It’s not that complicated.  So tell me why everyone has to screw it up prolifically enough that I have to be brought in.  The basic business model for a family restaurant is something like this:  Sell the pizza for a decent price and don’t give anyone food poisoning.  Everything above that is a plus.  Yes, we all talk about the three pillars, good value, good experience, good food and yes, I do not need to be preached on the art of selling on the retention strategies – I am just saying it starts by being fair priced and decent or better. Which is a shame that restaurants nationally have set the bar so low, but who am I to argue with a bar that millions of consumers have chosen to be “okay” with.  My life is a war against “okay” but let’s get your ship above water before we go to battle.

Five leads a week roll into my inbox from family businesses wondering why they can’t pull it off.  Go figure.  Often these businesses have been around for 40+ years, handed down between generations, opened by the grandfather who made a killing in his heyday but he was the engine and he’s been gone for decades, leaving a restaurant that’s unable to move with the market.  The family has an excuse for everything about why they are not making any money except their lack of agility.

They wait until the business has sunk before calling mayday, the reasons are always the same: Pride and ego, can’t admit there’s a problem (because they are the problem), can’t grasp the impossible notion that  even with 40 years experience they’re not the master operator they thought they were. They were self-proclaimed entrepreneurial mavens because they opened when there was no competition and offered decent food at a decent price when family dinner was enough to skate by on–even thrive on–enough that they hired their entire family.  They stick to traditions which worked just peachy in 1893, why not today?  They either assume they don’t need to innovate or are afraid of it because innovation equals uncertainty.  Beats the hell out of the certainty that comes with becoming obsolete. For those inherited restaurant owners, who believe it’s in their blood, who tell me how they took their first step in the kitchen next to the deep-fryer, how they were running the restaurant before they could eat solid food, well, they’re mislead, and it’s their own lack of willingness to admit defeat is wrecking your grandpa’s legacy and the livelihood of your entire inept family.

No one knows what their doing so when there’s an argument, it’s solved by grand voices booming across the restaurant, maybe 1% of customers think that’s part of the charm of your family, the rest are Yelping your competitors. Your stubbornness is not charming, not unique, and when I arrive it’s my nightmare that for some reason, I’m always drawn to, addicted to the adrenalin, to proving I wont be pushing a boulder uphill with no end in sight.  The owner is my biggest obstacle and if they can’t be moved, I don’t keep pushing; I have the next lead leaving voicemail already and I will stick to the ones willing to change.

So your lineage-based leadership isn’t working, your staff is run on nepotism and you’re stuck in the past.  You can’t sell your pizza because you can’t draw in customers and, strike two, the customers who do show up hate it because your son doesn’t know how to maintain health standards or he’s too lazy for all his entitlement to do good work. Don’t tell me about your loyal customer base, the people who loved you in 1957 are disappearing and they did not include you in their will.  You think maybe we need to do some customer succession planning?

The family biz model does bring some complications that aren’t found in more cut-throat corporations.  It has benefits that can easily cross that line where the things that started as assets become hindrances.  During a turnaround, I spend only a few days inside the actual restaurant, so I need to know before I arrive which elements are still advantages and which have become a problem.  You are running a business, not a charity, and you’re going to operate far below capacity if you keep someone in a position of ineptitude because they are related to you and need a job or because you are saving money by having them perform a task inferiorly that a new hire is more trained, passionate and capable to accomplish. If you have staff on your roll that could not get the identical or better position in a bigger restaurant operation then they are not qualified.  If they’ve never worked outside your restaurant then they’re like this Shin Dong-hyuk kid who was born in North Korean Prison Camp 14 and didn’t know the world was round.  They have no experience in the market place, they have no data or intelligence with which to make strong decisions.  Might be natural-born innovators, but have no resources or comparative experience.

Ideally, every family member is more invested in the success of the business than any stranger could be, but we don’t live in an ideal world.  A good owner and/or manager knows how to motivate and incentivize any and all employees to be as interested in making that restaurant perform at its peak as if their own name were on the deed.  Relying on the loyalty of family members is a thinly-veiled indolence of an owner who can’t be bothered to cheerlead a staff who doesn’t share their heredity.  The money you should spend on that qualified employee will be more than made back in a smoother business function and morale of the rest of the staff who doesn’t have to waste their time cleaning up the messes made by your relative.

I’d love to see a family that can work as a solid machine, where each person is the best at what they do and are in that position in that business because no one in town could do it better.  I’d love to see everyone passionate about maintaining the integrity of the family name, about delivering a quality experience and in strengthening the brand that they have ownership of.  Alas, too often I find that I’m being called in with an expectation that I’m to perform an act of alchemy in a group of people that have no interest in it, won’t listen, won’t follow through and certainly won’t adapt and learn.  I figure out the fortitude, stubbornness and loyalty of a family staff by hitting them with a methodical abrasiveness, confronting them head-on and with no hint of the great cuddler that I truly am because if the introduction is too harsh and doesn’t warrant a reply then I know out of the gate I cannot work with them. I also need to be talking to the person whose ass is being poked by the point of the pyramid, not the family member who doesn’t hold a vote or the one who contacted me because she was not being listened to.

When I get them on the phone, it’s the most aggressive and abusive process of explaining why they have failed and why they deserve to be in their current position. I have to hit it so incredibly hard, to

1. get rid of the people that just cannot take it.  If they’re not strong enough for brutal honesty, they won’t be able to do what’s needed to survive.
2. identify the people that will recognize it’s up to them to do the turnaround, that I am purely the mentor guiding them because I’m taking off but they remain and they get the credit because that’s what they hired me to give them.

I need their repentance, acceptance that there’s no one to blame but the owner, and a promise that they are willing to live at the restaurant until the mess is fixed.  They do this and they have me as an ally for life.  It’s not hopeless.  I actually commit to about 15 family business turnarounds every year and when I do, low and behold, they come to life, sweep out the cobwebs and become a thriving business.  The humble ones who see the light thank me throughout the process, the stubborn ones who get their feelings hurt yet tough it out thank me after their collectors get off their back and they have money in the bank.  I love it either way, very fulfilling.

With all that said, I love you, I love what you do and I love the passion you have, that desire to succeed.  I understand sometimes I just have to shove you in a corner to make you fight your way out, to take off your blinders and show you the hideous world around you because it will inspire you to make it better. Still love me? Great, I’m ready…

George Anders @ Forbes wrote a great line about this:

Command is lonely; accept that. Each big promotion constricts your ability to sustain on-the-job friendships. At the very top, your power to chart the organization’s future – and your obligation to do so without sinking into cronyism – means that you often will feel socially isolated, even if you are always surrounded by other people. Family and non-work friends provide salvation, but leaders often find little time for anything except work.

And so this article is for the individual entrepreneur out there, fighting with all he or she has for success, and I understand it, because I have been there:

It sucks to be an entrepreneur, it’s terrible.  Oh, there’s passion, there’s love, there’s excitement and fight and there is a genuine belief that you are creating something for which there is a light at the end of the tunnel, a vision or strategy you believe has a chance.  Because you have not settled for good enough, you have emerged from the pack with an ambition that they can’t fathom.  If they could, it would be their idea and their company, but they don’t put their neck on the chopping block and give the executioner the bird, because they are not you.  People are jealous when they look into the eyes of a true entrepreneur, knowing that they could never do what you are doing.  They don’t realize that you could never do it either because you hide that fear behind steely eyes of hope, strength, courage and vigor as you leap into the unknown.  This makes you a legend to the masses, you are blazing a trail that they might wander down after you’ve done the work, the progress that is impossible without men and women of your fierce calibre.  You, entrepreneur, are on a journey by yourself, a lonely task that is essential to advancement.  The weight is on your shoulders, the sleepless nights, the second guessing, the never-ending task list, the millions of incredible ideas that you’re ready to implement as soon as you have the bandwidth to perform.  If anyone says there aren’t agonies to being a solo entrepreneur, they are lying or not trying hard enough.  It is an uncredited job, to venture out, risk failure and indeed to fail many times without giving up.

There are no guarantees that your plans will bear fruit until you have that win, no promises of any payoff for all you’ve put on the line.  If you finally pull it off you know there will be no time to rest.  Sure, everything is better when you are winning, it is easier to motivate, hire, and excite, but failing is the easiest thing you could have done because when those wins kick in, they’re accompanied by expectations. It was easier when you were Noah building in faith on dry ground but now it’s raining like you said it would and those who once ridiculed want to see if you can float.  Welcome to being an entrepreneur.

If you did let fear of failure hold you back (and that is what inhibits the herd to hold their ground and graze) then there is 100% chance of never doing anything.  Nothing happens without rising above the status quo.  Two books I’ve never seen are “How to Achieve Status Quo” and “Legendary Hard Workers.”  Status quo requires no ambition, makes use of paved trails and should bore the hell out of a pioneer.  As for being a “hard worker,” that’s one of those infuriatingly idiotic things people put on their resumes.  Hard work is expected, I assume that about an applicant or they wouldn’t be in front of me.  It doesn’t require hard work to type “hard worker” onto a sheet of paper, so what does that prove?  And were success won by being simply a hard worker, you would be a hero by pushing a rock up and down a hill, never hoping for meaningful victories, never winning in a way that leads you to shout, “I stand on this plateau alone because no one has ever been here before!”  You don’t want to be remembered as the hard worker, you want to be known as the guy who won.

This brings to mind what Ben Yu wrote about rock climbing:

Without the belief that a route is possible, there exists no further incentive to think creatively about potential solutions and try new approaches. And so, if a route seems impossible, it will be impossible. And often these routes that seem impossible are entirely within reach – the fascinating thing is many of them seem physically too hard, as in the holds are just too difficult to grab and require too much arm strength, but the truth is in fact the technique for grabbing them is incorrect, or the sequence of holds is off entirely. And so these impossible routes are often capable of being ascended with only guidance in the right course of action and no further training. We were blind, and now we see.

It isn’t difficult for me to apply this to the business world.  I see the world with business-enhancement goggles, finding a way to use everything I encounter for the betterment of owners and managers sincerely driven to be the best possible versions of themselves.  My eyes are constantly wide to find something that will fire up the willing and frighten off the posers.  I am obsessed with your desire to make your business work.  It is my passion, my drug, my thrill.  The genuine entrepreneural spirit is the type I celebrate; there is no one I’d rather work with than a person who will accept a good ass kicking if it leads to success in their business.  I am especially challenging with them because it’s not a joke to me.  I do not lightly carry my calling to bring good people nearer their potential.  Potential is a terrible thing to die with and you who realize this have won my love, my respect, my escort.  I am on your team if you are not intimidated by a dream that is bigger than you.  If you’re not immobilized by fear, I’m certainly not.  Au contraire, I’m inspired.  It isn’t about fearlessness, courage means moving forward in spite of fears.

You didn’t set out being capable of fulfilling your goal of business greatness, you layed the runway while you were taking off and you’ve been going for it.  Ballsy!!!  I love it!  At take-off you don’t need to be everything success requires.  You realize that you will pick up tools along the way and will stretch and grow into the legendary warrior you know is required to achieve the impossible.  I believe in you because you strive to sell a product that hasn’t even been made yet, you are a magician that can materialize excitement out of thin air, when there is nothing motivating, you manage to motivate your staff with that nothing.  A miracle worker!  You hire in faith of the uncertain when there are no funds for payroll, you gamble everything for a shot at bringing anything to the marketplace and having something to show for it.  You are the one who St. John of the Cross was speaking of when he said “If a man wants to be sure of his road he must close his eyes and walk in the dark.”  You’re doing it and that thrills me!  Good Luck on your journey, wherever it may take you.

UPDATE:

Was just forwarded this great and similar piece: http://www.elephantjournal.com/2012/04/ode-to-the-entrepreneur/

by Evan Beard a YC Alum. Apparently, everyone is thinking the same thing, he perhaps is just more eloquent.

If you place a donkey equidistant between two piles of hay it will starve in indecision.

You’ve got a problem that you can’t solve, you’re not equipped to, so you take the “easy” route and fire someone who you probably shouldn’t have hired. And that doesn’t solve the bigger problem which is a person (you) who lets the wrong people through the door to try to do something they can’t. Your easy route has done collateral damage to your business and wasted a lot of people’s time. The poor guy you just fired has become a victim of your failures. He has had his dreams smashed, is now in a mad scramble to find a way to survive, and has the humiliation of telling his wife he must be a lousy provider. You have at least momentarily turned his world upside down. Then there’s the HR team (your staff) who has to drag in another herd of applicants in hopes that you might do your job right this time. And are you thinking of the other employees on the floor? Your failure to do anything but fire the employee to solve the problem you created has been noticed. Your other employees–the ones that are in the right place–become ineffective because they’re having to continually pick up the slack. It becomes a problem that fogs up the air until it becomes difficult to know which employee it is who needs fired or relocated. Now you have a mystery to solve because you didn’t catch it sooner or because you were too afraid to do what needed done. Your staff is probably terrified that the problem isn’t fixed (and if you think dismissing one employee is your cure-all, then it probably won’t be fixed) and they have the nerves of the chickens that stand next to the chopping block every day, watching their friends get the axe. This can be a good thing. This can be the start of employee motivation, but not the start of entrusting their livelihood and careers to your sorry skills.

Even so, the time has come to cut someone loose and the fear of them being the casualty of your bad management must not hold you back from firing them. Your first priority is to keep your business performing at its peak. This fear should subside when you see the positive sides for someone getting kicked out of a position they’re not made for. For many, being fired is the best thing that could happen, now they’re forced to fight for something they always knew they wanted but the stability of employment prevented them from pursuing. Now they have no choice. Put them in good company. Robert Redford, Oprah, Michael Bloomberg, Walt Disney…they all chased their dreams after getting fired. I don’t know about you, but I like going to Disneyland. It isn’t charity to keep a person in a place of ineptitude or where they won’t be developed in their career path. It’s selfish for you to interrupt their destiny by keeping them around so they can fill some of the requirements of their job title. It’s may feel nice to provide them with a paycheck, but someone else needs it just as much and can do the job better.

Every week at least one business owner comes to me with self-pitying stories about how a bad employee single-handedly wrecked their ship and put them into the horrible place they’re now treading to stay afloat in. That response is worse than useless and reveals a mentality of non-liability that points me to why everything else is a wreck in your business. Blaming an employee for your situation is irrelevant anyhow because a “bad employee” being given enough power to do so much damage is inexcusably whose fault? And if it was doomed from the start, it is your fault for hastily filling the position without considering essential facets. When I walk into your company and I see your confusion because every position is filled yet the work isn’t getting done, someone is either letting their employees walk on them, is trying to do employees’ work for them, or has failed to find the right person for each position. Most likely, the owner has not taken responsibility for these problems. Terrible hiring methods will not be the only reason you’re firing someone. In fact, you might be great at hiring but fail to train properly, or have non-sensical demands and expectations, or you don’t know how to curate/manage/motivate/develop/incentivize your staff. Most likely you’re destroying lives and your company with a combination of several problems. You can do nothing with property that you do not own. Look at the word “respons-ibility,” when you have it, you’re able to respond with a solution. Fold up your pride and put it away, accept your issues so you can do something with them.

It isn’t cheap finding, training and evaluating new employees (and maybe ultimately firing them too), so the best tactic you can have in proper firing is to do your own job well. Be quicker to fire than you are to hire, and be epic in doing both. If a person is a bad fit, adhere to my faithful “fail fast, fail cheap” policy, don’t waste time and money because you’re too prideful to admit you hired the wrong person. Firing a person means admitting you screwed up. It means downtime and expenses while that replacement is trained and brought up to speed on the mountain of work that was created before they got there. Every day spent doing this is a day someone is not in that chair making your business run at full function. Having to fire an employee means a lot of painful things, but putting it off makes things worse if not irrevocably devastating.

FIRING IS UNAVOIDABLE
Business will always require moving people around and in that mix, jobs get lost, not by ineptitude but due simply to logistics, outsourcing, the numbers game. Jim Collins‘ book Good to Great is full of brilliant examples of how to turn your business from good to great. Collins tells of a steel mill whose employment process was to “Hire five, work them like ten, and pay them like eight.” You’ll find numbers like this in your business, even if I have to show you how, and when you do, you’ll opt for efficiency over the waste and losses that you’ve been facing. As Collins writes, “people aren’t your most important asset, the right people are.” A recent correspondent told me that in the past eight months they have let go of 50% of their staff, yet productivity has increased threefold. When the forecasts came through with those numbers, they leapt at what this would do for profits and sharholder contentment. But it meant firing a lot of qualified, loyal people. There’s really no way to do this gently. Epic firing has its ruthless moments. We’re not socialists, your company is not Utopia. You don’t have to be an ass about it, don’t do more damage than necessary; if possible, the transition should maintain their respect for you. People I’ve fired have come back to thank me for letting them go, people I’ve fired have come back to use my services.

Gushy warm feelings aren’t your priority, though. At the end of the day, there is only one reason to fire someone, and that is that the company is better off without them. Sometimes you have to send people packing. It’s not fun, there might be resentment, you might even need to call security. It isn’t easy and unless you’re sadistic and shameless about your own failure, it shouldn’t be enjoyable. The prevailing feeling you should feel when firing is fear because the best way to fix most of the problems in the company might be for you to find another position for yourself.

William Blake’s poem Auguries of Innocence reads “A dog starved at his master’s gate, predicts the ruin of the state.”  There are no small issues, nothing minor travels alone, is never a fluke.  Major issues always always are accompanied by minor indicators, or what I often call “small fires.”  Consider how many uncontrolled-though-small fires you’d allow in your building and you begin to understand how poignant this terminology is and how urgently we need to find the general sources of these specific issues.  When I visit a restaurant for a turnaround, I do not spend my time focusing on these small fires because there are too many of them and even if I did spend our time on them, they would pop up again as soon as I leave. I notice a long list of small fires in the first ten seconds and instantly know what major issues need to be addressed.  I point to these small fires and ask you why this is happening because your answer will tell me what you’re doing wrong and how I’m going to effectively get through to you.  Most of an owner’s responses that include statements like “trying to save money…” or “it’s too expensive,” are about problems that I can fix with little or no money, and all the others will either save or make money if the owner will put their investment where I tell them to. Almost all of this process is showing an operator how to look at a situation from a macro perspective and how to allocate time management away from small fires and into the fundamental flaws that are creating these failures. Greatness does not require more money, opening your eyes and employee eyes just requires something to rattle you out of the deadly assumption that you can stay in business by being “good enough.”  A fire alarm is a great wake-up call and let’s see what happens when you put a little water (literally) on one highly indicative example.  You have someone on staff standing around at least one minute a day.  Your water faucet seems to be working.  Put these together and ask yourself why there are dying plants on your exterior.  I say it’s free to water a plant during every turnaround in response to the look I get from an owner when I ask why the curb appeal (prep table, hostess station, break room, menu shelf, you get the idea…) is such a mess.

The point is, it doesn’t cost money to water a plant and if your experience includes dead brown plants, potential customers will attach it to expectations of your food.  Subconscious observations have a huge impact on decision making and worse yet, a customer who consciously makes connections will very accurately assume that a dead plant is not the only (or the smallest) problem with your business.  I approach your restaurant consciously and seeing these missing links before reaching the front door shows me everything I need to know, I can walk back out, do the rest of the consultation by phone and be worth more than my pay.  What these problems show is not only an operator with time management and priority issues but more importantly no unit grading; if one cannot judge the assets and experience of their own venue then how can they be a restaurant operator?  Without a system to monitor, track and fix these problems, how can you guage the existence and extent of failure?  By eyeballing it?  I meet a lot of mad-genius entrepreneurs who have brilliant business concepts and think that’s all they need.  They call me in after they’re curled up on the floor weeping in wonder of what went wrong.  Their mentality isn’t geared for the structure needed to carry out their business plan, they should have a business partner and since they’ve decided to do it on their own, they need me to point them toward the light.  That light always involves more structure which, by the way, costs zero dollars.  It  starts as simply and not quite as focused as this:  Every time you walk in your restaurant you lift the POS machine to inspect for dust, open all the menus to ensure cleanliness, check the soda gun for goo or looking under the table for gum.  In a system, this whole process of unit grading would take you under 20 minutes to complete and define a grade for your restaurant and a benchmark to judge your staff.  If you have no unit grading, you definitely do not have signed operational procedures and the more important piece of the puzzle Unit Operating Guideleines that ensure compliance with those procedures without the need to micro manage.  If you don’t have unit grading or active operating protocols, you sure as hell don’t have employee efficiency ratios rolling out the door, which means KPI in your book is something that comes on the side of a chinese dish. All of which are the very basic requirements a unit needs to stop running on will power and become an automated and turnkey machine.

For management, operating procedure either provides an opportunity for bonuses or to recognize areas for retraining.  The third possibility and one that will be more traumatic when you realize its inevitable impact is that you may have hired the wrong person to manage your business.  Let’s have a look at this before continuing with staff hiring and training because replacing the wrong manager may be the fix in these less painful areas.

A manager should spend the open time on the floor, end of story, they are the restaurant manager not the office manager, they are not being hired for their payroll skills or accounting.  All of that is being done during closed hours or dedicated time when there is a roll over available, operating hours is the time to be on the floor, adamantly watching, tweaking and training.  The wrong manager freaks out on a slow day; a great manager knows that slow days are opportunities. A wrong manager enjoys a slow day because they can go to the office and catch up on paperwork, a well trained manager will know that most errors happen when the unit is slow. A manager is your balance between staff requirements, guest experience and orchestration.  The captain of the ship should not have to run around changing lightbulbs or even noticing the lightbulbs are out, but he has done so in his life and he knows what it takes and hopefully can change the lightbulb the quickest of everyone on his team. In an emergency, he can and will fill in for any position to create a seamless dining experience.

A great manager admits that every problem is rooted in bad management, never a bad employee.  If staff is not doing a good job,  then it’s a hiring problem.  If something is not getting done, it’s because you didn’t hire or train anyone for that job, the person on your payroll that is failing you floor doesn’t represent you, you’re just handing them money, that would be better spent if you threw it out onto the street.

It’s not always laziness that makes a bad manager, it’s also one who is too timid to face problem employees and consequently works too much.  He’ll either burn out or fail to do well what you hired him for.  If this means he’s not spending his time training staff, then you can see how this one area will easily snowball and wreck your business.  You can bonus a manager for ensuring staff knows what’s expected of them and consistently maintain a tight ship.  Do not bonus hourly staff for these duties, though.  Bonusing them for doing the job you hired them—and are already paying them—to do will set up entitlement and laziness issues that I’ve addressed in past articles.  Here, I want to focus on retraining, which leads to the next step of this money concept and its needed to make a better operation.

The venues that stand out and succeed are the ones that recognize that a customer buying a $4 sandwich doesn’t mean he receives a poor experience or bad service.  Blowing the mind of today’s $4 customer becomes the weekend’s $100 ticket when he brings his family to see this amazing restaurant, or the endless traffic created by a glowing online review.  Your employees need to understand that it is not the lunch special they are selling, but your brand.  This equalizes every customer experience so that the gift-card-wielding bargain hunter receives the same great treatment as the guy ordering a third bottle of your best champaign for his table.  “Same great treatment” means always serving to staff’s highest potential, a mark that is set by only two factors:  Proper hiring and training. Most importantly customer satisfaction cannot be judged based on what you believe the customer wants but instead what the customer has dictated.

One obvious indicator of bad training is the “auctioning of food,” when the waiter walks to the table with four plates and asks “Who has the Caesar salad?” and I have to put my hand up like a school kid or yell and claim my food caveman-style.  I understand that some major functions require training and even higher shadow costs that may not be available in every situation.  We can work around that, but when an owner includes among unfixable problems a server not reading the ticket on what seat the food is going to, the problem is not money. Try telling the server not to be lazy and to put in seat numbers, that’s not even training, it’s asking them to abide by the protocols and procedure you had in mind when you opened this restaurant.  It means respecting your customers enough to provide personal details geared at making a guest feel human.

Sidenote:  Be especially vigilant in areas where this is crucial; the person at your host station needs to be charming and experienced, not some gum-popping phone-texting teenager blatantly suffering through their shift.  This is the first and last representative every customer encounters, they have the ability to wreck a beautiful meal or turn around a bad experience.  This, of course, is just another hiring/training essential but for so many the least trained person is at the host stand, acting as the gateway to reservations and the face of the brand.

Training doesn’t always imply money, which is the same as people saying they don’t have the money to execute portion control.  Portion control makes you money.  I’m not saying “go arrange portion control and all will be well.”  Recognize these as examples that are emblematic of blazing protocol fires, most of which will take a shift in mentality to fix instead of more money.  The above protocols make you money, make you more efficient, make you leaner and make you a happier person because you can leave your restaurant for a minute and focus on driving sales volume.  Calling me in because you’re having a restaurant crisis shows that you’re still thinking of ways to throw more money at problems.  It’s a good investment because I will provide that mentality shift and show you how many places you can make fast, easy changes that will cost nothing and increase your profits.

A couple of times each month, I get asked to be part of / help / design / brainstorm / fund / push / promote or otherwise touch a Kickstarter campaign. Of some 35 projects, I’ve advised about 10, been involved with 5 and been part of the lead on 3. I rejected about 15 within seconds of being introduced. I simply don’t have time to listen to why the creator thinks it won’t fail when it’s painfully clear that they don’t have a (more than decent) chance. Just go online and look at some of the projects from a business consultant’s angle, it’s pretty obvious why so many projects are bound to crash before they get off the ground. If you are creating your own Kickstarter project, I recommend looking at as many projects (both miserably failing and wildly overfunded) as you can stand. You’re not going to throw together a successful campaign without exploring many many working models. Some of them will be exciting to you, go ahead and throw a few bucks their way. Your history is shown next to your name in your own project and sponsors will be happy to know that they’re giving to a fellow philanthropist. Especially fund those whose rewards include something you would purchase anyway (satisfy people who just want to shop online and you’ll multiply your audience). This gives you a taste of how the system works including what makes a reward inspire funding.

My hope here is to show you what you as a business or individual can do to meet your Kickstarter goal. After wandering down a trail of internet articles that only linked to other articles that linked…you get the idea…I’ve set out to combine the wisdom of many professionals, writers, and successful Kickstarter project heads as well as my own insights about KS success that I haven’t found in other articles. What you are now reading strives to be a brief-yet-comprehensive guide to creating a prolific Kickstarter campaign.

I see two types of people who develop a KS project:

1. Those willing to read, understand, analyze and focus on the campaign, looking to understand the risks and challenges. They identify the best course of action to overcome or mitigate problems. They know that a plan and legwork needs to be done prior to even considering going live and that an intricate, brilliant, clever strategy needs to exist to meet the goals.

2. Then there’s the other sort. They think it just takes a cool product or offering and they don’t need to read, meticulously plan, understand or do the hard work it takes to achieve success. They see similar campaigns getting funded and think they can just copy/paste. They look at their own product/service and believe the world will instantly fall in love with it. Some of these people also look to KS as a solution to self-created problems. “To he who is wise with little much more shall be given…” If you’re a failure in everything you do and not learning from said failures, please get your life straight before threatening to waste anyone else’s time and money (be it the sponsors, KS development team, or me).

Assuming that no one has strapped you to a chair, you must be among the first group because you’re reading this of your own volition. You ARE doing the work it takes to develop a winning venture. Keep reading.

