Insurance is a required business expense, whether you leased or bought restaurant space. Leases or mortgages come with extensive insurance language, that every employee, director, outside contractor, owner, manager and anyone else with a passing interest, be indemnified in case of a claim. Why all this hassle about additional insured you might ask? You as a restaurateur have purchased the requisite policy with the limits require. Everything is covered right? Wrong. The reason landlords, bankers and business owners have become so anal, is because unless someone is specifically, by name or title insured under the policy, they are not insured. Claims tend to cast a wide net around anyone with an interest in the restaurant, (bankers, accountants, landlords, directors, employees, owners, and managers). The effect of not being covered under the restaurant policy is that the individuals have to provide their own defenses, in a suit involving your restaurant. Having been seasoned in the crucible of experience, these participants now require coverage under your policy. An open discussion with your agent is necessary to insure that you, employees, investors, and outside contractors are in fully covered under the policy.
Tuesday, July 31, 2007
Monday, July 30, 2007
Caffe Latte extra shot…$2.99 from Employee A, Caffe Latte extra shot…$3.54 from Employee B, Caffe Latte extra shot…$3.25 from Employee Z. Your guest in all three cases was not overcharged because the correct price is in fact $3.54. Your guest however, feels like she is being cheated and that is a huge issue you as the proprietor are oblivious to. The guest can read the menu board, they no doubt purchase the same item on a regular basis, the correct price is hard wired into their brain. Even when they are not being overcharged, your guest feels real uncomfortable with the differential pricing because they do not know walking in which price will be charged today. There are many moments when guests welcome surprises, alternate pricing schemes is not one of them.
Restaurateurs invest in elaborate sign boards, POS systems with all the bells and whistles, train employee’s to upsell and bang one employee thinks it’s unfair to charge for the extra shot, another give discounts based on the tips the customer leaves and another completely forgets to ring in the extra shot. Further, unless a guest specifically mentions to you the disparity, you are unaware of it. The restaurant is losing sales ($$$$) and antagonizing the guest. : (
Ongoing training and testing of simple things like menu prices are a critical component to insure a fantastic guest experience. The details that you think you have covered are actually an irritant that works virulently against customer advocacy.
Sunday, July 29, 2007
The lease document sits on the desk in front of you. The lengthy exhausting process of arriving at agreeable terms is behind you. Maybe? You are not completely comfortable with all the terms, however this is the best alternative to no agreement. Before you lays, the work necessary to open the restaurant within the timeframe of the agreement. Before you lays, interminable meetings with general contractors, subs, inspectors, original equipment manufacturing reps, the upholstery contractor, designers choosing the table, the chair, the colors, the lighting, the counter top, the art on the walls, the décor. The opening date draws closer, the staffing, the purveyors, the tasting, the run through, the mock service, the tweaking, the adjustments, the final clean, and the soft opening. Why are you doing this again? The check is in your hands and you are about to turn it over to the landlord as a security deposit.
Just Do It! …Now the fun begins!
Saturday, July 28, 2007
Gina Kolata New York Times Article “Study Says Obesity Can Be Contagious” has gotten everyone talking.
Seth Godin says “The most important thing you can do is choose who you're hanging out with. The second high-leverage thing is to put dynamics in place that reinforce the ideas you'd like to see spread. Celebrate the heroes. Make it easy for those ideas to spread.”
The old wise tale “you are known by the company you keep” summed it up a long time ago. Winners like to be around winners, athletic people tend to congregate with athletic people, positive happy people tend to socialize with positive happy people, in sports if the person you play with is getting better, you will tend to get better. Networking works because your goals are in sync.
Make friends with successful restaurateurs!
Friday, July 27, 2007
Recall the worst customer service experience in your life. Is the image clear, is your pulse quickened, is your breathing becoming labored, is the anger welling up within you? Good, your goal as a restaurateur is never to have your guests feel that way. Pundits have pontificated, far better than I on the abysmal state of customer service. It is a pandemic in the service industry.
