As promised, here is the chapter about opening a restaurant for an investment of $25,000. I did it multiple times myself, and now I will share how you can do it, too. You have many yellow pads and documents filled with a lot of information and guidance from reading this book. Now let's put all that to work for you.
It was at a point in my life as a long-time, successful publisher of Food & Beverage Magazine that I thought of opening a restaurant with just a small $25,000 investment. I've read enough, I've learned, and I've watched enough failures and witnessed many successes in the hospitality industry. I asked myself, “Why do I want to open a restaurant?”
I wanted to do what I loved as a kid, and that was hanging out at my favorite restaurant. There was a chain of hamburger restaurants, Little Tavern, on the East Coast in Baltimore, Maryland; Arlington, West Virginia; Washington DC; and surrounding areas. There was one in Georgetown, close to American University (where I attended college), and that became one of our hangouts when I was 18 years old.
My friends and I would go to the Georgetown bars (the drinking age was only 18) and then finish the night at Little Tavern. We would buy a bag of hamburgers stacked with ketchup, mustard, pickle, and onions—simple little sliders on the greatest buns. We always had a great time there. It was very small; I don't even think they had tables. Little Tavern had stools, and most of its business was take-out. In fact, its tagline was “Buy 'em by the bag.” For drinks, it was soda or coffee.
I remember watching the cooks in the kitchen with their white outfits, aprons, and paper hats. All of the hamburger meat was mixed with onions and rolled into little balls. Every time someone placed an order, the cooks took out the little balls, slapped them onto the grill, smashed them, and cooked them. They flipped the burgers once and put them on the bun. The meat was always moist. The restaurant used steamer trays to keep the burgers warm, and even at my young age, I could see it was super-old equipment.
The place was always packed when I went there, with a long line at the walkup window. Sadly, the chain went out of business in 2008. I don't know why. But Little Tavern demonstrated a recipe for success with similar restaurants such as White Castle in the Midwest (which has since expanded to 377 locations in 13 states) and Krystal Burgers in the Southeast (with 360 locations in 12 states).
I had an emotional connection to that small hamburger place, and I knew I could create a modern version with the right fries and the right sliders. I knew it would be a success.
The next question was, “Why didn't I open a restaurant sooner?” The answer is simple: I was scared to lose the money. Finally, the right opportunity came up and I took advantage of it.
Food & Beverage Magazine had become a well-oiled machine with my team of superstars like Bryan Bass (hospitality expert and university professor), Gary Coles (our art director veteran who worked for John Kennedy Jr.'s George Magazine), and Max Adler (who became our go-to source), who always got everything accomplished. With this team in place, we were ready to share our experience with the magazine to open a new Las Vegas restaurant.
We had worked a sweetheart deal with an off-Strip property owner, and the property happened to have a fully functioning closed restaurant attached. We partnered with Chef Chris Palmeri, the youngest executive chef in the history of MGM properties, and we were on our way. The name was Hobos and Gypsies, and our target clientele were the hospitality employees of Las Vegas. We literally covered the walls with every influential person we could who worked both on and off the Strip. Bryan and I used all of our vendor relationships to help build our brand. Lots of lessons were learned from that experience, and the biggest lesson was taught to us by the property owner. He had a bigger share of ownership than we did, made very poor marketing and financial decisions, and ultimately closed the restaurant on us—not so much of a sweetheart deal.
I was still determined to open a restaurant, even with the failure of Hobos and Gypsies. I knew I wanted to open a place that served hamburgers, French fries, and shakes. I wanted it to be fun, and I knew that this time I needed at least an equal share if not a bigger share of ownership.
So what's the first thing I did? I grabbed a couple of hospitality industry friends who knew more than I did: Cory McCormick and Phil Shalala. Cory was a management guru, and Phil happens to be one of the greatest marketing minds and brand builders in history. He came up with a famous slogan for a beverage company when they changed their marketing directly to the action sports arena. We already had the recipes, so we began developing a menu first. I met with all my chef friends, and they disagreed on some of the recipes, but I wanted to stick to my concept and moved forward in my own direction. I wanted to re-create those burgers I so enjoyed when I was young.
We looked for places in the classifieds and online, especially Craigslist.com and LoopNet.com. We also reached out to realtors. I would only look at places that already had kitchens with grease traps and hoods. My mistake, which you can avoid, was that while I looked at second- or third-generation restaurant locations with equipment requirements, I didn't research the actual areas.
