April 8, 2017

JF949: How to Make GUM BALLS Pay Rent #SituationSaturday


Gumball machines, you’ve seen him and they never disappear… Our guest has made big capital, OK well residual capital, on these quaint little machines that spill quarters. Hear what else he does and why he got into vending.

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Matt Miller Real Estate Background:

– President and Founder of School Spirit Vending, a franchise company
– School Spirit Vending has raised over $4 million for education since inception
– They have a profitable business system for professionals looking to develop secondary income streams
– Formerly an Air Force pilot and advertising executive
– Based in Kingwood, TX
– Say hi to him at https://ssvbusiness.com/bestever 


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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today – we are going to be talking to an expert in a space that – my gosh! – after about a thousand episodes, I’ve never talked to an expert in this space… Vending! Yes, vending. How does that relate to real estate? Well, there’s some passive income opportunities and it’s an intriguing business model, so we’re going to talk about the ways we can make money as a vending machine investor, and how our Best Ever guest today has done that. How are you doing, Matt Miller?

Matt Miller: Joe, I am doing awesome, thanks for having me on.

Joe Fairless: Nice to have you on the show! Because it’s Saturday, we’re doing this special segment called Situation Saturday. We’re gonna do a hypothetical scenario where we want to create income; we’ve seen vending machines around – clearly, everyone’s seen a vending machine – but they take nickels and dimes and quarters… And clearly there’s a way that you’re making money, because — a little bit about Matt… He has raised over four million dollars in this business.

He is the president and founder of School Spirit Vending, which is a franchise company. They have a profitable business system where they work with investors who want passive income. They are based in Kingwood, Texas, and he is a four-million airforce pilot and advertising executive.

Before we dive into the scenario, Matt, do you wanna give the Best Ever listeners just a little bit more about your background and your focus?

Matt Miller: Yeah, Joe. I went to the Air Force Academy for college. Like you said, I was an airforce pilot for nine years; along the way I figured out that I really didn’t like being told what to do, so as soon as I could get out of the airforce, I did.

I thought the corporate space would be the answer, and worked there for almost a decade, but along the way I learned that the rules were always changing and they never seemed to be in my favor. I kind of got sick of being at the whim of decisions that were being made by others, that I had no control over. So I started doing some stuff on the side business-wise, I collected aluminum cans for a while, sold books on Amazon – my garage looked like a library at one point in time – but I’d read Robert Kiyosaki’s book, which I’m sure you talk about on your show and many of your listeners have read, and I bought into his whole idea of passive income.

So I was looking for a way to not just make side income to help pay the bills, but to make it passively and in the process develop more control over time for my life and be able to better provide for the family. I had a good friend of mine from church who on Sunday mentioned a gumball machine that he and his kids had bought, and had placed it in a local area business, and it was a business they could do together as a family; they were making a little bit of money, and it was something he could do with his kids.

I remember that conversation, and even though gumballs are a quarter, I quickly realized that the markup on them is over 1,000%, and that it would take a lot of gumballs for me to free myself up from what I was doing full-time – because we had a family of five at the time – but it was something I could do on the side. The machines did all the selling once they were placed, and it allowed me to continue to pursue my career, while building this business on the side.

So that’s where my start occurred in vending, about 13 years ago, in that position.

Joe Fairless: Now let’s talk through the situation… You’ve been exposed to the world of vending from the friend you know at church; he told you about the gumball machine… And I’m asking you about your story, because I’m sure a Best Ever listener who has their curiosity piqued as a result of our initial conversation, they’re gonna want to hear how you did it, so talk us through from that first conversation with that person at church – where did you go from there?

Matt Miller: I ended up finding a Yahoo! Group – which today I would liken it to a podcast like yours – where I was able to learn.

Joe Fairless: What year is this?

Matt Miller: This would have been about 13 years ago, so in the 2004 timeframe or so. We were in a really bad place financially at that point, and I found a  Yahoo! Group that I could plug into and kind of be a fly on the wall, because I didn’t know a whole lot about vending at all.
I also bought a couple of eBooks on Amazon, and kind of studied the industry. And it just so happened that I hopped on eBay and found a used candy and gumball machine from a guy across Houston for about $36, and I didn’t even have to pay for shipping because he was local.

