Employees of The 101 Group wear T-shirts with clever sayings such as “Just because we serve you doesn’t mean we like you.”
The advertising slogan? “You threw up on yourself last night. We can help.”
The delivery boy has been promoted to vice president of corporate development.
No one in the management team has yet celebrated a 31st birthday.
Armed with these selling points, Justin Clemens-president and CEO of The 101 Group and a guy who often looks as though he’s just crawled off the couch-put on his baseball cap with the brim pointing behind him and set out in search of investors.
Sound like a long shot? Clemens and his partners in The 101 Group, which runs a do-it-yourself laundry on the campus of Kent State University, raised $1 million to begin expansion to other college towns across the country. And they didn’t give up control of the fledgling business.
In the world of growing business, access to capital consistently ranks as a top problem for executives and owners. But if this unlikely group of Gen X dreamers can find the capital for growth, so can you.
In 1992, Clemens, now 29, along with the goateed and sharp-dressing Steve McConochy, 28, and the scruffy James Thorrat, 30, pooled $15,000 and opened Video 101. It wasn’t just another corner video store; it served the particular needs of a college town’s population with a delivery and pick-up service.
In 1994, they expanded the student services concept with Laundry 101, a well-maintained art deco “lounge-ro-mat,” a place with washers and dryers, but more important, a full-service bar, pool table, juke box, cable television and, most recently, a cyber cafe. In 1996, they opened 101 Bottles of Beer on the Wall, a store that delivers beer and cigarettes.
As the punchy little empire grew, 25-year-old Zach Brandon left behind his delivery duties and became the fourth equity partner as VP, corporate development.
“We hit maximum capacity for a Laundromat in just over a year,” Brandon says. He declines to say just how much business that is. But based on a rough standard of four or five loads per day per machine-not quite a national average, says Brian Wallace of the national Coin Laundry Association, but a solid performance benchmark-Laundry 101’s revenue from washers and dryers would be at least $140,000 a year.
It’s admittedly a business with a very low ceiling, particularly when you consider the overhead of utilities and maintenance. But by turning laundry into a social event for the college set, Laundry 101 stays crowded from opening to closing, while selling an undisclosed amount of high-margin goods: namely beer and munchies.
Most important, the concept is easily duplicated. By 1995, the foursome was thinking seriously about expansion.
“If you’re not growing, you’re dying. If you’re not changing, you’re dying,” Clemens says. “With certain members of our company, big disagreements came where they felt we were making good money, why mess with it? … But others felt that, if you don’t grow, eventually … someone’s going to come and knock you out.”
So they assembled a plan to open Laundry 101 locations in the Midwest’s largest college towns. All they needed was money.
“We pretty much went out looking for an investor right from the get-go,” Thorrat says. But he, like the other partners, was realistic about the source. “Banks aren’t likely to hand out this kind of money.”
Through a mutual friend, The 101 Group met Burton D. Morgan (none of the Laundry 101 partners would identify Morgan as the prospect, though their lawyer confirmed the contact), a well-known Hudson industrialist, banker and investor who has made himself no small amount of money by investing in “sin”-companies that profit from dealings in things such as alcohol, tobacco and gambling.
After two weeks of negotiating, Clemens says the prospect handed him a check for $80,000-demanding, in return, a majority stake in the business.
“He wanted a percentage of the company future and present,” Brandon says. “He had done nothing to establish the first one and then wanted equity in it.”
“It was like selling our souls,” McConochy adds.
The decision was simple, but when Clemens refused the money, Morgan allegedly told him, “You’re really making a big mistake, kid.”
“Like he was the only guy out there with any money to invest,” Clemens says.
For the next year, not much happened. Clemens and his partners got distracted by the opening of the beer/cigarette delivery business and conducted only a passive search for capital, leaving word with business advisers and friends.
They did continue to pare down their choices for an ideal market for their second location, conducting demographic research and analyzing operating costs in a number of cities.
There were some nibbles along the way. Clemens’ father, Barry-a broker for McDonald and Co. Securities Inc. (and formerly a player with the Cleveland Cavs)-introduced The 101 Group to a Cleveland housing developer who showed some interest.
They spent several months cultivating a relationship, “Then one day he just stopped calling,” Brandon says.
Eventually, the developer rattled off the list of problems. At the top was “youth of management.” The group’s oldest executive hadn’t yet reached 30.
Also a concern was his impression the college market would only provide steady revenue nine months a year.
Then he mentioned articles he’d seen in Forbes and The Wall Street Journal about two well-capitalized companies that had announced plans to open hundreds of laundromats nationwide.
There was also the matter of style. The investor didn’t like the group’s advertising slogan and told them the “attitude” would have to go.
Then he demanded the four partners sign personal guarantees for his money and show how they could double the projected return on investment.
The four don’t have a business degree among them, but they knew a non-offer when they heard one. It was time to rethink their approach to finding money.
If Laundry 101 kept attracting the wrong kind of investors, the partners decided it was a reflection on the way they communicated their vision. To that end, there is only one document that matters: the business plan.
They wrote a new one, using off-the-shelf business planning software, and hired a graphic designer to help assemble a package that would attract interest from people who saw the value in their ideas and execution.
Around the same time, they bought extra help and credibility by hiring Hahn, Loeser and Parks, one of Cleveland’s top corporate law firms.
