Rolling the Dice and Betting the Farm
The plan that Joey devised for his new restaurant concept was to establish twenty stores within the next five years. This was their goal “come hell or high water.” Fortunately for Joey the experience he had gathered from Steve’s allowed him to apply similar principals to effectively and efficiently grow the new chain, while understanding and working through any early setbacks, “Even if the first few didn’t work, you’d keep going. You don’t build a national franchise on the first few sites. You’re always changing and improving, fine tuning, fine tuning. It takes time.”
While experience and patience are important elements in creating a national franchise for a restaurant, the almighty dollar is always the main concern when it comes to the funding and longevity of a new business venture. True to his form, Joey did not hold back on lining up the resources he needed to make his five year plan come to fruition, “Whatever money I made from Steve’s and from my real estate work, I bet the whole thing on the concept. I rolled the dice” It is often a risky proposition to wager all of ones earnings and savings for the sake of establishing a new business venture, but by no means unheard of or unusual if the entrepreneur has the commitment and will to sustain such incredible risk. “I had made the commitment to making this venture work, and I did whatever I had to do be it investing, re-financing, co-signing or guaranteeing every note.” In hindsight it was a wise bet considering the success he has achieved Even at the time of this initial gamble, he considered it to be the right decision, “It wasn’t a foolish bet, because that’s what life is all about. You take the risk out of any deal and it isn’t fun…why do it?!”
The funding was in place, the plan was written and the menu was set. As Joey and his core group of associates embarked on building this new franchise he was faced with an additional burden that is not typically experienced by many entrepreneurs. That is the burden of having already been a success and trying to compete with what has already been written into the history books. While many entrepreneurs can only dream of developing one concept into a fruitful venture, having done it once and making a name for yourself draws all the attention back to that individual to undergo a deeper level of scrutiny to determine if they were just lucky the first time. “The worst scenario for me was not in just losing everything that I invested because if I lose it you can always make it back. The big failure to me would be that I would lose face and that people would think that I lost. I knew that people were watching me because of Steve’s, and I feared losing face because they were building me up with press such as ‘Can he succeed again with another chain’ and ‘No one is two chain successful.’ The biggest fear was not losing because I know I have the ability and self confidence to do it again, that’s why I went on the brink.”
Joey was able to prove to the press that he could do it again, and he was able to execute his plan for the restaurant and exceed their growth estimates to accelerate the expansion of the organization. “After three years we achieved the goals of the original plan and expanded it.” The big risk paid off, and he was back in the business that he had so loved while he was working to grow Steve’s. A true example of how the size of the risk can be proportionate to the size of the return, “In pursuing these types of ventures, or any type, risk goes along with the territory. There’s no question that if there is no you don’t do it. Why would you do it?! The challenge and the potential payoff make the risk worth it. If I did not want to take the risk then I’ll get a job at IBM and work forty hours a week, and that would be that.” Evidently the energy from the risk is as infectious as the concept of being an entrepreneur and shaping ones own future by taking charge of their own livelihood, “You need the risk to keep your heart pumping. Life’s too short to fall asleep at the switch. You’re not going to succeed all the time, but you have to try.”
Initial Public Offering
So…the concept for the restaurant has proven to be successful. Customers like the food, the appearance and the atmosphere of the restaurant augment the experience of eating at Bertucci’s to keep people coming back for more, and you’re opening new restaurants at a pace of eleven new sites per year. Why take your company public? Why distribute the ownership of your company to the hungry public to take away from your share of the business and to deteriorate the control the entrepreneur has over their venture? In the case of Bertucci’s, the strain of the expansion on their resources led them to seek alternative financing to maintain the aggressive pace of expansion. What also contributed to the decision was the environment in the early 1990’s which favored an organization to go public and establish a successful market capitalization.
