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- [00:00]
Will Smith
Flower shops, one of those types of businesses that we avoid, like a bakery or restaurant. Hard businesses often driven by passion more than profit, and therefore don't generate much of the latter. Well, today's story is how Michael Jacobson, outsider to the flower industry, saw his uncle's 45 year old, barely profitable flower shop and decided to buy it and since then has grown it from a paltry $600,000 in annual flower sales to $9.5 million. I wouldn't have believed that a single flower shop could do that much volume. This is a fascinating story and it might make you linger over those flower shop listings you probably have ignored on BizBuySell. Michael's now aiming to parlay the tech that he built and playbook that he wrote for his uncle's shop into a national franchise brand, French Florist, the Starbucks of flower shops. If he's successful, it could be disruptive to his industry, and it makes me wonder what other dismissed, overlooked industries might be ripe for disruption and disruption not from Silicon Valley, but from acquisition entrepreneurs like Michael, like you, entrepreneurs who buy a small business arrive to an industry with fresh eyes, question the received wisdom, and are eager to improve their acquisitions. Maybe I'm stretching, but today is at least one example Michael fits this profile exactly and he is making moves in a $19 billion industry. See what you think and enjoy this remarkable story of Michael Jacobson and French florist. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs, and on this podcast I talk to the people who do it. An SBA loan broker, as opposed to a direct lender, doesn't work for a particular bank. Instead, the broker pairs you with the right SBA lender for your deal based on industry terms risk thresholds, then helps you navigate the process better than many lenders themselves do. Matthias Smith of Pioneer Capital Advisory is just such a broker. Matthias worked at two of the country's top 10 SBA lenders, so he's been on the inside of the SBA process and knows well the pitfalls and hurdles and how to avoid them. He struck out on his own to laser focus on the ETA in search space. Our niche is his niche. You'll see Matthias at all the ETA conferences. He's closed over 30 search deals since starting Pioneer in May of 2022, including some acquiring Minds guests. To learn more and get in touch, go to PioneerCapitalAdvisory.com or click the link in the notes. Michael Jacobson welcome to Acquiring minds.
- [03:22]
Michael Jacobson
Thank you for having me. Thank you.
- [03:23]
Will Smith
Michael, you bought your uncle's small, struggling, I think it's fair to say, florist business. It was the sort of tiny, challenging retail business that you see all over biz, buy, sell. But four years later, that store is doing over 9 million in sales. A little flower shop now doing over $9 million in sales. This is an unlikely and remarkable story of entrepreneurship through acquisition. And I haven't even mentioned how you're now aiming to build a national franchise brand. So let's get into it. Michael, start us off with some background on you, please.
- [04:05]
Michael Jacobson
Yeah. Awesome. You know, if you asked me six or seven years ago if I would be operating flower shops and starting to build and scale what we are, I would have said great. I don't know if that's going to be true or not, but I think with a lot of things, life is a little bit unpredictable. It's been an amazing journey so far. But running a flower shop, it's a romantic idea. I think it's up there with owning a bakery or a cafe. A flower shop is up there. But it used to be really hard when I first came into it. There's no technology, there's a horrible supply chain, there's a lot of unnecessary intermediaries, and that's what got me really excited. There's a lot of pain in the industry and honestly, that's what made me fall in love with it. The more time I've spent in the industry, the deeper and deeper I fall in love with it.
- [04:50]
Will Smith
Well, Michael, but give us, give us some background on you. What were you doing in your previous life? How did your uncle approach you, etc. Give us the real story here.
- [05:01]
Michael Jacobson
Yeah, so I spent most of my time in a kind of boardroom, corporate, old, a bunch of old white guys in suits, you know, fluorescent lighting, literally on floors. That was my world. Really exhilarating. And so I was just out of college. I joined corporate consulting. Worked for a wonderful firm. I learned a lot. But after a month of working there, I said I knew this wasn't for me. I stuck it out for a little over a year just to follow through with that commitment, but I just wasn't really fulfilled. And so I was kind of actively looking for something that was a little bit more entrepreneurial. I've always had that spirit. But you hear the rates of failure of all of these startups and it's kind of a scary thing. I joined a couple startups as an ancillary member in college as well, and none of them had it really made it. So, you know, so right out of college, I didn't want to take the risk. I joined corporate consulting, but I wasn't fulfilled. I didn't have that fire in my stomach. About a year into corporate consulting, you know, already kind of having my ears perked up on, you know, different opportunities that could come my way. My uncle gave me a call and he said, hey, I've been trying to sell my flower shop for the past couple of years and I haven't been able to successfully. I studied finance in undergrad, had opportunity to work on, you know, Wall Street. Thank goodness I didn't go that route. Just corporate consulting, which is a little less bad, but kind of a loose background in finance. So he called on me and was happy to help him just as a family member. So I went to his flower shop, I checked it out and yeah, he was doing a decent amount of revenue, but it was pretty much operating at a loss. And you know, florists, my uncle was no different. They're amazing people. They're really passionate, they're really creative. They have huge hearts. They love what they do. They work 40, 50, sometimes 60 hours a week, six days a week. And they do it not necessarily for the money, but because they love what they do. But they're not usually business people. They don't know what a profit and loss is. They don't know a balance sheet. And so the whole industry has been kind of stagnant, if you will, in terms of the innovation. And so my uncle was kind of the average flower shop that you might walk into that you could imagine a lot of paper driven processes. And my job was to help him.
- [07:19]
Will Smith
Sell Michael, paint a picture of it. So where is it, first of all? Where is this flower shop?
- [07:24]
Michael Jacobson
Yeah, so this was. It was kind of in between Beverly Hills and West Hollywood on Melrose, if you've heard of it. And it was a thousand square foot shop. My uncle's passion was actually creating music. He also kind of fell into the floral industry. And so he had the bottom half of the shop was a flower shop, and the top half he built a second floor. I won't tell you if it was legally built at the time or not, but put in a second floor on that unit. In the top half was a recording studio where he would invite musicians and mix stuff and that was it. I think he told me the first day that he opened up, I think he did $40 in sales. 35 years later, wasn't doing $40 in sales, but was still struggling to at least, you know, have a substantial take home income.
- [08:16]
Will Smith
So 45 years. This, this flower shop had been there in the same location for 45 years.
- [08:21]
Michael Jacobson
Yeah, it, it moved about 10 years ago and the lease was up, so they moved to a location that was maybe 15 blocks down the way.
- [08:32]
Will Smith
Yeah, And I hear in between West Hollywood and Beverly Hills, I hear Melrose. And not having super deep understanding of LA geography, I hear fancy. Is it fancy?
- [08:48]
Michael Jacobson
So the shop is not fancy. You know, it's really interesting. And the way that he operated his flower shop, it actually, the business, I was very attracted to it because it had really good bones. And the fact that it was close to the fancy, but it was in a little Jewish neighborhood that was kind of up and coming at the time. And honestly still is. The overhead is really low. You have really low rent, and so you're close to Beverly Hills and West Hollywood where you can service those clientele, but your rent and your overhead is super, super low. That's actually one of the things that makes us, you know, have a much healthier bottom line today. And, you know, kind of, he pioneered that fancy, but we're not paying for our rent. Part of the fancy.
- [09:28]
Will Smith
Great, great. Okay, well that's, that's a great. I guess you lucked into that. The thousand square feet. Is that. So what is that kind of, kind of a large one bedroom apartment, Imagine. Right. Does that sound about right? I'm trying to try to give people a visual who don't have a good sense of square footage.
- [09:49]
Michael Jacobson
Yeah, exactly. I think a lot of one bedrooms, at least here in Los Angeles are, you know, 850 square feet. You know, maybe a max of a thousand square feet. Know, New York, you're lucky if you get 400 square feet. Right. And so, you know, a little bigger than a one bedroom, but not, not much bigger. Yeah.
- [10:06]
Will Smith
And is that kind of a typical footprint for a little neighborhood florist?
- [10:10]
Michael Jacobson
It is. It depends on what part of the country. I've looked at a lot of flower shops at this point. And you know, in the middle of the country where your overhead's a little lower, they might have, you know, 2000 or even 2500 square feet, which is, you know, kind of a three or a four bedroom place. It's honestly, there's a lot of empty space and you can kind of think of a florist, they like to accumulate a lot of stuff. There's a lot of shelving, a lot of clutter. You know, when I came into the shop, there's on prem servers. And that actually was the office that I worked in, was the server room for the first couple years of owning the flower shop. And had my mattress in the corner, had a bunch of wires, and the blue and white screen where you have to push the F10 key to get to the next page. That was the industry leading technology in 2018 for the floral industry, which is absurd, but that's what we were working with. So it was as antiquated as I could possibly describe it. You know, wires everywhere, you know, drop ceiling with acoustic tiling, concrete floors, purple walls, and, you know, kind of green accent colors. Just really, just kind of a funny mom and pop place. That was very warm, the culture was great, but just very, very much mom and pop papers flying everywhere. Right.
- [11:18]
Will Smith
Well. Well, Michael, a lot of what you just described will be familiar to my guests and is kind of a common pattern you see in boomer businesses. The, the lack of technology, the, the organized chaos, the totally outdated decor and certainly technology, et cetera, but it's often all of that. But throwing off a crazy amount of cash. Yours was all of that, but also not throwing off any money. In fact, unprofitable. Right. He was basically unprofitable. Take. Give us a financial picture, please. And, and starting with what. So what is revenue at this business at this time?
- [11:59]
Michael Jacobson
Yeah, so revenue is about 600k in revenue. So not nothing. It was a substantial revenue and it was probably kicking off, you know, 10 or 15%. So you know, he. He might have been taking about 60 or 70k home. What, what ended up happening though. And you know, if you go through entrepreneurship through acquisition, you're buying a business, you're also buying that liability a lot of the times. And the reason that this was a risky buy at the time was there was a lot of. Especially being in California, there's labor laws that are a lot more strict. And there was some litigation that was going on that was wage an hour, workers comp. And my uncle was operating as a sole proprietor. And so all of that litigation went on to him. Not. He wasn't shielded with a. With a corporation. Right. And so he also didn't really have deep insurance coverage. So he was bearing all of these litigation costs out of pocket, which, like way more than drained the 60 or 70 that he should have been making. That pushed him into a loss. Not only that, but there was really no end in sight because even after he got through some of that litigation, he. Nobody wanted to insure him. His loss runs and loss history was too big. And so his mod rates and insurance premiums were so high that the insurance cost alone would wipe out that 60 or 70K that he'd be earning. So yeah, be careful of the liability that's out there when you're purchasing an existing shop. Even if there's not litigation now, somebody could come over the course of the next couple of years and say, hey, you know, like the old owner, you know, did this or that and could hold you as the new owner liable because that liability shifts to you as well depending on the structure that you operate in.
- [13:29]
Will Smith
Yeah, yeah. Okay. And so $600,000 a year in revenue. A thousand square feet. This is a pretty typical profile for flower shop. You, you had actually you'd said that there are in, in places where real estate is a little more, a little cheaper. You can find, you can find 2000, 2500 square foot. But, but this is basically pretty typical for a suburban flower shop, let's call it.
- [13:51]
Michael Jacobson
Yeah, totally. Industry averages kind of today, 2024 looking to 2025. Yeah. Average flower shop is doing about 320, 300 and 320, 350k in revenue, usually making about 10, 12% profit margin. So it's only 30, know, maybe 40k. The top 5% of florists might be doing, you know, 6, 7, 800k in revenue. The top, you know, 10 players might be doing 3 or 4 million, but that's about it. It's, it's a very much a single unit owner operator environment kind of. There's 30,000 florists around. Each of them are doing, you know, again, on average about 350k. So you do the math on that is a pretty big industry, but it's super fragmented. 99% of owners only own one shop. So you know, when you think of who's the dominant player of coffee, you know, depending on what part of the country you're from, it's either Starbucks or Dunkin. And thank goodness we have, you know, further innovation on top of Starbucks and Dunkin in the coffee space now. But that even the Starbucks effect hasn't even happened in the floral environment. Right now it's all mom and pop shop. It's kind of like the pre Starbucks era still.
