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THE TURNAROUND

Boxing Gym in San Francisco Confronts Challenges to Succeed

Aired March 19, 2005 - 11:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RANDI KAYE, CNN ANCHOR: I'm Randi Kaye at the CNN Center in Atlanta. "THE TURNAROUND" with Ali Velshi begins in 60 seconds -- first, headlines now in the news.
Authorities in Florida recovered the remains of 9-year-old Jessica Lunsford today. Police say a convicted child molester, John Couey, has confessed to killing her. Police arrested three other people. They'll be charged with obstruction.

Attorneys for Terri Schiavo's parents are working through the weekend on a new court appeal. The brain damaged woman's feeding tube was removed almost 24 hours ago. An effort from Congress to intervene has failed.

(AUDIO GAP)

KAYE: ... wish to die if she became incapacitated.

North Korean nuclear ambitions are on the agenda for Secretary of State Condoleezza Rice who is in Seoul, South Korea at this hour. She will meet with top leaders there. The U.S. is demanding that North Korea return to the six nation talks on its nuclear program.

More news coming up in 30 minutes. "THE TURNAROUND" with Ali Velshi begins right now.

ALI VESLHI, HOST: Next on THE TURNAROUND, two boxers chasing the American dream, one mentor with a billion dollar fitness empire.

(BEGIN VIDEO CLIP)

EARVIN "MAGIC" JOHNSON, FORMER NBA PLAYER/ENTREPRENEUR: He's cool. Mark is cool.

(END VIDEO CLIP)

VELSHI: Now, three days, one very big challenge. Can he turn these guys around and help them bring boxing back to San Francisco?

(BEGIN VIDEO CLIP)

SADIE LINCOLN, PROJECT MANAGER TO THE CEO, 24-HOUR FITNESS: It's their baby and they're not letting go right now.

MARK MASTROV, CEO/FOUNDER, 24 HOUR FITNESS: Yes. I don't think they're going to be able to survive unless they can find a way to drive more people inside. (END VIDEO CLIP)

VELSHI: The turnaround begins now.

(BEGIN VIDEOTAPE)

VELSHI (voice-over): Big weights, rivers of sweat, and billions of dollars to be made. With more than 33 million members and over $12 billion in annual revenue, America's health club industry is booming. But it's not an easy industry to break into unless you have something unique to offer.

(on camera): I'm Ali Velshi at the 3rd Street Boxing Gym in San Francisco where two Irish immigrants are living a truly American dream, to turn their passion for sports into a successful business. But they're not making much money right now and they know if they don't stop the bleeding, they'll be down for the count. What they don't know is we're going to surprise them with three days with a fitness industry heavyweight. After he goes a few rounds with them, they'll either be on the mat or on the road to a turnaround.

(voice-over): In the fitness industry, there are dreams and there are dreamers. Then there's the reigning champ, California based 24-hour fitness, America's largest health club company in terms of sales.

MASTROV: In 1983, we started off with one location, 5,000 square feet, a nice, little, tiny gym here in Northern California. In the last 10 years now, we've grown to 330 here in the United States and 13 in Asia.

VELSHI: Former personal trainer who turned that one tiny club into this giant fitness chain, founder and CEO, Mark Mastrov.

MASTROV: I just fell in love with the business. It was fun. It was exciting. You're helping people. It's all about positive. A lot of energy.

VELSHI: And it all started small with Mastrov borrowing $15,000 from his grandmother, turning it into a workout empire with more than a billion dollars in sales last year. Part of his innovative approach? Adding star power to the 24-hour fitness brand, establishing business partnerships with sports icons like basketball legend, Magic Johnson, who happens to be one of Mark's biggest fans.

JOHNSON: He's taught me so much about the fitness business, not just the 24-hour business. Mark is a tremendous communicator. He's quick at seeing what's good and what's bad. He can come in, look at the books, look at the gym and make quick decisions. And he's cool. Mark is cool.

UNIDENTIFIED MALE: One, two. One, two. Same height, same foot.

SIMON REDMOND, CO-OWNER, 3rd Street Boxing Gym: I come from Ireland originally. I've been in San Francisco eight years.

PAUL WADE, CO-OWNER, 3rd Street Boxing Gym: I'm originally from Dublin, Ireland. I moved here about 10 years ago.

REDMOND: Paul came up with the idea originally to open up our own gym.

VELSHI: Paul Wade and Simon Redmond, two young men with their own version of the American dream. In this gritty industrial section of San Francisco, known as the dog patch, sits their pride and joy, the 3rd Street Boxing Gym.

WADE: Building a gym was like, you know, the dream that I had from a young man. I think from maybe the age of probably 10 or 12 years of age.

REDMOND: We just decided, you know, let's go for ourselves. Third Street Gym is the result.

VELSHI: Two Irish guys in here, two pit bulls marching up and down when people are doing classes. They love it, you know.

