Underweight Deal: A New Player in the Carpet Cleaning Industry

Key Stats:

Summary

As of 1/7/2018, $175 has been raised of the $250K max

We begin the year with our review of ZAMii Clean Carpet & Upholstery Cleaning. The company is a new entrant in the already mature market of carpet and upholstery cleaning, a $3.75 billion market. However, it does have plans to brighten up the dull business with its vision, sports theme, and humorous vibe. The expansion strategy of ZAMii foresees addition of up to 30 more vans throughout the upper west USA and Canada within year two of operation.

ZAMii Clean is a full-service carpet and upholstery cleaning company for homes and offices. It offers environment-friendly cleaning solutions to meet consumer demand.

Though the valuation for the business is reasonable at $600K, we still have concerns about the level of upside this business can provide to the investors.

The most significant reason we have concerns around upside is that the industry it has chosen to enter, the mobile carpet cleaning business, is a mature industry and is saturated with hundreds of players ranging from small to large.

Some of the major competitors in the industry include Stanley Steamer, Clean USA, Steamatic, and The Steam Team, among others. These players have been in the market for decades and have a well-established reputation and clientele. Winning in such a crowded market can prove challenging and costly.

Below we review the major drawbacks of the company to understand why we have concerns regarding high return exits for investors.

ZAMii Clean: Raising on Razitall

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1. Low-Growth Market

The carpet and upholstery cleaning industry is highly competitive. It is a mature industry with notable barriers to entry for the new players. The industry is saturated with numerous mom and pop entities that have dominated the landscape for decades and constitute about 75% of the mobile carpet cleaning business. The remaining 25% of the industry comprises of large firms that are difficult to compete with.

ZAMii believes that entering the industry with their multi-truck model is achievable and worthwhile. What’s more, with a franchise model, this could be a relatively efficient way to establish and grow the business nationally.

However, franchisees need to understand the value proposition of investing in a new business. With so many competitors, it might prove challenging to convince new business owners to open up in new locations. This could hamper the company before it even leaves the gate.

2. Minimal Product Differentiation

ZAMii does have the disadvantage of being in a mature and dull market. At the same time, the company has not worked much towards creating product differentiation. A clean carpet is a clean carpet and there has been no mention of technological innovation, just an enthusiasm for marketing.

There are players in similar industries like dry-cleaning (e.g., Rinse) that are reinventing the customer experience from end-to-end to reflect our tech-enabled lives, and are breathing new life into age old industries. They are raising millions of dollars and using them to develop trendy new businesses to break the monotony of the industry. The same is possible with the carpet cleaning industry as well, however, ZAMii does not appear to be the one heralding these changes.

3. Lack of Operating History and Investment

ZAMii does not have an operating history with $0 in revenues recorded on their Form C for 2018 after having been founded in 2018.

The management and founders do have a solid corporate structure and a good business strategy, however, due to the lack of experience in the same industry, the expectations may not be met.

Regarding financials, ZAMii has only been able to receive $1,725 as investment from its founders. It has not been able to generate any revenues to date and the operating expenses have overpowered the investment. All in all, the company has negative cash flows that are not expected to convert to positive for the foreseeable future.

4. Pricing constraints

Since ZAMii intends to enter a mature market (carpet cleaning has been around as long as carpet itself), there are many pricing constraints as well. There is little room to increase prices and cost cutting in order to gain an edge seems unlikely due to the already low margins of the industry.

The company is seeking to avoid this dynamic by going with a franchise-based business model. But that simply passes the buck onto ZAMii’s franchise partners. We are left to wonder what’s in it for the prospective franchisee?

The lack of excess-profit potential could make it such that ZAMii fails to garner significant interest from a broad audience of potential owners. Needless to say such a model is unsustainable unless franchisee’s are thriving.

Rating

Underweight Deal

Due to the slow-growth and saturation of ZAMii’s chosen market, lack of a competitive advantage, and little-to-no business track record we are assigning ZAMii an Underweight rating.

We also have concerns regarding the fact that the founder seems to have multiple businesses he is running at the same time, as can be seen on his LinkedIn Profile.

Even if the company becomes able to achieve the kind of brand recognition we think will be needed for success, pricing challenges may act as deterrents to generating high profits in the long term. That’s just the nature of economic competition.

If you have any questions regarding the underweight rating of ZAMii Clean, you can reach us at hello@kingscrowd.com.