Linen Fresh's Blueprint for Explosive Growth

Sivan Salem 00:20: Well, we're so excited to be joined with Sara Wendt, who will hopefully give us another amazing speaker session today. Pressure's on. I know, exactly. No pressure. Thank you, everybody, so much for tuning in today.

We are joined with Forbes-ranked wealth advisor Sara Wendt, who will tell us a little bit about how she's built a laundromat empire through Box3 Capital and Linen Fresh. Thank you so much for being here. Thank you for having me. We are super excited to have you. The expectations are so high. They cannot be higher. Oh, my gosh, pressure's on. But yeah, we're going to talk about everything related to building a laundromat empire. So let's just dive into it. I know that one of the things that you're doing right now is building that laundromat empire while being a wealth advisor. A lot of people might not think that those two things actually mix. What did you see in laundromats that made you want to add this to your investment portfolio?

Sara Wendt 01:24: Yeah, well, I've spent a lot of time in my career evaluating investments and I know that it's very rare to find one that hits all three categories. So those three categories are income, growth, and very favorable tax treatment, and laundromats are exactly that. They are very profitable businesses that are recession-resistant with very attractive cash flow and tax benefits.

Sivan 01:50: Amazing. And so with that being said, you're working potentially with a lot of investors who don't have any experience investing in laundromats. How do you shift their perspective? Is it just these are the three things you should be looking out for and these are the three things that the laundromat might be able to offer and check the boxes off? Or how do you think of this in terms of building that essential service empire?

Sara 02:15: So the thing is, the demand to invest in laundromats has never been higher. The problem has historically been that there hasn't been an easy way for investors to access the asset class, unless you literally want to go out and buy and operate a laundromat. So what we've done through Linen Fresh Laundry is create a structure for investors to do that. So from an investor perspective, Linen Fresh Laundry is a growth equity investment. So our investors come in, we reinvest the majority of our profits back into the business, and we are growing this for long-term value through scale and an eventual exit. So, you know, the demand is there, the structure didn't exist, and that's really what we've changed with Linen Fresh Laundry. And we actually are right now just launching a sister brand and it's a separate investor base that will be structured as an evergreen fund. So investors can come in, get their cash flow and get liquidity out at any time. So it's really just about creating the structure for the investors.

Sivan 03:18: Amazing, and I think that makes it so much more available potentially in this really in-demand market. So you're obviously evaluating a lot of laundromats. Which specific characteristics make a laundromat acquisition-worthy versus saying that you're going to pass on it?

Sara 03:35: Yeah, so what we've done is we've essentially built a proprietary database of all of the laundromats that we know of in the country, and we have a set of criteria that allows them to fit in our target box. So for us, that includes minimum square footage of 2,500 square feet. We have minimum EBITDA requirements of $125,000. We have to have good parking, good visibility, certain market demographics, renter density, population inflows, and we verify that with third-party data. So we use tools like Placer AI, which can very quickly help us identify, do these laundromats fit into our box or not?

Sivan 04:16: Amazing. And with that being said, have you ever come across one that maybe looked promising and then as you started to dive into it a little bit more, it didn't meet any additional criteria or you saw something that didn't match the data that you first looked at?

Sara 04:32: Definitely, and I talked about this earlier, but we learned some lessons early on. This is hard and execution is everything. So, you know, earlier on there were situations where sellers overstated revenue due to incomplete financials and we did overpay for an acquisition in the beginning. So we have a very, very rigorous underwriting process that we go through now to make sure that we are triangulating that data and verifying it before we buy it.

Sivan 05:01: You learned from your mistakes. Definitely, definitely. That's awesome. With regards to laundromat investments, what separates the laundromat investments that generate like 20% to 35% ROI from those that plateau? Is it a deal structure, operations, like how are you looking at that?

Sara 05:20: Yeah, so I think it's really three things. I think number one, it is rigorous underwriting. You cannot overpay for an acquisition or else you're digging yourself out of a hole day one. Number two is professionalizing the operations. So we didn't have at the beginning standardized operations playbooks, which we have spent a lot of time refining, the checklists, making sure that your attendants are consistently doing the same thing morning, afternoon, night, the way they greet people, the preventative maintenance around that. And the third one is growth. At the end of the day, revenue solves most problems. So if you can grow your business, you're probably in a good spot. And that really comes down to, I would say, a combination of good marketing, strategic price increases, and an obsession over the customer experience.

