How To Grow To 100 Units: Passing the Baton

How do entrepreneurs know when it’s time to bring in the professional managers?

By Mary Boltz Chapman, Editor-in-Chief -- Chain Leader, 1/1/2007

The question: What signs should an entrepreneur look for that indicate it’s time to turn the concept over to chain experts?

The answers, provided by industry leaders:

Larry Sarokin, principal, Sarokin & Sarokin, a Beverly Hills, Calif.-based multiunit restaurant consultancy

When the entrepreneur notices that key numbers such as sales, food cost, labor cost, employee turnover, etc. are slipping.

When product quality is down.

When the company is not progressing as fast as companies of a similar "age."

When the entrepreneur can’t take a vacation because things will fall apart.

Phil Roberts, chairman and CEO, Parasole Restaurant Holdings Inc., a multiconcept operator based in Edina, Minn.

A successful national concept has two sets of DNA: left brain and right brain. As an entrepreneur, I get jazzed by conceiving and growing concepts. I’m passionate about recipes, trade dress, uniforms, music, lighting, presentation. What matters to me is creating a culture that’s interesting, engaging and alive. But that only gets you so far.

If you’re going to go national, you need to find a left brainer who will bring the same amount of passion to financial controls, labor costs, insurance, real estate, etc.

So how do I know when it’s time to turn my concept over to a chain expert? When the concept has grown to the point where I’m just repeating myself, and after I’ve found an operator who can grow the business without screwing up the culture.

Chris Thomas, president and CEO of Orlando, Fla.-based Passport Restaurants, a multiconcept operator

A rising level of stress in your business can indicate that it’s time to turn the concept over to chain experts. There are five areas where stress may start manifesting itself.

The quality of your balance sheet is beginning to deteriorate. Debt is rising, current liability is rising and cash is dwindling.

Pace of growth. Partially due to lack of capital, you are unable to accelerate the pace of the company’s growth.

Vision of growth. The leader is unable to articulate growth plans in writing and/or the strategy to achieve growth.

Management stress. The manager is unable to satisfactorily execute the scope of his or her activity, and unable to delegate due to a lack of trust. This ultimately causes the level of execution to deteriorate.

Operating stress. New units are not working or not working as well as earlier units. Aggregate restaurant margins are beginning to decline.

Michael H. Seid, managing director of West Hartford, Conn.-based franchising consulting firm Michael H. Seid & Associates

Often we see concepts coming to us in the first few months after they have opened their initial location asking us to help them develop their franchise system into a national chain. Opening volumes, traffic, press coverage and early financial projections usually are pointing to the possibility of expansion. Realistically, though, it takes some time for any restaurant to reach a level of stability.

Restaurants that are ready to expand have a sustainable track record that is duplicated outside of its core market area. An understanding of trends begins to develop, seasonality and return on investments can be predicted, real-estate development costs honed, operations fine-tuned and operating procedures systematized.

Most important though is management’s capability to grow and manage the enterprise. You have a better chance to expand a weaker concept with great management than a strong concept with weak management.