How Franchising Can Transform A Fragmented Industry With Peter Holt of The Joint Chiropractic

Peter Holt: Franchising is not an industry. Franchising is simply a methodology, a way you can expand a business.

Dave Knox: I'm your host, Dave Knox. And this is Predicting the Turn, a show that helps business leaders meet their industry's inevitable disruption head on. Welcome to another episode of Predicting the Turn. Today, I sit down with Peter Holt, the president and CEO of the Joint Corp Chiropractic. Peter, welcome to the show,

Peter Holt: Dave. Thank you very much. It's a pleasure to be here.

Dave Knox: Well, thank you for taking the time. Before we get into the story of the Joint, I really want to start with the entrepreneurial journey that you've had. You're no stranger to franchise companies. So what led you to look at the Joint as your next venture?

Peter Holt: Well, you're right. I am no stranger to franchise companies and I really started franchising over 30 years ago. I had moved to Washington DC and ended up being hired by the International Franchise Association. And at the time, the only thing I knew about franchising was McDonald's was a franchise. And I don't particularly like McDonald's food and I knew even less what a trade association did. But in that period, I absolutely fell in love with the business model of franchising. So business format franchising. And so I ended up working there for about five years. Strong international interest, ultimately was hired by one of our member companies and then really just stayed working from franchise concept to franchise concept to get here and just learning an enormous amount about how to build and manage a franchise system. And so when the company I was most recently with, before the Joint had been sold, I was looking for my next step and the Joint was an opportunity that was presented to me. That was just incredibly interesting. That has a really powerful business model. Of course, strong unique economics. That seemed like a real opportunity to take this task on, which is, of course I did about four years ago.

Dave Knox: Relate to that. Then tell me a little bit about the Joint's origin story and the journey it was on before you arrived.

Peter Holt: Well, the Joint actually got started in 1999 in Tucson, Arizona by a doctor of chiropractic. A guy named Fred Gerretzen, our doctor, Fred. And that he truly had this brilliant idea of taking chiropractic care and putting it in a retail setting, making it accessible, making it affordable, no appointments, all cash. And that, it was really at that point, nobody was treating chiropractic care in that kind of venue. And so it was like a huge leap and it turns out that it was unbelievably successful and that what happens so often in these retail concepts that are very successful, you're going in there as a customer, you're loading a product or service. You're going, " Oh my gosh, this is so great. Are you franchised?" And that entrepreneur, who's got a great concept working is like, " Wow, I never thought about that. Why not start franchising?" And you do. And I'm telling you, this is how so many franchise systems truly get started. And while Dr. Gerretzen was a great doctor of chiropractic with this really incredible idea, he was not a very good franchisor. And that's certainly one of the things that I've learned over the last 30 years is that, anybody can figure it out, but franchising is a complex way to run a business. And it's really important that you understand how to run that, to be effective with it. And so if you look at it... He started franchising in 2003, by 2010, that these two brothers saw one of his franchise units operating in Austin, Texas and said, " Oh my gosh, this is exactly what I'm looking for." And so they ended up buying the original concept from the Dr. Gerretzen and when the Joint Corp was formed, which is a company I worked for, and that was in March of 2010. Eight franchises of record came into the company. So 1999, 2010, eight units, that is not a good franchise track record. And so, fast forward when the Joint went public in November of 2014, we had 242 franchise units in operations, that's franchising.

Dave Knox: So you've been part of really re energizing the brand. How did your experience in the franchise industry help with that rapid turnaround and convincing wins for the Joint?

