Consolidation: The Future of the Independent School Owner? Part I

A quick starting note: I did my initial research on this subject matter prior to the COVID-19 pandemic reaching North America. However, seeing the results of this crisis only reinforced my theory: Martial arts schools must consolidate, or will perish. There may be schools that are exceptions, but they are just that: exceptions.

Inconsistent Levels of Quality

A recent graph published in MASuccess showed that around 96% of all martial arts school owners own only one or two schools. Many of those second schools are small satellite locations (and usually located in an elementary school gym or a local community center). This indicates that there is a lack of consistency with respect to curriculum, standards, quality and legitimacy.

Unfortunately, this lack of conformity has resulted in numerous lawsuits against various schools, often due to some type of negligence on the part of the school owner. Whether this negligence was due to actions of the school owner or one of the school’s instructors, ultimate responsibility still falls to the owners. The increased scrutiny being placed on the school owner these days is increasing the number of “fiduciary duties” they must uphold. Simply put, a fiduciary duty is a legal obligation to act in the best interest of another. As a school owner, your fiduciary duty is to ensure the safety and wellbeing of your students in a variety of circumstances and teach authentic, high-quality material, among other things.

We must then ask ourselves, “Will increased fiduciary responsibilities force conformity upon the martial arts industry?” Failing to follow these responsibilities will lead to lawsuits – and even if your school isn’t hit with one, it doesn’t mean you won’t be affected.

Take what happened within the financial services industry, for example. In the early 2000’s, there was a dramatic increase in the number of investment advisors. Unfortunately, many of them did not foresee the 2008 recession, and as a result many of their clients lost all their fortunes.

A review determined that there were too many independent one- or two-person offices overseeing a sizeable amount of peoples’ retirement and investment funds. Government agencies quickly jumped in and increased the fiduciary duties required to be an investment advisor. The new regulations required advisors to make time-consuming reports. They also required more management oversite of all advisor/client interaction. This was too much for most independent advisors to handle alone. Some were forced to close; however, a majority joined larger financial organizations. They gave up some independence, but they gained consistency and stability, and their advisors became better-able to concentrate on the welfare of their clients, while the larger “parent” organization handled the onerous required reporting.

Right now, the martial arts industry reminds me of the finance industry prior to the 2008 crash. There are far too many independent operators with varying levels of quality promoting martial arts training to the public. I do believe that in most cases, these small school are well-intentioned. However, with the increasing scrutiny being placed upon the recreational athletics world (ex. the Safe Sport Act), it would only take one incident to result in upheaval for the entire industry.

Obviously, a myriad of litigation cases will play out in various courts before solid laws can be enacted. Nevertheless, these new responsibilities will encompass martial arts instructors soon if they have not already done so. For this reason, there is a trend in our industry to standardize schools as much as possible. Franchising (or other types of consolidation) of schools is starting to get popular.

Franchise Revolution and its Effect on the Martial Arts Industry.

Franchising has become something of a revolution in today’s business world. It is said that it can make a disorganized industry more organized. This is getting it noticed in the martial arts industry.

There are many studies that show it is the entrepreneurial traits of a franchisee that contribute to the success of this business model. In fact, when screening for new franchisee candidates, most franchise operations look for this enthusiasm (in addition to solid business experience) as it will lead to a more successful school.

One of the main values in franchising is clear and consistent branding. A successful franchisor has invested sizable research and marketing funds in order to develop a brand with just the right “look and feel” to contribute to the success of the business. Branding is more than just a slick logo and color scheme. It institutes standards and quality that make it hard to replicate and compete against.

In the martial arts world, we are seeing many schools being created under a franchise banner, as well as many existing schools converting to franchise operations. This allows them to increase their brand recognition, and provides them with an aura of professionalism, a well-defined curriculum and solid staffing structure.

MASuccess Magazine recently features several well-established franchises and the success they have obtained in our industry. These articles showed how these franchise operations not only provided a proven business model, but stringent quality assurance requirements, including mandatory training sessions.

This somewhat ‘forced’ support mechanism allows the franchisee to obtain the latest industry enhancements and ensures they provide their student base with the “best practices” of the martial arts. In addition, open channels of communication between franchisees make them ready sources of information and experience for each other, which can really help when times are tough.

While franchising is gaining traction in our industry, most existing schools are usually “affiliated” with some type of local, national or international martial arts organization. These organizations also have strict rules they expect their affiliates to adhere to, but affiliates tend to have more wiggle room that franchisees and have been known to flout the rules.

The trend towards franchising over affiliations is growing due to the level of expertise required to ensure the success of a martial arts school. Of course, with the various business structures available, you as a business owner must decide what is best for you and your school.

In part 2 of our Consolidation Blog, we will explore the differences between Affiliations (like the JKA or ITF) and professional Franchising. We also examine at whether Franchising is for you, both as a business option and taking into consideration your personal ethics. Our final Blog examines the possibility of staying independent and the ramifications of doing so. We look into whether staying small and non-affiliated is still an option going forward, especially in these trying times.

Andries Pruim is a 6^th-degree black belt in Shotokan karate with over 45 years experience training in his home country Canada as well as in Japan. A former martial arts school owner, Pruim has 38 years of corporate financial and business management experience. He is a Certified Financial Planner, and continues to renew his CFP designation and update his financial knowledge and skills. In the martial arts world, he is currently a Senior Instructor at two karate schools in Langley, British Colombia, Canada.