- [14:56]
Will Smith
Yeah, yeah, that's. You said that to me in the pre call. It's a great way of thinking about it. There's no Starbucks of this industry yet. The. And we're going to keep returning to these industry dynamics. I really want to spend a lot of time getting an education on this industry because you are trying to disrupt the industry. And, and I just so love a theme of your story is, is how you saw that you took over a completely unappealing business. One that any good loyal listener of Acquiring Minds would. Would stay far away from.
- [15:30]
Michael Jacobson
Yeah.
- [15:30]
Will Smith
And you took it over anyway. And you've made it sing and then some. You know that one of the most common levers to pull in a target acquisition is technology updating the systems of a business that may still be running off a spreadsheet or even pen and paper. But tech is complicated with tons of solutions out there. So choosing the right cloud platform, CRM, telephony, compliance and cybersecurity, not to mention implementing all that, is a job in itself. Acquiring Minds Guest Nick Akers knows this firsthand. As a former searcher who now owns Inso Technologies, Nick has seen the tech challenges searchers face when acquiring businesses. His team at INZO regularly works with searchers and their acquisitions, offering a complimentary IT audit of the target company. Nick takes a personal interest in all their searcher clients, drawing from his own experience in the search phase. Enzo dates back to 1989. So this is a company that has managed the tech for hundreds of small businesses over decades. And one last thing, no long term contracts with Enzo. A big differentiator. Check out enzotechnologies.com inzo or email Nick directly at nickzotechnologies.com and don't forget to tell him you're a searcher. So he was trying to sell it. He wanted your help selling it. He. So he thought he could sell it because somebody like me would tell him, you can't even sell this business. I'm sorry, sir.
- [17:11]
Michael Jacobson
Yeah, and it's not fully what I said in. But you know, if I was going to be a little more candid at the time, I probably would have said something like that. But the, the reality is I did go to a bunch of different flower shops. I looked at the comparables, I looked at what they were doing. Well, what they weren't, the multiples, what they were selling for. And especially with the litigation that he had, it was, you know, I don't want to say unsellable, but as close to unsellable as he could probably get. And so there was work that I needed to do with him in order to make the financials look better, let the litigation ride out a little bit. And so I said, you know, we can probably sell the business, but it might take three or four or five months. In the meantime, let's really get your accounting down. Let's get great Bookkeeping, let's build some additional margin. And so we went to work. And so that's how I got involved in a little bit more of a, of a deeper way for a couple of months. I quit my job at the time and was kind of really excited about this opportunity. One of the things within the first couple of weeks of me coming to his shop, I wanted to just listen to all of the existing staff. There were six or seven full time hires at the time. A couple of them were customer service reps. So they would, you know, there's a lot of orders that come in through the phone, especially at the time. And so they told me, they said, well, I asked them, like, you know, if you have a magic wand, you could do absolutely anything, you could make the business better, you know, the snap of your fingers, what would it be? What needs improvement? What would you do? And they said, well, you know, I'm having a really hard time hearing the customers and sometimes they have a really hard time hearing me too. I think we need better phones. Like, great, that's a super easy lift. We're going to get new phones. So I'm like, okay, we need to do this in a really inexpensive way. So I said, how much are we paying for our phone system now? I looked at the phone bills. It was thirteen hundred dollars a month for two phones. And it was using the, I learned so much about telephony. We were using like the old copper wire or copper lines to telecommunication, when now it's all voice over IP or fiber optics, you know, other, you know, better ways of communicating. And he was, my uncle was, thought he had a relationship with the salesman, with the telephone salesman. And so when I went to my uncle and I said, why are you paying this much money for your phones that don't even work? He's like, whoa. Well, you know, our phone sales guy will take care of it, don't worry. Like, he's always treated me very well and like, I don't know if he's treated you very well, like, I'm going to go and look at an alternative route. So we brought in these new phone systems that were, you know, 120 bucks for three or four phones per month. And they were way better. Fixed the problem very quickly and it was, you know, boom. There's an additional 12k or more on the bottom line annually. And so that was the first move that we made. It was literally just something as simple as changing the phone systems. And we started to make a couple of those decisions. Led to a couple dozen of those decisions led probably a couple hundred of those decisions throughout that first year of these little, seemingly small changes. But that brought the business into, I'm not going to say the modern era, but like a little bit closer to the modern era. So, you know, through, through the first even month of working with my uncle, I saw a really clear path to at least cut costs, to get it to a pretty break even level if not making money. And so then the challenge really became, okay, do I think I can grow revenue while I cut costs? And I thought I could. It was a little bit of naivety, but, you know, there was a lot of logic behind how we could cut costs. And so it wasn't as, you know, on the surface level, it looked like a horrible business, but there were some very quick wins, low hanging fruit that had been neglected for a long time where we could get it to a better state pretty quickly.
- [20:39]
Will Smith
Well, Michael, even if you could get it to a better state, you're looking around, you've done, you've diligence the industry some, you've gone and talked to other flower shops and so on, and you see that there's no Starbucks of the flower industry. So even if even a healthy flower shop is not what business nerds and business snobs like me would call a good business, it's still like you. You get this thing humming and it's still just got. It's just not a good business to be in. It would seem we're gonna find out. So, so why did that entice. What were you, 24, 25?
- [21:21]
Michael Jacobson
Yeah. Gosh, that must have been 20, 23 at the time. Yeah, it's pretty young.
- [21:25]
Will Smith
You were 23 at the time?
- [21:26]
Michael Jacobson
Yeah.
- [21:28]
Will Smith
Why did this entice you? Did it just seem fun? It was entrepreneurial. We know that you had an entrepreneurial kind of gene. Was it also kind of helping the family? Like what. Why did you sink your teeth into that? You were also young, so you felt like you had a lot of bullets in the chamber. You could spin out a few years and you have more years to spend than some of us. So maybe there was that anyway, putting words in your mouth. Why?
- [21:47]
Michael Jacobson
Yeah, totally. I mean, it was, it was absolutely all of that. I think that it felt really good to work on something where I used. When I was working in corporate consulting, I would work really hard and I would kind of look to the left of me and look to the right at me and, you know, the folks next to me weren't working as hard as I was, but we're all making the same amount. And my company was billing at, you know, $200 an hour for my time, but I was only making, you know, 60 or 70K. I was like, oh, my God, this is crazy. And, you know, granted, they're placing me at these big clients that I wouldn't be able to get on my own, but it didn't matter how hard I worked, that it wasn't a direct reflect or say I made a bad decision. I didn't really have any consequences to that. Especially in consulting, too. I'm not really on the hook for anything that I say. It's not the owner. I'm not seeing that project through all the way. And I like the responsibility. I like the consequences of both my good actions and my bad actions. And, like, so working on the business really fired me up. And that way I could put a lot of hours into it and feel really good that I'm like, kind of working for myself. And I think that's the dream. Right? Like, it's why people want to be their own boss. It's not that it's easy work, but it's rewarding. And so the reason that I really wanted to sink my teeth into this business. You're right. I couldn't agree with you more. I really am of the belief of, you know, chances are if something doesn't exist, it's not because it's a great idea and you're going to be the next billionaire. It's probably. It's been tried and it didn't work. And it probably didn't work for a reason. So I absolutely came in with a lot of skepticism. But the more I started to dig in. So it wasn't just that my uncle was making poor business decisions, but there were all these external factors about the, you know, systemic issues that all florists face that really got me fired up, too. You know, we'll go through a couple of them, but the next one that I saw was, you know, if I. If I say coffee, you think of Starbucks, maybe. And if I say French fries, what company do you think of?
- [23:44]
Will Smith
McDonald's.
- [23:45]
Michael Jacobson
And if I say flowers, what company do you think of?
- [23:48]
Will Smith
None. Right. No. Oh. Oh, well. No. Right. Sorry. 1-800-Flowers. I think of one of the. One of the. Yeah, one of the national brands, but that may or may not have physical locations. I assume they do not one, 800, flowers who I think of.
- [24:00]
Michael Jacobson
Exactly. And those. There are probably two correct answers that I usually hear. You got both of the correct answers. So if there is a dominant market player, you know, that has the majority brand equity. It is 1-800-Flowers. When I ask people that, a lot of the times they do fumble a little bit with like again with coffee, it's super clear answer. We with, you know, french fries, super clearance or with, with flowers, it's a little bit of a stumble or it's 1-800-FLowers. So let me talk about 1,800. 1,800FLowers is an Internet broker. They do have the dominant market presence, but what they do is you pay a hundred dollars for the order and they're going to syndicate that order to a local florist. And the florist is getting a 30 to 40% commission cut after all of the commissions and fees that these networks charge. So the florist is only getting 60 or 65 bucks out of this. You best believe you're not going to get a hundred dollar product, you're going to get a $65 product. So it's either going to be the wrong flowers, older flowers, less flowers, or some other way where the, you know, the florist, they don't necessarily know what a profit and loss statement should look like, but they know they're not going to a hundred bucks out of it. So they're going to, you know, make it not what you ordered because they need to make some money. Right. And so, you know, 1-800-Flowers and there's a couple other aggregators out there like FTD and Teleflora. They all follow the same model. They were innovative in the day. But you know, tele flora, 1-800-Flowers, it's, it's pre Internet post phone kind of in the fax era of innovation where it was hard to get connected to your local florist, there hasn't been any innovation since that era. 1, 800 flowers took over the dominant kind of market share at the time and they still have it today. But how ridiculous is it that they're taking 30 to 40% market share or a commission from these florists and it's such an unnecessary intermediary. So I looked at my uncle's business and about 60% of his revenue was coming in from what we call in our industry, these wire services or order aggregators and syndicators. And so immediately we wanted to cut all of those players out. We were probably working with six or seven different wire services. 1-800-Flowers is the biggest one out there, but there's a lot of smaller ones as well. And the majority of our revenue was coming from them. And they were taking out you know, 30 plus percent commissions. And when I really looked at the statements, they make them very complicated on purpose. Even with a background in finance, I had a hard time reading them and. But you could, you know, when you really dug into it, you're not making any money. And as a matter of fact, you're probably losing money on some of them. You're probably only making 2 or 3 or $4 on each order. God forbid your customer complains to 1-800-flowers and now I have to give $120 refund to the customer. They're not fronting that, the florist is and their wipes their profits for the day. So you know, not, it wasn't just cutting costs, but cutting out all these intermediaries and getting that commission back. Like taking that and investing into search engine optimization and ranking higher for keywords conversion rate, building a better website paid acquisition and making that customer hours where we could nurture them, focus on customer lifetime value. So we started to see a way where we could grow margin, you know, after the revenue came in, but also the revenue that was coming in. Like if we could eliminate a 35% commission that's being taken on 60% of the orders, then it could be a pretty fruitful business. And the sad reality is that most florists are really dependent on these order aggregators and it's a tough position for them to be in. We face the same tough decisions. We were there where, you know, do we drop the wire services? And because we know we're not making any money off of them. Well, it's kind of logical, like why would we pay somebody 30, 40% commission? The problem is if the majority of your revenue is coming there and if you drop those services and you lose half your revenue overnight, you're also screwed. So what do you do? You just do what you're used to doing. You operate your flower shop in the same way that you've been operating it for the past 20 years. You just stay on with the wire services even though you hate them. So it's gotten to this really.
