Lesson #2: “A restaurant company needs two things to succeed: capital and talent”

"In the early days we did not offer stock for sale because I could not predict how fast the company might grow or what dividends we might pay to anyone who might invest," recalls Cathy. "Additionally, I'm afraid the directors, if we had a bad year, might tell me I'm old fashioned and fire me." Despite his initial fears of failing, Cathy knew that so long as he had two things - capital and talent - he had a good chance of success. But because in the early days of the business both capital and talent were in short supply, Cathy decided he would have to concentrate on being as creative as possible, and finding others who were the same.

When Cathy and his brother were constructing their first Dwarf Grill restaurant, they ran into a number of challenges. How they resolved them were lessons that Cathy would remember throughout his business career.

First of all, the boys had a shortage of nails and lumber. What they found was expensive and out of their price range. To solve this they traveled to smaller towns where they could buys nails in only small quantities. They also gathered up old, bent nails and straightened them. For the lumber, they scavenged through torn-down buildings to find scrap wood that was still usable.

Because all of the construction workers they found were again, out of their budget, Cathy and his brother decided to instead do most of the work themselves. They learned how to do everything from hanging sheet rock to digging footings. They were as hands-on as any owners could be.

Once they had the initial structure in place, they had to go about stocking it with equipment. In order to cut down on costs, they bought used equipment from restaurants that had already gone out of business. Even more expensive than equipment, the Cathy brothers found, was the foodstuffs, in particular meat. To get around this problem, they formed an unlikely partnership with one of the other large local restaurants who already had a good standing relationships with meat suppliers. They agreed to purchase meat for Cathy's restaurant as well.

"Franchise restaurant corporations raise capital by selling the rights - usually for hundreds of thousands of dollars - to open a restaurant to people who have already succeeded in the business and are looking for a good investment," says Cathy. "Sometimes the franchise owner will work directly in the restaurant, but most of the ones I have met are looking to own several units from which they can draw income. They aren't actually wearing a uniform and serving customers. We supply the initial capital for the restaurants, so we don't have to limit our search for Operators to people with high personal net worth."

Cathy wanted to hire people that were young and creative like he was when he first started his business, and who would put in the hands-on time that Cathy did when he was building his first restaurant.

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