Paul Miller: Running a Four-Million-Dollar Operation, and What Comes After

And then continued training in the Kyokushinkai system for 27 years. Started to actually operate a martial arts school back in 1989 and was with the Tiger Schulmann Group for about seven years and then eventually started with my own independent martial arts school in the Allentown, Pennsylvania area. And you now have how many locations?

We now have four locations. As of Monday, we’ll have five locations and looking at an additional location for next year. And maybe to expand on that, it’s fair to say that really you have 10 businesses, right?

You have 10 that are daycare, transported, after school, martial arts and daycare, and five or five and then five that are many times sharing the same facility, but separate businesses that are full martial arts schools. Is that a fair way to say it?

That’s a fair way to say it. It’s a little bit more complicated than that, but we have learned to make sure that we operate them as separate businesses and really can’t operate them as one as one business. The childcare part of our business was an additional, it was an afterthought in the beginning because our martial arts school just wasn’t doing very well all by itself. So we decided to combine the concept of the martial arts school with the childcare and was an extremely successful combination. Yeah, let’s talk about that for a second and maybe spend a little bit of time on that before we go back to the martial arts School. Among the three main daycare facilities, about what kind of annual revenue are you doing?

[04:25] We are doing, this year we will do a approximately $4 million. I thought a little bit earlier in the year that we may not hit that mark, but we’re definitely on the one track to hit the $4 million mark. Oh well, you know with the fourth quarter we’re going to have after our next meeting, let’s make it 4.5. So… I love that. It’s still, with or without that, it’s a very substantial business. And what I think what a lot of people in the industry have heard me say and what they’ve heard isn’t what I meant, but a lot of people think that I dislike or am opposed to the transported after-school care or some version of that, which is never what I have said. What I have said, though, is that I don’t know how many schools in the U.S.

Do it, but I would say that you could give the number, I’ll say 95% of them do it, extremely half-assed if not worse than that. And what I think I’m opposed to is that you can’t take the staff at a martial arts school, tag on another business, have them try to run both businesses, and do it successfully. Is that a fair statement, and would you add to or modify that?

Well, I will tell you that we first started out our business as a after-school transport activity, if you will, and we were extremely unsuccessful. And what we decided to do was say, wait a minute, if we’re going to do this, we better do it right. And we decided that we would become a licensed childcare facility, which took a tremendous amount of effort on our part. But at the same time, we don’t use our martial arts people to run the daycare. We hired a professional director. We made sure that we did everything perfect and spent a ton of money to get started in the business was successful because we did the right things and not tried to just have a program that, that was an afterschool program. Yeah. And a couple of things you said there to maybe expand on is you went through the full process to get licensed, comply with the regulations.

Be a legitimate daycare. And a lot of the noise that I’ve heard around the industry are among people who are trying to run a daycare and pretend they’re not. And they get frustrated with the fact that there’s regulations or regulatory problems. Talk about that for a second. What’s your analysis of it?

Well, you can’t. I don’t think you can do it. If you’re not going to take care of the of the people’s most precious asset to the fullest of your ability. Make sure that they’re safe. Make sure that you’re following regulations. Make sure you’re clean, neat, orderly. And in addition to that, you have to have the proper facility to do so. You can’t just say, oh, I’m going to put 25 kids in with one person. It is not fair. It’s not fair to the children. Nor is it fair to the families. Yeah. And this is state regulation, not federal, but every state is different. But at the times that I’ve worked with people who have done this very well and very profitably, it’s just been follow the checklist. We had a facility that we were doing this for a while on a trial basis, and we had to go wire it with everything from put new alarm systems in and sprinkler systems in to run all the staff through criminal background checks and a variety of everything from CPR to first aid training and so forth.

[08:40] But what’s the benefit of doing it right and not having those problems?

Well, the benefit in doing it right is that you can make a very, very decent profit. Our profit margin is running at about 25% of our sales. It’s also four times the amount of income than we do for a martial arts school. However, I will say that if you can run a very successful martial arts school, and if you listen to what the guys at NAPMA say, you can make more money just doing martial arts. than you can doing daycare. So it’s kind of like, where do I want to spend my time and am I willing to listen to some people who know?

Sure. Well, and there’s two pieces of it is, if I remember correctly, your average revenue per student in the after school is around $500 a month. Is that about right?

