Success in business depends on coming to market with the right product, at the right time, in the right place. It’s not an easy trick to pull off — though Solomon Choi made it look easy.
In 2008, the former restaurant entrepreneur moved from Los Angeles to New York to create 16 Handles, the city’s first self-serve frozen yogurt brand. The concept caught fire immediately, and has since grown to 40 locations throughout the East Coast, with three locations set to open next month in Saudi Arabia.
Choi took notice of the frozen dessert market after visiting America’s Cup Yogurt in Costa Mesa — a thriving self-serve operation run by a friend of his named Steve Song. After three months spent learning the business from Song, Choi left California to create a brand of his own.
What did you think when you first visited your friend’s self-serve frozen yogurt shop, America’s Cup?
I said, “Oh my goodness, this is the future of the frozen dessert format.” The whole self-serve, pay-by-weight, having a lot of options — it’s much more fun. Having worked in my father’s buffet restaurant, I always knew that people wanted choices. And as a business operator, I was like, “Wow, this is a lot less labor-intensive.” I think the experience itself was just much better than a full-service ice cream scoop shop, a gelato shop, or even a full service yogurt shop like Pinkberry.
When I saw it in person, I said, “Mr. Song, you have to teach me this. I love this business model. I’d love to create my own brand. I want to franchise it. You have no desires to expand or franchise, but I do. Will you teach me this business and I’ll come work for you for free?” He agreed, and I worked for him for about three months.
The business itself was so easy, operationally speaking. It was the perfect franchise. People buy into franchises because of the proven operation, so franchises should be easily replicable and scalable. At that point, you’re just doing the brand building for them and they can just focus on executing the operations.
So how did 16 Handles go from a concept in your head to a real store?
In 2007, my father sold his interest in his restaurants and said, “If you’re really serious about this, we’ll invest into it to open up your first store.” So I had my angel investors, my father, aunt and uncle. Being that my stomping grounds were still in California, a lot of people were like, “Why don’t you just start there?” But there were other self-serve yogurt shops that were knock-offs of America’s Cup that were really starting to explode, and I thought, “Why would I go up against all of these guys when I can have an advantage somewhere else?”
I never thought in my wildest dreams that I would ever want to move to New York City, or actually move there. I wasn’t familiar with it. I’d been there maybe once or twice when I was young. But when it comes to retail, food, fashion — trends and brands that receive recognition globally — I thought that everyone has a New York shop or a New York restaurant if they’re a major player.
On the other hand, there’s a lot of restaurants in operation that don’t open in New York, because of the expensive real estate competition or whatever it is. And so I thought, “Let’s just go to the most difficult market, the most challenging one, but the one that would have the most upside if it does work. I’m armed with enough money to open up one store anyway, why not go all in?”
That was my mentality. And I came out to New York in January of 2008 to start looking at locations.
The city confused me. The longer I was in New York, and walking around from downtown to Times Square, the more confused I became. I thought, “My store should be able to open just about anywhere.” It’s a city that’s filled up with 10 million people during the day. There are people everywhere. And people aren’t really driving, so it doesn’t really need to be destination-driven. The real estate brokers were telling me if you’re on the wrong side of the street, it can make or break your business, but I just didn’t get it.
How did you go about choosing your first location?
One of the brokers finally asked me a Marketing 101 question that set me on the right track: “Who are you looking for when you’re doing all this walking around?” I was like, “What do you mean?” He said, “Who is your customer? You’re walking around, you’re saying you’re confused, but at the same you haven’t really identified who you are looking for.” I was like, “Oh my gosh, you’re right.” So I said, “I’m looking for the 18- to 34-year-old female, because that’s my target demo. And he’s like, “If you’re looking for the 18-year old female, you have to open up by NYU.”
At that point, I started thinking more like a marketer and less like a New York tourist. I asked him, “Where are the freshmen dorms?” and he told me they’re primarily in the East Village. I said, “That’s where we need to look.” And he goes, “Let me stop you right there. You do not want to look in the Village.” I said, “You just told me that’s where my customer is. Why would you tell me that?” He goes, “There’s so much ice cream, yogurt, and frozen dessert in the Village, it’s way too competitive.” So I was like, “Okay. Let’s map out where the dorms are. Let’s look at that area and let me make that determination myself.”