Peter Holt: Well, I think again, the power and interesting of franchising is let's be very clear. Franchising is not an industry. It's like calling joint ventures an industry or agency agreements an industry or licensing an industry. Franchising is simply a methodology, a way you can expand a business. And like so many businesses, we all have different options for expansion, and it could be a franchise model. It could be an agency agreement, it could be joint ventures, it could be a partnership and they all have strengths and weaknesses. And what's been interesting to me is there's probably over 230 different industries that utilize the methodology of franchising. And so if I just look back at my own career, I've been involved in frozen desserts, postal business and communication service, inaudible. Now chiropractic care, and you can look at that and say, " Now, what on earth do all of those different businesses have in common?" Concept wise, very little, but in terms of the practice of how to build it through and manage it through a franchise system, an enormous amount. And so that experience you're gaining from each one of those different concepts, is you've faced all the challenges, you face in building any business, really can be leveraged as you go forward to that next concept. I often talk about when you're building and managing your franchise system, it's really important to understand that you're actually running two parallel businesses that are unrelated. Now, what do I mean by that? What I mean is that you're working concept, in this case chiropractic care, and then you're working with methodology and that's franchising. And the methodology is agnostic to concept, but understanding both of them is the best way you can to really maximize the opportunity of what that concept is. And so coming to the Joint, when looking at it, the concept was sound, it had a couple of challenges with it when I first got here. And one was, the time it was taking the franchise units to get to breakeven. And so we are in what I would call a small box retail space. And all that means is that 1, 000 square foot, anchored by a supermarket, where you get a haircut or buy a frozen yogurt, or now do chiropractic care. It's a very unique space, but it's really important to understand that space. And that's how you can make sure that you are building towards that future. Now, in our case, the one challenge that I was seeing, is that this concept was taking on average 18 to 24 months to get that concept to break even where that franchisee didn't have to put in an additional capital to be able to continue to sort of survive and thrive. And that in my experience, in a retail model like that and that small box retail space, and I don't really care what the concept is, is you need a break even time somewhere between six and nine months on average. Because what happens? Otherwise, your franchisees run out of cash. And so we've spent a lot of time focused on how do we improve the time to break even. The other two issues of really what brought me to the Joint was number one, as I mentioned, we went public in November 14. And one of the reasons that we went public was because the unit economics were so profitable that the owners of the company wanted to add a portfolio of corporate clinics in addition to the franchise system. And in doing so, four years later when I came on board is that or two years later. That the franchisees, while the corporate seemed very focused on the corporate units, stopped feeling the love. And if you have spent any time in our franchise model and your franchisee stop feeling love, that's a tough place to be. And so that was one of the reasons that I was brought in, was to make sure that we could really revitalize and improve on the relationship with our franchise community. The other challenge we were having is yes, we went public and in 18 months we built or bought 61 corporate units. Now, to go from zero corporate units to 61 corporate units in 18 months is a remarkable achievement. There's no question about it. Anybody who understands what the time and energy it takes to build a business and then multiply that by 61, whether it's an acquisition or a greenfield, or you're building it from the ground up. That's quite an achievement movement. The challenge was, is especially those greenfield or those units we were building from the ground up were underperforming and putting a financial pressure on the company. So that the second responsibility that I was brought in for was to ensure the profitability of our corporate portfolio. So that we could make sure that we had to cash to survive and thrive.

Dave Knox: So when you look at chiropractors, as you mentioned the industry of that. They're largely solo practitioners. Why do you think the franchise model has been so useful for this industry over the years?

Peter Holt: Well, it's such a great question. And I think that there is so many what I'll call highly fragmented industries that can really benefit from the franchise model. And that you're absolutely right. If you look at the chiropractic industry in this country, it's about a$ 15 billion industry, and it is absolutely dominated by the 40,000 independent practitioners. We're sitting here as the Joint, we have 530 clinics open in 34 States. We have roughly about 1400 doctors under our umbrella. We're the largest provider of chiropractic care in the country. And that's possible specifically by utilizing that franchise model. And I think you can do this in hair care. You can do this in ice cream shops because there is economy to scale that you create when you can increase the size of that overall network and leverage the experience. I have so many different ways I talk about franchising. And one of the ways I talk about franchising, is franchising is the business of accelerated learning because what's happening here. If you're just that independent and you're operating, and there's no question when you open your door for the first time, let's fast forward 10 years later. Are you better at what you're doing? Absolutely. Because you've learned and you're growing and you're applying those learnings to your business to be more profitable and more successful, or treat your patients more effectively. Well, in a franchise model, in our case, we have 530 versions of that learning, taking place. And each one of those franchisees is bringing their own expertise and experience into the field and we can see best practices. Oh my gosh, they're doing a really great job at bringing in new patients or oh my gosh, they're doing a really great job of converting those patients to a member. And we can take that and format it in a way that we can roll it out across the whole network and everybody benefits. So you see this accelerated learning and I think that's inherent in the franchise model.

Dave Knox: So when you look at that then, with that franchise goal. You mentioned, you've got around 500 units at the moment. You have a goal to get doubling that number by 2023. How do you think about that? Is that going to be more corporate units? Is it more individual franchisees signing up more stores? What's that growth look like?