For Simon and Paul, this isn't just any gym. It's a boxing gym. And it's a way of life. Some of 3rd Street Boxing Gym's clients come here to get a different type of workout, others to let off steam or to find redemption in the ring. But the young immigrants don't know how to make their business grow and they don't know multi-millionaire Mark Mastrov is about to help them turn it around. The potential is there. The club has about 115 members bringing in about $12,000 a month. Overhead, rent, utilities and their car total about $4,000 a month. They each take a salary of $1,000 and Paul and Simon pay another $1,000 in wages. Of the $5,000 that's left, $1,500 goes to service a small debt. The rest, they say, goes right back into the gym.

MASTROV: I think there's a lot of roads they can take and I think some of them will lead to tremendous success, but a lot of them are going to lead to dead ends.

VELSHI: Day 1 of the turnaround and Mark steers his Range Rover into a spot in front of the gym. It's easily the most expensive car on this or any block in this neighborhood. It's a typically quiet afternoon as Simon and Paul train clients. The CEO of the country's hottest fitness chain has just walked through their front door.

WADE: He kind of walked in. We kind of both looked at each other at the same time. We made eye contact and went, hmm.

VELSHII: Neither owner has a clue who he is.

REDMOND: You're here today for what reason?

MASTROV: Yes, to get in shape, get ready...

REDMOND: Oh yes!

MASTROV: ...train a little bit.

REDMOND: What's your background? I don't recognize your face.

MASTROV: Yes, you know, you probably shouldn't. I'm the chairman and CEO of 24-Hour Fitness.

VELSHI: Finally, it dawns on them. This is their mentor. They're not sure what to make of him.

(on camera): When Mark came in, you were kind of sizing up. You weren't quite sure.

WADE: Before this, we were kind of like, OK, this guy is a suit, you know.

REDMOND: He said he was CEO of the 24-Hour Fitness. Well, my first question was, how long have you been in that position? I thought he was recruited.

VELSHI (voice-over): Simon is well aware of the 24-Hour Fitness chain. Their clubs are all over California. What he doesn't yet realize is that Mastrov founded the business in much the same way as he and Paul founded their gym.

REDMOND: (UNINTELLIGIBLE)

MASTROV: I founded the company in 1983, so...

REDMOND: You started it?

MASTROV: Yes, I started the company.

REDMOND: Definitely nice to meet you. Great job. There's 24- Hour Fitness all over the place.

VELSHI (on camera): Once you heard that he had gone through the hard knocks himself, all of a sudden you kind of identified with him.

WADE: Yes, then when he told us that he'd been through the same kinds of hardships -- he's a trainer also -- I started to listen. I said, OK, I'm interested here now.

REDMOND: That's a different story. You know that's definitely a good person for us to be talking to.

VELSHI (voice-over): Simon gives Mark a tour. Physically, the gym looks great in a gritty way, but Mark knows that appearances can be deceiving.

MASTROV: I don't understand their brand, their marketing plan. I don't understand their finances. I don't understand the debt they've put in place. I don't understand how they're going to make it.

VELSHI: The tour is over. It's time for Mark to see the boys through down in the ring. First, Paul, then Simon.

MASTROV: What I saw is a couple of guys who are very passionate but they've got to tighten down their business.

VELSHI: It's 3:00 pm on Day 1 and it's time for Mark to get down to business. He heads down the street to the Hard Knox Cafe where he summons Simon and Paul for a very frank conversation.

Coming up on THE TURNAROUND, the meeting at the Hard Knox, but will Paul and Simon listen.

MASTROV: I don't know if you guys can push through the rest of the year.

VELSHI: And the CEO orders an undercover mission inside the 3rd Street Boxing Gym.

UNIDENTIFIED FEMALE: They were definitely surprised.

VELSHI: Next, on THE TURNAROUND.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

VELSHI (voice-over): They've shown their talent in the ring and they talk a good game.

WADE: You know, if I have a vision, I'm going there and I'm not stopping. And I'm going to keep going, keep going, and keep going.

REDMOND: How much on board you are and how much we want to make this thing work, 110 percent.

VELSHI: Day 1 of this turnaround is under way and it's time for Simon and Paul to take the gloves off and get down to business. Their mentor for the next three days is 24-Hour Fitness founder and CEO Mark Mastrov. Like Simon and Paul, Mastrov also started with a 5,000 square foot gym, so he knows what these owners are going through and how far they can get with some good business practices. Mark has summoned the pair to the aptly named Hard Knox Cafe for a sit down and he's not pulling any punches.

REDMOND: It's been a while.

MASTROV: Yes, it's been a real long while. Well, I think that unless you start putting some very solid foundations down for your business, I don't know that if you guys can push through the rest of the year.

VELSHI: Tough news to digest for two guys who thought their business was in good shape. Simon and Paul signed up 22 new gym members in the last month and they thought they could coast a little. Mark says no way.

MASTROV: I spent quite a bit of time in the last week looking at the materials you have and some of the financial statements you put together. And so, I put together a small plan I think that we can accomplish over the next three days. Not too complicated, so it's a roadmap to allow you to have success. VELSHI: Mark keeps it fast and simple, laying out four key challenges that, when completed, will be the foundation of a business plan. Step one, increase your brand recognition. Mastrov points out that you can't build a brand if the name of your business isn't front and center.

MASTROV: If I go outside right here, I see this huge sign out there that says Boxing and I see a very small brand underneath it. And if I'm two blocks down, I can't see the name of your gym.