- [27:52]
Will Smith
Michael, this is wonderful. This is such a. This is, this is like the, you know, this is a truly a light bulb moment you have. Or maybe it's kind of one step in your light bulb moment. If you can distill this decision down. What was the actual hardcore calculation? If you can put it into a couple sentences, if we get rid of the aggregators, we'll lose 250 grand a year in revenue, you know, but that really only ends up being 40,000 in. In. In margin. So I'm calculating that, you know, what, what did it look like? Because as a finance guy, you must have, it must have dialed this into a financial decision.
- [28:36]
Michael Jacobson
Yeah, yes and no. You know, with humans in general, myself included, we make a lot of decision out of emotion and we try to back it up with logic. Right. So, you know, I was young and I, you know, still operate in a naive way, kind of purposefully almost sometimes. So I did back it up with logic. But there was definitely a leap. And I think that with any business you get into, at least in my experience, there is some leap that's required at, you know, at some degree, you know, at different points in time. But what really fired me up and kind of why I got into the business was I saw that the business itself, we had a lot of opportunity to kind of trim the fat and get it to a point of at least break even or profitable. If we dropped the wire services also, and we could get our margin back that way as well, it would be a smaller business, but at least it would be a more profitable one. Like what is revenue if it's not profitable? And then there's this third factor that got me really excited too, which again, we've talked a lot about it already. But just to hammer the point home, there's no innovation in the space. I went around to all these florists and all of them are running this like DOS based software system or no software system at all. They're, you know, routing on Google Maps if they're sophisticated. Otherwise they're just kind of writing the address and giving it to the driver to go do the delivery. But, and I saw, you know, that from the external floral industry perspective, it's a $19 billion industry, specifically retail florists, so not even including wholesalers or farm level like the retail floors in the United States. $19 billion. And it's hard to say $19 billion is a small amount, but when you go and talk to venture capital or private equity or any institutional capital, that's a really small industry and it's not worth your time to invest in that space. They want biotech, software as a service, AI, whatever else is coming out. They want the trillion dollar opportunities. They don't want to invest in a measly $19 billion industry. So you have no innovation coming in from the florists themselves because they don't have the cash to innovate. First of all, you have these dominant market players that have been a big contributing factor for the stifled innovation because they are the number one players. They're big intermediaries. They don't want innovation. They want to stay the intermediary. And then you have no outside or very little outside capital coming in. So we just saw it as a really awesome opportunity to shake things up. And so I told you, my background is in finance. My background is a little bit of a fusion between finance and software development. At the. My corporate consulting job, what I did, I would go into companies and I would understand their financials. But then we had a development arm of our consulting company where we would come in and say, okay, how can we make the operations more efficient through putting software and automations in place? And so we just. I took the same perspective at this flower shop. You know, everything was being done with a paper and pen and, and we were printing. I did, I looked at the profit and loss statement from, like, the financial logical point of view. We were spending $13,000 a year on Printer Inc. And I'm like, man, if we could just digitize this process, we would save another 13,000. Like, again, one of those seemingly micro decisions. But it adds up, right? So I'm like, why don't we just develop an iPad application where every time an order comes in, it just comes in. We don't have to print the recipe and print the card message and print all of this, all of these images of the flowers so the designers know what to make. And you have, you know, papers flying everywhere and something gets lost and the customer is not happy because. Right, it's just, let's just digitize this and they can have the recipe in there. There can be the time and attendance system. Now we can start to track designer productivity. You can have a digital inventory system. Like, none of this existed. None of this existed. So we just got really excited about the idea. Like, let's, let's just build a little bit of software. Like, let's. Let's make them mundane, more fun. Let's, like, the designers are creative. They don't know what. We don't want to bog them down with all this, you know, admin tasks. Like, they just want to design, they want to flex their creativity. And like, let's give them the technology to go and do that. We don't need to over engineer anything. We just need to make their job a little bit easier. And there's a lot of space to do that. So that was kind of that final push of, hey, I. I want to buy this business. And then, you know, I'm coming out of college, I was living on nothing. I had really, really cheap rent, you know the college life stereotypical. And so because I was so fresh out of college, my living standards were very low and so I didn't have a problem. We were able to get the business to a place where it was doing you know, 60, 70, 80, 90, 100k in net operating income and I would take virtually every penny of that and reinvest it into the business. So was happy to kind of invest in the software that we have today and better supply chain giving our folks know better rate, better wages as well to attract better talent and it's really paid us dividends is like kind of being scrappy. And in this first few years we still have that mentality but this first few years we lean, we had to lean into that pretty heavily.
- [33:30]
Will Smith
Well Michael, and this is where the story is a little bit startupy. Yes, you took, you were working with the raw ingredients of a 45 year old business but you really had to, you know, metamorphosis this thing and you were, you know, you were living the ramen profitable life. I mean you were, you were barely barely paying for your own, I mean your own living expenses were nominal. And, and so that in, in some ways that, or in many ways that diverges from the, the typical entrepreneurship through acquisition ETA story where you have more often mid career people who need to have some income immediately out of the business.
- [34:08]
Michael Jacobson
But that's, I will say on that note, one of the things that we've struggled with as we've gotten more resources is as you have more resources, as more paths open up to you and it almost becomes this challenge where oh that's a great idea. Oh that's a great idea. Oh that's a great idea. And you're like wow, I'm going to pursue all of these ideas all at once. And then it starts to spread you thin and you start to half ass some of these, the execution on these things. So being really small and scrappy and having hugely limited resources, we like were really put in a position where we were forced to have a huge singularity of focus on what is the absolute number we have. We do like there's four or five paths that we can go down but we can only afford to do one. What's that one path? And let's do it really, really well because we only have one shot at it. That helped us a lot. And as we got more resources and whatnot, we've made some mistakes about pursuing too many projects at once and we've kind of had to Reel it in and go back to our old scrappy days of like, okay, we just, let's do, just do one thing and put a narrow focus on that and honestly strip the resources away from it. Like have, let's put some innovation in the room. Money doesn't bring innovation. It really doesn't.
- [35:13]
Will Smith
Yeah, that's a powerful lesson. That's such a great lesson and I think one that we probably all struggle with. I feel like I do myself. Couple follow ups to everything you just shared with us. First of all, so there's no SaaS. I mean my impression of the software industry is that every niche, every industry, every market has had some SaaS startup go after it. Including ones that don't seem very appealing. I mean speaking of industries that are kind of like your classic, very mom and pop, creative run type businesses, salons. I know there's some leading SaaS. There's a couple SaaS products that are multimillion dollar businesses in the salon space. There's, I know there's some in the yoga space. One I think that I remember, I think it's like San Luis Obispo founded. It's like a Billy, it's like a unicorn and it's basically software for yoga studios. There must have been somebody, especially in this highly fragmented market, there must have been some enterprising software developer who is like I'm going to be the SaaS for florists.
- [36:15]
Michael Jacobson
No, you're exactly, yeah, you're spot on. And it's a company called Bloom Nation. They are the folks that tackled exactly what you're saying and they've been successful with it. Reasonably successful. They actually raised a little bit of capital from a 16Z. I think it's Anderson Horowitz, Silicon Valley based venture capital firm back in. Gosh, don't quote me on this, but I think 2016. So it was a while ago and they wanted to build a marketplace and platform for florists to offer their services. And what they do is they basically sell a white labeled website to florists. So you know, there's a thousand florists across the country that basically have the same exact website but their logo smacked up on the top left of the corner of the page and they, I give a lot of Kudos to BloomNation. They are folks that have brought innovation to the space and helping florists join the E commerce space. A lot of florists didn't even have a website in Bloomnation gave them their first website. The problem with Bloom Nation is they don't know what it's like to operate a flower shop. They're a tech company that has venture capital money, and the venture capital firm wants them to, you know, juice the most amount of profits or grow as quickly as they possibly can. So they've made some decisions in the interest of their company that haven't been in the interest of florists. They also take a 10% revenue share of anything that comes through their website. And then finally they built a marketplace as well where they'll put all of the florists on their marketplace. But now they became a wire service where any order that goes through their marketplace, it gets syndicated to the florist and they take a 25% commission on those orders. So the florist has a bloomination website. Bloom Nation has their own platform also. And so they're almost competitors in a weird sense, but florists are okay with it. They're okay paying 10% on any of their orders that go through the website. They're okay with paying 25% of anything that's referred over to them, because that's been the norm, is like, you know, high commission revenue share in the space. So it's been a step in the right direction. But I will say it's. The one critique I have is it's not florist first, it's putting the tech company first. And they're not fundamentally changing the florist's life in terms of making it easier for them to operate, operating a better supply chain, better technology, that the web architecture and search engine optimization is not very strong on their website. So it's improvement. But we still saw a really radical opportunity not to improve the industry, but to really innovate on a level an order of magnitude more than what we had seen prior.
- [38:55]
Will Smith
And let's just double click on this commission thing for a minute with the aggregators. So those commissions do sound rather steep. What did you say, 40%, essentially? 30. 30, 40%, yeah. The base commission is from the 1, 800, that is.
- [39:09]
Michael Jacobson
Yeah, they take 28% is the base commission. But then there's membership fees you have to pay to be a member. There's marketing fees, which is the most ridiculous thing ever. The more money you pay to them on top of all the commissions, the more orders you'll get from them. So you end up paying more into the system. There's payment processing fees, technology, other hidden fees. So after you look at the whole, you know, statement, it's, yeah, 30 to.
- [39:27]
Will Smith
40%, that's, that's 1, 800 or that's Bloom Nation.
- [39:31]
Michael Jacobson
That's 1, 800. Yeah. Bloom Nation will take 10% of anything through your own website and then 25% base commission on orders that are syndicated to you.
- [39:40]
Will Smith
Oh, okay. So, so you really. Because what, when you described 1-800-Kind of fee stack, it sounded like there actually can be a lot of integration between a florist and 1, 800. And so it's not just like they send you a lead and if you can convert the lead, you, you know, they, they keep whatever, 40%. There's all this other, there's all these other ways that they kind of nickel and dime you or, you know, yeah, you florist opportunities to spend money. Anyway, where I was going with that, it's just that there, there it is a marketing expense. So it is, it's always, it's always with these online services and marketplaces, it's easy as the end user, the company that's the client, in this case florist, to complain about the costs. But it's not like you would get a lot of leads for free anyway. You're going to be, you're going to have your own marketing expenses if, if you stop getting leads from 1, 800, you're going to have to get leads somewhere. So now you're just going to be paying Google or some social platform. Now you might say, yes, but I can, I can pay Google a lot less. It's still an intermediary. So I, you know, I could. So, so rather than paying 1, 800, 1, 800 is paying Google in the getting the customer. So there's two, you know, links in the chain there. Now if I'm buying my own Google Ads, there's one less link in the chain. So I there. So I'm definitely going to save some money even if I'm still going to have to be spending a lot on marketing. Unpack that a little bit for me.