I want the same information about a potential Kickstarter project as I want about any marketplace goods that I consult on (your entire Kickstarter page is simply that, an extended sales pitch, but it has to include emotion, story, entertainment. That is, it has to be damned spectacular. Let’s have a look first at the product you’re “selling.” Does it fill a void in the market? If not, is it so unique that introducing it will create a desire for it, a “how did we ever live without this?” or “is it just a great and fun and appealing idea?” What needs to happen to create an awareness of its value? I don’t generally verbalize these questions, but they are what I’m looking to have communicated by the owner’s vision. I let the person speak because they’ll often see for themselves that the idea is too complex or requires such an obtuse explanation that they either have a crappy product or their delivery is bad. The first one I can’t do much for, but if I believe in the product, I’ll be thrilled to find a way to deliver it. Bad product: come back after some more time at the lab, your first bad product is the second step to a good product. One could talk more about the iteration procedure, sometimes a KS campaign is part of that process of getting you towards. Good product or service, check. But history is full of amazing products that failed because they were poorly communicated. So let’s figure out the presentation.

In the beginning, forget the amount you’re looking for. That’s the last step. First, state your goal. What is it you are trying to accomplish?
Be specific. What is the project? What’s it about? List your goals, explain why you need the money to bring this dream to life. Have a good laugh at how many projects are on KS with no mention of why they actually need the money.

Be realistic. You can’t give a free car to every $5 donor. Know how much a reward costs and how much shipping will be. As for the goals, do your research. Will you be hiring other people? Traveling? What resources and equipment do you need? This isn’t a time for foggy guesses. Hard numbers exist for everything involved. If you don’t ask for enough, you might not be able to fulfill your campaign promises, if you ask for too much, you’ll get laughed off KS and never funded.

Be fun. Most people are online because they’re bored. Bored at work, bored with life. Give them something that wakes them up, makes them feel something, makes them want more. Don’t dump everything you know on them, that’ll bore them again. If your video is you talking in front of a camera, that’s fine, but viewer attention span on that has been tested to about 90 seconds. So rehearse, choose the best words and say them well. Make them want to read all the details in the sections beyond the video. Hit them fast, hit them hard. “What was that? I love it. Give me more!”

Come up with a title. Don’t be so clever that it makes the project vague. The name should communicate the essence of your project. Someone reading the title should have some unambiguous idea about what you’re doing. Don’t be vague, but do keep it interesting. The title is in big letters. It’s important and should alone be capable of motivating a visit. What’s your deadline? On Kickstarter, you have a max option of 60 days, but interest online usually fades on anything longer than 30 days. Can you keep an audience that long? More importantly, do you want to put in that kind of endurance? Remember, you’ll be updating the site, replying to frequent emails, preparing rewards, and emailing your sponsors. How long do you want to do that? KS staff report that 30-day campaigns are statistically more successful. If it’s going to be a hit, you’ll see results within 30 days. There’s an urgency with fewer days, in that it makes someone decide immediately whether they’ll fund you or not. If someone leaves your page because they feel they can come back in a month, probability is high that they won’t be back. People forget, they get onto something else, they lose their money, they die – when you have an opportunity to close a sale, the general rule of thumb is close it there and then! You want their pledges NOW. So why stretch it out? Well, longer timeframes do give more people a chance to see the project and do allow more buzz and networking. Longer deadlines do have some functions. With all the precise data you’re computing, your timeframe is like your financial goal, it should be the result of careful calculation, not arbitrary guesswork.

MAKE A VIDEO
If you’re not going to use the most effective tool on Kickstarter, then go do a jigsaw puzzle or something instead. Unless your project is about anarchy against video, you really have to make a video. You can do this on your phone or with a home camera, but I recommend you spend a little money and let someone do this professionally and edit it well. There is a lot of room for variety here. Be creative and entertaining. The best presentations have a little music and mix presentation styles, cutting from project leaders to the product. If you can get experts, celebrities, or other respected individuals to edify you and your campaign on camera, use it.
Know your audience. Your style should be specific to the core of your expected sponsors. Don’t appeal to kids or dogs or poor people. I love all of these even more than you do, but none of them have money.
Be in your own video. Tell a story. Tug emotional strings. If they don’t like you, it doesn’t matter what you’re selling, they won’t fund someone they don’t like. A narrator validates, but a self intimates.
Do not take the video presentation lightly. Everything about your KS page is being scrutinized by sponsors. Assumptions about your passion and ability to deliver a quality product will be made based on your passion in presenting your idea and the quality of that presentation. If you don’t seem to care about your project, nobody else will either.

Several projects that have been up for weeks have $0 funded. How is that even possible? Study them, figure that out. Send them an email and ask why they think it’s not working out. Don’t be like them. Under the video is the About the Project section. Everything in this article should be considered when writing that section, but don’t let info take the place of creativity here. This section has to catch the eye, can include photos, stories and details. Make it enjoyable to read. Make it an experience. Hey, you’re funding your dreams here, who said it should be easy? Fun, okay. Easy, no.

Rewards. You will not reach your goal without rewards. Besides, if all you are looking for is the success of your campaign, you will find even exceeding your goal to be lackluster and unfulfilling. Instead, keep in mind what you are giving to your visitors. Any of a variety of good feelings? Entertainment? Cool stuff? Kickstarter is altruism meets capitalism. People like to contribute to the grand dreams of others, but they also like to get something for their money. I see a lot of projects succeed based mainly on a killer rewards program. If you are bringing an amazing product to a marketplace that is chomping to get ahold of it, then give it to them. Set reasonable reward levels that make people salivate.

Offer rewards that
~Make people feel they’re getting a bargain.
~Make people feel special.
~Deliver something they’ve been wanting.
~They would buy anyway.
~Urge them to donate at a higher level.
~Satisfy those who just like to shop online.
According to internetretailer.com, Americans will spend $226 billion in online retail purchases in 2012 but $327 billion by 2016. Charitable giving reached $290 billion in 2010. That’s just Americans. KS has a worldwide market. Show your audience how their pledge is both a positive shopping experience and a philanthropic gift.

Do you have special rewards for high-pledgers? Do you have multiple formats or products that go well in a combined package? Is there an incentive for the person who puts you over your goal? If you appeal to altruists, is there a service you can provide to the community or even attach their name/donate your product or service on their behalf to charity? Many in the KS community just want to feel part of something important or want to give. Offer a reward that continues giving. Can you send your product gift-wrapped to one or twenty of their friends? Give your customer what they want, even if that is an opportunity to give.

In this digital age, some rewards cost you nothing yet have high value to the recipient. Exclusive content, PDF’s emails, weblinks, online keys, ebooks, special messages, photos, newsletters, videos, information all cost you $0 to send. While a lot of people want something they can hold, these free-to-supply rewards can be used creatively to entice, to pad other rewards, and to get people hyped about your project. Most philanthropists want to be acknowledged. Thanking them with the option of being recognized in print or on your website can be another incentive that costs you nothing.

Consumer psyche: awareness to consideration to close.
If you don’t carefully work up to the sales pitch, you’re going to look like that homeless guy who walked up and asked you for a quarter this morning or the guy who gets slapped at bar for crass suggestions to someone he hasn’t established a connection with. You will lose people who were prepared to hand you money for your project if you don’t follow this very simple equation:

A. Endear them to you. Be charming, be someone they want to know. Make this time well-spent for them.

B. Make them aware of how your project succeeding benefits them.

C. Let them consider whether they can live without this, during which you nudge them to believe they cannot.

D. Hit them with the closer, “There’s the button, feel free to pledge at any level.”
That’s really basic notes on what many great thinkers have spent their lives studying and innovating.

Consumer psyche requires specificity of field, individual and project. This has never been truer than today when every niche and clique has endless web content and a network of support. While patrons in the arts have existed almost as long as the arts have, the KS crowd funding concept is fairly new and requires some fresh eyes to recognize what makes people pledge their hard-earned money to perfect strangers with often no tangible reward.
The crowd funding bunch is a special group with a strong community of its own. Your goals will be facilitated if you can elicit advocacy, skills and advice of some KS veterans. Certainly seek out and study projects by people who have had multiple successes. Read the comments others have left, see how the developer answers questions, see what they do in their “updates” section. If you pledge $5 their way, you’ll usually gain a valuable friend and some email access. You contribute to their dreams and they’ll very likely take an interest in yours. Naturally, there are priceless alliances to be made among the KS staff who determine whether a project goes active and whether they go into the golden echelons of staff favorites and popular sites. You don’t necessarily have to contact these people, but do study them, know why they make the decisions they do, follow their patterns. Figure out how to get on Kickstarter’s front page. You have to stand out within your category. You have to be aware of KS staff, why do they choose to feature what they do? What have they chosen in the past? What’s on the front page right now? Kickstarter does get a hearty percentage of all funded projects, so they want you to succeed. They, too, get nothing if you get nothing, and if you become known as one who consistently creates campaigns that reach their goals, the staff will have an interest in making your projects known.
Kickstarter is an emotional experience for its visitors. Capitalize on the feelings you provide people. See who is donating to what projects and why. Put yourself in their position.

Empathy will get you everywhere. Connect with your audience and they will invest in you and your story. They don’t want another idea. You can sit on a hill and shout clever ideas all day. They are investing in your ability to execute your idea. Explain how you’re going to pull it off and why they should be part of this. What lasting positive impact does your venture offer? Does someone’s donation carry momentum into the future? Is it a permanent fix? Does it generate revenue that generates revenue, perpetually supporting something they believe in? People want to be involved in something that will outlive them. Does your project have legs? You are capable of doing things that a lot of others cannot. Let them share in this accomplishment. It’s the armchair-quarterback vicariously throwing the touchdown pass. You are making it happen. They are making it possible for you. Let them feel the glory of that. They don’t want to fail, that’s part of why they’re not trying this on their own. Guess what? They don’t want to fail vicariously either. Convince them that you’re a safe bet. Credentials, experience, training, similar successes, details that prove you are superman in your field will make pledging comfortable.

Funding. What happens if you are overfunded? Beyond the rewards you are offering, why would anyone continue to pledge funds once your goal is reached? Because you are including hypotheticals for being overfunded. Chart for the viewer what you will do if you receive double your funds, ten times, 50 times your goal total. Yes, go to the “most funded” category and see some that are getting 8,000% or more of their original goal. They all have great rewards and outlines of overfunding. You want to reach your goal, remember KS is all-or-nothing. Give sponsors reasons to take you far beyond your goal.

So, you’ve activated your campaign, the clock is ticking and you have work to do. You can’t just sit there and watch your little meter run up. Get your family involved. Tell your friends. Use all of your social networks. Facebook, Twitter, are people aware of your campaign? Though it’s enormous, most people still don’t know what Kickstarter is. Introduce them by sending a link to your page. Get your connections to invite their connections. It’s a nice thing to do. Kickstarter is a fun site.

Now focus. Keep up on Kickstarter inquiries, update your site, let sponsors know you’re alive and progressing. Don’t flood their inbox, but let them know the benefits of additional funding. Show them that investing into your project was a brilliant decision.
If you feel you’re not reaching everyone you should be, you can change approaches, edit and update your KS page. Get people to click your title then your pledge. If you have time to read only one single word in this article, I’m highlighting this one:

“CONVERSION”
This is ultimately all that matters. I’ve been keeping a little secret from you and here it is now: None of your donors have to want anything you have to offer. They have only to click your link. No one can pledge without doing that. Get them to do that. Convert the highest number of browsing visitors into those who click your project. Convert everyone who clicks your project into an ecstatic donor, incapable of clicking off your page without falling in love with your project and donating money to it. Convert visitors into evangelists who have just seen a presentation that they absolutely have to tell their friends about. You’ve looked through a ton of KS presentations. You’ve never met these poeple, yet some of these deliveries make you want to give money, be part of that dream, have that product, and email your friends. How’d they do that? So do that.

Why the company should stop and pay attention when an employee chooses to leave and not for a vertical growth position.

Most of my articles come from situations I see in the field and realize there is a need for content and explanation. My competitive advantage comes from seeing so many companies, employees and ideas. I simply have more opportunities to see what works and fails that by sheer volume I often find myself in a position to give timely advice on an issue that is not even my forte. I don’t have the formula or “relevant theory” on management control. I do have an intricate awareness of Maslow, McGregor and others, but for my money, nothing fosters success better than the Eight Attributes of Management Excellence (Peters/Waterman). And my default system when starting change within an organization can be found in Kaizen. But you don’t manage people with theory, you manage people by being great yourself, leading by example and giving your employees the opportunity to develop and grow every step of the way. What I have are just real-use cases which are of greater value when what we deal with in the actual workplace are not textbook theories but real-use situations.

So, I won’t be going over the 9.1 Grid Managers or the Type A management class. Believe it or not, I would go for this before shooting for a 5, 5 situation but in all these cases they are purely a reflection of a bad manager, a bad leader, but not necessarily a reflection of someone who is not a visionary, not great at what they do or cannot see the future for their company. I find amazingly talented, competent individuals running some of the businesses I consult and I’m able to help them shine by knocking them out of their leadership roles either by demotion or promotion into a position that uses their actual skill set. Many times I am brought into a company where the chief created and developed the idea but is ill equipped to take the idea to execution.

It is rarely the visionary who is master of payroll/HR/leadership/delegating and instead they should be brought in the place that is best suited for them, not into a position just because it has to be filled. We’re not talking about the person who empties trash cans each night, but the offices that will make or break your business, offices that your competitors have carefully filled with the most qualified specialist. Too often I see the qualifying bases that some companies use for hiring to be the same for every level, to simply find someone whose ass fits into the chair. When that ass belongs to the owner, it is especially detrimental because every yes man under them is afraid to tell them they’re doing a shitty job and need to be replaced. Company owners develop with the companies and take the course or belief of the executives they meet in life or see in TV, not realizing that is completely ok if they are the Chief Visionary Office not the Chief Executive Officer and it is not a reflection of self worth or competency to not manage and control your own business, it is the clever ones who realize this early – you can define the vision and how it gets there without being the one that actually takes it there. Great leaders delegate, and their passion is on their creation and not their own ego, they know when it is best for the organization and are willing to appoint another leader to carry the dream to the next level.

In a variety of companies I come across C level executives who I can tell from first glance that the question is not if they will be leaving but when. These are usually the people I am most fascinated to talk to and to learn from. The emotions and reasons for being in this situation can provide the missing puzzle piece on aspects of the company that point directly to the rise toward a potential crisis. The company wants to resolve the issue; the employee wants to resolve the issue. I’m there to direct a resolution or procedure that ensures a win/win.

It is amazing how many companies I visit and interact with that don’t see their own employees hanging by a thread, they don’t see the writing on the wall in the massive font. A company misses these signs because it is something they’re not looking out for. Why aren’t they focused on and devoted to their employees? It is a tremendously narcissistic company that is so myopic for their product or their own name that the cardinal sin is broken. Look out for your business and it will look out for you, but a business is a mindless non-entity. It is a concept, an illusion. Look out for your employees and they will look out for you and your business. The statistics are very clearly in favor companies with good-working environments. Those that provide and promote freedom to innovate are normally the companies that lead the pack. Martial law is a tough, long- term strategy. So is abandoning your own staff, but both are so prevalent it is frightening. At the end of your career, you can say your success was found by honoring your fellow humans with dignity and an interest in their own competencies, development, and dreams, or that you climbed over them to reach your altitude, at the top of which, lately has very justifiably found CEO’s retiring in a prison cell. When an executive’s ethics toward their employees are so ghastly that his son commits suicide, it might indicate there are systems in place that need extreme overhauling.

Generating an employee-focused culture not only creates a better work environment, pushes innovation and an excellent work product but also makes other companies want to work with you to join you in your ascent. How many times have you called an 800 number or front desk and reached an unhappy employee? Did their lack of enthusiasm inspire you to find more ways to work with that company? Absolutely not. It’s good for me, but my livelihood is based on finding shitty management. Not many of the people who call your business are going to say, “Wow, your employees are miserable and management sucks, I believe we have a great future working together.”

No, you want to work with companies whose employees feel loyalty and trust that their own advancement is found in the advancement of their employer. The most valuable asset you have “TIME”. That’s not a non- sequitor, when you spend time getting to know your employees, time finding ways they’re talents are being squandered, and time developing them into better people, you’re going to find your workplace automatically becomes more pleasant and effecient. The alternative is to ignore employees, which results in them spending your time doing their jobs begrudgingly and their time speaking negatively of your company. Oh, and on your time and theirs, they’ll also be working on their life plan and seeing that their position with you is a stepping stone in that, so are looking for the next place to hop to. However, if they see opportunities for advancement and personal evolution, their position with you becomes crucial to their life plan.

When time that you’re paying for is wasted by dissatisfied employees , you get lower PERFORMANCE which in turn will always lead to an impact on PROFITS. This seems obvious on the surface, but the reality is that the greatest loss in profits via employee performance metrics is not actually focused on the employee doing their job or even doing it well, it’s the performance lost in the employee not determining a way to do it better, do it quicker, do it cheaper. When questioning the poor financial results, one should question the strategy for motivating, cultivating and leading your employees as much as questioning the product.

When an employee is “checked out” the employer’s best option is not to try to appease, not to make empty promises, not even to focus on the solution but to identify the issue. My forthcoming book will show that I’m a huge advocate of taking out the source of little fires rather than entering the Sisyphian task of going after the little fires individually. Very often if one person is aggravated about something, others are feeling it too but are more reluctant to voice their opinions (employees afraid to speak up indicates a whole other management flaw that restrains innovation, but that’s addressed in my other articles and moreso in my book which you would be insane not to purchase!). The best companies assume that every letter they receive from a customer–be it complaint or praise–mirrors the opinion of 10,000 others who don’t write in. Whatever the ratio, the example holds up if one person in your employ expresses a problem. They’re likely not the only one perceiving it.

Now a note to the employee who says, “Shit, I hate my job!”:
The most important thing is to ignore the facile recommendations to instantly quit. Talk about losing an opportunity for personal growth! From the outside perspective it may seem like a great move, the thrill of telling your boss you are “done” and to quit with fireworks and all that. Is the “friend” who’s offering that advice going to lose a paycheck? No, just maybe pick up the check for their poor pal who boldly stuck it to the man; the lunch tab is not a bad price for them to have that great story. It’s your mortgage/car/livelihood on the line, contrastingly NOT a good price to pay for a story. This pyrrhic victory may taste good for a few minutes, the reality is the most viable asset you currently have is that you are employed. What it means is that companies had already been through the technical and administrative process of hiring you, back grounding you and choosing to compensate you for your work – you are prequalified versus someone not yet employed. In his book THINK NAKED, Marco Marsan tells of an employee who took a leap that cost his company millions and was certain he’d be fired.
“Fire you!?” the boss was astonished, “but we’ve just invested millions in your education!”
We can also touch on the fact that the job market isn’t exactly on fire these days so while you may see yourself to be in high demand, it’d be prudent to verify in writing that a reasonable equivalent or better is waiting for you before sending that “Take this job and shove it” email. And if departure is inevitable, a peaceful one is always preferable. You’re not slinging burritos anymore, kiddo, potential employers will be calling everyone on your resume.

Exploring opportunities, starting your own business or beginning the process of defining what you want to do all comes from being in this great position of knowing what you don’t like. On the assumption that its not the career choice (if you’re a book keeper but you hate numbers, we may have a new set of problems) but instead it is the business, management, and/or situation that you dislike. The first step is to now do what you should have done day one: Stand your ground, create your boundaries and try at the very least to place some control and emphasis on the areas that you can. Part of your job is to solve the aspects that frustrate you. Start taking steps to remove the things that annoy you because they are probably rotten parts of the business world that ought to be trimmed away. Beyond being a good employee, you should enhance the world with the time you spend on it. Don’t be here just to survive because ultimately, nobody does. Contribute to progress. Or, hell, just chase your gold watch and have nothing but a little pile of money to show for the third of your waking hours that you put into your career.

Understand that if you are in a position to participate in something greater than yourself, you are in a good spot. Losing you would be damned costly, and that puts you in a position of power to dictate and determine what you want from a company and how your skills can be used to the best of everyone’s interest. Don’t ignore positive results that come from you trying to create a better work environment for yourself and don’t “check out”. Instead, use your time wisely, be a good employee, meet your goals and objectives and be constantly thinking about what it would take to make yourself, your co-workers, your company, your industry, and your world great.

Now is the time to work nights on your little side project or developing your new idea or seeking opportunity. Now is the time to recognize that you have incredible skills or you would not have been hired so do not take this as a reflection of your self worth and do not invite the world to your pity party. Don’t even invite yourself. Recognize the difference between whining and productive critique. Shut down the whiner mentality when it surfaces and use that energy to proactively set initiatives that will make your life and career more fulfilling.

As a checklist, make sure you aren’t neglecting these essential elements that make up a healthy, complete person when faced with challenges in the workplace:

(1) Health & Fitness – join a gym, do a class, do something to keep your body active.

(2)Eat well and don’t let this quicksand keep you in a constant emergency status of pizza and soda.

(3)Become more socially active (dinners, lunches, coffees). Use this opportunity to create new opportunity, reconnect with old aquaintances. Not under the shallow auspice of “looking for a job” but instead “why haven’t we don’t this sooner”.

When you don’t fix the core problem, neither bankruptcy nor the provision of fresh money can help, they both just delay the inevitable failure.

One of OnSite’s areas of expertise is keeping clients experiencing severe difficulties out of bankruptcy through restructuring and programs to improve (or initiate, in some cases) profitability. We are often asked why we do not agree with bankruptcy and why when a bankruptcy is inevitable; we believe we need time prior to filing to prevent conversion to liquidation?

Another surprising piece of advice we often give our clients is to stop seeking new financing until the company is ready to receive it. When a business is not profitable and cannot service current or historic debt there is no question that it is insolvent. Here it may technically be illegal for it to continue trading without filing for bankruptcy or without an infusion of cash. So why would we be so adverse to the two requirements that seem the only option for a desperate and struggling business?

For so many distressed clients we meet, they are on an eternal quest for financing. ‘If we can just get money, we can solve the problems of yesterday and expect a brighter future’ and feelings to that effect. In fact many clients choose not to retain us until they have exhausted all of their contacts and network to raise funds. This is unfortunate as in reality; money does not solve the problem, in most cases: It merely delays the inevitable crisis.

Fresh money is useful if you have a business you have ‘fixed’ and there is confidence that continued trading will turn the financial position around. Borrowing money to pay historic debt simply leaves you in the same position: Owing someone money but with the same poor performing business. It does not change the lack of profit or the fact the business is essentially insolvent. Too many operators are waiting for the wind to start blowing in the other direction, the next economic or calendar event that is sure to turn sales around or the fixation on the pipe dream that it can only get better (because it seemingly cannot get any worse). Not so in our view.

When your business lacks of profitability and you have high historic debt, you have a business in trouble. Core operations become strained as does management. Cash problems mean employees and owners are often working under stressful conditions which are not conducive to generating business or making the swift decisions need to restore profitability. When it rains it pours and for an insolvent business struggling to handle the day to day challenges this means less time is spent on the business and more time is spent fighting fires. This downward spiral serves to exacerbate the ultimate failure of the company.

For many, a Chapter 11 does not work solely because the man hours and actual cost of a Chapter 11 is so onerous that a business which is already experiencing severe cash issues cannot handle it. These new costs coupled with a long list of creditors do not provide the solution so many expect. In many cases, a Ch.11 is so cost prohibitive with a high retainer and the more complex the case, the higher the bankruptcy attorney is going to want upfront. We have been in many situations where we work with a company without the cash flow for a retainer and wanting an attorney on an unbundled fee agreement / limited scope representation. Here, the risk of malpractice is generally too high for a law firm to accept this type of fee proposal and we therefore have yet to see this scenario implemented

Whilst a Ch.11 seems the only option at times, it can in fact be the final nail in the coffin. The success rate of a Ch.11 is low in many instances and the risk of conversion to a Ch.7 is extremely high. Even if a business is able to support the cost of the bankruptcy, which is rare in many of the turnaround cases we see, the owner still has to convince the court and creditors that the plan of reorganization and the debt plan are viable. Arguably if you could not do it out of bankruptcy, it is doubtful that you can make a convincing case within the bankruptcy process.

Assuming through repositioning in bankruptcy and perhaps the provision of debtor in possession financing you are able to exit a Chapter 11, with the core problems still not actually fixed there is a strong chance that your business will be in the same position as soon as the cash runs out. Your business has not changed so a Chapter 22 is almost a given and serial bankruptcy never works and always leads to liquidation (Ch.7). So much so that perhaps a Chapter 22 would be more aptly named a Chapter 18. Being financed in bankruptcy even with the debt restructured is only going to cover the deficit for so long and the problems that created the first bankruptcy will return, they always do.

Creating a financially viable business and/or making the hard decisions to sell off or even close business units is a tough job – but one no owner can ignore. Fixing a business is about understanding the product, the supply chain and the customer and finding a process that allows all parties to profit. Finding a profitable model based on the existing volume is a better value proposition that racing to a break even by generating increased volume off the back of poor operations. Rather than hide over the cracks of a poorly managed business with increased volume, it would be wiser to focus on fixing underlying problems, improving operations and finding a business model that is sustainable.

As specialists, we know that throwing money at the problem doesn’t fix it – it extends the life of the problem, exacerbates it and creates more debt. We are called in to fix businesses at all stages in their life cycle but in the case of very distressed businesses, call us in before things become unsustainable. If you are able to find financing, use it to bankroll a business that has a chance of succeeding – which we can help you do – instead of merely sustaining one that is likely doomed to fail. Don’t get a loan to finance a loan.

Bankruptcy and financing are not solutions to a problem. They are tools to be used as part of an overall plan where these are the only viable options.

When our firm is retained we see clients through the chaos and assist them in understanding and evaluating the business and its processes. We implement the solutions required to bring about profitability and service the historic debt. Only once this has been completed and the creditors are still not willing to negotiate the debt or you have proof of a viable model should a Ch.11 or financing even be considered.

On every news medium we are reminded of the carnage in global markets. Banks are collapsing, governments are making epic financial contributions to the private and public sector and job cuts are increasing. Commercial and personal financing is harder to source and the amount and terms somewhat sharp compared to the last few years. Confidence is low and inflationary pressures have been driving up energy and food prices. Businesses are naturally concerned about surviving and the next few years are clearly not going to be an easy ride.

Most all of our clients – from hotels and casinos to bars and restaurants, are challenged like everyone else. The economic reality is inescapable. However whilst doom and gloom may be the flavor of the month, and for many months to come, that is not the only thing we see.  Arguably, a recessionary environment can provide a platform for innovation and economic growth through entrepreneurialism and creative thinking and we encourage our clients to take novel approaches to countering the downturn.

We are all suffering. Companies will continue to suffer and the insolvency practitioners are clearly going to be kept busy for much of 2010. People are spending less and selectively as disposable income is depleted or conserved in most economic groups. A difficult economic climate requires considerable ingenuity and the ability to look at things differently. And in looking at things differently, the reality is that there are many opportunities out there – opportunities not just for new business but also to improve existing businesses. When things are at their most difficult, you cannot just maintain – by doing that, you’ll in fact move backwards – you have to grow.

Along with a long list of sectors taking a beating, the world of hospitality and leisure is suffering. Bankers are calling in loans, rents negotiated in the ‘good times’ can be stifling and cash flow is constantly under pressure.

With thousands of sites standing empty, landlords and business owners must contemplate other sources of revenue generation to counter their existing challenges. What can they do in this climate if there are less customers, no customers, low spending customers or a business with a model that is currently untenable? Look at your stock, your financials, your customer base, your payroll and your marketing. Look at your margins – in your overall business all the way down to individual services and products. Take this opportunity to look at what makes you money, what draws in the customers and what is essential to the underlying business to ensure that when times improve, you have the infrastructure and team in place to handle that. At times, make tough decisions because you need to be lean to operate in this climate.

The message we give to our clients is be cautious but don’t be inward and conservative. Look outward and look differently at your business model, at your job remit and/or your skills and work hard to seek out where the prospect lies.