I won that auction, loaded up a couple of my kids in our ’98 Honda Accord and drove across town one Saturday to pick that machine up. He taught me a little bit about what he had done and gave me some more insights.

We stopped by at Sam’s Club on the way home to pick up the gumballs and the candy for that machine…

Joe Fairless: What did he tell you in that initial conversation?

Matt Miller: He had done a lot of work in local bars and local restaurants and had done pretty well for himself, but he just decided that this really wasn’t for him and didn’t have the time to do it, so he was looking to get out… So he sold me his equipment for next to nothing. In fact, I could have turned around and resold that machine for twice what I paid him for it, so there was really no risk from my part.

But the biggest thing I learned is you gotta get out there and you gotta be willing to knock on doors and spread the word about what you’re doing, and to not be judgmental or prejudge any locations. Because what many of us might think is a great location often times isn’t, and what many of us might not see as an opportunity for a location is.

What most people don’t realize is if you were to put a video camera on a vending machine, in many cases it’s the employees in that location that drive the revenue, it’s not the customers that come in and out, often times… Especially when you’re talking candy and gumballs and that type of thing. So it doesn’t have to be a super high traffic place in order to have a successful location.

In fact, some of my most successful locations were actually break rooms in local area businesses where the public never even realized that the machine was there, but the employees went there for their breaks or for their lunch every day, and my machine ended up becoming a part of their lunch or their break every day, because the candy and the gum was right there and readily accessible.

Joe Fairless: What’s the incentive for that store to have the thing in the break room?

Matt Miller: There’s a couple different types of vending. We call what we do bulk vending. There’s the charity route, and then there’s essentially the revenue share route with a location.

When I was just doing simple candy and gumball machine, it was a charity angle. I worked with M. D. Anderson’s Children’s Cancer Hospital down in Houston, and a portion of the proceeds were donated to them.

Joe Fairless: What portion?

Matt Miller: Yeah, the location didn’t get any financial value, but they were given a foot-by-foot square foot space to benefit the hospital. I gave 10% of the revenue to them. There’s some charities where it’s just $1/location/month. So depending on what folks look into and decide who they wanna partner with on the charity side of things, it varies somewhat.

Joe Fairless: And is that the honor system, or do you submit financials to them every so often?

Matt Miller: It is purely the honor system.

Joe Fairless: Okay. Help me with the timeline or the progression… You started with one gumball machine, you put it where, and then where did you go from that point?

Matt Miller: So I went door-to-door… I just literally would go to a strip center and hit every business in the strip center. My first location was a karate studio in Kingwood where we were living at the time, and I set it up there. I waited a couple of weeks before I did anything else, because I’d never used these machines, my kids had never used them before… So I was like, “Okay, really? Are there people really putting money into these things?”

After two weeks I was chomping at the bit to see if this thing actually works. So I went back on a Thursday night, kids everywhere in the place for karate class, put the key in, and quarters spilled out of the machine all over the floor. I was like “Holy smokes! I’m onto something.”

Well, I took that money and was able to reinvest it into another machine. The guy that I got that first machine from had I think 19 others, and if I was willing to come back over the next couple of months to buy them, he’d sell them to me at the same price, he wouldn’t have to list them or ship them or whatever. So I went back a week later and had money for a couple more machines, and I just slowly cash-flowed this thing, because I didn’t have any other money at all to do it.

So once I got that machine, then I went out and knocked on some more doors to place the next one, and knocked on some more doors to place the next one.

Joe Fairless: When you knock on the doors, someone answers, what do you say?

Matt Miller: “I own a vending company here in the local area. We work with M.D. Anderson’s Children’s Cancer Hospital, helping them raise money. I’ve got a small candy and gumball machine that looks like would fit perfectly in that spot right over there, to the left of the cash register. I was wondering if you guys would be willing to support M. D. Anderson and let us place a machine.”

Joe Fairless: Okay, that makes sense. In that scenario, the store owner does not get a cut of the proceeds… Is that correct?