That is correct. And as you know, I mean, we have people who are charging that much for a leadership program based on two or three times a week. And I think the thing is, it is easier for a parent to justify. And it requires less sales skill, perhaps, to do it in a format of a transported after-school care program where they need the daycare to generate those kinds of revenue. per student numbers. And the thing I’ve always liked about the transport after school care is one, the ability to charge a higher level, two, if there’s opportunities for upgrades within it, and three is you’re not likely to have the same type of day-to-day was I entertained retention problems that you can have in a martial arts program. Is that a fair assessment?

Oh, I would say so, yes. There are some definite advantages to that as long as you’re recognizing that it is in fact a very serious business and you have to watch your dollars just like every other every other business. But at the same time, I really believe that you have to be able to have the guts to do it because each location costs us about $500,000 to get started. Yeah, well, in your case, they’re an average of what, about 10,000 square feet?

That is correct. Yeah. And so these are real purpose-built locations that have the facilities that are necessary and the staffing on a what is your staffing per child?

During these times, it depends upon their age group, but, they can go from one staff member to four all the way up to one to 15, depending upon their ages. So the labor cost is your biggest expense when it comes to, the after school care. and, but honestly, if you have good people, you have to pay them decent amount of money to work for you, otherwise you get such a transient group of people that turnover becomes a problem with the parents. Absolutely. Well, and the quality of the experience is almost directly proportional to the quality of the people that are implementing the program that you have. Oh, absolutely. That makes it all the difference in the world to make sure that you have a program that is not just a babysitting service. One of the most important things for us is that our kids are active after school.

[12:38] They’re not just sitting around watching TV or video games or anything else like that. So it takes planning and it takes good instructors and good teachers to be able to to hold that standard. Yeah, now let’s shift over to the other side now in your martial arts program. And it seems like we’ve been working together for about a year now. That is correct. I think maybe a little less than that. And let’s talk about the martial arts program, because you’ve had just, I mean, an unbeatable year in growing the martial arts. So, tell them a little bit about what it looked like this time last year, what it looks like this year, and what the growth has been like. Well, last year when we first started, I met you down in Philadelphia, and it was a very interesting experience because of the folks that we were with there.

But at the same time, it was wonderful for my son and I because we sat down and we spoke with you about it. And immediately after that conversation, I knew that we needed to get involved with the NAPMA because our program was struggling. Our volunteer part of the program, we were pretty much maxed out on all of our locations and the only place for us to grow was the martial arts. made a commitment to be able to make that happen. And so through your guidance, we kind of looked at it and we said, oh, we actually have to treat this like a business like our childcare, you know, and that started the ball rolling right then and there, even though we still didn’t believe it right away and after several attempts of you saying, well, you have to raise the prices and you have to go out and do these things.

We finally listened and the growth has been 250% this year. The amount of new students that we’ve had, we did 70 people in the once, 70 students in one school in January, 50 in another, 25 at the smallest location, and have just been booming ever since. Yeah, that’s fantastic. And one of the things, and you mentioned the interesting experience of Philadelphia, it’s probably worth talking about that for a second because the situation was, and it’s not unusual, but it was pretty bizarre, is we had you and your son, who’s by the way delightful, he’s a really sharp gentleman, Zach, but we had you and your son on one end of the the spectrum and on the other end of the spectrum we had a school husband and wife team that was doing, if I recall correctly, about $10,000 a month running five different curriculums in their school.

[16:09] And if I remember correctly it was everything from Taekwondo to boxing to kickboxing to transfer to after school care. And you and Zach at the time were running I think about a $3 million, maybe a little less than $3 million. operation. And it is probably fair to say, correct me if I overstate, but it was like we spent four or five hours with you going through notepad after notepad, taking notes and us discussing at a high level, and with this other couple who was doing nothing right, arguing every point, and trying to tell us all the things they knew about the industry, all the things they do their market with there, all the things they knew their students wanted and didn’t want. and basically argued the entire time. Is that a fair statement?

Oh my gosh. It was very frustrating. Even to sit there and listen to it was frustrating to consider that someone would take the time to come to a seminar like that and not listen to a word that was being said. Oh yeah. To me that was just unbelievable. I was like, you’ve got to be kidding me. Why are you wasting your time here because you seem to already know everything that’s possible?