When you invite a guest into your restaurant, the guest should not have to hear about the waitress’s flat tire, the chef burning the special, the purveyor delivering the wrong product, the hostess’ romantic tiff with the doorman, the waiter needing next Wednesday off for a court date, or the fact that the carpet cleaners scratched the wall. The guest is not there to resolve your issues, you are there to solve theirs.When you invite a guest into your restaurant, never, never, never lie to them. If the wait is going to be an hour, tell them it will be an hour. If you are out of something, tell them. A guest is placing an order at Joe’s Café and asked for a special sandwich, the counter person says, “we don’t do that here”, the guest responds “My friend got that special sandwich here yesterday straight away”, the counter person responds, “ok we can make it, however it will take longer because there is another special order ahead of you”. You have just lied to that guest. Why would anybody do that? You have just lost that guest forever. The guest will never forgive or forget being lied to.
Thursday, July 26, 2007
Wednesday, July 25, 2007
Attracting the creative class, the dreamers, designers, artists, and artisans who shape our world should be one of your goals. This type of guest tends to be categorized as the pioneer, the early adapter, and the experimental. This group provides the best word of mouth advertising. Creative's create customer advocacy. Generalizing a bit, they tend to hang out in large metropolitan areas, as a group, are more open to new ideas. The dreamers push the envelope and require you to be innovative.
Tuesday, July 24, 2007
Gretchen Rubin writes an always thought provoking Happiness Project blog: Her July 20, 2007 blog posed the question about how to get kids to eat healthy. Quoting a story in The Week magazine got me to think about discounts and giveaways.
“In the descriptions of the various programs that appeared in The Week magazine's “Nutrition Classes Don’t Work” (7/20/07, not available online).
“But in practice, kids given free fruit and veggies, a federal study found, were even more likely to turn to junk a year later.” --People generally believe that they get what they pay for, and therefore don’t value free stuff very much. (Is this the ultimate Giffen good?) Giving healthy food away may have sent the signal that no one would ever pay to eat it. This is ironic because in fact, you have to pay more to eat healthy than to eat junk.
People do not value something you give them as much as something you charge for. Restaurateurs in an effort to generate awareness will initiate all manner of discount programs. Most fall into two categories. % off or value added (we will discuss frequent dining or loyalty programs in a future post)
Percentage off offers a specific discount off existing menu prices.
Grand Opening discounts, employee discounts, 10%, 15%, 25% discounts, $dollar value off, after lunch discounts, day old product discounts etc …
Some concepts, for instance Pizza, are very coupon driven. Customers will receive coupons in the mail for $2.00 off and immediately call for a pizza that evening. Hence, the reason for the preponderance of pizza mailers, relative to other concepts. If your concept is discount driven then you must provide discounts in order to compete, or provide an exceptional product. Restaurateurs are as a group very enamored with giving their product away. They generally lack the faith or the patience that their product will resonate with their customers. The strongest argument against discounts is that value added programs enhances your product while discounts tends to diminish the perception of quality.
Value added offers a specific additional product at no or reduced cost.
Ubiquitous value meals are actually a good example of this type of program. The customer purchases some item at full price and receives a discounted or a free second item ( i.e. buy a entrée and dessert is half price) (i.e. buy a sandwich, get a free cup of coffee). Value added promotion enables the perception that the product price is fair and a good value, and as a gesture of good will we provide additional products at a reduced price.
Monday, July 23, 2007
Entrepreneurs by nature tend to be people that can solve problems. Sometimes, however we are so concerned with the complexities of solving the problem that we neglect the simple solution.
Aditya Kothadiya recounts a story in his blog:
“A group of very intelligent business people were having lunch at a small restaurant. While eating, they discovered that their saltshaker contained pepper and peppershaker contained salt.
They started brainstorming that how could they swap the contents of the bottles without spilling and using only things available on the table. It was fun challenge for them. The group debated and presented ideas, and finally came up with a brilliant solution. The solution only involved a straw, a paper napkin and an empty saucer.
They called over the waitress to dazzle her with their solution.
“Ma’am,” they said, “we couldn’t help but notice that the peppershaker contains the salt and the saltshaker…”
“Oh,” the waitress interrupted. “Sorry about that.” She unscrewed the caps of both bottles and switched them.”
Sunday, July 22, 2007
Pricing on a restaurant menu is always a source if consternation. Customers do not value free stuff very much. Arriving at price points for the menu, that is not questionably low or uncomfortably high, is much more art than science. You should err on the side of higher prices. I have witnessed many restaurateurs agonize over how much to charge, when to raise prices and how much. Will the change drive traffic or punish revenue? Pricing is a function of whether your product and service is a commodity. Your restaurant should never become a commodity because you have no pricing power. Differentiation provides pricing power and that is should be the focus of your efforts and pricing decisions.