One of the first places we opened was inside a gas station on a very busy corner. The kitchen had all the equipment, including grills, steam tables, and fryers. The only thing I had to put in there was a soft ice cream machine for milkshakes and a cash register. We found our spot for only $3,500 a month, and we paid the security deposit down and our first month's rent, totaling $7,000. If you are doing the math, that leaves $18,000 in my budget.
Next, I knew I needed signage. We negotiated with the landlord to install the sign, and they agreed. I found a graphic artist and gave them the specifications and size of the sign (a signboard with a light from the back). The graphic artist knew another graphics person who could produce the vinyl with the colors I wanted, and everything including installation cost $400 ($17,600 left in the budget).
I investigated the different point of sale (POS) systems and various computer systems. Our thought process at this time was with the intention of scaling larger, which might have been a big mistake. I didn't need that equipment, just a regular cash register. However, I did get the POS system. It didn't cost me anything because I connected it to my credit card merchant services. The merchant services representative explained their points and percentages, which were all reasonable. They provided me with a computer with its POS system at no additional cost to me.
We had the place with an address, we got the licensing, and now it was time for the health department inspection. Since the department had already inspected the previous restaurants, they knew its potential problems, and I could work on correcting them. I am going to repeat this again: everything has to be spotlessly clean, and you cannot have any food anywhere during the inspection, or it will compromise the inspection and the food will be thrown out. The department came out and approved me. The licensing cost $600 ($17,000 left in the budget).
My next step was to hire and train our staff to become team members. This is where a significant portion of the investment was going to be spent. Cory made sure the applicants could prepare hamburgers, French fries, and chili with our special ingredients. We also had to train everyone on using our system. We then had to figure out who would work on the schedule, how many employees to hire, and how much time training would take. Of course, there was the cost of uniforms, and every hour spent in training is an expense.
While interviewing people, we found out who worked on what kind of POS systems or cash registers. I asked those applying if they cooked at a previous job, and what they prepared. We hired people who previously worked for fast food chains such as Wendy's, Burger King, and McDonald's. These people were used to working in high-volume food production, using a fryer, and preparing hamburgers and French fries. I even hired people who knew how to fix the equipment in case the grill went down, the fryer didn't clean properly, or we had other equipment problems.
We spent about $4,000, and you should plan for $3,000 to $4,000. That estimated $17,000 in the available budget had now decreased to about $13,000.
We didn't have to go out and buy dishware and tableware since we used plastic utensils and Styrofoam containers. However, I had to buy a lot of napkins and cups. Still, that was the good news since the gas station took care of the other paper supplies for the community bathroom.
However, let's talk about using Styrofoam ware. What are you putting into the Styrofoam container? We were putting in hamburgers and fries, and they “sweat.” This means steam drips from the top of inside the lid down onto the buns. I had to make certain to have holes so my Styrofoam containers were vented. You'll start noticing lots of minutiae. As you're slowly opening your restaurant, you can make changes without buying too much stuff in the beginning.
Now came the time to buy and stock the food. I thought that was going to be the easy stuff. I had already spoken to the vendors and thought I knew what to have on hand.
I knew we needed packets of ketchup, mustard, and mayonnaise.
But how much food would I need, including spices and seasonings? All of a sudden it was scary, because I didn't want to run out of food. I knew the condiments would not go bad, but what if we went through the supplies too fast?
I had to figure out how many pounds of hamburger and how many buns we needed. This was scary because they were perishable and could go bad, costing us money. I had to make a decision and see what sold and almost have the perishable items run out. I also knew where to go to pick up more supplies at a moment's notice.
Smart and Final and Restaurant Depot are good places to have close to you because you (or a staff person) can go get more supplies. This is how I discovered why you don't want to get too much into specialized products. I used vinegar powder as one of my ingredients and couldn't source it locally. I had to purchase it online and have it shipped. Then I ran out of vinegar powder and luckily found an Asian supermarket that happened to have something similar that worked in the recipe. I also used dehydrated onions, and we ordered that ingredient in bulk. I used so much of it, and it was such an essential ingredient in our hamburgers, that we could not run out.
Let's talk about buns. You don't want to have a large supply of hamburgers and run out of buns. This is not the time to run to the supermarket and find something comparable. Customers will notice immediately it's a different bun than the one you purchase from your restaurant supplier. They will tell you and also tell others.
