Recipe for Success, Entrepreneurial Skills Article

"What do you wish you had known when you were starting out?" "What has hindsight taught you?" We posed those questions to four seasoned restaurant owners in response to the many queries we receive from entrepreneurs longing to become restaurateurs. Their answers reveal some solid advice.

Marty Bloom, CEO Vinny Testa's Restaurant Group
Marty Bloom opened the first Vinny Testa's in 1993, and five years later the company was ranked 259 on the Inc 500 list. Bloom says he had intended to open multiple locations and built the first for replication. There are currently nine Vinny Testa's Restaurant: eight in the Boston area and one in Pennsylvania.

Running one or two restaurants bears no resemblance to running a chain.

He's not hanging out at the restaurant schmoozing with his regular customers. As a matter of fact, Bloom spends more time behind his desk and his computer, where he is analyzing, financials, profits and loss, return on investment, and return on equity, than he does in the restaurant.
Things take a lot longer to execute when you're a chain. "Making a system-wide decision is like turning a barge," he says. Bloom explains that with one restaurant, you can come up with a new menu item, train your kitchen and wait staff, and in a week it's on the menu. At Vinny Testa's, new menus and promotions that will be implemented in the beginning of December are underway now.
When you build something for mass appeal and the mass market, you have to take your tastebuds out of it. With a chain, says Bloom, you have to dovetail your menus to specific markets. Because different regions often have different tastes, 75% of his menu is core; 20-25% is discretionary. Prices also get adjusted depending on the market.

Understand the hidden costs.

You build your restaurant for one price and open it for another, Bloom says. Any expenses not captured by construction and finish work can be labeled "soft costs." These costs include everything from your liquor license to public relations to training the staff in the front and back of the house. Training is critical to success, says Bloom, and in order to ensure kitchen and dining room kinks are worked out before he opens a restaurant, he runs mock lunches and dinners, something he highly recommends. Bloom hosts two to four for each meal period, inviting only family and friends. Between food and labor costs, he spends close to $40,000. He acknowledges that he spends much more on this than a single restaurant would, but he explains that his brand and concept force him to "hit the ground running."

Gordon Hamersley, Co-Owner and Chef, Hamersley's Bistro
Gordon Hamersley and his wife Fiona opened Hamersley's Bistro in Boston in 1987. This four-star restaurant has received many accolades including a 1995 James Beard Best Chef of the Northeast Award.

Respect the statistics.

Statistics for new restaurant survival were so bad that Hamersley was relatively conservative and created what he deemed an idiot-proof plan for opening his business. With a guaranteed loan through the Small Business Association and very few investors, Hamersley opened the first iteration of his bistro. He describes it as a very small, 45-seat restaurant in a low-income part of town. (Six years later he moved to a larger, 100-seat location across the street.) He "specifically didn't go into the classiest neighborhood in the best part of town"--it was cheaper that way. The $200,000 he spent to open the restaurant was a lot for him at that time, but "if it had gone bust I could have gotten out from under it," he says.

Appeal to more than one market.

If he could do it all again, Hamersley says he would have opened a second restaurant within a reasonable number of years of opening the first. His is an upscale French-American bistro, and for many years Hamersley thought about opening a more casual restaurant. From a culinary standpoint, he would have enjoyed creating casual cuisine in tandem with his upscale menus. From a business standpoint, he would have liked to have appealed to a wider income group.

Robert Perry, President, The Elephant Walk Restaurant Group
The Elephant Walk Restaurant opened in 1991, a venture of Robert Perry, who had been in the ice cream business, and his former in-laws, diplomats who fled the Khemer Rouge. Boston's first Cambodian restaurant, which serves a French and Cambodian menu, was named one of America's Best New Restaurants in 1992 by Esquire magazine and has been inducted in Boston Magazine's Best of Boston Hall of Fame. The Elephant Walk Restaurant Group now owns three restaurants.

Consider the state of the economy.

