As he drove to work, Blair was excited by the prospect of growing one—–or both—–of these businesses: “After 6 years of working for others in the restaurant business, I have finally opened not one but two different concepts. I believe both are going well, although they are quite different. Viva is a more elaborate restaurant concept, with a broader menu and higher overhead but more sales volume. Pizzeria focuses on pizza and is less expensive and operationally far simpler.
I think either or both of these concepts may offer good potential for organic growth or franchising. I have developers approaching me about ewe locations, so I really need to decide how we want to expand. ” Background Martin Blair had grown up in the Chicago area and attended a top-tier business school in the region. Following his graduation in 2006, he’d gone to work for a nationwide restaurant chain (1,200 units) that was headquartered in the Charlotte area: “The restaurant business had always appealed to me, and I’d worked summers growing up in several different spots.
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It seemed like an unglamorous industry compared to some of the industries my classmates were entering, but I thought there was a lot to be said for doing meeting I really had a passion for. ” After four years, he’d left to Join a local entrepreneur who owned six full-service restaurants: “These were white-tablecloth, high-end restaurants. I learned a lot, but, in the end, I found I preferred the more operationally intensive, larger-chain format. After two years, I felt like I’d learned what I could learn. I did get to see, up close, what it meant to be an entrepreneur in HUBS Professor Howard H.
Stevenson and writer Michael J. Roberts, DAB, prepared this case solely as a basis for class discussion and not as an endorsement, a source of remarry data, or an illustration of effective or ineffective management. Although based on real events and despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental. Copyright 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www. BSP. Harvard. Dude. This publication may not be digitized, photocopied, or otherwise produced, posted, or transmitted, without the permission of Harvard Business School. 914-521 | Martin Blast this space—–something I’d never seen at the national chain—–by dealing with investors, legal issues—–doing everything. That was eye- opening and fun. ” A Trip to Italy For his 30th birthday, Flair’s wife had organized a trip to Italy: “My wife Julies folks stayed with our two children, and we took ten days to visit Rome, Florence, and the surrounding rural area in Tuscany.
You would think that someone as interested in food as I am would have been to Italy before, but I have not done much traveling. It was really fascinating to see the way in which food is prepared and served— how people take it seriously and how that comes through in the product and service. “l felt that, as familiar as pizza and sandwiches are, we could really learn something from the way it is presented and served in Italy. It seems like such a click©; I know that Struck was developed when Howard Schultz came back from a trip to Italy.
But other than the hard-to-pronounce names, I am not sure Struck really has any of that foreign flavor anymore. It has become so ubiquitous that it seems quintessentially American. The two ideas that seemed to offer the most potential to me were, first, a simple pizza and sandwich restaurant, with a focus on high-quality ingredients and fresh preparation. Not the everyday sausage and mushroom, but some interesting combos with a bit of a different edge; locally or artistically produced, handmade in front of the customer.
I also wanted a modern, hip interior. Even if the seating was limited, and we targeted a lot of carry-out business, I wanted the place to have a lot of atmosphere that conveyed the quality and uniqueness of the product. We’ve all men to a million pizza places that have the big plastic menu boards behind the cash register and the Coke dispenser off to one side. I thought there was a way to do this that would be unique and appealing. Second, I was excited by the notion of a higher-end traitor-style restaurant, with a coffee/pastry component.
In Italy, the traitor is a casual, neighborhood restaurant, with hearty food, large portions, and reasonable prices. You can serve three meals a day there; and the coffee/pastry component puts us in a good position to serve lighter fare as well as coffee and snacks all day. It has less of a sandwich theme than Au Bon Pain or Pander, but, again, these seem so chain-like to me. I suppose if I get to 50 stores, I might have the same problem myself, but I’ll be happy to cross that bridge when I come to it! Progress When Blair returned from the trip, he began sketching out a business plan for each idea, trying to determine which concept made more sense: “The pizza operation seemed a lower risk venture, but lower return as well. What decided it was, one day, I was driving and I saw a small storefront for lease. It looked like the perfect spot for Pizzeria. There were businesses nearby that would create a lunch business, and also it was on the edge of a residential district, so that could drive evening and weekend business.
