Solve the Problem, Win the Market

0:00When someone comes to my door, I know, because I'm using SimpliSafe. I get an alert straight to my phone and I can see, is this someone I should unlock the door for because I know them? Or is it someone I need to tell to get lost? But here's the thing I love most about SimpliSafe. It works when I am not looking at my phone too, because when I'm not keeping an eye out, SimpliSafe is. SimpliSafe is proactive with a double layer of defense that stops crimes before they start. First, AI-powered cameras spot potential threats outside. And then live agents step in, talking to the person through the camera and letting them know they're on video and police will be dispatched if they don't leave.

0:45They can even trigger a loud siren or spotlight. That's how you help stop a crime before it starts. And SimpliSafe makes it easy to use. There are no long-term contracts, no hidden fees. You can cancel at any time. It was named Best Home Security Systems by U.S. News and World Report for five years running. It offers a 60-day money-back guarantee, so you can try it and see the difference for yourself. This month only, take 50 % off any new system. This is one of the best prices you will ever see for SimpliSafe, so don't miss it. Just go to simplisafe.com slash problem solvers. Again, that is SimpliSafe, S-I-M-P-L-I-S-A-F-E, simplisafe.com slash Problem Solvers and lock in your discount.

1:33There's no safe like SimpliSafe. From Entrepreneur Media, this is Problem Solvers, a show that solves entrepreneurs' toughest problems. I'm Jason Pfeiffer, Editor-in-Chief of Entrepreneur Magazine, and each week I take a problem that you're probably dealing with and get tactical solutions from people who have been there and solved that. So, let's get solving. Michael had no plans, and really no interest, in entering the florist industry. Like a lot of folks that come into our industry, I fell backwards into it. That is Michael Jacobson. And the quick story goes like this. Michael was fairly fresh out of college, working in a corporate job that he hated.

2:15And one day, he gets a call from his uncle, and the uncle needs help. The uncle has been running a flower shop called French Florist. It's just a regular flower shop, the kind of thing you might find in your own neighborhood. The uncle has been running it for 38 years, working 60 hours a week, six days a week, and the place has, well, decent revenue, but not profitable. And he is stressed out and ready to be done. And he's hoping that Michael can help him wind down the business and sell it. I'm sure right out of college, I wasn't his first call, but nonetheless, you know, his family, I was happy to help him.

2:50So Michael shows up, truly just planning to help wind down this business. But then he starts getting to know the industry, and he sees something interesting. I did due diligence on other flower shops, what they're doing well, what they're not doing well, what multiples they're selling for. And it was very clear very quickly that there are some major systemic issues that have been happening in our industry that are, it's not a unique problem to my uncle's flower shop at the time. they're happening across the industry. And so that got me excited because where there's pain, where people are facing problems, it's also where opportunity exists, right?

3:27Yeah, because this means, hey, this isn't a problem with this flower shop. There's a whole host of problems throughout the industry holding down all the competition. And if you can solve for those in your business, then you rise above the competition. So I identified three things about the industry. I'm not here to talk ill about any competitor, but objectively speaking, the industry has been stagnant for a long time. And in Michael's view, here's why. Three problems. Problem number one is where the orders come from. The flower industry is full of and really dominated by what are called aggregators.

4:09So these are companies like 1-800-Flowers or Teleflora that take orders and then farm out the fulfillment of those orders to local flower shops, and then take up to a 40 % commission. So this means that local flower shops are busy with orders that they're making very little money off of and struggling to attract their own direct customers. Problem number two is sourcing. Small flower shops don't have enough volume to order directly from the farms where the flowers come from, which means that they have to get the flowers from a range of middlemen. And that takes time. As a result, flowers can take a while to get from the farm to the shop, and that leaves very little time to sell the flowers before they die, because this is such a perishable product.

4:53And problem number three is technology. The industry is operating off of antiquated technology. And a lot of shops still rely on paper and fax machines, and there was just no off-the-shelf solution. It is such a darn shame that the floral buying experience is what it is today. And ultimately, that is the biggest pain out of all of them. And once Michael saw all this, he decided, you know, he doesn't want to shut down his uncle's flower shop after all. He wants to turn his uncle's flower shop into a force that tackles these big industry problems and is built to overcome them. That is how Michael became the CEO of the French Florist, rebuilding the business and transforming it into a franchise, one that already has multiple locations and ambitions to grow much bigger.

