How four brands proved their NextGen chops
“I think what they were looking for is people who were doing things differently,” says Landon Eckles, left, with his wife and co-founder of Clean Juice, Kat. They won the grand prize in the IFA’s NextGen competition, which cultivates millennial franchisors.
Different is good for Landon Eckles, co-founder of Clean Juice, who figures his three-year-old concept captured the top prize at this year’s NextGen competition because “we’re the first and only USDA-certified organic food concept that is franchising.
“I think what they were looking for is people who were doing things differently in the industry,” Eckles said, referring to the judges who named Clean Juice the first-prize winner in February, in the annual competition hosted by the International Franchise Association and meant to bring younger people into franchising. We caught up with all four prize-winning concepts to find their secret sauce.
Becoming certified was burdensome and expensive, he admits, but he and his wife and co-founder, Kat, thought it was essential. “There are a lot of concepts out there that claim to have a healthy concept but they’re adding sugar, or they’re using non-organic. Why not give them the best materials that are going into those products they’re consuming?”
It’s more expensive to source organic materials, but supply prices are getting better as Clean Juice is growing, now with 30 stores open and a forecast to have 75 stores open by the end of 2018. “We feel if someone is going to pay $7 for a juice, they’ll pay $8 for organic juice,” and the cost of goods sold is under 35 percent, “which is a little high” but so far hasn’t deterred customers.
Andrew Cameron, founder, can provide minute details about Donutology’s finances.
“We feel that this is the tip of the iceberg in terms of where health and wellness is going,” he said.
Key to that fast growth is an equity partner, which the pair brought on early even though founders often avoid that move because they don’t want to give away equity. Another partner was added as they began looking into franchising.
“We have about 25 people on staff, which is definitely heavy” for a young brand but a clear positive for prospective franchisees—ownership structure and corporate finances have a direct impact on how much support franchisors can give and how long founders can remain in control.
“Only do what you need, and really define what you need before you look for equity,” he said, adding the Eckleses own 70 percent while the other two partners own 30 percent. “I think it’s about how quickly you scale your business. We really wanted to scale and we knew we had a concept we could take to market.”
Tony Valle, who operates consulting firm ELM Performance and was a NextGen judge, approves of the setup. “That was the first question when I heard their story, how much do they still own?” Founders should not shy away from bringing in investors, but they should “work hard to keep all the voting shares” in their control. “That’s the hardest thing to keep.”
Landon and Kat, both in their young 30s, are also growing their family, and Landon’s real estate background paired with Kat’s personal interest and education in nutrition is a winning combo. “She started eating clean after our first was born. So Kat has been self taught, but more recently she has graduated from the Institute of Integrative Nutrition. She’s the brains behind the products we serve.”
Donutology’s drive-thru is a busy spot.
A donut experiment
Andrew Cameron already had six traditional donut stores open and operating within six years, in the Kansas City area, and they were a “runaway success,” he said. But there was one problem: “We would run out of donuts, and people get really upset when you run out of their favorite donut. I’d be working the donut drive-in window, and they would just peel out of the drive-thru and speed off into the streets.”
All of his donuts are handmade from scratch. “We put so much work and effort, it’s really disappointing for us when we disappoint our customers,” he said. “That was a huge motivation for starting Donutology, because we wanted to make donuts fresh all day long.”
Donutology is his new concept, which captured one of two second prizes at the NextGen competition, with one corporate store open, a second slated for later this year and then plans to begin franchising. “We wanted to make it interactive, too. We wanted to let them be able to choose what they wanted. That’s a big deal in food today, customization and choice.”
They make mini-donuts so more flavor profiles can be created, “and if they create a not-so-great flavor profile they’re not throwing away a whole donut,” he said. “We created the science theme because of the sheer amount of choices. There are over 40,000 combinations, it’s kind of a donut experiment.”
One of the oddest combos? “Lemon with bacon. I’m personally not a fan, but there are quite a few people that order it.” There’s also a Fruit Puff with strawberry icing, fruity pebbles and marshmallow. The No. 1 choice is the Sweet Bacon O’Mine, which is a vanilla cake donut with maple icing topped with bacon and caramel drizzle.
Judges were impressed by Cameron’s knowledge of his numbers, both throughput—about four minutes, and “ideally we get it down a little bit less”—and labor costs. “With the miniature donuts we’re able to command a premium over our regular donuts. Three mini donuts equals one regular. Typically you’d get 99 cents for one, but we’re at $2.99” for three, thus absorbing the cost of labor and then some.
At the same time, Cameron claims, average unit volumes are $200,000 to $250,000 in a traditional donut shop, “and we’re putting up over $600,000 in Donutology,” although of course not yet in any franchised stores.
NextGen judge John Rotche is CEO of Franworth, which invests in and partners with emerging brands to help them grow, including Title Boxing Club and The Lash Lounge. “I get pitched by 150 to 200 brands a year and we only have five brands” under the Franworth umbrella, he says. “The ones that we end up selecting, I follow the same criteria that I use as a judge.”
And what are those criteria? “First and foremost what we look at is the people and how do we feel about them,” he said. Second, Rotche considers whether “the category has legs.” And third is unit economics, which is an area where Cameron excelled. If franchisors can’t drill down into the details, Rotche suggests people pass.
Devan Kline, co-founder with his wife, Morgan, of Burn Boot Camp, seethed with intensity born from a rough background when he presented to the NextGen judges and audience. His concept won one of two second prizes. “Morgan and I grew up in Battle Creek, Michigan. My father was in and out of prison … my mother left when I was 13. We found each other when we were 12 years old,” he said about Morgan, and have been “in love” ever since.
“I also found the baseball field. I have a strong work ethic and that’s because of the lack of talent that I had. I worked hard and escaped my home life on the field.” Burn Boot Camp’s first location opened in 2013 and in 2017 the system generated $35 million in sales.
It’s unclear exactly how the concept will differentiate itself from others, as NextGen judge Dave Mortensen (also the co-founder of Anytime Fitness and Self Esteem Brands) questioned, other than by harnessing the founder’s intense personality, but there’s no doubt Kline is on a mission and has already put up strong numbers.
“You have to ensure whatever they’ve developed has the capacity to create unit-level profitability,” Mortensen said. “Who is being the most innovative in thought? What’s unique in the model?”
Stella Sigana helms a franchise in Kenya called Alternative Waste Technologies, converting agricultural waste into money by producing fuel briquettes. She won the social franchise award. “The meta issue I’m tackling is energy poverty,” explained Sigana, a sharp dresser whose poise as a speaker stood out at the NextGen competition. The use of wood fires to cook in Kenya causes severe health problems among women, especially, who prepare the food and children who surround their mothers indoors.
She calls her business model “a pathway to ownership,” in which people are brought in as trainees on the simple production process, and “we grow them to be managers, and then they buy us out and become franchise owners,” she said. “This reduces the chances of business failure.” She is looking for funding of $338,000 in order to expand the business and gain 5 to 8 percent market share in Kenya, up from about 2 to 3 percent now.
Mortensen gave her props for a sharp and engaging presentation. “If you can’t articulate your competitive advantage and your business” in an elevator pitch, “how are you going to do that with potential investors?” he says. “If you don’t know who you are, how you are different and how you will present yourself to the rest, that makes it extremely challenging for anyone to want to invest in you.”
For these four emerging franchises, one competitive advantage is now a winning designation in the NextGen competition, a cash prize of $10,000 for Clean Juice and $5,000 each for the other three, and a band of fellow contestants and mentors to help them along the way.