VELSHI: Step two, create an understandable profit and loss statement.

MASTROV: So you know what you have in front of you, how you can scale the business because if I read it right last year, neither one of you guys was taking any money out of the business or taking a salary. And I don't think any of us want to work for free.

REDMOND: Of course not.

WADE: Of course not.

VELSHI: Step three of Mark's plan is to make a budget.

MASTROV: The third is, you know, I think we have some kind of a budget for the year saying here's our goals and objectives of what we want to accomplish because if 20 in January is great month for you, but is 20 going to be OK in June, you know, based on the overhead you have and people may not be staying with you after -- in that month. So you have to figure that out.

VELSHI: Step four is for Simon and Paul to create and sign a shareholder's agreement.

MASTROV: So there's something in writing so that there are no disputes down the road, and I thought you said or you said or you promised stuff. It just is nice and clean. It can be done on one page but I always find that between friends especially and with partners, it's always good to have a shareholder's agreement, something that you can have to kind of hold your business by.

REDMOND: It's like being in a relationship, which we're not in a relationship just for the record, but it's like being in a relationship. You know you have emotions.

WADE: We're not?

REDMOND: You have people -- you know both people have different needs and you're in each other's space a lot, you know.

VELSHI: In addition to the four-step plan, Mastrov makes a symbolic gesture, offering a cell phone, a help line the guys can use to call him during the three days.

MASTROV: Any time you guys want me, you just call.

VELSHI: Now the question is will they use it?

WADE: Can we call Ireland with this phone?

MASTROV: Can you call Ireland? You probably can.

REDMOND: OK.

(LAUGHTER)

VELSHI: The pair heads back to work. Just before 5:00 p.m. two new potential clients appear. Simon and Paul don't know it but Mark Mastrov has sent his marketing expert Sadie Lincoln and a friend to check out the gym undercover.

LINCOLN: What's your name?

REDMOND: Simon.

LINCOLN: Hi, I'm Chia (ph).

REDMOND: Chia, nice to meet you.

UNIDENTIFIED FEMALE: I'm Audrey.

REDMOND: Audrey, how are you doing?

UNIDENTIFIED FEMALE: Nice to meet you.

VELSHI: Sadie has helped Mark establish his company as one of the four most fitness clubs in America. She's here to check out the 3rd Street Boxing Gym and its owners.

LINCOLN: So are you the instructor?

REDMOND: Yes, (UNINTELLIGIBLE). The owners are the instructors.

VELSHI: As a marketing expert, Sadie is paying attention to everything, from paint to parking, from posters to presentation. After 15 minutes and a quick walk around the facilities, she's ready to make an initial assessment.

(on camera): What do you see off the top? What do you see that can change?

LINCOLN: Off the top? Well, I think that their initial presentation can change. I think that having -- talking to me more about what are my fitness goals and where am I coming from as a consumer. They didn't once ask me, you know, what am I looking for and what are the results I want, why did I walk in today.

VELSHI: So, they're great for the guy who knows what boxing is, wants a boxing gym. It's gritty. That's what they want. They need to expand to people who don't know about boxing.

LINCOLN: Yes, and actually I don't know enough but I'm not convinced that they're even reaching that guy either because, you know, their -- the visibility is not that great. The parking is kind of off. I don't know what their marketing is so far. I don't know how targeted they are. I don't know what their network is.

VELSHI (voice-over): Five thirty p.m., as night falls over San Francisco, the 3rd Street Boxing Gym is just starting to come to life.

WADE: Face me, OK, move back a little. Move back. Give yourself some room. Give yourself some room.

VELSHI: Paul leads a high energy aerobic class, one of the partners' burgeoning attempts to attract more women to the gym.

WADE: Hands up and down.

VELSHI: There's no doubt about the potential here. The place is packed with young urban types from both ends of the financial spectrum.

REDMOND: Well, the thought is if you don't' have the white collars and the white collars eat off the boxers. So that's why this gym, I think, will be successful but nobody else has really, you know, tried to market to both parties, you know.

VELSHI: And as for the meeting with Mark, numbers or no numbers, Simon thought the CEO was a bit harsh.

REDMOND: So Mark, he kind of dropped a little bit of a bombshell while we were chatting at Hard Knox to me and Paul. He said he didn't even really see us making it through this year, you know, even though January has been our best month so far. Obviously, me and Paul are a lot more in tune with the business than, you know, Mark is. He's just coming in as an outsider.

VELSHI: Day 1 is over. Coming up, Sadie comes clean about her spy mission.

REDMOND: Pulling a fast one on us.

VELSHI: And the boys take another one to the job.

LINCOLN: What you don't seem to have is a clear plan.

VELSHI: But the mentors are meeting with some resistance.

LINCOLN: It's their baby and they're not letting go right now.

VELSHI: Business dreams and realities clash next on THE TURNAROUND.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

VELSHI (voice-over): It's 10:00 am on Day two of the turnaround. The streets of San Francisco are busy, but the 3rd Street Boxing Gym is quiet, because the doors don't open until 1:00 pm. This gives the gym's two owners, Simon and Paul, a chance to grab some breakfast and start working on their assignments.