Sivan 06:12: So you mentioned standardized operating procedures, and obviously we're talking about acquisitions here. Are you putting in any new talent or any new employees to oversee the implementation of these new standardized operating procedures, or could you talk me through a little bit of the management of these facilities?

Sara 06:30: Yeah, so we run these through a centralized corporate management system. So our accounting, HR, finance, marketing, is all done at the centralized corporate level. And that allows our store-level employees to focus solely on execution and the customer experience. So that's super important, making sure you integrate that the right way.

Sivan 06:50: Amazing, and focus on what you do well and double down on it, for sure. So a couple things to note. You've expanded across multiple states, right? We're talking Nevada, Texas, Arizona, New Mexico, just to name a few. Can you tell me a little bit about your selection process in regards to demographic trends or competitive gaps or anything beyond the three criteria that you initially spoke to?

Sara 07:18: Yeah, I would say it's a combination of demographic tailwinds and the operational realities. So on the demographic side, we are looking for places that have net population growth, high renter density. High renter density means a higher concentration of customers for us. And then we're looking at places on the competitive landscape, low competitor density, and we're looking for larger square footprints. So if we have larger stores, we can offer vending, wash and fold, higher-margin services. So it's really a combination of finding the markets that have the right demand and room for growth.

Sivan 07:57: Have you entered any space that didn't have full service like wash and fold and introduced it as a brand new service offering?

Sara 08:06: Yeah, so we just acquired seven stores in Albuquerque, New Mexico, and those are 100% self-serve, so right now we're in the process of building out our wash and fold counters and introducing wash and fold into that market, so that's a big opportunity for us.

Sivan 08:21: And what do you think is going to be the biggest challenge in terms of gaining your customer base for this new service? I mean...

Sara 08:32: You have to do the right marketing. If your customer doesn't know about your service, then they're not going to come to you. So we do everything from local Instagram ads to Facebook marketing to old school flyers, and you have to track that very carefully because you can waste money on marketing if you aren't tracking the ROI, but with the right marketing, you can drive the new customers.

Sivan 08:53: Have you found any particular marketing strategies that have been most effective in smaller markets versus larger markets?

Sara 09:01: Facebook marketing works really well and if you combine just typical Facebook ads with plugins that allow you to get the customer data, so we do ads that say, you know, $15 comforter, come in at any time, put your cell phone number to get this promotion, then you get that customer data. You can build up a data set of, you know, thousands of customers that you didn't already have in your system, then you load them up into Cents, you know, the marketing software that we use, and use that to send SMS campaigns which we love. That's a great way.

Sivan 09:35: Amazing. I love that. And this is now my own curiosity, but I'll bear myself a part of it. Promos, you mentioned. For first-time customers, are you seeing any particular promos grab them in the door or make them into a repeat customer most effectively?

Sara 09:53: Yeah, we've tried everything. Right now we're doing raffles. So we do a monthly raffle at each of our stores where we give away pretty hefty cash bonuses to anyone that comes in, loads $20 or more on their Laundroworks card to incentivize them to load more money. They get entered into a monthly raffle to win a cash prize. And we advertise that on Facebook, on Instagram, and in our stores. And you cannot believe the amount of entries that we get. And people tell their friends and they come into the store because of it. People love the opportunity to win a cash prize. Yeah, we love a raffle, honestly. We love raffles.

Sivan 10:27: In this world of automation, it's something that's brand new. Yeah. And are you doing also a big bill bonus on Laundroworks? We are. We definitely do.

Sara 10:35: We do the big bill bonus.

Sivan 10:37: Amazing. So a couple things I know that set apart the Linen Fresh facilities. So first of all, you're always staffed, you're always staffed, you're climate controlled, you have premium facilities, you have investors, etc. I know that that might be a much higher cost than a typical laundromat, or maybe not, but how do you justify these costs to investors and what's the actual impact on customer behavior and retention?

