Revenues
Diapers $195,000 $468,000 $780,000
Add-ons 227,500 546,000 910,000
Total Revenues 422,500 1,014,000 1,690,000
Cost of Goods
Diapers 59,150 152,880 254,800
Add-ons 159,250 382,200 637,000
Total Cost of Goods $218,400 $535,080 $891,800
Total Gross Profit 204,100 478,920 798,200
Total OperatingExpenses 149,078 284,318 381,112
Net Income (Loss)
from Operations 55,022 194,602 417,088
Net EarningsBefore Taxes 35,124 175,017 362,037
WHAT THE EXPERTS SAY
OBSERVER
ANN BEAUDRY
Washington, D.C., environmental consultant to the National Association of Diaper Services
It doesn't surprise me that a lawyer, as Dan Gold is, was quick to pick up on the potential growth in the diaper-service industry. That growth, I think, will be greatly fueled by action on the public-policy front in the next couple of years.
States and cities are under mandates from the U.S. Environmental Protection Agency to achieve 25% reductions in solid waste, and they have to submit plans stating how they expect to accomplish that goal. And here you have this single consumer product -- disposable diapers -- accounting for 2% of all solid waste going into landfills. It doesn't make environmental sense to cut down mature trees to make a product that lasts for a few hours, and then stick it in a landfill.
People understand they are going to have to make some different consumer choices if we are going to protect the environment. Polls show that 70% to 80% of people are willing to do that. Legislators know they are not trying to fly in the face of enormous consumer opposition on this issue. So given the solid-waste crisis, I think you'll see increased legislation to discourage the use of disposable or single-use diapers, and environmental groups are going to step up their public relations education efforts about this.
FINANCIAL ANALYST
LAWRENCE BAKER
A private investor in Boston
Right now Gold has got a good niche in a good location. Washington, D.C., is sophisticated enough that a "green" product is going to have a good reception, but how that would play in other areas is open to question.
I don't think he's necessarily wrong in contemplating franchising, but one of the first questions one asks in dealing with an entrepreneur is, What's his ambition? Everybody who gets into franchising wants to be McDonald's. But there have been some real franchising disasters. He must control costs and not overleverage himself with the expectation that he is going to have a brilliant franchise success story. Human nature being what it is, it's always difficult to retreat at the right time. He needs to keep his eye on the ball -- in this case, service.
It's hard to find any real fault in what he's done thus far, especially since he's playing with his own money. He's got a nice idea that's being carried out with imagination and great vigor. For a lawyer who didn't know much about the diaper business, he's done just fine.
COMPETITOR
BRIAN SMITHSON
President of Baby Diaper Service Inc., a $7-million company with 14,000 customers in Seattle; he and partner Doug Flatz recently launched Babies First Diaper Service Inc., a diaper-service franchise operation with franchises available in 35 states
My impression is that Mr. Gold is starting out the right way with his marketing approach. Anybody can go into a big metropolitan area and come up with 1,000 customers. But if you want to do better than that, you need to generate an education program to these new parents to let them know why they should look at you as an alternative to disposables.
I think Gold can do something to reach the environmental groups. Most of us with established services have extensive mailing lists, and when we see something favorable about cloth diapers, we send it out to childbirth educators, to doctors' offices, to state legislators who sit on environmental committees, and to the solid-waste people. So he can develop this allied group of people who can really help him down the road.
I love the fact that, if he makes mistakes, he logs them in, sees if he can cut down on them, and sends something nice to the customer. That goes a long way. There is no doubt that the network of new parents is so tight that if you give people exemplary service, they will talk about it and become ambassadors for you.
A thought about the add-on products: we carry about seven items -- diaper covers, room deodorants, pins. If it's related to diapers and diapering, we sell a lot of it. If it's not -- like baby food -- I haven't been able to sell very much. I can't seem to do as good a job as Mr. Gold hopes to do.
COMPETITOR
DOUG FLATZ
President of Crib Diaper Service Inc., a $3.4-million company in Minneapolis with 6,000 customers
Mr. Gold has some really good ideas. He has a commitment to high-quality service, and that's important because these days if you don't have quality service, you don't have much. He's also committed to filling his clients' needs beyond the diapers.
But he has to supply the add-on products based on those needs instead of on the profit needs of the diaper service. It's hard to compete with discount stores, so those items need to be something he's providing to his customers to make them want to stay with him. One of the big problems built into this business is customer longevity. The national average for sticking with a diaper service is 45 weeks, while the potential is two and a half years.
A big concern is that Gold's diapers are laundered by someone else. He doesn't have direct control over the quality of processing, and consistent quality is mandatory. In the short term, he's saving the capital cost of buying laundry machinery, but in the long term, he's just passing a profit center on to somebody else. If the linen service can do it for a profit, why couldn't he?
Also, t
