TOTAL GUIDE: YOUR FIRST RESTAURANT

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WHY SHOULD YOU OPEN A RESTAURANT ?
In my varied and meandering professional life, one of the most fulfilling things I have ever done has been to plan, open, and run restaurants. Each one is nicely profitable, and my capable managers limit the amount of my time required for any one location. The emotional rewards are enormous.

Ueing a part of a committed, diligent team that works ceaselessly to please customers is rewarding. So is hearing the din and chatter of a dining room full of happy patrons and seeing mountains of plates come back scraped clean.

Watching the realization of concepts that began as fanciful ideas and have grown into vibrant and thriving restaurants never fails to touch me and spark a profound sense of gratitude.

A WORD OF CAUTION Of course, the restaurant game is fun only as long as your restaurant is profitable. A restaurant failure can be financially and emotionally devastating. Since I have opened and grown my restaurants, and in the same and similar neighborhoods, I have watched a handful of other restaurants open and fail within a year, or open and struggle and never quite reach a point of thriving profitability.

Why do so many new restaurants fail while others around them thrive ?
There is no shortage of widely differing opinions as to the causes of restaurant failure and, in this book, I offer an entire chapter on the subject.

But if I had to identify only one overarching reason for underperformance and failure of new restaurants, I would point to the pervasiveness of faulty restaurant business-related decision-making.

Those new to the restaurant industry, understandably, often lack the tool chest of analytical decision-making tools; the frameworks and matrices required for them to most effectively navigate the perpetual storm of often conflicting, misleading, and missing information, and to plot a course that will lead them to making decisions that will yield the best outcomes in any situation.


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WHAT THIS BOOK CAN DO FOR YOU
With this book, I hope to remedy that. If you are contemplating opening your first restaurant, I want to arm you with the knowledge base and the logical, analytical, real-world restaurant decision-making skill set that will help you avoid disastrous financial wrong turns and that will dramatically increase your odds and speed of success. I hope this effort helps you to create a highly successful restaurant, one that delights your customers; provides meaningful jobs for your staff; and is financially, emotionally, and creatively rewarding for you.

HOW I BECAME A RESTAURATEUR
In 2010, as the national real estate market ground to a standstill, I saw my two primary sources of income – brokering commercial real estate and teaching commercial real estate investment analysis nationally – evaporate.

In my early 50s, with time on my hands, but only a humble amount of capital and no meaningful food industry experience, I decided to open a restaurant. For me this was not a lifelong dream. One day I happened to walk by a down-at-the-heels, struggling drive-through taco stand a few blocks from my house and began reflecting on its business, or lack thereof.

It hit me how out-of-step the business was with its context: a turn-of-the-century neighborhood that had been gentrified over the last 20 years.

The restaurant was located near the gateway to downtown and its sizeable workforce, and was on the side of the street on which people headed to work travel, yet it didn’t even open until long after the morning rush hour subsided.
What if someone were to give the building a cosmetic facelift to make its appearance more harmonious with the neighborhood ?

What if the business were rebranded, opened early every morning, and sold high-quality breakfast burritos and espresso drinks and maybe simple but thoughtful boxed lunches for customers to grab on their way to work ?

I sought out the owner and expressed my interest in buying the business.
No response. I tried a second time. After my third failed attempt, I decided to investigate other possible locations for my nascent restaurant concept.
I found several drive-through restaurant locations available, but none impressed me.

Eventually, an odd building caught my eye. It housed not a restaurant, but a maid service. However, it did have abundant parking, and its zoning allowed a restaurant with a drive-through window. The surrounding area, though, gave me pause.

The site sat at the convergence of four separate neighborhoods, each with very different populations. To the north was a vacant and derelict shopping center; to the east, an area dominated by lower-income apartment renters;

to the west, a neighborhood of well-kept, older, owner-occupied single-family homes and relatively high household incomes; and to the south, a hospital, a medical center, and an air force base with 23,000 employees I wondered:
could any one restaurant concept appeal to enough people from such diverse demographics to win over the critical mass of customers required to sustain it ?

Up for a challenge, I purchased the property, hired an architect and contractor, converted
the building into a restaurant with a drive-through window and small dining room, and six months later opened a counter-service breakfast and lunch café focused on made-from-scratch traditional Northern New Mexican-style cuisine. I named it Tia Betty Blue’s, which, linguistically, much like the food we serve, reflects a mash-up of local Hispanic and Anglo cultures.

The basic concept proved immediately popular, although there was abundant room for improvement. We spent the first two years making near-daily incremental changes in our menu items and processes, and fine-tuning our concept to better fit our customers.
Business grew steadily, and to accommodate it we expanded our seating capacity almost every six months.

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Now in its fourth year, Tia Betty’s is thriving.
The restaurant has received numerous local-favorite awards, has a fiercely loyal following, and is viewed by many as a neighborhood institution, a place to take out-of-town visitors, a place where patrons routinely scribble glowing notes of praise about the restaurant on paper napkins and slip them under the glass tabletops, where they become a permanent part of the ambiance.

JUST WAFFLES – A SECOND RESTAURANT
In the spring of 2014 I was approached by the owner of a cute, commercially zoned, 1920s-vintage house, located in a revitalized neighborhood full of trendy bars and hip eateries.
The owner offered to remodel the building as necessary to convert it into a restaurant and proposed an interesting lease structure, one based almost entirely on the future restaurant’s gross monthly sales.

The lease structure sounded great, but the only space available for a commercial kitchen and dishwashing sinks was the original residential kitchen, a closet-sized space of less than 70 square feet. Realizing that there was no way that standard commercial kitchen equipment would fit in this postage-stamp-sized kitchen,
I wondered just what sort of equipment would fit.

