Gold has found little price resistance to any of his add-ons, perhaps because he has succeeded in reaching an affluent market. For instance, the baby food he sells, Earth's Best, retails for 71¢ a jar compared with around 40¢ for Gerber or Beech-Nut. But his typical customer -- a first-time mother, age 32, with good earning power -- is unfazed. "The households we serve generally have two well-educated working parents with combined incomes of $50,000 to $100,000," he says.
In large measure, this early success stems from the company's personal touch. With each new customer, for instance, the delivery woman provides a complete start-up kit -- the diaper pail, deodorant filter, liners, general information, coupons, a magazine, the net, and the first 75 diapers. Then she takes time to demonstrate how to diaper a baby and answer any questions.
Leaving little to chance, Gold and Goldman work hard to keep their clientele happy. "When we get a complaint, we log it in and look at it," he says. "Then we write an apology letter and send a little gift. It costs more, but it maintains strong customer loyalty. And people are amazed -- this is a diaper service doing this?
"It's the whole gestalt of being a baby store on wheels," Gold adds. "There are women 35 years old having their first child. What do they know about babies? There's a lot of knowledge to absorb, and we feel we can help."
* * *
From a regulatory standpoint, the outlook keeps brightening for the cloth-diaper industry. By 1990, more than 20 state legislatures were considering bills to reduce the use of disposables, and 4 states had enacted legislation. The tactics include taxes and environmental warning labels. In several states, the use of disposable diapers may even be banned before long.
Those developments can only help Gold. Like any start-up, however, Diaper Dan's faces a few hurdles.
First, there is the chance that manufacturers could develop biodegradable disposables or find some other remedy to the landfill issue. That might prompt even ecology-minded parents to turn to throwaways. Procter & Gamble, for one, is planning to spend $20 million testing the composting of disposables. The problem with this approach is the cost of collection. As for biodegradable diapers, they'd probably face hostility from environmental groups, since in the airless tomb of a landfill nothing breaks down quickly.
Then there's Virginia Linen Service. From a capital-investment standpoint, the deal makes sense. But any time a company farms out a key part of its business to a third party, there can be trouble. Should Gold lose his exclusive contract with the concern, he could find himself facing start-ups in his own backyard using the same laundering strategy. But Gold feels confident that Virginia Linen will perform well. It's been in business for 57 years and enjoys a reputation for quality service.
There's also the question of child-care centers. Gold loses about five customers a week, usually when children start going to day care. It's not cost effective for parents to use a diaper service at home and then have to buy disposables for day-care use. And for convenience as well as sanitation, staffers at the centers much prefer disposables. Most centers even prohibit cloth.
But Gold is optimistic. One or two U.S. manufacturers have introduced a cotton diaper with a built-in liner; in design it's like a disposable that can be laundered, and Gold says it will revolutionize the industry. Moreover, regulatory pressure is building for cloth. The California legislature passed a law making it illegal for child-care centers to refuse to use cotton diapers. The governor vetoed it, but a similar bill was signed into law in Maine.
Finally, there's the impact of a recession. Washington should be fine. With 350,000 federal employees providing ballast, its economy is more resilient than most.
Franchising, however -- which Gold expects to start this summer -- may be tough in a downturn. What's more, he thought he'd have the franchise field all to himself. But two experienced diaper-service operators, Brian Smithson in Seattle and Doug Flatz in Minneapolis, have joined forces to launch a franchise venture of their own. While Gold is still working on the required documentation, his nascent competitors are set to roll. They expect to have franchises operating by year's end.
Still, with a baby boom in full bloom and a landfill crisis that won't vanish anytime soon, there may well be enough business to satisfy everyone.
EXECUTIVE SUMMARY
THE COMPANY:
Diaper Dan's Delivery Inc.
Beltsville, Md.
Concept:
Capitalize on the current baby boom and the resurgence of cloth diapers through home delivery of premium diapers and additional baby products; eventually move into franchising
Projections:
Revenues of $422,500 the first year, rising to $1.7 million in the third, with pretax profit rising from $35,124 to $362,037, respectively
Hurdles:
Retaining customers once their children attend day-care centers; maintaining exclusive contract with laundry facility; financing the franchising effort
THE FOUNDER
Daniel M. Gold
Age: 34
Family: Single
Source of idea: Observed an increasing number of young children wherever he went
Personal funds invested: $25,000 and a personal loan of $50,000
Equity held: 60% (partner Dana Goldman holds 40%)
Salary: $0
Workweek: 80 hours -- "I work six days and on the seventh I market."
Education: B.A., Long Island University; J.D., California Western School of Law; M.B.A., St. John's University; now seeking a master's degree in tax law at Georgetown University's law school
Other companies started: Crabby Dan's, a crab restaurant in the Hamptons; Vision Capital Associates, a venture capital consulting business
Last job held: Lawyer
FINANCIALS
Diaper Dan's Delivery Inc. Projected Operating Statement
Year 1 Year 2 Year 3
Average Number of Customers 250 600 1,000