I looked into it and it was owned by a big developer in Charlotte; and one of my business school classmates, Scott Becker, happened to work there. So he put in a good word and I sold the merits of my concept. I still had to personally guarantee the lease, but at least I got the space. In the end, it was a 10-year lease with two five-year renewal options at market rent. ” 2 BRIEFCASES I HARVARD BUSINESS SCHOOL Martin Blast | 914-521 Financing Blair had saved some money from his six years of working.
His wife worked as well, which made it a bit easier to build up a bit of the required capital: “The build-out of the space would require about $300,000. I had about half of that, and my parents offered to loan me the other half. I was nervous about taking the money; I’d certainly heard enough stories about uncomfortable holidays after you’d lost your family money. But I was confident we could pull it off, and my folks really wanted to do this. Fortunately, my wife was supportive of this idea, and of my taking he plunge, and it seemed like now or never.
So in early September we signed a lease, and I set about working with an architect on designing the space, hiring contractors, and starting to build out the menu, finalize recipes, come up with uniforms— –all the details that take up a lot more time once you actually start to do them. I had decided not to hire a real “chef”; the concept was sufficiently simple that I thought I could develop and perfect the recipes and then get a good “cook’ to reliably reproduce them. One of the real keys was getting a eel brick, wood-burning oven.
These are still relatively rare in Charlotte, and it is a big differentiator for us. ” By mid-January 2013, the store was ready to open. “The whole process of getting the restaurant open was crazy. Contractors who didn’t show up, equipment that wasn’t delivered on time—- all of the typical problems, I’m sure. Having worked in an entrepreneurial business, it wasn’t a complete shock to me, but when it is your money and reputation on the line, the stakes seem higher. Fortunately, for every person who let me down there were two or three people ho really did phenomenal work.
The guy who built the wood-burning oven was an amazing craftsman and is now a very good friend; the tile guy turned out to be related to someone with whom I’d gone to high school, and it was fun to work with him. In the end, I was very happy with what we built. ” A New Opportunity Shortly before Pizzeria was ready to open, the same developer approached Blair regarding another space: “Scott came to see me one day while we were building out the Pizzeria space and told me his firm owned another building a few blocks away.
It was located a bit closer to the commercial district, but still with good potential for more residential night and weekend business. It was 3,200 square feet—–way more than I’d need for another Pizzeria, but Just about right for the traitor concept I’d begun to think of as Viva Italian. I started spending some time over at this potential location, looking at traffic, counting passersby, and imagining the concept in the space. They offered me what I thought was a fair deal on the rent: percentage only, and $250,000 for tenant’s improvements [money the landlord would pay toward the build-out].
In part, I thought the landlord believed that a successful operation like this would help improve the area and allow them to get higher quality tenants and better rents in their other projects in the neighborhood. ‘When I told Scott the money was going to be the stumbling block, he offered to try to put together a group of people to back us. He had stayed in touch with a few of our classmates in the financial sector in Charlotte and New York, and they had made a few “angel” investments together in the past. Scott thought he could get 8 to 10 people to put in $50,000 to $100,000 each.
I signaled my willingness to consider this, and he did some work talking to his friends HARVARD BUSINESS SCHOOL I BRIEFCASES 3 and they came back with the term sheet. Basically, they invested $1 million in a preferred stock that paid a small (accruing) dividend. The shares had a liquidation preference, and represented about a 33% ownership stake in the business. I thought it was a fair deal. I am sure that Coot’s involvement with our landlord, and the fact that they were familiar with a lot of food operations, was a big plus for potential investors. “On December 1, I signed a lease.
I felt like everything we’d learned in the first round of work on Pizzeria would really help with Viva— liked the architect and the contractors we’d used, and they were happy to be involved. “So, we went to work building out Viva. It was a bigger, more complicated Job, but I felt like all my experience really helped me do this right—–in designing the larger kitchen area, developing a more complicated menu, the Pizzeria experience really paid off. Because I knew I’d be stretched with Pizzeria, and because this was a more complicated menu, I did want to hire a real “chef. There was a woman I knew room a bakery operation on the other side of town—–a place that had a great reputation and that I’d been to a couple of times. I spent some time researching the place when I was looking hard at the Viva concept. I’d go in early in the morning and she was in the back, but after a few visits, she’d come out and have a cup of coffee with me. I told her what I was doing and asked for her phone number– —said I’d like to talk to her about being involved. So after a few weeks of discussion, she agreed to come aboard as our executive chef and as a partner.