The typical way to arrive at menu prices is to survey similar concepts in your area and set your prices. If the quality of your offerings or the atmosphere is differentiated in some fashion you can adjust your price up. If your products are comparable the price should match the prevailing in the area. In misguided efforts to drive traffic some establishments will set there price slightly lower. The most successful price strategy is to charge higher than the average and support it with overarching quality and service, in a design setting that is atheistically pleasing.
Saturday, July 21, 2007
In the dark abyss, before the healing light of design, I was blinded by my financial background, so my bias was to view every decision through a financial lens. Time and again, when I was dining out with my wife, I would comment on how much the proprietor spent on the build-out. Design, I now know is the essence of life. Everything in your world is there because a designer conceived it, constructed it and found a way to market it. Design has the ability to make our lives glorious or intolerable. We are indebted to the dreamers, the designers who move us forward with style!
Friday, July 20, 2007
What are you waiting for?
Thursday, July 19, 2007
The human brain according to the prevailing theories, developed advanced neural connections about fifty thousand years ago. One of many advantages that this brain offered was the ability to sense, interpret and quickly get out of the way of danger. Natural selection extrapolates that this brain becomes the dominant feature in our species. The human brain has a negative bias, it notices bad, scary or out of place people and events in the environment and quickly determines whether it should fight or take flight. The negative bias is so prevalent that in fMRI imagining, the brain neural connections light up like a Christmas Tree when exposed to anything that looks or sounds wrong. Conversely, positive situations under that same fMRI imagining hardly fire at all.
What does any of this have to do with a restaurant? Simple really, screw up once and the customer will forget the thousand of times you got it right. You need to work very hard to correct any issue your guests bring to you. Remember their brain is working against you. Reason will avail you not! To resolve the guests issue you must address their emotions, not their reasoning.
No pressure, no judgments!
Everything is negotiable!
You have discovered the place that is perfectly in sync with the vision of your establishment. You have reviewed the offer sheet and are now moving into the lease stage. Negotiation 101, first day of class, always be the one to write the lease or proposal. Landlords, however will author the lease. The tenants are at a distinctive disadvantage from the beginning. The rules of game are as follows, landlord’s will put every term and nuance, into the lease to protect their position at no cost at them. Landlords will request that you guarantee the terms of the lease and payment of said terms, either as a security deposit or a letter of credit (A disclaimer, I have been a landlord and I have been a tenant, neither is any fun. I do not have a negative bias against landlords, they are simply protecting their investments and you should understand that). Having put every possible favorable term into the lease, the onus is on the tenant to review the lease, with legal counsel and change as many of the terms as possible, to get a favorable set of terms.
The negotiation process can take days, weeks or months depending on the complexity of the issues. The landlord’s underlying position is that the tenant be able to fulfill the terms of the lease. Landlords want a tenant that enhances the value of their space and provides a steady stream of uninterrupted income. Landlords have a fiduciary responsibility to manage the building for a group of investors or have substantial loan commitments that they must adhere to. Hence the very intensive process to insure the financial viability of the tenant.
Tenant’s underlying position is that the lease is supportable by the dynamics of the business. Negotiations do not always result in a deal. The best alternative to a negotiated settlement may indeed be that the tenant walks away. If you are not comfortable with any material aspect, the best decision, in fact the only decision is to walk away. There will be other deals.
Everything is negotiable!
Tuesday, July 17, 2007
Natural Selection, the process by which the wide diversity of life on this planet evolved, is based on survival of the fittest. What is interesting is that Charles Darwin defined “fittest” as the one that best adapts to its environment. The “fittest”, means the one who makes the most efficient use of energy, it does not mean, the biggest, the strongest, or the fastest. The efficient use of energy is important because the availability of food changed over time. The lack of food favored one characteristic over another. The ones who were the most efficient had the advantage of being able to survive the longest, when the food supply varied.
In business, the marketplace is the lever of natural selection. The marketplace is as ruthless as nature. Survival and prosperity goes to the ones who are able to adapt quickly, to an ever changing landscape. Success does not go to the strongest, the most well financed, the largest, or even the fastest. Success goes to the ones that heed the signals from the marketplace and adapt quickly.
