Denying the Denier at Pinkberry

I met the CEO of Pinkberry last night -- this kind of thing is unusual for me so while that's a pretentious-sounding thing to say, it's sort of ironic. I didn't actually realize that he was the CEO of the company until he said something like "Ted [Philip, from Highland, who I know through a mutual friend] has been a great Board member for me", and later he said "Let me bring over my Director of Operations", and he introduced himself as Ron, and then I looked him up on the web later. Yes, I'm slow on the draw.

Anyway, I was at the opening of Pinkberry's first Massachusetts store to congratulate my friend Trippe Lonian; Trippe is one of the very few people I know who also went to business school (HBS) but decided to go into franchising anyway. Standing in line, I sampled the chocolate flavor, which is not tangy like the rest of their yogurts. Ron, leaning against the wall next to me, asked me what I thought. It's not as distinctive as the rest of their flavors, but didn't want to say that, so I said "It's pretty good... seems like a classic 'deny the denier' offering."

This then led him to ask me when I became a marketer. The truth is, I got this phrase from Michael Pollan's "The Omnivore's Dilemma", but when an official-looking guy who later turns out to be the CEO of Pinkberry tells you that you sounded smart, you don't correct him.

"Deny the Denier" is one reason that McDonald's offers salads; this way, when mom tells the kids that they can't go to McDonald's because it's unhealthy, the kids can say "But mom, they have salads." Kids are huge drivers of their parents' spending, so for a company like McDonald's that relies on marketing to kids, this is crucial to build very long-term annuity streams (i.e., kids going to McDonald's for years and buying very high-margin processed food and soda).

Pinkberry has a non-tangy yogurt offering for the same reason. I have one daughter (Lily) who loves tangy pomegranate, but her twin (Sophie) won't go near it. This way, when Sophie says "I don't like Pinkberry", I can remind her of the plain chocolate version. That, and the Cinnamon Toast Crunch toppings.

Starbucks sells non-caffeinated / non-coffee drinks for a similar reason. As someone hooked on caffeine, I don't get the appeal of this personally, but I get the strategy. Starbucks' founder and CEO Howard Schultz is also on Ron's Board. I would love to get a ticket to those Board meetings.

The other Pinkberry feature I can highlight is the "one price for all the toppings you want" idea. I think this is really smart, and not just because I'm a Five Guys franchisee where all the toppings except cheese and bacon are free. The truth is that the food cost is basically the same if you get 1 ounce of 1 topping or 1/4 ounce each of 4 toppings, but as a customer, you feel like you got much better value from 4 toppings than from 1. Yes, it depends somewhat on whether you get fresh-cut kiwi or Cap'n Crunch, but since you're already paying a premium price for the base product (the yogurt in their case), it sort of doesn't matter since the aggregate profit numbers go up.

The irony is that when I brought home 3 cups of yogurt for my family, even Sophie liked the tangy stuff. The little chocolate-covered Krispies did the trick. Another denier, eliminated. Well played, Pinkberry.

Hey landlords - this is really a real business, for real

I just had the gazillionth landlord ask me for a personal guarantee for one of my franchise concepts, this time for NAKEDPizza - and yes, that's the official tally.

This baffles me. I raised almost $2.5M before launching the Third Slice business, have been doing this much longer than most area developers who knock on the door, am building out a (game-changing) concept backed by the Krafts, and am not asking for a dollar of investment from this particular landlord. Plus, by now they should know that any retail operator who offers a personal guarantee by definition either (a) doesn't know what he's doing or (b) is treating the franchise deal as a part-time or absentee job. Either way, it's a sure sign that the business itself either has insufficient capital or won't be well-managed.

It happens all the time for my Five Guys business too -- and that one's cranking out cash.

One reason I needed to raise so much money for Third Slice is that I know already that bank debt will be unattainable for at least 2 years, and probably longer. What's crazy about this is that if I invest (say) $150,000 in leasehold improvements to jumpstart the business, I can't get that financed. But if I build a $500,000 building I can probably get that financed, even if the tenant paying the rent is the same business (mine) that was deemed unworthy in the first place.

I've emailed with a few so-called franchising finance "experts" who tell me, not surprisingly, that the solution to my problem is to get an SBA loan by offering a personal guarantee. Then they helpfully offer to create a paid consulting relationship where such advice ceases to be free. Sigh.

It just goes to show that raising the visibility of franchising as a legitimate form of entrepreneurship is going to be a very long putt. Sort of like doing push-ups at age 80.