The work on the pro forma business plan made me feel like this idea was something worth pursuing. My greatest fear about having a retail presence for The Soup Peddler was the lack of appeal of soups on warm days, of which we have at least a few. A soup tour of New York City many summers ago sealed the deal. Even the New York soup places closed in the summer. Our full menu delivery service mitigates the weather effect somewhat, but even then, summers are pretty slow. Having the juices and smoothies, particularly from the brain of a juice genius, would theoretically help matters greatly. The little bit of magic in this concept, from the business planning point of view, is a little business school concept called "Complementary Product Lines." Fortunately, business school theories are reliably correct 100% of the time except when they're not. I like to think of it as selling umbrellas and sunglasses. So that's what we called the new entity... Umbrellas & Sunglasses, LLC.
Yes, there was a new entity. There was lots of sitting, beflipflopped, at boardroom tables and discussing things with attornies--something which I swore off years ago. You can just feel the clock ticking. But I got through it and Matt and I got everything lawyered up between us. It turns out that this prophylactic lawyering is a whole lot more agreeable than the surgical kind.
Then there is the money issue. How is this going to get funded? Food service funding often takes the form of "equity funding." Since the cost of entry into restaurant is so huge... pregnant pause... let's amplify that statement: building a restaurant to code in the City Of Austin, or probably pretty much anywhere, is an ungodly expensive proposition. Oh, the water meter is 5/8" and needs to be 3/4"? That'll be five grand. Gosh, it looks like we discovered an ancient civilization while digging your wastewater line. That'll be eight, plus a four week delay. Grease trap? Ten grand. Walk-in? Twenty. Hood vent? Forty. HVAC? Fifty. Make no mistake of what you're paying for when you eat out. You're not paying for food. You're paying for the opportunity to eat that food in that place. You're pitching in for a 3/4" water meter, you're paying interest on the Ansul Fire Suppression System. You're paying the bill for Freon Systems to come fix the walk-in, and you're paying for all the steaks they had to throw out last night. Why is this pasta pomodoro $18? Look around you. Look at that tile work. Nobody's getting rich here. It's $18 because the chef/owner is trying desperately to swim up to the dizzying heights of getting his nostrils above water. Yes! You can cook it cheaper! But you can't eat it here and you have to do your own dishes.
So about equity funding. An old joke: "How do you make a small fortune in the restaurant business?" "Start with a large one." Since the entry cost is so massive and the risk is so massive, it would be downright idiotic or next to impossible for one person to foot the bill for a new restaurant. The best restaurateurs in town have a phone list. You get on this list by being rich. When they're ready to open a new restaurant, they call person #1 and say, "I'm doing a new thing, it's going to be kind of a Borneo/Brazilian fusion dim sum tapas joint right on 6th Street. I'm selling blocks of $100,000. How many do you want?" If you, the rich person, say yes, you get to keep your spot on the phone list. If you say no, you drop to the bottom. After a few hours of phone calls, Monsieur Restaurateur now has $2.2 million and he's good to go. He calls his attorney, who is awarded equity in the restaurant instead of his normal billing rate, and says, "Paper it up."
It's arguably a great way to do business. Insulates the owner from risk, involves a lot of really smart people into the project, allows some great spaces and concepts to be created, contributes to the economy of contractors, designers, architects, service staff, etc. I don't really know what the down-side is. Maybe too many cooks in the kitchen? Too many hands in the pie? It's definitely how the big boys do it. I just know that's not how we're going to do this project. Maybe it's too much for me to wrap my brain around.
We're going the bank route. One of the reasons a lot of folks do equity funding is because they can't get it from the bank, because there's no demonstrable business history. You have to have three nice years of really well-documented numbers to look at to even sit down at the bank. Matt and I have that history. Plus you have to have that pro forma together. I called my loan officer from Frost Bank and invited her out to the site. To make a long story short (some might say, "too late for that," but then they haven't read this far, have they?), she bought it.
She said, "How much do you need?"
(to be continued) (we're mostly done with the boring stuff)