- [41:02]
Michael Jacobson
Yeah, beautiful. Yeah. Very, very well said. You said it, you know, the same way I would. It's. Why pay 1, 800 when we could just pay Google? And that's the exact approach that we took. 1, 800 flowers doesn't give us a lot of the customer data. They just want us to fulfill the order. And 1-800-Flowers wants to keep that customer so we have a hard time remarketing to them. And so we'd rather give that money to Google because we, you know, if you've studied marketing, there's a term called roas return on ad spend. It's basically a very simple term. If I put a dollar in, how many dollars am I getting back? Am I getting $2 back? Am I getting $3 back? Am I getting $4 back? So if it's say for example, 3 to 1, you have a 3x ROAS 3x return on ad spend, 3x is, you know, 1 out of 3 is 33%. We're basically paying a 33% commission to 1-800-Flowers. So why don't we just pay a 33% commission to Google instead And we get a ton of customer data with that. So now we can take that and invest into how do we develop a relationship with this customer? How do we get a better conversion rate on the website? How do we connect with them after their first purchase to drive loyalty and drive customer lifetime value? What are some special touch points? Can we build a loyalty program to really get them in? Can we surprise and delight them? Can we mail them something to their home? Maybe a handwritten card to thank them for being a customer because we didn't get any of that data prior. And then you only pay that marketing expense once pretty much. You know, once you know you have a, you spend that money on Google and you have that customer, you can remarket to them via email and loyalty programs and you know all of these other tactics to improve customer lifetime value.
- [42:35]
Will Smith
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- [43:47]
Michael Jacobson
Invest, we dropped all of the wire services. We started to invest into advertising as well. But simultaneously we invested into things like conversion rate optimization, search engine optimization and a whole host of other different kind of secondary metrics that make the business run a little bit better too. Paid advertising is a black hole if you invest really heavily into it, especially with attribution models out there, Google Ads could certainly tell you. Or Meta Instagram, Facebook could definitely tell you. Oh, you put a dollar in and you got $3 back. That's what our pixel is telling you. When that's really not actually the case because the consumer journey is super. It's a messy middle, right? Maybe they searched you on Google and then they signed up to your mailing list, they got a couple emails, then they saw you on Facebook. They're like, oh, man, I, it is my grandma's birthday coming up, I do want to send her flowers. And they click on that. But they originally found you from Google, right? Or vice versa. Maybe they found you on Facebook, they didn't need you right then. And then they go and search flower delivery, you know, city name, and they click on the Google Ad. Google's going to attribute that revenue because now they're going to want to take that attribution. So you have to be careful with marketing. And we, we, yeah, we had to be very careful with that because you could spend a lot of money doing it. And, but we were willing to take that on as opposed to giving 1-800-FLowers the commission where we're not getting the customer data at the end of the day. So we, we grew.
- [45:06]
Will Smith
And, and so what happened kind of immediately after you flipped the switch? We're going to hear, I want to, you know, incrementally hear how you built up to, you know, over $9 million at this flower shop, but just specifically because this, this was probably the biggest strategic decision you made in this whole story. So I'm just curious what, what it felt like when you flipped that switch. What happened?
- [45:29]
Michael Jacobson
I should say, yeah, so we, we, we did see a bump in revenue when we turned on advertising. It was not that problem. It was pretty break even. But we knew that once we acquired the customer, if we can get them to keep ordering, next year we're going to be a lot more profitable. And so we did see a bump in revenue, of course, from investing in advertising, but it didn't fully translate into the bottom line right away. And so we were with basically a Bloom Nation equivalent. It was another agency that was not Bloomination, a much smaller one that provided florists, different websites. So we were utilizing them and we said, hey, you know, we want to improve the branding. We want to invest in conversion rate optimization, we want to invest in the search engine optimization. And they're like, nope, nope, nope, can't do this, can't change that. This is what you're paying for. This is what you get. So we were like, oh, my gosh, I think we need to build our own new website. The problem is, if we built a new website, then it wasn't going to speak to any of our other archaic systems. We had a point of sale, again, that was literally a blue and white screen. You have to push the F10 key to get to the next page. And there's no open APIs. It's not modern tech. And so, like, if we built a website, it wasn't going to communicate to our point of sale. So now we have to build a point of sale system or use, you know, Shopify or Salesforce or some existing one out there. Right? But we had to build it. And then, you know, do we invest in a CRM? Do we invest in, you know, how do we get analytics and dashboards and, you know, all of these things? And so we're like, oh, my God, we need to build a lot of technology and we need to build the whole comprehensive suite. And because if we replace any one part of our system, nothing works anymore. And so, yeah, and so we, yeah, we started investing in a paid advertising. But we saw that without really improving all of our technology. For example, it really just started with, we wanted a better website because we wanted better SEO. If somebody searches on Google Flower delivery, you know, Melrose Flower Delivery, West Hollywood, we want to show up number one. And it was hard to do that with our current, you know, with a Bloom Nation website. I've never seen a Bloom Nation website outrank ours that we have today. We just have a better web architecture and better SEO presence. And so, you know, we can invest in advertising all we want. But how can we get the free clients, the people who are already searching for those terms, how can we get those customers for free? I don't love paying Google. We do it, but, you know, if we don't have to, let's not. And so, yeah, the biggest decision that we made was to invest in our own technology. We did look at Shopify, we did look at Salesforce. There's a lot of nuances to the floral industry where, you know, we kind of have two customers. We have the person who's sending the flowers and the person who's receiving it. We wanted to have a dispatch system. We wanted to have very specific analytics. We wanted to have, again, I talked about that iPad application that when the order comes in, it goes to the iPad and the designers can clock in and clock in using that, see all the order data that they're going to be working on that day. And so really to build it in the way that we wanted to, we had to build it completely from scratch, zeros and ones. So we built, we, you know, partnered up with CDNs and IaaS and PaaS platforms like AWS and all these infrastructure stuff. So we really built this thing from the ground up. And who'd you get to build it?
- [48:46]
Will Smith
Did you, I mean, who, who led the charge on actually building this software? Did you work with an agency?
- [48:52]
Michael Jacobson
I interviewed about 50 different software agencies and we picked one. There was only one that I liked out of that 50. And yeah, they actually own part of our company now. We have a very strong partnership with them. We've been working with them for the past six years. They built a lot of the technology that we have today. We continue to invest heavily into that relationship. But yeah, we had like 13 full time developers that were dedicated resources working with us. They really feel like they're part of the French Forest team. We had a project manager based up in the Bay Area and the rest of the dev team at the time was overseas. And then so it was myself and the project manager that built all of it.
- [49:26]
Will Smith
And they own a piece of the company because you didn't have the money to pay them so you offered them equity in the business instead.
- [49:32]
Michael Jacobson
Oh, I wish that was the case. They didn't want money. They didn't, they wanted cash at the time because we were kind of, you know, we weren't very profitable. We didn't have a lot to show for the company. So we, we did pay them kind of what they wanted. Again, I wasn't making a salary, so my, my full salary kind of went to their team and, but no, recently we raised a small round of capital. We closed out that round in 2024. And after we raised capital, we had this pocket of stock options and we could bring in a little bit more of a stronger management team, a little bit more leadership folks. And then our really, you know, close partners, we wanted to reward them for the great work that they had done the past five or six years with us and then also keep them very vested and interested in the future success of our company. So we created a model with them where we pay them basically half in cash compensation and half in stock options. So through that they've been earning equity in the business kind of slowly but surely.
- [50:27]
Will Smith
Fascinating.
- [50:28]
Michael Jacobson
Yeah.
- [50:29]
Will Smith
Okay. This is, I mean clearly tech is going to, is, you know, looking forward or starting at this point in the story, looking forward. A key part of the entire kind of approach to Your what you're doing here. But let's.
- [50:48]
Michael Jacobson
Yeah.
- [50:48]
Will Smith
How. Give me a couple of the. The bullet points on it because I remember being very impressed with those. How long it took, how much you spent, et cetera, to actually build this basically this from scratch florist business management solution.
- [51:04]
Michael Jacobson
Yeah. So we spent about two years developing it. And it's for the proof of concept. We launched it October 2021. It probably cost us around 300, $350,000. So literally every penny and then some into the organization was being put into. It was making no money at the time, literally. And we launched it October. Gosh. It was October 21, 2021. And our revenue literally doubled overnight. I came into the store the next day and we had double the amount of revenue than we did the day prior. And I literally thought it was a bug in the system. Remember, we had to launch our systems all at once overnight because if we changed any one part of it, the rest of the systems wouldn't work. So we fully built a completely different system and then launched it all at once. So we came in the next day with this brand new system everybody's had. We have no idea what to expect. The SEO experts were like, expect to see a dip before you see a rise. But we doubled our revenue overnight because it was just a fundamentally better web architecture. So we were ranking on Google overnight. Google had already indexed our website and we were outperforming every other local florist. And so our revenue literally.
- [52:20]
Will Smith
You flipped a switch. Your SEO improved overnight from pushing a new web site live.
- [52:26]
Michael Jacobson
Yes.
- [52:26]
Will Smith
Google rewarded you in 24 hours. Wow.
- [52:28]
Michael Jacobson
Yes. Yeah, it was extremely remarkable. Uh, I mean, it just shows you that how antiquated and archaic. On our old website, there were a lot of tactics that were like keyword stuffing, where, you know, we would want to rank for flower delivery, Los Angeles. And so we would just throw that onto the website like 300 times and hope that like, okay, Google. And it used to work because Google would be like, oh, they really want to rank for the term. Or that's really relevant. If somebody's searching, you know, this result is going to pop up. But then people would try to game the system and, you know, they started to devalue tactics that were, you know, kind of gaming Google's algorithm. And so we just built a web architecture that was in the way that Google wants a web architecture to be built. And honestly, it's, you know, Google is incentivized to create the best consumer experience they can. When people are searching for stuff they want relevant results to pop up. So we built it in a way that was really user friendly and in a way that Google likes. And they recognized it right away. It was pretty amazing. But we retained a couple of search engine optimization firms to do really strong 301 redirects and permanent redirects. So there was a really big migration effort that we were kind of sending signals to Google like, hey, the website is changing and this is how we want you to read the new website. So right when we flipped the switch, yeah, we were sending those signals to Google and they were able to pick up on that.
- [53:40]
Will Smith
And so this doubling in orders overnight all came from your website?
- [53:45]
Michael Jacobson
Pretty much. It was all online. Yeah, exactly. And all our customers, there was no. We had already cut all of the wire services. And so there's three reasons why we had a profound increase in revenue literally overnight. One was better search engine optimization. That was a big contributing factor to it. The second one was we had put different product offerings on the website as well. And our average order value had popped up a little bit. Our average order value is on the old website was around 105 to $110. Our average order value jumped up to about 135, $137. So we saw a 20% increase in revenue just from a higher average order value. So that accounts for 20% of it. And then the last. And the third reason was also the conversion rate. It was just a better user experience. And when people landed on the website, I guess they just had more trust in ordering. And if a hundred people visited, we used to have a 2 or 3% conversion rate. Our website now is closer. It fluctuates between 8 and 14% conversion rate, which is very high for E commerce. And so we've just built the website in a way. There's more trust signals, better customer has a better experience. And so our conversion rate, you know, had a 40 or 50% increase overnight also. So same amount of traffic was coming to the site, but we were converting more users as well. Yeah, great.
- [55:01]
Will Smith
Let's. Let's take a breath there, Michael. What, what, and what had you done inside the store, if anything, up to this point? The brick and mortar stuff.