Matt Miller: Correct. Just to give you an idea, in that scenario, a typical machine is gonna make $15-$30/month. So if you’re giving the owner a cut, you’re giving him next to nothing. Now, if you venture into toys and temporary tattoos and stickers and that type of thing – which I eventually started doing as well – the revenue can be significantly higher for a location like that, especially a restaurant or that type of thing, to where now it is beneficial to have the owner involved and to cut them a check each time you come in. But with a candy or gumball machine the revenue numbers just really aren’t enough for them to get excited about it.

Joe Fairless: In that scenario, “I own a vending company. We work with ______ Kids Hospital. The gumball machine could fit right there… Is that okay?” In that scenario you’re making 90%, the hospital is making 10%, and the store owner is benefitting because there is another amenity that they have in their store to maybe make the experience better.

Matt Miller: Right. In the revenue share model, typically people will pay 30-35% to the location. Sometimes it’s revenue, sometimes it’s profit, depending on how the vending operator sets things up. They’re renting the space, essentially, and they’re setting up, in most cases, an entire toys and temporary tattoos and stickers and maybe some candy and gumballs… Typically it’s on a rack, like you’ll see at the local Wal-Mart, or whatever.

The vending operator’s job is to come in and to merchandise and to change up the merchandise on a regular basis, keep the machine clean and full. Every time they come in, they’re cutting the location a check based on the revenue that’s in the machine. The revenues are typically quite a bit higher for that type of setup in the right location, but there’s significantly higher investment in the equipment, to where some of the setups I had were $8,000 or more, when you factor in the equipment, the products of inventory, the machines and that type of thing.

Joe Fairless: How do you reimburse – if you do at all – for the electric, if you have to have a machine plugged in.

Matt Miller: None of our equipment has any electricity involved at all.

Joe Fairless: The toys and temporary tattoos – they don’t need that… So you start out with one gumball machine in the karate studio, you progressed from there… What was the tipping point?

Matt Miller: Within a year or so I got to about 125 locations all around the North side of Houston, and I was pretty stoked because I was making about twice in my vending route as I was working full-time, and I was able to do it on weekends.

Joe Fairless: A hundred locations with primarily gumball machines?

Matt Miller: Well, by then I had ventured into toys and all that stuff, too. So about half the locations were candy and gumballs, and then the other half was toys, temporary tattoos, stickers, that type of thing.

Joe Fairless: And for those 100 locations with that make-up, how much money is that a year?

Matt Miller: I was bringing in $4,000-$5,000/month, so 45-50k is what I was bringing in, just working a couple days a month. Then ’07 and ’08 hit in the middle of all that, and the revenues dropped off because people were hurt by the economy and weren’t frequenting a lot of the businesses where I had my equipment, so I was frustrated… Right around that time I had a bunch of young kids come knocking on my door, selling me stuff for the local school fundraisers.

I thought that was odd, because their parents weren’t with them; they were strangers to me, so they were essentially going door-to-door to strangers’ houses raising money for the schools, and I had kids of comparable age at the time. So that concerned me number one, but number two, because of the change in the economy, I was looking for a better way to stabilize what I was doing, and the whole idea of school mascot stickers and sticker machines in schools came to me around that point.

That’s where the whole idea of school spirit vending, which is what we do today – helping schools fundraise across the country with our franchise program. Initially, it just came from necessity on the revenue side, and like I said, getting some kids hopefully off the street by taking some of the fundraising in the school, instead of out into the neighborhoods.

Joe Fairless: And that’s your business model now, primarily?

Matt Miller: Correct. We work with busy families, professionals who are already doing extremely well in their career, but who are looking to diversity outside of that, and we show them how to do what we do in and around schools in their local area, and it ends up creating a win/win. They have the ability to develop a side income, much like real estate, with a very limited time commitment, but extremely high cash flow, and it also benefits local area schools because the schools now become that charity beneficiary with our program, and it gets some kids off the street. And because most fundraisers in the schools require volunteers, it’s a huge win for the school because we don’t require any volunteers for our program.

Joe Fairless: Basically, you’re selling custom stickers with the school’s mascot in the school, via a vending machine; the franchisee owners are responsible for getting the sticker machines inside the schools and collecting the residual income?

Matt Miller: Correct.