Monday, July 16, 2007
Scientist have discovered that are brains are wired for sociability. We crave human interaction, we like being with people and where people are. The food actually tastes better and the experience is much more memorable if the restaurant is full. There is a certain amount of unease when you are eating in an establishment by yourself. Having the place full validates their decision to eat there. When the place is empty and the food and service appear to be good, there is a certain amount of cognitive dissonance that occurs, because there must be something you are not getting, otherwise you would not be dining alone.
People do not go to restaurants for food, they can get food anywhere. People go to restaurants to be with other people. Your objective as a proprietor is to create community in your place. Find innovated ways for your guests to interact with each other. Have them become a community and they will market your establishment for you.
Sunday, July 15, 2007
Growing up in
There was however, nothing extraordinary about the place. There is a place just like it up the street. Seth Godin always extols the virtues of being different. There is a huge differential in compensation between being good and being extraordinary. My guess is that the operator is good and will no doubt make a living, maybe even a good living with the concept. I am not against making a living, however is that what you want to do? Sitting eating my Italian Beef, I simply posed the question to the universe, why hasn’t someone improved on this concept yet?
Saturday, July 14, 2007
The most useful tool in opening a restaurant is the timeline. Timelines provide a sequential listing of all the separate processes that need to take place between the signing of the lease and the opening. The timeline provides a visual reference to order furniture, apply for licenses, contact vendors, hire staff, complete the decorations and finally open the doors. Timelines can be in visual format of a graph which allows an overview of the projects deadlines or it can be very detailed listing the specific individual responsible for the completion of that task.
Friday, July 13, 2007
The exhaustive search for the space results in a collection of offer sheets: Offer Sheets are interesting documents. They provide the asking bid from the landlord. Similar to a listing sheet when buying a home, the offer sheet list: Location, Term (commercial usually a three or five first with renewal options for five or ten years) , size of the space, net rental whether it includes CAM (common area maintenance), Date of Possession, condition (as is, with some build out funds for tenant improvements), a preliminary restriction on signage, and the amount of security deposit. Everything on that sheet is negotiable…nothing, nothing is set in stone. The offer sheet is the window sticker on an automobile, a starting point, an opening negotiating position. We will discuss about negotiating the lease on a future post.
Thursday, July 12, 2007
Chip and Dan Heath wrote a fantastic book called “Made to Stick”. They relate how the military now designs military plans that list objectives but leave the accomplishment of those objectives to the soldiers. The reason is because no
Wednesday, July 11, 2007
Tom Peters reminds us that if we were realistic nothing would ever get built. His post is quoted below:
“I decided to do a little careless research at a dinner party, asking several people about their projects. Three questions: How did you do vs. budget for projects completed a couple of years ago? If you'd known the real pricetag when you started, would you have gone ahead? And, in hindsight, was the eventual pricetag worth it?
To Q1, the answer ranged from about 25% over (if you can believe it) to 5 times (which I
do believe). As to Q2, 3 of the 6 I queried said "no way" if they'd known what they were getting into—2 others were on the fence. As to after-the-fact satisfaction, 5 said, in effect, "Yes! We'd do it again"—and one said "Maybe, maybe not."
It's obviously dangerous to generalize from such a sample, but my reading of history, business, and in general, says this phenomenon is as ordinary as it gets. Furthermore, in the back of one's mind, one damn well knows that the pricetag will be far in excess of what's planned.
And my point? You'd better have a great number-crunching CFO, but if you let him-her rule the roost, there won't be much left to roost on. Of course I know it's "Damned if you do, damned if you don't." On the other hand, progress hinges on illusion and delusion...Cherish your dreamers!”
Seth Godin, Marketing sage raises the question about expectations in his post:
“Word of mouth comes directly from expectations.
Low expectations are a terrific shortcut, because when you exceed them, people are so amazed that they can't help but talk about it.
But low expectations are dangerous, because if you fly too low, you're invisible. Worse, when people expect little of you, they often don't bother listening at all.
So most of the time, you're challenged with this: high expectations that must be beat.
