[00:00:00] Speaker A: Sometimes it's difficult to explain exactly what coaching is and to explain how it's different than consulting. If you've been listening for a while, you know that in addition to hosting this podcast, I also founded something called the P3 mastermind. It's a group coaching program where we work with independent restaurant owners to help them increase the profitability of their restaurants so ultimately they can scale. Over the coming months, I'm going to try to get better about giving you a chance to peek behind the curtain so you can see what happens behind closed doors. Today I'm joined by a restaurant owner who's thinking about expanding. It's about a 25 minute conversation so you can see what coaching is in real time. Don't go anywhere.
There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking.
[00:01:03] Speaker B: Foreign.
[00:01:10] Speaker A: Thanks for tuning in. My name is Chip Close. This is the Restaurant Strategy Podcast. We are cruising towards 600 episodes. We put out two episodes every single day. We've been at this for the last seven years. Hope you get a lot out of this show. One episode a week focuses on operations, the other one on marketing. All of it is meant to help you level up. If you need more individualized products, personalized attention, well, that's what coaching is for. I run something called the P3 mastermind. You can learn more about that
[email protected] as always, you're going to find that link in the show notes. But it's all about getting you to 20% profit consistent, predictable 20% returns. If you think it's crazy or outlandish or, or or out in left field, I'm here to tell you that the very best owners and operators in the world, the biggest restaurant groups and chains in the world, know that they have to target 20% or more and quick serving, quick service and f casual or more like 25, 30, 35. I promise you it's possible. We've worked with hundreds of people over the last five years since launching the program. Go to RSProfit.com to learn more.
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[00:03:15] Speaker B: My name is Gianna Fristo and I'm the owner of the 11th house in Lafayette, Indiana, which is we're a coffee shop and we've been in business for six years and we're trying to look at expanding into potentially opening up another concept outside of coffee.
Our town is growing rapidly and there's a ton of demand on an opportunity for another restaurant. So I just want to try to dive into a little bit more of what that looks like. Whether we're structured as a hospitality group or just as a completely second entity, kind of dive into what those opportunities look like and the best way to go about it.
[00:03:50] Speaker A: Perfect. So I appreciate the question. I think it's great. Gives us a lot to dig into.
Naturally, my questions are going to be who is the company? Do you have partners? And talk to me about high level leadership because that will tell us sort of the capacity for you guys to expand.
[00:04:08] Speaker B: So right now, the way that it's operating, I am the only, we don't have any partners. I'm the only owner. But I would like to dive into maybe looking into getting other partners or investors because my resources are obviously super limited just as an individual. And I want to in Lafayette particularly too, things start off, there's an opportunity to create restaurants that have really good environments. And so I want to make sure that we start off with a decent amount of capital to work with. But currently our it's just me. So that's what I'm just building up kind of a management team.
But it's kind of hard in a coffee shop and we're, we do coffee and bagels and bagel sandwiches. So we're kind of more of a, instead of just like a coffee shop, we're definitely more of like a counter service, brunch kind of place is what it ends up being, especially on weekends, line to the door.
So working on kind of developing More of that, like middle management for sure, to eventually kind of take over.
[00:05:13] Speaker A: So, great. Next natural question is, do you have the team in place so that the coffee shop can just run on its own without you? Like, if you had to leave there and not walk back through the doors for six months, could it keep running or would it fall apart? Honest question.
[00:05:32] Speaker B: It would keep running for a little bit, but eventually fall apart. Because my own shortcomings, which is not providing the structure, the black and white, the checklist necessarily, that they would need to keep it running. They could. I have people who are completely capable. I know that I'm the one that's kind of holding them back in that sense.
[00:05:52] Speaker A: Yeah, I think it's.
We talk a lot about. In the P3 mastermind, as you know, we talk a lot about humility. Humility, I think, is a key ingredient to success in the program because everybody in the program knows what they're doing, they're confident, they're capable, they've certainly accomplished a great deal. But we have to have the humility, I think, to acknowledge where our shortcomings are. I always say that, you know, if you're the problem, the good news is you also get to be the solution. If the problem is caused by something external, you are at the mercy of whatever that external force is, whether it's market conditions or a landlord or your staff or whatever. But if you can take ownership of it or you can see how the problem ultimately is yours, you get to own the solution.