Waffle irons !
The concept of La Wafflería – the word waffle with the Spanish suffix “ría” meaning a place that sells that thing – was born. La Wafflería offers a couple dozen imaginative sweet and savory waffle and sauce combinations as well as a “build your own” menu that allows for over 30,000 waffle combinations.

Since its opening La Wafflería has been extremely popular, with weekends marked by long lines, full seating capacity, and relentless demand. After six months we were able to commandeer an adjacent building to house our now much roomier kitchen and to add outdoor seating. La Wafflería continues to grow and has received numerous local favorite awards, has won several “best of” awards, and was recently featured in the Cooking Channel program Cheap Eats.

Housed in a nearly 100-year-old residence with a roaring fire in the fireplace, walls decorated with a curated collection of 1930s chrome Art Deco waffle irons, and vintage black and white waffle-themed-images, La Waff has become its own sort of neighborhood institution, popular with university students, young families, and senior citizens and seems to be on many people’s “I’ve got to show you this place!” list.

TACOS AND ICE CREAM – A THIRD RESTAURANT
In late 2015 I became fascinated with the street-style tacos of southern Mexico, particularly the vertical spit cooked al pastor style of taco, and spent a week in Mexico City visiting over 30 different taquerías.

This led me to open my third restaurant, El Cotorro, In the summer of 2016. It employs a counter-service concept and features craft tacos and house-made Mexico-City-style ice cream, and is located in a former furniture store less than a block from La Wafflería.

Many of the initial customers for El Cotorro have been the regulars at my other restaurants, have become fans of my type of restaurant, my brand, and were excited to try the latest installment. Ibelieve we are entering a new golden age for local, independently-owned restaurants, one fueled by the convergence of a number of unrelated trends – continued growth in the food industry, dramatically shifting consumer preferences, and increasing use of crowd-sourced review sites and social media.

In addition, commercial real estate market conditions in many areas of the country favor buyers and tenants over sellers and landlords. The confluence of these conditions is molding a new business landscape, one that is amazingly fertile and hospitable to the success of the independent restaurant. If you are considering opening a restaurant, your timing is excellent.

Americans spend more money on restaurants every year than the year before, and last year total restaurant industry annual sales reached a record high of over $700 billion.
As well, the restaurant’s slice of the food dollar is growing.

That is, the percentage of every dollar that Americans spend on food that goes to restaurants rather than to a grocery store has been steadily increasing and is now at an all-time high, with nearly half of all money spent on food last year being spent on eating out.
The restaurant industry is not just growing; it’s changing rapidly.

Major shifts in consumer preferences are unfolding, changes in the restaurant goer’s preferences and behaviors that have the potential to significantly advantage local independent restaurants at the expense of large multi-state chains.
When it comes to food, Americans are suddenly becoming much more daring.

An amazing 64 percent of consumers report that they are more adventurous in their restaurant food choices today than they were just two years ago*, a huge increment of change in a short period of time.

This trend may be part of a larger trend of Americans taking greater interest in their food, as evidenced by The Food Channel and similar food-centric media outlets, and it may be enabled by Yelp and similar crowd-sourced restaurant review sites, which serve to reduce the risk of a bad experience when selecting a lesser-known restaurant
(more on that later).

Whatever the reason, this trend toward adventurous eating clearly benefits local independent restaurants, which are more likely to be ethnically themed, inventive, edgy, and better-attuned to local preferences than their larger cloned counterparts.

For chains and franchises whose foundation is sameness, homogeneity, and a one-size-fits-all model, a suddenly more adventurous restaurant patron does not spell good news at all. Besides becoming increasingly willing to try something new, American consumers are feeling more locally connected.

Almost 70 percent say they are more likely to visit a restaurant if it offers locally produced food items*. For independents, sourcing and incorporating locally-produced food is generally simple, manageable, and natural.

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For a multi-state restaurant chain, it runs absolutely contrary to their models of economy
of scale and standardization that have, in the past, formed the basis of their profitability.
As well, consumers today are more health-conscious, and this is evident in their restaurant choices. A surprising 76 percent say they would be more likely to visit a restaurant if it offered healthful options*.

Yes, fast food chains have been working to re-tool their menus to offer a few healthy options, but they lack the nimbleness of the local independent restaurant, and drag with them the baggage of being associated with unhealthy food offerings for decades.

Beyond expressing a heightened concern with healthy eating, the number of people who are choosing to follow diets, such as the vegan or gluten-free ones, which exclude large groups of foods, has been growing rapidly in recent years.

One source indicates that the percentage of people who identify as vegans has grown from approximately 1 percent of the population in 2009 to between 5 and 6 percent of the population in 2015.

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Similarly, the number of people who avoid eating gluten, either because they suffer from celiac disease or because they believe that gluten is generally unhealthy for them, has skyrocketed. Of course, people for whom the availability of vegetarian, vegan, or gluten-free options is a prerequisite to their decision to patronize a restaurant are not distributed evenly throughout the population;

certain markets may have almost no members of this group and in others, they may constitute 30 percent or more of would-be diners.
Local independent restaurants are able to take the measure of a given market and to tailor their concept to the sensibilities of their trade area
(the geographic area surrounding it that accounts for the majority of its business).

For a large multi-store chain, with restaurants in a variety of different markets, substantially modifying their menu to exactly fit the neighborhood surrounding
each of their restaurants would be difficulty and contrary to their business model
of standardization.

Among many restaurant consumers there is a palpable and growing anti-chain sentiment. This may be due to their desire for healthier food, an interest in local or regional cuisines, an expanded sense of adventurousness, or a manifestation of the increasingly buy-local culture.