Broadway shows. Apple products. Expensive consulting services. Promise big and deliver bigger seems to be the only reliable strategy”
Monday, July 9, 2007
Everyone, Landlords, Bankers, Investors and employees will ask to see your Business Plan. The magic of a plan is that it requires you to convey your idea in a concise, understandable and logical format. The plan is a blueprint for the business. It lays the foundation for how you will create, design, build, market, staff and operate the restaurant. A plan for the first restaurant is actually a tremendous tool because for the first time you as an entrepreneur have crystallized in your mind how everything will operate. The are many elements for a Business Plan, The Executive Summary, the Mission statement, The company structure, the actual operational plan, Market Analysis, the Management Team, and finally the Financial Plan which outlines how you will finance this dream of yours. The element that is crucial is the Executive Summary. People will read the Executive Summary, if the idea peaks their interest, they may scan the rest of the Plan. The limited window of opportunity is the Executive Summary. There is an oft used phrase in hospitality, ”people buy the sizzle, they do not buy the steak”. The Executive Summary is all about “Sizzle”. Convey your passion for the project.
Sunday, July 8, 2007
The search for space is never ending. You become very familiar with the jargon. HVAC,
Saturday, July 7, 2007
Today 7/7/7, there are a lot of people getting married today, an even greater number are visiting local gambling halls, and some are opening restaurants today, in an effort to extract some of the luck of 7/7/7. The reason those three numbers in combination resonate with people is because when playing a slot machine the 7/7/7 combination hits the jackpot. A business whether it opens on 7/7/7 or not will encounter many moments of serendipity. Those moments will tend to be “Days in the Sun” moments that will resonate throughout your enterprise.
The word serendipity according to Wikipedia.org:
“Serendipity is the effect by which one accidentally discovers something fortunate, especially while looking for something else entirely. The word derives from an old Persian fairy tale and was coined by Horace Walpole on 28 January 1754 in a letter he wrote to his friend Horace Mann (not the same man as the famed American educator) an Englishman then living in Florence. The letter read,
"I once read a silly fairy tale, called The Three Princes of Serendip': as their highnesses travelled, they were always making discoveries, by accidents and sagacity, of things which they were not in quest of: for instance, one of them discovered that a mule blind of the right eye had travelled the same road lately, because the grass was eaten only on the left side, where it was worse than on the right—now do you understand serendipity? One of the most remarkable instances of this accidental sagacity (for you must observe that no discovery of a thing you are looking for, comes under this description) was of my Lord Shaftsbury, who happening to dine at Lord Chancellor Clarendon's, found out the marriage of the Duke of York and Mrs. Hyde, by the respect with which her mother treated her at table."
Magic happens at the most unexpected times and the least likely of places. The success of an enterprise depends on the entrepreneur being able to seize the day when fate intervenes.
Friday, July 6, 2007
Experience improves the odds your enterprise will succeed. Empirical studies abound about the percentages of business started each year and the dismal survival rates. What can be gleamed from the data, however is that experienced entrepreneurs have a significantly higher survival rate. This explains why franchise operation survival rates are atmospheric compared to non-franchised units. The franchise is providing the experience factor for you, at a very high cost. If you are opening a restaurant and your only experience in a restaurant is as a patron, then you need to bring into your management team a very experienced chef or sous chef. Experience provides the requisite skill set to understand menu pricing, food cost, labor cost, negotiating with vendors, design and marketing issues.
Thursday, July 5, 2007
The typical reaction after having visited several sites is utter confusion and helplessness. The sites all tend to meld into one, they all look similar, they all have the same amenities, and all the landlords are considering anointing you if you pay their excessive rents. Let’s review a little about types of spaces.
Own or rent: Entire semesters at academic institutions are spent discussing all the variables. Suffice to say if you can own the real estate do so, however, if you must rent here is what you will encounter:
Class “A” Office Buildings: Generally a brand new trophy high rise. Everything is brand new, the space is raw and ready for your tenant improvements. (highest rent structures per square foot)
Class “B” Office Buildings: Older buildings, who have lost a little of their luster, yet still have strong occupancy and there is demand for their retail space.
Class “C” Office Buildings: Much older buildings, weaker tenant occupancy. Generally these properties are in a continual state of remodeling.
Shopping Malls: Space is available in food court or as a separate area.
Strip Malls: Drive up convenience.
Standalone structures: Destination location, customers are coming to you.