Well, I tell you why I think it’s useful to bring it up is, what we find is there’s a direct correlation between the success of an operation and their receptivity to new information. And when we’re talking to school owners that are Less than 10,000 a month. And same is true for many of them between, you know, 10 and 20 is oftentimes they feel like they’re doing well, well, given their circumstances. They think that they know a bunch about the industry and they want to argue every point. On the other hand, school owners who are, who are half a million and up and sometimes in the multi-millions, understand there’s a lot of room for growth, a lot of opportunity, and frankly recognize good knowledge and good information when they see it. I’m sure you’ve seen that several times now.

Is that a reasonable way to phrase it? Oh my gosh, yeah. I mean, over and over and over again, I have people that are in my area who are struggling to make their rent every month. And even after I say to them, you know, there is a better way, they still reach out and tell me all of the good things that they’re doing, even though they can’t make their rent. You know, so, and to me that is just, you know, the worst words I hear is, I know. You know, obviously they don’t. I tell the story, but back in 83, back before any of the magazines that are out in the industry and stuff, Venturi had decided in their customer newsletter that they were going to start doing a success story column. And they eventually ended up doing exactly two.

The first one was on me, the second one was on me, the only ones they ever did. But I was just flooded with calls. Again, this is 83, 84, 85. And I got a reputation of being arrogant and the conversation started going like, well, I’ve got about 15 minutes and I really don’t want to learn how to run a school the way you’re running it. And if you’re going to tell me all the things that you’re doing, I’m not going to have a chance to give you any ideas. So which is it?

Would you like to hear some good ideas on what to do?

Or do you want to try to tell me on how to run a failing school?

[20:01] That’s it. Well, one of the things I tell my boys all the time, I tell them all the time, I say, look, if you want to do it wrong, look at what 97% of the people are doing out there. They’ll show you how to do it wrong. That’s exactly right. You know, Dan Kennedy, who I like a lot, he has comment is, and I think he still lives from Earl Nightingale or something, but they say, if you don’t know, any other information about how you run your business and have no other source, just go look at what everybody else is doing and do the opposite. I love it. Pretty good advice. It’s pretty good advice. But one of the comments I remember making to you is about how you’d, quote unquote, thrown the baby out with the bath water when you were developing your martial arts school when you went out on your own.

Let’s talk about that a little bit. It’s interesting sometimes when we forget that our hobby is also our business or start doing things that are taking away from our bottom line. What are some of those lessons?

Well, that’s a very, it was, to me it was just kind of like a wake up call when you said that to me because I absolutely, at the moment you said it, I knew that you were right. because I had been in a system of martial arts where they had a complete system, a good sales process, a good phone process, just a good business process. And because I was doing the martial arts as a hobby, I just said, well, look, I don’t really care so much about all that stuff. I kind of went the opposite way and threw all of that stuff away and tried to say, oh well, my martial art is so good that people want to do it just because I’m that good. Well, I was completely and utterly wrong. And the moment those words came out of your mouth, changed my entire direction.

And of course, my son, Zach, you know, same thing. He said, you know, Dad, he’s right. We need to move past that and get out of our egos and let’s treat this as a business and make some a good living out of it. Yeah, and the other thing I think that so many martial artists get backwards is they think that by increasing professionalism and focusing on things like get the gross up, improving sales ratio, and somehow they’re degrading the level of service with the level of quality. What’s your perspective, Ben, now working together for a year on that aspect?

Well, I guess the only perspective that I have on that is that if in fact we have a great martial art, and if in fact we want to preserve that martial art, the only way to do it is to teach other people how to do it. And if we don’t have any customers, and we don’t have enough students to pass that on to, well, your martial art will die. And the other part of it is, what happens when I die?

You know, I don’t want it to go away. I want other people to be out there to be able to teach it, be able to pass it on. And the only way you can do that is to be a good business person so that you can teach as many people as you can. possible your art. It doesn’t mean that you have to teach any less. It doesn’t mean that you have to be a bad teacher. It just means that you have more people to work with and more people to pass it on to. You bet. And I think with few exceptions, there’s a direct correlation in the quality of this customer service. the quality of the teaching and the bottom line of the school. Same as in the daycare side of what you’re doing is if people love you and they’re thrilled with what they’re getting and they’re excited about it, they stay, they stay longer, they’re willing to pay more, and ultimately the word gets around that you’re fabulous.

