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Love 'em And Leave 'em

For Phil Romano, the joy of business is in the creation.
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On his twelfth start-up, Philip J. Romano struck it rich.

Not that the other 11 weren't successful; they were, though some more than others. But how many times can you take a friend's $15,000 in seed capital and transform it into a stake worth $3.5 million? And how many times do you yourself wind up with a net worth in eight figures? At age 45, Romano found himself president and chief executive officer of Fuddruckers Inc., a $25-million company with 51 restaurants in 19 states and Canada, soon to appear on the INC. 100 (it's #25 this year, down from #15 last year).

Every entrepreneur's dream, right? Not Phil Romano's. In 1984, less than two years after taking Fuddruckers public, Romano bailed out of his $250,000-a-year CEO's job to start a new restaurant, and when that one is up and running he has two more restaurant concepts he'd like to try. "At Fuddruckers," he says, "all I was doing was talking to lawyers and accountants. At least with Stix" -- that's the new place -- "I'll be back in the restaurant business."

More accurately, the start-up business. Romano does for a living what most entrepreneurs say is the hardest part of enterpreneuring -- getting the bloody business off the ground. Once it's up, well, that's not so interesting to him, except maybe figuring out how and when to get out. In his career, Romano has launched, then sold or closed, 11 restaurants plus the Fuddruckers chain, and is working on the new one, which he calls Stix Eating Spa. Yet he has never, so far, held on for more than a few years. So how long can you resist asking a man like that, someone who should have start-up-and-move-on down to a science by now, how he does it?

"How does an artist do it?c he asks back. "First he gets an idea. Then he gets some canvas and some paint . . ."

But the science?

"You mean you want to know my -- what would you call it, my methodology? OK, I get an idea. I think about it. I ask other people what they think about it. If they get excited, I get more excited. I put it down on paper. Then I find an architect, get some renderings, and show them to people. If they get excited, I go on. I put the numbers together, write a prospectus, and see if it's feasible. The next step is to look for a location, tet some building plans, and eventually I've got a restaurant."

Yes, but how do you get the ideas? And how do you factor in demographics? Who does your market studies and your site selection? Let's have Romano's Rules for Restaurant Research, or whatever you call them. Surely there's system.

A system? A blank look.

There's no system. At least Romano himself can't describe one, and people who have worked with him are equally at a loss. "How he gets from step one to step nine," says Bill Baumhauer, the new CEO of San Antonio-based Fuddruckers, "no one knows." Maybe the only way to understand what Phil Romano does is to watch him do it.

If so, San Antonio during New Year's week was a good place to begin. Romano was about to open Stix. And since it was his first venture since Fuddruckers, a lot of people around him were watching as well, wondering if Romano still had the golden touch.

Baumhauer and Romano visited Japan two years ago to sign contracts with the company that would develop Fuddruckers there. They walked into a restaurant and saw food, skewered on small wooden sticks, being grilled at table side. "I saw them cooking that food on sticks," Romano remembers, "and in 10 minutes I 'saw' Stix. I went to the hotel room, drew it out, and here it is today."

Having an idea and knowing how to execute it are, of course, two different things. They're both important, but the flash of insight and originality of concept have always been Romano's hallmark. It shows up plainly at Fuddruckers.

Fuddruckers serves hamburgers in its chain of 100-plus franchised and company-owned locations, but there's no mistaking either its burgers or its restaurants for a fast-food place like McDonald's. The name is funky, slightly naughty, and entirely made up. There's a studied informality to the place that can't be attained with the molded plastic and formica most chains favor.Stacked cases of beer and beans, sacks of sugar and flour, and piles of other inventory define the aisles. Shelves of fresh produce identify the condiment bar. White-coated employees mix and bake rolls in plain view; butchers, likewise attired and displayed, trim and grind hanging beef. Grill cooks work where they can be seen. The seating area, with its tablecloths and yellow-awning ceiling, suggests a backyard patio.

The concept, as Romano explains it, is customer involvement -- the idea that you can see where your food is coming from, watch what's done to it, and doctor it up yourself. It's not dining, but it's not fast food, either. A half-pound burger at Fuddruckers costs $3.55, and you can feel like an adult eating there. Romano didn't invent hamburgers, but he invented a new context for them.

