Building a real estate business model with burgers

When most people think about business models and modeling, they think it only applies to tech startups but turns out, they’re just as important in any industry including real estate.

If I ask someone about real estate models, she or he will probably only be able to think of one—owning a residential rental or maybe a few of them and renting them out to tenants, year-to-year.

Nevertheless, there are dozens of real estate business models to choose from. I’m going to deal with one here—building a real estate business out of burgers.

But first, what is a business model?

A business model is the engine of an enterprise. It is not a 30-page business plan; it’s usually a one-page pictogram, which shows suppliers on one side of the business, clients on the other side, a brain on top and an orthogonal arrow representing a marketing dimension.

If you are ambitious, you also identify and analyze at least two dimensions on all three sides of your model—

1. What do your clients’ clients want from this new ecosystem you are creating?
2. What does your supply chain look like?
3. What opportunities do you see for leveraging your marketing channels via, say, sponsorship, co-branding or starting a complementary not-for-profit organization to do good (related) works while at the same time helping to build your brand?

Suppose you just bought a small commercial building for a new spa you plan to open to be called Nirvana? And let’s further suppose that most of your clients are female. Now after reading this article you know you should ask, “What do my clients’ clients want from Nirvana?”

Well, if most of your clients are females, most of their “clients” will be men. And what do men want from Nirvana? They want to buy gift cards for their wives or girlfriends for their birthdays, anniversaries, and so forth.

A spa-owning client of mine (I’ll call her Nadine) did exactly that after thinking through her business model—she introduced gift cards years ago, selling nearly $250,000 worth of them her first year in the run-up to Christmas, So you can see that this type of analysis can be lucrative especially since almost 30% of all Nirvana certificates purchased were never redeemed at all.

Nadine also treats all her hairstylists, colorists, registered massage therapists, manicurists etc as suppliers not employees and the “brain” I was talking about above is the matching service that sits on top of her business that automatically lines up, for example, a favorite colorist with a specific client. It’s no different from what eHarmony (the online dating website) does—matching up like with like. However, you need to know that building the backend of these services is fiendishly difficult to do but happily easy for me to describe.

It’s also possible that some of Nadine’s suppliers could become channel partners and sponsors as well. How would that come about?

Well, suppose Nirvana uses and sells a large volume of L’Oreal products. That company might be persuaded to sponsor Nirvana by, for example, paying to erect (and paying an annual rent for) an outdoor sign band promoting both Nirvana and L’Oreal. It’d be worth more outside of the spa where it could be seen by passing foot and vehicular traffic. Or maybe L’Oreal remits an annual volume rebate to Nirvana or they pay for some of Nadine’s employees to go on a junket to Paris or London to learn more about the newest makeup techniques and products.

So can you really build a real estate business model out of burgers?

Well, to understand that, first you have to meet red seal chef, Matt Dobry, age 37, father of 3 beautiful little girls with his spouse, naturopathic doctor Kealy Mann.

They live in an idyllic tiny town called Pakenham, about 20 minutes west of Ottawa by car.

Matt has been in the food business since he was 15—starting at a KFC restaurant on highway 401 (near Toronto), followed by a 3-summer stint as a Plowman’s Lunch Hearty Meal server at Upper Canada Village (complete with 19^th century costume).

Then he tried college for three years until his girlfriend (who is now his wife) noticed how much he hated it. She also pointed out that he’d never missed a shift serving at cordon bleu so why not do what he loves full time, she wondered aloud?

Finally, with help from his in-laws plus maxed out credit cards, Matt enrolled in a private culinary school, and after that, the universe came calling…

Reality TV Stardom

To qualify as a chef, every apprentice requires 6,000 hours. Matt was fortunate enough to apprentice for and be coached by an important person in his life—the Mariott’s Shawn Whalen, who was also captain of culinary team Canada at the time.

Matt was picked to enter a Toronto culinary competition by Mr Whalen in 2015. Matt and the other competitors prepared three course meals for four people from a prescribed list of ingredients in six hours.