REDMOND: The website, obviously, we both need to be involved.

VELSHI: The two admit they're not making much money from the business, but they seem reluctant to take advice from a man whose own gym has pulled in more than a billion dollars in revenue last year.

(on camera): You weren't quite on the same page as he was about how serious things could get if you don't sort make a bit of a turnaround.

REDMOND: He said unless we get some issues revolved quickly we may not make it through the year. I think he was basing that looking at our profit and loss for last year. We topped greater than our lowest last year. So as an outsider looking in, based on just the financial records, of course, you could say that, you know.

VELSHI (voice-over): Simon and Paul have a big choice today, listen to their new mentor and make some changes or turn down the tips and stay the course. Yesterday, Mark Mastrov made it simple. If they want to succeed, they need to focus on a business plan made up of four critical pieces, marketing and branding, a profit and loss statement, a budget and a shareholder's agreement. Simon and Paul will need to present this new plan to the mentor on Day three. And while it's virtually impossible to turn a business around in such a short time...

MASTROV: I think in three days, you can accomplish miracles, provided that the party you're working with is open minded, and a good listener and willing to learn and follow and execute on plan.

VELSHI: Mark gave them a 24-hour help hotline directly to him but Simon and Paul don't seem to think they need it. They left the phone back at the gym.

WADE: We haven't called at all. You know I'll be honest. We've been so busy. I mean I left here last night at 10:00.

VELSHI: Since they've been so busy, this is the first chance they've had to discuss Mark's plan.

REDMOND: Well, one thing we definitely is a sign outside the gym for starters. We're definitely starting out. I know we have something that says, boxing, which, you know, we let people know what we have but we should let people know who we are, you know, obviously, 3rd Street Gym, you know...

WADE: Right, because Mark was saying yes, he looks up and he sees boxing with no -- you can't even really see the 3rd Street apart from the website name. So maybe a bigger awning that goes the whole length of the building?

REDMOND: Yes. Two thousand five budget, I'm not really sure if he means like -- when he said that he said a 2005 budget in terms of how many members we want to attract and how we're going to get members in as a monthly basis.

WADE: We know once we get the people inside there, you know, they'll enjoy the workout.

REDMOND: I thought the P&L I had done, you know, was pretty -- it was pretty good. It shows the money coming in. It shows all the expenses we have. The only thing we really have to kind of work out is what duties and responsibilities and to the money. That's it. I mean it's pretty simple. But it's going to be hard on us, like, who does what; you know where does the money go. I mean, if it's all 50/50, you know, you pay your costs. Once the debt is gone, it's just going to be 50/50, so there shouldn't be a problem.

VELSHI: Lunchtime. The doors are open and Simon and Paul are about to be surprised by a familiar face.

LINCOLN: Hello.

WADE: Hello there.

LINCOLN: How are you guys?

WADE: Good. How are you?

LINCOLN: I'm good. Hi.

REDMOND: You're back in today, yes?

LINCOLN: Yes. Yes, I am. I'm Sadie Lincoln. I work with Mark.

REDMOND: Oh, God, you know, I'm sorry. I thought you were the girl that came in here yesterday.

WADE: You know so did I when she walked in.

LINCOLN: Really? Did she look just like me?

WADE: Yes.

LINCOLN: Oh, that's interesting.

REDMOND: How are you doing?

LINCOLN: Good, nice to meet you. You know that girl was me.

REDMOND: It was you?

LINCOLN: Yes.

WADE: It was her?

REDMOND: Yes, it was.

WADE: What's up with that?

REDMOND: She's pulling a fast one on us. VELSHI: Sadie Lincoln is one of the marketing minds behind 24- Hour Fitness.

LINCOLN: Nice to meet you. What you don't seem to have is a clear plan...

REDMOND: That's true.

LINCOLN: ...and a clear strategy. I think that you can just figure out some good promotions and good financial incentives to get people in the door. It's a movement. It's a momentum. You got to get the word out. One thing I might suggest is putting up pictures of your class here on the window so when people walk by, they can see people like me working out here.

One of the biggest barriers is your location. Don't get me wrong, I think it's neat because it's part of your turf. It's gritty. It's up and coming, but it's not comfortable for someone like me to park and walk in here. It's off the beaten track.

VELSHI: Sadie has saved the toughest criticism for last and it's personal.

LINCOLN: This one is kind of close to your hearts, I know, but the Pit Bulls are a little bit intimidating.

REDMOND: They're staying.

LINCOLN: I know they are.

MASTROV: So, what do you think so far?

LINCOLN: Well, it's their baby.

MASTROV: Right.

LINCOLN: And they're not letting go right now.

MASTROV: Yes, I don't think they're going to be able to survive unless they can find a way to drive more people inside.

VELSHI: Up next, Simon and Paul are distracted by boxing...

WADE: Jab and move to your left.