[24:34] Well, would you like to hear an interesting statistic?

Absolutely. I know that you are a numbers guy, and numbers mean a lot to you. So before we worked with NAPMA, and I know I’ve never told you this part, but is that our retention rate was we lost about 15% of our people every month. And since we’ve been doing it right, or as right as we’ve been able to get it to right now, we’re not 100% yet, but our retention rate now is a half of a percent. It went from 15% attrition per month to half a percent per month. A half a percent. You know, I would not have believed right. I would not have believed that number, right?

But I keep very close eyes on my numbers. So, you know, it really was like, you gotta be kidding me. You know, here we are, we’re charging more. We have three times the amount of students and we’re retaining them at the rate of a half percent a month. By the way, I’ve proven over and over and over again. there’s an inverse correlation between price and dropout rate. The higher the price, the lower the dropout rate. Well, I can tell you this. I’m a believer because it’s clearly happened to us. That’s an amazing number. Yeah. Well, because the lowest I had ever remembered even when I was with the other group, was about 2.5 to 3%. So I was amazed. I had to do the numbers two or three times to be able to convince myself that I was actually doing it that well.

You bet. Well, let’s give people a couple of thoughts. And maybe I’ll, from that point, ask you the question. A lot of people here are talking about deep performers in a circle a lot, but if they’re skeptical and looking at it, what advice would you give them about how to think about it?

Well, I will tell you that the best money I have ever spent is working with you guys. I started out at the, with just the regular member and I’ll tell you the minute that I decided to go to into the inner circle was the best thing to ever happen. You know, when we have an increase of 250% in one year, my goodness, what is the tuition?

I’d pay it over and over and over and over and over again. So I say just do it. Well, I can’t even figure out what the percentage is going from 15% down to half a percent. Yeah, what is it?

30 times, I guess that’d be 3,000% improvement. Yeah, and in addition to that, is the profit margin went up as well. So we increased our costs with marketing, but the amount of income that came in profits there shadowed that by tenfold. Yeah, that’s ultimately the bottom line which I think people lose sight of is it’s about on the business side, it’s about net profit, it’s not about gross. On the student side, it’s about delighting the students and keeping them for life. It’s not about the level of energy or whatever else it might be. It’s about retention and outcome for the students and it’s about, frankly, it’s about eliminating headaches as a business owner and it’s about having a high net profit, not gross revenue. Well, the increase that we’ve had this year what it means to me personally is about $300,000 more in my pocket.

[29:10] I like that. Well, I love that. We’re not charging you enough. So we’ll have that recorded for posterity. But hey, let’s give everybody a few actionable items on the martial arts side. You’ve grown the martial arts side of your business by 250%. if there’s maybe three takeaways on what everybody else could model that you’ve done to do that?

What are they? One of the big things was to do 20 things a month to bring in more leads. The second thing would be is to learn and have a system in place for everything that you do and practice it over and over and over and over again and get rid of people who aren’t willing to grow. That’s a difficult one. Expand upon that. Most martial artists have grown their staff from within and they hate to weed them out. How do you accomplish that?

Well, here’s the thing. I will say that I give my teachers and staff every possible tool that they can use to be successful. And if in fact they’re not willing to be successful in their own minds, then they don’t really belong here. And we just have to cut it while we can so that we can continue to build someone who is willing to actually be successful. Yeah. Well, and there is a tendency for students, senior students and staff to be very loyal to the way you used to do things as opposed to being loyal to you in the school. And I think sometimes we miss that distinction. And if you’re not constantly teaching staff how to grow and change, when you really have to make a significant improvement in the school, you’re going to leave them behind.

But at the same time, if they’re not willing to be loyal to you and to the school as opposed to the past, you’ve got to find somebody who will be. Is that a fair way to say that?

Oh, absolutely. And the other thing is, if in fact they want to be successful and you can show them that they can be successful not only financially but just in the way they feel about themselves and the way that they feel about their job. It is a really big deal and you can develop a person who is going to stay with you for a while and to grow with you. You bet. It’s so important, especially when you get into multis, if you’re not constantly developing staff and constantly developing bench strength and constantly moving their expectations up. And it’s the Jack Welch thing of constantly getting rid of the bottom 20% every year is hopefully we can grow them rather than get rid of them. But one way or the other, we’ve got to keep expanding our expectations and our capabilities.