There cannot be any “sacred cows” or unchangeable tenements of your business, you have to look and relook at all aspects of the way things are done within your business.  Whether it’s redefining your customer, your product, your delivery method and or your staff, you’ve got to make the changes that make you undeniably viable; you cannot rest on past results or simply what’s worked for years.  The manifest of “Doom & Gloom” is not a given and in fact is only a reality if you allow your business to be stagnant and ignore the need to constantly evolve when times are toughest.

Some practical tips on assessing your restaurant’s performance

Restaurant revenues are based on science, numbers and economic modeling. Achieving the maximum yield per square foot and perfecting labor efficiencies per minute takes time and attention as opposed to a mere visual glimpse of a restaurant.

There is a key performance indicator for every restaurant function but sometimes it can be difficult for a new operator to extract, digest and indeed navigate the data and understand the results. From years of restaurant turnarounds, we have our own list of layman’s tips from the trenches not based on science or theory but based on experience and actions. These are practical pieces of advice that we share with our clients based on our longstanding experience of the dynamics of the sector. Items we pick up by walking around venues day in day out which you can apply to your venue too.

(1)    BUSINESS MODEL

The financial statements are an instant insight into a business model but at times, they do not tell us everything we need to know. Many restaurants with cash flow issues are forced to juggle bills, delay terms and are always ‘waiting for the weekend’ to catch up and cover payroll or rent. Perhaps a lease signed five years ago was perfect at the time but with a 3% CPI increase annually, the value proposition no longer exists during these challenging times.

We use a very simple metric to determine a concept’s viability either pre-opening or during operations. Can you pay each of your critical, large expenses each month based on one weekend of sales? If you can cover rent in one weekend then you are not forced into saving for rent throughout the month or trying to build a reserve.This also means that whatever occurs during the course of the month, you can be certain your rental obligations can be met as opposed to the worry towards the end of every month. Similarly, if you can cover your net payroll in one weekend you are not floating the checks or using the week day cash flow normally reserved for operational costs. If you cannot pay either of these in a single (but different) weekend then we believe your business model is flawed and needs to be tweaked.

There are obviously variations for different models but the weekend concept is a good rule of thumb.

Restaurants generally cannot afford to pay more than 5% to 8% of gross sales in rent and still have net operating income left over to provide a return on investment in the business.

I have observed over the years, as a restaurant owner, consultant, and appraiser that full-service restaurants grossing less than $1,000,000 to $1,500,000 per year in revenue have a difficult time operating profitably after paying rent and all expenses incurred in the operation of the business. High-grossing restaurants can show a profit of 10% to 20%, after occupancy costs, because the cost of labor decreases as a percentage of sales as the existing staff becomes more productive with each incremental customer served over the break-even point. When a restaurant operates with a full staff at a high sales volume, labor becomes a fixed cost, although it is usually considered a variable cost because management can control it to some degree by scheduling dining room and kitchen staff to meet the expected demand, i.e., more employees are scheduled for a Friday and Saturday night than on a Monday night when fewer covers are expected to be served.

(2)    LABOR MODEL

We recognize that the perfect schedule is hard to anticipate however for an owner/operator who works in the restaurant, there are a few ways to measure whether your staffing rotation is reasonable. In some instances, an additional server could bring greater revenues whilst other times the restaurant could run just as well with one less employee. How do you know when this is the case without ploughing through the data?

You know you are overstaffed when you walk through your restaurant and don’t have anything to pick up, don’t notice anything that needs doing nor is there any customer or function to attend to. Whether it be seating a group of people, grabbing a spoon for a customer or picking up a napkin on the floor, if there is nothing to do, what are the staff doing? Do you need them all there at that time?

Despite toilets being one the most important reflections of your venue, if every time you walk in the restaurant you do not have a piece of paper to pick up or a sink to wipe down you are likely overstaffed, or truly do have a perfect customer! One can clean the bathrooms every fifteen minutes but they are still minutes away from being turned upside down.

You know you are understaffed when you walk through your restaurant with your head down because you are conscious that the moment you make eye contact with an employee or customer, they will need you for something. You are understaffed when you look through your restaurant and see tables constantly looking up for a waiter or drinks empty on a majority of tables. Usually I look for an indicator such as an empty soda glass because in many situations, the venue’s staff should have replaced it before it was empty.

“Restaurant food & beverage purchases plus labor expenses (wages plus employer paid taxes and benefits) should account for 62 to 68 cents of every dollar in restaurant sales. The combined total of these two cost categories, referred to as your restaurant’s “Prime Cost”, are where the battle for restaurant profitability is truly waged.”

(3)    CLEANING

You can walk through the restaurant, run your hands under the bar and use a flashlight to look behind a fridge and above a door ledge but the one indication that your staff are wiping not cleaning are dirty floor drains. It’s that simple: Clean floor drains usually mean a clean restaurant.

(4)    SERVER SALES AND EFFECTIVENESS

This is very much a laymans method and does require the availability of some data but you can pull what you need from the terminal of your POS rather than digging into the back of house spreadsheets. Print a quick PMIX or item sales report for the night to see how many entrees you sold? 100? How many appetizers, desserts and or cocktails did you sell?

Look at the ratios the information provides you with and use this easy to access information in a number of different ways. If you sold 100 entrees and only 15 desserts then you have a number of questions you need to be asking. Firstly, are your servers offering customers desserts? Secondly, are some servers upselling significantly better than others? Thirdly, if the numbers suggest that some servers are not providing value add and encouraging customers to try desserts, can they be retrained, are they merely lacking in customer facing skills which can be rectified or are they not right for their job? Also, are some desserts of significantly higher margin than others? If so, are those desserts being suggested to customers?

These sorts of statistics require limited work by management but are exceptionally telling when paid attention to. Customer facing staff need to be continuously monitored as they are critical to the success of the business. Equally, don’t forget other customer facing staff such as the host or hostess. Ask him or her twenty questions and see what answers you get. Are they confident under pressure whilst maintaining excellent customer service policies?

(5)    CUSTOMER SERVICE

Go on YELP. I understand and have been subjected to terrible Yelpers who claim our cucumber martinis are overpriced when we do not even sell them. However the fluff is normally just anger about something that probably did happen. Somewhere in the Yelp commentary are some truths – some truths that prompted a customer or two to write the review which contained some criticism. A manager’s excuses don’t change the fact that people read Yelp and make decisions based on what they read and what they hear, whether it is from friends, acquaintances or a website.

Learn from the comments you receive, where appropriate respond to them and certainly, attempt to rectify them. It is often said that it takes a lifetime to build a reputation and a moment to lose it. These are wise words so make sure people are saying good things about your venue and if they are not, assess why not. Arguably they will have good reason to have complained.

(6) PAR / YEILD INVENTORY

So many operators read about the value of restaurant inventory and how it can spot stealing, measure cost of goods and is the backbone to profit. In reality, this once a week or once a month process serves only the accountant and perhaps provides a macro glimpse of your restaurant. Par/Yield Inventory is based on an acceptable loss percentage which is far more valuable to your bottom line and much easier to implement, act on and improve.

Take your top 10 best selling individual items and track these daily against sales. If you start the day with 50 beers and end the day with 20 then you sold 30, if you sold less than 30 you have a problem – there is no acceptable reason for a missing beer. This same technique can be used for your major proteins and other items which do not require selling pieces of but rather are purchased and sold as one unit. These items would have a 0% acceptable loss because you either sold the beer or you didn’t, there is no margin of error.

It is often said that 10% of your restaurant inventory is 90% which is why these ticket items are so critical to track daily.

You can take this one step further and on a weekly basis have inventory of items that you allocate an acceptable loss to. A good example may be French Fries or Ground Burger which may have a slight variation in portion size and therefore a 10% acceptable loss on the purchased vs sold volume.

This can get even more technical as you have monthly items such as bar napkins of which you know how many cocktails you sell and you may have a running average of your purchasings per month therefore any major variation of your napkin use to liquor sales requires further analysis.

A chef steals a case of steaks on a given night and you can immediately see a problem, check your video cameras or investigate. The key to this process is providing you information that you can react to immediately. I track, judge and reward staff based on meeting or beating my acceptable loss ratios and I have my daily par/yield emailed nightly in the closing reports.

These are all quick and immediate ways to evaluate monitor and effectuate change within your restaurant without depending on data from an accountant or months worth of POS data. This is certainly not the “how to run a restaurant model” but rather a quick glimpse into items you can be looking at right now. Profit is made from customer to customer, but losses occur by the second if not monitored continuously.

Do you have a simple, easy and standard tip to run a better restaurant? Please leave a comment.

5% Revenue Increase from just 7 letters?

Hotels, airlines and other industries have seen great success from revenue management systems (RMS). They have determined that the best way to measure revenue is based on the available inventory or asset in question. For the hotel industry, RevPAR is based on an available room night, for the airline industry RPSM is based on the available seat-mile and the metric for shopping centers is Sales per SqFt.

Companies in many sectors have become more efficient in analyzing and monitoring their revenue capacity to give a true determination of productivity. The dine-in restaurant industry, however, consistently fails to embrace a scientific technique (RMS) that can reap significant rewards which is an error, notably as restaurant owners are trading in a challenging economy.

Understanding how restaurant revenue management (RRM) applies to the restaurant is about understanding what it is you are tracking and why. RRM, simply stated, is selling the right seat to the right customer at the right price. Generic mistakes often made by operators are looking at number of customers, average check or many of the other statistics that simple restaurant data generates. This is the equivalent, unfortunately, of looking at the average amount you sold your rooms for in a hotel without first looking at how many rooms you sold. An hotelier aims to fill all rooms for the best rate – or some rooms at a better rate – and that data allows that hotelier to assess how to do better. How to improve revenue and ultimately profit.

It is understandable that looking at a “meal” as an inventory item can be considered more of a challenge. Unlike the airline industry or hotels who sell their specific product based on a fixed period of time, restaurants do not have this luxury. When you are selling a meal, you may have an idea of the average meal duration but that information is somewhat less relevant because the meal time is not fixed and you are certainly not selling time (unfortunately).

The food and beverage industry as a whole is guilty of failing to use simple KPI’s (key performance indicators) to address revenue modifications in their restaurant. How can one accurately determine what and how changes need to be made without having a “correct” metric that accurately represents your current performance?

If you have 25 customers in your 100 person restaurant spending on average $50 dollars you may be happy with this average check but when you look at it per seat it represents only $12.50. Are we sure average check is the correct metric still? In the same light when you are at 100% capacity, at what point is it more beneficial to focus just on average check and not time, when you have customers waiting to be seated?

Taking a scientific approach to your restaurant and its operations not only creates efficiencies and assists in revenue maximization but it also passes a better service and consistent experience to the customer which typically has them returning more frequently.

Operators who are starting the process of understanding restaurant economics are at a significant advantage to those operators who monitor performance with gut, basic statistics and an onsite presence only i.e. those who have chosen not to recognize that RRM and success as a restaurant operator is about one thing only:

Maximizing revenue per available seat hour by creating a perfect mix of price and duration

As table turns increase and the length of time per customer at the table decreases, the “revenue per available hour” increases. RRM strategy roll out has seen, in field studies, a 3-5% increase in revenues. Moving a restaurant operation to a scientific process whilst maintaining its ‘personality’ and  specifically the draw has serious advantages that cannot be ignored.

RevPASH is one key component to Restaurant Revenue Management and has its application across all hours (day parts) a restaurant is open, irrespective of demand. It is also an ideal method to track comparable sites rather than using gross revenues or check averages. More importantly, it can also highlight specific times when new strategies need to be implemented by highlighting flaws or ‘room for improvement’. For franchisees comparing units and needing a like to like comparison, RevPASH can be used on a local and national level and provide surprising insight and results.

Why is this so important to a restaurant operator?

Quite simply, for new restaurateurs the answer is weekends: We all know that the restaurant busy period for most is the weekend. All too often, operators focus their strategies to boost sales volume during off peak days or hours which may have the perception of making their venue ‘work harder’ but given the discounts or promotions this traffic cause a similar net result but with a higher workload. RevPASH is an ideal calculator to determine if you are achieving value from such happy hour promotions and has its benefit across all hours, driving changes to attract customers and increase revenues. But for operators taking a first plunge into restaurant economics and RRM they must refocus on their busy period to ensure they are maximizing the “rush” rather than taking it for granted and then applying its application during the remaining off peak hours.

It is two factors, price and duration, hand in hand with the key components that create a strong RRM strategy, that can lead to an increase in RevPASH.

Right seat to the right customer at the right price.

What is the right seat, customer, price and how can one determine what, at first glance, seems to be impossible to control? What is so critical is the balance between “good value” and “taking advantage of” your customer. It is of upmost importance that your value creation and the perception of that value by your customer is aligned. Ensuring you engineer your venue to create profits is entirely reasonably – you are a business not a charity – however it is critical that a venue remembers that any analysis is futile if you do not have customers so keep them in mind at all times.

How are you judging success?

To the front of house managers, using average check value as his or her benchmark to the back office owner using labor cost or cost of goods as their metric to determine performance, this system offers no correlation to your revenue performance or maximization.  In fact, many locations have maintained strong food/labor margins yet the unit is still unprofitable. This focus on using food cost as a KPI shifts the focus unnecessarily to minimizing costs which in many instances can also minimize revenue: This is clearly not the intention. Neither food nor labor costs have any bearing on the profitable use of your seat capacity (critical mass) and therefore cannot be a metric for performance measurement.

Alternatively, the metric many may otherwise choose is “busy restaurant”: Many would argue that a restaurant with seats filled at high capacity is surely a profitable restaurant. This is simply not the case because if the menu items are not well priced to ensure profitability, the number of customers is irrelevant.

Each KPI has its place as part of an overall restaurant revenue management system but none so focus on profit and maximization of your capacity and how effectively a restaurant is using its inventory (seats) to generate revenue as RevPASH.

We must therefore find a metric that combines the price with the occupancy and the costs which is exactly what RevPASH seeks to do, to clearly demonstrate the revenue cycle of the restaurant. Given the two indicators one must now focus on what strategies can be implemented to “price” and “time” to provide the operator with the largest benefit. It is a huge tradeoff, a customer’s time spent in a seat and the amount they are spending, when in perfect balance, can increase PROFITABILITY even when there is a lower check average but higher occupancy.

Reducing meal times is not hurrying your customers (unless you have unreasonable expectations): It merely a tool for becoming more efficient. A simple example is in a 100 seat restaurant, a reduction in meal time from 60 minutes to 59 minutes over a four hour “dinner period” would allow for an additional 6.8 customers.

That 1.7 percent increase now affords you, as an operator, either greater profit or a new carved out budget to re-invest into new off peak promotions or a lower average check to offer value to your customer but still receive a higher margin – and that is from shaving ONE MINUTE off your service cycle – surely you can find a way to clean the table, drop the check, set up the table, deliver the food combined one minute quicker? Of course this example applies to a busy venue where there is a high footfall of customers.

With an understanding of RevPASH it is now essential to identify how you can best implement it to your specific operation. There are many ways to reduce meal times range from the first few minutes which are always easy to find (the speed at which you ‘greet & seat’ your customers, drop the check or altering the flow or sequence of service). The battle is when to achieve greater RevPASH investment needs to be made either with greater staffing or additional equipment and for each case; a unique ROI needs to be formulated.

Implementing a strategy to maximize RevPASH is a restaurant wide project from the host to the server to the kitchen to the manager. Everyone has a role to play in streamlining your guest visit and getting the correct items ordered dependent on day part. Some newer Point Of Sale systems can even provide this information to your servers directly, recommending items with quick cook times in an effort to bring a new customer into that seat. The direct margin on the food being recommended is based solely on RevPASH, where it may make sense to move a lower priced item just to shorten meal duration. This focus on customer turns is why for new operators focusing strategy on the “busy” period is the best place to start. With customers waiting for tables how much quicker could you get them into a seat if your staff pushed fish instead of steak, or offering your first few turns wines by the glass and your final turn by the bottle?

For pricing, almost all operators already have some form of system in place, be it specials or promotions. More sophisticated manipulations of price include day-part pricing, day-of-week pricing and price premiums or discounts for different types of party size, tables and customers.

The general rule of thumb for RevPASH is as follows: During low periods, either attract more customers or rely on suggestive selling to drive average check. During high periods, reduce meal duration to increase the turn or increase price.

How you choose to use RevPASH in your environment is based on the unique factors which attract customers to your restaurant. It may be hourly or even half hourly and the decision you make off you RevPASH may also be used for a variety of purposes. The critical component is understanding how to apply these principles – and subsequently applying them and teaching your managers how to understand and modify them. This leads to a leaner, more efficient business model with economics working in tandem with restaurant operations – something every operator and owner should aspire to.

Many thanks to Sheryl Kimes of Cornell University who developed RevPASH.

From an unlawful detainer action to a 5 day pay or quit or simply an inability to meet your obligations, the strategy for finding a solution remains the same.

One of the issues we regularly come into contact with in our capacity as turnaround consultants for insolvent or under performing units are our clients lease obligations. Typically executed during the “good times”, they have often proved to be an onerous burden on struggling units and when cash flow is tight and a business needs to be lean, the ability to renegotiate these leases is often the ‘make or break’ factor.

For a landlord to serve a 3 or 5 day notice to pay or quit, it may mean that talks to date have failed (or perhaps not occurred) and at this point the landlord is making it abundantly clear that they are willing to risk having a vacant property rather than keeping you as a tenant. Essentially, the landlord is looking to stop the bleeding as he or she does not have faith in your ability to remain as a tenant. At other times, the notice may merely be a strategic move to force you to repay some of the monies owing with no genuine intention of actually evicting you. Either way, receiving a ‘pay or quit’ is a nasty feeling for an operator and creates fear and insecurity for the business. As if cash flow was not tight enough already you now need to retain counsel.

Whilst we are not lawyers we do, however, work closely with our client’s legal team in defining a strategy that makes the most sense under the circumstances and provides the business with the maximum leverage. Our involvement is typically based on the competency of counsel as well as the operator’s ability to see the big picture. Our advice is ‘always get the best advice’. If you need legal advice, don’t use your local firm simply because you know them. Find out what they have done in your sector and ensure you are using someone with the right experience because good advice always pays its way, especially when dealing with something like an Unlawful Detainer – which has very little “appeal” process if you are on the wrong side of the judge’s decision.

Whilst OnSite can make a significant impact on the non fixed costs and provide drastic savings, increased operational profitability and streamlining the concept, if the rental amount (typically 7% to 10% of gross sales) is unsustainable, then the value in trying to save the business may be flawed from the day we arrive.

In a majority of recent cases we have been involved in and where we have engaged with landlords in cases of crippling rent, landlords have often been willing to make a number of concessions when presented with a fair option. It is critical not to ask the landlord to reduce the rent in order to offset operator error or concept failure – if you are running your business badly it is neither their problem nor their responsibility to subsidize you. This is one area where our appointment provides immediate confidence and assistance to the business: We immediately step in to confirm that the operations are being streamlined and efficiencies are being introduced.

An operator who has made significant errors but successfully repositioned the concept and provided a viable and profitable model still has significant leverage because he or she has identified the problem and found a solution. Typically, landlords recognize the current economic challenges that their tenants face and to the extent that they have a good relationship with their tenant, a paying tenant is a better proposition than a vacant, non rent producing unit. You must engage with your landlord in a professional way as simply ignoring the situation will only make matters worse and enrage the already frustrated owner of your site.

When either handling a pay or quit, an unlawful detainer action or even thinking it may be time to attempt to renegotiate with your landlord, you must remember that as a paying tenant, despite your reservations, you certainly have leverage. You should offer a value proposition that makes sense, with financial payments you can meet in a timely fashion and that work both in the short and long term plans.

In all instances, we suggest the landlord be treated as a partner and where available, make modifications to the lease and rental amounts to provide for a base plus gross volume percentage. This would allow, in some instances, for an immediate reduction in the base but also provide the landlord with additional revenue potential based on the expectation that business will grow and ultimately, get back to its pre-recession top line revenues. This will only happen, however, when you can provide absolute data on your business and demonstrate its ability to provide the landlord with this upside.

We have clients where their landlords have offered rent reductions without it being offset into a loan for payback in the future, whilst others have required the operator to personally guarantee the value of the offset. Arguably this creates an unfair obligation and high level of personal exposure for the tenant, however in circumstances where the rent must be reduced to secure the future of the business, operators have to make tough decisions and compromise in areas they would typically consider off limits if they want a second chance on an existing rental contract.

When proposing a change to a landlord, it must be just that – a proposal. It cannot be neither theoretical or hypothetical nor can it be a napkin with some ideas scribbled on it. The operator is pitching his or her landlord to not only receive a reduced rent but also to have faith in the future of the business: This is a lot to ask. This pressure forces an operator to treat their business as a business and create the required cash flow statements and forecasts, to define a cash model that shows a number of different options to the landlord for them to be made whole and exactly how the tenant expects to realize that. You are pitching to your landlord and should make every possible effort to do so in the most professional way.

If your P&L shows a monthly loss, presenting a landlord with a burden you cannot meet and which you are likely to breach is much the same as saying you intend to breach it. You are not being honest and the landlord will spot this and have no faith in what you are proposing. On the assumption that the model will be redefined and the unit is either moving to, trending towards or is profitable, step one has been completed. A practical landlord has less reason to remove a profitable tenant if an equitable deal can be made and a clear path to get there can be defined.

With the P&L showing or trending towards profitability and the creation of cash flow allocations, forecasts and debt amortization tables, you should now be able to show your ability to manage the historic debt obligations you have and the shelf life on those. For most facilities, the P&L is not the problem – rather it is the cash flow that provides the greatest challenge. The ability (or lack thereof) to service the debt with the profits or available cash flow the unit generates is typically the biggest issue in turnaround business plans. This is immediately exasperated by the issuance of a landlord Pay or Quit notice, as lenders will now not be willing to lend money in such an unsettling environment.

This requirement to have a demonstrable business case also ties in to one of the important operational aspects of a business. You must understand your numbers and you cash flow because what it all comes down to is understanding your data and using the information the data provides to drive your business decisions. If you are running a business where you cannot see, down to minute detail, everything from your stock levels to your net margin on dishes served, then you are then running a business that is not worthy of a landlord workout. This financial information and the ability to scrutinize it is one of the keys to restoring profitability.

For our clients and now hopefully for you, with the creation and utilization of rolling cash flow forecasts showing your ability to manage your obligations, you are now able to create a number of options for your landlord or for that matter, any creditor. You can demonstrate with authority and confidence exactly how you intend to pay debts based on what you realistically earn and can pay. Every creditor would prefer to know what you can pay and will pay regularly rather than what you would like to pay but may not be able to with regularity. The intent to breach a deal or regular breaches of financial commitments made only compounds and exacerbates the problem and the relationship – and creates difficulty trying to structure a new deal.

In proposing to a landlord that an adjustment to the rent structure can be viable, it is important and crucial that the immediate recent cash flow shows that whatever is proposed can actually work now, not based on hypothetical projections of increased revenue.

It is also important to note that as a tenant, you should not be trying to salvage the situation if you are not confident that through renewed efforts and a workable landlord you can increase sales and improve the bottom line. This cannot be about working out a deal just to survive because that alone will certainly not incentivize the landlord to renegotiate.

While there are many different interpretations and variations, there are essentially two options for a reworked lease, “less now, more later” or “base plus gross percentage”.

The “less now, more later” option asks for the landlord to decrease the monthly rent in the short term but increasing the rent in the medium to long term. Less cash is therefore required ‘now’ when the business is in trouble but when it is thriving once again, the landlord can claw back rent lost in earlier years with higher income. This option provides for a set increase and is a less riskier option for the landlord but also negates any large reward for the landlords renewed faith and risk.

The “base plus gross percentage” model lets the landlord accept a lower base rental amount but participate in a percentage of gross revenue (important to note that this is always gross and not net revenue).  There are essentially two different types of percentage rent, the most common being based on receiving a percentage of sales benchmarked against a particular target (eg, $2k base and 6% of gross revenue over $500k). The other practical option is a percentage of total revenue but guaranteed with a base amount (eg, 3% of gross sales, base of $3k).  This is riskier for the landlord but has the attraction of a much more lucrative upside.

In some instances, however, the landlord is no longer willing to wait for rent or strike a deal and under those circumstances, a pay or quit is served. For many struggling venues, this is the final nail in the coffin and as if it could not get any worse, they now have to retain an attorney and use the few pennies left in the bank for legal service rather than operational or debt service.

In our experience, however, this onerous and unpleasant process provides a number of theoretical upside opportunities for both the landlord and tenant. If the process is managed appropriately, it can equally be a fresh start for the business as the decision makers are finally forced to make tough decisions that have likely been put off (perhaps in the hope they will disappear).

Upon being served, now knowing the landlord is willing to go ‘all the way’, the first step is to ask for an extension. This gives you all time to arrange to meet for a frank and open discussion (presuming the option is there) and with everyone’s chips on the table, it allows a thorough discussion as to whether there is a deal to be done. Whilst it is common to believe the landlord is in the driving seat, this is not always the case. If your financial modeling proves your ability as a tenant, the landlord is not looking for a vacant unit and financial exposure for the sake of it and would likely rather not restart the process of finding a new tenant. Equally, if no deal is to be found, you will have sufficient time to contemplate your legal position and take advice as opposed to making a rushed and insufficiently thought out decision.

This article is not about defenses to an unlawful detainer in an effort to find the landlord at fault with a defective service nor is this a step by step guide to the legal options available when responding (answer, demurrer or motion to quash) to such a motion. Furthermore, this is also not an article seeking to find potential covenant breach or retaliatory evictions. There are hundreds of options to drag out, extend and respond to a UD that your counsel can advise on. This is about the options or remedies that you may wish to explore if your concept is viable and you can “make it work” both on paper and in practical terms. This is about turning around your business and dealing with the issue of burdensome rent whilst also nursing your unit back to full health.

Understanding what has to happen and the legal strategy your business should take is unique to each situation. In some instances, the balance outstanding along with other debts may make a bankruptcy with intention of assuming the lease a viable option. In other instances, performing an Assignment for the benefit of Creditors (ABC) with your landlord allowing the debt to rollover to the new entity might be a potential solution.

At other times, it is just a matter of legal defense and starting the process of ensuring your lease is upheld. As an operator your entire business is tied to the lease and whilst there may be some assets (FFE, Liquor license and other items) the only real asset is the lease.

For clients who have run into difficulty with their lease obligations based on year on year and month on month revenue decline, we have seen successful use of California’s “hardship defense”. The value of this defense is that the entire concept of an unlawful detainer is the landlord asking for vacation of the property as an equitable remedy, grounded in fairness. If the landlord is asking the Court to act fairly and return the property then the court must provide you, by default, with that same level of fairness.

If you are experiencing this month on month decline in your business after you entered into a commercial agreement with specific revenue expectations you have not been able to meet – and where you have not been able to meet those due to the economic climate – then this hardship defense has merit. You did not enter into the agreement on false premise nor did you seek to mislead the landlord in committing to pay this rental amount because as an operator, the business case seemed viable. In this climate where business owners are struggling to keep their doors open, the hardship defense is very relevant and one you should turn your attention to and, where relevant, discuss it with your attorney.

This legal process of eviction is terrifying because it does not deal with overdue collections and summary judgments: Instead, the entire business is at risk. Think laterally and contemplate how you can involve your landlord to your mutual benefit because both parties stand to gain from finding a solution in these circumstances.

Bringing in an experienced restaurant consultant can save money, find money and create money.

Restaurant consultants have long argued that the food and beverage industry is overdue a major adjustment. Relentless growth over the last five years has led to over saturation in the food and beverage sector. In a buoyant market, anyone and everyone can take advantage of sustained high per capita spend on dining out and cover over the cracks of a flawed business model.

In a tougher climate, however, the laws of the jungle apply: only the strongest will survive. Food and beverage businesses are suffering and restaurant consulting services can help to find and ‘fix’ those fundamental flaws these business had previously been able to ignore because customers were spending money. Whether it is poorly thought out concepts, unsustainable leases or a lack of financial control, the recent economic downturn has provided the much needed catalyst that the sector needed to clean up its act and it is restaurant consultants who can provide the experience a management team needs to guide them through these murky waters.