VELSHI: ...not business. And later, just when he thought these guys wouldn't listen, Mark sends in someone who sparks a change.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

KAYE: I'm Randi Kaye at the CNN Center in Atlanta. "THE TURNAROUND" with Ali Velshi continues in 60 seconds but first a check of the headlines now in the news. Authorities say they've recovered the remains of 9-year-old Jessica Lunsford. She was apparently buried just 150 yards from her home in Homosassa Springs, Florida. The child disappeared from her bedroom more than three weeks ago. Convicted sex offender, John Couey, has allegedly confessed to kidnapping and killing the girl.

Well, doctors say it could take anywhere from a couple of days to several weeks for Terri Schiavo to die. Schiavo's feeding tube was removed yesterday after the Supreme Court rejected a congressional effort to save her life. Attorneys plan a new appeal.

Two years ago, it was shock and awe as U.S. forces moved into Iraq. In his radio address today, President Bush gave an impassioned defense for the invasion, saying Saddam Hussein's regime is no longer a threat to the world or the Iraqi people.

More news in 30 minutes. "THE TURNAROUND" with Ali Velshi continues right now.

VELSHI: Welcome back to THE TURNAROUND. I'm Ali Velshi at the 3rd Street Boxing Gym in San Francisco. Now, owners, Simon and Paul, have been getting a lot of free advice and recommendations from the CEO and the management team at 24-Hour Fitness. But there is a problem; neither partner seemed able to make the time to act on any of those recommendations.

(BEGIN VIDEOTAPE)

VELSHI (voice-over): Day two of the turnaround, 3rd Street's more advanced fighters prepare for the gym's sparring night. It's the one night of the week Simon and Paul get to really concentrate on their passion, coaching boxers who are serious about competing in the ring.

WADE: Guys know they're going to go to bat.

REDMOND: You should see some sparks fly.

WADE: It's intense. You'll feel the energy. Go! Listen to me, go. Jab and move to your left.

REDMOND: Throw your left hook. (UNINTELLIGIBLE) back, (UNINTELLIGIBLE) back.

WADE: Way hard, left hook. That's it! There you go!

REDMOND: Don't look. No, don't look. Just keep your eyes close to your face.

VELSHI: Right now, Simon and Paul are focused and intense, but only about the fighters. In fact, their turnaround project seems all but forgotten.

WADE: Let's go. Let's go. Move.

VELSHI: Six forty-nine p.m., the gym's owners are so locked onto the action in the ring they barely notice when another member of the 24-Hour Fitness team arrives.

WADE: He gets low, you get low, bing, bing.

VELSHI: Gil Freeman is a financial whiz who helped fought the success of 24-Hour Fitness as well as Sharper Image and the Chevy's Restaurant chain.

(on camera): Wow! There's definitely a lot of blood going on over there, serious business.

GIL FREEMAN, FORMER CFO, 24-HOUR FITNESS: Yes, that, it is.

VELSHI: You have been involved in a lot of businesses.

FREEMAN: Oh, yes, not boxing yet.

VELSHI: But your first impression is that there's something here?

FREEMAN: More people than I was expecting.

VELSHI (voice-over): Gil could be just the lifeline this business needs, but Simon and Paul keep him waiting.

(on camera): It looks like Simon would rather do what he's doing than sit and talk to you.

FREEMAN: I've got to be the least exciting.

VELSHI (voice-over): Finally, after more than 20 minutes, Simon and Paul pull themselves away from the ring.

FREEMAN: Hi, Paul, nice to meet you.

WADE: Hey, how are you doing?

VELSHI: Gil starts pressing them to complete Mark's assignment of writing up a business plan.

FREEMAN: What we're talking about is a summary of your business, your strategy, and the what competition or what the industry is doing, what you think you can do and then showing operating statements at the end.

VELSHI: But the boys push back a little when Gil questions the neighborhood.

FREEMAN: Is this the best location? You may want to consider moving to some place that's better for all these people and maybe more people.

REDMOND: We like the location.

FREEMAN: You have problems with the parking. You have problems with...

REDMOND: Well, parking is a bit tricky, but (UNINTELLIGIBLE) in San Francisco. It's going to be hard.

VELSHI: Simon and Paul are resistant until Gil says something that finally captures their attention.

FREEMAN: You think that you should have $100,000 each? You've got to figure out how you can get those numbers so that you could each pull $100,000 out of the business every year.

VELSHI: The idea of reaping a handsome annual salary from all their hard work seems to have struck a chord.

FREEMAN: When you have a goal to hit, you're going to find a way to do it. If you don't have a goal, then you sort of meander from point to point and you may or may not make money.

VELSHI: Gil goes over their books point by point, first correcting accounting mistakes.

FREEMAN: There's no insurance on this.

REDMOND: I must have decided to put it in some other...

FREEMAN: OK.

VELSHI: ...then pushing the owners to give up a little control.

FREEMAN: Then, if you look through your list of members, see if one of them is an accountant and comp him. If he does accounting for you, give him free dues.

VELSHI: Simon and Paul seem to realize that delegating some of the work could actually give them more time to make their business fly.

WADE: That's been the biggest problem, you know, being able to put more time into the business and other things because we're so hands on here, you know.

REDMOND: To be honest with you, I'm wrecked, wrecked for time.

WADE: Yes.

FREEMAN: Some of these things you can give to somebody else, like the accounting. You shouldn't be doing financial statements.

