What Were They Thinking?

There are times when I learn of situations that make me scratch my head and say “whaaat?’

My next thought is usually, “what were they thinking?”  Well, that is the gist of it, but my language is often more colorful.  

I had another one of those moments this week after talking with two senior level restaurant professionals recently discharged from a failed startup.  One is a Controller.  I already have him in front of a client who has seen him twice.  The other is a marketing professional I have known for many years.   We scheduled a meeting for Monday morning to discuss her situation over a cup of coffee.  

She told me that she had been recruited by a Private Equity/Venture Capital Group to join a restaurant company start-up as CMO.  In May, she was relocated from her home on the West Coast.  By the middle of August, she was unemployed.  Her story was very disappointing if not heart breaking. Being new to Atlanta, she must build a network to find a new job.   We talked about her job search strategy and the changing nature of employment, including the rise of the freelancer.  Naturally, I pitched her on the value of joining ITB Partners as a transition strategy, and possibly as a career.  Atlanta is a good market for restaurant professionals so she won’t be unemployed long.

This situation surprised me on many levels.  Atlanta is a vibrant, highly competitive restaurant market.  It is home to multiple National and Regional brands.  We have a large pool of restaurant professionals available to recruit.  Why anyone would hire and relocate someone from the west coast escapes me. I am baffled as to why my friend took that risk.  

The bigger story is the reason for the company’s failure.  One day, they had two operating restaurants with a third on the drawing board.  The next day they closed the first store, fired the executive team, and shelved plans for growth.   They failed because cash flow from the restaurants couldn’t support their overhead commitment.  In addition to my friend, the CMO, and my Controller candidate, they employed a CPO, a Director of IT, a VP Operations, a Director of Culinary Operations, and the CEO/Founder.  For a start-up, their overhead was stunning.

ITB Partners works with start-ups, including restaurant industry concepts.  We understand the challenge of building a successful restaurant company.  Even with solid marketing research to make informed decisions, success isn’t guaranteed.  Our clients know this.  They understand the importance of conserving cash.  They are excellent stewards of invested capital, funds often provided by friends and family.  They understand that administrative expenses must be managed carefully, if not minimized.  These entrepreneurs work hard and take small salaries.  They look first to outsourced solutions when professional help is required.  When cash flow is stable and predictable they will consider hiring full-time equivalents, typically lower-level employees.  At times, I have discouraged clients from hiring me to find full-time equivalents.  Instead, I encouraged them to pursue a 1099 solution.  This was the genesis of ITB Partners.

Major corporations approach new ventures differently.  They are expected to innovate, take risks, and grow.   They have people to assign to these projects and financial resources to make a difference.  They are committed to the venture, but realistic.  They ensure that controls are in place and that key metrics are tracked.  Even so, major companies have become more entrepreneurial, exercising tighter control on resources deployed.  This was the typical corporate model, albeit without the support.

Success follows a pattern.  Start-ups share a similar process toward success or failure.  If you are involved in a start-up or looking to join one, compare their history with the standard model.  If their plan deviates from the model, take pause.  If their plan deviates significantly from the model, take flight! 

What were they thinking?