OnSite Consulting expects the economic downturn to enable operators with strong concepts, consumer orientated focus and back of house diligence to survive and prosper and force those who do not, to take a serious look at their business – or suffer the consequences. The economic reality is inescapable and whilst economic doom and gloom has been the flavor of the month for some time, the outlook can be positive with assistance from OnSite.

Arguably, a recessionary environment can provide a platform for innovation and economic growth through entrepreneurialism and creative thinking. This climate provides an opportunity for lateral thinkers and those with entrepreneurial flair to excel. For those operators, a restaurant consultant provides an independent view on how the business can improve – because there are always improvements to be made.

Conversely, those businesses with flawed models who are struggling for any number of reasons can benefit from a detailed review of every element of their business and troubleshooting – indeed their survival may depend on it. How can a struggling venue justify paying a restaurant consultant when cash is tight? We advise our clients, whatever position they find themselves in, to stand back and look at their restaurant from a fresh perspective. We emphasize the need to go back to basics and evaluate each and every revenue stream or cost center from the bottom up. Through this exercise of intense scrutiny, we know that almost all of our clients have the ability to improve or achieve profitability from existing revenues, without reckless and short term promotions that their cash flow cannot sustain, and safeguard the future of their business.

All too often, we see companies implementing strategies with a ’shoot from the hip‘ mentality, without thinking of the repercussions of those strategies. Quick fixes to get customers through the door with too good to be true offers do not solve long term cash flow problems. Whilst labor is always the biggest overhead, getting rid of good staff to the detriment of customer service is also a short term solution which tends to lead to medium term problems.

With experience in dealing with struggling and often insolvent businesses, we are able to provide an emergency review of a business. During a first phase, we can identify immediate cost savings and reduce pressure on a cash flow. Whilst this is critical, equally critical is phase two of our review which entails creating the foundations for that business to run efficiently when we leave.

When we meet potential clients, we discuss ways to save money: vendor negotiations, procurement and inventory systems, dynamic labor recommendations. All too often, these customers simply go back to their business, slash costs and expect the business to right itself. The trouble for such companies is that slashing costs is not the answer. It is one of many benefits our services provide to immediately relieve the pressure however it is the ability to maintain this change and tighten up procedures that is a consultant’s value.

When we cross the road, we are taught to ‘stop, look and listen’ before we do so. Fixing a business should carry the very same message.  OnSite avoids short-termist strategies and focuses on the fundamentals of the business; a bespoke review of profitability, efficiency and sustainability.

This market is providing restaurant operators with an opportunity to revisit their business and conduct an audit from the ground up, identifying wasteful cost centers and untapped revenue opportunities. A good consultant is someone who walks in the door with information, teaches it to the client and leaves that wisdom behind. An experienced consultant can also save money, find money and create money and it is these benefits that OnSite’s clients capture by bringing us on site.

The critical error we see in restaurants and hotels every day is the manager or owner running from small fire to small fire every day attempting to solve the obvious symptoms of a problem that arises. If an owner could stand back and recognize that identification and elimination of the root cause of a problem is actually the correct process then naturally the business becomes more efficient and the problems are eliminated. This situation seems so obvious but is so rarely implemented. Root Cause Analysis (RCA) is a Six Sigma method which forms part of continuous improvement and most importantly is best applied to restaurants due to the reactive nature of management and the net result is by default the decrease in problem recurrence. The Six Sigma RCA allows one to understand there is probably more than one root cause of a single problem and therefore more than one corrective action. It also defines the process to find/identify the root causes ranging from the “5 Whys” to the “Ishikawa Diagrams” all designed to find the right tool to find the root cause of a problem. Our application of RCA within our clients has had dramatic results almost instantly, moving past the theoretical problem solving and actually creating a turnkey restaurant with process driven problem solving and eventually the ability to predict probable failures.

The largest issue we found for application of Six Sigma to our restaurant clients was identifying and understanding the difference between the standard product based six sigma studies (manufacturing) and the service base, in general, the new issues in service arise based on 3 core differences:

Inseparability – The customer is involved in the actual production process, the service is delivered and consumed at the same time.
Perishability – Being intangible, the service cannot be stored.
Heterogeneity – difficulties in standardizing services every time for every customer.

The goal however, remains the same, reduce costs by eliminating defects.

This goal however, also created the recognition that six sigma alone does not suffice, because a restaurant does have a production line (manufacturing) as well as a service component which is where the importance of LEAN comes in and its execution alongside that of six sigma can truly yield the greatest results.

How do you get company wide acceptance of Six Sigma in a restaurant where there is an ignorance to the value of data, higher than national average attrition, lack of formal education in the restaurant/hospitality market and and a relative laissez-faire attitude to restaurant management. How does one effectuate a Lean strategy in a kitchen without having to train the staff or educate them on a concept they frankly have little interest in. The answer is turning to process based operation which provides limited opportunity for error already built in. This lack of opportunity for failure (defects) does prove that company wide acceptance of Six Sigma is in my opinion not required, and instead a process driven business is accepted and adhered to on a management and data collection level.

The focus of Lean is improving flow process of any product during its production, which in layman’s is the reduction of waste and the raised speed of the process. The concept of Lean that I find most applicable in the restaurant process, specifically the kitchen is Jidoka which essentially is about identification and eradication of any wrong points in the production line – both of which could be opportunities for the production of a bad product (defect). At the same time, the front of house (service component) is reliant on six sigma which focuses on removing variations in a process, running such processes in a streamlined manner and most importantly satisfaction of client requirements.

Trying to combine the assets of Lean and Six Sigma is an evolving process, as my education and knowledge increases the more I am able to convey to clients how the system works, the process and the expected results. Six sigma is based upon philosophy and lean is based upon techniques but technically Lean is part of the six sigma methodology.

For someone who is familiar with six sigma, would they not prefer to eat a restaurant or stay at a hotel where they know the principles have been implemented and by default would the restaurant or hotel facility not see a significant increase in both customer experience and bottom line from this process? The question is how to educate our clients on an unknown process that seems too corporate or too out of their league, or in many instances too unknown.

When I speak with clients about the need to use this methodology as the backbone of our consulting engagement, many turn off the second they hear the DPMO (defects per million opportunities) however when it is really defined as just driving toward a virtually defect free process the next question is always how. The key to a strong consulting project is being able to define a key metric (KPI) and use that as the baseline to judge success. Many people use NOI as the obvious benchmark, but the reality is that changes in the organization don’t have maximum effect on the bottom line overnight only projected and trending bottom line results. So perhaps there are other KPI that can be used which is where the DPMO is so vital.

In a new quick serve concept that is looking to test the feasibility of a specific product or cuisine the metric could be number of guests through a door per day and the average transaction achieved per guest. In this instance if the two metrics are in line with expectations, it means the product is viable and now a focus can be on improving the processes to achieve greater financial results – now a focus can be put on customer wait time, speed of food delivery and so forth, all covered by Lean (infinite queue assumptions) and will provide the modifications to the model to see the desired financial return. This is the backbone of Lean and Six Sigma.

In the example of Starbucks, per Pete Abilla’s fantastic series:

It seems that the majority of the effort in the Starbucks adoption of lean manufacturing principles is around increasing the quality of the coffee, more consistent taste outcomes, and on reducing the time it takes to make coffee and serve the customer.

Putting the brand identity issues and customer experience aside, modeling the Starbucks queue isn’t difficult, but can be a bit complicated because of one major reason: Product Complexity.

According to one source, there are at least 87,000 to 168,000 drink combination’s available at Starbucks. Now, if you’re into the combinatorial mathematics, this might be an interesting theoretical problem, but from the perspective of a customer and real life, that many options is neither good for business nor good for the customer.

(Read Pete’s whole series here: http://www.shmula.com/starbucks-why-lean-why-now/5639/)

Fast food is a perfect six sigma opportunity as Ms Ybanez-Delid refers to in her article on this very topic. The six sigma team would aim for the least wait time, for the acceptable temperature and for the time that food remains above that temperature. To achieve this, the team would most likely do the following:

1. To reduce wait times, additional personnel are put on duty at peak times. During these busy times, the function of order taker and cashier are separated from the function of order fulfillment (also improves order accuracy) and a second window used. Drink dispensers are located near the pickup window to reduce walk time. Customers are allowed to phone in or fax in orders.
2. To improve the accuracy of the orders, the order is repeated to the customers and confirmation requested. Some fast food chains have computer screens so that the customer both sees and hears the order being repeated. The order is confirmed again at the pickup window.
3. To insure that food remains hot until it arrives at the destination, changes have been made in the packaging. A simple aluminum foil wrapper helps to keep the heat in.
4. To improve the accuracy of change, the cashier pushes iconic buttons defining the content of the order and the machine calculates the cost plus any tax. The cashier enters the amount received and the machine
calculates the correct change.
5. As a control mechanism, timers are used to record customers wait times.

This all looks so simple. Actually, it is — and it is doable, if the company makes the process its system. In other words, if Six Sigma is the culture and Lean is the process, then it is achievable. The question now comes down to definition of quality product, what is the acceptable standard, especially among restaurant customers whose standards vary wildly, whose benchmarks for judgment differ and demands or modifications to the end product are a consistent part of the production line process?

Lean thinking tells us that quality is the extent to which goods or services meet or exceed customer expectations. Customer satisfaction should lead to repeat utilization of the service (recurring guests); so if ‘zero defects’ are the goals of manufacturing then ‘zero defection’ should be the sign of quality coming to a restaurant. Measuring these components can be a muddled and difficult feat, especially given the technological and financial limitations of many restaurants operating on slim margins.

Customer satisfaction is a multistage process where levels of satisfaction are multiplied as different facets of the service are exposed to the customer. These facets cover a broad range from ethical practices of the business to timely response to knowledgable staff etc. So for instance no matter how fresh and tasty a McDonald’s burger is, for a customer who has moral issues with the low wages of their employees, fulfillment will never be attained. The key notion is that different customers have different patterns of expectations for the components involved and so, is it possible to have zero customer defection? Not everyone likes the same things and thinks in the same way and thus the service provider must focus on the elements that will please the majority only.

Also as services are intangible, there are greater problems in the measurement of quality, as mentioned, what constitutes quality may be different for different individuals based on their perceptions and past experiences and thus what defines defect in services? Often this will be an obvious matter of simply delivering what is promised, yet in most cases reliance on customer feedback, complaints and measurement (YELP?!) will have to be used for awareness of issues. Six Sigma advocated the measurement of such variables as the only way to gain insight into service defects.

The final barrier to overcome is the need for data collection – this is the core component of Six Sigma that can be so difficult in the restaurant market. The Six Sigma methodology relies heavily on statistical analysis; most restaurants have minimal data and examination of their techniques, thus this may poise an initial hurdle. Over and above almost all owners have a fear of metrics and don’t connect their use to services. Breyfogle explains “They (services) don’t appreciate the importance of creating meaningful metrics that give insight into how their business processes perform over time. This can lead to fire fighting common cause variability as though they were special cause”. He argues that only the use of statistical control charts will enable services to focus on prevention rather than reacting to problems. Monitoring processes is the only way to progress from subjective hypothesizing of reasons of error to concrete data and this one of the main principles of Six Sigma.

In summary, the importance of Lean & Six Sigma in a restaurant or hotel can have incredible returns for the operator in building a stronger customer, increased efficiency and most importantly impact on the bottom line. As we continue our path to become Six Sigma champions, and continue our education this article is merely an opportunity for owners to recognize there is a standard that can be applied and that using the DMAIC (Define, Measure, Analyze, Improve & Control) project methodology is delivering real results to our clients bottom line that you should take notice and see how you to can start the process of learning this invaluable management tool.

Thank you to many of the experts and Six Sigma forum members who assisted us in translating and showing us how to best apply Six Sigma to an industry that has low adoption rates and in adding, correcting and making this document invaluable to our restaurant & hotel clients.

Restaurants rarely recover from not opening into profitability

For years I have witnessed restaurant owners open their doors intending on building a unit with healthy sales, with a solid business, an interesting product and a healthy cash flow – all at the expense of profit.  The common misconception seems to be that once open and with these cash flows, strong sales and a credible brand, the unit can be latterly “tuned” for profitability. Not so: Profitability should be a priority from day one.

The operator’s show us the glowing reviews, the positive customer feedback and the tremendous volume of business as proof that the concept must be economically viable and that the model just needs some tweaking.

Rarely do these businesses stay open long before their owner is mortgaging, selling assets or borrowing money to cover not only today’s debt but also the historic deficit that has been accumulating since the day the restaurant opened.

To those lenders, they hear the same story: “If capital can be secured, prices can be raised, payroll modified, operational efficiencies implemented and the restaurant can be brought into profitability – no problem”. To those unable to secure financing, the same attempt to correct the loss making is made albeit having to rely on the existing cash flow only.

Throughout this period, when the owner or operator knows that the venue needs ‘tweaking’, the experience suffers. Running at a loss means something needs to be compromised whether that be staff numbers or quality of the food or sequence of service – and the draws that arguably made your restaurant such a hot commodity start to fall away because a loss making restaurant is generally not a stable restaurant. Your business cannot survive or continue to be built on cash flow that is costing you more to generate than you receive. And that lack of cash infusion will eventually close your business.

This theory of fixing the venue once open seems to have merit at face value. A great venue has opened and is busy with customers: The hard part has been done and now paying attention to the economics seems a manageable next step.

The operator will be juggling dollars between payroll, cost of goods, advertising, fixed costs and in many instances, taxes. If it is costing you more than a dollar to make a dollar sheer logic dictates that there will not be enough cash in the bank to operate the business. Which again leads to that same conclusion – that the restaurant will have to close its doors quickly.

Unless the owner or operator is intending to fund the deficit on a consistent and long term basis, the only way to support the explosive growth of your restaurant and keep the doors open is to have that unit generate a profit, from every dollar earned. Furthermore, even with any extra cash reserves being used to support the venue, the lack of immediate focus on profitability means that the staff, management and others are acting oblivious to performance and commerciality from day one. Perhaps now it is clear that this is nonsensical and that profitability should always be at the top of the agenda.

The task of suddenly asking a workforce, never before judged on performance or profitability, to make this shift without impacting the customer experience is more than a challenge. The entire customer experience has been built on loss making practices. How can one then change the infrastructure and habits of the venue without changing the experience? One cannot.

We at OnSite can therefore only emphasize the importance of opening your unit with commercial principles from day one. Start with a profitable customer from day one, focus on efficiencies and profit maximization from day one. With the profits generated, invest those into your business for marketing, advertising and growth and creating an even better customer experience. Refine your margins, refine your operations, streamline your back of house but with these principles, you will be refining an already profitable model as opposed to fixing a model which operates with flawed economic foundations.

I am not suggesting that you focus only on profit at the expense of a customer. There is a fine line here and it requires providing your customers with value for money and a great experience – and in return for this you should receive not only revenue but profit. This is a business not a charity, so operate it as one with credible financial intentions.

Opening restaurant which is immediately loss making and with no clear plan as to how to reverse that immediately creates a sense of false security. Great cash flow, a busy restaurant and fantastic reviews give, as we have noted, a false impression. You are building a restaurant and a customer base that you will quickly have to disappoint. Consider this: your lack of detail on the cost of your stock, for example, may mean your customers are paying lower than market price for a meal you offer them. You may be undercharging because you are not clear how much that plate cost you.

Those customers may not be so loyal when the product or the price changes (when you realize you are not charging enough to create a viable restaurant). You have created a benchmark for your experience, service standard and product and any modification could drive such customers elsewhere. Again, this emphasizes that the ‘tweaking’ of your venue should take place before you open and not afterwards.

There is no value or point to opening a restaurant and charging your customers for an experience that loses you money. Once created it is difficult to change and often alienates your customer base. Employees benefit (salary), the landlord benefits (rent) and the vendors thrive (stock), but you’ve lost money.  This is clearly not the intention.

Busier restaurant, bigger losses. You may think you need more customers to meet the break-even point based on your existing business model so now you are turning your attention to driving revenue, turning tables and sheer volume. Unless you are a quick-serve, this will never work.

Your ability to juggle the increasing number of angry vendors calling daily takes a huge proportion of management time. However it may be that this feels manageable … until a major obstacle arises.

The “obstacle” is usually in the form of one bad weekend, a need for immediate cash for a marketing program, a sudden sales decline or a big bill that has finally become due. You will suddenly understand the need to work profitability into day one at this point. You cannot pay your ‘today bills’. The snowball effect from there can be dictated as the standard process of decline and is now too late to effectuate the change and now a cash infusion only solves yesterday but does not fix tomorrow.

With every dollar you make there are now three requirements; pay yesterday’s bills that have amassed from your time as an unprofitable restaurant, pay today’s bills and pay into growth for tomorrow’s revenues. How can you cover yesterday, cover today and build for tomorrow when you are waiting for tomorrow’s sales? The answer is simply that you can’t.

Now perhaps you will believe that grow first, profit second a recipe for failure. You must operate your business from day one with a focus on profit- irrespective of gross revenues. You must build your growth and your business on profit – not cash flow. This is not overzealous capitalism but merely sensible and practical business advice without which your restaurant will not survive.

How do Livebookings, Rezbook Eveve and all the competition actually gain market dominance? They dont, they are focusing on competing not controlling.

(SEE RELATED ARTICLE – OPENTABLE RESTAURANT RESERVATIONS : The Value & Cost)

OpenTable NASDAQ:OPEN is currently in the dominant position for three key reasons:

(1)    It was first to market with an ERB system that solved a fundamental restaurant problem; organization of reservations, management of customers and control of table inventory.

(2)    Restaurants then paid OpenTable a fee to take their own customer base away from them and then paid OpenTable a per reservation fee for the leasing back of its own customers for a meal.

(3)    With ownership of all restaurant customers Opentable could leverage the restaurants and direct customers through their own portal to fill off peak seats, drive increased traffic and have restaurants pay for the privilege of promoting their own restaurant to the customers it sold to Opentable.

As a restaurant consultant, not as an investment banker or a technologist it seems restaurants built the beast and are now too scared to move away from what in many instances is a money losing value proposition for fear of losing the customers. I am a fan of OpenTable and its technology, I have rolled out OT in hundreds of sites as when implemented correctly can drive revenues and provide additional patrons to fill empty seats, when the ERB is configured well it can be an effective component of a yield management strategy. Its promotions work, but much like Groupon the price of such success is in many instances an unprofitable customer. Unlike Groupon, however, which when converted into a recurring customer can become profitable; OpenTable never releases that customer or modifies its pricing schedule based on number of visits to a particular restaurant.

Used as part of a restaurant yield component strategy with a fight and strong technical expertise it can generate the results needed, it does not however come “out of the box” and requires constant monitoring, tweaking and auditing. However, the monthly bill for such a service is still very high to not constantly be exploring other options and looking to new solutions that can help our restaurant clients keep hold of their already low margins.

The trouble with an OpenTable customer is that aside from the conversions direct from a restaurants website, it is difficult to verify if a customer was seeking your specific restaurant or chose you because you had seats available, a strong promotion or because they wanted to try you out for the first time. For a restaurant owner, it is using the technology to identify the first time diners and convert them specifically into repeat customers. This is not to say more care should be given to a first time diner than a regular, it just means various strategies and internal promotions should be launched based on the customer to keep them loyal. This is more than just great food, great service, great experience – this is all that and then some – to take competition out of the equation.

Much like American Airlines, restaurants must be looking for new ways to bring their customers back into their own control but still take advantage of the traffic generation of the OpenTable portal.

As an “in the field” restaurant consultant, we sit on panels, advisory boards and focus groups asking us what our clients actually want, what are the fears and what would make a restaurant owner actually agree to what has been their reservations pipeline for the last x years. Our opinion is from the ground/customer up versus from the company down.

This piece is not an evaluation of all the differing technologies and their pros/cons – rezbook, livebookings, even RSViP and other technologies are not going to be able to come into a market and dominate with such power as OpenTable. In many instances they are replications of OpenTable with maybe some differing features and slightly different price plan – however certainly not enough to make the switch at this point, perhaps used in conjunction it is a viable value add but not a replacement. The big buzzword of these new offerings is “the restaurant gets to keep their customer” which is without question a great point. BUT, would i give up my 2000 customer database for an opportunity to reach 100,000?

Instead we have to consider which portals can drive the traffic and provide the API’s or other integration to restaurant websites and the various ERB systems. If such a cross platform existed, the restaurant would be paying for the ERB functionality but the lead, conversion, booking could come from any of the platforms on the market rather than one gatekeeper. The restaurant could then pay any lead source technically?

A conversation just a few days ago with Drew Palmer from RSViP discusses the state of the market and even considered that OpenTable in addition to their own reservations and portals could generate another stream of revenues by pushing customers into third party ERB systems. This would allow OpenTable to get into the multi-unit, resort, hotel ERB systems and widen their control of the reservation market.

Therefore the only question that is relevant when debating who can compete with OpenTable is not the ERB or other components; it’s who controls the traffic.

The technical although incorrect answer is that Yelp! is actually in the strongest position to be able to drive restaurant traffic (even though it makes up a fraction of the OpenTable affiliate reservations) because it is still the highest ranking restaurant review site in the US. The trouble is they don’t have the infrastructure or possibly the long term money to invest into this opportunity and therefore we are left with primarily only one real contender. Google. Why? Before people get to Yelp! – What portal are customers using to type in the restaurant name which then links them to Yelp!? Google. So technically Google owns Yelps! Pipeline. 2.5 million people each month search for Yelp! on Google, has the search bar replaced the browser bar!!

If one looks into the keyword ranking reports from Google, the number of searches for restaurant bookings, reservations, fine dining and all the variations Google technically has more combined query traffic than OpenTable. Secondly, it has almost 1 million monthly searches for the word “OpenTable” and variations, therefore it also owns a portion of the Opentable pipeline. Given that Google technically owns (to a certain extent) all the pipelines to all the review, reservations and search traffic they by default have the best opportunity.

If we combine this with Google’s ability to recognize the search traffic and direct customers accordingly (places/hotspots/gmail) Google could technically drive reservation, review or restaurant query searches to its own portal to allow for conversion into a reservation. Moreover and perhaps more importantly it could introduce all this at no cost to the restaurant or consumer because of the advertising revenue that can be integrated through their AdWords system.

Google would offer my restaurant clients their customers back, enhanced visibility through the places and other functions, and drive reservation traffic for free which could integrate into my email, website and every other component of my restaurant operations.

Recently, a great article by Erick Schonfeld on TechCrunch Search Is Google’s Castle, Everything Else Is A Moat talked about the fact that Google is willing to give everything away around its ad business to support its ad business. They have the infrastructure, they have the customers, they have the technology and they have the trust of consumers – and they could provide it free – that’s a value proposition i would buy into.

I might be wrong, but from my clients perspective, they would like their customers back and will get behind the contender that does that.

OnSite Consulting is a nationwide hospitality and consulting company. We provide our clients with the advice they need to create, reposition, reinvigorate or turnaround their businesses and their brands. We pride ourselves on delivering excellent results, leaving stable and improved businesses. We understand the need for results, for success; efficiently and expeditiously. www.onsiteconsulting.com

Restaurant Turnaround aka A Controlled Train Wreck

As restaurant consultants we see similar scenarios on a daily basis. You borrowed money from the bank, you took delivery of vendor products, you used employee’s time and services, you set up shop in your landlord’s building, you are using the utility company’s products and received money on behalf of the state. You are now legally obligated to pay for it all.

You have no defense except to plead poverty which holds no value unless you are intending on entering bankruptcy protection. You cannot pay for the goods, money and services you took and it is doubtful that there is any FFE (furniture, fixtures and equipment) that has not already been secured by one of the parties involved and owed funds.

Every third party company from whom you procure goods and services or for whom you collect monies on behalf of will have its own methods and processes for collecting what is owed and the level and scope of their enforcement practices will vary on a case by case basis. Bank accounts and payroll accounts liened for their entire balance, credit card monies held back, keepers and sheriffs collecting your daily receipts, foreclosure actions, ‘pay or quits’ and even an investigation into your own personal assets are some examples of enforcement policies you can expect in difficult circumstances.

This can be followed by multiple lawsuits, some with pre-judgement writ of attachments which allow seizure of your monies in advance of your court date. In many cases, we see owners and operators ignoring some of these writs and in these cases, the writes will automatically turn into judgments. Collections actions can move very quickly and once initiated, can spiral out of control almost immediately, as you continue to lose leverage, if not given proper and urgent attention.

The number of restaurants we have walked into that have a “lawsuit pile”, many of which owners have no intention of responding to and many with default judgments already in place, is startling. Quite possibly you are behind in your payroll and sales taxes – both of which have a trust tax element that you can be personally liable for – to add to the list of problems.

As a restaurant consulting firm that focuses on restaurant turnaround, we have our handbook, our contacts and our defenses which are based on a healthy mix of legal statute, experience and commercial savvy. For each debt, there is a specific plan to settle, offer in compromise or stipulate – but the ability to use such defenses is directly proportional to the time we are brought in and how long these challenges have been known. Bring us in early and we have much to share. Bring us in late when things are at their most critical point, and the options available to you will be dramatically reduced.

There is nothing we can tell you that could possibly prepare you for a turnaround workout – especially one with so many moving parts, so many legal challenges and so many areas that need urgent attention. The job is not a pretty or indeed a painless one – but it is one we are well versed in.

Half way through the turnaround you may feel like it is getting worse and no doubt this is because there are so many issues that have to be confronted head on. Burying your head in the sand is not an option any more if you want to save your venue. Unfortunately we have to address the issues that can no longer be ignored, make plans for the debts that are otherwise liable to foreclose and face every issue with strength. Equally, we bring a fresh pair of eyes and independence to assist in solving issues with third parties, whether or not they are bodies with whom we have an existing relationship.

We are not brought in to sugar coat difficult problems; we are brought in to ascertain how to fix them. As such, the key to facing this difficult ride is understanding that we are navigating an existing disaster with you and attempting to manage an already out of control vehicle. Clearly our turnaround services team is called in because your restaurant is not sufficiently profitable, if at all, which will have been the major cause of the problems.

This means that in addition to urgently managing the debt, we equally have to bring your restaurant into profitability so that we have positive cash flow to work with, buy time and gradually pay the historic liabilities – as well as ensure an infrastructure is in place for a successful future. We have to continue paying for today’s operational requirements and ensure the level and quality of service does not suffer – even when you are faced with a workforce who are not sure they will receive their paycheck and are therefore hard to motivate.

You will know, at times like these, that a train wreck is only moments away and all we are attempting to do is manage and control, advise and engage, direct and resolve. With all our planning, experience and contacts, the process is never easy: There is no magic wand to resolve issues of this nature. It is never pretty and is a difficult path for any operator to watch. We cannot turn everything around overnight, there will be more problems before there are less problems and they may, perhaps, be worse than those you are currently experiencing. You hired us just before or in the middle of that train wreck and at times, things get worse before they get better. We can contain the issue but stressful events can and will happen, so the key is being ready with a plan to handle these and move on. Swiftly.

A turnaround is one of the most brutal experiences a restaurant owner can be a part of. There are no guarantees of success and the challenges should never be underestimated; but through the pain and challenges the restaurant will emerge, over time, in an improved, profitable, stable and managed state with our help. Restaurant consultants performing turnarounds or workouts are the last line of defense. This is what we do, this is what we know and this is where we excel and this is why we have the client list we have and are referred into tenuous and tough situations nationwide.

We know the pressures, we know the problems and we know how to handle them. Taking in a consultant may feel like a leap of faith but in every area of life, one looks to experienced parties to guide us. This is what we know, this what we do and we will catch you when you fall.  Because we have the experience.