That's my first piece of advice before you do any expansion, is to make sure you've got a place that can run without you. I always say minimum 90 days, but since you are trying to do an entirely different concept, I think it's going to be bigger than just you opening up another coffee shop. Right. Which is my next natural question. When you talk about expansion, did it ever cross your mind to open up another location of the same concept you already have
[00:07:09] Speaker B: when we opened up? No. And I think that I struggle with opening up another coffee shop because in our, particularly this one, I feel like the heart in the community is such a big part of it. So I struggle, I think, with opening up another 11th house. However, I think that it could take similar structure, do it under a different brand, different name and call it good.
[00:07:29] Speaker A: So naturally my question would be, and maybe not even in your market, because there are plenty of markets that are just so small that it wouldn't require you to have two locations, you know, of the same. Of the same concept. So potential solution Is a different.
Under a different name, you know, just a different brand altogether? Or the next natural question is, are there surrounding markets, are there other towns that look like your town where you could plop one of these and it would do well, you know, do the same conditions exist elsewhere that exist here? I know you said community.
There are all kinds of, you know, the community is deep in a lot of different markets. So are there markets in the 20, 30, 40 minutes away from the current location?
[00:08:15] Speaker B: There could be. Yes, definitely. I feel like Lafayette, the price of lemming has gotten so.
Has gotten so expensive that people are kind of looking outwards for sure.
[00:08:27] Speaker A: Yep.
Naturally. That would be my first question, because one of the things you said wrapped up in your question is, you know, how do we expand? How do we manage that expansion?
Part of this is capital. Whether that's just a traditional loan, sba, whether that's investors, partners, that. That's a question.
I'm guessing that a coffee house, especially if it was sort of bootstrapped, was sort of done for a much lower investment than if you were to open a full blown, full service restaurant. Fair.
[00:09:00] Speaker B: Oh, yeah.
[00:09:01] Speaker A: So is there the potential of. So you got this restaurant and it's running well, six years, certainly. That's sort of proof of concept there.
It's cash flowing, right.
And you know, and you know it well, which is, I think, crucial.
The natural bit of advice might be what happens if you open two more that can cash flow in the same amount and you spin all that cash flow to reinvest in this other concept. Right. Maybe you say, well, I don't want to be in the coffee game anymore, which is. Which is possible.
But that's my natural question. If you look at what this location is cash flowing, and you said, okay, if I could triple that, if I could live on what this one is paying me and just invest, that would. A year, you know, a year of that, you know, stacking that cash or two years of stacking that cash. Would that allow you to open a bigger property and basically be self financed? Does that make sense?
[00:10:06] Speaker B: For sure. And that would. I mean, I feel like that's kind of the goal. Instead of going to investors, I feel like I just always hear people talk about going to investors, which is why I feel like I would like to explore. But Lafayette, too, is still. While the cost of living has gone up, the rent is still very cheap downtown particularly, and super affordable. So starting something up doesn't have to be this massive financial undertaking necessarily.
[00:10:32] Speaker A: Okay. And the rent isn't even usually the Biggest thing that stresses me out because I think of the build out costs. If you're moving plumbing, if you're putting in a bar, you know, if you're taking over a second gen space that already has a bar and the plumbing for that and the electrics and the hood and the kitchen's built out, then okay. But if you have to move anything, moving walls, moving any sort of electrical, ventilation, any sort of plumbing, that gets expensive. And with a full service restaurant, it's also the startup costs of bringing in all that inventory, stocking a back bar and then beer and then wine and all of that ends up making for a meaningful piece of the initial capital raise. Does that make sense?
[00:11:20] Speaker B: Definitely, yeah.
And we. There's one, I think part of why I want to have a plan in place and figure something out. There's one spot that I have because there's one spot I have my eye on downtown. And I know that it will.
