BUSINESS PLANS

How to Start a Restaurant

It's fine to be inexpensive, says Larry Leith of Tokyo Joe's. But don't go too cheap.
FAST STARTER Larry Leith in the third Tokyo Joe's, which opened in 1977. He has added at least one every year since.
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In 1993, Larry Leith was itching for change. He was six years into building a successful vintage car restoration shop in Scottsdale, Arizona, but was running low on passion for the work. A former professional skier and general manager of a mountain ski shop in Vail, Colorado, Leith felt the thin air of the Rockies beckoning. He sold the car business for a few hundred grand and decided his dalliance with desert life was over. It was time to go home.

And with that, time, finally, to pursue a business idea that had carved out permanent real estate in his mind several years back. Leith wanted to open a restaurant in Denver serving Japanese cuisine, which at the time had relatively little mainstream status. Yet he wanted something more casual and affordable than the restaurants he frequented at the time. His vision was straightforward but rather novel for the early '90s. "We wanted to be affordable, healthy, and to blow people away with the environment," Leith says. The breezy name he chose for his creation, Tokyo Joe's, evoked the promise of an American take on Japanese food for the average joe.

Name a Japanese cookbook available in Colorado, and Leith devoured it, cover to cover. He also -- because there was a lot he didn't know about running a restaurant -- took a nonpaying, three-month apprenticeship at a local Japanese restaurant.

Leith set aside 10 months for planning, but it took two years to find a landlord willing to rent good space to an unproven restaurateur. In the interim, Leith lived off money from the sales of his business and his beloved 1973 BMW. He also took on $220,000 in funding from Todger Anderson, who had invested in the car business. Tokyo Joe's finally opened its doors to the public on March 13, 1996. That morning, Leith made a $1,000 charge on his credit card: his mortgage payment. "I was beyond broke," he recalls.

To prepare for the launch, Leith put together a minimalist marketing campaign. He bought space in direct-mail coupon books and hung a "Now Open" banner across the front window. What he didn't advertise was that lunch on Day One was free. Same for dinner. Tokyo Joe's ran out of food by 7:30 p.m., after serving nearly 800 meals. With that, a vibrant following was born.

When Tokyo Joe's did start charging on its second day, the pricing was influenced more by common sense than by detailed analysis. Leith took into account the traditional rule that food costs should equal about 30 percent of sale price, but that was just a guidepost. "We all have a sense of what we want to spend on lunch or dinner," Leith says. "Our pricing was meant to be value-oriented from the get-go. We wanted to be above fast food but below full-service prices." Today, the most popular dish, a rice and chicken bowl, starts at $5.65. Special bowls start at $6.75.

Leith urges fellow restaurateurs to invest heavily in a good location and high-quality ingredients. "If you're in a location that's hidden, you'll be forever marketing," he says. "A great location and a great product will do just about everything for you."

If he were launching today, Leith says, he wouldn't attempt a giveaway for fear of crowd-control issues -- news spreads too quickly in the Twitterized world. He would still use the coupon book to help get people in the door. But he would discontinue that practice as soon as possible for fear of crafting an image associated with lower-quality establishments that rely on coupons permanently.

Even after Tokyo Joe's withdrew from the coupon circulars, its teriyaki rice bowls and steak noodle bowls continued to be a hit. And Leith was there every step of the way. He arrived daily at 5 a.m. and didn't head home until 11 p.m. He personally greeted each and every customer. "If I didn't know their name, I knew what they ordered," he says. He paid his store manager more than he paid himself. By its second month, Tokyo Joe's was profitable. Eight months later, Leith opened a second location.

In each successive year, Leith has added one or two locations to the Tokyo Joe's empire across the Denver metro area. His stores bring in an annual average of $1.3 million each. He will open his 19th and 20th outposts this year.

He hasn't stopped doing the little things. Leith's e-mail address is printed on all cups, and he responds personally, within 48 hours, to every comment, compliment, or complaint. He pays many managers more than $50,000 plus benefits, and invites every one of them to spend a week each summer with their family at a house he owns on Maui. He fully embraces diversity among his staff, proudly broadcasting the company motto: "The few, the proud, the pierced." "We've all worked for someone who could have been better to their employees," Leith says. "Be extremely good to your employees, and they'll be a lot better to your customers."

Company Dashboard: Tokyo Joe's

Founder Larry Leith, 49

Location Denver

2008 Revenue $22 million

Employees 350

Start-up Year 1996

Funding $110,000 in personal cash; $220,000 from an investor

Start-up Costs $330,000 for the first restaurant; it costs about $600,000 to open a new location today

Breakeven Two months out on sales of $140,000

Biggest expense Construction, architecture, and engineering materials and services constitute about 50 percent of total start-up costs.

Qualifications A self-taught knowledge of the cuisine, a flair for innovative store design, and a nose for hot locations

Red Tape Liquor licenses, construction and business permits, health inspections

IMAGE: Courtesy Company
Last updated: Jul 1, 2009




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