So we went. And in a four-block radius, there were nine frozen dessert shops offering things from smoothies to gelato to ice cream to vegan frozen dessert to frozen yogurt. That’s pretty crazy. I said, “Is there anywhere else in this city that you can think of that has this many frozen dessert shops in this small of a proximity?” He goes, “No. That’s why I’m telling you not to open here.”
I was like, “No, no. You just showed me I have to open here. This is the frozen dessert mecca of New York City! All of these guys are able to pay their rent and still survive because there’s that much of a demand for frozen dessert. If I open up my concept and I can beat these nine, then I become the number one frozen dessert in New York City.”
He was like, “Will you please let me show you the other parts of the town where there is nobody?” And I was like, “No, I can’t do that because I don’t know New York City and I don’t want to take the risk of having to create a market that may or may not be there.” Doing that would be too much of a risk. I know I can execute this business model that I’ve learned, and I would rather know that I have immediate targets within a close proximity to see whether or not I’m actually winning or not.” I wanted to take that gamble.
When we came upon the right spot, I said “This place will totally work. How long has it been vacant? Who was in here before?” And he goes, “Funny you should ask — the last tenant was a Cold Stone Creamery franchisee who closed down after only being in business for five months. That company couldn’t even make it here.” I said, “Don’t worry about that.” So I got the location. And in March of 2008, I made my last trip to the West Coast, sold my car, packed my suitcases, and made the move.
What was your first year in New York like?
The first year and a half was a blur. It’s just I feel like I worked every single day. I was living a block away from the store, in a one-bedroom apartment converted into a four bedroom-share, with one bathroom. So I was basically living in a room the size of a large closet, with no window, no AC. And this is in May 2008, the beginning of summer. Looking back, it’s just funny. I can only laugh at this point. But I thought, “Wow, this is not going to be easy. This is not the New York City lifestyle that people from LA dream of. This sucks.” But I thought, “I am not going to stop until I become number one in this market. I need to become number one out of ten. That is my goal.” And we opened in July of 2008.
I’d hired a manager, and I had maybe 20 employees during the summer, most of them part time. So at any given shift, I would have two to four employees working with me, depending on how busy it was. The nature of this business, it’s primarily hourly help and unskilled labor. I was able to teach minimum wage employees ranging from 16 to 21 years old how to help me with this business. And that was the beauty of the business model: it’s easily replicable, and you don’t have to have all this food service experience like you would if you’re opening up a traditional restaurant. And I was able to teach any operator how to execute every part of this business, even if you’ve had no food service experience whatsoever.
I remember it was on a Thursday afternoon when I received the okay from the Department of Health. So I opened up, maybe around 3 o’clock. And by that Saturday afternoon at 2pm, I had a line out the door. And I was like, “Holy smoke. What the heck just happened in 48 hours that this went from people passing by for two months seeing that we were under construction, and coming in so much that my store is crowded.” And it was like that probably until the end of September. Keep in mind, the NYU students weren’t even back from summer break. I had no idea that it was just going to be gangbusters right from the start.
Why do think that was, considering there were so many competitors in your vicinity?
Because there were so many competitors, people knew the East Village, especially that area, to be the place to go to for frozen dessert. When the new kid on the block opens up and they have a much better product and more options — it’s the first time that New York has self-serve yogurt and pay-by-weight — that novelty and the word of mouth just spread like wildfire.
I remember that summer, people saying, “Hey, we’re from Connecticut. When are you going to open there? We’re from the Upper East Side. When are you going to open up in our area?” And I’m like, “I don’t even know where the Upper East Side is! What do they even mean?” Because my world for the first year was four blocks. I lived a block away and I didn’t really venture out. I didn’t have time to enjoy New York because I was always working.
But I took all that data and I’m like, “Oh my gosh, there is so much demand.” I heard people saying, “We drove in from Jersey. We came to watch a Broadway show, but our friends told us we have to check out this self-serve yogurt shop.” People were coming in from all the other boroughs of New York. And I was like, “Wow, this is crazy.”