Opentable is a hardware/software/web solution for restaurant and diners to connect and make reservations via their portal. It connects diners to restaurants with open inventory and automatically places their reservation into the restaurants system whilst managing the host-stand operations.

The Opentable business/system should be looked at as brokers of restaurant inventory (open seats).

It should be noted that the success of the consumer model as a destination site requires the continued conversion of physical restaurants using the system. It is not a symbiotic relationship, the implementation of the technology into the restaurant, independent of the value to the restaurant, changes ownership of the customer to OpenTable. With growth and the volume of diners “owned” restaurants are to an extent forced to be part of the OT network.

Opentable business is split into five core components:

(1) Electronic Reservation Book (ERB)

The ERB is the software/hardware component leased to the restaurant that allows the fulfillment of a number of core functions:

(a)    Automatic identification and publication of open inventory and placement of guests through the online portal into such timeslots.

(b)   Replacement for pen/paper for telephone or on-premise reservations

(c)    Guest tracking, preference logging and basic CRM functionality (including limited e-mail campaigns)

(d)   Dynamic table management and organization system for host-stand operations.

The ERB was the first component that OT rolled out. Its quick adoption by the market was not initially based on the volume of diners (owned) but instead the easy to use host-stand solution that provide significantly greater functionality than pen/paper. The fact that online reservations could be made via the restaurant website 24/7 and such customers could be tracked was a benefit unto itself. The fact the operator could now quick glance and see basic yield on tables was a very strong value proposition. The original model had ad-hoc components at additional charges such as remote access so staff in an office could access the OT system without physically walking to the host stand.

(2) OPENTABLE.COM

OT.com, applications (apps) allow diners to visit the website and choose location, cuisine and price to identify available inventory and make an instant confirmed reservation. There is no calling the restaurant, checking availability and therefore the reservation process for the customer is instant.

(a)    Affiliate programs with YELP, Zagat, Google & Yahoo drive 10% of diner reservations to OT, the remaining are coming direct to OT.com or using an “app”

(b)   Customers are rewarded with points that translate into gift certs for booking through the website and extra points for booking restaurants that are part of a “promo” program.

(c)    Reviews, Experiences and Ratings are more qualified than other sites as OT users are qualified diners who have submitted a post dining review.

(3) OT Connect

This option is provided due to the need for OT recognizing their model had a critical mass of restaurants that could use the current system combined with restaurants who wanted access to the lead generation of the online portal but not needing the other functions.

It is most suited to restaurants with higher walk in traffic and therefore little need for inventory management or reservation systems although it has also been adopted by smaller restaurants where the value proposition of the full system does not make financial sense.

(4) Spotlight (Crowd Sourcing Coupon)

In summary, a groupon competitor except unlike groupon who spend an enormous budget offering “90% discounts in your city” through Google, OT already has the consumers, technology and deployment mechanisms.

Standard revenue share is almost identical to Groupon and of all the Groupon competitors OT had the greatest chance of success to actually beat Groupon in the crowdsourcing coupon market.

(a)    Existing customer database with preferences, spending habits, cuisine choices and most importantly emails of qualified diners. (No diner acquisition cost)

(b)   Already in place at restaurants nationwide with territory or sales managers with existing relationships to each restaurant so easier to get in the door.

(c)    Yelp which is an OT affiliate partner also launched.

OT missed the opportunity of using its existing on the ground sales team and infrastructure to offer a better value proposition for the restaurant and the customer. Instead they directly replicated the existing market, making them a competitor rather than the dominant force.

(5) Promo

Additional programs, revenue drivers and systems to increase the restaurant cost of OT and benefit the consumers.

a. Private Dining

Groups, people or coordinators looking to book events can use the private dining system to solicit quotes from multiple restaurants for their event and no cost with immediate responses. The restaurant pays a fee to be part of this program.

b. POP

For restaurant looking to drive traffic during low yield hours, POP is a program where diners receive extra points (which lead to gift certificates) and the restaurant is charged a higher fee $7.50 per diner received. The restaurant can choose hours for this slot to be active.

THE INCREMENTAL REVENUE MYTH

The numbers generated by OT in their quarterly reports are based 100% on estimates rather than real data. The cost of the reservation per seated diner at $1.25 is actually far greater when the cost of start up, monthly fees and other add ons are included.

Recent study showed that the cost of a four top brought through OT is $10.40. With margins of between 5-7% (national average) for restaurants, the table would have to spend $208.00 to breakeven including the OT fee.

If the restaurant also advertises in other media forms then that cost also has to be absorbed per customer turning it into a net customer loss.

The counter argument that OT brought you incremental revenue does not apply for two key reasons:
(a) If every restaurant is on OT its not incremental revenue anymore
(b) One cannot distinguish if the customer would have phoned you directly if OT did not exist

If the customer comes back the recurring visit also has value, unless they book again via OT!!

DINER OWNERSHIP

When a customer makes a reservation either through the website of the restaurant or OT.com that diner is then sent a confirmation email with all OT content, a thank you email post email with further content and is automatically added to the OT email database as well as the restaurant specific database. If the restaurant website is not developed to embed the OT code and instead just links to OT.com then the customer no longer needs to go via the restaurant to make the reservation and instead goes direct. The customer is now owned by OT and the restaurant is not paying a fee to lease that customer back.

Aside from recurring guest statistics, there is little way to differentiate between a customer who was browsing for available inventory on OT vs a customer that went to OT to book at a specific restaurant. Hence the flaw in restaurant operators of making an active effort to own customers and instead outsourcing, customers who embed OT in their own website are still able to see such differences and benefits of the solution at 75% less cost.

EXAMPLE: Hotels/Airlines when the large aggregators or portal sites became a large provider of traffic often paid little attention to their own online reservation systems and had justification based on the increase in traffic from the aggregator. As margins declined and the aggregators had more leverage based on the hotels/airlines giving them their customers we saw a swing back to the hotel/airline pushing for customers to reserve through their own portal. Some airlines/hotels in fact offered poorer service standards to aggregator purchased flights/stays to added benefits to guests that booked directly. Some have gone as far as to no longer use such systems and have invested significant dollars repurchasing their own customers.

OT is the gatekeeper to restaurant inventory

BAD OWNERSHIP

We have all walked into a restaurant that OT said had no reservations only to find it empty. This is purely a reflection of management that has not recognized or implemented their OT system correctly. Host-stand operations require management, tweaking and progress but for many who choose not to take advantage of the benefits OT quickly becomes a loss leader not recognized because the bill comes once a month with the monies automatically debited from the restaurant bank account.

Many operators who use OT but do not see the results or functionality expected often blame the product when in fact it is the operator who has failed to be educated on how to receive the maximum value from what is a large investment.

Examples also include restaurant owners who use the POP program even during peak periods, underutilization of the table inventory and poor planning.

The reason OT was so successful is based on the restaurant operators not looking closely at the value proposition or the long term consequences. Instead it seemed as though it was a competitive advantage to become part of OT and the cost was/is just another cost of doing business.

Operators routinely fail to perform KPI or other analysis on the systems or marketing being used for customer acquisition and often blame the technology or service provider.

FUTURE

There are a few key items one can assume are pipelined for OT based on new features in the software and the need to continue acquisition of dining establishments.

(1)    Version 9.0 included two features that stood out as different to other versions. The first time we have seen KPI being integrated into the software.

a.       Average Table Turn Times – Allows for the system to republish the inventory after a table is seated based on the average duration of a guest. (Throughput KPI)

b.      Table-crowding – Allows for the restaurant to combine three “2-tops” into a table for 6 automatically based on the restaurants ability to shift/move inventory.

c.       POS integration – ability to tie in the Point of Sale for diner check averages, ticket times, and expediting table turns.

(2)    The move into multi-unit / resort properties to allow reservations to be central for a larger chain is a natural progression of this technology but requires greater integration with the POS and greater reporting ability on a corporate level.

(3)    Attrition of restaurants from OT to others is incredibly low, there is no other gatekeeper that can provide the same number of reservations and features of the system. In its current form, operators can only leave OT because the cost of acquisition is too high that the operator would rather take the risk of less reservations and a low margin than greater reservations and an even lower margin. Even then, it is still difficult to leave because now customers cannot find the restaurant and it is no longer in the running for diners evaluating a number of options.

“What are the actual economics of using OpenTable? First and most importantly, the restaurant pays all the fees.  Diners not only don’t pay any fees directly, they earn rewards for showing loyalty to OpenTable.  This is the crux – and brilliance – of OpenTable’s business model: OpenTable has convinced restaurants to pay it substantial fees while it takes the customer relationship out of the hands of the restaurant and places control into OpenTable’s hands.   Then, after having lent their names to the service, enabled OpenTable to attract online diners, and funded the construction of a powerful database of customers loyal to OpenTable, restaurants find that they themselves no longer own the customer relationship.  Restaurants that want continued access to those diners now have to pay OpenTable for the privilege.  This may be at the core of why many restaurateurs quietly resent OpenTable.”

AFFILIATE PROGRAM

http://www.opentable.com/info/affiliates.aspx

Revenue share when 100 conversions occur per month but is now CLOSED

Existing affiliates include Zagat, Yelp & Google for major traffic and hundreds of other smaller sites.

Only accounts for 10% of converted diners.

COMPETITION

Online:

DinnerBroker.com, Foodline.com, Ireserve.com, iSeatz.com, and RestaurantRow.com

RezBook – affiliate network has over 100 million page views monthly (citysearch, urbanspoon and villagevoice etc). Runs on iphone/ipad and has a few benefits:

(a)    No fees for reservations made through the restaurant website

(b)   No leased hardware requirement

(c)    Can work with/without OpenTable (separate hardware requirement)

(d)   Daily promo deals/specials to attract the deciding customer

Although It looks cooler, seems more functional and serves almost better than OT, it is not the accepted standard and therefore diners are still looking to go through the system that they have already adopted as there is no difference on the consumer end to the process. (OT consumers get the points) Many restaurants are adding Rezbook in addition to OT, but rarely as the only option as it does not have the infrastructure yet.

Offline:

RSViP – the mostly widely used software by chains, hotels and larger properties based on very strong reporting and analysis, multi-restaurant management and stronger wait-time technologies. Integration into a host-stand front end (PROHOST) ProHost was acquired by Opentable in 2001, it can be expected that OT will build on this base into the corporate market in 2012

Others with limited offerings: iMagic, e-restaurant – both provide very simple inventory management, no online integration and poor performance.

Reserve Interactive – originally a special events/banquet software CRM have deployed a restaurant management system with integration into POS systems, a cheaper model and strong yield management technologies.

When a restaurant concept is seeking to grow and therefore implement not only SOP’s (Standard Operating Procedures) but also ensure consistency of a product independent of geographic location or ownership involvement there becomes an immediate need to convert everything onto paper.

The creation of the recipe book and menu bible is split into two components – I use egg salad sandwich through as an easy example that can be related to independent of expertise:

(1) The creation of the core recipes and products that are part of a complete dish
The egg salad is a recipe, which may have sub recipes for unique or proprietary components)
(2) The culmination of the various recipes to execute and complete a dish
The egg salad sandwich, together with the side salad and garnish is the end result a customer sees

The process of creating a recipe book and menu bible requires a number of conditions or steps to have been completed prior to execution. Therefore many restaurants do not have the capacity, knowledge, experience or perhaps technology to even complete such steps; therefore stalling an absolute requirement for turnkey restaurant operations.

The process of creating a recipe book and menu bible, in itself can expose flaws, inefficiencies, waste and problems in the ordering, production and creation schedules. Thus this exercise provides greater value than just a 300 page laminated book at the end. The large chains and national restaurants find profits in operating a lean and efficient model, this bible creation is one of the core components to being able to benefit from this in your restaurant environment.

To start the process, you are required to have completed the following steps:

(1) Identification of every unique recipe used in your restaurant
Egg Salad
(2) Identification of every unique plate/dish in your restaurant
Egg Salad Sandwich
(3) Assignment of a PLU (Product Look Up) or other similar unique identifier
Use of products such as ChefTec enable this process to be done in an automated manner
(4) The ingredients including measurement of each recipe identified in (1)
The raw ingredients to create an egg salad (2oz Mayo, 4 Hard Boiled Eggs) In many instances the egg salad would be created in bulk but still requires identification of the measurements.
(5) The items including measurement of each plate/dish identified in (2)
2 slices of sourdough bread, 3.5oz egg salad, 3 leaves butter lettuce

One has to be concerned if such items do not already exist in your restaurant. How else can accurate plate costing be completed if your dish ingredients are not spelled out, even in an excel spreadsheet somewhere. How else can you determine your par/yield (product ordered vs product used) is being maximized or even wasted/stolen without having a definition of your product ingredients in each dish.

The creation of a menu bible not only spells out and details all of the above, it now creates a standard by which you can judge and evaluate kitchen management and staff. If the exact weight of a product is defined for a final dish, and weight by eyeball is removed, you will by default see a benefit to your bottom line and lower cost of goods. Part of the process towards growing a brand is removing assumptions from the table and dictating clearly every aspect of your restaurant operations. The bible is just a single component of creating this turnkey and automated system that leaves nothing to chance and more important removes decision making and opportunity for error from staff members.

If a busser in a restaurant is required upon arrival to move boxes, turn on some lights, clean some things, organize some areas, move inventory and 200 other bits’n'pieces dictated by eyeball of “what needs to be done”. There is an obvious opportunity or margin for error and potential critical requirements not completed. If such busboy comes in and has 12 set tasks that are repeated day in and day out according to a structure and list procedure, the risk of error is by default mitigated. Real profits from restaurant employees comes from repetition of clearly defined tasks not ad-hoc what should I be doing. This same applies to the creation of all dishes in your kitchen and ensures consistency of your product and definition of kitchen requirements.

With the above five components completed and more importantly accurate and verified, one can now start the next stage of the recipe book. This is defining whether the recipe ingredients, weight/measurements and portion sizes in the current state are correct or whether modification needs to be made to increase or decrease the size of the portion. This step is critical because the recipe book and menu bible are supposed to be steps for perfect replication of a perfect dish. Therefore it is key to perfect the dish, and for a restaurant undertaking this process for the first time, there will be changes or tweaks based on going through the process.

The next step is the completion of a template document that you can use to standardize the look, feel and organization of each item. There is an inherent need for epic organization throughout this process as each recipe and dish has its own unique file – that’s a lot of word documents to save on the desktop! We created technology to database, organize and input data in a more streamlined fashion, however prior to this, we completed this task manually and the need to organize and track cannot be understated.

The template document must have the following components:
(1) PLU or Unique Identifier
(2) Item Name
(3) Item Description
(4) Item Ingredients (to include weight or measurements)
(5) Related Item / Related Recipe Identifier
(6) Written Steps of creation or preparation
(7) Photographic Steps of creation or preparation
(8) Time Stamp expectation for completed steps and final product
(9) Double Validation to the accuracy of the final recipe and preparation document
(10) Sign off on the final product by OnSite Consulting with assurance of accuracy
(11) — Version Number –

Here is a sample template you can use (OSC.RECIPETEMPLATE.61.pdf)

Now the labor intensive task of going through each recipe and product identified and going through the steps to complete it must be written down, photographed, times and measured. Twice for quality assurance.

This final document is laminated, placed in a binder and rolled out to any other units as the standard for your restaurant kitchen operations. More recently companies have also chosen to have this data available via a company intranet to allow remote locations to view any updates and to assist in e-learning or training of new staff.

The group buying model is unstoppable however beware: it is unsustainable for struggling restaurants with cash flow challenges

The fact that fine dining and celebrity restaurants have joined the “crowd sourcing coupon” game has now encouraged every other restaurant who thought a coupon program could damage their brand to jump on the coupon bandwagon as well. If Gordon Ramsey is offering it then surely you should be to?

Groupon, InBundles, VillageVines, BlackboardEats, Dealon, Yelp, American Express (NYSE: AXP), Opentable (NasdaqGM: OPEN), Zagat, Gilt Group and all the other coupons and offers on the market have never been so popular but what are the implications for restaurants?

I like these coupons. I like the concept, I like the discounts, I like the technology based platform to share it and I think it has merit for many restaurateurs. I have also recommended them to many of my clients. When applied correctly they can drive traffic, they can drive repeat business and they can kick start a new promotion and get a previously unknown restaurant’s name ‘out there’. Businesses signing up to the process find it to be quick and efficient and most importantly, the check arrives the day they say it will.

The coupon discount system is nothing new: It has existed for decades in the form of periodic (time limited) discounts, two for one offers and such, to attract customers during off peak and/or low yield hours of operation. The happy hour is a great example of this concept, attracting pre dinner traffic with a discount on drinks or food. This works because the operator can target a specific window of time for the offer to be valid thereby ensuring that these “discount” customers are not replacing the full paying dinner customer.

As restaurant consultants, we recognize the extraordinary marketing and footfall that these coupons can create. However, we also recognize that many in the restaurant industry are suffering in this economic climate. For those restaurants currently suffering and with significant cash flow challenges, these coupons must be used with caution. This article deals with the risks for restaurants in trouble, operating on a week to week basis with limited if any profits – for restaurants fighting to stay open where one bad week could collapse their operations, they must use coupons with caution.

Financially stable restaurants are in a position to market themselves with coupon offers because they know the coupon customer may visit again, whether that be next month or in three month’s time. The Groupon deal, for example, offers a customer a $50 coupon/gift certificate for $25. In these cases, the restaurant only receives 50% of that $25, minus the administrative costs tagged on (such as credit card processing fees). This leaves restaurants with circa $11 of gross income per $50 worth of credit in their restaurant. If 3,000 coupons are sold providing customers with a retail coupon for $50 worth of spend, that equates to $150,000 of goods the restaurant must provide (albeit their menu will carry a margin) for which they will only receive $33,000). One must therefore be acutely aware of the cost of customer aquistion in this scenario.

There is indeed an opportunity for restaurants here, that being finding the incremental revenue opportunity that coupon guests bring and being able to turn the apparent net loss of doing a coupon offer into a net gain: Recognizing that every dollar spent above your retail coupon amount can counter the net loss of the discount and one hopes, ultimately create a profit. This incremental spending above the retail value of the coupon includes income from the bar, for example, where customers wait to be seated before he or she eats or after dinner entertainment when customers stay after their meal.

The crowd sourcing sales pitch of these coupon companies makes sense. Andrew Mason, CEO of Groupon, expressed that the purpose of their coupons are to get non-customers off their couch and into your restaurant and suggested that there has to be a cost associated with this. It will drive new traffic as they tell you to look at it as a marketing expense because you have the opportunity to ‘display your wares’ to the customer. The pitch says that this turns them into repeat customers and at a much lower conversion cost than alternative advertising. Given that you are only potentially bearing a cost for each coupon sold, you are not incurring any costs for non customers as would be the case if you advertise in a magazine or newspaper. This is undoubtedly targeted marketing.

But what of the restaurant in trouble who believe that increased footfall means a surge in cash flow. Is this the answer in these cases? A stable restaurant can handle this strain on their cash flow. A financially unstable restaurant simply cannot. Whilst the coupon customers bring with them a short term cash flow boost, unless you are breaking even or making a profit with each and every coupon you sell, you are in fact merely delaying the inevitable. You will be worse off.

As a restauranteur trying to turn around your venue, you must remember to focus on profitable customers rather than growth without regard to financial impact. RevPASH (revenue per available seat hour) will likely plummet when your venue is crowded with discount customer. Ask yourself how this can help. Remember the old adage ‘sales is vanity, profit is sanity’? That certainly applies here. For restaurants operating with a slim margin, financial liabilities and a relatively inflexible fixed cost base, the anytime coupon is a difficult value proposition. Proceed with caution.

According to their website, the majority of Groupon customers are 18-34 year old single females with a bachelor’s degree and an income exceeding $100k. This seems an ideal demographic for any restaurant owner; however it transpires, from experience, that demographics are not necessarily relevant. In many cases customers are deal hunters; moving from venue to venue with no regard to loyalty and arguably limited intentions to purchase additional items which ensure the offer is profitable for that restaurant. They walk in with a coupon worth $50 and that’s exactly how much they spend.

Furthermore, whilst Groupon allows restaurants to impose a number of limitations on coupon use, customers often attempt to circumvent these. Whether this is complaining about the restrictions or negative commentary on social media, your restaurant may now be under attack. Again, this is arguably the risk and the cost of a coupon marketing exercise which many restaurants chose to embrace because it works for them. However that risk – those loss leading deal hunters who may or may not return to your restaurant – are not the solution to your cash flow issues. Yes, coupons can drive increased traffic through your door. However, if you are a restaurant experiencing financial difficulties – whether that be construction loans or sales tax delinquencies – think again.

There is another often ignored downside for the restaurant ‘in trouble’. With the issue of a coupon, comes a sudden and significant increase in traffic. Do not underestimate how many people will come through your door in the days following your campaign. Your restaurant now has to operate with the same standard of service which requires more staff to handle this load. Notwithstanding the potential loss you are incurring having sold a $50 coupon for $11, you may now find that your operational costs have increased – again with no benefit to you. Arguably, in fact, this adds to the loss leader that the coupon imposes. For how long can you operate with this increased burden in addition to the slim margins which characterize the restaurant sector and in a troubled venue?

The coupon market continues to evolve. Opentable’s recent launch into the coupon market has the potential to finally offer restaurants in all stages of financial stability, consumers and their own business with a fair value proposition. Opentable already manages restaurant reservations for millions of consumers nationally. This means that they have a huge database of restaurant diners including each diner’s cuisine and price point preferences. By marketing to them directly, a restaurant is potentially able to attract a more appropriate and discerning customer. Common sense dictates that the Opentable customer is a more attractive one than the Groupon customer who clicked on a banner ad touting extreme discounts and is simply looking for a bargain.

Additionally, Opentable has an existing reservation system and technology platform already installed in many restaurants which could offer more targeted and customized coupons with designated time slots or limitations on use of coupons per meal time or day. Arguably, Opentable has the capacity to dominate the coupon market because their coupons can ultimately send your restaurant exactly the guest you want to target as opposed to any consumer looking to eat out (which includes the bargain hunter).

Should you offer these deals at your restaurant? The answer depends on how you approach their use and whether you have taken the time to run the numbers in detail and work out what you should be offering and how – as opposed to only having your eye on a cash flow spike.

The onus is on you as an operator to make it work. You can only thank a coupon company for giving you 5,000 new customers however if you yourself have agreed to an unfair deal, a very low margin deal or a no margin deal and your restaurant is at risk, in the near term, of insolvency – then use coupons at your peril.  It’s a marketing strategy in its infancy. Meantime, restaurant should use them, but use them wisely.

The low barriers for entry cause all parties involved to ignore the obvious: It only lasts two minutes.

Penguins, Pinkberry and a hundred other copycats: These and countless other frozen yogurt stores go in and, all too often, out of fashion cyclically. At first glance, they are a very attractive business model both for property owners and for operators. The licensing cost of opening and required equipment is inexpensive; one can build out and open a store in very little time and at a relatively low cost compared to a more traditional food and beverage option.

They fill spaces for developers in strip malls to drive traffic and occupy spaces where property owners will frequently offershort-term leases. They bring footfall and fun and the aura of a craze, which these brands often are. They can enliven a once-vacant spot – a seemingly win-win for everyone involved.

In some scenarios, a “free market” void of entrance barriers for new participants creates an environment where competition flourishes. But arguably this is not the case with the frozen yogurt market.

Frozen yogurt businesses are not always built with sustainable strategies. They can lack the necessary depth of business ideas to ensure their life cycle extends beyond the ‘craze’ stage. They rarely have an abundance of value-add options to increase the dollar spend per customer and transactions. Still, some might argue that this concern is mitigated by the throughput of customers and lack of required preparation or direct cost per customer.

Instead, the cannibalism that occurs in the market creates a “house of cards” syndrome that eventually catches up with the company. Historically, this almost always causes a restructuring and closing of locations. While this is not singularly epidemic of these concepts, it is exasperated by the furious proliferation of locations every time there is a new success story.

It often is said that the lower the barriers to entry, the more unstable the business – anyone and everyone can ‘join the party’ without having much insight into licensing, fundraising or build-out problems. By default, frozen yogurt is just that: A market that is too easy to enter and as such, is ripe for short-term mass growth, leading to over saturation and eventual failure.

As these concept stores can be opened quickly. There are often ten units underway and in construction before the saturation level of the market – or success of a company’s second location – has had time to be determined. If you were to scale back each of the markets locations to, perhaps, two or three each, they likely would experience tremendous success for years.

Another significant problem that is all too often ignored, specifically with the frozen yogurt concepts: An entire business is opened around a product that has a two-minute shelf life. It cannot travel, it cannot be re-frozen and, more often than not, the selling locations have little or no seating (the physical spaces are designed to get customers in and out quickly, providing no opportunity for customers to enjoy the product without going elsewhere). So this formula can work well in areas that are pedestrian-friendly, have public seating, etc. but not so well in locations lacking these amenities.

Since the simple economics of the concept do not allow for sizable quantities of “dine-in” consumers, these businesses must be driven by foot traffic. This means parking is less important than the consistent footfall of consumers passing by during business hours.  Arguably, there are only so many locations in so many cities where these circumstances exist. This makes models of this nature harder to expand into multiple units meaning that, while there is a place in the market for these frozen yogurt concept types, they cannot succeed at a growth rate comparable to venues with more complex food and drink offerings.

With all that said, the goal for these concepts is not to avoid saturation in the market – you cannot control who else is going to open up a location near you. Rather the more appropriate strategy is to find a location that mitigates the risk of cannibalism. Ways to achieve this include searching out a location in a pedestrian-heavy neighborhood which, by sheer lack of available locations, prevents the possible opening of two or three similar concepts nearby. Also, finding a site in an entertainment complex that contractually will not allow other similar concepts to open delivers a captive audience while managing the risk of competition.

The problem in this, for most frozen yogurt businesses, is an inability to pay the high rents associated with these success-driving locations. This means prospective business owners must diligently seek out locations where the economics make as much sense as the location, giving them a better opportunity to create a viable businessbeyond the “opening buzz”. A compromise here of even a few percentage points can be the swing between success and failure.

Frozen yogurt concepts are a niche market. Allow this knowledge to factor prominently throughout the decision-making process – from the location search to the grand opening. Keep in mind that whilst these concepts easily can be opened in virtually any location they most definitely should not be. If you are looking at a concept of this sort, learn from your predecessors and recognize that it would be difficult – arguably impossible – to create a mega multi unit chain in this sector. Chose carefully, chose wisely.

OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com

The next big ‘thing’ is more often than not an old fashioned and tried and tested ‘thing’ with a shiny new layer of gloss and some lessons learnt thrown in to the pot. The same applies in management and in my view, the coming business year will see a greater focus on employee incentivisation, specifically how giving executives and/or employees some sort of shares in a company can be the key to unlocking your business’s potential. What greater way to motivate each and every staff member than by giving them all a little piece of the pie?

Employees share option schemes (ESOPs), pension plans (such as the USA’s 401k) or Enterprise Management Incentive Schemes (UK) are common in publicly traded companies across the globe. Share price data is publicly available information and those shares are therefore tangible and easy to buy and sell. Equivalent schemes in private companies are less widespread however a practical program for the business with a notional trading platform and ‘shares’ for staff is certainly implementable.

The economic challenges we are all facing compound the view that current incentives are inappropriate and can lead to problems triggered by a lack of short, medium or long term accountability for corporate decision making. Bonuses are generated by short term deliverables which may not be in the best interest of the company and a logical replacement to this practice is a more long term, golden handcuff arrangement. Share schemes are a safe and fair way to motivate staff whilst ensuring their goals are entirely aligned with those of the whole company.

