "sales milestone." It was time for them to pull out what felt like a scripted component of their business model and sell us on something new. First it was the initial 6-month contract, which was expensive but made more affordable because it had both a family discount and another discount if you paid in full up front (which I did). But a couple months in, we discovered the clause in the contract that stated we HAD to buy our sparring gear through the dojo, and the cost ranged from $125 to $180 per person. Pow! - there's another $600-900 we hadn't budgeted for. (What's worse, the instructor who sold me the contract had made it pretty clear we could use existing equipment that my wife and I already owned as long as it was the correct brand. That would have saved us around $100.) They ended up letting us buy the gear piecemeal and gave us a discount, but it was an unanticipated expense that not only didn't I feel had been made clear, but in fact I felt I had been deliberately mislead about it up front.  And then it was time to talk about the next stage in the process - their "Black Belt Champions" program. It's a 3-year contract that would cost our family $500 per month - more than double what we paid for the initial "family plan." Plus an up-front "down payment" of $500-1000. Perhaps you're thinking I ought to just stick with the family plan and the 6-month contracts? Yeah, me too. Sorry, they don't do it that way - when your first 6 months are up, it's BBC or the highway.

To their credit, they're willing to work with us to an extent. If we want to spend one night a week (about 3 hours) cleaning and mopping the dojo, the price drops dramatically to $250 a month. It's affordable, but it's also the very definition of indentured servitude, where you enter into a contract to provide labor in exchange for services you cannot afford, and you're stuck offering that labor until either 1) the contract expires or 2) you somehow come up with the money to pay the difference [or, technically, 3) you die]. I've concluded that I don't want to sell myself into slavery in order to learn the martial arts.

All of this would have felt a lot less like a scripted sales pitch if there had been any way to really understand the details up front, but at every step it felt like a battle to understand what we were really getting into, and it definitely sounded like a clever, tried-and-true marketing scheme that they'd already used to produce some 600+ black belts at that school over the last 20 years.

Here's the thing: I could be angered, disgusted and offended by the whole LaVallee's approach, but I'm not. I can even understand it. It doesn't really work for me, and it took a LOT of thought on my part to be okay with it, but I think I understand where they're coming from. My conclusion: there are basically two types of karate dojo. They operate very differently and they don't always get along, but they can each work for some people.

The "Supercenter" Dojo

I believe LaVallee's operates a bit like a retail supercenter (with one key difference that I'll address below). LaVallee's has productized the Martial Arts. It's not a traditional system of forms to them, it's a product. It could be used cars or vacuum cleaners or electronics, but it so happens that their product is Martial Arts training. They've packaged it, developed a proven and effective sales process, and they deliver it to their market in volume. Let's look at the product and the sales process separately.

The product is not a traditional, definable Asian Martial Art. It started as Kenpo Karate, but it's changed so much over the years that that's barely recognizable anymore. They've added a lot of Muay Thai kickboxing, plus a smattering of Brazilian Jiu Jitsu, and whatever else struck their fancy, to the point that it's a unique style totally removed from any pure Asian Martial Art. Ironically, they adopted the term Mixed Martial Arts until that became associated with the brutal and controversial "Ultimate Fighting Championship" matches, with which they didn't really want to be associated. So now I think they're calling it "Blended Martial Arts." It'd be a lot easier to just call it Kenpo, but that would be misleading so, to their credit, they don't.

The product is also an often intense workout with fairly well-trained, professional instructors. The product includes a VERY nice facility that's large, clean, and close by to large population centers. It has features like a huge training area with foam mats on the floor, a smaller warm-up area, and even large bleachers for parents and visitors to watch from. In my experience, they're some of the nicest schools you're likely to find. The product's well-trained, professional instructors are on-site six days a week, and there are a lot of them (I think I count about 7 of them at my school). Result - the class schedule is about as flexible as you'll ever find, ensuring that it fits your lifestyle and your training needs.

You can also see that the senior students are regularly competing in things like full-contact matches (of highly dubious quality), and they're winning. Even if watching them train and demonstrate their skills wasn't enough to ensure that the training at the school is effective, seeing their successes in competition is a strong indicator (though not a guarantee) that it's not just snake oil they're peddling. Another indicator that they're not just a "black belt factory," which is the term for a karate school that sells people their black belts over a 3-5 year period whether or not they actually learn anything useful, is the fact that they actually care whether you show up for class. A fitness center might take your money whether you bother to work out or not, but LaVallee's wants you to show up and train with them.