[32:37] Without a doubt, in our lowest performing school, the instructor there is sort of one probation. And he knows it because no one else actually wants to work with him because they don’t want them to bring him down. So we will give him every possible tool to be able to be do what he does and if we don’t shame on us. Yeah. Yeah, I’ve said it this way before is that with staff you really only have three issues you have. Do they have the attitude to do it?

Do they have the motivation to do it? And do they have the skill set and the training and the knowledge?

And it’s our responsibility to give them all the training and skill sets. It’s also our responsibility to create an environment where we don’t screw up their motivation. I don’t think it’s our responsibility to have a pep rally every day, but it’s certainly our responsibility not to get in their way and screw it up. Yeah, I would say that’s absolutely right. But going back to the 20 things a month, what are some of the things that you’ve done that have been very successful this year for marketing?

Oh, we do direct mail for the first time we did that this year. We do a lot of fairs, parades. We do demonstrations. We do a lot of rack cards. We do very little newspaper, but we do a lot of community service things, fundraisers, we redone our website so that it’s actually a website that gets people’s information so that we can send it out. We did search engine optimization, just a ton of different things that we actually learned at the marketing boot camp out in Colorado. has given another huge jumpstart to our September, October. So, you know, that was really an awesome event there. Well, talk a little bit about that. What did you find valuable?

What was some of the takeaways from that? Well, I think I sent something in to you about that. We found out that we were doing everything just a little bit right. and we weren’t doing anything great, but even not doing anything great, we were still increasing in our enrollment. But as soon as we found out of the things that we should be doing and how to get them done, those are the kinds of things that we learned in Colorado. We were amazed at the Internet marketing stuff that we got from that. It started us on a horrific path of redeveloping our website. We also did work with the 20 different things that we can do. Developing the marketing plan was was genius because we actually brought that back to our school and now all of our schools own their own marketing plan.

[36:25] So, you know, I didn’t develop it for them. They developed it now so now they own it. Yeah. And let’s explain that a little bit. What we had is everybody split up into groups after they had all the tools and organized as a team. So, the marketing plan, and then what I explained is in a, certainly a multi-school environment, if you give people the marketing plan, they may or may not do it, but if they go develop them themselves, they now own it, and therefore will get emotionally as well as intellectually engaged with it. Yeah. It was really great too, because we’ve got in that inner circle group and there are some pretty smart people in there that are doing a lot of good things. And with the input from all of those folks, it just made it so easy to develop something that could truly work in real world.

Yeah, it wasn’t about go spend $50,000 either. It was a combination of a little bit of advertising. and a lot of grassroots and a lot of internal, is that fair to say?

Oh yeah. And it was interesting because some groups decided they were going to spend $25,000 and some groups said they were going to spend $5,000. And they all developed a plan based around, based upon the amount of dollars that they felt were available. Yeah, yeah. And the plan was, to add 100 students in six weeks. So just so that everybody knows what the objective was. And I think the vast majority of people who are there, in fact, I talked to Dave Moss earlier today, and he said, well, I went back, and the week after I got back, I did 50 students, and that even started on the plan yet. So I guess that’s not a bad way to start. No, that’s not a bad way. And I will tell you that we, this month, we started it is September 1, and for this month we’ve now added 38 students for this month.

That’s more than we’ve ever done in one month. That’s great. That’s just at one location. Yeah, yeah, that’s fabulous. And we’re now ratcheting your tuition up. And through the year, you already jumped at what, about 50%?

Is that right? That is correct. And so how is that impacted?

Obviously, you’re doing a lot of enrollments. It hasn’t hurt you too bad. Well, when we raised the price, people started coming in and signing up more. So it was obvious to us that we were clearly undervaluing what we were doing. And when we stopped caring about what everyone else was doing, it really helped us to keep our eye on what we needed to be focused on, and that is our new students and not worrying about what anyone else was doing. What you mean by that, you mean the other martial arts schools in your area?