5:42Today on Problem Solvers, Michael is going to walk us through how he solved all these problems, how he cut out the big aggregators and started driving business to his own shop, how he cut out the logistics middlemen and started sourcing directly from farms, and how he developed the technology truly needed to grow. It is a great turnaround story with lots for anyone to learn from, and it's coming up after the break. All right, I'm back. I am with Michael Jacobson, the CEO of The French Florist. And just before the break, he listed off these three big problems that he needed to solve. And we're going to spend the episode basically going through them, how he solved each one.

6:22And let's start with the problem of where business has been coming from for so long, for so many little shops. It comes from, let's say, a customer who knows the brand 1-800-Flowers and then places an order on the website and then it shows up at this local flower shop who fulfills it but doesn't actually earn that much from the order. What are you to do about that? So I think that especially with something that is requiring us to pay such a high commission, that gives us a lot of budget to try to acquire clients more directly in a lot of different ways. In other words, what you're saying is, look, we're already losing 40 % on these orders and the other way of thinking about that is 40 % of the value of this order is up for spending.

7:11If you could even get it down to you're losing 30 % on each order in the cost of marketing or whatever, then you just gained 10 % per order. And so that gives you actual runway and flexibility to start to think differently. And not even that, but then you actually have that client data at a more efficient cost. Not only are you investing into acquisition more, efficiently, but your client retention, right? Can you provide an amazing experience and then keep them in your ecosystem? So the second, third, fourth, fifth time that they purchase from you, you're not paying that acquisition cost anymore.

7:43And that's really where you can start to make the economics work quite well. So that was huge. Yeah, you own that relationship. And then also the client is aware of you because presumably when you're delivering for 1-800-Flowers, they're not aware of you at all. You're invisible. So what did you start doing? Yeah, it was a little bit of everything, especially in the early days, though. We didn't have a lot of resources. The company barely got it to profitability. And once we started generating a little bit of cash, we were like, okay, there's probably 30 different opportunities we've identified, but we were really constrained and we could only invest into three or four of them.

8:19So we had to radically prioritize which ones are going to be the, I guess, lowest cost and highest effectiveness, right? And so one of the things that made a lot of sense for us was to try to increase our average order value. Our designers in the flower shop were making beautiful arrangements and it wasn't really being reflected on our website. Right. And so the way that the unit economics for a flower shop works also is, you know, if you are selling an arrangement for, let's say,$50, you're probably making maybe 10 % on that after all of the marketing costs and overhead and cost of goods, including everything.

8:52Right. And so maybe you're making five bucks, not a whole lot. But now if you're selling a hundred dollar order, let's look at that. Somebody might look and say, OK, if your profit margin is 10%, instead of making$5, you might make$10 because you have double average order value. that's actually not true because it's incremental revenue is much more valuable where you're not having to pay more for your overhead because overheads at fixed cost right and then the cost of goods gets a lot more efficient because you're buying more efficiently at economies of scale and you're already kind of paying for your wonderful designers to be there and for them to do one extra arrangement doesn't cost them a whole lot and so you might be instead of five dollars you might be making fifteen dollars on that and so there is a really great incentive for us to offer a little bit more of a premium product because that'll help our unit economics a lot.

9:38We also invested into things like conversion rate optimization. So when the people did land on the website, there was a higher chance of them converting, putting the right messages in front of them. The search engine optimization was quote unquote free. If we could re-jigger the site a little bit where when people are searching flower delivery near me or flower delivery in a certain city, we would pop up really high or number one. And then paid acquisition, all of the kind of super boring stuff like Google ads and meta ads. We started to invest into that as we made everything else more efficient.

10:09But where it got really fun was when we could get really creative with it. And actually, a lot of our creativity comes on the client retention side. So client retention being super important, I don't want to say more important, but I'll say equally as important as client acquisition. Because if you acquire the client, and then they never purchase from you ever again, that's a super expensive transaction for you. And honestly, if you want to build a company that's around, you know, three, four, five, six, 10, 20 years from now, right? Like retention is the name of the game. So, and that's what we've been focused on.