Whatever the reasons, there is a clear, and growing, segment of the population that prefers independent over chain or franchise restaurants. In addition to rapidly shifting consumer preferences that favor local independents, the online landscape, in particular Yelp and similar crowd-sourced review sites that allow diners to post their thoughts about a dining experience, have had a huge impact on the restaurant business.

Although they are viewed at best as a mixed blessing by many restaurant owners,
I believe that, on the whole they serve to advantage smaller, local, lesser-known, and less-visible restaurants at the expense of larger chain restaurants.

One of the main advantages that chain restaurants have enjoyed in the past is that for the consumer they represent a familiar, and therefore lower-risk, dining option. Whatever consumers thought about the quality and sameness of the food, they took comfort in knowing what to expect.

For someone considering visiting a given restaurant for the first time, local independent restaurants, whose quality could vary dramatically from one to the next, represented a greater risk. Sometimes even finding them was difficult. If you were unfamiliar with the area, you might not stumble upon the local independent competitors, who traditionally have occupied less-pricey, less-visible real estate.

And if you did happen to find them, there was a significant element of risk in making the selection. You knew absolutely nothing about the restaurant beyond what you might observe from the street and infer from the name.

Online crowd-sourced review sites allow hungry diners to quickly locate restaurants that are close by, and then read a sufficient number of reviews to decide whether or not to give the place a try. If the diner elects to try it, she has a pretty good idea what she is in for long before she gets to the door.

This has worked to level the risk playing field and has been a boon to better, highly rated independents and, I believe, has worked to shift business their way, at the expense of larger, better-known chain restaurants.

After spending several days in San Diego recently researching local taco joints, and ready for a non-taco breakfast, we scanned online reviews and settled on a highly rated but distant breakfast spot. The neighborhood was out of the way and unappealing, and the building sad and uninviting.

Once inside, though, we saw that the place was hopping.
We were seated quickly and immersed ourselves in the intriguing menu.
Within minutes a cheerful server took our order and a few minutes later the food arrived.
The flavors were fantastic and the bill was inexpensive.

Without online review sites and overwhelmingly positive reviews, we never would have found this place and, if we had somehow driven by, we wouldn’t have thought to stop.
I wondered, absent the glowing online reviews, how many of their customers would be having breakfast somewhere else, somewhere more known, more visible, and better-located ?

Social media has the potential to draw attention to, promote, and support small restaurants in ways unimaginable just a decade ago, ways that can be nearly magical in their positive impact. In the past, forming a community of ardently supportive patrons around a restaurant was a slow and daunting task.

Outside of the restaurant, the best the owner could hope for was one-way communication, the owner disseminating information by mail, email, or paid advertising to customers or prospective customers, with little communication back from customer to owner, and with virtually no peer-to-peer, customer-to-customer communication.

It is this banter, enthusiastic comments on new posts, and shared positive experiences that create buzz and grows customer enthusiasm and support for the restaurant. Facebook and other social media offer the independent restaurant owner the unique and powerful ability to build a connected and self-reinforcing community of fans.

The restaurant’s most ardent supporters, those who most identify with, and feel the strongest loyalty to, its concept, execution, and location are given a place to belong, to share, and to keep abreast of the establishment. As an avenue for advertising, Facebook allows the business owner to target not just this community of fans for promotions but also their friends and family, people likely to share the same tastes and lifestyle, adding them to an ever-growing group of supporters.



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This is an independent restaurant owner’s dream. Sure, large chains have the same access to social media. However, what they lack is a local, involved, and emotionally engaged fan base, a vocal community to rally around them. Without that, since the majority of customers in the restaurant business are local ones, the emotional immediacy, the buzz, and the bulk of the potential impact fails to materialize.
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Social media is a godsend to savvy independent restaurant owners and has the potential to benefit them over their multi-store chains in a big way. The improving environment for independent restaurants is not limited to a rosy outlook for robust sales. At the same time that potential gross sales are growing, at least one major expense item is down.

In many areas in the country the selling prices of commercially zoned buildings are 30 to 50 percent less than they were at the peak of the commercial real estate boom in 2007 and 2008. This has a major impact on restaurateurs; their third largest monthly expense, one surpassed only by the monthly costs of labor and food, is the cost of monthly rent or the mortgage payment.

When you combine bargain-priced buildings with the current still very low long-term interest rates, you get the potential for a much-diminished mortgage payment and consequently a very low cost of occupancy. Additionally, selection is good. In many markets prime spaces are available for the first time in years. For those for whom leasing makes more sense, rental rates in many markets have followed the market down and remain low and highly negotiable.

The softer retail market means more landlords willing to consider shouldering the burden of remodeling, changing the use of, or making improvements to, vacant restaurant spaces and in some cases are willing to consider lease structures that tie the amount of rent to a restaurant’s gross sales volume.

For many would-be first time restaurant owners, becoming self-employed has become less risky. An impediment to moving from employment to self-employment has been the issue of health insurance.

Until recently leaving employment for self-employment meant leaving behind secure and affordable health insurance for hard-to-find, less-affordable, and lower-quality health insurance that was the self-employed person’s only option. And if you happened to have a chronic health condition, it meant effectively no available health insurance.

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With the institution of the Affordable Care Act (ACA) in 2010, competitively priced insurance became available to the self-employed, even those with pre-existing conditions. For many of us, particularly those in middle age, ACA has eliminated one very big impediment to becoming a restaurant entrepreneur.