Sara 11:07: Yeah, so look, at the end of the day, our stores still have 35-45% plus operating margins, which is great. So it isn't necessarily, it isn't affecting the bottom line in a negative way. What does happen is more customers means more retention and more revenue. So we really focus on every detail. It matters. Like the experience that the customer has when they walk in the store, how they're greeted, what the music that is playing sounds like, what the seating is, the paint, all of that needs to be at a level that makes the customer feel good. They will then come back to your store and they will spend more money in your store. And that works.

Sivan 11:46: Absolutely. If it's safe, it's comfortable. Yeah, absolutely. You know, what systems did you build early that prevented typical scaling breakdowns? Like, what would have broken your growth if you hadn't addressed it early on?

Sara 12:06: Yeah, I would say it's two main things. Number one for us has been a unified tech stack. So that has been huge and without a unified tech stack, we were dealing with disparate systems that we had inherited and it makes it a lot more challenging to effectively get that data and use that data to run your business. So we use Cents for our POS system. We use Laundroworks for our laundry cards. We use Rillet, which is an AI ERP accounting system. We use Rippling for payroll. We use Ramp for our accounts payable and our corporate cards. And having all of those standardized systems allows us to tie it into a business intelligence dashboard where we know every single day exactly how our stores are doing. We can track every customer, every dollar, every machine in every store. It would have definitely broken us if we didn't.

Sivan 12:51: Absolutely, at this scale for sure. What was the biggest challenge in allowing or in transferring to a new system for the existing employees that are in-store?

Sara 13:06: Integration is everything, and the integration is never as easy as the sales pitch. So if you don't spend the time to teach your people how to use the systems and enforce them and make sure they're using the systems, you are no better off than before you bought that technology.

Sivan 13:24: Are there any incentives that you think would help an operator whose employees are struggling to transfer? What you said, enforcing it, is that like you use it or not or like or you're gone?

Sara 13:35: Carrot and a stick. Obviously, you penalize people who don't do the right thing, but we lean far more towards rewarding our employees who do the right thing. So, give them incentives for doing X, Y, and Z. You know, we find as many ways as possible to pay our employees above and beyond their normal hourly rate. So, they get bonuses for Google reviews that have their name mentioned in them. They get wash and fold commissions. They get cash bonuses if they refer their friends to work for us. And our customer raffles that I was talking about, the store manager or the store attendant who gets the most customer engagement also gets a cash prize. So, reward them for doing the things that you want them to do.

Sivan 14:15: You mentioned comp for wash and fold. Can we dive into that for a second? Is that okay? How are you thinking about comp beyond the hourly wage for your attendant?

Sara 14:28: So what we're doing right now is we offer a 20% commission to our attendants for doing the wash and fold. I don't know if it's perfect. I'm sure there's a variety of different ways that people do it. But, you know, you're essentially asking people to become salespeople, you know, if you want them to push wash and fold services, you have to align incentives. Otherwise, it's challenging.

Sivan 14:51: And 20% on the total order value. Very nice. Linen Fresh is hiring. Yes, we are hiring. In Albuquerque, some stores. So in regards to that, we have a couple, we're seeing operators who struggle with build versus buy decisions on technology. From your perspective, do you prefer acquiring locations and upgrading their tech or finding operators who have already modernized?

Sara 15:22: Yeah, that's a good question. Look, from a pure investment perspective, there's huge opportunity in a store that hasn't modernized yet. There is a lot more growth potential because you can go in, buy a store, add the Cents POS, add wash and fold, and the growth can be huge. I will say it's hard to modernize. You have to have the right process in place to inform your customers that you're going to be switching away from coins to card. And if you don't do that the right way, customers are going to be mad at you and they might not come back. You have to have the right signage in place. You have to have the right training. You have to overstaff your stores when you first put in the kiosks so that they are there helping every single customer that comes in learn how to use the card. So to answer your question, it's less about, you know, if we're buying versus building the technology and more having the right systems so that we can integrate it the right way and teach our employees how to do it the right way.