We were picky about pickles. I had to get the #10 can of Heinz dill pickles (that brand specifically). It is a little dill pickle slice, and it's probably been packed in that water for 10 years. The vendors from Sysco and US Foods tried to get me to buy their fresh dill pickles. I didn't want the fresh dill pickles because they were a completely different flavor. I had to buy cases and cases of cans of these pickles, so we never ran out.
I didn't use tomato, fresh onion, or lettuce on my burgers. They were just straight-up sliders. Of course, we used a particular brand of American cheese, understanding that each cheese melts differently, and we had to be consistent. I had to be careful with cheese because sometimes we couldn't get the slices apart—the cheese had been frozen, then defrosted, and then frozen again.
Buying the food was another $6,000 in expenses. That available budget had now shrunk to $7,000.
I decided to sell slices of birthday cake for dessert. Oh my God, it was kitschy and a great marketing pitch. Believe it or not, I couldn't find a supplier of a simple birthday cake among my restaurant suppliers. I had to consider buying the cake from Costco and cutting it up into pieces, but at a very high cost per piece, made it too expensive. I wouldn't be able to mark up the price on the cake to make any profit.
I finally found a local wholesale bakery that would bake and decorate birthday cakes for us at less than $1 per piece. We eventually started purchasing our burger buns from them as well. The buns ended up being about the same cost they were from the food distributor, but I wanted to build goodwill with the bakery by giving them more business. I also had to prepare for Sundays and holidays when they were closed; what if we needed more buns because we sold out of our inventory?
The specialty item of the restaurant was the burgers.
While working on the recipe and cooking them the same every time, the first problem was using prepackaged burgers; every time we took out a package of pre-frozen burgers, they were packaged stacked like dominos. We had to chisel each piece off, because for some reason they had defrosted and then refrozen. We couldn't get the meat out fast enough. Then we started using fresh meat and adding dehydrated onions. We finally learned to rehydrate the onions in water first. On the next attempt, we mixed a specific portion into the meat and made one-ounce patties. After finding that right balance, we took the mixture and rolled it into balls. I wanted my cooks to slap them down, smash them, cook them, and put them in the buns.
The problem was the time from the order to cooking them—there was not enough time. There were lines out the door. I learned that we had to make the burgers in advance and put them in steamer tables, using the correct tops to allow airflow without making the buns soggy. Thank you, restaurateur Carlos Silva, for that piece of advice. We kept that recipe and finally knew how to make the burgers in less time.
What kind of soda do you want to sell? You can sell by the can, bottle, soda gun, or self-serve soda machine. What brand of soda? Will you sell bottled water or offer complimentary glasses of water (from the tap)?
We sold a particular brand of soda in cans, and I found that if I purchased cases of that soda from Restaurant Depot rather than directly from the soda supplier, the cost was 20% less. That means I made 20% more per can of soda I sold. I wrote down the costs and bought wherever I could save money—every dollar matters.
My place was open, and now I needed to get customers.
We used digital media, especially Facebook. We created a page and then created a plan for our Facebook ads. I targeted people with the algorithm who loved White Castle or Krystal Burgers, and our ads popped up when they were on Facebook.
People who loved French fries were targeted. I posted pictures of French fries, and the tagline was “Fries before guys.” I created the ad in pink to target women of all ages.
I created a cute logo with a little character mascot, and we always included the logo in our posts. We took pictures of the little burgers, soda, and fries as a special for $4.99. I made sure the photos showed little burgers, so customers knew these were not regular-sized burgers. We had lines out the door because we targeted the right people. We also ran a Facebook promotion in which the person who tagged the most people about our restaurant won a free meal. So we had hundreds of people being tagged, bringing more awareness to our restaurant.
We tried to choose some great price points, and we knew we should sell burgers in multiples. We came up with funny names to encourage customers to buy the case or a big meal with 24 sliders, 4 drinks, and 4 French fries for $30. People bought them in mass quantities.
With the digital age, you can create a budget of $10 per day to place ads on social media. If you are technically challenged, visit freelance.com or Upwork.com and search for social media ad freelancers online. In your job order, you need to write that you are looking for someone to place advertising on your social media or digital media in specific areas (popup ads on apps, for example), and you only have $30. People will negotiate and tell you they can do it for $20. They can create the ads for you. They can run your digital advertising campaign through all of your social media. They can perform demographic targeting and granulation. The cost, including advertising, will probably be around $100.