The restaurant industry is one where, to many people’s surprise, smaller and single-store restaurants already dominate the market. In fact, nine out of 10 restaurants have fewer than 50 employees and seven out of 10 of all restaurants are single-store operations*.

For the local independent restaurant owner, we live in an amazing time. Industry sales are growing. There is a tsunami-like shift in consumer preferences afoot, which lopsidedly stands to benefit nimble independents.

The rise in social media allows these neighborhood-aligned restaurants to build and interact with strong supportive fan bases. If ever there were a favorable environment in which to open an independent restaurant, it is today. *National Restaurant Association, 2015 Restaurant Industry Pocket Fact Book Ihave often joked that you can sit me down in a café or restaurant anywhere and I can point to the owner inside of a few minutes.

My secret ?
I always look for the person with graying hair, moving quickly, and looking just a little bit nervous. Later in life, even post-retirement, is a great time to start a restaurant; maybe the best time, and for many of us, the only time. This is the case for a host of reasons both situational and related specifically to aging.

FINALLY, SOME DISCRETIONARY TIME
Most of us find, as we approach middle age, that we have greater amounts of discretionary time. We may be able to fully retire, making available all of the hours previously devoted to work, or we may be able to diminish our work hours.

For many of us, if we had kids, by middle age they are largely grown and out of the house, giving us more time. And if there are adult kids still at home, well … they may find themselves suddenly employed in your new restaurant.

YOUR NETWORK OF CONNECTIONS IS AT ITS PEAK
By middle age most of us have developed a wide-ranging network of connections.
We have a circle of close friends and much wider circles of casual affinity-based relationships, from a shared employer, congregation, hobby, or lifestyle. We have accrued a lifetime of business relationships, and have go-to people for real estate, insurance, and building trades.

We have long ago separated the wheat from the chaff and we know who the reliable service providers are and who overcharges or lacks competence. In establishing a restaurant, this vast network of friends and friends-of-friends will likely form the initial core group of our customers.

As our friends share their experiences and enthusiasm with their friends, word spreads and a sustaining critical mass of customers becomes easier to develop. The extended network of friends, acquaintances, and business relationships that we have accumulated by middle age may also serve as ideal ground for recruiting employees. Why hire strangers when there are already people in your network whom you know well and who know you ?

IN MANY WAYS, YOUR INTELLIGENCE DOESN’T PEAK UNTIL MIDDLE AGE
Yes, our minds slow in many ways as we age, and certainly our memory becomes less sharp. However, in many other ways, ways essential to creating successful restaurants, we only begin to reach our peak mental skills in our fourth and fifth decade.

YOU ARE BETTER WITH MONEY
There is substantial evidence that our reasoning and problem-solving skills continue to improve into our fifties, particularly as relates to the skill with which we handle money.

A study done for the Brookings Institute by Sumit Agarwal, an economist at the Federal Reserve Bank of Chicago, the middle-aged make smarter money decisions than their
younger counterparts. In particular, they are better at navigating complex financial transactions, managing credit card balances, and avoiding excess interest and fee payments.

The best performance was by those study participants in their early 50s. Clearly, money smarts, an absolute necessity of creating and running independent restaurants, does not fully mature until about retirement age.

YOU UNDERSTAND AND CAN LEAD PEOPLE BETTER THAN EVER BEFORE
Your emotional and social intelligence, the smarts that allow you to immediately
size up another person’s emotional state, or to adroitly navigate complex
interpersonal dilemmas – essential for hiring, motivating, retaining, and sometimes firing staff – grows as you age.

In a 2007 study published in the Journal of Gerontology, older and younger adults were presented with a series of hypothetical everyday problems (say, for example, an emotionally needy relative calls to talk just as you’re leaving to meet up with friends, or you’ve won a free vacation, but the travel dates would mean missing a long-planned family party). The older adults were especially good at solving such interpersonal dilemmas, often by choosing a path that skirted direct conflict.

As we get older, our social intelligence keeps expanding, we get better at sizing up people, at understanding how relationships work. While adults can most easily process new information at age 18, and while memory function peaks in your mid-20s, other key brain functions take much longer than previously thought to reach their pinnacles.

Research conducted by Joshua K. Hartshorne of Harvard University and Laura T. Germine of General Hospital of Boston, looked at various areas of cognition and understanding and found a wide range of ages when different emotional and social skill sets peak. For example, 12,000 people took a social intelligence test.

The assignment was deceptively simple: just examine photographs of eyes and determine what emotion was being communicated. Surprisingly, social intelligence progressively improved during the 20s and 30s, with individuals in their 40s registering the highest test scores.

This kind of social intelligence didn’t start declining until subjects were well into their 60s.
Dr. Hartshorne theorized that the long maturation cycle of this skill could be related to life experiences. Perhaps as our understanding of people deepens, this special cognitive resource just gets better ?

Social intelligence is not even the last mental function to peak. Many cognitive abilities related to vocabulary, information, and comprehension reach their full potential even
later – as late as age 70, according to some research.

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IN MIDDLE AGE YOUR ABILITY TO QUICKLY MASTER NEW SKILLS IS AT ITS BEST
As your brain encounters new situations, it develops schemas—mental structures that allow you to identify and respond to similar circumstances when you come upon them again.

By midlife you’ve accumulated an array of schemas that help you to quickly become oriented and to best adapt to novel situations by drawing on your storehouse of experience built up over time. Middle-aged restaurant owners, even with no prior restaurant experience, often quickly seem as though they have been in the business their entire lives.

IN MIDLIFE YOU LEARN TO MAINTAIN EMOTIONAL CALM AND BECOME MORE POSITIVE Compared to their younger counterparts, middle-aged adults are able to maintain a more even keel emotionally.