- [55:10]
Michael Jacobson
Yeah. So at that point in time, it was still a bunch of office spaces. It was painted green and purple, you know, this really mom and pop style. And we didn't really have the money to renovate it. And most of the revenue was coming from online. So that's where we put most of the focus was on the Technology and the online presence that we had. When our revenue doubled overnight, we were like, oh my God, we're running out of production space. We need to hire more designers, we need to get more tables, we need more space. We ended up demolishing every single wall that was not, you know, a supporting wall in that space. And we opened up the whole shop and put all bunch of designer tables in place and hired some more designers to fill that demand. And so we did, we went through a remodel at that point in time. Later, much down the line, we were able to invest in making the walk in experience much more beautiful. So it is a lot more of a beautiful experience today. But if you think of it at the time, it was, and it still is a little bit more of a production feel. I think when, when I was interviewing marketing agencies and you know, even law firms, like when you're just interviewing folks in their, in these high rise New York offices, I don't really want to pay for their overhead. I want to pay for the work that they're doing. I don't need to pay for the fancy lunches and the dinners and the parties that they're throwing and the high rents. And so we kind of feel the same way when our shops, they're very, they're production facilities. We don't waste a lot of space. Every dollar that the customer gives us. We want to invest, you know, into the experience that they're having. And so we don't need to have these crazy glass offices and you know, all of this overhead that's unnecessary. So even to this day our, our spaces are very beautiful, but they're not very expensive to build out because the space, you know, most of the revenue that's being is driven from online. And so that's where we put our focus. We're a digital first brand.
- [57:06]
Will Smith
And, and let me, let's double click on that. Michael. The, the idea that most of the business that you're getting is coming from online, is that a commentary on the larger floral florist business? So, so this is really a business where the future is, let's call it ghost kitchens. You know, where you don't need, you know, we all know, I think most people know what ghost kitchens are from the, from restaurant land. They haven't ended up being the big disruptor that people thought they were going to be, but it was like in Covid, people are going to stop going to the physical restaurants, but they still want their Thai food. So let's just have the kitchens and we'll Build these big facilities where we have 20 basically restaurants, all having their kitchens, but we'll put it in cheap real estate and it'll just be optimized for home delivery. So that's the ghost kitchen concept in restaurants. But it sounds like maybe there's something to that here. So address that and, and then of course, please speak to. Is there any relevance to having, is there any foot traffic, branding value, et cetera, feeling part of the community? People want to, want to buy flowers from their local mom and pop. What, what's the, what's the, what are you losing if you just become more of a production facility and less of a retail experience?
- [58:21]
Michael Jacobson
Yeah, totally. And so that it is important that we have a retail footprint. For that reason we want to. Because people do want to know that we exist and they do want to. Especially if they're buying something, that's where they're spending more money. Or it's a wedding consultation. We do some events, you know, we have a lot of financial advisors that want to send to, you know, the 100 best clients that they've serviced that year and they want to sit down and look at the flowers and choose with their own eyes, be a part of that experience. So it is important that we have a physical space for them to come in at. But for us, yeah, 96% of the revenue is online. That's for us because we put a, have a lot, we put a very heavy emphasis on that. That's where consumers are searching and that trend is only accelerating. So that's where we're investing into the future is the online and digital presence. Even TikTok and ChatGPT are emerging search engines. Google obviously has the lion's share now, but people are starting to search on ChatGPT or ChatGPT enabled platforms, you know, best florist in this area. And we want to make sure we rank number one on those platforms as well. So the average flower shop in the current environment that we're in, it varies. Some of them are 60% walk in, 40% online, some are 60% online, some are 40% walk in. If I were to kind of give round numbers kind of off the cuff, my best guess would be the average florist is probably about 65 to 70% online. And it's been shifting more and more online over the past decade. So I would have to assume that that trend will increase.
- [59:53]
Will Smith
And probably the more subtle way to look at this is not what the blend is of digital versus online because in some ways it's self fulfilling, obviously if people have a retail location, then more of their percentage of their revenue is going to be from retail. Really, the question would be what's the profitability of that revenue? So say some flower shop is doing 40% of its revenue from walk in traffic. But are those, you know, are the, is the gross margin enough to pay for the rent sort of thing? Like, are, are those dollar. Are those retail dollars even worth it? Probably. And there's brand value to having retail, like you said. So they're. So you're getting indirect kind of marketing from it. How do you think about. I guess you've already told us how you think about it. It's not, it's you, you. You need to offer in person so that people know that you exist and so that you can have consultations for those customers who want it, but you don't. You're not investing in walk by traffic. Let's call it not walk in traffic, but walk by traffic being part of the neighborhood, not important or not, not worth investing in.
- [60:54]
Michael Jacobson
Exactly 100%. We think that the walk in traffic can and probably should pay for the rent. And that's great. If the walk in traffic covers the rent, we're happy. But yeah, almost look at it as a search engine optimization investment as opposed to rent overhead. You're investing into a brick and mortar space because, yes, you need the space to fulfill all of the orders as well. But from an SEO standpoint too, if you're in a location, think about Google and think about the way that you might search for a new coffee shop. Say you're visiting a new city and you search for, you know, you just want a cup of coffee in the morning, you're going to just search coffee or coffee shop near me in Google. Or if you want flowers, flower shop, flower shop near me. Google is in the way that people search. It's very geo specific. And so we want to show up in areas that are close to where our customers are. But again, we don't need to show up in these A plus commercial real estate areas because we can be very close to you, but we are a mile away. For example, the Beverly Hills location. We're not in Beverly Hills, we're right outside of Beverly Hills. So we don't pay Beverly Hills rent, but we can service that clientele. So we view the rent expense. You're right. There's a lot of ancillary externalities that are positive for us, like brand exposure. We can have walk in traffic that more, you know, pays for the rent. We can have consultations in that space. I view that personally, a little bit less as overhead and actually almost the search engine optimization. Again, so much of what we do is digital first, and we would be doing less revenue online if we didn't have that physical location. So it's a good thing to have for us. Yeah, so it's. It's. We're brick and mortar, we're retail, but in a little bit of a different way.
- [62:31]
Will Smith
Fascinating, Michael. Well, we. I'm keeping my eye on time, and there's still a lot I want to. I want to. You still. You. We still have to get to kind of bring the story up to now and these big strategic moves you've made, what the French florist is looking forward and the franchise effort there. But I also want to make sure we leave time to talk specifically to my audience about the opportunities in buying a flower shop and maybe not. Not being one of your franchisees, but if I. Here I am in Northern Virginia, and there's 10 flower shops I can choose from and should I buy one?
- [63:07]
Michael Jacobson
Absolutely.
- [63:07]
Will Smith
So let's finish. Let's finish the story because we got a ways to go there. Okay, so, so you launch the tech sales double overnight. You redo your physical location so that it's more of a production facility where do. What's a good point, like mile marker here to tell us. To tell us where revenue is at what year? 22, 2021. 22.
- [63:30]
Michael Jacobson
Yeah. So we launched the technology. I mean, we were investing really heavily again, investing in SEO, conversion rate optimization, paid acquisition. How can we improve the customer lifetime value by investing into things like email marketing, you know, all the traditional things, but also more. More bespoke surprise and delight. Anything that we did, we wanted to just really go super deep into it. And so our revenue was a little bit less than $3 million in 2020. So we were able to grow quickly from there. 2021, it grew to 4.7 million in revenue. And then, remember, overnight it doubled. And so we hit 9.4 million in 2022. And then 2023 data, we launched a couple of additional stores. So all of that data was out of a single location in Los Angeles in 2022. About 3/4 through the year of 2022, we launched our second shop. Our first shop was doing really well, and we said, beginner's luck. I don't know, let's launch another one and see how it does in a market where nobody's ever heard of us. And let's test this whole search engine optimization and new technology and Systems out in a market where, yeah, we. French florist hasn't been there for 30 years, right. And that shop did 912k in revenue in the first year. Again, the average flower shop is doing about 350k in revenue, and that's usually after 10 or 15 years of operating. So the first kind of startup shop that we opened from the ground up did 912k in its first year. We ended up opening a third shop in 2023. That one did just shy of 1.2 million in its first year. It's in its second year right now. It's on track to do north of 1.8 million in its second year. So we've gotten better and better at opening flower shops. And that led us to kind of the decision of where we're at a couple of years ago, where we started to think, I think we have something really special here. You know, do we want to make it a lifestyle business? We have some amazing technology. We started to have other flower shops come to us and say, can we license the tech from you? Can we buy the technology from you? What I didn't mention earlier too was when we started to grow revenue a lot, we started cutting out wholesalers and we started purchasing directly from the farm as well. So instead of purchasing from the Los Angeles flower market, we started flying flowers in from Ecuador and Colombia and Holland and Thailand and Mexico and Canada. And we just started working with the best farms all over the world. We work a lot of local farms in California as well. And we started getting better quality flowers at a lower cost. So our customers are getting a better experience and we're making more margin. And I made the decision.
- [66:10]
Will Smith
And why did you. Why were you the first or among the like? Why don't more florists do this? Because they don't have the resources to. To figure that out, essentially. And in their local. What did you call it? Wholesaler is just there and obvious and how everybody does it.
- [66:25]
Michael Jacobson
Exactly. The economies of scale aren't there. If you're only buying if your revenue is at 350 or even say, say your revenue is, you know, considered high for the floral industry. A million dollars, you know, in sales, you're probably only spending $250,000 a year on flowers. Sounds like a lot, but it does. It's. It's a lot to a wholesaler, but not, not to a farm. So until we were spending multi, multimillion dollars on flowers, we weren't able to. So that was kind of the barrier is strictly like a financial Barrier. Uh, we didn't. Most florists don't have the economies of scale to purchase from the farms. They just. They're just not buying enough.
- [66:57]
Will Smith
Okay, okay. Cutting out yet one more middleman. I assume that did a lot as well for profitability.