Peter Holt: It's a great question, again. And I would say that it's going to be a combination. That what we've been able to show is that in fact our corporate units are profitable. What's interesting to me is that our corporate units are performing, especially if you do it based on an age class. That our corporate units are performing on level, on par or better than our franchise community. Now I'll tell you, after 30 plus years of doing this in franchising, is it very rarely have I ever seen where corporate units as a system outperform or let alone perform anywhere near the level of a franchisee? And it's really obvious why. So if you're a franchisee, you have your life savings, put it in the line, your vested interest is so different from let's say my corporate employee. Maybe I have them on a bonus program and still get that same level of commitment or care. And so I think that's one of the things you'll see across the board in the franchise model. And it's quite often, you'll see that the franchise units as a system outperform the corporate units as a system by around 20%. And that we don't see that here, which is to me really interesting. And there's a couple of reasons for that, but you're able to provide this growth with the corporate units at really important pace and part of the business. Now, they aren't in automatic conflict with the franchise community. And so you still need to manage both sides of that business. And in fact, if you really look at what we're doing here and what is a traditional franchise model, is that franchising is a brand building exercise. And especially when you're in what I'll call again, this small box retail space, is the most powerful tool that I have to build that brand is my storefront. So if you just think about all those businesses that you know, in that small box retail space, is that they've all been built through the franchise model. Whether it's Haagen- Dazs or Ben and Jerry's or Subway sandwiches. You can name them all. That we're not Proctor and gamble. I don't have$ 75 million to get you to change your toothpaste. What I have is storefront to educate you as a consumer to think, oh my gosh, this is where you're shopping. There's the Joint. Oh, that's not cannabis. That's chiropractic. I'll go in and try it. And so it's that storefront that becomes so important. And so as we look to that goal of opening up the 1, 000 units by the end of 2023, that we will absolutely continue to accelerate the growth on the franchise side of the business, because that's truly the units that I'm going to get out there to educate consumers about chiropractic care. And at the same time, we're able to manage the growth of our corporate portfolio. So we'll continue to see the corporate portfolio increase, but in a franchise model, it's so accelerated. Because you're accelerating your growth through the use of capital by your franchisee. And that's a really powerful way to build a brand.

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Peter Holt: It's another great question because I think that I'm going to start by telling you, as we started earlier. There's so many different forms of ways in which businesses can grow and they all have advantages and disadvantages. And I would tell you that franchising is probably the most unique form of business development that's out there. It is a form like no other. These are not my employees. This isn't a union, that these are people who are putting a significant portion of their life savings on the line to utilize your business model. Because as a franchisor, what you're offering, it's really important to understand that, it is their business. So when a franchise prospect comes to me and says, " How well will my business do?" I always say the same thing, look in the mirror. You tell me how hard you're going to follow the system. How hard you're going to work to build your business? You tell me what you're going to do to actually operate your own business. And then we can talk about outcome. And so that vested interest, that power is what's so exhilarating in any of these franchise models, because you have people who care so much about what they're doing. And I think one of the lessons learned from my perspective, is just how critical in life it is that you are vested in what you do. And one of the challenges, I was reading an article a couple of months ago, and it was talking about the American worker. And it was saying that 75% of the American workers are disengaged from the work that they do. They don't care. And to me, that was such a horrifying statistic to read because where do we spend most of our time? At work. And so most of us are spending our time at work and we're not engaged in what we do. For me, one of the attractions for franchising, why I've never been able to leave this space is because in that franchise model, that level of engagement is always there. Now it can be negative or positive because if you're feeling like your franchisor is not doing the right thing or not focused on what's important to you. I mean, these are people who have a lot at stake. So they're going to be very clear to you, what they need. And at the same time, in that more corporate environment, if you have a disengaged employee, what do they do? Oh brother, management. They don't know what they're doing or they quit. And so, one of the lessons I would take from this is that however you get there, make sure that you're truly engaging what you do. And that gives you the greatest opportunity to reach any kind of success that you're looking for.

Dave Knox: So we've spent a lot of time talking about the business side and the business model of what the Joint Chiropractic has been built. I want to talk a little bit about the consumer side, because you guys have really taken a unique business model when it comes to how consumers engage with the company. Can you talk about the concierge style membership model?

Peter Holt: Absolutely. And that what we are doing is... Chiropractic care has been around certainly since the 19th century, D. D. Palmer in Iowa founded it in the turn of the 19th century or the end of the 19th century. And that we're not revolutionizing chiropractic. What we're doing is revolutionizing access to chiropractic. And so what we've done is we've taken that traditional chiropractic care that was available in an office building or some kind of medical facility, and put it in that retail setting. Making it affordable, making it accessible, making it convenient, making it where you shop or buy a frozen yogurt or to get a haircut. And that what we're finding is that as people have more and more exposure to that brand and to this idea of chiropractic, we have more and more people coming into our clinics. Now, if you come into the clinic, let's say, if you can come in for first time appointments. You go in there, you fill out your medical form. My doctor would do a consultation, examination and let's say you got lower back pain. It wouldn't be unusual for them to say, " Okay, I'm going to do the adjustment here, but I probably need to see you two to three times for the next several weeks." And then you'd go talk to our wellness coordinator or receptionist, and they would tell you that, you know what, based on the doctor's recommendation, you should join as a member. And so for$ 69 a month, you'll get four adjustments that month, if you need additional adjustments, it's another$ 10. Until, your next month clicks in. And so it turns out that 80% of our sales from the average clinic are generated from that membership subscription or model.