So it is with Stix: the novelty is not so much in the food as in the context.He calls Stix an eating spa -- a place you go to eat healthy. No megacorporate research department, whatever its budget, could ever have dreamed it up, maybe because there is no way a corporation could emulate Romano's method of generating original ideas. He deliberately pays scant attention. to what others in his industry are doing. Instead of business books, he reads contemporary novels. He goes to movies. He listens to people. What do they talk about? Worry about?How do they spend their time? He has a sensitive ear, and that is his principal market research tool. He stores what he hears, plays with it, and rearranges it in his mind. Eventually, something -- and who can know what it will be -- triggers the vision, the idea, what he "saw" in Japan. "I think," says an associate, "that Phil really sees things in his head. I'm sure he dreams in four-color."

All he needed to know to create Stix, Romano says, he could learn by looking around him. "People, especially yuppies, are concerned about health. They're grazing -- eating a little bit often rather than a lot per meal. They're weight-conscious; this is the 'light generation.' Everyone in the country knows about colon cancer after Ronald Reagan's, so they're after healthful, fresh food, and they want to see it. They like the 'clean look."

And indeed, Stix won't appeal to the steak-and-potato crowd. The portions are on the small side. A little spinach salad? Some cold pasta with pesto, or maybe fried rice to go with your gas- (not char-) broiled scallops or chicken? Something from the wine bar? A chocolate-covered strawberry for dessert? Tables and booths are tiered around the food-preparation area so people can see that there are no secrets here -- no microwaves, no MSG. And, oh yes, no smoking, please.

If the irony of being served stir-fried veggies, rice, and chicken on a stick by a man made wealthy for reinventing the hamburger restaurant upsets your cholesterol count, chalk it up to market segmentation. As Romano says, you have to give the people what they want.

What Romano sketched on paper in 10 minutes in Tokyo is not the Stix he opened 18 months later on January 4. Conception, for Romano, is a private affair. Execution of the concept, though, involves plenty of people, many of whom bring their own ideas and opinions to the process. The trick for the entrepreneur -- Romano -- is knowing when those opinions are right and his are wrong. Or maybe the harder part is the other side of that proposition: knowing when he's right and his people are wrong.

People told Romano that e was foolish to bake his own rolls at Fuddruckers, and that he couldn't have a butcher slicing beef where people could watch. "If I had listened to them, Fuddruckers would have looked like every other place," he says, vindicated now by the subsequent mimicry of competitors.

"If we're stuck on a problem," says Greg Waters, who managed Romano's first San Antonio venture, Shuckers, and is now manager and part owner of Stix, "I'll say to him, 'Put it in the think tank,' and the next day he'll come in with the solution. Sometimes his solution might sound dumb, but if he sticks to it, 99 times out of 100, he'll be right." At Stix, Romano wanted to serve the food in a box. Nobody else did, including Waters. But Romano insisted, and he rejected one box design after another put forward by the marketing firm he was working with. Finally he recognized one, a varnished white paper-board, that matched what he was looking for. "Stix customers now ask whether they can buy them," says Waters.

The Stix logo, executed in neon against one wall, wasn't done by Romano. He hired Raygal Inc., a design firm in Irvine, Calif., and Carlson Marketing Group Inc., a Minneapolis firm, to design and procure it, along with the staff uniforms, the boxes and trays in which the food is served, the promotional brochures, and other accoutrements. But these things -- as well as the architecturally innovative tiering of tables, the neon lighting behind glass bricks, the shape of the cooking space, and the hanging lamps -- are no less his for having been farmed out to experts. "He's a lot more involved than most of our other clients," says Wayne Cullinan, Carlson's director of marketing and sales, "who hire us because they don't know what they're doing." It is very seldom, says Raygal president Ygal Sonenshine, that he gets to work with someone like Romano who will do things that are not conventional and not already proven in the industry.

The Stix design achieves its effect with a medley of themes. The white walls, the tile, and the staff uniforms -- chinos, sneakers, and V-neck sweater vests -- suggest a health club. The nine oversize hand fans, vaguely Oriental, that wave in unison on the ceiling are balanced by the neon tubes and occasional rounded corners of a strictly American diner. The service, as at Fuddruckers, involves customer participation -- in the ordering, which is done at a counter where each dish is displayed, and in the picking up. "Bob, your order is ready," the speaker will announce. Wine, beer, or fruit-drink orders are taken and filled by well-scrubbed young servers.

The national success of Fuddruckers has afforded Romano certain luxuries. Such companies as Carlson and Raygal, which did much of the design work for Stix, wouldn't spend time with an entrepreneur and his single-site store if they didn't expect him to succeed and expand. The other luxury is capital. Romano financed the entire $600,000 start-up of Stix from his own pocket, which meant he could lease space, do construction, hire staff, and run all the training and shakedown sessions he wanted with no pressure from anyone else about the cost. "Before," he says, "I could never have afforded that luxury." Waters says Stix is the first restaurant Romano has ever opened that was finished.