10:38And as you're saying all this, it's important to keep in mind what the point of all this is, right? Because what you're trying to do here is establish your own direct line of business so that it's not coming through the aggregators like flowers. So that means that number one, you have to figure out a stronger funnel. So what you're describing are all these ways in which you just become more discoverable and where you're leaning in more heavily on your digital presence, which I think a lot of mom and pop shops don't even think about. They think on the local business, people are just going to walk in, but you're leaning in heavily digitally because you know that even people in your local community are searching around online before they find you.

11:17And so you need to have a strong digital presence. And then, and this is what you're going to dive into next, you've got to keep them and you've got to bring them back because otherwise they're going to stray. And the next time you hear from them, it's just going to be coming in from flowers again. And that's not useful to you. That's exactly right. Yeah. A hundred percent. And I mean, you're hitting on so much good stuff there. I think the example I was going to give is just some of this, you know, outside the box stuff, we'll send a handwritten card to every first time client and help build a relationship from that way.

11:44Right. I don't think direct mail is definitely not dead, especially if it's handwritten note. I don't know about you, but if I received a handwritten card, you know, it's so rare to receive these days. Yeah. Just stuff like that. Right. Like you don't have to do the conventional stuff a hundred percent of the time. Feel free to mix it up a little bit. And that served us well, actually. The digital side of revenue has been a huge unlock for us as well. I mean, so far as to say that, your traditional florist might get 10 or 20 or 30 or 40 percent of their clients from the internet. We get 95 percent of our clients from me from online, 5 percent walk-ins.

12:14And so we get the same amount of walk-ins as other florists, but as a percentage of total revenue, we've just unlocked the digital side so well. That has really grown our revenue tremendously. And then, so you You can kind of tell. I mean, I think the important thing here is it's not necessarily one magic pill that we swallowed to make the business explode. It was an amalgamation of a lot of client retention, a lot of client acquisition and following all the best practices, but not just ending there either. Once you have all the best practices down, continue to push and try to innovate beyond that as well.

12:43Yeah. All right. So the next part is the sourcing. Surely you are not the first person in the floral industry to think, why don't I just get the flowers directly from the farm? So why were others not doing that? And then how hard was it to do it? Yeah. The reason that a lot of retail florists don't isn't because they don't want to. It's because the farms require a pretty large minimum order quantity, whereas a wholesaler right is going to allow you to break that up by. So we weren't able to invest heavily into our direct relationships in the supply chain until about a few years ago where we were spending a multimillion dollars per year just on roses, right?

13:20Your local flower shop might be buying$30 ,000 to$100 ,000 worth of flowers per year. Some of your larger florists may be up to$250 ,000 to$500 ,000 worth of flowers per year, depending. But the farms out there, typically, they're used to selling to wholesalers. They want to be doing bigger volume because they're charging a lot less margin. So the problem with most of the businesses that were at the size of your uncle's flower shop was that the farms just literally wouldn't work with them. Yeah. And that's changing a little bit. There's some disintermediation that's happening on a more systemic level right now.

13:57And so there's some exciting stuff that's happening in the industry, but definitely with the economies of scale, that has helped us tremendously. And it's not just us getting lower prices, but it's us getting higher quality product, right? And we can pass a lot of that discount onto the consumers. So we maintain a very high price competitiveness. So was fixing this part of the business simply a matter of just reaching the scale so that you could match the wholesale needs of the farms? It was, yeah. I mean, not to say there weren't other challenges that came up with it. Like, we did have to identify who are the best farms in the world that we want to source from, and we made some mistakes.

14:29The difficult part is when you purchase flowers from a new farm and they sent you beautiful samples, but then you start getting a standing order from them and the quality starts to go down. You know, you refuse to send that product out to forward that onto your client. And so someone's going to eat that cost and typically it's going to be you. So, but we, you know, have to change our farmers and it's been some trial and error, but we weren't able to even play that element unless we had that economies of scale. So that was the first step. So all of the marketing and the acquisition and retention stuff definitely came first.

14:57Supply chain came second, but both being very important to what we do today. It's interesting because that's not something you necessarily had to tweak and refine the idea of getting to the farm. what you had to know was just what the scale that you needed to reach was so that you could start those direct relationships, which I suppose maybe in your mind then just went back to motivating the first part of what we're talking about, which is to increase those average order sizes, to increase your margins, like just the more business you could produce, you eventually saw awesome finish line where if you crossed it, then you could unlock this next part of growth.