The opportunity will come up sooner than later.
So I just want to be able to kind of have a plan in place to be ready to go whenever that comes around.
[00:11:43] Speaker A: Okay, so then this is a really to.
[00:11:46] Speaker B: I mean, I'm thinking like the next like one to two years, basically.
[00:11:50] Speaker A: Great. So then this is a really good. So that was my next natural question is that did you have a spot in mind? So this is an existing restaurant that is failing that you'll take over.
[00:12:00] Speaker B: They.
They're not failing, but they. But essentially, yes. They just stopped doing full service and they have a whole patio and everything like that. And so they are out of. Sorry, one second.
Hey, Emery. Sorry.
They aren't failing, but they are.
They just started doing catering basically and stopped doing full service. So they are no longer doing anything with their dining room or anything like that. So I know that the time is limited.
[00:12:31] Speaker A: Okay.
And so in that case, it's a matter of sitting on the space and waiting for it to go under. Do you have a relationship already built with the landlord?
[00:12:42] Speaker B: Yes, he is currently my landlord and he's ready to see that space kind of turn into something that's a little bit more usable than what it is right now. He wants to see the patio full. He wants to see. Yeah.
[00:12:54] Speaker A: Okay. So my first natural advice here would be getting the existing coffee shop, the 11th house standing on its own, where it does not need you for anything that might be installing like a really good GM or a managing partner, but making sure that can live on its own. Opening a second location of that might actually counterintuitively be the right step. Because it will force you when you go focus on property B, A has to stand on its own. Right.
[00:13:26] Speaker B: That's a really good point.
[00:13:28] Speaker A: You also get to with the idea that you're going to open location B as something you are really never going to spend time in.
So it puts you in the frame of mind because you cannot open a full service restaurant with a full patio. And all of this that you're describing, if even a part of you, if you have even a. A toe in any of the other places. Does that make sense?
[00:13:53] Speaker B: Yes.
[00:13:54] Speaker A: Okay. So naturally you've got this space that's maybe sitting there that's going to become available.
The easier move though, I think.
Right. Is maybe expanding the existing concept into another location which obviously isn't right for the space that you're looking at.
[00:14:10] Speaker B: Right.
[00:14:10] Speaker A: My advice is still the same. I think you have to be able to walk out this door of location number one with the understanding that it's never going to need you to walk back in it. So that's probably installing either a high level GM or even a managing partner where part of the compensation package is a share of the bottom line so that you've got somebody who really, you know, even if it's not full equity, there is a share that their compensation is tied to the bottom line so that they have a sense of ownership. I think you're going to have to figure out how to make this thing stand up on its own. And by your own admission, you. The only limitation is you not having the proper checklists sops the standards of operating all of that. The good news is all of that we can do. Right. You can put all of that in place.
[00:14:56] Speaker B: Definitely.
[00:14:57] Speaker A: If you were to then open up a second place, it would be a good another 11th house, whether on the other side of town or in a nearby market that looks similar to this one. The beauty is you've got the menu, you've got the relationships built with your partners, your distributors, your purveyor. Like you know how this thing operates. And I think there's value to understanding how this can operate that opening another one of these. There's sort of like an easy button there. Certainly easier than if you opened a full service restaurant that's downtown with a big patio and all of that.
It'll also cash flow positive in a couple of months and. And all of that can be reinvested. Does all of that make sense?
[00:15:43] Speaker B: Totally. Absolutely.
[00:15:46] Speaker A: When we look now, the other part of your question was you've got a relationship built with the landlord already. So you're sort of sitting on the space, waiting for it to fail. Maybe it's just key money taking over everything that's in the space. As long as the space is all built out and you don't have to move walls or plumbing or electrics or exhaust, all of that's good news.
As you go to open that now, you're going to need to think bigger. And I think you have to start thinking in terms of what sort of capital is really required to open that up. I think doing that, that math now, having that number in your head, whether that's 300k, 600k million and a half, 3 million, whatever that number is, understanding what it is.