VELSHI: It seems as though Gil has finally been able to break through to these guys and they've come to understand what this turnaround experience is all about.

REDMOND: Well, just thinking back over the -- some things he said to us, you know, yesterday and today, I mean we keep saying, you know, (UNINTELLIGIBLE) we know a lot of this stuff. You're bringing it home a lot more clearly now when people actually come up and say it to you. When they see it up here, you know, looking at us for two days.

FREEMAN: You know this is a good start. It's an excellent start.

VELSHI (on camera): It feels like they opened up to you. And the shock to me is that they knew you were the guy to talk about the money and it did seem that they were going to shy away from that a little bit.

FREEMAN: Well, having the choice of concentrating and focusing on their passion or talking to me, was an easy choice. They focused on their passion. But once they were through with the rounds and the fighting, they felt comfortable enough to move forward.

VELSHI: You don't sit there and put your hands on your head and say, oh, man.

FREEMAN: No, not at all. This business is profitable. The question is how do they get it up to the next level? They've got an opportunity to build a bigger business. And if they get it together right, it should be a slam dunk.

VELSHI (voice-over): A successful night if you don't count the upset stomach of one of the gym's mascots.

(on camera): It's the end of Day two here at the 3rd Street Gym in San Francisco. Now, who would have thought that two guys motivated by the blood, and the sweat and the tears of boxing would be moved by, of all people, the numbers guy? Well, it finally seems like the last two days of advice and recommendations from the experts are sinking in with Simon and Paul. They're not out of the woods yet. They've got a lot of work ahead of them tonight.

(voice-over): Eight o'clock p.m., Simon and Paul are exhausted from a night of sparring and from their inspiring turnaround session with Gil Freeman.

WADE: We look at things differently now. I'm using my brain a little more than me -- you know my body and my brawn.

VELSHI: Up next, Simon and Paul make their final presentation to the 24-Hour Fitness team. Can they pull it off this late in game?

REDMOND: So you're going to (UNINTELLIGIBLE) down and pull it out, if you know what I mean.

WADE: Well, you know, I'm old school. I fight 15 rounds. You know what I'm saying? That's not 11 or 12, so, whatever.

VELSHI: Next on THE TURNAROUND.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

VELSHI: It's the final day of the exercise here at the 3rd Street Boxing Gym in San Francisco. The main event for owners, Simon and Paul, who have to present a business and marketing plan to the CEO of 24-Hour Fitness. They've had all night to prepare, but did they? (BEGIN VIDEOTAPE)

VELSHI (voice-over): Day three has arrived. Short on sleep and under tremendous pressure, Simon makes his way to the gym. Paul is already inside preparing the final presentation for the 24-hour Fitness team. The meeting is set for 12:00 noon, less than two hours from now.

REDMOND: We need more people as well as more members. We need more people working for us. We need to recruit people from our gym here to...

REDMOND: We need to get ourselves out there ourselves, you know.

VELSHI: They worked late into the night and woke up early this morning to hammer out their turnaround plan. Now, the co-owners of the 3rd Street Boxing Gym go over their notes one last time.

REDMOND: Grow the business to a level of profitability where, obviously, expenses and overhead is lowered; include a nice wage to you and me.

VELSHI: Just outside, 24-Hour Fitness CEO, Mark Mastrov, steps from his Range Rover. He's the one who's challenged these two to overhaul their business. Are Simon and Paul listening to him? He's concerned. Mark kills time checking out the busy Saturday morning action inside the gym. So I've got Gil and Sadie coming back, which they don't know. And I'm bringing Brian Bouma today, who's the president of our U.S. company. He doesn't like to have anything missed, so he's going to hold them accountable. So it's going to be an exciting day.

VELSHI: Mark watches as Paul and Simon rush to finish.

REDMOND: All this last-minute stuff -- I mean he gave us a boatload of work to do on top of the work we're doing in the gym now. And I'll be honest with you, his head was melted.

VELSHI: Up the street at a coffee shop, Mark gives his team a last-minute briefing.

FREEMAN: He said, "Well, we're going to start typing up our presentation for you right now." I said, "OK, well, I better leave you guys alone because you got a lot of work to do in less than an hour."

LINCOLN: Oh, my goodness.

VELSHI: Meanwhile, Simon and Paul struggle to pull together their presentation in time...

WADE: You want to make three copies of this one here?

REDMOND: No, the (UNINTELLIGIBLE) first one.

VELSHI: ...while the team gets their newest member, Brian, up to speed on the strengths and weaknesses of the business.

BRIAN BOUMA, PRESIDENT, 24-HOUR FITNESS: Are they incorporated at all?

FREEMAN: They're not.

BOUMA: They're not?

MASTROV: It's a partnership.

FREEMAN: And they're friends.

BOUMA: Just friends.

FREEMAN: There's no agreement, nothing in writing, nothing written out.

LINCOLN: And I don't even think they need to commit that much money. I think they need to commit time and, you know, their energy to marketing because the grassroots stuff that they need to do is real simple. I mean word of mouth is the best, you know...

BOUMA: That's what I thought.

LINCOLN: ...referral base.

