Michael Elliot made a name for himself writing screenplays for movies that include Brown Sugar and Just Wright. But as he approached his 50th birthday, he worried that he’d never built anything real – and started to think about business. Entering a nail salon in Santa Monica for a pedicure one day, Elliot realized what he wanted to do: Create a place where men could get manicures and pedicures without feeling uncomfortable. He opened his first Hammer & Nails location in Los Angeles in 2013, and was soon invited on to Shark Tank. He hoped to get a $200,000 investment for a 20% stake (valuing the nascent company at $1 million), and was rejected by the sharks. Instead, after the show aired, he raised the amount he needed from eager viewers, and began to set up the infrastructure to franchise the business. In an interview that has been edited and condensed, Elliot talked about creating a salon that he calls a “man-cave nirvana.”
Amy Feldman: It’s not often that you see somebody go from Hollywood to setting up a spa for men.
Michael Elliot: I know, I know.
Feldman: So how did it happen?
Elliot: Five or six years ago, I started to think about where I was going to be at 50. I’ve made my living as a self-employed screenwriter. I’m tremendously proud of what I’ve done, but I realized I didn’t own anything. I didn’t want to be selling movie ideas at 50-plus. Then, in March 2013, like many guys in America, I desperately needed a pedicure. I had been in nail salons before where I opened the door and all the women looked at me with a look that says, “You’re not welcome.” I went to a nail salon that day in Santa Monica. I was sitting there, looking at all the flowers and the women, and I remember thinking, “I wish there was a place where a guy could go and get hand and foot grooming, and not have to feel uncomfortable, out-of-place or judged.”
Feldman: What kind of research did you do?
Elliot: My research was limited to articles I read online and speaking to men and women.
Feldman: Had anyone else tried nail salons for guys?
Elliot: It’s not an original idea to have a men’s grooming shop that offers manicures and pedicures. You can go to any number of higher-end men’s salons. All these places were haircut-focused, and if you could get a manicure or pedicure it was in the corner. They also were clearly targeting a certain type of white-collar professional guy who maybe plays golf or has the type of job where he has meetings in a boardroom. That’s not me, and that’s not all men. I wanted Hammer & Nails to be a place where all men are created equal and all men feel comfortable.
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Courtesy of Hammer & Nails
Not your typical nail salon: Hammer & Nails guy nirvana
Feldman: So what does Hammer & Nails look like?
Elliot: It’s got a cedarwood vanilla candle on the front desk, and an aged Auto sign and hammers framed in expensive frames. You get a complimentary glass of scotch, a personal TV and noise-canceling headphones. We are literally man-cave nirvana.
Feldman: How much do you charge?
Elliot: On average, a manicure at Hammer & Nails is $23, and that includes a complimentary beverage. We have three tiers of pricing because what a manicure costs in New York or San Francisco is different than what it might cost in New Orleans or another market. We also have three types of memberships, and the average membership is $53-a-month. The benefit of membership is that you pay less for services. A maintenance manicure/pedicure is about $55, and a member would pay a good 20% less.
Feldman: When you first started telling your friends about this concept, what was the reaction?
Elliot: Laughter. Literally. I can think of only two people that believed Hammer & Nails would be successful, and I’m married to one of them. Then I was invited to be on Shark Tank five weeks after I opened the first shop.
Feldman: How did it go?
Elliot: I went out there and pitched my idea and no one believed in it. In fact, Kevin O’Leary, Mr. Wonderful, his parting words were, “It’ll never work.”
Feldman: What happened after that?
Elliot: That episode aired in September 2014, and I received over 800 requests for information on franchise opportunities. When I went on Shark Tank, I was seeking $200,000 from the sharks to begin the process to franchise. Fast forward, I get all these requests. I didn’t have any franchise information because I wasn’t ready. So what I was able to do was to convert seven of those viewers into angel investors. Six of them invested $25,000 for 2.5% each in my company, and one invested $50,000 for 5%
Feldman: Did they get franchising rights as part of the deal?
Elliot: They did, but the initial investors didn’t become franchisees.
Feldman: Tell me about your investors today.
Elliot: I have a total of 10 shareholders other than myself. Most of them have 2.5%, then I have two others. John Choi is a developer of other franchise concepts, and he is the area developer in Northern California of Massage Envy. He bought the rights to open 25 Hammer & Nails in Northern California. And Michael Fluegge is an owner of other successful franchise concepts, especially one called The Joint, and he owns the rights to develop Hammer & Nails in the Southeast. I am the largest shareholder, and I will remain the largest shareholder. I have 40% ownership.