Psychologist Vasiliki Orgeta, PhD, in a 2009 study, evaluated younger and older adults and concluded that older adults (between ages 61 and 81) had more clarity about their feelings, made better use of strategies to regulate their emotions, and had a higher degree of control over their emotional impulses. In the often intense and high-pressure restaurant environment, being able to keep your cool is a distinct advantage.

YOU HAVE CLARITY AND A BETTER UNDERSTANDING OF THE BIG PICTURE
Your outlook grows rosier as you get older, as demonstrated by a study published recently in the journal Psychology and Aging.

Laura Carstensen, a professor of psychology at Stanford University and director of the Stanford Center on Longevity, asked a group of subjects ages 18 to 94 to record their emotional states at five randomly chosen times each day for a one-week period.

She repeated the procedure with the same participants five years later, and then again five years after that. With the passage of time, the study subjects reported more positive well-being and greater emotional stability. That may have been partly due to changes in how the brain – in particular, the emotion-processing center known as the amydgala – responds to positive and negative events.

In a 2004 study, Carstensen scanned the brains of younger and older volunteers as they looked at cheerful, distressing, and neutral photographs. The amygdalae of younger subjects (ages 18 to 29) were activated equally by both the cheerful and distressing images, while the brains of the older subjects (between 70 and 90 years old) reacted much more strongly to the positive pictures.

WE ARE BETTER ABLE TO SEE THE BIG PICTURE AND OUR PRIORITIES BECOME MORE CLEAR As we age, we’re better able to take the measure of a situation.
An experiment published in the journal Neuron in 2005 provided a very literal demonstration of this ability: Psychologist Allison Sekuler, PhD, of McMaster University in Canada, presented younger and older subjects with computer screens showing moving images of varying shapes and shades.

When the shapes were small and gray, younger people were able to point them out more quickly. But when they were large and high contrast, older individuals performed the task more quickly. Sekuler notes that young brains seem to be better at focusing on details to the exclusion of their surroundings, and more mature brains are able to take in the whole scene.

“Studies of the way adults perceive time suggest that we become increasingly aware that our years on this Earth are limited,” notes Michael Marsiske, PhD, an associate professor of clinical and health psychology at the University of Florida and an expert on aging.

“This awareness helps explain the choices that older adults tend to make: to spend time with a smaller, tighter circle of friends and family, to pay more attention to good news than to bad news, and to seek out positive encounters and avoid negative ones.” OVERALL MATURITY Beyond the above specific intelligences and skill sets that appear to peak late in life, there is for most people a more generalized, but equally essential, blooming of an entire bundle of qualities that collectively we call wisdom.

The mature person keeps long-term commitments and has learned to delay gratification.
If immoderate habits once existed, they have likely been long abandoned and replaced by ones that accrue, in the long term, to the person’s benefit.

They have a depth that lets them remain relatively unmoved by either flattery or criticism; neither the most ecstatic customer praise nor the most wilting review on Yelp has much of an impact – their focus is on the big picture.

As we age we become more and more secure in our sense of self. By middle age we have cultivated a sense of humility. By that I don’t mean thinking less of ourselves, but rather being open to input from others and grasping our own limitations.

In middle age we place no value on drawing attention to ourselves and we understand how others make our success possible, which gives rise to gratitude for the people in our lives. In our maturity, and tendency toward arrogance, a costly, unhelpful, and off-putting trait in the restaurant business, has given way to humility.

In our maturity our decisions – how we treat our employees, customers, and suppliers – becomes based more on our values rather than our feelings of the moment.

Our character eclipses our emotion. Opening and managing restaurants in my fifties has been deeply satisfying and financially rewarding. I feel better suited for this work than perhaps any other I’ve undertaken in my professional life.

Occasionally, wistfully, I am tempted to wish I had gone down this path earlier, maybe in my thirties or forties, instead of well into my fifties.

But then I think about who I was in those years, preoccupied with child rearing, possessing much less maturity, clarity, and people skills, having less capital – both financial and social – and I realize I got into this business at exactly the right time, my middle age. Resources:
Will you be good at it ?

Will the process of conceiving, researching, planning, designing, opening, and running
a restaurant be fun, challenging, and rewarding for you ?
Being a restaurateur is a demanding occupation, one requiring a great diversity of skills, resources, and assets, and it is not for everyone.
Here are the qualities that I see as indispensable to successful restaurateurs:

Vision: It is essential that you are able to develop a vision of how to create something singular and special. Locally independent restaurants that compete successfully with vastly better-funded, better-researched, and more-established national chains have at least one thing in common:

Their owners have managed to create something beyond the ordinary, something singular, something that resonates with their customers. Be it a unique environment,
a one-of-a-kind product, a tangible expression of an aspect of the owner’s personality,
to thrive you must create something memorable.

Having a strong vision and a commitment to it is essential to your restaurant’s survival. Independent restaurants that offer nothing particularly special are doomed.
After all, a franchise or chain store can offer “nothing special” and do it cheaper, more uniformly, and more efficiently than you will ever be able to.

An ice cream shop that makes ice cream that is no better quality than the least expensive supermarket brand, a coffee shop with a blah interior and sub-par espresso drinks, a café serving the same old food the same way – none of them will prosper because there is nothing special there. The owner’s concept lacked a vison that would make the establishment stand out and excel.

If you don’t have the desire to create something unique, excellent, wonderful, and maybe quirky, something that is a very personal extension of who you are, something that expresses your deepest values, then I would suggest politely that opening a restaurant is not your highest calling.


Practicality: While having an overarching artistic vision and an eye for detail in the execution of that vision is essential, creating and running a profitable restaurant also requires abundant common sense and a disciplined practicality.