15:38And that next part of growth was the direct relationships with the farms. Yeah, it's a perfect way of looking at it because it's a very virtuous cycle. I think there's a halo effect because if we have a better supply chain, we're going to provide a better client experience, then we're going to have better client retention, which allows us to increase revenue further, which allows us to invest in our supply chain deeper or maybe make our technology better. Right. And so it's this very virtuous thing that we've discovered and it allowed us to ultimately create a client experience in our home market of Los Angeles that we became the number one florist here.

16:07And we opened a second shop, that shop started to do well, we opened a third shop, that shop, you know, has done very well. And so then we paused after that and said, Look, what are we doing here, we can keep opening corporate locations. So I just want to round out the three things that you were targeting. And the third was technology. So you said that these shops have been run with fax machines and pieces of paper all over the place and that there wasn't an off-the-shelf solution. And so you had to build one. When you are in that position, what are you looking for? I imagine that there are a couple big operational log jams that you're identifying and saying we have to build technology for that.

16:49What were the things that you were looking to solve for with custom tech? Yeah, totally. I think technology is in a wonderful space currently because it's really limited. What you can develop is a limitation of what you can dream up or think of. It's not usually an engineering or software development challenge at this point. I mean, sure, there's a cost-benefit analysis. If it's really complex, it's going to be expensive. But that being said, it's not whether it's possible or not. It's if you have the money to do it and if you can be creative enough to draw something fun out. I think, you know, we looked at what's the ideal situation here.

17:21I mean, and again, everything that we did was from an angle of trying to solve our own pain. One of the first decisions I made in the company was that we were spending$13 ,000 a year on printer ink. So why? We're printing out these tickets, we flip them over, we reprint on them the arrangement that the designer is going to make so they know what they're making. And it's just an extraordinary amount of ink. And we could buy five or six iPads for$2 ,000 and develop a small iPad application that just digitizes all of it. There was nothing that existed on the market like that. That's a small custom piece that we've developed, but that's where it started.

17:54And it's been, you know, all of the problems that we've solved have stemmed from that place of like, how can we, if it existed out there and take like our loyalty program, for example, is something that, you know, other folks have cracked the code on loyalty. And so we've adopted some off the shelf stuff. But even with that, we're feeling that we're pretty constrained on that right now and might start to custom develop some solutions there as well. But it's all from a point of solving our own pain and just continue to develop in any space that we can to like Salesforce and Shopify. Another example is they don't have the capability.

18:25We think that sending flowers is the most powerful gift that you can give to somebody. And traditionally, you give them the message and the message is just as important as flowers. Right. Some might even say more important. I don't know. I don't think so. I think the flowers are most important. But the message is important. Well, you're not in the message business. You're in the flower. So we wanted to go a step further. And if somebody wanted to really be able to express their emotions, I think the flowers are more important because it's the unspoken message that they give, right? That you're telling that person that you love them.

18:52And no matter what it says on that card message, the flowers kind of speak for themselves in addition to your message. And so, but if someone wants to go the extra mile and maybe leave a video message, now we've offered that functionality where, you know, you can record a message. The card message comes in, it's a QR code and it says, hey, Jason has left you a video card message and scan the QR code. And it's this really heartfelt thing that comes with the flowers. That's like, it's beyond words. you can see their expression and their inflection in their voice. So, you know, we weren't able to do those kinds of things with off-the-shelf solutions.

19:18And that got us really fired up because we had that creativity in our team to drum up some really fun ideas that custom made sense for us. Yeah, that's cool. I like that. Also, there is a very challenging art to writing a heartfelt message in a very small amount of space, like the card that comes with the flower, that doesn't just sound like a cliche, which is what most people end up producing. But But if you can just sit in front of a screen and record something, that often comes off as more genuine. It's a format that people are more naturally inclined to do. Like people know how to talk better than they know how to write.

19:53So, okay. So you opened up a couple of locations, there's growth, and then you had to make this decision, which I suppose was, do you just keep opening up more corporate locations or do you go franchise? The moral of the story on everything that we're talking about is we have to create an experience that's a derivative of solving a pain. Ideally, that pain is addressing making a better client experience because they're the driver of whether we're successful or not, right? So when we were looking at, you know, where do we want to take this next? We could pull out the tech when we could license it to other florists.