The USA has typically led the way for such private share schemes, typically known as phantom stock options or stock appreciation rights (SARs). One of the founding fathers of such practice was UPS, founded in 1907. Until its listing on the stock exchange in 1999, the company was broadly owned by non management, management and supervisory personnel – a practice established by Jim Casey in the 1920s when he gave staff the opportunity to purchase company shares. UPS regularly ran a stock purchasing program before the IPO where staff could trade shares. In January 1997 the price was set at $29.25 and by March 1999 it had risen to $47.

In November 1999, the Company offered 10% of its stock to the public for the first time and on the first day of trading, the stock closed at $67.25. Not only did employees benefit until 1999 with the phantom scheme but with the IPO, they had a second and larger windfall with an even more liquid platform on which they could trade their shares. Hard work and loyalty were repaid twice over.

Why should you offer shares to your staff? It motivates employees, improves firm performance, fosters innovation and promotes sound financial health. It promotes staff loyalty and attracts and retains a high caliber of staff who want to have a vested interest in their future. To give staff the status of part owner of a business is a very powerful motivator.

There is of course a cost in implementing such schemes because you will undoubtedly need advice from specialists. There are accounting and tax issues at play here and it is critical to ensure that the framework you build takes into account local tax issues, accounting implications for your balance sheet and other miscellaneous issues such as ensuring that you allocate enough stock to a trust so that future employees can benefit, ensuring the vesting period is appropriate. Yes they cost money but perhaps the money spent on rolling one of these out would be made back, and several times over, by an all round improved performance by staff.

OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com

On a daily basis we are required to explain to clients what we mean when we say that ‘a customer does all the work’ in a restaurant, not the operator. Whilst the concept is initially indigestible for an operator, it is nevertheless true. The customer does all the work.

The majority of our customers have focused time and effort contemplating everything BUT the customer. Handling and managing vendors, payroll, human resources and all the miscellaneous tasks that need to get done by someone running a hospitality venue. If these areas are either outsourced or run efficiently, the venues would see an immediate and dramatic increase in revenue – because they would have time to think about the key driver of their business: The customer.

As a restaurateur, you can only expect to get out (receive) what you put in and it all comes back to rewarding the customer for the work they do in arriving at your restaurant. Still puzzled?

When a customer decides they want to eat out there are hundreds if not thousands of different dining options that they can choose from. They made the decision to choose you. They are the ones who have to spend on gas and parking to get to your doorstep and they are the ones who chose to take a break from working (making money) or spending time with other family or friends to eat at your restaurant. They are the ones who took the time to rally the troops and make a reservation.

Once they are in the door, they are taking a risk with their family, friends, business associates or date: They are hoping that this experience and food will be a great one and will be worth both the money they will have to spend and the time. Additionally, the central customer is hoping that the choice of restaurant reflects well on him or her and as opposed to the embarrassment of having made a poor decision. A restaurant, meanwhile, has no risk. A customer walking in is simply an opportunity for them to provide the customer with the experience they deserve which will bring repeat business and/or recommendations to friends or online portals.

The customer is taking all the risk and can end up bearing the brunt of the restaurants mistakes, whether it be disappointment in the service, food, staff, wait times or overall experience. Every time a customer dines out, it is a lottery for the customer.  The price vs. value and the eventual opinion on the venue is not just about food but also experience.

Once they have left your establishment they continue the marketing of your restaurant through reviews on online review portals, sharing opinions with acquaintances and most importantly keeping it in the social arena – being talked about, for good reason, is the critical to keeping a restaurant popular.

This can obviously be a positive or negative for the restaurant depending on the customer’s experience. The positive side is the priceless and essential marketing: There is no better or more valuable form than a recommendation via word of mouth. Your customer needs to have had a very good time to feel compelled to recommend your restaurant.  Conversely, it can also be the kiss of death if the experience was negative. So this is how the customer does all the work. The customers bring in the money required to pay the owners, the customers work to make money to go out for dinner to pay your bills, your vendors, your landlord and so forth. The common error is an operator’s belief that it is the employees that are generating the revenue but this is simply not the case. It is the customer NOT the restaurant generating the tax revenues for the city and state and most importantly, they chose you. When a customer takes a moment to provide critique or opinion, they feel like they are helping the restaurant. Their advice, be it compliments or criticism, should be taken very seriously – because this is the most important of your revenue.

So all in all, the entire process in your restaurant starts and ends with your customer, the one person who does all the work …. and you are not focusing on him or her. So spend some serious time and effort thinking about your customer before, during and after their visit because responding to their needs and evolving with your customer base is the best recipe for success.

OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com

Economic crisis, lower than average consumer spending, third party booking sites, commission based sales and tourism taking a  turn for the worse are all paths that lead to the same location  – lower average room rates (ARR). The strain from the online retail model continues to put tremendous pressure on rates, forcing operators to believe that even lower rates must be offered to these online consortia. We believe, however, that using online market places are in fact detrimental when rooms are too widely offered. Obviously judging  a hotel’s performance cannot be based on ARR alone as the single metric to determine success or strategy. One must look at other key indictors such as occupancy rates and REVpar to assess whether the lodging facility is performing against industry standards. However the hotel industry has long since been under attack by the very industry that sprouted to promote it.

Events took a turn in 2004 when American Express announced the BAR (best available rate) program which sought to assure customers that the rate quoted was always the best rate available for each night of a multi-night stay. It was often complimented with additional value add benefits (internet, breakfast, airport pickups). In theory a great new model for pricing, the reality is that it now requires a new level of management, control or forecasting that can quickly deflate the REVpar if left to untrained personnel.

It is the industry’s fault. It created mass confusion in the industry. The same hotel and 40 different websites with different pricing carried a room and suddenly booking directly with the hotel directly became more expensive over third partes. Hotel Booking Agents recommending a customer visit a third party site to get better rates and MOVING reservations to outside their control became the norm. What seemed like such a clever way to increase occupancy and ADR turned into a tool for lazy hotel workers and ultimately the problem we are in now.

This lack of pricing congruency has now left the hotel wholly exposed. This is compounded by poorly trained operators and sales clerks in hotel reservation departments mishandling direct calls from customers who have found a price online at a competing hotel or online retailer and asking the hotel to match it. Bringing the customer back to the hotels sales portals, often through the BAR program, is one of the projects every operator is working on. The smaller companies are, meanwhile, waiting to see the results of the larger hotel operators and will copy the model. Just when solutions are being found to bring back that price hopping customer to hoteliers with the assurance that hotel pricing is the same whatever the channel, along come companies who search the mega agencies and portals and hotel sites seeking best prices. Yet another intermediary tacking their commission and fees into your ARR.

The effect of this price pressure has been most felt  by hotels designed to appeal to the widest audience possible – thus in theory attracting a greater audience base. Satisfying everyone but delighting no one if the model or customer base are not loyal, or if the venue does not have a unique selling point, can be a formula for mediocrity.

These generic concepts created by brands for broad appeal without reward  programs or the benefit of an existing brand’s loyal customer base have had a very harsh reality check during this economic climate. Hotels with broad appeal are losing significant market share to more defined and concept positioned properties. Conversely, the boutique hotel phenomenom is less hit by these portals because customers are demanding alternatives to the mass market offerings. This creates significant opportunity for those who have planned and executed a strong concept and are able to differentiate themselves.

Customers are demanding / expecting more and taking their business where it is both fought for and wanted. Often customers do not want to be a number in a generic hotel but rather where their travel needs are best suited. Pricing is not always the primary driver. The demand exists for special and unique product offering to suit these individual travelers’ needs that mass market cannot fulfill.

By focusing on your brand and your USP’s, a hotel is often better able to capture the market. Of course as a developer or owner, there is a risk and potential exposure in being different. Multi unit hotel chains will not want to lease your site is if doesn’t conform to their mould. However the potential increased value from attracting the boutique market is the reward for those who chose to build a hotel in this style.  If there is a case for this model, think long and hard before you build a generic site.

In this circumstance, the operator has to work backwards. Assuming the  NEED / DEMAND for this sort of hotel has been determined and assuming your ability to deliver on the customers’ expectations then the steps to being unique are fairly simple. Of course strong analysis and financial modelling, marketing and sales are still required. Again, this is not the location, demand, product & coverage phase,  as we have assumed that this has already been determined through demand existing.

The process from differentiating your brand and creating loyalty from others is through allowing no-one to compromise on the level of service, facility and customer quality. This is concept positioning and the key to why two seemingly like hotels having significantly different ARRs.

Positioning the brand is positioning the entire facility and its outward and inward appearance to serve the customer. What is it that you are attempting to create and does it match what the customers need? This is just as much about the linens as it is about your restaurant or food offerings. You cannot compete with the large brands on marketing or advertising budget but what you do have the advantage on is press and that is where the attention should be focused.

Yes, we recognize the benefits of ‘outsourcing’ discounts to a third party. Getting rooms rented out is critical to the hotel industry and at times it is worth taking a hit on the ARR in order to have customers on site spending in the restaurant or golf club or room service. We recognize equally that with fixed costs and staff on site, sometimes it is worth selling a room at little or sometimes no profit to increase footfall. We also know hotels often do not want to be seen to be offering discounts directly to protect their brand name.

That being said, a whole sub-industry has grown which no longer serves the very hotel venues who subsidized their set up costs and acted as their first customers. If you are building or repositioning your hotel, slashing the rates is not the answer to increasing revenues. Your competitor and neighbor may be doing this but you do not necessarily need to follow suit. If your hotel lends itself to being slightly unique, if your location adds specific value to business or leisure travelers, if you have an ethic and tradition reflected in your fit out, let the customer know. Look at your customer service standards and whether you enjoy repeat customers. Look at the additional revenue streams your hotel could be benefitting from. Look at how you can reach customers directly and ask yourselves, should I be spending the same on targeted and intelligent marketing as I am losing on offering constantly reducing room rates?

Of course someone can fill your hotel tomorrow – rooms just need to cost $5. OnSite works with many hotel clients and our first job is to look at financial information. All too often, hotel directors have given us incorrect room costs, omitting to factor in deals with third parties. Costs often don’t include the fees incurred in renting out a room from a website or agency the data analysis is therefore inaccurate. Take back control of your pricing by knowing what your pricing is. Consider Opera or other software as a tool not a solution and instead, read the data and make decisions based on the correct information.

The lesson is that just because ‘everybody is doing it’, it doesn’t mean that the obvious solutions to cash flow or reduced customer flows is obvious. Gather the right financial information, take ownership of how you attract customers and how much you will pay to attract them. We know the importance of these lessons in stabilizing or growing a business and work with our clients to ensure they recognize this too.

OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com

How a casino’s approach to staffing can affect the whole business

How slashing your workforce and promoting junior staff to senior positions saves cash flow in the short term …. But irrevocably and negatively affects the business as a whole in the medium to long term. OnSite look at how to take proactive steps to managing your workforce.

In the current economic climate, casinos – like all businesses – are having to contemplate cost cutting. With labor costs representing the highest area of consistent spend, casinos are slashing workforces at all levels, including senior management with significant salary packages. Employee benefits are being removed without explanation and salaries are being reduced. OnSite recognizes that communication and strategy are critical if workforce redundancies are being contemplated. Whilst the sudden relief to the cash flow can feel like a success and the business does not suffer immediately, the medium and long term damage can be irretrievable.

Casino after casino, from tribal gaming sites and card clubs to Nevada hotel and casino properties, are suffering. Financial positions are weakened with the economy taking the blame and in a panic attempt to restore profitability, poorly thought out redundancy programmes are often being rolled out, often causing more harm than good. As total business consultants brought in to turnaround the entire company, OnSite know that gaming and player loyalty are only a small section of the casino business. Many sites have strong F&B programs, lodging facilities, other customer attractions and a whole back office which are the backbone of the business and the majority of the work force. Staff are the main cost but not necessarily the main cause for concern.

We recognize that a casino business has many variables which can dramatically affect its financial position. We know that slot analysis and hold percentages are a factor requiring attention and that poorly planned multi-tier reward programs which do not appropriately reflect customer spend can be a key driver when reviewing losses in a business – but all these issues are intertwined with workforce management and the use of skilled talent within a site.

If a casino is looking at labor reductions, it must do so strategically and having regard to the whole business. With a focus on the turnaround of casino properties, all too often OnSite see venues taking a blanket approach to cost cutting and sites subsequently suffering from ‘the unskilled epidemic’. We believe this is never a means to an end but rather the beginning of a downward spiral, dragging down all business units with it.

As you slash the workforce, your all important customers will begin to feel and see the difference: With reduced staff on hand your venue is likely to offer a reduced quality of service and a declining player experience. Importantly, the company will likely be struggling to evolve: With a poorly thought out redundancy strategy, the casino will then left with a reduced ability to innovate and lacking the ability to dynamically react to the customers’ needs. This is a business struggling to stay afloat and trapped in survival mode. This sets out the logic behind our belief – this has reduced immediate cash flow spending but is evidently detrimental to the business.

The lesson to be learnt here is that taking a proactive and measured approach to reducing your labor force is never a waste a time. For economic reasons you may have to make changes to your business and fast – but at OnSite, fast does not equate to haphazard. We work with our clients to apply a lean strategy to identify how to change the workforce to reduce costs as well as seeking out those other issues which can have a dramatic and positive impact to the business. Sometimes small changes to a business can release profit – changing margins, looking at supplier costs, evaluating whether the plethora of third parties trying to sell their services and products to you are indeed value add. It may therefore be the case that the first step to reducing your cash flow issues is looking at staffing combined with releasing profit into the business as opposed to simply cutting a cost, especially as the aim is to improve the business and not stifle it. We have seen it all.

Other cutbacks to employee benefits, salaries and bonuses is also relevant. Clearly a business making no money has to make immediate changes but again, the question is how these are made and ensuring that this carried out in the most sensitive manner whilst securing the safety of your business. Some casinos in trouble introduce a mandatory salary reductions across all employees until revenue returns to a satisfactory state. The perception here amongst staff is often that the workforce is having to to bear the brunt of senior management’s mismanagement. This is naturally not always the case but perception here is important. People become disillusioned with their job and good employees question drastic changes which do not come with any clear message about the future and opportunities for growth.

Disillusioned employees who perform well often leave – simply to be replaced by their assistants or other junior level employees. In times of crisis, losing your best people, who are your best asset, is the worst outcome. Employees who are performing over and above must be rewarded or shown how, when the site improves, they will benefit – it is that simple.

Hewlett Packard avoided layoffs in the mid 1980’s with a successful mandatory pay cut strategy but it was implemented with an excellent communication strategy which employees understood. When announced, it was introduced as being for a limited time (6 months) and engendered strong employee morale through a marketing program which ensured no one felt isolated or hard done by. Instead, employees generally felt delighted to be a part of protecting the company and their jobs because they were all in the same boat and could see how they could ultimately return to their original salary – that being to grow the company.

On the issue of annual bonuses and employee benefits, again these require a strategic approach. Here, we are not just talking about financial benefits but also staff meals, parking, snacks available in staff rooms or venue traditions such as cakes on birthdays – often, the smaller the benefit in fact the greater the impact of that retraction to the employee.

Try telling a minimum wage employee that the cookies are gone because of managements poor performance. He did his job, he was never late and he just lost out. The lost loyalty and commitment of that employee through the removal of such minimal benefits costs more than the cookies ever would. Is that the right approach?

Instead, OnSite advises clients to use a redundancy programme as opportunity to show compassion and understanding through communication. A lack of communication with staff puts everyone on edge – ‘am I next?’, ‘what’s happening?’, ‘what’s the overall plan that management or ownership is not sharing with me?’. This does not lead to a strong and dedicated workforce willing to go the extra mile but instead an atmosphere of tension and a demoralized workforce.

Getting out of survival mode requires leadership with strategic and long term vision as opposed to a shoot from the hip mentality. A quick decrease in spending on the P&L can mean an equally quick decrease in turnover and profits.

The sites that we turnaround require a fundamental change in management style and a new approach. Our view is use the challenging economic climate as an opportunity to increase business through clever planning. What is our plan for growth and what steps must be taken to attract customers and realize profitability? This is an opportunity for employees to be a part of a success story and they need to understand in so doing, that their effort is appreciated and they will be rewarded. Incentivisation is critical to any business.

We are certainly not suggesting that your payroll is perfect! On the contrary we have rarely seen a lean payroll. Casinos should be seeking to find the “cost sinks” – the identification of revenue centers, processes and controls which through analysis will have an immediate effect on costs and the significantly swing revenue margins. Your employees are the only ones who are needed to execute the new vision and provide assistance in identifying such weaknesses.

We seek cost cutting opportunities in every site we visit: This often results in overall savings to the business of many millions, time and time again.

IS LACK OF TALENT THE ANSWER TO THE PROBLEM?

Often, decision makers in businesses have not lived through a challenging economy such as we currently find ourselves. Often the team has limited experience in turning around a business, may not be savvy with budgets and financial information. Additionally, and as a result of large scale redundancies, management is often poorly performing poorly due to lack of experience, training and/or ability. Now the entire company will suffer another blow as this individual, who is for whatever reason not qualified to ‘save’ the business, further damages the brand and the operation. OnSite works hard to ensure clients do not allow this to happen and instead focuses on finding the right areas to make cost cuts whilst supporting the best elements of the management and staff teams.

The trickle down effect of poorly resourcing your business can be seen at every level. When an executive is removed the loss begins. The position is often overlooked and not filled by ambitious management who wish to be able to ‘save that salary’ and add it to their savings analysis. But what about the unqualified staff being passed a workload he or she is not equipped to handle? This can ultimately set a company back months. Perception wise the business is still running – however this is superficial. Ultimately, the employee will make errors because he or she is unqualified – and if that person is a division head or in a management position, his or her decisions can affect the whole company.

This process is repeated constantly at casinos and businesses with high staffing requirements. A manager is terminated or leaves and is filled by an existing employee who is not a truly qualified candidate. So now as a casino, you are stuck with an upgraded employee facing a daily battle that lasts several months of how to do their job or make it seem like they are doing their job. The trickledown effect is simple to see to an outsider – a halt in the lifecycle of the department, the halt in effective new strategies, efficiencies and processes and a breakdown in the leadership of the department leading to autonomous workgroups and jobs not being completed correctly or with the overall long term vision of the casino in mind.

The site now suffers directly from an eager employee seeking a promotion and a poorly trained executive who thought it was a good idea. The trickle down continues as the casino now maintains a “status quo” whilst customer attrition continues and the team attempt to apply band aid solutions to deep wounds. The perceived benefits the casino thought it was getting by hiring from within – Kathy knows how to do Dave’s job it will be fine – has now turned into the casino paying more for an employee with no additional skills.

Hiring from within can be positive as the employee knows the business and staff may have good skills that make them worthy of promotion. Hiring from within simply because someone has been made redundant and that employee is vaguely familiar with the job required is, however, a death sentence for a business. How is a poorly trained executive to know better? One could liken it to the difference between manslaughter and murder – same result, different path.

What talent brings is innovation, strategy and a constantly dynamic business model meeting your players needs. What internally promoted and unqualified ‘upgrades’ bring is the huge loss in revenue from not being able to adapt. When hiring from within all we ask is you complete a SWOT analysis because knowing your business is not enough.

OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com

When completing a casino cage audit, you are normally required through REGS and MIGS to undertake certain tasks several times a day, making sure that every cent is accounted for. Employees are held firmly responsible and have to undergo background checks, licensing and 24/7 surveillance. Reports are sent out to be audited, the process is repeated every few hours and there is not a second that the accounting department responsible for the cage do not know exactly how much is in the cage in both cash and chips.

Multimillion dollar software tracks money and generates reports, shows audit failures and identifies system weaknesses. A casino  will not open without gaming management be it a Japanese replica or the Ballys cream of crop. Not a penny moves without a form and a thing and a process.

Civilian vendors cannot even think of being able to look inside the cage without the granting of specific permissions and security and without being thoroughly vetted. Furthermore, if an audit shows a $90 short during a cashiers shift, there are rigorous protocols that remove that employee from the workplace, with he or she being suspended pending investigation.

The cashier’s float was only $25,000 so why, when a chef has an inventory of the same amount – or more realistically stock with a value of millions – are the same protocols not applied? A refrigerated produce order with a wholesale purchase value of $25,000 is worth $100,000 when sold – add margins, the cost of preparing the food, the notional cost and marketing of attracting a guest to eat at the venue – or $0 in three days when its lifespan is complete and the stock has to be thrown away. We therefore ask the important question of ‘why are the perishable supplies in your food & beverage inventory not treated with the same respect?’

The reason is because it is not a legal and regulated requirement: Indeed to many, food is an annoyance or necessary evil to satisfy the gaming customers. Often operated and managed by underqualified staff and those who do not think of the inventory as a currency, venue management are not treating this valuable stock as they ought to.

The Casino Floor has multimillion dollar software given the rate and speed of transactions and the automation of the gaming process. More often than not, Food and Beverage has excel spreadsheets at best. This is not about software. In these cases, software is mostly purchased as a solution to a problem when the problem is actually that very person formulating the solution. You cannot purchase food cost control, only people can. Software just cuts the man hours down and translates the data into more readable fashion for cross analysis.

Only in the last few years have many properties recognized the ability and indeed necessity for strong F&B presence to provide a significant new revenue stream not only from existing players but also the new customers who come purely for the F&B options. This therefore means there is also a new marketing benefit realized, however the value of strong F&B is not the purpose of this article. This article is focused on how the value of inventory got lost ‘somewhere’.  All too often we walk into mega million dollar sites who use MBWA (management by walking around), P&L and some spreadsheets to analyze their F&B when the converse should apply. The person running the F&B needs the analysis to run that department efficiently.

Our first message to management in these cases is to rethink how this valuable asset is handled and fast. Inventory is currency just like cash and should be treated as such. It should not be laying around in various storerooms, it should not be accessible to ‘just anybody’ and it certainly should have tracking. Unfortunately this is one of the biggest challenges we face in an F&B context: Getting someone to take a can of peas seriously, especially when they go through a palette a week. We genuinely don’t see the difference between a walk-in freezer and a safe. This overall shift in mindset is the largest hurdle to overcome but one that pays constant dividends when applied. Getting people to see it our way and recognize the weaknesses in the procedures in place is one of our key tasks in these situations.

We expect to swing the costs of goods downwards by about 7-12% of total gross program sales. So when our prospective customers ask us how we are so confident in our ability to make change without interrogating the numbers further, it usually comes back to us to see if F&B is controlled by MBWA. Generally, however, a problem in F&B is an indicator of a wider problem within the company as someone should have addressed this issue, fixed the issue or at least understood that at times, there is value in preferring $500 in guaranteed beef sales than $500 in cash.

Let’s not forget, however, the always tightly controlled liquor cage with keys, cameras and par systems for an inventory of $6,500 behind a bar. Managers often do what is at best common practice and at worst, easy …. and ignore the rest. Liquor being the more stolen commodity is a myth because no one knows about the food being stolen either through waste, bad portions or theft. How could they with no accountability or stock management in place?

The good news is that the solution is a simple one. Yes the department needs to be stripped and rebuilt, yes new controls and procedures need to be put in place. But there is one department already on site specializing in this for our cash currency. Accounting of course. Who better to protect our inventory currency?

There are many solutions that casinos should undertake but it all starts with Accounting taking control of inventory the second it arrives on the property. Wherever it may be stored it is owned by accounting and its movement into the supply chain should be through the standard purchase orders and audit logs. Two slips of paper and a controllable inventory has been started. From this one can then branch out into the other issues that require close inspection such as whether the site is holding too much inventory, cost analysis, vendor analysis, plate management and so forth …. but you must start at the root of the problem and move from there.

With inventory sitting in storage and now ultimately accountable to or controlled by an accounting department the process is clear, inventory and par maintenance. By using perpetual inventory as opposed to static, the par can be determined quickly as each unit has a “days on shelf” associated to it. More importantly, the property can now drill down on its costs and its uses to the individual purchased unit which is a key indicator of profitability and efficiency.

With these changes made, you now have an F&B department which need only focus on the cost of goods for the product they have transferred out of storage allowing for a much more isolated process and facilitating the all important checks and balances. This is a real cost system which gives your chef the chance to make an impact and be able to complete his job. The minute it leaves storage, accounting relinquishes responsibility for stock and the chef or section head is responsible.

You have now successfully changed the entire structure of your F&B department. Purchasing is now taking orders on product demand from accounting, receiving is now an accounting function, the chef is focused on food and managing the food offering in the kitchen rather than in the storage and each department has a more focused responsibility in an area they are most skilled.

One small tip – limit access to storage!!

OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com

Onsite Consulting’s restaurant consulting division address areas of technology owners and managers should be looking at as a direct way to drive sales

In a restaurant market full of competition, what separates you from your neighbor? Service, ambiance, price, parking and décor can all be strong factors in swaying a potential customer’s decision. However one fact always seems to get lost somewhere and that is the ability for your customers to get in contact with you either to make a reservation, discuss special needs or even book their company holiday party. As restaurant consultants, we know that restaurant customer service is the critical and often overlooked as an area than can directly drive improved business when given appropriate attention.

People like good food at reasonable prices but every operator and owner knows that. We therefore advise clients to be one step ahead and engage with customers the moment they make contact in a manner that separates them from their peers.

When someone is looking for a restaurant and has specific needs (group of 12 for example) they start their day at home or the office visiting a few websites of restaurants they are interested in and attempt to make contact. Unlike the rest of the world, the dinner restaurant staff are not early risers and very often the potential customer is met with an answering phone message or an email to an inbox that resembles a black hole.

One of the first recommendations we make to our restaurant customers is to make yourselves more accessible via the web and website. Provide every opportunity for your venue to capture a potential client and most importantly, respond first. On the reservations page, contact page and events page there should be a quick and easy form for your potential customer to fill out spelling out their exact needs.

Now you have a HOT LEAD – someone that has come to you and expressed genuine interest and simply wants clarification on whether you can meet their needs. They have chosen to give you their name, phone and email address. You may or may not be the only person they have attempted to contact so the decision of where they visit now mainly comes down to whether you respond first – coherently and professionally. Of course you need to meet their requirements but the promise of good service and a restaurant that wants your business is a very compelling reason to chose your site. Grab that lead before anyone else and as well as focusing on inventory levels or special promotions that month, you have another very tangible opportunity to increase restaurant traffic and the health of your profit and loss.

Aside from the value of the potential sale you now have what is considered ‘promotions gold’; a live email address of a potential customer to use in your email marketing or other promotions. (It would be wise to ensure your privacy policy on the website expresses your intention to take any users form submission data for opt-in marketing programs).

In this economic climate you may not have an office manager or early office or restaurant staff who can go through and respond to these communications, nor may that person be the most qualified to answer your potential customers questions. It is critical that the person your potential customers are talking to can answer questions correctly and in the most beneficial manner for your business. Your management cannot work 24/7 and so about two years ago, after implementing this web form policy across our clients, we ran a series of tests by handing out a blackberry to the managers of the location.

When you hand a blackberry to your manager, express that you are taking care of their phone bill (if used reasonably, of course) but equally express that it comes with the added responsibility of responding to new business queries. The added responsibility, the perk of having no personal phone bill and, we would hope, the desire to see the venue successful and busy, should encourage that manager to respond to all email queries that come in promptly and professionally. If not, you need to question your choice of manager.

In owning your restaurant General Manager’s phone and therefore phone number, in the event of he or she leaving, the number, emails and communications role over to another member of staff in your organization. That handset and e-information belongs to the business which is another way in which providing this technology safeguards your business. Ownership of your customers is hot property and with ever increasing reliance on email marketing and promotions, the restaurant owner must under all circumstances not only own but also control any device used to interact with your customers.

We use hosted blackberry enterprise servers for our clients which synchronizes the users blackberry, email, contacts, calendar and sms messages to a server for backup and/or review. $14.99 per month is a more than reasonable price to secure your customers data and we encourage all our clients to understand the value of technology to increase productivity, secure data and therefore positively affect their whole business.

