It takes months to develop a concept you can build a successful business around. And when the process is over, you probably won't be where you started out
I suppose most entrepreneurs are optimists by nature. We probably wouldn't start businesses if we weren't. Whatever concept we have, we're convinced it's going to be great. Sure, we'll have to work out the details, but we basically expect to be successful from the moment we open our doors.
In fact, that almost never happens. Ninety-nine times out of a hundred, you have to go through a long process of testing and tweaking your concept, and the one you end up with often bears only a superficial resemblance to what you had in mind starting out. In none of my principal businesses did the original idea turn out to be viable. Each time, I wound up spending months and months experimenting with variations on the concept until I finally found one around which I could build a successful company.
And yet it's easy for anyone -- even an experienced businessperson -- to forget about that process, as I discovered in 1998, when David Schneider and I launched another restaurant.
David, you may recall, is the young entrepreneur who came to me four years ago for advice about a restaurant he wanted to start. (See " My Life as an Angel," July 1997.) One thing led to another, and I eventually became his angel investor as well as his adviser. In October 1996 we opened Harvest Restaurant in an up-and-coming area of Brooklyn, N.Y.
The idea was to create a hip neighborhood restaurant that would serve good Southern-style cooking to upscale customers at down-home prices. We quickly realized we had a winner. In his business plan David had given me three sets of sales forecasts for the first year: worst-case, best-case, and probable. We hit the best-case number in the first week and steadily improved from there. Eventually, the growth curve flattened out, but at a level that was 20% higher than David's rosiest projection. I'd earned back almost my entire investment within 27 months.
"What a great business this is!" I thought. "You get a good concept in the right location, and you wind up with more customers than you can handle."
David and I could hardly wait to try again. He had another concept he believed would work in the neighborhood -- an Asian-noodle shop and sake bar. After looking at several places, we settled on a location about a block away from Harvest. Someone suggested the name "Harvest East," and it stuck. We figured that the association with Harvest couldn't help giving the new restaurant a boost. Indeed, we were so optimistic that we didn't even put together a business plan. We just assumed we'd do about as well with Harvest East as we'd done with Harvest.
Harvest East opened in November 1998. By the middle of January it was clear we'd miscalculated. Our sales weren't actually all that bad. They were running at about the level David had originally predicted for Harvest. The problem was, we had much higher expectations now, and Harvest East was a good 30% below them. To say I was disappointed would be a major understatement.
It was David who brought me back to reality. "Listen," he said, "I expected to do better, and so did you, but I think we were spoiled by Harvest. It was an anomaly. Most neighborhood restaurants aren't successful overnight. First, you have to get the concept down, and then you have to build up the business over time."
He was right, of course, and not just about restaurants. You need to follow the same process with pretty much every business -- unless you get lucky, that is, in which case you'll no doubt draw all the wrong conclusions, just as I did.
There are actually three stages you have to go through, and we've seen them all at our new restaurant.
1. Stop the bleeding. Cash is the lifeblood of every start-up, as I've noted many times. You have a limited amount of capital to work with, no matter where your financing comes from. The whole idea is to make sure it lasts long enough for you to get through the entire start-up process. So if you're leaking cash, the first step is to plug the leaks.
We were fortunate in that regard. Although Harvest East had fallen short of expectations, there was no reason it couldn't survive on the amount of business it had. However, we'd planned on a lot of extra costs based on our experience at Harvest. Given our actual volume, we didn't need a full-time hostess, for example, and we could get by without an additional prep person in the kitchen. By eliminating the extras, we were able to trim our costs and start breaking even fairly quickly.
Not that it's ever easy to make those types of cuts. When you start out with big plans, you often develop an emotional attachment to the expenses -- and the people -- needed to achieve them. Cutting back means letting go of a part of your dream, at least temporarily. That's one reason I generally try to stay behind the growth curve. Stressful as it can be, I'd rather be catching up with sales than paring back people.