- [67:04]
Michael Jacobson
It did. And just everything we do, like, we want to be profitable and, like, at the end of the day, it's business. We can't even have the privilege of providing a great customer experience if we aren't running profitably. And so, you know, obviously the financials are very important, but our driving factor really always is the customer experience. At the end of the day, we do realize that it's nobody's choice except for the customer on what company is going to bubble to the top. So we're pretty relentlessly focused on, you know, how can we enhance the customer experience. And, you know, even we're. If we're investing in internal tech, like, you know, when we raised capital, I was pitching the technology that we had because that's what makes us run a lot, you know, a lot more efficiently. I would never tell a customer about our technology. They don't care about it. They want to just receive beautiful flowers and have a great experience. And so that's what we focus on for them. So, you know, even though we invest in technology and whatnot, it's all in an effort so that we can spend more time focusing on the customer experience ultimately. So that. Yeah. And so, you know, investing in a better supply chain downstream on the flower farm side of it. Yeah, better quality flowers. And even if we were paying a little bit more for them, which we weren't, it was the opposite. We were paying lower prices for them because we were cutting out the middlemen. You know, when you get the flowers delivered from French florists, they're going to last 10 or 12 or 14 days instead of the three or five or seven that you get from the grocery store or another local florist. So, you know, yeah, all of these aspects, we started really understanding that we had something pretty good here. And we asked ourselves, do we want to take the technology and license it? Do we want to continue to operate more corporate locations? And we kind of stumbled into this thing called franchising, obviously, that a lot of people have heard of, but especially, I don't know what other people's connotation is with franchising. I had a negative stigma with it. I kind of thought of 7, 11, and, you know, Subway kind of losing their quality pretty quickly over the years. And the owner operators not Seeming super happy, the customer experience wasn't, you know, exceptionally high. And so, you know, especially being so client oriented, I didn't think franchising was going to be the path for us. But you know, I like to look at all the information and all of the options and I keep an open mind. I have strong opinions, but they're loosely held. Right. And so like, let me just learn about it. And the, the more that I leaned into or the more that I learned about it, I was like, wow, this is actually a really interesting opportunity. We could pursue franchising similar to how we approach the flower industry. We could take the best parts of running a franchise and just focus on those things and do the rest a little bit differently and maybe make a better franchise system out there. We love that the flower industry is mom and pop. We love that it's individual, owned and operator operated. I think that if you look at a flower shop and if we opened up 400 locations across the United States, just as an example, and we hired managers, who's going to provide the better, better customer experience? Who's going to be more committed, who's going to be more dedicated? A manager that we hire for 80 or 100k or an owner who on Valentine's Day or the day before is going to stay up at the flower shop till 2am making sure that all the flowers are going to get delivered the next day. I think the owner is probably going to know, be more committed and dedicated to providing a better customer experience if we can do a really great job in selecting the right folks, you know, to open a flower shop with us. So, you know, long story short, we, we really went down that rabbit hole of franchising. It made a lot of sense for us and we, we found this by surprise. We, we launched the franchising program in May or June of 2024. So recently we started getting a lot of traction with again, kind of how we started out. Bakeries, cafes, flower shops. It's a romantic idea. People don't really know how to necessarily get started with it. I don't know how to make any money in a bakery or cafe. We do know how to make money in a flower shop and we could show that we could make money in a flower shop. It's a romantic idea. Awesome. A lot of people that have been working corporate 30 or 40 years, they're like, oh my gosh, I don't want to work for the man anymore. I want to be my own boss and I want to do it with flowers. And like, great we can help you. What we didn't expect though was we had other flower shops that said, hey, you guys are doing a million in revenue in your first year and that's a startup. Can we join? And so we looked at how could we partner with existing flower shops and also have them operate as a franchise. And it turns out you can. It's called conversion franchising. Where an existing florist can join into our system, they can convert into a French florist. They get access to our technology, our supply chain, our marketing support, our financial resources, the operations, everything that we have gotten really good at. And we've kind of joke around and say we're really good at the boring stuff. The florist is really good at the creativity and the passion. When you combine those two, that's a really powerful partnership because ultimately we think they have the harder job. They need to get the customer five star reviews, they need to be obsessed with the client experience. We can certainly help them with all the boring stuff. But like if they can deliver on that last mile delivery basically and just provide that best customer experience, like that's awesome. We can do the email marketing for them. We could do the search engine optimization, we could do the financial bookkeeping for them. Like we could do really just provide this incredibly comprehensive offering where we talked about, you know, not even close to what way. We're doing the demand gen. So we're giving them all of the orders. 1,800Flowers is providing a 30 to 40% commission. You have this, you know, newer Bloomination that some florists are on. They're charging a 10% commission and all they provide is the website only. And then for us we've launched this program. We're taking a 6% commission but we provide them a way better website than, you know, I hate to compare. I really, we're not here to compare against anybody else. We're here to become the best that we could possibly be. But you know, looking at a lot of florists are using Bloomination right now. So they want to compare what do we have to Bloom Nation? So you know, we've never ranked below a Bloom Nation website in any market we've ever operated in. Average florist is doing 350k. We do a million in the first year. Close to is the worst we've ever done. But then now they're getting better product, also better efficient operation, technology. We opened a franchise unit in Scottsdale, Arizona, the largest wholesaler. We went down there, asked them what the open market prices were for Roses, they said a bunch of roses, which is 25 roses, is being sold for about $30. We are now providing roses to that franchise owner for $15.75. And they're better quality because they're coming straight from the farm. So, you know, French florists can come in and can start not just ramping up your revenue and not just ramping up your bottom line, but our number one goal beyond all of that, what's our most finite resource? Time. Through the technology that we have and through us doing all of the boring stuff, we can give the florist their time back. And the most rewarding thing that I can hear from these florists or from somebody that starts a flower shop with us from the ground up is, hey, I'm going to Japan or I'm going to France for three week vacation. That's the stuff that fires me up. Yes, let's make money. But what else? What's beyond the money? And so it's been a really rewarding journey. So anyways, that's why we fell in love with franchising. It feels a little bit better for us talking about making decisions out of feelings based instead of logic. Again, we have to running a business, we have to do the things that are economically good for the business so that we have the privilege of having this opportunity to impact other people's lives. But instead of opening 400 corporate locations or becoming a tech company, yeah, maybe we'd make more money. But know what's the company that's going to be around a hundred years from now? How are we going to leave this earth a little better than how we found it and we thought franchising was the best way to do that. So here we are.
- [74:40]
Will Smith
Well, one model that I feel like I didn't hear you say maybe you did is kind of a. Is, is similar to the value proposition that you're offering your franchisees, but it's basically the private equity buy and build model. So a lot of your value prop to these florists, these owner operators, is similar to what a private equity roll up will tell their, let's call it veterinarians. Okay. This was one that I've talked to a number of people about just recently. They go to the vet veterinarian who is really a person whose passion is animals and helping animals. And they really don't want to deal with their business, their business side of their business.
- [75:18]
Michael Jacobson
Exactly.
- [75:19]
Will Smith
So they don't do it very well, the boring stuff. Um, and so the private equity firm comes in and says we're going to take all that off your plate and you're going to remain, you, owner, are going to remain in the business and do what you do best. And we're going to take the boring stuff and oh, by the way, you know, put in best practices and we're going to get better pricing for you because we have economies of scale, because we're now going to be representing 50 veterinarian practices and so on, nearly identical to your pitch. Better pricing, you know, on the supply chain, better, better supplier pricing for them, all the boring stuff, best practices, etc. But franchising model in your case, as opposed to buying these owner operators out where you take 60% or 70% of their businesses and they roll 20 or 30% so that they're still incentivized and they still feel ownership. But they, you know, but you're effectively buying them out and, but, and then, but then you own all the locations. Why not that model? And I'm not saying, you know, totally not saying you did it wrong. You're further along now. I am on this. I'm just curious how you, how you probe and con that.
- [76:27]
Michael Jacobson
Yeah, totally. I think it depends where your motivation is. Do you want to make more money or do you want to do it in a little bit of a different way? And we're choosing the different way. We've had a lot of conversation with private equity. They won't leave us alone. I need to come up with some auto reply to my email. If it comes from a private equity email, please get out of my inbox. We're not interested. They want to give us a lot of money to go and buy a bunch of shops and roll them up. And they love the technology that we have, all of the supply chain. It's taken a lot of work to develop that and would be hard for them to replicate. And so they'd rather just have us take what we built and, you know, buy a few hundred flower shops and roll them up to be a French florist. And yeah, we own and operate them. It goes back to who's going to provide the best customer experience. Historically, our flower shops operate at about, you know, it varies on each flower shop. Every owner makes their own decisions. But, you know, you could typically 15% net operating income all the way up to 25%. And every territory that we open, we aim to be achieving between 2 to 3 million in revenue after about three or four years of operating in that territor. So say you're making conservatively $2 million of revenue and you're earning again conservatively 15% EBITDA or net operating income on that. You're making a few hundred thousand dollars or close to it and you're pretty motivated to do pretty good with your business. Right? Again, who's going to operate that business better? A manager that's being paid 80 or 100k or an owner that's taking home 250 or 300k. And I think the owner is going to operate that business in a little bit of a better way. We have to create this huge, it's very possible and we would probably make a lot more money doing it if we hired a huge HR department and purchased a few hundred shops and put in managers at each location and wanted to flip the company in seven years the way that private equity does. But it's just I haven't been super. Not that I'm not financially motivated by any stretch of the imagination, but that's not my driving force. And so having the privilege of being the seat that I'm in starting or being the owner of this company, starting the franchise program, yeah, I feel lucky to be able to say no to those types of opportunities that I think it feels better uh, I think when you'll get a little existential here but like you know, when I leave this earth I will feel better that I improved a lot of individuals lives instead of just my own. I think I'll benefit tremendously from this company as well. But that success can certainly be shared and it's not going to hurt me in any way.
- [79:15]
Will Smith
Just to be clear, when I offered you the, the roll up contrast I, I envisioned that the owner operators would, would remain as part of the, as part of the rollup. So they would roll their equity so they, their percentage ownership of their businesses would, would go from 100% down to 20, 30, 40. But they, you would hope they would still be motivated by that 30 or 40% remaining. Yeah, it wasn't just put, it wasn't just putting in managers just to be totally clear. But I assume where you ended is that being a franchisee makes them still 100% owners and they're going to be more voted, more motivated if they're 100% owners than if they're 30 or 40, 40% owners maybe.
- [79:57]
Michael Jacobson
You know what's incredible is there. So this actually was tried with private equity with a company called Gerald Stevens. It was the Blockbuster guys, the folks that started Blockbusters had just exited Blockbuster at the time and it was a massive success. Right. Obviously we all know what happened to it eventually, but at the time it was massively successful. It really was. And the guys that started that company were, you know, riding their confidence high and said, what's the next industry that we can consolidate? I think that they pitched private equity. They went into the floral industry. They saw the same opportunity that kind of we're looking at today on how fragmented the space is and said, you know, we're going to consolidate the floral industry. And so they did. I think they private partner with private equity. Again, don't quote me on this. I think, I think they spent $70 million, 70 million over the course of nine months acquiring flower shops and keeping the owners on in the exact way that you're describing. And they failed. They flopped. A lot of the owners just cashed out and effed off because even though they still had a good chunk of equity, they were able to take some chips off the table. So I don't want to say it's impossible to do that. You'd have to think really hard about the right equity and compensation structure in place. But you're dealing with florists that have been operating their business for 5, 10, 15, 20, sometimes 30 years or they're multi generational and they are not as business minded. So I don't know if you kind of offer them a lump sum of cash or the ability to kind of retire. They've been operating their flower shop for a long time. They're tired, they don't want to be taken advantage of anymore. So they tend to not perform as well if they don't have a big stake.
- [81:37]
Will Smith
Okay, Michael. Well, I want to start wrapping up here, but still some meaty questions for you. First of all, and I pressed on you, pressed hard on you on this on our pre call and I'm so I'm going to do it again for the audience.
- [81:49]
Michael Jacobson
Great.
- [81:50]
Will Smith
Going back to, going back to store. Number one uncle store. You got it to over 9 million, 9, 9.4 million in 2022. Okay, forget the other locations. Let's just pretend it's, it's the end of 2022 and you got the single location. Even with all of these improvements to the business, all the operational improvements that we spent the last hour talking about, I, I had a hard time believing that there was a, that there was that amount of demand, that there was nine, nine and a half million dollars of demand for flowers at a neighborhood flower shop because it still is a neighborhood flower shop if you're in, if you're in Malibu. Again, forgive my bad LA geography, but if you're in some far flung part of LA or LA county, you're not going to order flowers from you. So you're still there, there's still a limited radius of, of, of tam of market for you that you can draw from. And I just had a hard time believing that you could, that you could, that there was the demand there to sell nine and a half million dollars a year of flowers from a single shop. What did you tell me?
- [82:59]
Michael Jacobson
Yeah, gosh, I gotta remember what I told you back then. But I'll kind of start from the top here. So there, there's a few ways to kind of. Yeah, there's, there's a few ways to look at it. Right again. There's, there's 30,000 flower shops out there and the average flower shop is doing 350k. So you know, if we're doing 9 million out of one location, we're basically 30 times the size of your average florist. Yeah. So in LA there's a lot more than 30 florists. So there's a lot of demand out here. It's crazy to think that the amount of people buy flowers. You know what's really interesting? When I would pitch an investor, the first thing I would say because they're like, I'm not going to invest in a flower company. I invest in like technology or biotech or like pharmaceuticals. I'm like, well, hold on. The fact that every single investor is telling me, can you even make money in flowers? That's the exact reason how we got here. How big of an opportunity there is in flowers. Nobody thinks there's money in flowers. And guess what? Everybody neglected the opportunity and so there became one. But you know, you can go and kind of reverse engineer the search volume. Also you can look for specific high intent keywords on Google, like flower delivery Los Angeles, Flower delivery Malibu in your case. And you can see that a lot of people are searching for flowers and we forget that it's not just Valentine's Day and Mother's Day. People think that our business is seasonal. It's not. I mean, don't get us wrong, Mother's Day and Valentine's Day, they're all you can eat buffet of orders. But happy birthday, happy anniversary, congratulations, sympathy. Thank you. Those are everyday occasions, they're non date specific and we do hundreds and hundreds of birthdays every single day. Yeah, it's really remarkable. So that the demand, believe it or not, is, is indeed there.