Yes. I mean, we are clearly the highest price in the area. And it was almost by 50%. And we have more students than any of the others. So I would say to you that we were clearly undervaluing our program. Absolutely. Yeah, I tell a story back in the early 80s is I was on average double. what anybody else was charging and on average had 10 times more students than the next biggest school in the metro area. It engender me to my competitors, but really all we care about is our students in our markets. So, it’s a good lesson to learn. From a standpoint of some specifics now, I know the enrollment card idea and there’s There’s a lot of iterations of it. That’s been very successful for you. Walk everybody through a couple of the iterations of that idea that’s been useful for you.

[40:54] Well, what we use, what the enrollment card did for us was simply to give us something to talk about that we just didn’t have before. And I would say to you that it wouldn’t matter what we charged for it, I really don’t think it did. It just gave us something to talk about instead of just saying, hey, would you like to do martial arts?

So it was a method of five weeks of classes and a free uniform for $10.99. And I really, when I step back and I look at it really had nothing to do with the offer itself. It had to do with being able to present it to someone and actually ask them to buy it. And as we talked about the boot camp, there’s probably 10 effective iterations of that thing ranging on one end from $49 or $39 as a charitable fundraiser through the schools. Tim Kovar when he did it called it the teen center, that was their fundraiser. I did it for Children’s Hospital. Down to the other end of the spectrum is something we did as a fundraiser for Chuck Norris where it was, I think, $19. And it was a month or less of a uniform, a semi-private evaluation, et cetera.

So there’s a lot of iterations of that idea. Probably the most important thing is just getting out and doing it and having something to close them off. Yeah, and I really believe that that is the key. And that’s again, that’s something that I learned many, many years ago in sales and I just threw the baby out with the bathwater on that too. So I guess sometimes we get stupid spells, you know, we need to go back to the basics. Well, sometimes we think that martial arts is a career is different from other things that we’ve done. And it is really interesting to see somebody who comes from IBM and sales or comes from some other business environment and then they throw out all of the great professional ideas they learned as somebody else who expends the multi-million dollars because it’s now their hobby.

And what we need to do is learn from all of those experiences why we’re going to Disney. And the West Point is to learn from others who have invested more time and effort to get to that point. If there’s a school owner who’s a buddy multi-school operator and you’re going to give him two or three ideas on things that you’ve learned from experience they really have to focus on, what might they be?

For a multi-school, I think that the most important thing is So, I think it’s a good idea to have your systems in place and make sure that you are very, very strong in your training process and make sure that you keep your eye on the numbers. The numbers will tell you the story that you need to be able to make sure that, and to help you to identify where your other schools need the help. Yeah. And as you said before, don’t be afraid to, after expanding all other energies, weed out the ones who aren’t going to be willing to be successful and add to the ones who are willing to be successful. very, very, very important. I think the most important thing is just to listen to you. I know it sounds I think it’s a little silly, but seriously, it’s made all the difference in us.

[44:57] I know that I have a partner here with my other centers. He says, I want to meet this guy. Because we’re bringing in a lot more income and a lot more revenue for our company. So, whatever you guys are doing out there, just listen to Master Oliver and Master Milroy because they know their stuff. Well, I appreciate it. It sounds like here today you’re at about a 40 to 1 return on your investment or maybe it’s a 100 to 1 return on your investment on any of your tuition related to this. Oh, yeah. There’s no question. And there’s no question. It’s great stuff. Hey, well, Mr. Miller, we have eaten up a bunch of your time. But I think anybody who’s listening to the call is really going to find it valuable. And as I said before, I think we need to do a couple follow-ups just to expand upon what we’ve touched on.

But any last couple words of wisdom for everybody before you have to ring off for the day?

No, I would just say that just thank you for all of your input and honesty in kind of bringing us back into reality zone here. And anybody else, just get involved with this stuff. It’s a great bunch of people and the ideas that come from all these folks, it’s just phenomenal. So just go for it. Sadly or whatever, I think I’ve got a well deserved reputation. We’re never sugarcoating anything. So some appreciation. I would say that’s absolutely true. Well, hey, thank you so much for your time. And give Zach my best regards and all of your staff and the guy who’s on probation go kick his butt a little bit, get him his butt in gear. It’s always better to get one turned around than have to go get a new one, but you got to do what you got to do.

Absolutely. Well, thank you so much for talking with me today, sir. Hey, thanks for sharing your time and so, so generously. Again, we’ll follow up a couple times, so we just barely scratched the surface. All right, sir. Thank you. Bye now.