2. Tinker and tweak. A business always starts out as a puzzle. Unless the pieces just happen to fall into place (as they did at Harvest), you need to spend an extended period trying to identify them and fit them together. There's only one way to do that: by experimenting and seeing how the market responds. What you're looking for is a viable business concept -- that is, a formula you can use to build a solid base of repeat customers. They're the people who will make your business successful over the long term.
At Harvest East we already had quite a few repeat customers -- not as many as we wanted, but a lot of people clearly loved what we were offering. So the first question was, Could we build our base by bringing more new customers through the door and turning them into repeat customers?
We tried various things. We opened up on Monday nights, when other neighborhood restaurants were closed. We hired a PR firm to generate some press. We stopped serving lunch during the week, when there wasn't enough business around to justify the effort, and focused on attracting more customers to brunch on Saturday and Sunday.
We had some success, too. By talking to customers at Harvest, for example, we discovered that we weren't getting our share of the brunch crowd at Harvest East because we didn't have eggs on the menu. If one person in a party of four wanted eggs for breakfast, we lost the whole group. So we added a few items to the brunch menu and saw an immediate jump in sales.
After about six months, however, David came to me and said he wasn't satisfied. Our tinkering hadn't produced a sustained improvement in sales. He thought we should take the next step and change the concept, the decor, even the name of the restaurant. Calling it Harvest East had been a mistake, he felt. The association didn't help either restaurant and might hurt in some ways. Anyway, he said, both places should be able to stand on their own. I didn't disagree.
His new concept was Latin-Asian. He had in mind an upscale version of the Chinese-Cuban restaurants found elsewhere in the city. We'd brighten up the decor, remodel the front of the restaurant, and add some items to the menu. The goal was to attract a different, younger clientele while keeping the customers we already had. I told him to go ahead.
The restaurant closed for three days at the end of July and reopened on August 1 as "Moho," named after a sauce used in Latin cooking. The new concept was an immediate hit. Sales shot up 30%. Of course, you can't tell much from the first two weeks of any new restaurant, when customers come just to try it, but Moho was still going strong after two months -- a good sign.
3. Stick with what works. There's a downside to the tinkering process. If you're constantly experimenting, customers may get confused. They start to wonder exactly when you're open or what they're going to get if they come, and that uncertainty works against you.
You need to establish consistency. You need to find a process that works and then stick with it. I don't mean that you should become inflexible, but remember, the success of the business depends on building a loyal customer base. Any changes you make should be aimed squarely at achieving that goal.
There are two dangers to avoid in this regard. One is the temptation to get distracted by unrelated opportunities, which I've discussed before. (See " The Right Stuff," July 1999.) The other is panic.
In October, for example, we had a drop in sales at Moho. I could see how nervous David was when I met with him. Now it was my turn to be the voice of reality. Every business goes through cycles, I noted, and a few mediocre weeks don't make a trend. I pointed out that our weekend business hadn't dropped at all. What hurt us were lower sales during the week. Maybe we lost some customers to the baseball play-offs, or maybe there were too many new restaurants in the neighborhood. It didn't matter. If the business didn't come back, we'd just have to look for ways to attract more customers on weekdays. In any case, I told him, we've found a concept that seems to work. We need to stay with it and see how far it goes.
To be sure, there are no guarantees. Some start-ups don't make it, after all. Even if Moho succeeds as a restaurant, it may not succeed as a business, and we may eventually decide to move on to something else. Then again, it's equally possible that the pieces will come together and Moho will take off.
We have to give it a fair shot. Finding the formula for any business is a long and delicate process. The trick is to make sure you have the cash to stay in the game, the flexibility to discover what works, and the consistency to build the base. Then, if you can keep them all in balance, you can at least avoid having to give up prematurely -- an event that is sure to give you heartburn, even if you're not in the restaurant business.
Norm Brodsky is a veteran entrepreneur whose six businesses include an Inc. 100 company and an Inc. 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available at www.inc.com/magazine/columns/streetsmarts/.