Well, yes, but not in the way you mean. If you want $100K for a dry cleaners you get a bank loan, the same way people have been doing it for a century.
Equity capital is solely interested in business models that either wow people or fail outright. The reason has to do with risk: most such business ideas have various things that can go wrong, and those risks are generally manageable but not really quantifiable. Basically a VC wants to see "These are the assumptions in our model, and if we build this it will revolutionize X industry, which is currently worth $50B but could be worth a lot more with our product, and that will give you a 50% annualized return on your fund." And they're giving you money to prove out whether those assumptions are actually true, with the expectations that for a good number of startups they won't be and their whole investment will be wasted.
You'd finance your dry cleaners with debt rather than equity because (unless you are starting a chain) you are not shooting for the massive, near-zero marginal cost scaling that the venture capital model focuses on. Instead, the bank looks for a modest, predictable return through interest payments.
Yah, but re:wework, throw in a dry cleaning app that schedules a dirty laundry pickup and suddenly the valuation goes from marginal to billions. Especially if you get some machine learning in there to detect spots (or something).
If you put the sarcasm aside (it does make a good joke), a laundry pickup app has in fact orders of magnitude more potential to scale and make money, as dumb as it sounds.
Does centralizing many small dry cleaning places have significant economic advantages assuming that each location has to negotiate independently for it's space and (to parallel wework) items like cleaning supplies and staff management necessarily vary from location to location due to local regulations?
WeWork is sort of the golden example of a business being sold as something that works at scale... except the business doesn't actually work at scale.
It seems in a lot of places (where I live, Austin TX) all the little mom/pop dry cleaning shops are actually shipping the dry cleaning off to a central location. The EPA/etc regulations apparently have forced that part of the cycle to converge.
That is part of why it costs more/takes longer than simple laundry which is frequently still done at the mom and pop location. Although, I think the larger chains (Jack Brown) are entirely just storefronts sending the laundry and dry cleaning off to some centralized location.
So, I doubt there is much advantage to further centralization that hasn't already happened.
Also, I'm not even sure about the hotel bits, most hotel's I've stayed in recently _DO_ their own laundry. They have a couple giant commercial machines sitting in the basement for the sheets/towels. I know this because I always take the stairs and often take a wrong turn and end up in the basement/etc.
The advantage could be in eliminating the jobs of the mom & pop drycleaners and the rent they pay for the space. That's surplus that could be captured by a dry-cleaning app delivery service, assuming that the cost of transportation isn't greater than the cost of rent. In dense urban areas, where rent is expensive but you could hit up several customers on one trip, that might be a valid assumption. Particularly if you have someone good at logistics programming the app's backend, and a pool of inexpensive labor for drivers.
That's a great business plan and differs from WeWork's because WeWork's business plan assumes that the cost of leasing office space in high rent areas is never going to be removable.
When looking at a potential business as something that can be economically scaled you always need to find the saving factor, for WeWork the saving factors are Administration efficiency (to administer 10 properties individually you need 10 administrator labour units, maybe for grouped properties you can get away with 6), rent leverage (being well established might lower the apparent risk of your lease being canceled early, so you may have some savings there) and maintenance (this is a significant one, I bet you could really scale down the expense of janitors and the like if you have multiple properties in a dense area). But none of the costs I listed above are seriously impacting your cost per sale, they're all quite marginal savings, so you'd really need high volume to reap that benefit and it's likely that the cost of marketing, building an app, having a crazy CEO etc... will outweigh the savings you could eek out.
No, because the mania for throwing money at tech startups is specifically because of tech's unique promise of both worldwide scale and zero marginal costs after the initial Big Spend on capex, and hence potentially gigantic returns for investors.
Now, how well the current crop of startups is delivering on that promise is an exercise left to the reader, but it's there in theory. A dry cleaner has marginal costs and no economy of scale, and so can't attract unicorn valuations.
much like wework - all you gotta do is convince 1 person who controls vast sums of money that it will work. I'm very convinced by your WeDryClean idea! (Sadly no vast sums of money, though)
As long as your product is perfectly scalable and generates a profit for money spent that way, it makes perfect sense to take a loan, spend a fortune, make a fortune, then pay off the loan and take in profits. Then turn around and do it again.
It isn't the absolute size of the numbers that matters. It is the ability to rapidly scale the business once you have the right business model and product.
And in particular, if you sell low churn saas (like we do), you can comfortably spend the first year's annual contract value on customer acquisition and have an extremely profitable business. Just huge initial marketing costs.
And quite possibly huge ongoing marketing costs! But if churn is low, or even negative, you can assume something like 10 year customer lifetimes, with a comfortable 5-ish percent cost increase per year, on sale for the first year's contract value. If you have cheap-ish money available, you should buy as many of those as the world is willing to sell.
Once you make money, it's much harder to come up with outlandish numbers. A dry cleaners has a well-established range for revenue and profit, so it's hard to justify why it would be worth $100 billion.
>Once you make money, it's much harder to come up with outlandish numbers. A dry cleaners has a well-established range for revenue and profit, so it's hard to justify why it would be worth $100 billion.
Like if you wanted to open a dry cleaners.