Louise's had also followed a top-down management model in which employees were expected to do as they were told. LeFranc encountered that culture as soon as he visited the restaurants. "I used to ask the managers, 'What do you think should be done?" he says. "And they looked at me with an expression like, 'What's the right answer?' And I would say, 'No, really, what do you think?' They just weren't used to being asked that question."
In 1997, Jon Chait, who was then managing director of Manpower, thought Louise's was promising enough to buy it from his brother and the venture-capital investors, who held a 20% stake. He knew, though, that he would need a professional to take over for his brother, whom he describes as a passionate entrepreneur who was bored by managerial details. (Bill Chait declined to comment for this story.) Using a headhunter, he found LeFranc.
But things would hardly go as Jon Chait had planned. After Louise's filed for Chapter 11, the bankruptcy judge threw out Jon's deal to buy the company for $4.5 million. Instead, because there were other people interested in buying the chain, he ordered an auction. Jon ended up paying $7 million for Louise's, which added yet one more financial burden. Under the terms of the sale, which was completed in January 1998, when Louise's exited bankruptcy, Jon put up $3.5 million in cash and gave the creditors a note for another $3.5 million to satisfy their debts. The note paid the creditors principal and interest of about $68,000 a month, which would come out of Louise's already stretched coffers.
The hunt
In his previous jobs, LeFranc -- an analytical man in any case -- had learned to rely on the grittiest of details. To run a successful restaurant, he believed, he needed to manage what to others might seem like minutiae: the frequency of supply deliveries, the way food is stored in the walk-in refrigerators, the unit costs of premade tomato sauce, seasonal-staffing schedules, targeted marketing promotions, guest counts, average check sizes, and the margins on a plate of food. But the former owners had measured few if any of those details. In the chaotic months after the bankruptcy filing, LeFranc had hardly any of the information he needed. He was flying blind.
To add to his troubles, accounts payable was in shambles, and his first chief financial officer quit shortly after the filing. In March 1998, LeFranc lured James McGehee, a controller he had worked with at Una Mas, to come aboard. On McGehee's first day as Louise's controller, a second CFO, on the job for just two weeks, walked into McGehee's office and wished him luck. He, too, was leaving.
McGehee, who suddenly became CFO, put a temp to work sorting out stacks of invoices left in the wake of the bankruptcy filing. "In the second week I was there, I caught a duplicate payment of $110,000," he says. He hired everyone he could find, including LeFranc's two kids, to help input the invoices. It took him three months to put together an earnings statement. Louise's was losing $157,000 every 28 days. But where were those losses coming from?
Although LeFranc couldn't immediately pinpoint the source of the bleeding, the more he dug, the more he learned. One early focus was the company's commissary, which imported olive oil, cheese, and other ingredients from Italy and then made sauces, salad dressings, and pastas by hand. The commissary was Louise's central-supply operation, selling its goods to the restaurants.
At first glance, the setup looked surprisingly healthy. The restaurants paid the commissary a price for supplies that left their food costs at 28% to 29% of revenues. "Then December comes rolling around, and the food costs jump to 50%," LeFranc says. "It's like my stomach goes into a knot."
And for good reason. He discovered that the commissary was selling supplies to the restaurants below cost and accumulating losses each month. Then, in December, to erase the $150,000 in losses it had built up all year, it would dramatically raise its prices.
Once he figured out what was going on, LeFranc priced the commissary's products at their true cost. The higher prices pushed up the restaurants' food costs to 35%, and all of a sudden operations didn't look so buoyant.
In May, LeFranc traveled to Italy to meet the suppliers that were at the root of those costs. "They treated us like kings. And I was very polite. I learned a lot, and as soon as I came back I said, 'OK, we're not going to do business with them anymore," he says.
He decided to outsource basic foodstuff -- sauces, dressings, and pastas -- to less expensive American companies, and he shut the commissary down. LeFranc also reduced distributors' deliveries to the restaurants from six to three days a week. With fewer deliveries, transport costs declined, and LeFranc was able to wring out better terms for supplies. The new delivery schedule also helped the accounts- payable department, since it meant fewer invoices, down to about 3,000 a year from 20,000. Finally, LeFranc moved the company's headquarters to West L.A. to be closer to the restaurants and, not incidentally, to cut his rent almost in half.
With the reengineering of supplies, deliveries, and eventually the menu, food costs fell more than 9 percentage points, to around 25.5% of revenues. By November 1998, 11 months after it had emerged from bankruptcy, Louise's was cash-flow positive.
Stopping the bloodletting was one thing. What was less clear was whether LeFranc could create a self-monitoring organization that could survive and grow.
The map
The key to running such an organization was getting accurate information, which at the broadest level meant an income statement. But to get a really detailed plan that might guide the team forward, LeFranc and his managers would have to parse the profit-and-loss statement into hundreds of components and measure each individually. The cost of pizza dough, the wages of a new chef, the price of napkins -- all of it would need to be tallied for each restaurant, creating the detailed contours of an earnings map.