BOUMA: Make it hip, make it hot, and then a lot of referral programs and get a lot of people bringing friends in, and get a couple of more known people in the city using it.

VELSHI: Eleven forty-five, time for this team to get going. As they head toward the gym, the mentors wonder if Simon and Paul have really absorbed all of their advice. Do the boxers trust the mentors enough to apply the new ideas to their business?

MASTROV: In three days, we're trying to earn their respect and at the same time, give them as much information as we possibly can to help them. And I think in the back of their minds, they're trying to wonder, are these guys really here, honestly, trying to help us, or are they just here kind of being around for three days?

BOUMA: Good morning.

REDMOND: Good morning.

LINCOLN: Hello.

BOUMA: Are you still typing?

REDMOND: We'll be ready.

LINCOLN: I think, you know, their stomach turned a little bit when they saw all four of us walk in.

VELSHI: Brian gets a quick tour of the facility while Simon and Paul scramble to find enough paper to print out their presentation. MASTROV: Wow, they're still typing. They're not ready.

All right, you guys ready?

VELSHI: Finally, 24 minutes behind schedule, the two business contenders are ready. Mark informs them they'll face challenge in a familiar setting.

MASTROV: Yes, we thought what we'd do today is I'd thought we'd do it in the ring.

REDMOND: Oh, you did?

MASTROV: Yes.

REDMOND: Great. Great idea.

MASTROV: Is that OK with you guys?

REDMOND: That is my office. Should we wrap your hands beforehand or afterwards?

VELSHI: The team enters the ring and the boys take a seat in the corner ready for their first round.

REDMOND: Before we give this to you, I just want to say thank you very much for your time. We definitely learned a lot.

VELSHI: Round one, their first challenge: to increase the gym's brand recognition in a crowded health club market.

REDMOND: Objective? Real simple; make 3rd Street Gym a household name, first locally, then regionally, and possibly nationally. The one thing that we both definitely came together and agreed on was our (UNINTELLIGIBLE) and our identifiable brand is 3rd Street Gym, you know. It's a pretty solid name. It's again, an old school name.

VELSHI: Then the guys turn to a key marketing assignment, could they come up with a slogan to put 3rd Street Boxing Gym on the map.

REDMOND: I started to think about it and you know, tough love, which is -- I mean everyone knows what tough love is. Well, those two words can hit the meaning home for us in this gym is one; the boxing is a tough game. We know the people that come in here. We love all of our members.

LINCOLN: Well, you need to love it but, I mean I think you nailed it. I mean just from what I know of you two and the feeling and the essence of everything and this place, I mean, I think it's pretty damn good.

VELSHI: They've even developed a clever marketing idea to help female members feel safe in that rough-and-tumble atmosphere.

WADE: What I was suggesting was, you know, let's say you pull up. You're two blocks away, call the gym, "I'm here. Can you guys come down and kind of walk me, you know, to the gym?" Or if you're leaving the gym and you're a block or two away, we'll walk you to your car.

REDMOND: You know bodyguard escort service.

VELSHI: Round two, assignment two, a clear profit-and-loss statement.

REDMOND: Now, our objective here is grow the business to a level of profitability where, you know, we want, obviously, overhead to cover it including a comparable wage package for me and Paul so that we're making enough. And we're not worried about pinching pennies here and there. And that there's also a surplus and for the long term investment and (UNINTELLIGIBLE) building or using it as a down payment we can lease on the space or whatever.

VELSHI: Round three, a budget.

REDMOND: We're going to take a fixed wage each month and then put the rest towards debts and try and get that free S&P. And we're hoping to be debt free by June 30.

VELSHI: Finally, round four, the shareholder's agreement.

REDMOND: We just went ahead and actually drew something up, which Paul and me intensely agree on. I still haven't got his John Hancock on it but that might happen today with the pressure upon us.

VELSHI: One p.m., the mentors break to review the presentation. Simon and Paul are nervous but hopeful.

(on camera): How do you feel about how that all unfolded?

REDMOND: Everything we presented to them was stuff that we felt was genuine. You know there was no B.S. in there. I mean it's stuff that we recognized needs to be done and that we can do.

VELSHI (voice-over): Up next, the mentors return with their last critique and the CEO has a bone to pick with the guys.

VELSHI: The final moments and the scorecard next on THE TURNAROUND.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

VELSHI (voice-over): One forty-five on Day three of the turnaround. Simon and Paul have just presented their plan of action to their mentors.

(on camera): You look like a real panel of judges.

(voice-over): Up the street, the team from 24-Hour Fitness regroups to decide what to do.

MASTROV: And we'll keep it simple, put it straight out at them and hopefully, they take it to heart.

VELSHI: Meanwhile, Simon and Paul are feeling pretty confident after enduring four tough rounds in the ring.

WADE: I got the impression that, like, they knew what we were talking about to a certain extent, you know.

REDMOND: I think some of the ideas are rather solid.

VELSHI: The mentors, however, disagree.

MASTROV: If you sit back and take a look at each section they gave, I think it felt like I just heard what they got. I didn't feel like they owned it.