Steve Sneiderman, co-chair of the firm’s entrepreneurial services group, helped them develop the new plan.
“Their initial plan was very long on style. They didn’t have a lot of the hard numbers and people couldn’t follow it. I think that was a painful process for them, where it all comes down to the numbers,” Sneiderman says. “But anybody who has the money to get involved is not going to be taken in by a catchy slogan.”
After nailing the content under pressure from Sneiderman, the partners hired a designer to assemble a book that reads and looks like a college syllabus. They spent $2,500 to produce a dozen hard-bound copies containing a 30-page business plan, a management summary and all the humor and attitude that contributed to their early success.
They included examples of their advertising slogans, such as this call to action: “What do you do in bed? When’s the last time you washed your sheets? That’s disgusting!”
One section includes “Important Assumptions:”
- We assume that it will never be trendy to wear dirty clothing.
- We assume that prohibition is not a national legislative agenda item.
- We assume that Alan Greenspan and the Federal Reserve Board will not re-instate the barter system.
- We assume that college students will find us particularly funny and that is why they will choose Laundry 101 as their laundromat.
Then they resumed the search for investors. Sneiderman helped them hook up with venture capitalists, but this time the approac
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was different. They didn’t ask for money.
“We weren’t really looking for investors,” Brandon says. “We were just trying to feel things out and say, ‘What would you say if we came to you with this deal?'”
Brandon describes the people they met as a close knit group, adding it was “very easy to get recommended from one to another.”
But they also learned about the nature of people who describe themselves as “vulture capitalists.”
“They are very concerned about control and return and they already have an exit strategy. They come to the table ready to sell off and maybe that’s not where we’re headed,” Brandon says.
“You walk that line of ‘how badly do you want it,'” adds Clemens. “These guys will almost leave you busting your ass, doing all the work for nothing. Your ideas have been completely diluted and prostituted and then pretty soon you just work for them and it was your idea.”
The process taught them that venture capital was not the kind of money they wanted.
Without exception, prospective investors told the owners their particular brand of humor had no business in business and that they would have to lose it.
“One guy wanted to buy his kid a job,” Brandon says. “He brought his kid down from college and basically showed him around to see if this was the kind of place he’d like to work.”
The 101 Group’s owners kept flip-flopping between being rejector and rejectee until they reached three important conclusions:
1. Finding an investor is not just about finding the first person willing to dump his pockets on the table; it’s a matter of chemistry as much as finance.
2. The right investor would accept the strategic importance of humor in their business model (and maybe even find their brand of humor funny).
3. They would not give up control of the business.
“A lot of young entrepreneurs who want to expand rapidly find themselves giving up that control,” Brandon says.
Adds Clemens: “I think its important that the guys who created the idea that worked-that people want to invest in-are able to steer the car.”
Enter Edward Rosenthal, owner of Northern Stamping Co. in Cleveland (and minority owner of the New York Yankees). Rosenthal is good friends with Cindy Jandik, a broker’s assistant to Justin’s dad.
Over steak and Scotch at Morton’s one night, Jandik, Rosenthal and Barry Clemens started talking about their children. When Justin’s young business came up, Rosenthal started asking questions. After reading the business plan and talking with the elder Clemens, Rosenthal drove to Kent to see Laundry 101.
“I was very impressed with the boys and how immaculate it was. The machines were almost four years old and they looked brand new.”
But sparkling washers and dryers and four young men who know how to carry themselves does not a wise investment make. What makes an astute business man drop $1 million into the pockets of four wise-cracking guys?
“I wasn’t really impressed with the numbers,” Rosenthal says, “but I was impressed with the numbers if we built five or 10 of these places. The concept is what I liked. We’re not going after mass quantity. We’re going after a niche and that is very important.”
What closed the deal is the quality of the research the partners had done during the first “wasted” year of looking for money.
“All their ideas, where to go and how to go about it, they knew everything about the towns they wanted to go into. They knew all the demographics and that was important,” Rosenthal says. “I wasn’t ready to get into something and then do all the research and development.”
And what about that brash sense of humor?
“I like innovation. I like controversy,” says Rosenthal, who can’t seem to help referring to his partners as boys. “I think that’s part of their concept. It’s their personality.”
The second laundry-8,000 square-feet in Rose Bowl crazy Madison, Wis.-opened Dec. 28. A third location is planned after No. 2 rolls in three months of positive numbers-possibly by April. The goal is to have seven locations by the end of 2000. The targeted cities are one of the company’s most valuable secrets.
What isn’t a secret is how well the owners are getting along with their new partner.
“He ended up being a really fair guy,” Brandon says of Rosenthal. “Where everybody else wanted majority control, he didn’t. He took an extremely fair return on investment and gave us 10 years to pay him back.”
Rosenthal receives 30 percent equity in all the expansion locations.
“We are pretty much in debt to him,” Justin Clemens says. “We’re more motivated than ever to make it work. When somebody takes a gamble on you like that, you really want to deliver.
“It’s more than just money. You’ve got to have somebody you can work with and he’s a guy that we can work with. He’s got great business experience, he gives us great advice and he also doesn’t try and take over the show. He’s a perfect ingredient. Plus he’s ridiculously immature so he fits in well with us.”