Feldman: Do you regret giving up that much equity?
Elliot: I felt like owning 40% of a $100 million company in the long run was worth it to me.
Feldman: What has the expansion process been like?
Elliot: I immediately began to work toward franchising. A lot of stuff behind the scenes had to be developed to warrant entrepreneurs paying me a franchise fee of $39,000 and agreeing to give me 6% of their gross revenue every month.
Feldman: How many company-owned stores do you have?
Feldman: Why not open more? Why franchise?
Elliot: I never got to share this on Shark Tank. It is very intimidating, and you are nervous. Part of the motivation is to create opportunities for people like me. I wanted to create a business that could be replicated, and empower other African-Americans and other people to go into business for themselves and devote my time to helping them succeed. You can grow quickly through franchising, but it is also a way to impact other people’s lives.
Feldman: Franchising also makes it harder to control quality and consistency. How are you addressing that?
Elliot: We literally just hired a new guy to work operations and support. He will visit the shops and check in, and as we grow we’ll add more people in our compliance department.
Feldman: When did you begin selling franchises?
Elliot: We started offering franchises in February of last year. In June, we opened our first franchised location in Miami. We will likely open a new Hammer & Nails location every month. We have sold 232 licenses.
Feldman: How many will you open by yearend?
Elliot: We should have between six and 10 new stores by December. Miami, Houston, Frisco, Tex., another in California in the Inland Empire, another in Los Angeles. I’m looking at my wall now. We have a shop coming to Maryland this year that is beginning buildout, and a shop coming to Brooklyn that is looking for a location.
Feldman: What are revenues?
Elliot: Last year, the shop in L.A. did $350,000 just doing manicures and pedicures for guys. Our full business model is manicures, pedicures, haircuts and shaves. A shop like the one in Houston will have six barber chairs in the barbering room and six in the grooming room. I wouldn’t be surprised if these larger shops average from $600,000 a year gross sales to $800,000 or $900,000. Our goal is 200 shops by 2022.
Feldman: Why did you change your mind about doing hair?
Elliot: My objection to barbering was that I believed the average guy was not comfortable getting a pedicure in a room full of guys getting a haircut. I realized that I could incorporate barbering in a defined space that would not interfere with the sanctuary where a guy was going to get his manicure or pedicure. I pivoted as I thought about my franchise plan because clearly there is money on the table I was missing and adding it was going to help sell this as a franchise concept.
Feldman: How will you make sure your franchisees have the capital and commitment you need?
Elliot: We ask for a minimum net worth of $500,000 with $100,000 liquid.
Feldman: You mentioned Massage Envy. I saw that its founder’s group bought a piece of your business.
Elliot: They did. I actually bought them out.
Feldman: What happened?
Elliot: John Leonesio founded Massage Envy. It was personal through his Leonesio Group. I sought him out. I knew that he was a respected veteran of franchising. I was willing to give him a piece of my company for his wisdom. It wasn’t a great fit.
Feldman: What was the main point of contention?
Elliot: They were involved in a legal battle with another franchise concept that was a real distraction. In the franchise world, you have a franchise disclosure document and when an owner of the company is involved in a legal battle with another concept the details of that are disclosed in our FDD. I could see that was a giant red flag to my franchisees. It’s a small world, this world of franchising. Potential franchisees often own other concepts and this battle between Leonesio Group and Amazing Lash Studio was very public and very nasty.
Feldman: How did you buy him out?
Elliot: Fortunately, I’ve done well as a screenwriter. I had to pay for the stock that I gave. I’m not embarrassed. I gave them a third of my business. But mind you, this is before I sold a single franchise, before we were really worth anything. I don’t have any regrets. I got a crash course in the business of franchising, and I needed that because I did not know anything.
Feldman: What did you pay to buy them out?
Feldman: That’s an expensive course.
Elliot: Sure is, sure is. I broke a sweat sharing that number.
Feldman: Back of the envelope, if you get to 200 stores that could be around $140 million in system-wide sales by 2022?
Elliot: That would be correct. If in five years, there are only 100 shops and we’re doing $70 million in system-wide sales that’s not bad from where we started with a first shop on Melrose Avenue.
Feldman: At a 6% royalty, that would be like $4 million for you.
Elliot: That doesn’t include brand extensions. We are going to have our own Hammer & Nails toiletries and skin-care products. My goal is for you to be able to go to Neiman Marcus and buy premium Hammer & Nails branded items.
Feldman: Do you miss being in the movie business?
Elliot: No, I don’t miss it. I am looking at the photos of the Miami location, and I feel like I have a movie coming out.