There were long lines and longer waiting times, and that problem became my failure. We got overwhelmed because of all the marketing we were doing on social media. We had lines out the door, and the cooks couldn't keep up. It wasn't a matter of the kitchen not being big enough or not having enough supplies. The cooks couldn't make the product fast enough, and people complained. Our customers loved our food, but they complained about the wait, and that was a failure on my part.
I stood back there, sweating, yelling at the cooks, and trying to run my magazine at the same time, knowing that this was just about to implode on us. Customers were waiting and complaining, and I gave away free food. I learned from my mistakes and turned it around by scaling differently.
As you're making money, slowly introduce new products that complement the menu and build up your clientele, because people want something different. At the hamburger places, we eventually added a chicken sandwich. I made my own dressing, and the secret formula was mixing buttermilk ranch dressing with curry powder. People lost their minds, they loved it so much.
I had no idea why everyone loved the recipe, but all I did was order the cheapest buttermilk ranch dressing in the big tub. I added curry powder, mixed it up, and created a magic sauce. I could have bought a fine, high-end brand of dressing. I didn't need to do that, and neither do you. Make your own fry sauce using inexpensive ketchup and mayonnaise, and it will taste delicious. Maybe add some sugar or bacon, because everything tastes better with sugar and bacon.
When you are opening a restaurant for $25,000, it's mainly casual dining. But you can still go bigger and open a restaurant for about $25,000.
If you're opening a sit-down restaurant, depending on the size, you're going to need to buy more food. Can you mitigate those costs? Of course you can. If you want to open a bigger establishment with the right budgeting and research, you can do it.
Remember, just because you have more seats doesn't mean you need a bigger kitchen staff. You may need more bus people or more servers. The same digital strategy campaigns can be used to bring in customers. Coupon sites like Groupon and LivingSocial can also help drive awareness of your restaurant and bring in new customers.
Be prepared to lose 50% with these coupon services, which will eat into your food costs. I used Groupon with a special of 10 burgers for $8. People bought the coupon and used it, and I only made $4 per coupon. I lost money on that deal, but it brought people in; and I only ran the special for a very short period of time, mitigating any chance for a devastating loss.
I am in love with the concept of ghost kitchens, where all you do is rent the kitchen. You only need to hire a cook. My friend Jason Manly has always been an innovative restaurateur and created a cheesesteak concept. He goes into a ghost kitchen from 11:00 a.m. to 4:00 p.m. to cook his cheesesteaks. He only accepts delivery orders, so customers order, and the food is delivered to them using a third-party delivery service. Jason sells up to 50 cheesesteaks a day and is making money from it because his expenses are so low. It's a brilliant concept.
However, I know it's not as fun and not as personally engaging as opening a restaurant. You don't get to engage with your customers, and you rarely get immediate feedback. But Jason is making money cooking, and you can as well. If you have a product such as pizza, cookies, or sandwiches that can be easily delivered, this is a great concept to consider.
You can open a steak house for about $30,000. Now, what kind of steak house can you open for that kind of money? You're not going to be able to open a world-famous Peter Luger Steakhouse or The Palm, because you won't have the money to invest in the decor alone. But think of this as plug and play. If you find a space that comes fully equipped with everything you need, including tables and chairs, you can make it happen.
You go through the same process mentally. You've got to come up with a menu that doesn't offer 50 different kinds of steak, because the meat is expensive. However, I recently spoke to someone who had a concept for a steak house where marinated steak was sold at $2 per ounce. The meal included potatoes, salad, and soup. They made extra income on the desserts that they displayed on carts. The restaurateur loved to sell cobblers for dessert because the profit margin was extremely high.
You can open a restaurant that is that simple with a good recipe for steak that is delicious. If the restaurant is successful, you can offer specials during the week or at different times. But if you have one item that comes with a potato, salad, and soup, you can control your costs. You bake the potatoes, salad is premade, the soup comes in a bag, and a cook prepares the steak one way. You can offer a video camera at the weigh station where the meat is cut, and customers can see how much steak they are getting. The only equipment you would need is a simple iPad—or be creative and use a baby monitor!
This is how I opened a restaurant for $25,000. It was blood, sweat, and tears, because we were mopping our own floors and cleaning our own pans. But I learned that the key is to watch your food costs and labor costs. If you can keep those two things down, you can do it.
There will be miscellaneous expenses, and there is marketing. When I opened the restaurant, I had about $6,000 left in the budget. I recommend that you allocate about $500 toward your marketing efforts, as discussed in Chapter 8.
By following my advice in this book, you can also open a restaurant for $25,000. You need to take one more step, and that is in the next chapter.