With Shawn coaching him, Mr Dobry would finish his shift at the hotel and then practice for hours.

“It was the most intense training I’ve ever done,” Matt says with a look that matches his commitment to winning.

And win he did—the competition and then Ontario apprentice of the year.

Then with his reputation growing, Matt was added to a reality television series (which aired on Global). It was a runoff involving all the provincial winners to select a national finalist and gold medalist.

“I came third. I lost by 6 points out of 400. I was devastated… it took me a long time to reconnect with reality. But it’s probably the best thing that could have happened to me,” Matt says.

When I ask him to clarify this, he adds, “I went in cocky and needed to be humbled. You know, people who are too sure of themselves, well, they stop be able to learn new things.”

Working for government was not for him…

It was at this stage that Matt and his growing family moved from Toronto
to Pakenham. He needed a job so with more help from Mr Whalen he started working at the House of Commons restaurant as a sous-chef taking care of prime ministers and MPs.

It was a great gig, made even better by the fact that Mr Dobry is fluent in French. But despite the normal working hours, great benefits and health plan, and superior pension, the entrepreneurial spirit was calling out to him.

It was even more pronounced because he knew that it would take up most of his career to be promoted since no one above him ever leaves a job like that until they have to.

Burger Builder

So with advice and coaching from Invest Ottawa and specifically Mark Cawley, Matt worked on his financing plan, cashflow projections and business plan for what is now Burger Builder, a high-end food truck.

But like almost all business plans, it changed drastically when concept met marketplace. Matt had vastly overestimated sales, and underestimated costs. Sound familiar?

“I had no real idea how to manage payroll, cash, expenses, suppliers… in our first month (May) we lost 30 grand but I didn’t know that til August, our accounting was so bad,” Matt says with a shake of his head.

He had to cut back on staff, find new (cheaper) suppliers, and borrow more money to keep going. His mother stepped up to keep him afloat.

He also upped his prices from $6 for a burger to $8.50, which prompted a backlash from old customers who had no way of knowing that his cost for each burger ($6.25) was higher than the (original) price he was charging so he was actually paying them to eat his red seal meals.

To respond to all the nasty emails he was getting, Mr Dobry bought a burger and fry from a large chain and weighed it against his own offering—Burger Builder’s meal weighed in at two and a half times his rival’s meal deal.

Having tried it myself, I can attest that one delicious meal at BB is all you need to eat for a DAY.

Improving the Business Model

Unfortunately, every business is an experiment until proven otherwise. No matter how brilliant you are, there is no possibility that you can simulate real world conditions in a model. It’s always a learn-by-doing exercise, this thing called launching a startup.

What Matt found was that adding catering and gift cards helped. People love his food so it wasn’t long before they were asking him to cater their home and office parties and events or buy one of his $25 gift certificates for a friend, a client, a supplier, or family member. When someone asks an entrepreneur if they can do something, the answer is always, “Yes.”

So began BlackIron catering…

Not only was Matt able to double-load his commercial kitchen (on wheels), he was able to generate revenues (and keep his staff busy) in his off-season. BB is only open from May til October so that leaves a lot of months to be filled up with… catering.

Still More Differentiation

Then in 2017, Mr Dobry decided to add games and other activities to BB—to create his own family-friendly mini Disneyland… in the middle of a Home Depot parking lot no less.

So now the business model was starting to come into focus.

If he can sell $350,000 worth of Burger Builder food and beverages in a Home Depot parking lot in a western suburb of Ottawa (Kanata), and another $150,000 a year in catering, what could he do with other locations
in higher traffic areas, say downtown, especially if he added more  attractions and events to his mini theme park? And what about in other much larger cities like Toronto, Boston, Dallas or Shanghai?

Mr Dobry believes in warmer weather places he can boost sales to $900,000 and $500,000 for Burger Builder and BlackIron, respectively.

Of course, expansion brings with it more questions—about investment and financing, franchising or branchising, leasing or owning land.