Sivan 16:24: So a couple of things to ask just in this industry, looking ahead three to five years, what trends or disruptions are you preparing for the most that we might not even be thinking about as laundromat owners? Because looking at this from an investment perspective.

Sara 16:40: I think data. This is becoming a data-driven business that just didn't exist. Laundromats have lived in the dark for so long when it comes to data, and that has now changed. So we can use the data and the technology to enhance our business. For example, we're evaluating AI cameras right now. So how do we use AI cameras to help us train our staff, to identify issues, to identify attendants who maybe aren't doing what they're supposed to be doing, to identify the fact that a customer had to wait an extra two minutes at the kiosk to get help with their laundry card. So data is huge and technology. And the second thing is just the customer experience. I do not think the future is about the machine, it's about the customer. You have to have a relentless obsession with the customer experience. If Starbucks can turn coffee into an experience, laundromats can do the same thing for laundry. So stay obsessed with your customer.

Sivan 17:43: Is there anything in particular outside of the raffles and obviously like the incredible service that you guys offer that sets the Linen Fresh experience apart from a customer service perspective?

Sara 17:51: I honestly think you have to look at it holistically, from the moment the customer sees your ad on Instagram. What do they see when they go to your page? What do they see when they go to your website? What happens when they walk into the store? Does someone greet them? Is the space well lit? Do they have a place to sit? Is the vending machine working? You won't believe how many laundromats have a vending machine in it that doesn't work. That's really frustrating. So making sure the pieces all fit together.

Sivan 18:17: And obviously, that's something future-proofing. How do you future-proof an essential service or an essential business? Is there anything beyond the customer experience? Is there anything beyond AI, just looking ahead?

Sara 18:35: I mean, I think you have to use the data to make informed decisions. So, you know, now with tools like Placer AI, you know, or even the data we're getting from using Cents and Laundroworks, you know your customer. You know how much money they're spending, you know where they're going before they come to your laundromat, you know where they're going after their laundromat. So use that information to make your product offering better.

Sivan 18:58: And how have you added a product offering or enhanced a product offering as a result of data?

Sara 19:06: So we're in the piloting stage, but I think AI cameras are big for us. So we were doing things pretty manually. You're watching your reels and you're saying, okay, this didn't go well, or this didn't go well. But if you can now use an AI system that can deliver a report to you on a weekly, daily, monthly basis that tells you, hey, here are the five things that went wrong, so you don't have to spend the time doing that, that's huge. Yeah.

Sivan 19:29: Not having to look through security files or anything. So we only have one last question here. And then we might have a couple of minutes if anybody has any questions from the audience. But if you had to start over tomorrow with no locations, no capital beyond a typical entrepreneur, but all the knowledge you have now, what would be your first three moves?

Sara 19:50: So, what I would do is I would buy the ugliest, most mismanaged store in the right location in the right market. I would then professionalize it. I would add my unified tech stack, and I would do all of the right marketing to grow it. Having the right location in the right market matters so much. You can upgrade a store. You can add new employees. You can professionalize it. You can't change the market. Do you have a favorite market? Oh gosh, we're expanding so quickly there's a lot of good ones. Las Vegas has been a great market for us. We have eight stores there and that's a good one, but Arizona too. So I don't know if I have a favorite one but we've got lots of good ones.

Sivan 20:35: The West. Yeah. Awesome. Well, I would love if anybody has any questions. We have like two minutes to go through. Yes, sir.

Audience Member 20:47: Thank you very much.

Sivan 20:50: Have you built a store from the ground up?

Sara 20:50: No, we have not built a store from the ground up and I know there's different business models. For us, we're acquiring existing laundromats, professionalizing them and growing them.

Sivan 21:10: Yeah, I mean the question was we've talked that this is a mature market, but it's also a growth market. Can we elaborate?

Sara 21:20: Yeah, I mean, look, from a valuation perspective, we're still in the early stages. If you look at how these laundromats are being valued, at least for us, when we're going out and buying a laundromat, we're paying anywhere from three and a half to four and a half times EBITDA. I cannot tell you what every single store is valued at, but if you look at what happened in the car wash industry, which is where I think laundromats are going, you ended up exiting at 19 times multiples. I don't know if we'll end up exactly there, but there's still a lot of growth because it's still so fragmented. The majority of this market is still owned by individuals. There hasn't been a massive amount of consolidation yet, which is why there is still so much room to grow.