Have a strong vision ?
Good. Blow the operating reserves you may need to make it through your first year of operation so you can get exactly the brand new kitchen equipment or high-end finishes for your dining room that you crave.


Disastrous. Some financial capital: In a later chapter we will look at a variety of different restaurant approaches and the vastly differing amounts of capital each will require.


For now suffice it to say that to start up any restaurant venture, in order to purchase equipment and food supplies, and to operate until you reach profitability, you will need some financial capital.


If you have none, you are probably better off waiting to open your restaurant until you save up some, rather than starting with very little capital reserves, or by borrowing all of your startup capital and soon finding yourself suffocating under an onerous monthly debt service to pay it back.


Lots of friends:
Opening a restaurant is a time when you will want to draw on, and involve, people from every sphere of social connection that you have. Your extended social networks, be they congregation or a group of people you know because you share the same recreational pursuit with, can be of great benefit to you.


Those many hundreds of loose friends, distant relatives, and acquaintances you might have on Facebook or similar social media can be recruited for soft openings and will comprise much of your initial customer base.


By encouraging them to post images of themselves at your new restaurant you can gain popularity within a subset of people who have in common their connection with you.
For the last decade, my primary recreation has been dancing Argentine tango.


I am closely connected with several hundred local dancers and, enabled by Facebook, have a loose connection with about 1,000 people with the same passion. This preexisting community has been hugely helpful in establishing my restaurants over the years. Tango dancers, when visiting Albuquerque, will inevitably post photos of themselves eating at one of my restaurants, which enhances our exposure.


And in the early days, almost all of my staff was recruited from the tango community, giving us an all-dancer staff. Having a very large preexisting network of friends, acquaintances, and associates may not be absolutely essential, but it makes getting a restaurant established much easier.



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Availability and flexibility of time: Initially any restaurant startup, particularly your first,
will require a monumental investment of time. However, over time increased cash flow
allows for hiring more employees, and if you are able to effectively delegate, the time required of you will decrease.


But your schedule will still need to be flexible and open. The buck stops with you, and that may mean having to step in at any time, with no notice, to substitute for a suddenly sick employee or to address a critical operational problem. You are best suited for this if you have no other fixed, inflexible, time commitments such as a day job.


Basic business skills:
The business math and related financial concepts you will need are not particularly difficult, consisting mostly of simple ledger accounting, and calculation of expense ratios. However, it is a requirement not an option.


Yes, you will likely outsource payroll and some book keeping and tax-related tasks but still, independent restaurants operate on relatively small net profit margins and without constant income and expense ratio monitoring, and fine tuning, you can quickly find yourself in a money-losing freefall.

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If you are not comfortable with some level of math-based conceptualization and accounting being a part of your weekly and daily life, restaurant ownership will likely not be a good fit for you. Comfort with leadership and management:
The vast majority of restaurants will have employees.


Having employees puts you in a position of hiring, inspiring, managing, setting the culture for, and occasionally disciplining and firing people.


If you are not comfortable with this, if you don’t enjoy the leadership opportunity, if you are total uncomfortable with the prospect of disciplining and firing employees, any sort of employee-concentrated business may not feel be a good fit for your personality.


Similarly, if you are impatient and hot-tempered by nature, and would have trouble maintaining composure and equanimity in a crisis, and would have trouble following a predetermined protocol for discipline and firing employees, owning a restaurant absolutely will not be a good fit for you.


Humility: I wrote this book for people contemplating opening their first restaurants, which usually means someone with little or no prior restaurant ownership experience, which in turn means people who have everything to learn.


Your ability to seek out, solicit, and then assimilate input from dozens of people, each of whom may have one or two areas of profound yet narrow expertise – your refrigeration technician, line cooks, pest control technician, coffee roaster, espresso machine technician, health department inspector, suppliers, etc.
– is critical to your ability to administer the whole.


Also, the casual observations of one of your customers with no restaurant experience, when heard without defensiveness, can be invaluable. An absence of humility, a lack of openness, do not bode well for restaurant ownership success. Curiosity:
Restaurants are amazingly multi-faceted. They are rooted in the timeless act of food preparation, which in itself is an amalgam of chemistry, craft, and artistry.


The business of restaurants encompasses commodity pricing, real estate, utility rates, and is entirely predicated on effective marketing. It is easy to acquire some fundamental knowledge of this or that area, and then to ossify, to hit a knowledge or skill ceiling, and stop growing. The rate of change and evolution in the restaurant business is a high one; state-of-the-art marketing changes by the month, food preferences evolve, equipment changes.


How do you stay current and on top of your game ?
Curiosity. An abiding curiosity about everything that forms the restaurant world, the mechanical (e.g., how do refrigerators work and can I fix them myself ?), everything culinary (e.g., how does baking powder work ?), everything marketing


(e.g., who is my most profitable demographic for this store and how can I reach it ?), everything financial (e.g., could I tweak my menu in a way that would reduce my labor to gross sales ratio ?), and everything psychological (e.g., how can I get more “buy in” from my employees ?) is needed.


Affability: Perhaps it goes without saying, but being grumpy will not serve you well in owning your restaurant. In the real world, Seinfeld’s “soup Nazi” wouldn’t be able to stay in business for a week. Customers want a comfortable, warm experience.


Interacting with a grumpy owner, noticing tension in the air, or overhearing unkind words hurled at an employee, will poison that atmosphere. As well, employees are disinclined to work in a tense, chilly, environment.


Affability is important in attracting and keeping both your best employees and your best customers. Determination: It is rare that a restaurant is a success right out of the gate. There will always be setbacks, large and small, and sometimes a long period before profitability is reached.