Now that everyone started talking about 16 Handles, it became this thing on its own. And I can’t take credit for the marketing strategy, other than the fact that I just ensured that it was going to be the best experience out of the other nine frozen dessert stores, and I can control that because I’m going to be physically there.
That’s not going to be a scalable model, but in the beginning it was absolutely necessary. I had one target in mind, one goal in mind, and that was to be the best. And to me, being the best means I need to outsell everybody here. I need to be the destination of choice. We did that. I’ve opened up probably a dozen restaurants before doing 16 Handles, which is a treat shop, essentially. And despite being in a new market and not really understanding everything, in our first year we became profitable. That’s crazy for a brand new restaurant. Especially considering the rents in New York.
Did you intend to franchise from the beginning, or was it the excitement surrounding your business that led you to think, “Hey, I can bring this to other locations”?
I came in with the intention of franchising. I knew I had limited access. I had $600,000 to work with, so I knew I could open up one store no matter where it was, but it wasn’t enough money for two. I knew that if I wanted to grow the business, I’d have to wait for profits to come in.
But I also knew — having come from LA and seeing the self-serve model really explode — that I probably had an 18-month head start on the copycats before they started coming in. I saw it happen in L.A., and I figured the same thing would happen in New York. So while being first is a great advantage, it’s not a competitive advantage because this is a low-barrier-entry business. You can go buy a machine, build out a toppings bar, buy some scales, and charge by weight. I was like, “I need to franchise it.” But I will say that I didn’t think the interest was going to come so early on.
Who was the first 16 Handles franchisee?
This was in September of 2008, only a few months after we opened. I get this e-mail from a guy named Bruce Cohen we lives in Long Island, and he says, “Dear 16 Handles, I don’t know what you guys sell, but my daughter who goes to NYU is spending $30 a week on my credit card at your establishment. I needed to know who the hell you are and what it is that you’re selling. I’m going to be in the city this Saturday to visit my daughter. I’d like to meet you.”
I get that e-mail and I’m like, “I don’t know how it works in New York but if you sent a threatening letter like that in L.A., that’s not a good sign.” I come to find out that in New York, that’s their humor and they’re just very direct.
I said, “No problem. I’ll be here. Come Saturday, early afternoon.” We only had one e-mail back and forth. No phone call, no nothing. When he showed up, I happened to be in the back office, and one of our cashiers went back and said, “There’s a Bruce Cohen here to see you.” I look on the security camera — I want to make sure it’s not some crazy guy. And I see him and his family, and I instantly recognize his daughter. Anyone who is coming in and spending $30 a week at a frozen yogurt shop, you’re going to remember her. She’s almost a daily customer.
I go out there and I’m like, “How are you, Bruce?” And he’s like, “I’m here to see Solomon.” I’m holding out my hand to shake his, and he’s like, “Are you the manager or owner?” I’m like, “Yes.” “Did you start this?” “Yes, this is my shop. I started it.”
And then he’s like, “Sorry, I’m not trying to be rude. You were not who I was expecting. I thought you were going to be a middle-aged Jewish guy named Solomon.” I was like, “Okay,” and he goes, “What do you need help with? What do you need to grow?” I was like, “I need help. I need a day off.”
And he was like, “No, no, no. Are you raising money right now?” I was like, “No.” He goes, “How are you planning on growing this business?” I said, “I want to franchise it.” And he was like, “When are you going to do that?” I said, “Obviously I haven’t even had a chance to think about that because I’ve only been open for a few months, and I’m working every single day, but my plan is to franchise this.”
Bruce says, “Well, I’ll tell you what, you let me know when you’re ready, and I’ll be your first franchisee.” I was like, “What?” And he goes, “I’ve been a franchisee before. I know how it works. As soon as you get ready, you tell me, and I’m in.” I was like, “Wow!” That does not happen. Here I am, less than three months being in New York, and a guy is giving me a gentleman handshake saying, “I’m in.” That further motivated me. And then as time went on, more people were asking, “Hey, how do you franchise this?” By February I was like, “I have to start this process.”
What is the franchising process like? How do you get started?
I worked with a franchise consulting company who introduced me to a well-known franchise attorney here in the New York area. We created an operations manual and we worked with the attorney to come up with what they call a Franchise Disclosure Document, the “FDD.” And once you have that, that’s the legal franchise document that then you register with the state, and then the state approves you as a franchiser.