- [84:35]
Will Smith
Wow, okay.
- [84:36]
Michael Jacobson
Yeah. And we're happy about that. Right? Like sending flowers is so meaningful. So we're happy that people are sending flowers.
- [84:41]
Will Smith
For sure.
- [84:42]
Michael Jacobson
For sure.
- [84:42]
Will Smith
All right, one, one more question just about the flower business. Then we're going to take it home by, by hopefully sharing some immediate opportunities for the audience. Great. We talk, keep talking about this as a passion business. Comparing it to bakeries, comparing it to coffee shop. Know, I want to quit corporate and have a bakery or whatever. Bakeries are notoriously hard because you have to get up so early or whatever. But these are all hard businesses. And you've said the fl. Being a flower shop owner is a hard business. Staying up overnight, Valentine's Day, whatever. But, but give us a picture of what it, what the internals of a business, internals of a flower shop are like. It seems like a lovely business if you, if you like flowers, that you're basically arranging and being artistic as opposed to, you know, kneading dough at 3am in the morning or, you know, in the case of a coffee shop, you know, dealing with unhappy customers and just cranking through as many lattes as you can. Like I have a view of, you know, flower designers just, you know, making beautiful arrangements in, in the back room or whatever. And it seems like, frankly, frankly like a not hard business. I recognize I'm naive and I'm probably offending every flower owner out there. So what's it actually like inside this business, inside a flower shop?
- [85:59]
Michael Jacobson
So I'll paint you two different pictures. I'll paint a picture of what it's like traditionally to run a flower shop, and then I'll paint you the picture of what it's like to run a French florist. So I do want to say running any small business is tough, right? Especially if it's a small business where you're wearing most of the hats. You don't have the financial resources to hire a marketing person and a bookkeeper and a admin and a accountant, you know, a lawyer and a. I don't know. I don't know. We have a chief operations officer. His salary certainly isn't cheap, right? And so just being a small business owner and running a flower shop, you're doing all of the things that a normal small business owner is doing. You know, email, accounting, admin, payroll, staffing. You're probably actually doing some of the work too. Delivering the flowers, picking up the flowers, processing them, like cleaning the bathrooms, right? You're kind of doing it all. So things that are normal to any small business, but it's even more difficult because of how old and antiquated the technology is and even more difficult because you have these, order these wire services that are calling you constantly, like trying to get you to, onto their system to take massive commissions from you. And then it's even more difficult because you're dealing with a highly perishable product. You cannot freeze a rose. It will die. You can only have it in your fridge for a few days and you have to get it out. So there's a supply chain consideration there too. So that's the big scary. Oh, my God. Maybe it's not as easy as I thought. Hard to run a flower shop. We came in and again, we're really good at the boring stuff. We made everything that's scary, something that you never even have to think of. So the number one thing that usually comes up for people outside of the industry if they're really seriously considering opening a French florist is what does the supply chain look like? That perishable nature of the product really does scare me. What's great is that we're just in time. Inventory. You don't, you really don't need to hold a bunch of inventory. And the customer pays you first and then you send the product out. So you never really have cashflow issues because that money is coming in before you're even buying that product a lot of the time, because you can get product fresh daily if you want. But in addition to that, we built out an inventory system and we've gone so far as to actually develop a predictive analytics model within that. So it's actually AI generated. Each store has their unique own algorithm, and it learns through time what customers are ordering at your store. And since all of the orders that people are buying from you, they have the recipes, then it can aggregate all of that data and predict the raw materials and all of the flowers that you're going to need for any specific period of time that you want. So you can say, okay, what flours do I need from the 23rd to the 28th this week? And it'll spit out a report and it gets there about, you know, after a couple of months of data. So it does take a little bit of time for the algorithm to learn, but it can get 85, 90, in some cases, 95% accuracy. And then you can look at this, that, that as the owner, and it's a really remarkably accurate tool for you to kind of do the final analysis. And, and it's a great starting point on, you know, where you, how you do your flower buying. So, you know, that's just one aspect of our, how our technology makes it A lot easier. Instead of, you know, flying by the seat of your pants and ordering what you think customers are going to order, like we'll tell you exactly what we think customers are going to order and it makes it way easier. Same thing with employees and monitoring their productivity. We can monitor designer productivity, even tie their compensation to how productive they are. Things like if you have customer service selling over the phone, just a really easy automated way to give them a little bonus if they're selling extra chocolates or teas or candles or the ancillary supplies. When people order flowers, just an easy way to add commission to their. And have them be able to keep track of their own commission as well and have that payout automatically. So just all of these like minutiae, tiny little things we figured out how to do in an automated way. So we have made it very easy. If you walk into one of our flower shops now, a lot of the responses that we get are, are you sure you're doing $2 million out of this location? Are you sure you're doing a million dollars out of this location? It's like remarkably calm in here. Yes, that is very purposeful because what everybody's working on is so specialized. Like the designer is spending all of their time designing. Some of the bigger shops will have a full time customer service rep. All they're doing is, you know, answering the phone or helping customers at the front door. We have a full time delivery driver, but what we don't have is the designers also taking orders, is also delivering, is also processing the flowers, also cleaning the bathroom. Right. So we don't have this like chaotic. And then we're really good at the email marketing, we're really good at paid acquisition, we're really good at the search and optimization. You have a dedicated bookkeeper, everybody's hyper specialized. And we have the economies of scale to give our franchise owner enterprise level resources. But at their small business level, so it becomes a lot easier.
- [90:32]
Will Smith
Okay, now taking this home to the opportunity and not, I don't mean joining a French florist, but I'll. You can talk about that. I mean that. As I said earlier, I went on to biz by sell and saw seven or 10 flower shops for sale in my area. And I feel like I've seen flower shops for sale anytime I go on Best Buy sell. And they all feel like your uncle's place to varying degrees. Half a million dollars in revenue, 100 ish thousand of SD, anywhere from 5 to 15 employees. Usually talking about the great retail location that the flower Shop is in usually talking about how, you know, the neighborhood loves the shop, often saying that, often implying that you need to be a flower person to buy this business? You know, great, you know, business in a box for somebody who knows flowers sort of thing. So.
- [91:29]
Michael Jacobson
Right.
- [91:29]
Will Smith
That excludes a lot of this audience.
- [91:31]
Michael Jacobson
Totally.
- [91:33]
Will Smith
So the question is, leaving that last detail aside, like if you can push through not knowing flowers, I think my audience feels comfortable that they can learn any industry or most industries. My audience, can they buy their local flower shop and turn it into maybe not a nine and a half million dollar business like you did on Melrose? Because maybe they're not going to invest $300,000 in tech, but can they do something approaching that? Can they take a little half a million dollar mom and pop? That's a hot mess. And is there a formula, a playbook to making it a 2 or $3 million business that's doing 20% margins without investing $300,000 in tech and without joining French florist?
- [92:18]
Michael Jacobson
Yeah. So let me give you two different paths that I would recommend. This is my opinion, and do what you want with it. But these are my thoughts. The first route is if you have the capital to buy a flower shop, it will certainly accelerate your growth where you can purchase the flower shop. And if you were looking at French florist, you could convert into a French florist. And we do have experience doing that. On average, we usually triple revenue within the first year. I don't have a crystal ball. I don't know all the stats on. We are pretty particular about the flower shops that we take on. And so we want to make sure that we can help in a profound way like that. So it's not going to be the case for every flower shop. And I'll circle back to that. We're very good at doing due diligence on flower shops and we're super happy to offer that as a free service. If you guys need help offering, you know, thinking of buying an existing flower shop, especially if you're thinking of joining the French Flourish brand, we want to make sure that you're very successful. We don't want to be salespeople. We want you to be the salespeople. When we have other florists and other people that join the system, we want them to call you and ask you how, you know, what was your experience joining the French florist family. And if you're singing from the rooftop, then we're all successful. Right. So in, in that sense, we're, we, we provide a Lot of value with help with due diligence. Whether we partner or not, you know, if the floral industry is succeeding, we're all happy about that. So, you know, if you're thinking of buying an existing flower shop, feel free to reach out to us with absolutely no strings attached. Just happy to help guide you away from a bad decision that it's not a great shop or tell you, hey, this is a really great shop. And if you ever feel like joining the French Flush family, let us know. But it's usually what you're doing is.
- [93:56]
Will Smith
Buying a flower shop free due diligence on, on these, on these flower shops. You might have some takers there. So go ahead. That's great.
- [94:03]
Michael Jacobson
Yeah, we've done, yeah, we've done due diligence on 100 plus shops. So we're. It takes us no time at all to give you a quick reading on what we think of the room. But usually you're buying a flower shop for 3 or 4 x EBITDA, maybe even less sometimes if it's less, you're typically getting a better deal. And if they're making 60k a year and you're maybe paying 4x on that, I don't know, it's 240, 250 grand that you're paying for the business. It only costs us. It starts at about $160,000 and it can range up to $300,000 depending on a lot of decisions that the franchise owner makes on how expensive they want to go with their signage, how big of a square foot, 1,000 square feet versus 2,000 square feet is going to be different. So that's why there's a big range there. But with us, you can open a flower shop from the ground up for as little as $160,000. And so sometimes it's not worth it to buy it. It's more worth it to start it from the ground up. I will say though, that it's, you can get running a lot faster. If you do have the capital to acquire a flower shop, it's going to be more capital intensive. But you can probably get to that, you know, million dollar mark and $2 million mark a lot quicker than starting something from the ground up. Starting from something from the ground up. So a little more, you know, less capital intensive. You can probably, you know, reach 2 or 3 million in, in a period of four or five years with, you know, and if you acquire the right florist, you can probably get there in two to three years or maybe even less. So it depends at the speed and.
- [95:34]
Will Smith
Let me stop you there. Let me stop you there, Michael. Yeah, let me stop you there. Because you're talking to an audience that is biased toward buying an existing business as opposed to de novo development. Why does it go faster? For all the obvious, if somebody buys an existing flower shop for all the existing reasons, Google already knows them. Yeah, but are they going to change the URL to French florist slash Alexandria? Like. Yeah, anyway. Yeah, exactly. Why does it go faster?
- [96:04]
Michael Jacobson
All of that. So if you were to join the French florist family, say you're, you're, you know, Will's flower shop and it's Will's flowershop.com, go on moz.com or ahrefs.com and type. Or type it in Google domain authority checker. Go and check the domain authority of that website. It's probably going to be a three or a four or a five or a six, which is very low domain authority. French florist is much higher than that. And so when you switch over to the French florist domain, you immediately get recognized by Google as being more authoritative and showing up higher in the search results for your keyword terms. Right. So by switching an existing shop to a French florist, you have existing traffic that's coming to your, you know, Will Smith or willsflowershop.com that's going to get redirected to frenchflorist.com and there's a really thoughtful process that we do to educate the customers and get them really excited about this. You know, Will's flower shop joining the French florist family. And yeah, we've seen a lot of. It's been great reception from customers that better supply chain, more technology, they get a mobile app like all these fun things. Right. And, but not only that, you're usually your average order value. Again, all the stuff that we talked about prior is going to be lower at this florist. By using the French florist website, your average order value. Right now our average order value is over $170. The unit economics on a higher average order value, a lot of that goes to the bottom line also. So there's a lot of considerations there. Usually they're on a Bloom Nation website or a really scrappy website that they might have developed themselves. When you join the French florist website, our conversion rate is way higher. So even if you're not investing in a paid acquisition, even barring all of the SEO stuff, all of the existing traffic is going to convert at a higher Rate as well. So you see a massive revenue jump there as well. So anyways, yeah, using all of that existing infrastructure that exists, existing client data that's in there, when you translate that over, it gets multiplied usually by times 2 or times 3 as opposed to starting from scratch. It's very heavy investments, you know, especially in the first three to six months in paid acquisition to get those customers in. And then once you get those customers in, we're really good at the customer lifetime value and retaining those customers and building profitability from like kind of month six onward. So yeah, I mean, if you start with an existing infrastructure, granted the bones are good, you can scale that a little bit quicker.
