Case Study: How Chris Mendez Used Technology to Save His Company
By the end of 2004, Chris Mendez was tempted to give up. The owner of a chain of dry cleaning stores in central Florida, Mendez had grown up in the industry, learning his chops at his father's business in Apopka before striking out on his own in 1995. In just eight months, he broke even; by the end of 2003, he had six storefronts and his own 1,400-square-foot dry cleaning plant. But in his eighth year, Mendez's business, Clothes Dr., was spinning out of control: He was losing $130,000 a year on revenue of $1.2 million; he had completely leveraged his house; and he was physically and emotionally exhausted. "I couldn't sleep at night," he says. "How many more things could go wrong? How many more people could quit? When would the boiler explode again?" Did the dry cleaning business really have to be so difficult? Mendez wondered.
Such thoughts couldn't have been further from his mind when Mendez, at the age of 25, first set up shop in a newly developed area of Apopka, outside Orlando, just far enough from his father's store to avoid direct competition. He opened a second store in a nearby shopping center in 2001 and a third shortly thereafter. "I had a good credit history so I was getting credit cards in the mail with zero-percent interest," Mendez recalls. "So over three years, I floated $100,000 to expand and I paid it back as we grew."
But trouble was brewing at his original location. His landlord, uneasy about the potential environmental hazards of the widely used dry cleaning solvent perchloroethylene (or, as it's commonly known, perc), told Mendez he'd need to start using an alternative solvent or lose his lease. Mendez knew that no other solvent cleaned as well as perc, but he agreed nonetheless, and spent more than $63,000 on new equipment. He now thinks of it as "the Ford Pinto of dry cleaning machines. It took too long to clean the clothes, and they ended up smelling bad. That machine was killing me."
There were personnel problems as well. "I thought I could just train a person at one location, put him in one of my other stores, and have everything go smoothly," Mendez says. "But it didn't work out that way." Employees didn't show up and Mendez found himself racing from store to store to put out fires. Nonetheless, Apopka's growing population continued to bring Mendez its dirty laundry and dry cleaning. "The new stores took off, but I just couldn't get the right crew to handle the volume of work," he says. "I started physically feeling it. I couldn't be in three places at once."
And then, opportunity knocked. A dry cleaner in the nearby affluent suburb of Lake Mary called Mendez in mid-2002 and told him that she was retiring. Did Mendez want to buy her business, Dry Clean World? It included three storefronts and a dry cleaning plant that was permitted to use perc. To Mendez's wife, Merilyn, this was not an opportunity; it was a potential disaster. But Mendez was intrigued. If he bought it, he could move most of his cleaning equipment into his own building, begin cleaning with perc again, and never have to worry about fussy landlords. So Mendez took the plunge: He leveraged the house and convinced the owner of Dry Clean World to hold a note for $250,000 so that he could buy the business for $400,000.
It was a rocky transition. In 2003, plant improvements in Lake Mary and quality problems in Apopka put him $130,000 in the red; the following year wasn't much better. Plus, his rent went up, employees wanted raises, and utility rates increased. "I was getting pinched from every corner," he says. At one of his stores in Lake Mary, the rent rose so high that he closed the place and laid off two employees. His wife, a registered nurse whose salary was supporting the family, was losing patience.
Mendez commiserated with his father. In February 2005, the two decided to attend a trade show in Miami, where they planned to research point-of-sale systems for their businesses. Updated technology, they reasoned, might help them clamp down on expenses, manage their employees, and keep better track of customer data. Mendez arrived in Miami with just a flicker of optimism. By the time he left, it had been stoked into a bona fide flame. He had Jason Loeb to thank for that.
Loeb is the CEO of Sudsies.com, a Miami-based dry cleaner that had all but abandoned the traditional storefront dry cleaner's model. Loeb's business, with approximately $3 million in revenue, was almost entirely Web-based. He had one storefront and 10 trucks on the road, picking up and delivering dry cleaning and laundry to customers who scheduled and tracked their orders on his website. Loeb wasn't a typical dry cleaner, removing spots or hovering over the steam cleaner in the back of his plant. Instead, he had gone to great lengths to create brand recognition, to train and engage his employees, and to cultivate relationships with his customers.
