Ever passed by those little carts on the mall and wonder how in the world they ever stay in business? I´ll tell how how. They make, on average, about a quarter of a million gross. And what´s more, the smartest mall-cart owner/operator didn´t have to sign a long-term lease or give away their firstborn. They negotiated with the mall owner to use the space in return for a percentage of the revenue.
This is how Christian Karr, owner of Espresso Connection got his start years ago, and why I profiled him in my book. He probably heralded the mall-cart trend in the northwest. But now it´s common for mall-cart owners to start up and make a killing in their first month. They key to new business owners looking to shop their wares? Keep your price below twenty bucks, and go in with an established cart owner. If you are convinced your product is the next best thing, rent a cart, create lots of product and be prepared to stand on your feet for eleven hours.
But this blog isn´t about starting the business-it´s about becoming a millionaire without giving away your firstborn, and it´s made possible in part through a Facilities partnership. Sounds weird, but it´s very common. It goes like this: a property owner-mall, store, restaurant, park, amusement part, recreational part-have wasted space. Sometimes this land has usage restrictions, but many times it doesn´t. That is your opening to capture the space and use it to start, build or expand a business. This is where entrepreneurial business development meets partnership creation. I tend to view business development as any strategy or tactic (in real-terms-any activity) that sells the product or service. Partnership is a specific tool to accelerate the business development activity. Another way to look at it is two or more entities join forces to create wealth.
In the cart owner/operator scenario, the property owner is seeking to get revenue out of an area that is non-revenue producing. The property itself is already a sunk cost, and the property owner has zero risk in placing a cart on it (assuming you aren´t a hazard to yourself or anyone else). You on the other hand, probably have an unproven product you want to test out.
Great mall cart ideas for entrepreneurs:
Dolls, toys, foods (especially during the holidays), anything home-made, from sweaters, scarves, baby footies-you name it. Items that don´t do well are those so unique (e.g. costly) that people have to think twice. This is where the $20 dollar rule of thumb comes in. Most mall-goers carry around twenties in their pocket. Yet the BEST price point for mall carts products is $12.00. Don´t ask me why, but I´ve talked with many mall owners and this is what they report. At the recreational centers, the price point is much lower, about three bucks, and this is for sports-related items-headbands, wristbands and of course, food. Karr became a multi-millionaire in less than a couple of years, started with a single cart selling coffee at less than two bucks (yes, two bucks). But as he added carts, he added food, and other items desired by his customers.
But back to the Facilities partnerships, here are some common terms and conditions:
Liability-you need to hold harmless the mall owner from liability (especially if you are pushing food and someone gets sick)
Insurance-you will need to have coverage on your cart-in the case of the above-food, theft and the like. It´s cheap though, particularly if you guarantee someone mans the cart at all times
Revenue sharing–On one hand, you can offer a straight percentage, and this ranges from 3-25% of the gross revenues. You should expect between 8-12% of the gross revenue if you are signing a six-month lease. The highest rate will be paid if you go month to month, because the property owner has will argue it has to fill the space you occupy, and is taking more of the risk. Expect this to run between 15-25%. The lowest percentage is paid if you offer a guarantee per month, and if you do this, the percentage of revenue drops to between 3-6% on average.
Guarantees–The reason you want to have a percentage, without a guarantee, is so you have zero risk in the transaction. Or in other words, if you revenue falls short of covering your bills (travel, materials, labor etc), you don´t want to be stuck paying 25% of the gross. You may lose entirely. However, if you have a guarantee, you can offer a lower percentage, since the property owner will know that it has a set amount coming in every month.
Percentage of Gross and Flat Fee Guarantees
The best facilities partnerships and agreements are done when the balance swings over time. Here´s what I mean.
Start by understanding your break-even points. Offer a higher percentage of the gross for the first three months, with a cap right below your break-even point. (It goes without saying, that if you negotiate for better terms, you are going to do so). Then for the next six months (when cash flow steadies), then you offer a guarantee that is equal to the revenue from the percentage, but is a cap, or straight fee. In so doing, you are providing the property owner a known amount of revenue, reducing the owner´s risk. At the same time, you keep the (unlimited upside) percentages for yourself.
Expanding the Partnership
If one trueism exists for property owners it´s this-they usually have more than one. And this is your opportunity to expand your own business as you link arm in arm with your first Facilities Partner. Seek out property owners that are diversified in both real estate areas, markets, and regions. This single partner could be responsible for pushing you well beyond the bounds of a five by five square foot stall in Topeka.
This is where you can get creative, and do any one of the following:
1) Pitch the property owner on co-marketing throughout the mall. How? Offer to throw in a couple of percentage points for the marketing if they will do the same.
2) Joint development: come up with a great idea just for the property owner(s) properties. Make it unique, like the SouthBeach diet. What about the Biltmore Mall doll factory? Assuming your product is credible, high end (like the Biltmore) and profitable, that could make a great PR story, as well as a take-home trinket for visitors from Minnesota!
3) Investment: the property owner is a risk-take and investor by nature. What better way to ensure your (and their) success than by putting skin in the game.
So today, while you are sitting their, considering that next "great idea" you have that everybody would buy (pet rock anyone) but you don´t have the start-up money to lease a space, or the long-term cash to sign a lease, consider a Facilities Partnership. And look at property owners as partners with an eye towards building a sustainable business.