Once you get that approval, you can start legally selling franchises in the markets that you registered with. That process took us 11 months from start to finish. And the reason it took so long was that in 2009 — which is when we started the franchise process — the Franchise Board of New York State consisted of only three people reviewing and renewing all the franchises in New York. Just to give you an idea, I think our Franchise Disclosure Document was like 238 pages. So imagine that multiplied by all the franchises. If you’re new, you’re at the bottom of the list because McDonald’s and everybody else gets priority.
But I was okay with waiting, because we were so busy anyway, between running the store and opening up another location inside of a mall.
What does it cost for somebody who wants to be a 16 Handles franchisee?
There’s an initial franchise fee of $30,000 to do one location, and then the all-in cost to actually open up one of these stores is probably in the $450,000 to $550,000 range, depending on location.
Do you have any financial advice for entrepreneurs like yourself who are considering growing their businesses through franchising?
I think I was at the right place at the right time. But certainly, you need to have a war chest. I spent half a million dollars to get my first door open, and another $250,000 to start franchising. There are a lot of legal fees involved, and the costs of being registered, and you have to invest in the proper infrastructure to handle the growth.
A lot of startup franchises think, “If I charge a $40,000 franchise fee and I have 10 people who want to open franchises, I can instantly make $400,000.” It doesn’t work that way. Who is your operations person? Who is your marketing person? Do you have a system in place to help replicate your success in other locations without you physically being there? Unless you’re ready to do that, you won’t succeed as a franchise business. And granted, you don’t have to build this huge team upfront, but you do have to have people in place.
When I started that process in February, my cousin — who was an investment banker working in private equity — he saw how much I was struggling just to keep up with one store and he was like, “I can help you for a couple of months.” This was the end of 2008, beginning of 2009, and the financial market in New York wasn’t doing too hot at that time, so he was in a transition phase. He reviewed all the legal documents. He goes, “I know that you don’t like dealing with documents and lawyers, and you’d rather be at the front of the house making sure customers are happy and that you’re cranking on sales. I’ll help you with all the back-end stuff.”
He was like, “Have you even looked at your P&L? What are your costs?” I’m like, “I have no idea. All I know is that I’m printing money right now and I’m taking a lot of the cash to the bank every day.” He goes, “Okay, let me make sure you have your cost controls in place.” He did that for me, and what was supposed to be three months of help, turned into him being CFO of the company six years later. And if he had not helped me set up this franchise company, I wouldn’t be here.
Tell me a little about your geographic strategy for franchising. So far, you’ve focused mainly on the East Coast.
We have 40 locations in total — five of them are company-owned and operated, and the rest are franchise locations. We have probably 25 franchisees and most of them have opened up a store or two. About five of them have not opened their first store yet. We’re primarily in the Tri-state area, but we do have two stores in Maryland that are owned by a family member and then one in Florida and one in Boston, which are both owned by franchisees. We’re an East Coast regional brand and we grew not by advertising, but by winning over customers. All of our franchisees were former customers.
And that’s another reason why we are regionally located where we are. We don’t have stores in states where we don’t have a presence. But while we’ve grown organically for the last seven years, we’re actually at a point now where I’m looking to get strategic investors and raise capital to be able to open up another business line, getting into the consumer packaged goods business with the frozen yogurt pint in grocery stores, as well as having a more aggressive domestic and international growth strategy.
I need to bring on the right people to do that, as well as have money to be to registered in all these countries. There are different franchise agreements for every country, and that stuff costs money, time, and expertise. We were able to get our first master franchise agreement out of the Middle East, and that was a gift from God because there’s no way I can say I did anything other than run a good operation that they happened to see when they were in New York. The group that I’m working with committed to 150 stores over the next ten years, across ten countries in the Middle East. The first three of them are opening in September 2015, in Saudi Arabia. It’s always been a dream of mine to create something that someone in another country will want, and offer it to them.
Last question: What is your favorite flavor at 16 Handles?
I’m a purist, believe it or not, so I rarely ever get toppings. And when I do, they’re fruit toppings. If I have to pick a favorite flavor, I’d say it’s the So Fresh Mango Sorbetto.