There will likely be major equipment failures, sudden changes in staff, inexplicable slow days, and disappointments of every type. In the first years of my first restaurant I experienced a fire, a flood, and a floor refinishing project that unexpectedly expanded in scope about tenfold, shutting the restaurant down for a week.


A deep resilience, a determination to keep “getting back on the horse” will be required. If you get discouraged easily, if you don’t naturally take the long view, owning a restaurant will not be a good fit.


Each of us is unique and we all have mixes of strengths and weaknesses, and we all have the ability to change and grow. Still, it is worth pausing and reflecting on your particular attributes and how they square with what you will likely encounter as the owner of a newly minted restaurant.


This chapter should allow you very early on to decide upon a general direction to take as it relates to real estate that is feasible with your budget.


To open your restaurant, will you need millions, hundreds of thousands, tens of thousands, or as little as a few thousand dollars ?
My intent in this chapter is to give you a rough template to compare your actual startup cost under a range of different real estate scenarios.


This will help you to, from early on, align the approach you will take regarding the real estate in opening your restaurant with the amount of your available capital. Matching your available capital, no matter how small or large the amount might be, with a realistic estimate of expenses in opening your new venture is critical.


A frequently-cited reason for restaurant failure is the exhaustion of capital in the pre-opening phase, leaving little or none available to sustain the restaurant until it becomes established and profitable.


The largest variable in startup costs is real estate Fortunately, in the restaurant business there are approaches that match almost every budget. Let’s take a look at a number of scenarios, beginning with the most expensive and ending with the least expensive.


BUYING A BUILDING
In any market there are existing restaurant facilities for sale, often with functional commercial kitchens and furnishings included as part of the deal. The advantages of purchasing an existing facility are many. Likely the building is zoned correctly for restaurant use, and the building has been inspected many times by the relevant food safety and building safety officials as an operating restaurant.


It may have conditions, such as signage or bathroom configuration, which would not be allowed if you were building a restaurant today but may well be “grandfathered in.” Also,
there may be a history of the performance of the restaurant formerly housed in the building, which may provide insight into the demand from the surrounding market area.





Conceptually, the cost to purchase an existing restaurant facility and use it as the location
for your new restaurant can be calculated by doing the following:
1.​Determine your “cash out of pocket” required for your real estate purchase.


To do this, take the purchase price of the property, subtract any amount you are able to finance, and then add to that any costs of acquisition (inspections, transfer taxes, attorney fees, etc.).


Example: If you purchase your building for $500,000 and have $10,000 in acquisition costs, and are able to borrow 70 percent of the purchase price of the building ($350,000) then your required cash out of pocket would be calculated as follows:


$500,000 (the building purchase price) - $350,000 (the amount you are able to borrow for the building purchase) = $150,000 (your down payment for the building) + $10,000 (your acquisition costs) = $160,000 (your total cash out of pocket).


2.​Add to that any soft costs (architectural fees, engineering fees, cost of permitting, etc.) associated with any remodeling required to remodel the building to make it suitable for your particular concept.


3.​Add to that any hard costs (the actual cost of construction) for the above remodeling. 4.​Add to that the costs to hold the building (monthly mortgage payment, property taxes, insurance, maintenance, etc.) from the time you purchase it until you complete any required remodel, open for business, and the business becomes established and can pay the reoccurring costs associated with owning the building.


If you pay cash for the building, the holding costs may be minimal (typically property taxes, insurance, and maintenance), but if you are financing the building you will need to figure in the monthly cost of the monthly debt service.


5.​Add to that the cost of any equipment that you will need to replace or add to the existing equipment in order to implement your concept.


This includes your kitchen and refrigeration equipment, furnishings, sales counters, displays, POS system, sound system, etc.


6.​Add to that any costs associated with the installation of various systems including your POS system, security system, internet, audio system, etc.


7.​Add to that your cost of your initial food and supplies.
8.​Add to that the initial payroll until the venture becomes established
and can meet its own payroll.


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9.​Add to that the cost of any initial advertising and promotion.
10.​Add to that a large set-aside or contingency fund for anything unexpected such as delays in opening, delays in reaching projected sales, and/or profitability goals.


Your total costs to purchase an existing restaurant facility obviously will vary greatly with
the real estate market in your area and the extent to which you have to modify the building
for your use.


The biggest take away from the above is the need to make sure you have enough capital in reserve to see the project through to long past opening prior to making a commitment to purchase the building. Purchasing an existing food service facility does reduce many risks and expenses associated with converting a building from a prior non-restaurant use.


Because it eliminates or substantially reduces some variables, such as the costs associated with a major remodel needed to legally change the use of the building, purchasing such a facility makes calculating an accurate estimate of total capital needed much easier.


However, it may also be one of your most expensive options because the value that the real estate market places on the building as a restaurant may be significantly higher than the amount for which you could purchase a similar non-restaurant building and convert it to restaurant use. If you are in the financial position to purchase a building for your restaurant, you may want to consider buildings that have not previously housed restaurants.


Doing so will open up the number of buildings available to you on the market, may allow you to create equity by converting the building to a restaurant use, and may allow for a more interesting overall facility, one uniquely tailored to your concept.


In purchasing a building not previously used as a restaurant and converting it to restaurant use, the costs are the same as the above expense tally, except that the scale of, and budget for, the remodel will likely be much larger, as will be the time required to compete it. You will also need to purchase all kitchen equipment rather than only that which you would otherwise be replacing or adding.