After talking to Loeb, Mendez found that business as usual looked less and less attractive. He was intrigued by the prospect of closing additional stores and investing in delivery trucks and a Web-based customer tracking system modeled on Loeb's. There was risk involved, to be sure. Loeb had invested $250,000 to change his business model and the venture was not instantly profitable. Mendez would need to build a website, master new technology, hire new staff, and retrain his existing employees. Trucks, however, would be far less expensive to run than storefronts, so he would vastly reduce his overhead while expanding his geographic reach. He also knew that door-to-door pickup and delivery was becoming increasingly popular among consumers; it could be just the way to differentiate his business from other dry cleaners.
In April 2005, two months after meeting Loeb, Mendez bought his first point-of-sale system with software customized for dry cleaners; by the end of the year, he had spent $56,000 on eight stations and a server. He began training one of his most trusted employees, Munic Datoo, to manage the new technology and, eventually, his new website. Three months later, he bought a new GMC truck, taking advantage once again of zero-percent financing; it was on the road serving customers by the end of the year.
He also launched a branding campaign, designing a logo, investing in more attractive poly bags, and getting logoed laundry bags to distribute to customers. By January 2006, the Clothes Dr.'s website was up, and within six months, Mendez had closed two more stores and bought another truck, which he was again able to finance for five years at zero percent. He's now doing direct-mail campaigns and offering $20 in free cleaning to anyone who registers for pickup and drop-off through his website. He also plans to sell gift cards through a local high school fundraiser.
The company now serves 80 Zip codes, is signing up about six new people a week on the Web, and is realizing a 15 percent revenue gain due solely to the new POS system, which prompts counter staff to enter additional charges for more complex jobs that include, say, garments with beading or silk. (Before the new computer system was in place, those "up charges" were often neglected.) Systemwide sales are approximately $21,000 a week, $3,000 of which is Web-based, and Mendez is now posting a modest profit--enough to carry out his current marketing plan without taking on more debt. He's also altered his compensation plan: He pays his truck drivers an 18 percent commission; Datoo earns a salary, plus 2 percent of all Web sales. "They want to see the business grow as much as I do," says Mendez. He's down to 18 employees from 21, and payroll expenses, once as high as 38 percent of revenue, are down to 28 percent.
Mendez is confident that his decision to change his business model was spot on. In fact, he recently invested in a 1,700-square-foot facility to run his trucks out of. Within five years, he'd like to have eight trucks and a drapery van serving 300 to 400 people per truck, with the majority of his best customers using Web-based pickup and delivery. But for now, he's satisfied with simpler pleasures. "This is the first time in 11 years that I've had people who work well together," he says. "Plus Merilyn and I can go out to dinner now and she doesn't have to pay."
The Experts Weigh In
Where's the vision?
Mendez needs to develop an institutionalized system for this business. The Internet is wonderful, but you have to understand the route business and I'm not so sure he does. You don't build up a route on the Web; you do it by knocking on doors. And the guy who drives the truck does not build the route; you need to hire salespeople to do that. Mendez's goal should be 300 pickups at $20 each a week to achieve $6,000 a week per route. But I don't know if he has the vision and the plan to get there.
Mind the message
You need to be careful about putting all your eggs in the Internet basket. Dry cleaning is about relationships. The Web is just one of the tools in your arsenal. Mendez has to convey the same message through his drivers, over the counter at the stores, on the phone. As long as all those touch points meld together, the business will be okay. The other thing about the Web is that if you want people to keep coming back, you've got to keep your site current, so Mendez will have to stay on top of all that new technology.
National Cleaners Association
New York City
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There's a load of potential pitfalls--the expense of operating the trucks, driver recruitment, keeping up with the software. Mendez needs to have a vision of five years from now. The plan should not just be getting out of debt but also adding other cleaning services or products to make his stops more profitable, such as drapery and carpet cleaning. He also needs to think about replacing himself as the manager so that he can experiment with the business while someone else makes the trains run on time.
Carle Place, New York
DONNA FENN | Inc.com Contributing Editor
Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.