Dave Knox: So what's interesting with that is, a lot of subscription models, let's take the gym industry for instance. Are really based on people not showing up if you will.

Peter Holt: Right.

Dave Knox: But you're about the opposite of that as a wellness business. So how do you balance that and think about that for your own business?

Peter Holt: Well, you're absolutely right. Our model is to make sure that the patient does in fact, come in. If you look at the statistics of our company, the average member stays with us for about six months. The average member uses us for about three times during that month. And so absolutely, this is a medical service. Our doctors are really encouraging our patients to come in and get their regular treatments. And if you look at the patients who come in, almost all of them come in, in pain. The first time they open up that door, they're opening up the door because they're in pain. And they're looking for that more holistic, noninvasive way to get out of pain. Through those series of adjustments, we can remediate the pain, but then we'll start talking too, about why you should continue your membership in that health and wellness space. And so, I actually have been using chiropractors for over 30 years, it's not why I got the job, but it's actually given me a really interesting perspective for the point of view of a patient. And for most of those 30 years, I used my chiropractor as a handyman. I would get this lower back pain. I was like, "Ah, it's so painful." I'd go to my chiropractor. I get those series of adjustments. I would get out of pain. When would I see my doctor again? When I was back in pain, and it could be six months, it could be a year. Here's the model we would say is that you don't have to wait until you're in pain. I'm not a handyman, we're a gardener. And so what we would say is, come in here for your regular adjustments, we will tend the garden, we'll keep you supple, we'll keep you mobile. We can keep you from having that acute experience to live the life you're looking for. And it's obviously a model that's resonating with our patients.

Dave Knox: So related to that and being there for your patients during this crisis that we're dealing with. You've been fortunate enough, that rightly so, you've been concerned in essential business with, I think it's about 90% of the clinics have stayed open. How have you helped the franchisees during this tough time where they may be open, but I'm sure their world has been turned upside down.

Peter Holt: Oh, absolutely. And then what I would say is, that as in so many things, is this has been just a... It's so trite to say, but this has been such an unprecedented experience that we're all trying to figure out how to respond to this. One of the good things that we were experiencing in terms of building and managing this relationship with our franchisees is that, we have never been more connected and communicating more effectively with our franchisees than today. And so we have been as this imploded across the country. And it's not just one way, it's got its own issues around country or state by state, depending on the outbreak and depending on the governor's directives. But we have been transforming the way in which we communicate with the franchisee. We have weekly town hall, COVID town hall meetings. We have webinars focusing specifically on the issues we're facing, whether it's marketing in an uncertain time, how to apply for PPP funds. How to convert your PPP funds to make sure that there is much of it is a grant versus a loan. How to work with your landlord on rent payments or deferrals. And so there's these very focused webinars that we've been doing for our entire franchise community. We're also been restructuring the way in which we treat our patients in terms of making sure that we're meeting the highest standards, whether they're established by WHO or CDC. So that we've eliminated all of the nonessential items inside of the reception area of the clinic. We're an open bay concept and we're limiting the number of people who go back into the open bay. We're sanitized tables between patients. You're seeing more masks and gloves being utilized, we're screening our patients. And we're continuing to evolve as we're treating our patients and ensuring the safety of our patients, our doctors, and our staff, based on the best data that we can find to make sure that we're managing effectively this process. What I'm so appreciative of is that yes, we came out very early with a statement saying that we are in fact an essential health care service. Sure, the corporation come out and say that. But if our doctors don't see it in the interest of their patients to serve, then it doesn't matter. And what's been so humbling is to see our doctors across the country, continue to treat our patients and thus allowing them to stay out of that more traditional healthcare assistance. So that they can in fact focus on the COVID issues. Now, having said that, the doctors are there, but if the patients feel that this isn't essential to them, they don't come in. And again, we've been very fortunate to see our patients truly coming in. Now, there's been no question, the drop in the number of patients we would have expected pre COVID, but it's still been remarkable. How strong our patient base is. And they're continuing to come in to get their health care service, because they truly do see it as essential to their well being.

Dave Knox: Perfect. Well, I think that's an amazing spot to kind of end on. I really appreciate you taking the time and congrats on everything that you and the team at the Joint have done over the last few years.

Peter Holt: Thank you so much, David. A real pleasure to be here.

Dave Knox: Thanks so much for listening, if you like the show, hit that rating and make sure to subscribe so you don't miss a single episode and for more resources, head over to predictingtheturn. com