I will also say that if you wanted to go out and get investors, you obviously could. But equity is always the last thing we give up in any business.
So as you get investors, you're going to be giving away points on this place. Maybe even you're going to, you know, there's a million ways to structure it.
But equity is always the last thing we try to give up. So really what we're doing is we're going for bank loans probably, or even approaching investors with a traditional, like payback period. Right. So saying, hey, I'm not giving up equity. I'm really looking for people to come in and, you know, generate a loan for me. So that's either bank, private, you know, individuals, or like an SBA loan. Yeah, all of those are good. The reason I bring all that up and the reason now I go back to how we connect the existing location and maybe another location of it, is that proof of concept. If you want to go and you say, I opened up one, it's been running six years, look at how it's cash flowing. I then opened up a second one within three months. It was cash flowing positive. Look, these two things are clicking all along now. I want to get bigger and I want to open another concept. You can show that, like, look, I know what I'm doing and I've successfully stepped away. Because the natural question is, and this is what any investor, bank, whatever would look at you and say, well, yeah, you did this little. Right. This is come out as condescension.
They'll look at you and say, well, yeah, I mean, you did this little coffee shop, but it was just you and a small team, you know, and you've never even done a second one and let alone something even bigger and a bigger undertaking and a bigger investment. And so what you're trying to do is you're, you're making it easy for them to hedge their bets. You say, I did this, it was successful, I stepped away. That thing ran on its own, was still very profitable. I opened up this second, you know, second location of the same concept. Got that installed. Man, that thing was cash flowing positive. And now I want to really make the jump. You can show that you've been able to build businesses that can run themselves, that can be successfully, consistently, predictably profitable. It makes that next ask so much easier. Do you see that?
[00:18:36] Speaker B: Oh, yeah, that makes total sense.
[00:18:38] Speaker A: Yep. It's also anyone who's any entrepreneur who started something, right, you know this, you got to crawl before you walk, walk before you run.
And so you're in, I think, the crawling phase.
[00:18:52] Speaker B: Yeah.
[00:18:52] Speaker A: And the last thing we want to do, and you've got a young family, obviously the last thing I'd want you to do is to try and take on something too big before your business. Your personal life is really ready to allow for that. Because I want you to set up this coffee shop so it doesn't need you. I want you to set up the other one so it doesn't need you. And then the big restaurant. The worst thing possible is if you created two coffee shops that were cash flow positive and didn't need you and then you opened up a restaurant that needs you all the time. All the time. All the time. I want you to be able to open up that full service restaurant where it barely needs you. Think of any major restaurant tour. Right. Danny Meyer, Danny Meyer has dozens of restaurants. Right. He is not in most of them every day. Maybe he's in one of, but he's having meetings here and there, he's having dinner in them. He's not there operating. So he's figured something out where it can operate himself. And we all know there's, there's dozens of restaurant owners and restaurateurs who live like that.
It sounds weird to think of yourself in those terms, but we have to have that mindset going into any sort of expansion. Does that make sense?
[00:20:03] Speaker B: Oh, yeah, absolutely.
[00:20:05] Speaker A: Okay, let's make this actionable then.
[00:20:08] Speaker B: Okay.
[00:20:10] Speaker A: The first thing you need to do is think in terms of, okay, I'm going away for 90 days, been away for 90 days, I can't walk in. What's everything that would be required. So part of that is like the checklist, the SOPs, the run of day, the making sure everything is properly documented, like how this place has to run.
Right. That's the first thing which, you know, that's honestly, that's two Weeks of hard work of you putting all that stuff together. And what I will say is, it's probably not you. It's probably you saying to the opening barista, hey, can you build me a checklist of everything you do in the morning? The opening line cook? What's the thing you, you know, your kitchen manager, whatever, you know, what's the thing you do every day on Monday, Tuesday, Wednesday? How do you do your ordering? How do you take inventory? Like having them document their process and giving them say, hey, two weeks from now, I need these five documents, Right. You can then compile them and make amendments to them. You can edit them, but they're doing all the hard work, Right.