In 1976, when he was 36 and had been in the restaurant-starting business for 11 years, Romano moved from West Palm Beach, Fla., where he had created and operated eight different restaurants and bars, to San Antonio. He may have left partly to escape a reputation that had become, to him, both asset and liability. "When people [in West Palm Beach] heard that Phil was doing a new restaurant," says Fuddrucker vice-president and chief financial officer Bill Sivak, who used to live there, "they knew it would be unique. He had a following." The downside to that sort of notoriety was that his public expected each new restaurant concept to be grander than the one before, and Romano was thinking that he wanted to get out of the fine-dining business and into the eating business, instead.

In the dining business, a restaurant succeeds as much on the personality and presence of the proprietor as on the quality of the food and its presentation. Romano himself was an increasingly crucial part of the concepts as his establishments moved up the status scale -- from The Gladiator, where a meatball-and-pepper hero was just 99?, to Romano's 300, where Scampi Alla Romano con vino ran 5,700 lire. (French and Italian menu entrees were priced in the national currency. With wine, the scampi price was only $9.50. But that was 12 years ago. See box, "Philip J. Romano's History of Restaurants," page 130.) Romano's nightly personal appearances meant, among other things, that the expansion possibilities for any single concept were terribly limited. In how many places could one person be charming?

But in the eating business, as Romano distinguishes it, the food, not the host, is key. Colonel Sanders needn't greet the folks at every Kentucky Fried Chicken. Anonymous expansion becomes possible. "I couldn't make the switch in West Palm Beach," says Romano. "I had a reputation to uphold." In San Antonio, with obscurity came opportunity. "At Fuddruckers, people come because of the hamburger, not because of me. That's the difference between an entrepreneurial business and the others I had had." All the growth, Romano thinks, is in the eating business. His intent with Fuddruckers was not to move McDonald's patrons up to a $3.55 hamburger, but to move steak house patrons down. "It's easier," says Romano, "to get people to spend less money than more."

Before Fuddruckers, opening day for any Romano restaurant was also he day on which his interest in that venture began to wane. Not immediately, of course. Concepts had to be refined; operations had to be smoothed out; and Romano had to be there to host and to manage. But, usually, the next concept was already incubating. "And I can't do but one thing at a time," he says, which is not literally true but means only that once a new idea takes root in his imagination, it soon supplants the old. In the restaurant business that may be an adoptive trait. When Romano sold his Romano's 300, his grandest venture in West Palm Beach, the new owner found business not as good as he had expected. "By the time [Romano] sold it," said a Romano associate quoted in the local newspaper, "selling it had become the right thing to do." Shuckers, Romano's first San Antonio restaurant, slipped into bankruptcy under new ownership. Romano sold Barclay's, a San Antonio backgramon club and bar, in 1980, not because it hadn't done well. "It was a sophisticated, New York kind of place. But I wasn't going to fight the trend to urban-cowboy bars," he says. Enoch's, also in San Antonio, apparently prospers with a new proprietor, but, as a rule, few of Romano's enterprises have survived his departure, and none has sustained his interest. Fuddruckers, however, took a slightly different twist.

The first Fuddruckers opened in March 1980, in an out-of-the-way location with no parking, near San Antonio's I-410 loop. People came anyway. An old friend, who had supplied Romano with capital in the past and was ready to do so again, urged him to try a Fuddruckers in Houston. It opened 20 months later, in November 1981, and people came there, too. His friend urged further expansion; acquaintances inquired about expanding and franchising. Suddenly, Romano wasn't running a restaurant anymore, he was building a business. In due course, he brought in management, took the company public, and watched it continue to grow. In June '84 there were 21 Fuddruckers in 7 states; 9 months later there were 63 in 19 states and Canada, and the chain was about to expand into Japan and Europe.

Romano says he never had any intention of managing this burgeoning burger business, and his actions suggest that he's telling the truth. He brought Bill Baumhauer in as heir apparent and organizatio builder ever before the initial public offering -- a move that reflected a subtle, forward-thinking stretegy.

Baumhauer is a CPA. What he knew about restaurants was how to order a meal and balance the books. But so long as Romano remained president and CEO, Fuddruckers didn't need another restaurant man in the organization. It needed a manager, an organizer, a financial planner. And when Romano left the company, which he ultimately did, who would be the restaurant man in the organization then? Well, Baumhauer, of course, who now, as president, chairman, and CEO, knows about restaurants precisely and only what Romano has taught him. This was Romano's way of transferring control to someone better equipped to exercise to while, at the same time, ensuring as best he could that his concept, the chain's proposition to its market, remained intact. Romano is now free to move on to new startups, comforted in knowing that Fuddruckers is in hands that he has trained, not those of a stranger.