20:25That definitely was an avenue. We could open a bunch of corporate locations. The unit economics for the stores were really good and had a lot of investors that were interested in helping to fund that corporate growth. We stumbled across a thing called franchising. I actually still have a negative stigma to this day with the word franchising. We look at systems like, again, not to call particular people out, but I don't know. I think of Subway and maybe some brands that expanded too quickly and that have lost their way, maybe. I don't know. And I actually think that there are very few great franchise systems out there.

20:54I think they exist, but they're far and few between. And so it took a lot of studying those great systems to really understand that, hey, maybe this is a path for us. And the reason that we ultimately chose to go that way is because we think we're going to be able to drum up a better client experience. I think that the fact that the industry is tens of thousands of florists right now, and it's a hyper local thing, that's really, that's something that's really special about the industry. That's one aspect we don't really need or want to change. I think that having a local owner in that store, and it might seem like a small change, like we could pay a manager 80 or 90 or a hundred grand salary to run the store, or you could have an owner there that's making our model we take a six percent and the owner takes 94 percent essentially so they you know if they're taking 94 percent that that's a lot more than it's a heck of an incentive for them to run a beautiful client experience and we look for great folks that are really passionate we've kind of figured out what we like to call the boring stuff like we've done the tech we've done the supply chain we've done the financial accounting stuff we've done all of that the market and demand generations demand generation stuff but if we have an owner that's really passionate about developing an extraordinary client experience and we can kind of partner with and join forces even with other florists that have been interested in converting their flower shops or folks that have worked corporate for a long time and just want to be their own boss but you know have other values and principles that align with ours it's been an awesome journey to like partner with these people and expand in that way ultimately i think that'll be a better client experience where we can offer under a unified brand for the marketplace people can go to French Florist and get that quality consistency reliability that just doesn't exist in the marketplace today.

22:28So we're excited to be franchising for a lot of those reasons. Michael, finally, I'd love to hear your thoughts on what you think you have built relative to the problems that you identified at the beginning. You know, it's interesting to hear you talk about the relationship that you have with your franchisees now, because where you started was by having a local flower shop that was frustrated that the industry was dominated by these sales aggregators who were the nationally known brands and therefore the ones that were going to be top of mind for consumers. And then somebody would go to a 100 flowers, for example, and make an order.

23:12And then invisible to the consumer, it would get farmed out to a local flower shop who would deliver it and lose 40 % of the cut. And originally what you tried to do was to just get your local flower shop to be known to draw the business direct to you instead of going through that national aggregator. In a way, you are now a national aggregator. I mean, it's different. It's not the same, right? But you are building what is now a national brand, or at least you're not a know that you're national yet. How many locations do you have? we have eight that are open right now we'll have about 15 by the end of the year so we're just kind of launching our growth phase right now yeah right so you know you're not national yet but i understand the aspirations of a franchise brand and that's to start in one market and expand and if all goes well you've built yourself a national brand and you have locations all over the place and so what you are now building is a version of that a version of success for your company is a nationally known name, but the model is different because the business is going to be going to your local French florist and your local French florist has certainly advantageous terms with the national franchise or brand versus the way that your uncle's brand had a relationship to 100 flowers.

24:32But I don't know, just reflect for me on what you think that you've built here, you're building towards and how that fits into the original problems you were trying to solve. Yeah, because definitely that is the center of what we're doing is the old model has not worked. And we question ourselves constantly of, you know, if we expand in a certain kind of way, are we just becoming a part of that problem? And we couldn't feel more passionately about solving the problem and not becoming a part of it. And I think that where the aggregators are charging a 40%, we charge a 6%, but that's just the beginning of the story because we're actually not an aggregator in the sense that we are the operators.

25:10We own the entire supply chain and ecosystem from, except for the farms, we don't own the farms, but otherwise we own the entire supply chain all the way through that last mile delivery to the client as well. So we're not just aggregating orders and syndicating them, we're fulfilling them from a local French florist and have that 1 ,000 % control all the way through. and to have that level of control is what's absolutely required to deliver an amazing client experience because there is a degree of control that's needed as like it's for the same reason we don't ship flowers in a box through FedEx or we theoretically could go nationwide overnight but that would be the easy way out and it's not doing the flowers justice or the client experience justice they're not meant to be shipped overnight without water that get banged up into a third-party delivery provider that's right so just zooming out all the way right I think I've said a couple controversial things.