Sivan 22:04: Oh, yes, sir. What was the last part? What percentage of your stores are retooled?

Sara 22:16: It's been about 25% of our stores that we've retooled, so we do do partial retools in our stores to optimize the equipment mix, which is very important, I think.

Sivan 22:30: Which equipment are you...?

Sara 22:35: Which equipment do we prefer? Oh, we use a variety of different ones. We're not tied to a specific one. We've had a lot of success using Wascomat machines, but we've used across the board. So we do not have one across all of our stores.

Sivan 22:48: But are you almost all coinless, you mentioned? Yes.

Sara 22:52: Yes, yes, yes. We are exclusively, we don't use any coins. We do card systems and then in the kiosk you can put in your cash, but we do not take any coins. And the same thing, we use the Cents card readers on our vending machines, we use the Cents card readers so people can get into the bathrooms. We use the Cents card readers to check out and use the soap and the products at the counter, so we make it easy for people.

Sivan 23:16: Yes, sir.

Audience Member 23:23: [Question about acquisition structure]

Sara 23:23: So the way we've done it historically is we do 100%, but we definitely are open to partnerships. We have typically done it 100%.

Sivan 23:33: Love the Q&A, so engaged. Any other questions for Sara? Yes, Sal. What's the average distance, the average distance from your store to the nearest competitor?

Sara 23:52: Oh, it's a good question. It's probably about three miles.

Sivan 23:57: Sal is in Brooklyn, New York in a very congested area that has within about a half mile radius like 10 laundromats. Yeah, that's very congested. Yeah. Yeah. Linen Fresh. This is Sara from Linen Fresh. Yes. Do you buy properties with a laundromat? No.

Sara 24:20: We have not historically bought the real estate, so when we go in, we renegotiate the leases and we make sure they're 18 to 20 year leases.

Sivan 24:28: Any other questions?

Audience Member 24:39: [Question about international expansion]

Sara 24:39: We haven't yet, we haven't yet, but I've been meeting a lot of people with interesting laundromats overseas. I love it.

Sivan 24:54: Do any of your laundromats offer additional amenities like coffee shops and so on?

Sara 25:01: So we do have a behemoth store in Dallas, Texas that's 10,000 square feet and even has a barbershop in it where you can get your haircut while you're waiting. That is not the norm. This store is massive, but it works very well in that market.

Sivan 25:19: And do you plan to look at those locations more because that's the rise?

Sara 25:25: I think so. You have to be careful with that. I mean the coffee shops and all of these ancillary services, I think you can sometimes get distracted from your core service offering. I do think that having the right vending machines, you know, massage chairs work very well, whatever the one or two product offerings that you're going to have, I think makes sense. But do not get distracted from the core service and the core experience.

Sivan 25:52: Yes, sir. That's a great question. What's your criteria for looking for managers or operators at these locations?

Sara 26:02: Yeah, that is a good question because it's really hard to find and retain the right talent. And ultimately you're looking for people who are relentlessly customer service focused. I talked about this a little earlier, but we are always hiring and looking for talent. So the way that we've done it is we do it through Instagram. We have had a ton of success. We do Instagram hiring ads by zip code. And when we have our ads running, we get on average 20 applications per day, per region. And once the person applies, we have them fill out a personality test. It's a quick little quiz that helps us qualify them and understand if they're a qualified candidate. It then prompts them to automatically sign up for a little WhatsApp or Zoom interview with one of our teammates. And doing all of that in a centralized manner has taken the load off of our store managers who were spending time doing that interviewing and hiring. Of course the training happens at the store level, but that's been big for us because you constantly have to be looking for talent.

Sivan 27:07: Yeah, I love it. Okay, well, I think that's time. Thank you, Sara, so much for joining us and sharing your wealth of information with us. Thank you. Really appreciate you. And thank you, everybody, for coming. We'll be having speaker sessions all day. So I hope to see you soon.