Once inside the restaurant the customer is shrouded into your space. The vast majority of patrons do not visit because it is located in a trophy building or not (the exception of course is if the restaurant concept is the top of the building). Location does drive traffic however, and as an entrepreneur you must consider how your targeted customers will perceive the location as an integral part of the concept.
Wednesday, July 4, 2007
The best time to start is right now. Finding a location is now the focus. The first location search is the most challenging because everything is an unknown. Searching for a second location to expand a concept, one is armed with check average percentages, cost of good sold percentages, labor percentages, traffic flow’s, customer experiences, etc. The first location is all intuition. You will know the space when you see it. This notion holds true even if you are tweaking or improving an existing concept. The market’s response to your concept is an unknown variable, regardless of how confident you might be that it is similar to other concepts.
“Location. location, location” is a well worn mantra. Accessibility, visibility, approachability, affordability are all ingredients, however the space created in your mind is the true guide. High traffic flow is preferable, regardless of concept. Downtown, suburban, emerging area, which best suites your need? Who is your target customer and how will they access your restaurant. Your search requires that you enlist the help of a real estate broker familiar with the local restaurant market. This is a total aside and a subject of another post, however specialization of labor is the key to growth. Do not try to master every aspect of the business, surround yourself with specialists in all fields. A broker familiar with the local restaurant real estate market can save you time and resources in the search. The internet search engines provide a treasure of info as well.
Tuesday, July 3, 2007
Who will be your primary customer? Are they business professionals, tourists, locals, quick service, casual dining or white tablecloth? Determining who we will be serving will influence where the enterprise is situated (Location), the type of service (wait or counter staff), and the food prep (kitchen staff).
Monday, July 2, 2007
In yesterday’s post we created the space in our minds and put the scribble on paper. Today we explore when is the best time to start? “Seth Godin” in his blog post of November 14, 2006 gives us the answer quoted below:
“When to start
- The best time to start is when you've got enough money in the bank to support all contingencies.
- The best time to start is when the competition is far behind in technology, sophistication and market acceptance.
- The best time to start is when the competition isn't too far behind, because then you'll spend too long educating the market.
- The best time to start is when everything at home is stable and you can really focus.
- The best time to start is when you're out of debt.
- The best time to start is when no one is already working on your idea.
- The best time to start is when your patent comes through.
- The best time to start is after you've got all your VC funding.
- The best time to start is when the political environment is more friendly than it is now.
- The best time to start is after you've got your degree.
- The best time to start is after you've worked all the kinks out of your plan.
- The best time to start is when you're sure it's going to work.
- The best time to start is after you've hired the key marketing person for the new division.
- The best time to start was last year. The best opportunities are already gone.
- The best time to start is before some pundit declares your segment passe. Too late.
- The best time to start is when the new generation of processors is shipping.
- The best time to start is when the geopolitical environment settles down.
Actually, as you've probably guessed, the best time to start was last year. The second best time to start is right now.”
Sunday, July 1, 2007
Let’s open a restaurant. In a previous post we explored the myriad of ways that inspiration for a concept can come to you. Regressing a bit, the moment can come from the popularity of your special recipe, visiting a restaurant and realizing that you can do this concept better, different, or with a more customer friendly design, or realizing that your concept does not exist and that there is a need. The passionate energy is building to a crescendo and the tympani sounds. You have just crossed the chasm and decided to take the leap of faith. The rest is easyJ
Visualization: Create the space in your mind, smell the smells, taste the tastes, hear the sounds, touch the space, walk around the space. Sit where the customers will sit. Always have a bias for viewing everything from the customer’s perspective. What are they seeing, how are they feeling, what scents are waffling through their space, how does the furniture feel to them? Walk through the kitchen or prep area, what does that look, feel, and sound like? Watch your staff moving through the restaurant. What works, what does not? How big is the space (square feet), how is the space laid out (rectangle, square, oval, irregular)? Stand outside and look in? What senses of the person passing by are being stimulated? Now would be a good time to take out a pencil and paper and record your mental images.
What does this culinary temple look like from the outside? Now walk through the front door, what is the customer seeing, sensing, smelling, touching, and hearing?
Visualization, creates the living breathing embodiment of the goal. Now that the path is laid out before us, we simply need to work backwards, complete the steps that bring us to the space we have created.