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Don't purchasing a building and converting it for restaurant use you should also set aside a much larger contingency budget due to the greater potential for delays with the expanded scope of the design, construction drawing, permitting, construction, inspection, and approval process.


LEASING SPACE FOR YOUR RESTAURANT
Purchasing a building may not be possible and, even when it is, may not always be the best option. Being willing to lease, rather than being willing to consider only buildings available for purchase, opens up many more possible locations and may reduce your financial risk and, of course.


Can dramatically reduce the total capital required for the venture. As with purchasing a building, when leasing you can either lease a building that previously has been used as a restaurant or one that never has been used as a restaurant. If you are able to find a vacant space or building that housed a restaurant or other food service facility previously, your capital requirements will need to cover:


1.​The security deposit and any prepaid rent required per the lease agreement.
2.​Any modifications to, or remodeling of, the space to make it work for your concept. 3.​The rent from the time you take occupancy until the restaurant reaches profitability (minus any months of free rent landlord may be willing to offer in exchange
for a long-term lease).
4.​Any equipment that you will need to add to the existing equipment.
5.​Reserves for payroll from pre-opening and training to until the establishment becomes established and profitable.
6.​The cost of initial promotions and advertising.


If you lease a building that has not housed a restaurant previously,
You can add to the above:
1.​Whatever portion of the soft and hard costs associated with the remodel that will not be paid for by the landlord, per your negotiated lease.
2.​Whatever portion of the rent you are responsible for per your negotiated lease during the design, remodel, permitting, and inspection period.
3.​The cost of all equipment and all furnishings.


“POP-UP” RESTAURANTS
The absolute least expensive option for opening a restaurant is a pop-up.
This is a model of restaurant that exists under the roof of another restaurant, using their equipment and facility, during the hours that they are not open. One of the economic trends that has surfaced, and become economically significant, in the last 10 years or so, is that of the shared economy, where owners put into play and monetize underutilized assets.


This is the bases of Airbnb, where property owners offer short-terms rentals of unused rooms in their home, and of ride-share services such as Uber and Lyft where people put their personal automobiles to use offering transportation to strangers. Pop-up restaurants are the restaurant industry’s manifestation of this trend.


A restaurant offering only breakfast and lunch may be a perfect opportunity for a dinner or very late-night pop-up restaurant. Conversely, a dinner restaurant may present an opportunity for a breakfast or even a weekend-only brunch pop-up venture.


For an existing restaurant, leasing space for a pop-up operating during their closed hours can be a great way of generating additional income or splitting the rent with another non-competing business. Compared to other location options, opening a pop-up can be amazingly inexpensive.


The capital requirements are:
1.​The cost of any additional equipment not provided by the master restaurant.
2.​The initial cost of the food you will be offering.
3.​Reserves for labor until the operation becomes established.
4.​The initial costs of advertising and promotion.




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It is essential for you to have a comfortable alignment between your restaurant concept and the total amount of funding you are able to bring to the table.


Running out of money midway through the process of opening your restaurant would be a nightmare. In this chapter we will explore several options for raising the capital necessary to establish your restaurant and discuss some of the potential implications and consequences of each path.


FINANCE IT YOURSELF FROM SAVINGS
The most straightforward option is to fund the entire venture yourself, from savings, even if the amount you have available is small.


This approach has a number of significant advantages and even may increase the odds of your restaurant succeeding significantly. Self-financing gives you wiggle room, space, and time to maneuver without the crippling pressure of a monthly loan repayment. Independent restaurants have average net profit margins in the range of 10 to 12 percent of gross sales.


Particularly in the early months and years, before your maximum gross sales volume is reached, and before you have had the opportunity to fine-tune your operations and pricing to enhance your profitability, your net profit may be much less, or zero, or you may bleed money.


Imposing the burden of debt service on your bottom line, the monthly payment on a loan for equipment or other startup expenses, may mean the difference between staying afloat and sinking. Viewed another way,


if you have no debt, the portion of your bottom line that would otherwise be allocated to monthly debt service can function as a buffer, providing a margin of safety between you and a potential negative cash flow.


This cash-flow cushion can buy you time to adjust your concept, marketing, equipment, and staffing without the pressure of negative cash flow. Given the choice between a very modest venture that can be financed entirely from your savings and a larger-scale, more ambitious or prestigious one that requires incurring debt,
I would strongly advise the former.


The potential negatives of borrowing funds for a first-time restaurant startup are many and, I think, generally underappreciated. All of us, no matter how many restaurants we have opened, will make substantial errors at the beginning.


By avoiding borrowing funds, and forcing ourselves to work at a small scale, with perhaps initially a very humble endeavor, the costs of our mistakes are likewise small-scale and bearable.


There is always time for expansion once the bugs are worked out and the formula is fine-tuned. It may be best to keep the option of obtaining outside financing untapped until and unless your first venture is a runaway success. Failure is always an option.


People don’t like to hear this. It has become a fashionable belief that boundless positive thinking will somehow reduce the likelihood that a given venture may ultimately fail.


It won’t. Worse yet, being overly optimistic may blind you to economic realities that you might have otherwise taken note of. Customer preferences, costs, neighborhood demographic, and the economy all change with time.


Failure is, and will always be, a possibility to be incorporated into any wise and realistic business person’s planning. That being the case, having your smallish new restaurant fail, and taking a relatively small loss on cash that you invested, is far preferable to having a massive-scale restaurant fail and leaving you with debt that might foreclose the possibility of future ventures.


EQUITY FINANCING OR DEBT FINANCING ?

If you choose to finance your new restaurant, you have two distinctly different ways to go about this: equity financing and debt financing.

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Please leave a comment or rat my work.
Khaled Dandachli

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