VELSHI: It's not just their lack of ideas that concerns them. It's the lack of action. The front of the gym still looks the same. Sadie's simple marketing idea, putting posters in the windows remains unfulfilled. They have also not done anything to recruit new members.

MASTROV: OK, fine, you laid it out nicely but now you need to execute on it. And by the way, here are some things you really need to think about to really get it done. So you know we'll dig back in and I think each one of you guys take a section and then I'll wrap up. And we'll move on from there.

VELSHI (on camera): Let's take it over there and hear what you have got to say to them and let's get the verdict. Thanks, guys.

(voice-over): It's 2:00 p.m., the mentors head back to the gym. The turnaround team liked Simon and Paul's new tough love slogan so much, they decided to give the boxers a dose of it. They'll take one last chance to send the guys a message about their business.

MASTROV: I think the goal has been to come in here in this short period of time in day three to kind of have you step back a little bit and take a look at the business strategically. And hopefully, we've been able to help you do a little of that. I think now it's going to boil down to executing whatever the plan is you put into place.

VELSHI: Sadie goes first. Her biggest concern is that the guys have had three days, but in that time they haven't tried to market the gym or bring in new members.

LINCOLN: The area I think you need to grow in and that I would really encourage you to work on is how are you going to incentivize your current members to go out there and build the referral base to bring their friends in?

VELSHI: And although Sadie loved the guys' new tough love slogan, she still has reservations about the most basic thing, the gym's name.

LINCOLN: I wonder if you, for some reason, need to relocate if you're going to be stuck with the wrong name.

VELSHI: Simon, however, has a solid counterpunch to Sadie's criticism.

REDMOND: We kind of have thought about that in the past and it's a good point, you know, maybe give it a different name, call it 3rd Street Boxing on Filmore or 3rd Street boxing on Chestnut.

VELSHI: Next, it's Brian's turn. He agrees with Simon and Paul's goal, to reinvest any profit in the gym. But for him, it's all about generating the cash flow to do so.

BOUMA: And you need to generate cash quickly because a lot of things we're talking about here require investing either in people to free your time up or investing in marketing and other things. So if you're going to do 20 members a month for the next three months, if you can get 10 or 15 of those to be pre-paid, you can generate 20 or 25 or $30,000 of cash to give you the ability to hire some staff, get some instructors, spend some dollars on marketing.

VELSHI: But Gil reminds them, more members will mean more expenses.

FREEMAN: You've got your insurance covered. You can have employees. You can have worker's comp insurance. All of those things are going to add on to the cost level, which may mean you need 30 new members not 20.

VELSHI: While the shareholder agreement Paul and Simon planned to sign is crucial for success, they need to think beyond just the two of them.

MASTROV: The key that I have learned in my life that hopefully I can pass on to you is just about team. It's not about individuals. And my goal always has been to find people to surround myself with who are far better than I am ever going to be at what I do because you don't want to be going to go to work every day having to do everything like you are now, you know. One, if not both of you, have got to pull yourself out and replace yourself with better people so that you can focus on what it's all about, which is carrying that dream, about building this business into something that you're going to be proud and excited about.

VELSHI: But there's one last issue. Remember this?

MASTROV: I was a little disappointed you guys didn't pick up the phone and call me at all, but, you know, I guess you guys have been buried and knee deep trying to get ready here.

REDMOND: There wasn't anything that you had given us that we really needed -- felt that we needed to call you on. I mean don't be offended that we didn't call. We're keeping that phone.

MASTROV: It's yours.

WADE: And we're going to call Ireland. MASTROV: Call Ireland. There's at least $20 pre-paid there for Ireland for sure.

VELSHI: With that, the business bout is over and the mentors say goodbye.

(on camera): If you had to judge yourselves from outside with a boxing outcome, what would it be?

REDMOND: It was cool. It wasn't a first-round knockout, but I think it was 12 rounds of steady boxing and we brought the decision, you know. Any fighter that looks back on his fight and reviews it at the table and sees where he could do a little bit better, so that's there too. So it was good.

WADE: You know we're turned around. You know we're headed towards a better business already, you know. I see it. I feel it.

VELSHI (voice-over): All of them agree the future of 3rd Street Boxing Gym looks promising if the gym owners can direct some of the passion for their sport into running their business more efficiently.

MASTROV: I would bet on these guys. I think as they start to learn more and more about what they have to do to succeed; they're going to get there. I expect six months from now they're going to be a much different business.

VELSHI (on camera): What's the first order of business?

REDMOND: I'm going to sit down and basically review -- I think we just need a complete break after, you know, three pretty intense days.

WADE: We can actually back off. We can -- you know we do have other people that can kind of step in, maybe not as good as ourselves yet, but we can train these people to do the position now.

VELSHI (voice-over): With the sun sinking slowly over the city, Simon considers the legacy he hopes to leave behind.

REDMOND: That's what started us. You know me and Paul in this business was to bring boxing back. So if we can be remembered for being even a small part or a contributor to that, that's my honor.

VELSHI (on camera): In the early rounds, Simon and Paul looked to be behind on the score card, but with the team from 24-Hour Fitness in their corner, they landed a powerful punch, their first marketing and business plan. Now, after three days, the boxers from 3rd Street looked poised for a turnaround.

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