Many hands make light work. So that's the first thing you need to do, is document everything.
Second thing I need you to do is, I think, take stock of your team and say, okay, because there's a team that works now, right? But Jeffers hear that saying, the things that got you here cannot get you there.
[00:21:26] Speaker B: No, but that makes sense.
[00:21:28] Speaker A: There is a team that sometimes will take you as far as they can take you.
With you being so present, they succeed.
But you might realize that, oh, three of my five people are going to be great without me, but these two are going to flounder without me. And I think you have to be really, really judicious, really honest to say, okay, the way the business operated up to this point is one thing, and the way it's going to move on next is going to be something else. That that's really important is looking at your personnel. The best business book that's ever been written is good to great. It's written by Jim Collins, it's written back and published in 2001. Most of the examples are outdated, but every single framework still holds. And his very first rule for growing any business said, you got to find the right people, get them on the bus, get them in the right seats. So you have to look, I think, at your people and understand if you've got people who can run this thing without you, that's the. That's the next thing for sure.
I would strongly urge you to talk to this landlord and say, I need Runway.
See how long they can run this company. See how long they can sort of stretch out their life.
[00:22:37] Speaker B: Yeah.
[00:22:38] Speaker A: And because you've already said you're interested and you could, you know, come in there and all of that, for sure, you just need a little bit of Runway. The other thing I'm going to ask you to do is I want you to look for Other spaces that could successfully house an 11th house. Yeah, that could be in this market on another side of town, that could be in another nearby market. It's obviously got to be close enough that you could get to because any opening is going to require you there a meaningful amount. But you know, look for similar foot track traffic, similar demographics, similar community that's going to embrace it in the same way.
I think that's probably worth a couple of weeks putting a broker on it and say, hey, in theory, if I wanted to, hypothetically if I wanted to open another one of these, what do you got for me? What spaces exist within a 25 minute radius? Right.
I think that's worth some of your time in doing questions about that.
[00:23:41] Speaker B: I don't have any questions about that. No, I don't.
[00:23:45] Speaker A: Okay, so the SOPs, the checklist, the standards, all of that, that's the first thing. Number two, looking at your personnel and really being able to understand who can operate without you. Also who are the natural leaders that you'll want to bring with you because if you've got eight people on staff, there's potential that half of them come with you to the new place. That's also important too, right. Are there any key players that will be instrumental in you opening the new place? So number one, all the SOPs, the checklist. Number two, looking at your people, number three, I strongly urge you to shop around for another space just to see what's available. Just to see. Hypothetically, we're not doing anything, we're just seeing if there's a place we like as much as the current location where we could open another location.
When you are buying at scale, right, when you're buying more beans, more bagels, you will get better pricing on all of your products. Right? Which is, which is other things that we can talk about which are going to lower your cost of goods.
When you're buying enough product for two locations. And then the last thing I would do is just have a conversation with your landlord and just see if they can just push off that space a little bit so that you can do the machinations with a second location. There's a good chance you can just cash flow, all that, throw that into a savings account and eventually that can be a key investment.
Also we talked about capital.
When you go to a bank and you say, hey, I'm looking to raise, I'm going to make up the number, I'm looking for 800k and I've already got 300k cash in the bank or whatever that number is it becomes different if say hey Listen I got 30, 40% of it already raised. I'm just looking at for someone to help me get the rest of the way there.
You get to call the shots. You want to put yourself in a position where you've got some leverage and if you open another shop, shop that is raising, you know that can generate 100, 200k a year in just like straight profit to the bottom line. Going in a savings account to be reinvested, that's only going to help you in the future. Does that make sense?
[00:25:47] Speaker B: Oh yeah, absolutely.
[00:25:48] Speaker A: Great.
Go do all of those things and I would love to follow up at some point and see what you came back with after like I mean literally 30 days. All of this should be done and I think you'll have a better, better perspective on which direction to go for sure.
[00:26:04] Speaker B: I think that's a great goal.
[00:26:06] Speaker A: Perf.