I gave her 10% of the equity, to vest over time. In part, I wanted her to be committed, and, in part, I couldn’t afford to pay her market come, so this was a way to save a bit of money. She had a lot of great ideas on the bakery side and was essential to building out the kitchen the way we wanted it. On the food side, my input was still essential—–she hadn’t worked in a full-service restaurant concept before. Together, we developed what I thought was a great menu that would work for breakfast, coffee, lunch, and dinner, trying to hit as many day parts as we could.
So many of the costs are fixed that it really helps the bottom line to do as much volume as you can, and bread out those costs. ” Opening Pizzeria On January 19, Pizzeria opened. Blair described the reaction: “Neighbors seemed excited and we had a line out the door, although we were giving away free samples on the first few days. There were certainly a few kinks to be worked out, but overall, it went well. Staffing was the most difficult piece of the puzzle: I’d hire people and they wouldn’t even show up for the first day of work; or people showed up and then they were a complete disaster.
It seems to take three hires to get one person who really lasts. “Overall, it has gone well. First month’s sales ere about $27,000 and have climbed steadily to slightly over $60,000 last month, our seventh month of operation. The theory that we would get both neighborhood residential and business traffic has proven true, as we are busy a good portion of the day. ” Opening Viva Italian On May 10, Viva opened. Blair described the experience: ‘We opened Viva about two months ago. Sales have climbed from $133,000 per month in May to $196,000 last month.
Perhaps a slower ramp than we experienced with Pizzeria, but still pretty positive, in my view. It is a whole different ball game, running a unit like this. The prep 4 for pizza is pretty simple—–basically you start each day with flour, water, and yeast, and you make some dough, and then prep a relatively narrow range of ingredients. But here, there is so much more variety, so much more work that must take place a day or two in advance, so much more skilled cooking. So we have more people, and we are still working the kinks out.
I can pretty well leave Pizzeria to the general manager, but here, I am still deeply involved. ” Taking Stock By early July, Pizzeria had been open six months, and Viva, two. Both were doing well, in Flair’s view. See Exhibits la and b for initial operating results as well as a corporate-level balance sheet and income statements for the entity that operated both businesses. ) “Sure, there are things I would like to change, some of which we will change and others of which would be too expensive to tweak at this point. Still, both concepts are playing out as I’d hoped.
We are building a name for ourselves, developing loyal clientele, and getting the operation to the point where it can run pretty smoothly without my day-to-day oversight. “Of course, I think about growing the business, and Vive had people approach me about funding more units. Scott said his friends would be happy to put up money for another unit of either concept. The most intriguing option may actually involve franchising. I never worked for a franchise operation before but, certainly, a lot of the businesses we competed against were franchises.
Over the years, visiting these units and talking to managers, I got a good look at the pluses and minuses of that approach. ” As far as his feelings about the two concepts, Blair explained, “vulva Italian is not a mass-market concept like Pizzeria. It needs a high-traffic action, with a sophisticated clientele—–a downtown shopping or office center is ideal. The number of units will never grow at the pace of Pizzeria. But it will expand. And the units are so much more profitable on an absolute basis that we don’t need as many of them to make a substantial business. ” Franchising in the U. S.
Franchising was one of the most popular routes to independent business ownership. In the U. S. , in 2012, there were almost 750,000 franchise establishments accounting for over $700 billion in revenue. L (See an overview of franchising in the U. S. In Exhibit AAA. Exhibit b describes the most popular fields for franchising, as well as the employment and revenues by sector. Exhibit 3 lists the top 25 franchise systems in the U. S. ) Franchising was first developed in 1850 in the U. S. By Isaac Singer, who sold licenses to individuals so they could establish retail outlets for Singer’s sewing machines.
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