That all adds up to a very respectable, fairly high-quality product. But it's a product that is slickly sold through a carefully-crafted marketing plan that offers a variety of ways to attract new students and separate customers from their money. For starters, they focus on kids. There are a LOT of kids around the suburbs and most of them think karate sounds pretty cool. So they mine the neighborhoods for young students to join. They send home "introductory offers" through the school. These offers are so inexpensive that it's almost crazy NOT to do it. You get a couple of months of training and a free uniform for around $40. The uniform alone would probably cost around half that, so it seems like a steal. Once they've got students in the door, they use a number of tactics to expand on that initial point of attack. They have "buddy week," where students get a gold star on their uniforms by bringing a friend to train, for free, during the week. They have birthday parties where, in addition to taking in money from the child's parents, they get a chance to solicit the kids attending the party to see if they might like an introductory offer of their own. They also throw free events during the year, including a really nice Halloween party and an Easter Egg hunt. Marketing, advertising, brand-building - it's no different than Pepsi sponsoring a stock car, and it all serves to build opportunities to attract new students.

Moreover, they have various tactics to extract as much cash as possible from existing students. For example, they offer a wide array of "bonus" services throughout the year. Virtually every month, they have some sort of Saturday-afternoon party where, for a fee, parents can drop off their kids for a few hours of fun, games, and exercise. It's glorified babysitting, but it brings in some extra cash and keeps the kids' enthusiasm-level for the school high. It builds a strong bond where spending time at the school (often compensated) is a routine part of the child's life. And, of course, the "introductory offer" has to be converted to a membership. They start with that initial 6-month membership, that's quite a bit more expensive than the "introductory offer," but not nearly as expensive as the 3-year Black Belt Champions program. And there's the gear, which comes in a nice package that includes a $16 bag (upgradable to a $25+ bag if you're feeling the weight of unspent money dragging you down). You may think that $16 doesn't sound so bad, until you consider that for a family of five, like mine, that's $80 in addition to the rest of the equipment. To be fair, they let us skip the bag and use our own, but I still thought the gear was overpriced compared to what I found for the same stuff online. As you go up in belts, there's additional sparring gear, plus a variety of weapons, new uniforms as the kids get bigger, etc. None of the fees are unreasonable (except the actual monthly tuition for the 3-year contract, which I thought was pretty high), but they all add up.

This is the heart of American entrepreneurship, so you can't really view it too harshly even if it may seem a bit seedy at times. They developed a quality product, created a marketing program, and then applied it rigorously to make a profit. If they hadn't done all of those things, then the product wouldn't be as good, because the nice facility and the numerous, capable instructors cost serious money to operate. The marketing glitz may not be strictly necessary, but if you're going to productize something you're obligated to use all means at your disposal to generate sales, and that means word of mouth, advertising, brand management, community outreach, special offers, discounts, and whatever else it takes to get customers into your storefront. You might take issue with the fact that, in addition to his schools, Kyoshi Steve LaVallee also has a side-business wherein he sells his packaged product to OTHER martial arts instructors who wish to become millionaires through their own schools, but if you agree that it's a quality product and it's not sold to anyone who is obligated to buy it, then it's simply the free market working as designed.

With that said, there's one aspect where I think LaVallee's differs from the "Supercenter" model, like Wal-Mart. One of the hallmarks of Wal-Mart, Target and similar stores is that they drive down costs. I don't think it's accurate to conclude that LaVallee's does so - if anything, I suspect that they drive UP the costs of Martial Arts training in the area, and I know at least one local LaVallee's competitor who agrees.

Still, free market is free market. If they didn't offer a quality product at prices people thought was fair, they'd be out of business. And, I should be clear, if we could afford the cost and if they didn't mandate a 3-year contract, we'd be staying. I think the contract is crazy-long for any service and the price is just too high, but we do like the program. It's a great workout 2-3 days a week, our family genuinely likes the managers and instructors at the facility, it's super-close and wickedly convenient. It's purely their business model that's driving us away.

However, it's not the only model. In part 2 of Dojo vs. Dojo, I'll examine the traditional model, its advantages and its disadvantages, especially compared to the Supercenters.