As far as the latter is concerned, Matt can expand much faster if, for example, he was to sign a land lease to put one of his mini theme parks in every Home Depot parking lot across their store network or for that matter do a similar traffic-building exercise for major shopping centre developers, many of whom are crying out for new attractions and ways to animate what some see (in an internet age of online shopping) as moribund places.

But Matthew and his spouse, Kealy, would also like to own some of the real estate under Burger Builder.

I suspect it will be a mix of things—some company owned locations and businesses, some franchised, some land leased…

But if you do the math, just 100 locations could mean $140,000,000 in annual revenues. Home Depot has 2,200+ locations worldwide and there are 47,000 shopping centres in the US alone to put it in perspective.

What Mr Dobry and Dr Mann have done is create a repeatable PB4L (personal business for life), which could be the foundation for a significant real estate play as well.

What makes it sustainable is, in part, the IP (intellectual property) of Mr Dobry’s menu (for both Burger Builder and BlackIron), the low cost of startup (when compared to the cost of building out a restaurant, Burger Builder/BlackIron is inexpensive—probably around $225,000 (excluding land) whereas a standard restaurant can be anywhere from $750,000 to
$1,500,000 and up) and the “combining of a this with that” motif. What that means is that by adding a games area, they’ve created an opportunity to delight their customers not just feed them…

If they do it right, the Burger Builder business model—by combining great food delivered via food truck with games and entertainment thrown into the mix, coupled with demand from shopping mall owners across North America trying to find ways to entice people away from online shopping and back to their stores—could support their family for generations to come.

Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD, Real Estate Investment and Business coach ROYAL LePAGE Performance Realty broker Ottawa Senators founder 1-613-762-8884 bruce.firestone@century21.ca twitter.com/ProfBruce profbruce.tumblr.com/archive brucemfirestone.com

MAKING IMPOSSIBLE POSSIBLE

Postscript 1: please note for disclosure purposes that the author is also coaching Matt Dobry and Kealy Mann.

Postscript 2: It is my view that the business model, slidedeck and video presentation are replacing the business plan in terms of utility and not just for financing purposes. They serve to convince investors, shareholders and lenders sure, but also future employees, independent contractors, clients and suppliers as well as board members about the viability of your product or service after which, presumably, they all want to be associated with you…

Postscript 3: I use the term “branchising” in this article. How is that different from franchising? Well, read on… here’s an email I sent a client of mine (one of the owners of ADD Smart Tech, a company that installs (and manages) internet, wi-fi, Netflix, Spotify, Crave TV (HBO, Showtime etc), NEST t-stats, Sonos speakers, Amazon’s Alexa or Google Home, large screen smart TVs, Magic Jack phones, programmable locks and other technologies in homes and businesses) who is looking to expand to other cities from their original location:

I suspect branchising is the way to go, Terry.

Branchising is different from franchising—fewer legal requirements and faster to implement as a result.

A branchise is a startup in another location that is owned by the original founders and a local managing partner.

It can be a corporation or simply a registered partnership.

So, ADD Smart Tech would own 100% of ADD Smart Tech (Ottawa) but maybe only 66.667% of ADD Smart Tech (London) and a local managing partner would own the balance (33.333%).

To capitalize ADD Smart Tech (London), for example, ADD Smart Tech would invest $66.67 and the local managing partner would invest $33.33 in cash for their respective shares in ADD Smart Tech (London). Then, you’d get the managing partner to loan ADD Smart Tech (London) whatever $$$ are required to start ADD Smart Tech (London).

ADD Smart Tech would get 2/3 of all profits/dividends/net proceeds and the local managing partner 1/3. ADD Smart Tech might also get a royalty on sales (typically anywhere from 4 to 6%) as well as a 2^nd royalty for marketing (usually around 2.25 or 2.5%).

The local managing partner would also get his/her loan repaid on whatever terms were agreed to.

It’s kinda the “poor man’s” franchise system.

Make sense?

The other advantage is that the local partner has a big stake in his or her operation but also has the branchisor in the boat with them too 😊

Best, Bruce