- [98:12]
Will Smith
Okay. And what about the people? Is this something where you know that that's obviously appealing as well? I have all the, all my florists ready to go, all my flower designers ready to go. Is that an advantage? And by the way, this is not an ad for the French florist. So we're also going to hear Michael talk about going the non French florist direction as well. Sorry, go ahead.
- [98:34]
Michael Jacobson
Yeah, absolutely. I, I think that it's a double edged sword and depends which edge you get. If you have folks that are really excited about you coming in and if you can really connect with them, these are again, remember, these are folks that are really creative and really passionate and they love what they do and they have strong opinions. They're not always super business minded. Even the designers that are working there and the existing staff, so. Well, this is the way I've always done it for the past eight years, you know, you get a lot of that. So it depends. For the right staff, it's absolutely a plus. But believe it or not, there are a lot of designers out there and it's not unnatural to have a little bit of turnover at the flower shop. Your team is everything, right? You can have all the greatest systems in the world, but your team is the one that's running the systems. So we've worked with flower shops where we've come in and kind of pointed some things out and they've made some adjustments for the better, but we've come into some and they have a remarkably loyal team that they, you know, they own their impact, they act like owners, they want to see the business succeed, they're happy, you know, to change the name to French Florist is usually the biggest concern and they've done really well. So yeah, just be thoughtful about the existing staff.
- [99:47]
Will Smith
And then, and then Michael, either going the French florist route, you know, Being an acquisition entrepreneur, acquiring a flower shop and then link it up with you guys. We're not remaining independent in either case. It would seem that these businesses, like your uncles, are so small that they're in many cases they're unsalable. So when you Talk about a 4x SDE or a 4x EBITDA multiple on a business is throwing off a hundred thousand dollars. I feel like first of all, the multiple would be a lot lower because they're looking at closing up shop and that you could probably, you could probably get really generous seller financing. So you could frankly strike a really hard bargain with these flower shops and get them at a much lower price or a much more, you know, risk adjusted price than, you know, $1 million plumbing business that's been around for 40 sort of thing.
- [100:44]
Michael Jacobson
Yeah.
- [100:45]
Will Smith
So is that, do you think that that's a fair assessment that basically these flower shops are selling for lower than most small businesses are selling for because they don't sell, they close up?
- [100:54]
Michael Jacobson
I'm sure you know better than I do and I'm sure the listeners do as well. I'm more than sure that you guys are more accurate with this, with the baby boomers that are selling their businesses, especially. What I see on my end, we know a lot of industry knowledge, so it'll be interesting to get your perspective on this. But we do see more flower shops closing than ever before. But our industry is growing. So what that means is there's just consolidation happening. The biggest players are winning. But it is, it is fascinating because the more flower shops are closing their doors, not even selling their business than ever before. So yeah, my, I would have to, I would have to agree with that. And what you're saying is that if the alternative is just shutting their doors, I'm sure you can get a pretty low multiple on some of these flower shops. Right? Yeah.
- [101:37]
Will Smith
Right. Because that's what your uncle would have eventually done.
- [101:40]
Michael Jacobson
We assume he didn't have family that wanted to take it over. And that's what ends up happening a lot of the time. Yeah, yeah, yeah.
- [101:46]
Will Smith
And in terms of labor, sorry, I should have asked this before, but the. How hard is it to hire flower designers? Is this like, you know, you'll hear in some of the industries that we talk about, finding plumbers and H vac technicians is incredibly competitive. Very difficult. In the accounting world, there are less accountants being graduated from school than ever. So. So, so they're increasing competition there for good accountants. What's it like in the flower designer world?
- [102:13]
Michael Jacobson
You know, I've had this conversation with a lot of flower shop owners and I hear such mixed reviews. So I can speak to our experience, but our experience might be different than what another florist experiences. And I can tell you why I think our experience is different. We have never had a problem hiring designers, ever. That being said, we tend to hire slightly above market rate and we work in an environment where the designer is not having to do any admin tasks. So they typically like their job, may I dare even say love their job, because we let them do the creative work, the work that is the stuff that, you know, is a part of their, the fire in their belly that gets them up in the morning. Right. Like we let them lean into that. So we haven't had a problem retaining or attracting talent and retaining talent. You know, in Los Angeles we pay designers anywhere from 20 to $30 an hour. LA is a very expensive place to do business. In the middle of the country, you could pay, you know, 13, 14, $15 an hour. But even those places, the unit economics of a French florist, you can certainly pay much above market rate. And there's a lot of, I mean, think about it again, there's. There's 30,000 florists in the country. Every florist has designers in it. Very few of them are owner operator. Where the owner operator does design by themselves, they usually have at least one designer that works with them, if not multiple. One of our shops has over 20 designers. Our LA shop. Right. Big volume. We've never had a hard time attracting talent. There's a lot of floral designers out there, surprisingly, just almost as much as you'd think, like, wow. A lot of people order flowers online. It's a pretty remarkable amount. There are a lot of florists, a lot of designers out there as well. It's a wonderful job. So it is an hourly job. It's not the highest earning job, but these folks do it out of passion and they are out there.
- [103:48]
Will Smith
Yeah, yeah. What I really want to understand here is the value proposition of going with French florist is strong and I understand that. But I also just want to help from somebody who's the industry expert, understand if there's an opportunity, what the opportunity is in buying a flower shop, an independent flower shop, and you know, not joining with the French florist, you know, this is pretend that you're not trying to sell this, sell us on, on that. How are the employees going to react to a non flower person buying a flower shop is, is the question. And then I'll have A follow up?
- [104:23]
Michael Jacobson
Yeah. I think that the designers and the staff that work there, in my experience, will be very warm and welcoming. Again, these are folks that are creative and if you can come in with the intent and you can communicate this to them, that I want to work on the business and getting more orders in so that you can spend more time doing what you love, which is designing and interacting with customers and providing a great experience. I think they're more than welcoming to it. So it's all in the messaging, but there's no. I walk into the flower shop and it's all love. I can't do what they do, they can't do what I do. So it's a great partnership and I think that's typically what I find in flower shops. Yeah.
- [105:03]
Will Smith
Okay. And then again, just somebody contemplating buying a flower shop. I mean, it is remarkable what you grew. Your uncle's flower shop, by the way, was it always called a French florist or is that a new brand that you came up with?
- [105:17]
Michael Jacobson
It was. No, I loved the name. I think ro Americans have a romantic, you know, European and specifically French way of living. So it's almost this like aspirational brand. So we love the name. We kept it.
- [105:28]
Will Smith
Yeah, it's, it's, it's a great, great brand. I love it for the very reasons you just said. If I were to buy one of these, you know, half a million dollar flower shops but wanted to stay independent, what do you think it's realistic that I can do with it? I mean, can I get this to a 2 or 3 million dollar flower shop without spending $300,000 on tech? Can I get it to 4 million, 9 million?
- [105:52]
Michael Jacobson
Absolutely. Of course, nothing is unattainable. That being said, it's not an easy path. There are probably easier paths out there. If you're looking for buying a business that's kicking off 500k in revenue and you want to ramp it up to 2 or 3 million? Um, this is probably an easier business if you're going independent. And of course I'm biased towards joining French florist, but there's a lot of sleepless nights that I spent in the flower shop working not just on the technology, but in other ways. And I would not want to operate something that's not a French florist. I know, obviously I'm biased in saying that, but I would dissuade you from buying an independent flower shop.
- [106:36]
Will Smith
Oh, okay. It's too hard to do what you did. I mean, are there easier paths to do what you did? If you're gonna, if you're somebody who's willing to buy a small business, there's probably an easier path to taking a really small half a million dollar revenue business to 2 and 3 and 4 million.
- [106:51]
Michael Jacobson
Yeah. In the current state that the floral industry is in, like, granted, if you don't want to invest in your own technology again, the supply chain is very difficult because you have to have massive economies of scale to get the deals that work getting. But you're going to be joining a Bloom Nation website, which is the alternative best out there. They're taking a 10% commission structure. Even if you're not partnered with the other wire services that are taking much bigger commissions, their email marketing sucks, their paid media and acquisition sucks, their SEO sucks. So you can hire all these outside agencies as well, but it starts to get very expensive. You're also again, dealing with a perishable system. There's no other predictive analytics inventory system that's out there yet. We're always for innovation and if somebody else innovates in that level, like we're super happy about it. But you know, the fact that you're in a perishable industry with that doesn't have a lot of technology, it's in a high commission environment. There's a lot of headwinds against independent florists right now. So ask me in three years, I might change my mind. But in the current state that the industry has been in and up until today, the reason that we're doing what we're doing is, you know, we want to fundamentally change that. And currently the way that we look at it, the only way to operate a flower shop and the way that we are successfully is to do it with and through our brand.
- [108:03]
Will Smith
Where, how many locations do you have now, Michael? What is the state of the French florist to close this out?
- [108:09]
Michael Jacobson
Yeah, we are in the very emerging stages of franchising. And so we only have five locations open right now. In 2025, we'll be opening a maximum of 15 more locations. So we always want to, we're capping how much we grow. We want to grow with quality in front of mind and not grow too quickly. So we're just focusing on the South Southwest U.S. but for an existing flower shop, because they have existing infrastructure, we can go nationwide. But for a startup candidate who doesn't have floral experience or who's not buying a flower shop, we're just focusing on California, Nevada, Arizona, Colorado and maybe Pacific northwest in early 2025. So yeah, slow and steady. The goal is to get to a few hundred units over the course of the next few years. So maybe we can chat soon and, you know, checking how that progress is going.
- [108:59]
Will Smith
Well, congratulations, Michael. I just love, I mean, the, it's an overused word in entrepreneur land, but this is a scrappy story. I mean, you really took, you took some raw material and have forged something that has. Seems to have a lot of momentum and even maybe the shot at disrupting an industry. So it's pretty exciting. I love the brand French Florist. And it's a beautiful logo which people can't see if they're listening. And it's not on my screen anyway, but you can Google it, so more power to you. And thanks for coming on. Any, any, anything. I didn't ask any closing thoughts?
- [109:35]
Michael Jacobson
No, I don't think so. I think that, you know, it wasn't really me that's built this company. It's myself alongside the incredible team. I wouldn't, obviously wouldn't be able to do without them. So, like, whether you're buying a business or not, any way that you can lean into your team has served me very well. So if I could pass that on, that's great. And then. No, I just appreciate the tough questions. Thanks for the platform.
- [109:54]
Will Smith
Are you available for people to reach out with questions?
- [109:57]
Michael Jacobson
Yeah, always. Absolutely, yeah. Michaelrenchflorist.com yeah, reach out. Super.
- [110:02]
Will Smith
All right, Michael Jacobson, thank you very much for coming on Acquiring Minds.
- [110:05]
Michael Jacobson
Thanks. Will.