Joe Fairless: Out of all the different types of vending machines, why did you land on this one? Is it the most profitable?

Matt Miller: It’s definitely not the most profitable. First off, I don’t have a mechanical bone in my body. I flew the second-largest airplane in the world (the C5), but I still don’t know how to change the oil in my car… So I was looking for something that was very simple to operate. The reason why I went towards stickers is real simple. If you’re vending toys and you came up with a great idea for a new toy, it would take six months to a year before you had that item in your machine, because you’ve gotta send it to China and you’ve gotta go through all that process… Then, of course, you’ve gotta buy a container-full to ship that stuff back, in many cases.

With a sticker, you and I could come up with an idea right now, that sounds like a great idea. We could have a designer working on it later today, have designs within a week, and potentially could have that printed and in our machines within a month to a month and a half. So we are very fleet of foot because we’re just printing on paper, and that can all be done here in the states.

The other thing is the fact that a box of stickers is really not a whole lot bigger than a shoebox, just a little bit longer. At the time I had that ’98 Honda Accord I talked about early on… I could carry enough product in my Honda Accord to service 20-25 schools. Contrast that with the toys and all that that I was doing at the local area restaurants and all… I’d need a cargo van, if not a box truck to have a route of any significant size. At the time, I just didn’t have the money for any of that, so I had to get creative with what I did have, which was a Honda Accord.

So in fleet of foot and just the size of the product were the two main factors for me in going that route.

Joe Fairless: Interesting stuff, definitely. I love talking to entrepreneurs who have other businesses where they raise money and work with investors to provide them a passive stream of income. Really quick, how do you structure this legally? Do you have to do a private placement memorandum with investors?

Matt Miller: Up to this point in time it’s just between us and the franchisees. We are talking about some ways of working with private investors to produce a pool of money to allow our growth to occur even more quickly, because one of the points along the way where growth is sometimes stunted with some of our franchisees is on the capital side. We haven’t done that up to this point, but there is a big desire for more growth, and there’s tons of schools out there that we’re not working with yet, and it’d just be a matter of having the capital to put the equipment out there.
I think that’s a route we’ve been talking about pursuing here in the coming year to enable our franchisees to put this together more quickly. In that case, yeah, we’d have some sort of PPM for sure, and work out some sort of an investor arrangement from there.

Joe Fairless: Matt, where can the Best Ever listeners get in touch with you?

Matt Miller: Joe, I wrote a short eBook called “Live Your Dreams: The Top 10 Reasons Why You Should Own A Vending Business”. From a real estate side or from just a professional side, it highlights a bunch of things that most have never thought of in relation with vending. I’d love for your audience to have and download a copy of that for free, if they like. They can go to ssvbusiness.com/bestever and download that for free. They can learn a little bit more about the vending business itself. If they wanna talk about the franchise, we can do that, too.

Joe Fairless: Well, that will be in the show notes link, I’m typing it in right now. Matt, thanks for being on the show, sharing with us a business model that I wasn’t familiar with — well, I was familiar with vending machines, but I hadn’t talked to anyone who was doing it full-time, so thanks for sharing that.

Best Ever listeners, there is an apples-to-apple comparison for one thing in particular that Matt was talking about in terms of vending machines and real estate, and that is when he talked about how he got started knocking on doors and he said, “I own a vending machine company. We work with XYZ Children’s Hospital. We’re donating some of our profits to them” and he went into his pitch.

There is an interesting aspect of that where he immediately had some credibility with that company, with the people who’s doors he was knocking on because he’s partnering with an entity that they recognize already, and it’s an entity that they would want to help out. As real estate investors, we can do something similar by partnering with other nonprofits locally, donating a portion of our profits to them and then all winning along the way.

I can tell you I’ve done that personally with a lot of scholarships that I’ve created through Texas Tech, as well as some other things with Junior Achievement, where all the profits from my books go to Junior Achievement to help underserved kids in communities. It’s a great way to 1) give back, but 2) it’s a great way to get additional exposure and build your business, because you’re able to be associated with a larger association that everyone recognizes, even if you are just starting out. So that’s a takeaway, for sure.

Matt, thanks so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Matt Miller: Thanks, Joe, and God bless!


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