“In 1991 we owed $9 MM to $10 MM dollars in debt when we had twenty-one restaurants. How can you keep growing when your debt is that high? Banks will not lend to a restaurant organization because there are no assets to act as collateral for the loan. Restaurants have leased space, modest capital in kitchen equipment and plumbing, certainly nothing substantial enough to secure a large loan.” Despite the success of the restaurant and the strong revenue stream due to strong business, the outstanding debt due to, among other things, a $1.5 MM dollar price tag to open each new restaurant did not put Bertucci’s in the position to have sufficient resources to keep opening restaurants at an aggressive pace. “If we wanted to keep growing we needed more capital. The market was right (in 1991), but not now. It was cheaper to go public then because there were better economics to equity money than to go to a bank. It may have been a little early in terms of the company’s readiness on other fronts, but the timing in the market was just perfect. In retrospect the window had closed 2 to 2 1/2 years later.”
On June 28, 1991 Joey waited in the Boson office of Tucker Anthony, the underwriter for his company’s stock, as the Bertucci’s stock symbol (BERT) appeared for the first time on the NASDAQ exchange. “It’s pretty cool to see your name on the screen. That was a rush.” What happened afterwards was a frenzied buying of this hot little restaurant stock that pushed its market valuation to levels beyond anyone’s expectations, “The valuation for our organization which had about twenty-five restaurants at the time was $210 MM, which is amazing. It was unbelievable to see our stock trading at 100 to 120 times earnings when the average was 50. The interesting thing is that this was all driven by the greed of Wall Street.”
Now that the company was owned by the public, influences beyond what the entrepreneur had ever envisioned when starting a venture can take effect on the organization that influences the founder’s control beyond what their intentions ever were. Investor and analyst expectations gauge the perceived value and anticipated performance of the public company to the point that even a penny’s difference in earnings per share can send a company’s stock falling in value, with months of hard work and trouble-shooting required to ultimately regain the stock’s higher value. “You don’t have to be a slave to Wall Street and the prices if you don’t fall into that trap. I don’t care as strongly about those things. I own a lot of stock so I care about the business.”
When asked about how he felt not having full ownership of his company any longer and being a public company, this company founder maintains his confidence in knowing who runs the company and what his role is, “It’s still my company and they know it is.” While this response establishes Joey’s commitment to the company he founded and his desire to remain the visionary and influence the direction of the business, his thoughts are not only on his own position in the organization and the benefits he wishes to receive. “A main reason I liked having sold shares is because there are now stock incentives for the staff to allow them to share in the prosperity of the business, and not just work to make Joey rich. It gives people a vested interest in the business. I would feel guilty because I don’t want people to think that my goal is for people to work to make me rich. Why should that be other people’s job? This way everybody shares.”
The Challenge of Expansion
All of the success that Bertucci’s achieved did not come without its struggles. It is a daring and aggressive task to take a unique restaurant concept that has its atmosphere and food tastes that are successful in one particular market, and try to bring that to consumers in different places that have different tastes and preferences. “The big issue was going into new markets, and not draining our resources to do so.” When asked if he felt that regional food tastes presented barriers to his expansion due to the distinct style of Italian made pastas and pizza dishes Bertucci’s offered, Joey responded, “I’m not sure that different regions in the country have such different tastes to radically change the strategy and message. Pizza is international and people know what it is and what it tastes like unlike a more unique food such as Indian food. The true challenge in going to a different region in the country is name recognition. The customer doesn’t know you and you have to work to get them to understand what you are all about. We are currently doing well in Philadelphia and Maryland for example, but not in Chicago. It’s going to take a little time to build and market those stores.”
Regional food tastes are not the only consideration that must be made when selecting a site to open a new restaurant. Other organizations are infamous for their demographic and population studies that go into the selection of a new restaurant site that will ensure their success because of a proven formula. McDonald’s is such an organization. Bertucci’s employs a similar concept when selecting a new site to open a restaurant, however that was not always their strategy, but one that eventually came to them through experience. “Our third restaurant was in a Massachusetts town called Holliston and I had never been there before in my life. We did it because it was there and we could get the construction up fast and we were eager to get the restaurants built. Life is about momentum too and I wanted to get the momentum going.” Amidst slow business in that location and weak returns to the organization, ultimately this early location proved to be beneficial to the organization both profitably and with a lesson in development, “That store for a long time was a killer. It took time. In the early days we did not use strategy for placing a restaurant as we do now.” Now the organization uses a formula that takes into consideration population and average income among other variables.