So, anyway, ran the theory. In practice, the transition was not painless -- for either party. "With Fuddruckers," Baumhauer says, "Phil had painted a Mona Lisa, and he didn't want anyone messing with the smile. . . He had to get away. We were making changes, and he had a lot of problems with it. We expanded the menu. We added chicken, a small burger, the taco salad, and a kid's platter. We changed the decor. And when we make changes, that changes the picture he drew.

"We changed because customers tell us that it's too noisy, or it's too cold looking. God knows, Phil's concept was good, but he doesn't have the benefit of our research. We're more fast-food oriented than his concept, because customers say they don't want to stand in lines. Phil has a tough time trading off ambience for efficiency. Phil says people will tolerate lines and come to Fuddruckers once a month. I'm trying to make profits. Would they come twice a month if they didn't have to stand in line?

"The genius of Phil as an artist is that he creates a symmetry in his mind, but the chain mentality is all efficiencies. I could screw this up. Every time I make a change, I lose something from that picture he painted. But a successful concept and a profitable concept are two different things. At Stix, for example, he's going to have to cut costs, and he's going to have to compromise. How much compromise can he afford without destroying the concept? That's the question, but you can't put logic to a man like Phil. "He's not a logical person."

"The hardest thing for me," Romano says," was to keep them from changing the concept. Fuddruckers is a machine now; it works. It's been executed properly . . . so don't change the concept and confuse the people. Fuddruckers is a hamburger place. . . That was my proposition to the people. Baumhauer's systems are great, but he and his managers won't have any numbers to play with if they don't have a concept. What are the people going to want? Systems people would build something that is like everybody else's.

"Leaving was the best thing I could have done for Fuddruckers. I felt embarrassed taking a quarter of a million dollars in salary and not doing anything."

Late one evening after dinner -- fajitas eaten in a Market Square Mexican restaurant -- Romano said that what bothers him about the restaurant business is having to charge people. "I see them with their kids paying $3.55 for hamburgers, and it makes me sick. When I had dining places, it didn't make sense to charge people $30 for a plate of food."

Did he really expect anyone to believe that, but for convention, he would prefer to give his food away? It seemed inconsistent with his otherwise utter frankness. He tried to explain, standing there in the parking lot, but his explanation didn't help. Later Baumhauer tried. "I think," he said, "that Phil really means that. If he could give you the food and still be successful, he'd give you the food. There's an ego being served there. He wants people to say, 'Hey, Phil Romano did that.' It's adulation that he's looking for."

Maybe that's why Romano paints -- large acrylics, notable for their subtle color shading and their texture -- and displays his canvases on Fuddruckers office walls. And maybe that's why each new restaurant concept has to be better, more original than the last. He wants people to come, not because it's the cheapest (or the most expensive), but mostly because they like it. Romano wants approval, approbation, of which profit, like praise, is just a measure.

An hour or so before Stix's first opening for lunch on Saturday, Romano told a story about the paper route he had as a kid. He was supposed to put the paper on the customer's yard or porch, and for that his profit was 8? or 9? a week. He thought about what he could do to improve his profits, and came up with a plan. He talked to each subscriber and asked how much it would be worth to have the paper put between the front door and the storm door. A few people said it wasn't worth anything. Their papers got delivered just as before. Some people said a dime, and their papers got put between the doors. Some people said 50?; their papers went between the doors. A couple said a dollar, and their papers were put between the doors, too. The result was that he made much more money by pleasing the customer and letting each subscriber pay what he or she thought the service was worth than he would have made by putting money -- price -- first in proposition.

Stix's first paying customers had already walked through the front door at a few minutes past 11 o'clock when Romano and Waters finished chalking prices up on the menu blackboard that hangs at the head of the display counter. People concerned primarily with money would have had that detail worked out much, much earlier, but it was the last detail Romano got to in executing his new concept.

"I thought a lot," Romano says, "before going ahead with Stix. My as is on the line. A lot of people are going to be watching me. . . It scares me. How often does it happen that someone can take $15,000 and turn it into $3.5 million? Once in a lifetime? Is it possible to do that again?

"Then I thought, why not? Percentages are things that people make up. Failure now won't hurt my lifestyle, just my pride. If it doesn't work, I'll do something else. I just want to see if I can do it again. That's what's motivating me now."

Last updated: May 1, 1986




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