When a query comes in for a restaurant using this technology, a notional ticker starts with 30 minutes on the clock to respond, regardless of the requirement. “Table for 2 next Wednesday by the fireplace…” Whatever the message, customers appreciate a personalized email reply confirming their reservation and now more importantly a direct relationship has been created between the restaurant and potentially  the manager who will be onsite that evening. You have impressed and engaged that potential client before they have even booked.

We have all heard and seen the restaurants who are always too busy, unavailable and have the illusion of grandeur they are trying so hard to maintain. If you are so busy 24/7 then this level of bespoke response is not for you; if you are $$$$ dining you may want to implement stronger controls on communications and if you are a quick serve venue, this obviously does not apply. However for owner-operated mid level restaurants who are delighted to engage their potential customers, this is definitely for you.

There are times when the manager is unavailable and in those instances, there must be alternative mechanisms and people in place ready to respond. All responses should be sent with a set “template”, a style that leaves no room for errors – you must implement a top down policy regarding the manner in which your managers may speak to guests. We generally suggest an owner has access to the receiving and sending account in order to review communications in the early days. For our new clients, I ask to be cc:ed on all email traffic and that usually ensures rapid response and a little more thought on the manager’s part!

After running this test for only a few short weeks the results came back extremely positively. Not only did each restaurant report seeing a substantial increase in their email traffic from visitors coming to their website but also an increase of conversions from visitors to actual diners. This topic of conversions is the holy grail for restaurant e-marketing to be discussed at a later date.

The recipient of the email does not know whether the responder is sitting on a ride in Disneyland or behind a desk at the restaurant. To be frank, they probably do not care and whilst it is always optimal to be at your venue or office, it is even more important that this communication receives a response so at times, one has to be creative. The enquirer has a personal email and a name associated with the venue responding. Should anything crop up, need to be added or changed it is one simple email to the manager who confirmed the reservation or manager on duty which ensures the appropriate level of attention is bestowed upon the customer. This level of bespoke attention provides rewards.

“Running late – can you push the reservation 30mins?” is a common email and we are delighted to respond. This is not an opportunity for slang such as “np.” (no problem) and the veil of professionalism should never be removed, whether or not this is a repeat customer known to the restaurant staff.  In addition, we are alerted to special occasions and this contact provides a reason to make contact with the arriving guest, or for the manager to subsequently introduce him or herself to the table of guests. We delight in meeting new customers and install this at all staff levels at venues where we provide any element of food and beverage consultancy.

Placing the web form on the events page and keeping it very simple suddenly has traffic and emails daily requesting information on groups, birthdays, corporate parties and fun promotions. This is a hidden bonus for the venue.  As a restaurant owner you should also be tracking the number of visitors to your website, where they come from and what they search for – now you can track conversions into reservations.

Some restaurant owners have gone as far as checking in with the reservations the following day to ensure that their experience was perfect – a two line personal email is very different to automated review sites or other impersonal mechanisms. It creates a bond that makes people more likely to respond. We consult for a wide range of venues from casinos and hotels to restaurants and nightclubs. We do therefore recognize that this is time consuming. In restaurants where the check value is not reasonably high or in a venue which has high throughput of customers, this may not be best use of a manager’s time but if senior staff have capacity and the venue owner has an appetite for direct feedback.

What separates you from your competition is how delightfully easy it is to contact and do business with you and how attractive you make your restaurant and staff before a customer has even walked through the door. Technology facilitates this so we encourage clients to embrace it and use it.

The National Purchasing Program (NPP) is designed for our nationwide restaurant clients of all sizes, enabling them to join a network and benefit from the purchasing power of each other. Providing prices lower than one sole operator can negotiate whether you are a single unit location or a growing franchise. The combination of the NPP multi million dollar purchasing and the constant and aggressive negotiating on behalf of the whole group benefit each and every member.

By being part of the program, your purchasings are automatically provided to NPP by your vendors electronically. This allows the program to maintain an active role in pricing and combo-purchasing deals to make the changes in the back of house, without impacting your purchasing managers.

Negotiate like the largest franchises and purchase like Costco WITHOUT the fulfillment house and using many of the same vendors.

http://www.nppsavings.com/

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THE $5 QUICKSERVE PROMOTION IS KILLING THE CASUAL DINING RESTAURANT INDUSTRY – WITH ITSELF TO BLAME

The race to market of QuickServe concepts in the delivery of a $5 meal is being replicated by the casual dining market with dire effects

As restaurant consultants, Onsite recognize that each restaurant venue or chain is bespoke. Each site and each brand has its own demographic and its own model which makes that brand unique. We also recognize that price wars are common in any industry and that in difficult times, venues carry fixed costs (such as rent, staff, amortization of capital expenditure) and therefore ensuring customers continue to come through the door is critical. That being the case, however different the concept, many of these brands do share common underlying problems and challenges.

With reference to those restaurants offering ‘unbeatable offers’, we have for some time been expressing concerns that dropping prices or offering ‘unbeatable deals’ is not the quick fix that venues need. These offers rarely bring in the level of new business expected, the restaurant often carries the loss associated with such loss leading discounts for a long period of time and returning to a price point which does make sense for the business can be deeply unpopular because customers get used to these ‘new prices’.

If a restaurant charges $5 for a meal for six months, that venue has now set the new benchmark for its customer. Your customer now expects to get a deal not far off that and when that deal is no longer available, the customer is not necessarily a loyal one because it was likely the price and not the offering that brought that customer through the door. In short, the object of this Quickserve option when replicated by the casual dining market, in whatever permeation, is often defeated.

TGI Friday’s is an example of short term cash flow benefit equals longer term disaster. Their new $5 entrée offering is an attempt to compete with Subway but has not generated the results anticipated by management or the market. Instead, the offer has lowered the spend per check average dramatically. TGI released a statement recently expressing the promotion was an opportunity to give customers exposure to their new salads as opposed to a move to compete with Quickserve but few industry observers believed the statement.

Over the next few months, TGI will likely generate millions of dollars in cash flow from this campaign but the cost of their campaign will likely catch up with them. One might ask how creating the extra cash flow constitutes an unsuccessful campaign and the answer is a simple one. TGI have done their brand irretrievable damage. Onsite argues that the key error they have made is taking an existing item on the menu – that item being the regular full sized sandwich menu including fries and a side salad – and simply slashed the price. The offering takes a full priced group of menu items and offers it for much less than they traditionally sell it and diluted the ‘sit down family restaurant’ concept they created.

Marie Callender’s have recently announced a “kids eat free” promotion twice a week allowing a free children’s meal per adult entrée ordered. A family of four can now eat for $16  if the adults order the $7.99 combo meal. This is in addition to many other discounts this casual dining chain is offering including the $18 two course meal. The trouble with this promotion is, again, the steep discount will eventually catch up to the chain not to mention that the chain is now synonymous with only offering discounted fare. The “Kids eat free” option is normally offered on a single day of the week (more often than not a slow day such as a Monday or Tuesday) but this introduction is going to force rival competitors to offer two or potentially three days a week offers to compete.

In response to Wall Street comments about their operations, the chain released the following statement: “In this economy, it is tough for families to dine out. Marie Callender’s would like to make it easier for families to enjoy a meal out together as a family. Marie Callender’s chose Tuesdays and Saturdays to provide a few days every week for families to spend time together enjoying great food. Times are tough but Marie Callender’s would like to help by offering an affordable and fun dining experience for families.”

Global data does indeed show that the market that has seen the most drastic decline within the casual dining market are those which target families with children. Marie Callender’s is evidently responding to this decline but whether offering so many discounts is the solution remains to be seen: It is too early to tell. Certainly the restaurant industry is putting significant pressure on itself by everyone offering the ‘next unbeatable deal’ in an effort to grab the customer. We recognize the need for fast action but the reaction we are witnessing appears to be ‘shoot from the hip and see what happens’ as opposed to measured responses where financial sense prevails over marketing departments.

Unlike Subway, both TGI’s and Marie Callender’s have larger footprints, greater operational overhead and therefore need a higher spend per check average. More importantly, TGI’s is a casual dining restaurant not a full Quickserve. I don’t remember take out and customer turnover being the TGI selling points and for good reason. TGIs is a family restaurant with a menu where the customer expects to spend more than Subway. It is a place where the customer is not expecting take out and where the customer expects to sit down and eat. These are not the characteristics of the other Quickserve options which focus on aggressively lowering the customer/transaction time.

For those chains who have a risk of bankruptcy or serious cash flow issue on the horizon, we understand the urgency in creating cash flow. It is this questionable reaction to the economic climate which is causing a previously robust industry to implode and the casualties are numerous and high profile. TGI Friday’s attempt to enter the $5 Quickserve markets has the very characteristics of a Company that has a serious urgency to create cash flow with no regard to the long term effect on the business.

I am sure this promotion will not last long and am confident that the surge in customer traffic they have experienced constitutes deal hunters in the main. These are therefore one time only customers; although we do recognize that if these are people who have not been to TGI Friday’s before, to that extent this promotion has potentially encouraged new customers. If the offer has attracted people who typically spend less on food and previously could not afford TGI Fridays, perhaps better economic times will encourage these customers to return in due course.

Early market reports, however, reflect that these promotions are having poor results, as Shoney’s CEO David Davoudpour put it: “$5 meals won’t work in casual dining, (he says…) When you sell for $5 what you should sell for $10, something’s wrong”

A onetime customer, while critical to a business, essentially bring reduced margins in a neighborhood restaurant. Only if that customer visits three times a year is that customer now a profitable one for that venue. The advertising and other operational costs required to get that person through the door can now be spread across those three visits for that one person. The profit on Quickserve & Casual Dining is in recurring customers and whilst the aim is to maximize profit generation from every customer who walks through the door, the reality is you spend an awful lot of money for them to come in so you should do everything possible to make them come back (but not give away the house!!)

A more competitive and profits driven company such as Quizno’s, who needed to compete with the Subway offering because they are a direct competitor, chose a more financially sound Quickserve option. Quizno’s built a product they intended to sell for $4 and therefore were able to create a profit from such their Quickserve offering – instead of it being a loss leader.

With this out of control success (the old adage of imitation is the best form of flattery clearly still stands) and the industry’s need to compete with Subway, commentators and specialists have had a real eye opener about the state of the market and the various engines behind these billion dollar food concepts. Every Quickserve seems to have rolled out something to compete with the Subway $5 offering indeed recently, KFC advertised that their offering was superior to Subway because it included fries and a drink whereas the Subway offering is just the sub. The craze of $5 marketing demonstrates the real brand and marketing value of Subway who in the past few years have returned amazing same store sales with the Jared campaign and now this “$5 sub”.  It is clearly positive for Subway but unfortunate for the rest of the industry that they have reclassified the meaning of the word ‘deal’.

We find ourselves in an economic environment where belts are being tightened and consumer spending has reduced. Companies believe they have to take drastic measures to create cash flow and keep their customers walking through their doors and such campaigns can be a make or break for the company. The error they make is confusing the need to be competitive and offering a product which they sell below a sensible price.

With this in mind, the operator should now consider going back to basics, realizing that even with a month on month decline in same store sales, the value of any offer should be based on two key areas. Whilst a marketing campaign is critical , the financial element is more important. Operators need to be looking inside their operations and find savings and create offers which do not lose money. Sales is vanity, profit is sanity: Casual Dining Restaurants need to focus fast on offers which make money and enhance the brand instead of wild marketing campaigns which not only negatively affect their business but that of their competitors as well.

James Sinclair is the founder of OnSite Consulting, a nationwide restaurant consulting firm with a specific focus on insolvent or distressed locations, insolvency or concept repositioning.  OnSite’s work is across multiple fields including hotels, casinos, franchises, quick serve’s, casual dining and single unit operators. OnSite clients range from from celebrity chefs to up and comers all seeking to redefine their business model for profitability. Quarter 4 will mark the release of his debut book “How To Save A Restaurant In 10 Days”. For more information please visit www.onsiteconsult.com

Many states have upheld different opinions on whether “Arbitration as a Condition of Employment is Legal.” OnSite Consulting considers why this topic requires attention.

Onsite has years of experience handling employment disputes, creating employee handbooks and seeking methods for companies to mitigate their expenditure. The issue of arbitration and the need for a formal policy and implementation of this policy remains widely ignored. All too often, our clients are served with legal papers and with barely time to read the papers, have no choice but to mandate to a law firm to represent them, often at significant cost.

Onsite is encouraging its clients to consider taking proactive steps towards mitigating this potential unexpected cost – a cost which hits a company in terms of both cash and management time- by adding a clause to staff handbooks and rolling out an internal policy that deals with this issue.

The perception of arbitration is all too often a negative one.  Many employees sign an employment contract containing a clause requiring mandatory arbitration which, in their opinion, is a company’s way of avoiding litigation. Fears include concerns that their employers will operate outside of the law and potentially violate an employee’s rights without fear of the consequences. The company requires arbitration and they believe that it curtails their obligations to operate within fair and reasonable parameters.

Of course this is not the case at all and employees need to understand that arbitration is not a soft option but is, in fact, in their best interests. With a rigorous arbitration policy in effect, the desire is NOT to reduce the value or ability of an employee to receive damages nor for the company to attempt to reduce such payouts. If an employee has a bona fide claim then they are entitled to damages. The principle value of arbitration is to reduce the cost of reaching a settlement or payout amount given that arbitration as opposed to the more costly option of a court room is where damages are agreed. The driver of adding an arbitration clause is therefore faster resolution of a claim with a dramatic reduction in cost which benefits all parties involved.

There is a second debate around arbitration, with a suggestion from some parties that it removes the “jury determined awards” that are based partially on emotion instead of an arbitrator, who makes a judgment based on the law only. Empirical research has, however, found little difference between the behavior of jurors and arbitrators when it comes to punitive damages.

When Florida based Darden Restaurants (Red Lobster and Olive Garden are among two of the brands that contribute to its $6.7 billion annual revenues) determined that arbitration was the best scenario for employee issues, their General Counsel specifically noted:

“We [Darden] don’t expect any significant reduction in paying out damages or compensation to employees who have legitimate claims, but we expect our transactional costs [court-related fees] to be reduced by 75 percent. Right now for every dollar we are paying out in compensation to employees, we are paying about $1.50 in transaction costs.”

Small owner operated restaurants and venues with fewer than 10 unit foodservice operations are following in the footsteps of large restaurant chains such as Darden. The pace at which venues are adopting a mandatory arbitration requirement as the absolute authority for resolving workplace disputes is gathering momentum, and rightly so. Coupled with this clause is the need to educate and inform employees as to why this clause is present which can be achieved in an employee newsletter or simple memo to staff.

Arbitration is without doubt mutually beneficial to employees and employers however there is still resistance. For the many commission, retainer or standard rate based lawyers and employment advisors, arbitration reduces the amount of time chargeable and is therefore potentially less popular. Less time equates to less fees.

It is the employer, therefore, who arguably gains considerably from arbitration as it serves to protect them from the potentially huge financial costs of frivolous litigation, petty disputes and the need to go to Court over issues which can be dealt with via an arbitrator. Medium to small businesses often do not have the financial resources or management time available to fight large cases in a court room so the option of arbitration becomes incredibly attractive as a proactive step towards mitigating future court fees.

The employee also benefits as the time spent being represented is reduced, which in turn reduces legal bills for the individual – and ensures a faster payout where damages are justified. In many instances, the cost of representation and the ‘lost time’ is equal in financial terms to the value an employee may be seeking in compensation, so we see many cases not defended at all but instead allowing the employee to gain a default judgement – or in larger cases, the employee ultimately not defending their claim. Again, arbitration solves this issue.

For companies intending to implement an arbitration policy, there are many steps to take prior to an actual arbitration. These range from peer reviews to an ‘open door policy’ where employers and employees can negotiate without an arbitrator present. Whatever a company chooses to do, of primary importance is ensuring the policy is clearly defined and understood, with the intention always being to resolve the issue prior to arbitration but knowing that arbitration itself is a practical and cost effective alternative to entering the court room.

 James Sinclair of OnSite Consulting provides hospitality clients, including restaurants, hotels, casinos & nightclubs, on effective F&B strategies for long term business success. For more information please visit www.onsiteconsult.com

Recently I was on a restaurant client site having dinner and in the span of about 30 minutes the server, manager, busboy, owner, hostess and everyone else asked me “Everything OK”. In so many ways it sounds like a very reasonable question – until I asked one of the servers whether if someone asked me if she was pretty I responded “she is ok” would she be satisfied – immediately it clicked, if she is not satisfied with being described as OK then how can she be satisfied with asking our customers if the restaurant is OK – Dr John Self a lecturer at The Collins School of Hospitality Management at Cal Poly Pomona put it perfectly “By definition OK means the minimum acceptable level”

So next time think about a more inviting question that relates to the actual restaurant, food or reason that the table has chosen to spend their hard earned money with you.

A Customer Service Tip: Everything is NOT OK

Is your company striving for OK?

Sounds ridiculous, doesn’t it? But it happens every day in food service operations around the world. It is a pet peeve of mine when a manager comes striding to my table and asks the inane question, “Is everything OK?”

What’s wrong with this picture, you ask? Let’s break it down:

Everything? Is the manager asking if I am satisfied with the political, economic, ecological and sociological status of humanity? Or maybe the manager thought that I was about to burst out crying and was attempting to offer help?

What about the word OK?

By definition OK means the minimum acceptable level. I doubt seriously if the mission of any company is to strive for the minimum level of customer service! So when the eager manager excitedly receives the expected “yes”, knee-jerk answer to the knee-jerk question, the manager goes away pleased. But should the manager be pleased?

I think not.

I don’t blame the manager. He or she was trained that way. Indeed, it was probably pounded into him or her to visit every table. 100% table visitation. Asking everyone in the restaurant if “Everything is OK” is like a prime directive in most restaurant chains.

What’s so wrong with wanting to get the opinions of all your customers?

First of all, when you ask ‘Is everything OK’, you’re not giving the customer an opening to respond. Instead, it becomes a formality, like the greeting of “How are you?” You don’t really expect an answer, except for the polite “Fine”.

Of course, visiting every table in most restaurants doesn’t give you any time to actually stop and listen to the customers! By running around and asking “Is Everything OK?” you can quantify the experience, and give yourself a false sense of accomplishment by making your 100% table visitations.

It is like the owner of a hotel demanding that the hotel manager keep the hotel full. All the hotel manager has to do is keep reducing the price of the room until the owner’s results are accomplished. Never mind that the hotel is losing money. It may be full now, but it sure won’t be around for long.

Don’t get me wrong; The concept of customer feedback is right, but the execution and results are dangerously wrong. By getting a stock response from a hastily asked question, you’ve learned nothing about the customer’s experience that night. And what if everything actually WAS just “OK”? In today’s market, will a so-so “OK” experience guarantee that the customer will come back? Of course not.

Here are four rules to follow when asking about your customer’s perceptions of your service:

1. Allow time to listen, don’t just go through the formality of asking.
2. Ask specific questions, not general, sweeping statements.
3. Use a superlative that you want to be identified with to the customer. Was your service excellent? Fantastic? Outrageous? Set your sights high not low. Never OK.
4. The quality of the effort is worth far more than the quantity of effort.

It’s time that the hallowed expression “Is everything OK?” was finally laid to rest.

Q: All that red tape with a Small Business Administration loan is intimidating. Any tips on moving easier through the process?

The red tape part is life. You have to live with the red tape whether it’s a conventional or Small Business Administration (SBA) loan.
There is a certain amount of documentation that you have to do with any loan. That scrutiny is even tighter in today’s market than 12, 18, or 24 months ago. A lot of that is based on the sub-prime mortgage market debacle as well as the current state of the economy.
The key with the SBA process is to realize that when people ask you for things not providing them does not mean they aren’t going to ask for them again. When you get your checklist of all the things you have to have, you literally have to have those things. The loans just cannot move forward without them.
There are two parts to every SBA loan. The first part is the bank approving the deal and getting it ready for underwriting. The second part is them putting all the information into that loan file and documenting it in a way that qualifies for that governmental loan guarantee. That red tape doesn’t have anything to do with credit decision, but it has everything to do with what’s going to be required to ensure that the SBA guarantee is there in case that loan defaults.
In a conventional loan, the checklist most likely won’t be as long or as in detail. With an SBA loan, the typical borrow might say, “Well, why do they need to know that? It’s not even part of what I’m trying to do here.” Well, you have to address each one of those areas because they have to be documented for that SBA guarantee even if it does not apply. There is just a whole set of paperwork that goes along with it that the lender has to fill out if the guarantee is going to be in place.
When we say we need three years of personal and corporate tax returns and borrowers come back with the past two years and say, “The third year is in my attic in a file cabinet and it’s July and it’s hot,” that doesn’t change a thing. We still need that third year of tax returns. You just can’t skip any of the steps or the loan is not going to go through.
In this market, not completing a form or having bad penmanship or having a sheet with something spilled on it, the lender is also looking that the application as an extension of your ability to run a business. If you turn in your “homework” and it’s all messed up and you can’t read it, it’s going to be an indication of how you intend to handle a business, of how serious you are about getting this loan done. You’re asking these guys to trust that you’re going to repay the money.
You want to put your best face on literally everything. Over-provide information if you want the process to go smooth and quickly. I like to say there is $150 in great deals—and only $100 in cash. About a third of the deals don’t get funded. And the reason why is stuff like files are incomplete, unreadable, one guy looks like he cares more. It’s just like a job interview; you need to put your best face forward.
Two years ago it didn’t matter because everyone was go-go-go. The last loan an operator got might have been when things were a little looser. Not anymore. The pendulum has swung 180 degrees the other way. The ex-IBM guy with $800,000 to put down on a Ruby Tuesday’s would probably not get a loan today, even though he has that much money. Lenders are looking for someone with direct restaurant experience for three to five years. If you don’t have that, if you’re the money guy, you need to bring on a partner who does have that.
A lot of the conventional, private moneylenders have left the market, especially in the quick-service business. A lot of people, not knowing where to go, are migrating immediately to the SBA. But there are smaller, private money groups out there that are doing conventional lending for restaurants. Depending on the borrower and the concept, there are ways to get things done without going through the SBA.
Credit officers are now really underwriting the concepts, as well as the operator. The better the franchisor keeps its house in order, the better it can answer the questions of the lender, the more likely the franchisee is going to get the loan they are looking for. Not all franchises are created equal in the eyes of a lender. Experience cannot be overstated. Right now that’s the No. 1 focus of most lenders. Then it’s the operator’s track record, financials, the strength of the concept—anything we can use to buttress and make that case.
You’ll likely get more money in an SBA loan because they’ll fund working capital. A conventional loan might fund only all the hard costs and the franchisee fee. But the terms and conditions might be such that you’re much more comfortable in a conventional loan. SBA loans might have a lower rate, but that rate is going to be adjustable. I would bet over the term of that loan that rate is going to go above the rate of a conventional loan, which would typically be fixed.
Don’t just throw up your hands and lay down at the altar of SBA. It might be the best option for some people, but it’s not in the case of all.

The waiter must always be on time.

His station must always be spotless. Tables, chairs, carpet, crockery, cutlery, glassware, flower vases, dumb waiter, menus, salt and pepper, pepper mill, cheese grater, all mustards and sauces.

He must also prepare all requirements in the kitchen as required for service.

Always be aware of personal hygiene, always smile, walk briskly and be polite.

In the dining room, check out the specials for the evening and be ready for service on your station ten minutes before it is open to the public.

On the arrival of diners, as the headwaiter approaches your table you immediately begin pulling the chairs out and and welcome guests.

A good head waiter will usually give you the name of the guests he will sit on your station. This information should be written down in a pad and as the head waiter approaches your table fourteen, you will give a quick look at your pad if you have not memorized all your guests names, put the pad back and say “good evening Mr.Jones, ladies sir,” help to seat the guests by pushing their chairs as they settle and when seated, remove the serviettes one at the time from the place settings. Ladies first, place them on their laps, get the menus and give them to the ladies , then the guest and then lastly the host.

You then ask if they would care for an aperitif or a pre-dinner drink, or “Mr. Jones, would you and your guests care for a drink before dinner sir?”
(When I will discuss service, I will introduce a Sommelier (drink waiter and a runner.)

Get the drink order, take it to the bar, return to the table and explain the specials of the day, (I will write an article on how to learn about the cooking methods to enable you to understand the way the chef cooks, so you can learn and explain the specials quite easily, and also how to learn and understand wines.)

Return to the bar, pick up your drinks, take them to the table and while serving them explain that you will return shortly to take their order. Return after three minutes, asking “Mr. Jones, ready to order sir? Or may I help by explaining some other dish?” This will help you in taking the order quickly as this is what the chefs want,ie – the order taken as quickly as possible. The diners will give you their choices which you will then take into the kitchen, placing your order manually or it may be computerized. If there is bread and butter, or other breads in your order bring them out and serve them.

Never come out of the kitchen empty handed if there is something to bring out. Take wine order, return with wine present it, let the host try it, if acceptable pour it, within five minutes bring out your appetizer, serve it, check the wine, top up if necessary and say “enjoy your appetizer.”

After five minutes return and inquire “how are your appetizers?” If they state “very good thank you,” smile say “thank you” and walk away. This may take ten minutes or so during which time other guests may arrive and you will repeat this procedure with all your other tables. You must also clear empty tables when they have all finished, check wines and water or any other requests that diners may have, keeping your eyes open for gestures. If some one picks his hand up and looks at you, he wants to see you. Go there immediately and see what request he may have. Serve main course and
after five minutes check if satisfactory. If the diners are having a conversation keep your eyes on them but don’t interrupt.

Serve dessert, check on wines or drinks, serve coffee, liqueurs while always checking tables for top ups, drinks, liqueurs. When diners have finished, they will ask you for the bill. Get and check that it is exact then give it to the host with a “thank you very much sir.”

When he pays he may gesture for you to pick up the account. Having done so and never looking at it in the dining room you will take it directly to the cashier. 99% of clients will tip and if 1% does not, it may be because of ignorance.

This may have been a one night in a life time for them, so be gracious and say thank you. By doing so you have accomplished two things – one, you were perfect in the eyes of these two diners and two, the establishment respects your understanding.

Ignorant waiters would have made a scene, those poor people who may have saved for a year for this night were shattered and the waiter with the beggar mentality should be fired, because he gets paid for having the honor of working where he can meet great people and make great money. In life there must be give and take, not just take.

Giuseppe De Carlo

Most culinary schools today are still teaching their students how to compute the wrong food cost. Granted the math is right, but the dollars involved are hurting the bottom line of our restaurants. The problem arises from the separation of percentage points and dollars.

Banks Use Dollars, not Percentage Points One thing I am quite sure of is that banks do not accept percentage points as deposits, believe me I’ve tried! For some reason the teller just looked at me dumbfounded then just started chuckling. Matter of fact she had so much fun with it she showed the teller next to her who responded in much the same manor. I didn’t find the humor in it since I had bills to pay, product to buy, and employees wanting their cash too. To rectify the situation I cowered to the pressure and made out a revised deposit slip using their required dollar standard.

So if you can’t deposit percentage points why do most restaurants use this as their key focus goal? Shouldn’t the establishments focus on dollars instead? Your darn right they should.

A Higher Food Cost Doesn’t Mean Theft or Waste It’s the end of your period and the accountant just brought in the p&l. A quick scan shows your food cost is 35%. What! The first thought that runs through most operators and managers minds is we have a theft or product waste problem. Well, that may be true, but before you go running to the staff and start ranting and raging you have to find out if that is the truth. You may very well have to eat those words after you get through this article. Matter of fact they may need to be praised instead.