The Elephant Walk opened at the tail end of a recession--perfect timing, according to Perry. It was one of three restaurant openings in the Boston area in 1991, which from a public relations standpoint was ideal. You're competing for a piece of the media pie, says Perry. In a slower economy, there are fewer new businesses to cover but the same number of media outlets, and with good media coverage, sales spike. As the economy recovers and more new businesses launch, competition--for media and a customer base--increases.

Crunch the numbers.

"We were very fortunate to have high sales," says Perry. But high sales can mask a lot of problems including poor cost-management. What Perry learned was to look at the sum of food, beverage, and labor costs as a percentage of sales. If the sum of the costs is over 60% of sales, your business will struggle, he says. If they are 55% or lower, chances are you'll succeed.
Perry took accounting and bookkeeping to learn how to monitor and measure costs himself: continuous accounting and financial services is an expense he doesn't care to incur. (He checks in with his accountant a few times a year.) Perry includes his management team on the management and execution of the numbers. Each restaurant has a general manager, manager, chef, and sous chef, and within the organization, there's a director of operations, executive chef, and owner. Each is responsible for a subset of the numbers that make up the whole. Perry and his staff reconcile labor costs every payroll, and once a month he does a full reconciliation of every number, giving them an opportunity to make adjustments. This open-book management keeps him and his entire staff accountable, says Perry. Managers are given quarterly bonuses based on their management of the numbers.
Don't sweat the small stuff. Perry believes that focusing on minor costs--napkin usage for example--can kill morale. Focus on food and beverage cost control instead.

Learn the industry.

When he opened Elephant Walk, Perry was a self-described undisciplined 29-year-old who rejected conventional wisdom. But due to "a concept that filled a need, a unique product, and a name that worked," the restaurant was a success. As time has passed, Perry's learned that it's best to follow industry recommendations: hire an accountant with a lot of restaurant clients; purchase books on food and beverage cost-control; refer to off-the-shelf resources on how to start a business--these resources offer metrics to guide you. And, Perry says, it's useful to have mentors. He befriended people in the business and from them got informal advice. It's important, he says, to open yourself up to the outside world, take input, and accept criticism.

Karen Barker, co-owner Magnolia Grill
Karen Barker and her husband Ken opened their Durham, NC restaurant in 1986. These graduates of the Culinary Institute of America have received many awards for the restaurant and for Ken's work as a chef. This year, Magnolia Grill is ranked number 11 on Gourmet magazine's list of the top 50 restaurants in the United States.

Don't consider it unless you've spent several years in the business.

Eighty to ninety hours a week. An owner should be prepared to put in that much time the first couple of years the restaurant is in operation, according to Barker. She has spoken to many potential restaurateurs who are certain it's the business for them -- many of whom have attended culinary school -- only to learn they can't make the commitment. It's a commitment of time and focus that's essential, she says, and it takes a certain driven personality to make a restaurant succeed.
If you're the chef-owner, customers expect to see you in the restaurant cooking every night. They want the personal connection to the chef, she explains, and his or her presence is required.
Not only should you be on premises as much as possible, you need to be able to perform every single job in the restaurant. And it's not all glamorous. Dealing with the public is one aspect, but if the dishwasher is a no-show, you might spend the night washing dishes, Barker says.

Raise enough capital to do it right the first time.

Barker says they didn't spend as much on the heat and air-conditioning system as they should have, and have tinkered with it so much over the last 15 years, it's almost been redone. In a restaurant they were partners in, the flooring choice was an alternate to the ideal choice, and they ended up pulling it up and replacing it after only one and a half years. You can take a cheaper route with your chairs, but they are ultimately not sturdy enough, and you end up replacing those. You do it to get the door open, Barker explains, but you'd be better off doing it right from the start.

If you've got partners, put your agreement in writing.

If you enter into a working partner relationship, be careful, warns Barker. She and her husband opened their second venture with friends. It was great at first, she says, but that changed. Because they didn't have a detailed partnership agreement, one that spelled out provisions for dissolving the partnership, they ended up firing the partners. In their next venture, also a partnership, they did have an agreement. When they left that venture, they sold their shares of the business and parted on amicable terms.