What Is Ideal Food Cost Then? Well let’s take a look at what the real food cost value is and how it is divided. To compute real food cost you take the cost of the product you needed to produce the food and divide it by the sales revenue of that food. You can compute the food cost for an individual plate, or over a specific period of time. For example if it costs you $3.50 for the product and you sell the item for $12.00 your food cost is $3.50/$12.00=0.2916 or 29.16%

29% Food Cost, That’s Great Yes, 29% food cost isn’t bad, but is it the best thing for the restaurant? Let’s take a look at sample full service restaurant. Looking at a few of their menu selections we have a chicken dish which is on the menu for $15.00, steak for $19.00 and a steak and lobster dish for $28.00. When we look at the cost side the chicken is $4.00, the steak $7.00 and the steak and lobster $12.00. We do our food costs on these to come up with the chicken dish running a 27%, the steak 37% and the steak and lobster a 43% food cost.

It’s pretty clear, if you want to run below that magical 30% food cost number, ell chicken! But, as I said when we started the bank doesn’t like percentages on the deposit slips, so convert them to dollars. Okay, since they sold a chicken dish for $15.00 and it cost them $4.00 that’s easy, $15.00 – $4.00 = $11.00. Are they happy now? They have their 27% food cost, and banked $11.00. All great until someone tells them of their error. Sure they ran a nice food cost, but they could have banked more money. How? By selling either of the other dishes. The steak, which cost them $7.00 to produce and sold for $19.00 would have banked them $12.00 and the steak and lobster would have brought in a whopping $16.00.

If it were me going to the bank to make the deposit I would much rather be depositing $16.00 for the steak and lobster verses the $11.00 for the chicken and would take the associated 43% food cost with a smile. So, next time your actual food cost numbers come in run your ideal food cost numbers to compare before you fly off the handle with your staff. The difference between your real and actual food costs is where any associated problems can be found with respect to theft or product waste issues.

Saad Hafez has written extensively for the Food & Beverage Underground

If you have received a letter or are subject to a Board Of Equalization Restaurant Audit, please contact us to learn more about how to protect yourself, your company and limit any potential fines or new sales tax debt.
_________________________
MAILING LIST EMAIL 4/22/09

Dear Friends,

Over the past two years the State Board Of Equalization has been conducting a “pilot program” to determine the lost, unreported or otherwise uncollected sales and use tax revenue. Upon completion of the pilot it was determined that over 3% of all CA businesses operate out of compliance and according to the “marketing collateral” as a result of this pilot, a “Compliance & Outreach Program has been created”.

Considering the financial position of this state it should really come as no great shock that such a “helpful” program is being created but what is more important is that the collateral and information provided does not seem to mention or preclude a sales tax audit. The follow up actions likely to be taken for each particular location are, therefore, probably based on the specialists findings of this pilot program. (i.e. we can assume these findings will determine any further investigation, audit or compliance requirements.)

The key phrase “they may ask for more information about your business operations” should answer almost all your questions. It is the view of many that this operation is intended to directly correlate a sellers permit with factual data regarding your business (number of seats / hours of operation etc) and therefore the intention is that based on their recent budget requests, the State will use heuristic technology to electronically identify sales and use tax fraud.

As of Q4 08, retailers have begun receiving notifications of an intended visit and its purpose. The current review team is organized via zip code and your particular locale may or may not be in the short vs long term list: no further guidance has been issued as to who will be reviewed and in what order. The intention, however, is to visit every non-residential property over an x year period so eventually, your business will be reviewed.

I would hope that all recipients of this email have their licenses, permits and other operating requirements up to date and in order – as the tax gap gets larger we can expect stronger enforcement (outreach) on a local level. For any liquor licensed location, please remember that the BoE is the one agency that can suspend your right to sell or consume liquor with barely any notice and in these difficult times, ignoring any obligations can create immediate and indeed negative ramifications.

Recent reports have shown that the delinquency period allowed by the BoE prior to enforcement and attempts to revoke your sellers permit or suspend your liquor license have halved. With so many businesses closing, the collections activity is increasingly improving in efficiency.

I have attached the official marketing kit for this program along with a recent article from a Huntington Beach magazine discussing same issues.

Many Thanks

James

A. As a hospitality operations consultant, I spend a lot of time with first time clients – some have amazing concepts that belong in a metropolitan area; others have a desire just to own a local bar in their hometown or local area; then there are those who are looking to invest or own a restaurant or bar for immigration purposes.

My first question to any of the above is, why?

The glitz and glamour is all smoke and mirrors – it’s very easy to forget that, as an operator, we work around-the-clock and our social and family lives disappear. The second we go on a summer vacation (even if we have competent managers and tried-and-tested procedures and processes in place), something seems to fall apart – we spend our entire vacation wishing we could be back with our venue. If you are a current operator, I can hear your agreement; if you are planning to become an operator I can hear your disagreement!

Lawyers, doctors, investment bankers – countless people (especially professionals) aspire to open a bar or restaurant “one day”.

All of that said, strong planning, economic analysis and an operator able to competently bridge the gap between front and back-of-house operations (and design policies and procedures that managers can understand and implement) have a serious head start.

Q. How do I find the right location for my concept?

A. I have been retained by many new operators, who have a fantastic restaurant or nightclub concept and are searching for a venue.

The reality is, they never really find the venue they want and so they struggle, or settle on a location because it is “the best of a bad bunch”, rather than an optimum site: New operators will often spend months looking for a location, and finally just take a space purely because they are so eager and desperate just to pull the trigger. This will often mean taking a space that will take them over budget either with respect to the rent payable or the cash amount of improvements needed.

These operators, in a race to market, also tend to accept rental terms and/or investment terms that would not normally be acceptable, just to get going – the repercussions, however, can be very problematic.

My general rule of thumb when choosing a restaurant or bar site is: “if you are going to settle, which I would rather you didn’t – at least choose a place with existing plumbing and electrical.” – it might seem obvious, and some people might view this as being unimportant but as a new operator, it is critical to only spend in areas where you can recoup cash outlay, either through depreciation or resale value. Plumbing & electrical in my experience have never really changed the value of a unit on the resale. The other reason I generally go with this theory is that if the infrastructure is not there, it exposes a whole new set of problems. I have lost count of the number of times that a small job has turned into a big job, with a requirement for new permits, more plans, more site inspections and generally more delays.

So, here is a quick tip for finding the right space: Most people that are in the market to sell their venue are out potential buyers’ price ranges – the broker websites or even individual brokers usually list spaces that are over-valued; you will be better off looking for locations you like and to which you wish to entitle yourself (which can be a long process, but cheaper in terms of key money), or a location that you like that is already entitled, but the owner has not really thought of sale.

My personal preference is to find the location first, and then determine the most financially viable concept for the space. There are some venues that I have wanted where I have contacted the owner, enquiring as to the possibility of a sale, every month for an extended period. Don’t be put off by an owner who says “no”, even if they keep doing so. There have been numerous occasions, with projects I have worked on, where the owner eventually has a change of heart – in those situations, if you have stayed in touch, and kept asking, your offer is likely to be the first looked at. We recently experienced this on behalf of a client looking for expansion – the landlord of our ideal location decided to sell after 18 months of our “check ins”.

Q. Everyone talks abouts percentage averages, cost of goods and other key gross sales anlyses that I should be doing. Any quick tips?

A. After we complete a contract we generally leave the owner or general manager with a simple spreadsheet – they can use this to enter key data.

We help them determine the range they should use to find their principal costs. From that point, any fluctuation outside that range should engender an immediate reaction – not necessarily alarm, but at least reaction. If the fluctuation continues over two cycles (we generally measure cycles in units of two weeks, i.e. two weeks to one cycle) and a trend is forming, the operator must find the root of the problem. The spreadsheet helps them to do this.

One service we provide when retained by a client is the “call back”. In our experience, customers will need our services again. It may not be immediate, but it does tend to happen when a new problem springs up and they need advice. The “trend calculator” is a great tool to determine when they should pick up the phone and allows us to go straight to the source of the problem, rather than redo all the data analysis.

How does it work?: We ask our venues to send us their range calculations every cycle, so that we can maintain data analysis on their site or help spot trend lines. Trend lines tend to be the most valuable data a venue can have and the longer the range of data, the easier it is to spot abnormalities or, in a seasonal environment, prepare for busier or slower periods proactively, instead of reactively. There are few things worse than knowing you are about to enter a slow sales period, but not decreasing the payroll or purchasing costs by the same percentage.

Please find a scaled-down example of such a trend calculator for your use – if you have specific trend questions, we’re very happy to share our know-how with you (though we can’t obviously post multiple excel pages containing formulae). Note that, when dealing with trend lines, the swing is completely location-dependant – the numbers placed in the calculator should reflect consistent averages over a period of time, or should be viewed in a turnaround context, as a means to forecast.

If you are interested in any of our services, please don’t hesitate to contact us.

There is money out there – it’s just harder to get to.

The Current Climate – What the $#&! is happening out there?

I don’t want to spend too much time on this; it’s pretty straightforward. Basically for years and years, financial institutions have been repackaging bad debt, and selling it on to other institutions in order to increase their profits generally, and finance the boom in M&A activity that we have seen over the past decade, specifically. As a famous TV network executive once said, “Finance is the art of passing money from hand to hand until it finally disappears”. So, of course, the problem is (and always was – it’s not a surprise to these guys, right – please, someone tell me they’re not actually surprised) that, at some point, someone has to pay. And right now, that someone is, well…, pretty much everyone in the World.

Who Cares?

Well, it’s a fair question. But apart from the blindingly obvious answer that it means consumers generally are more cautious about spending their money, experience shows us that there is a more important reason when looking at fundraising: Individual investors tend to spread their money across a variety of risks. Most will put X% into “safe” investments, Y% into ventures which are more than promising (i.e., where they can be fairly sure that they’ll at least break even) and then a small Z% into risky ventures, like bars, nightclubs and restaurants, in the hope that they will find the next California Pizza Kitchen (but they are very prepared to lose Z if need be). That’s what capital investment is all about – the spread of the risk.

So the problem is that, in the current climate, when previously safe investments (like a 150 year-old investment bank – Lehman Brothers) are no longer safe, investors either shift their capital out of Y and Z into X, or they shift it into the space under the mattress. (I’m not joking – these are the guys who invented the expression, “Cash is King” and, right now, they’re taking it to heart.)

Even institutions who are in the business of risk capital (venture capitalists and private equity houses), who invest mostly in the Z category (with a little in Y), are adjusting their risk spread to exclude anything which: (a) they don’t understand; (b) has its success driven by trendiness or the “cool” factor; or (c) which does not bear a good chance of delivering returns to them fairly quickly.

I shouldn’t have to tell you that for financiers, they would place hospitality venues firmly in the (a) and (b) category at the best of times. They would much rather make investments in proprietary technology (inherent value) or old manufacturing (lots of cost centers they can eradicate). As Suze Orman said, “It’s better to do nothing with your money than something you don’t understand”. So what do we have to do? We have to help them to recategorise us. We have to show them that an investment in our businesses will be as likely to deliver a return as in almost any other. And you should have faith – you can deliver the same % returns, if you do it properly.

After all, you have one thing in your favour – hospitality businesses tend to generate and process large volumes of cash. These guys love that. In fact, they love it more than almost anything else.

Nine Steps To Giving Yourself a Fighting Chance

As discussed above, your business is going to be firmly in the Z category (and somewhere near the bottom) before you’ve even left the gate. So here are nine tips for moving yourself out of the investment dead zone:

1. Be Prepared Son. Be Prepared.
   
   • Investors want to see focused people, with a good concept and, above all, a good, well thought-out plan:
     • DO some research on who you think would be best to approach – part of that research should include whether you know anyone who knows them or has delivered good results for them in the past. (Don’t be proud people – you should use whatever contacts you have to get through the front door.)
     • DO write a proper Business Plan. And get someone to help you – if you can’t afford us, call in a favour from your consultant friend (everyone has one), and ask your accountant friend (everyone has one of these too – they just don’t like to admit it) to help on the budget/projections.
     • DO include numbers! These guys only care about numbers. They only care about concepts, designs and feelings to the extent they make numbers better. These people have small hearts – feelings make them nervous.
     • DO NOT, under any circumstances, send the BP out to every member of the National Venture Capital Association. No bulk mail shots. Ever. Investors like to feel special. Investors like to feel that they have been targeted because you have already decided that the relationship would be a good fit. Taylor each plan to each investor if need be. And send out a few at a time.
     • DO try to find strategic investors (people who already own significant investments in hospitality or who can bring some retail experience to management) – they will be starting further up the curve. With institutional investors, I would advise against targeting funds who have never owned anything in the retail/leisure/hospitality sector. With individuals (business angels, etc), I would avoid people who just want to look cool and drink their own liquor in a nightclub – you are rarely going to be on the same page.
2. “Honesty is the Best Policy – When There is Money in It.” (Mark Twain)
   • You’ve got to be a complete idiot to lie to these people. Most of them stopped being accountants, lawyers or investment bankers because that was too easy for them. They’ve done hundreds of deals and have heard every possible variation on every lie by a previous owner, current partner or existing manager. They already think the hospitality industry is full of crooks, so prove that you’re not one of them.
   • Getting the numbers right in the Business Plan is what we call a 30-Second Deal Point – 30 seconds is that amount of time it will take them to walk out the door if they think you’re lying about it (and that includes lying by omission). Apart from anything else (see below), what these people are looking for is opportunity for growth – so don’t be afraid of showing them that things aren’t so good.
3. “Business? It’s Quite Simple. It’s Other People’s Money.” (Alexandre Dumas)
   • Never forget that it’s their money and, once again, that this is an industry financiers are inherently suspicious of. So manage their expectations – always under promise and over deliver. From the beginning. Again, don’t show them a golden, glowing business in your business plan or your negotiations. Show them a golden OPPORTUNITY.
4. “Half the Money I Spend on Advertising is Wasted; the Trouble is I Don’t Know Which Half.” (John Wanamaker)
   • Show them why this can be at least as good, if not better (remember what we said about cash above) than the other investments they’re looking at:
   1. • Show them how much cash you generate.Explain how your plans will translate into higher revenues and greater cost savings – increased margins mean more cash.
      • Talk to them about how, because of that increase in cash/saving, you will be able to make distributions of profits to them prior to them ‘exiting’ the investment (they LOVE that).
5. Show them the Exit
   • I don’t mean show them the door – I mean show them how and when they are likely to realize a full return on their capital investment. All investors have got both (not one) eyes on: (a) how they are going to get out; and (b) how much money they are going to earn when they do.
   • Explain it to them – we’re going to IPO (if you’re very ambitious), we’re aiming to pre-package a sale to X (if the concept lends itself to that) or we’re going to buy you out ourselves once our value has grown in line with projections. The fact is, you are almost always going to be able to refinance/bring in a new (often bigger) investor if things go well.
   • Investors measure profit, not just as a percentage return, but as a function of time. A 100% return within 6 months is worth more than a 300% return in 4 years. The question they ask is “How long will it take me to earn how much?”. The important thing is that you show them you’re always thinking about it and that you have a timeline in mind. (Timeline Tip: Anything more than five years is almost certainly too long.)
   • Paint them a picture, and make it based on reasonable assumptions, and numbers that you can deliver.
6. You’re Not Red Lobster Yet
   • So don’t pretend you are. You may think that your business is worth $20,000,000. It isn’t. It might be one day, but it isn’t now.
   • Be open-minded about the valuation they give you. These people measure value in a rigid manner, as part of an established financial construct. And the question they’ll be looking at is “what is it worth NOW?”. Don’t try and tell them how to do their job – you’d be horrified if they told you how to mix a cocktail.
   • If you look at this properly, it is an opportunity. You should almost discount the value before they sit down – see tip number 3: It’s the OPPORTUNITY they’re looking at.
7. And You’re Not the CEO of Red Lobster Either
   • Investors will always insist on incentive-based remuneration/equity for you. You have to earn your money, and your capital stake will only grow if you do well. Deal with it. These guys have zero interest in how much work you’ve put in already. If you were doing so well, you wouldn’t need them.
   1. • The main thing is to make sure that, if you do deliver¸ you are appropriately compensated – often investors will roll out a formula for increasing your equity stake if you produce results.That’s fine (and you should welcome it) provided that it adequately deals with what happens if you leave the business.
      • On this last point, the general rule is that “Good Leavers” (people who get sick or die, or who leave amicably) should be rewarded with the full value of their equity; “Bad Leavers” (people who get fired for cause, commit criminal acts, lie, etc) traditionally get nothing.
      • Be open-minded about the veto rights they will want – they will want to ensure that you can’t go out and buy equipment over and above a certain amount without their say-so, or sell assets without their say-so, etc.
8. Put Some Skin in the Game
   • It will be very irritating to you, but investors almost always require the owner-operator to have something more to lose. In the old days, they used to ask you to mortgage your house. Now, they’ll often settle for you to give them security over your interests in the business. Of course it’s irritating because you probably already have some cash investment in the business or, as I’m sure you would say, “if you measured how much time and the huge part of my life I’ve put into it,…etc, etc).
   • Stop whining. They don’t care. They are only interested in what MORE you have to lose if they make their investment. In their minds, it’s the only way to keep you honest – the theory is that you don’t care about what you’ve already lost.
   • (The only real exception is if you gave up something else (another job, another venue) in order to focus 100% on this. That is a sacrifice in their eyes. And that’s what they’re looking for.)
9. DON’T SCREW THEM
   • I’m saying it to you again so that you can’t claim I failed to warn you. Before these guys have sat down at the table with you, they have worked out the 100 different ways they can get hosed. You can be certain they will have thought of many others which you haven’t. Don’t do it. Ever. If you do, the word will get around and you will never raise another penny again. In this or any other venture.

Wrapping It Up

As ever, the above is not an exhaustive guide. When targeting an investment, and certainly when negotiating it, you should get help from professionals. It’s money well spent and will save you a great deal of aggravation in the long run (assuming you get the right help, of course). In addition, you could always consider borrowing the money. I guess my comment would be: (a) good luck with that in this climate; and (b) I never recommend that a client should introduce the trials and tribulations of servicing a loan, when they are most likely looking for investment because cash flow is tight. Unless you have a big enough cash/equity cushion, debt (particularly at today’s prices) will almost certainly make things worse.

- James Sinclair, OnSite Consulting

James is an expert in maximizing returns from hospitality venues, whether in relation to a start-up new venue, redeveloping an existing venue or saving problem venues from insolvency. In addition to owning a number of successful bars, nightclubs and restaurants himself, his advice is sought around the country by owners and operators who need his specialist expertise when tackling the specific problems they face.

If you are interested in any of our services, please don’t hesitate to contact us.

I have received a number of emails and phone calls recently in regards to the impact restaurants have seen from what is, without question, an extraordinarily slow period. Operators are finding that they are not just having to deal with the annual, seasonal revenue cycle, but that they are faced with a simultaneous and overlapping crash on consumer confidence, the likes of which have not been witnessed for over a decade. On the assumption that it will not be getting better any time soon, immediate planning can allow for both current and future survival.

I. THE PROBLEM

When consumer spending and confidence hits this kind of dip, the first industry to suffer is the hospitality market.

It’s not very complicated: Consumers have a lower disposable income which, when combined with their view of the market leads to them moving any disposable income they do have to the warm hiding place under the proverbial mattress. As the time of writing, even the banks are under pressure. I was sitting in a client’s office when news broke that Washington Mutual had collapsed and the FDIC was seeking an emergency solution. My client raced to the bank to withdraw his maximum available amount and was freaking out about what would happen tomorrow. His worry was not losing his money – it was obviously protected – his worry was the potential interruption to his business operations.

After all, it is cash strapped businesses like bars, nightclubs and restaurants that write checks and pay bills on tomorrow’s merchant drop, and with credit card sales now making up the overwhelming majority of the transaction base, an interruption of any kind has a domino effect.

We have all seen it and been there; first the Sales tax does not get paid, followed swiftly by the payroll deposits to the IRS and EDD. You are faced with spiraling balances to your NET 30 vendors and, suddenly, within 60 days you are purchasing from a supermarket. Once you fall behind, catching up and becoming current become ever more remote. You are not the first and certainly will not be the last.

II. FOLLOWING THE MONEY LINE (FML) – A BIG PART OF THE SOLUTION

FML has been my strategy from day one – the solutions and options are obviously dependant on size and scope, but with many clients being single or few-venue owner-operators, my suggestions are geared to that market. Here are a few:

Get Your Hands Dirty

Many owner operators have not really jumped back into the hot seat of being their venue General Manager since the first six months of opening. The wear and tear of an NSO and the first months of operation have made hiring a competent manager (who allows you a day off) a delightful relief. From there we all get busy on our next venture, and it is all to easy to forget about the small things – while you may have spent a lot of time at your location generally, you find you have only returned to back-of-house operations and management, when there has been a larger problem.

By retaking your position at the wheel of back and front-of-house operations, you will immediately see a million things that need to be fixed – most of the time, there will be a solution to remove the problem in entirety and save money, or a cost/benefit analysis will show that you will actually make money by spending a little.

So, first things first:

• Your office should be moved directly into your venue if it is not already.
• You should have access to all your accounting data including vendors and payroll.
• You should be working adjacent to your management team.
• You should be on location day and night for a short period, having a hand in every decision, action or dollar spent.

Share the Load – Motivate Your Managers

If your staff are not aware of the cash crunch you are facing, now is the time to bring your upper management up to speed – they are the executioners of your objectives and the motivation of being involved in the solution will have them looking for ways to save or become more efficient, which will produce better results.

Set Your Targets and Chart Your Progress

The first item I generally always try to create is a “money saved spreadsheet” with simple columns: ITEM and then money saved into columns of DAILY/WEEKLY/MONTHLY/YEARLY.

Once you have an item and the associated saving, the number can be placed under the appropriate column and excel can generate the savings in either direction. This spreadsheet, which should be shared with management also allows for tracking progress, so that you actually see the direct result on paper – seeing the saving itself helps bring about the goal.

Don’t Ignore the Little Things – They Grow

The accumulated results of small savings are IMMENSE. A recent client provides a nice case study of how you can achieve immediate savings (not including payroll and COGS):

CASE STUDY: Of course every venue is case specific but in this instance there were so many small items that they actually represented a majority of the wasted expenditure. Just moving to a larger CO2 tank instead of the smaller ones saved $8,000 annually, and having the cleaning crew removed and using existing staff instead saved over $42,000.

Paying attention to very small line items can deliver fantastic savings when amortized over the course of a year. In our case study, cancelling directTV saved $1,400, and having the staff use their own knives instead of using a service saved $1,200.

That’s over $52,000 saved right there, without even trying very hard.

But it’s more than just the money – by forcing yourself back into every nook and cranny of the business, you will find other problems of inefficiency and leakage.

Cross Utilizing Your Staff

In the current climate, a venue operator would do well to use a dynamic scheduling strategy – a scheduling process that can adapt to slower nights without degradation of service.

On a slow Monday can your:

• Busboy also bar-back?
• Second bartender also be a server (and vice versa)?
• Runner be used as a busser?

The payroll is the largest single expense you have and by being on site you can see the opportunities for cross utilization. 30 minutes after you close, why are there still hourly employees clocked in? 2hrs before you are open who is clocked in, what are they doing and could they come in 1hr later and just work harder?

CASE STUDY: A client of mine with revenues of $2.3m was able to shave $350,000 off its annual payroll after 15 days of evaluation. That’s 15% of revenues saved using a dynamic scheduling method. Obviously there was significant data analysis and historic number crunching required, but the only important factor is whether the customer noticed any difference to the level or quality of service. From small bar to fine dining, every operator has uttered the magic words “if the customer had any idea”. Plunging a toilet of one of our client’s restaurants last week I wondered the same thing!

Staffing is and will always be a problem area, but time served preparing, analyzing and creating a solution will recoup serious dividends.

Remember: Vendors and Operators Live in the Same Space-Time Continuum

It’s simple really: your vendors are suffering under the same economic conditions as you are. They don’t live in a parallel universe. And their only insulation from the downturn is for their customers to stay in business.

By way of example, Sysco Food Services are experiencing one of their highest months of returned checks and delinquent accounts – so much so, that they now have a delinquent account specialist who can keep you ordering, even with a past due balance. Smaller vendors with large balances can be asked to move deliveries to COD with 5% of the past due balance added to each order. Sysco is well aware that you still need your product, and will find it from somewhere, so they may as well try and recoup the loss and mitigate their exposure by helping you work your way out of difficult times. So many clients just stop answering the phone when their best bet might be to maintain the existing relationships they have (however strained they may be).

If, however, you are a good or at least quasi-decent customer, now is the time to negotiate with your vendors. Maybe if you change your terms from net 30 to net 10 they will give a larger discount? Smaller vendors would love to shorten their exposure to loss and bring down their AR. Maybe if you consolidate your meat, fish and produce under one company, they will provide savings that surpass the smaller vendors. These are all questions which, if addressed, could provide immediate savings.

Get Smarter About Your Inventory – Product on Your Shelf is Money not in Your Bank Account

Almost every site I walk into has thousands of dollars worth of inventory they rarely use. It doesn’t matter whether we are talking about incessant liquor promotions or just plain bad weekly ordering – the net effect is the same.

So one of my most important recommendations in tough times is to manage your inventory better:

• Order Just-In-Time for the week or half week.
• Pick a vodka brand and stick to it (by ordering more of a single product you can generally get purchasing discounts per case).
• For the akward bottles that no-one drinks, simple solutions can include a drink special for a slightly reduced price or a custom cocktail to a small private party so they believe they are getting a good deal. (In a more up market establishment, a custom cocktail list may allow for the products to be sold for a premium.)

CASE STUDY: Our mixologist took a recent client who had a huge amount of non-moving inventory including a terrible (lets keep it un-named!!) vodka and created a cocktail which sold off the shelf for a premium and forced the client to purchase more product. The end result was the creation of a “Specialty Cocktail List” which works very well.

However, before one races to create this, the costs of the other ingredients, the shadow costs of training staff in preparation and up-selling and the education of customers costs real money and must be properly analyzed prior to execution.

CASE STUDY: A recent Mexican restaurant we worked with was suffering from low sales and generally poor returns so, before they phoned us they added a tequila bar and an inventory of rare and expensive tequilas. None of them sold and now they just have boxes of tequila on a shelf.

CASE STUDY: In a recent nightclub just taking the excess product and creating a fun shot was an easy and quick way to get rid of the product and still see a return. It may not have been the return they originally envisaged when they first purchased the product, but they certainly received more cash than they did when it was sitting on the shelf gathering dust.

The Lesson: There is a method to adding to menu items or twists / extensions of the concept and not following them has as much chance of leading to failure as to success. Many fine restaurants do the same thing with their wine list as the Mexican restaurant did with tequila, but such a one-dimensional approach, if used in isolation, will almost certainly fail every time.

Remember the Point – They’re There to Enjoy Themselves

The product being offered to the consumer and the overall dining experience MUST BE flawless. No ifs, no buts and no maybes. In this market with so much competition, there is no margin of error for a bad dining experience.

II. YOU NEED MORE THAN JUST AN ARTICLE

It is so important to read this article as a guide to the kinds of things you should be thinking about, not a comprehensive step-by-step to instant success. The suggestions set out here have been proven to produce some immediate results, but you will need more than a few tips. A serious process of evaluation, planning and execution is an absolute must. And in the final analysis, I have found the key to lie in constant, honest and intense scrutiny of the data delivered from back and front-of-house. No amount spent is too small or too sporadic to merit your full attention.

- James Sinclair, OnSite Consulting

James is an expert in maximizing returns from hospitality venues, whether in relation to a start-up new venue, redeveloping an existing venue or saving problem venues from insolvency. In addition to owning a number of successful bars, nightclubs and restaurants himself, his advice is sought around the country by owners and operators who need his specialist expertise when tackling the specific problems they face.

If you are interested in any of our services, please don’t hesitate to contact us.

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