"I lost my cool—at the wrong person."
— Kat Cole, President, Cinnabon
According to a business fable that’s made the rounds, a mid-level executive committed a blunder that cost his software company $1 million. Sheepishly, he went to the CEO and asked if he’d be fired. “Fire you? Hell, I just invested a million dollars in you,” the boss replied. It’s a parable that might draw a few amens from the restaurant industry’s C-suite. The damage might not have hit six figures, but they’ve made their share of mistakes during the climb to the top. We asked several to share the missteps that turned into their million-dollar investment.
Not long after rising into her first executive post at a casual chain, Kat Cole learned that higher-ups don’t always make the soundest decisions. But what haunted her after a particularly rash directive from above was how she reacted.
"We were launching a massive menu initiative. I was in charge of the research and training," she recounts. Big support was ready to be rolled into the field.
"Then I got a call from one of our operators in the field," she continues. "One of the higher-ups just wanted to throw the initiative out there and see if it sticks." No advance training, no ramp-up, just run and gun.
Cole, now president of the Cinnabon bakery chain, admits she was rash in her response. "I was so young," she says. "I picked up the phone and called this executive, ‘Why are you doing this? Don’t you realize how important training is?’"
The rollout proceeded despite her protests. She realized the superiors were going to prevail, and all she did was "make matters worse."
"Reacting that way," she says, "you’re going to have a short career. The lesson for me was learning the power of diplomacy. It’s always best to take a breath and to ask some questions instead of freaking out."
Embarrassed and convinced "I had just screwed my career," she conditioned herself for the better part of a year to react "more strategically."
"It was a very humbling experience and a critical point of education," she recalls.
Mistake Pain Index: 6
"I waited too long to get rid of dead weight."
— Bob Barry, COO, The Greene Turtle Franchising Corp.
Early in his career, Bob Barry, currently COO of the The Greene Turtle Franchising Corp., made the same mistake over and over again. “I didn’t act quickly enough to make managerial changes when things weren’t going in the right direction. Instead, I tried to work with managers’ weaknesses.”
Eventually, Barry realized that he needed to separate his caring personality from his business persona. “If you give people the proper tools and the right direction, but they still don’t get it, they are moving themselves out,” he says.
These days, Barry is passionate about hiring the best people and investing in their training. He also advocates hiring managers who are smarter than he is.
Mistake Pain Index: 6
"We grew too fast."
— David Prokupek, CEO and Chairman, Smashburger
Smashburger was founded in 2007 in Denver, Colorado, and in its second year, went from four locations to 20. “It was like we grew overnight,” says CEO and Chairman David Prokupek
From the beginning, Smashburger’s intention was to measure success in the quality of the units they opened—not the quantity—and Prokupek felt it was time to return to that goal. So he slowed corporate store growth for 18 months and instituted a dramatic change approving sites. “Since real estate selection is extremely important, we took that decision-making back to four key people, myself included,” he notes.
Although the team cannot physically visit every potential site, they use Google Maps to simulate the experience.
This personalized approach has directed Smashburger on a smart, controlled path toward growth. It now counts 103 restaurants in operation—45 corporate locations and 58 franchised—with plans to open another 85 this year. And Prokupek remains in favor of making mistakes. “The Smashburger culture is high-risk and we ‘budget’ for lots of little mistakes. That’s what seeds ideas and that’s what led us to where we are today.”
Mistake Pain Index: 5
"Too much of my menu was outsourced ."
— Kerry Kramp, CEO and President, Sizzler
When Kerry Kramp returned to Sizzler USA in 2008 to spearhead a turnaround, his first priority was the food. “We worked with an outside supplier to re-create products that our culinary team had developed. When we conducted product cuttings, we said, ‘It’s almost exactly the same,’ but something was lacking. Guests didn’t think it tasted exactly the same. Plus, it hurt me as a food person—I didn’t feel a connection to the product. Our kitchen staff felt they had little control over the outcome and little emotional connection to the food,” says Kramp.
Kramp realized how important it is for hourly employees to feel that connection to the menu by making items from scratch. It also empowers them, and that helps them connect better to the guests.
Mistake Pain Index: 9
"I sacrificed quality for growth."
— Michael Mack, CEO, Souplantation & Sweet Tomatoes
Souplantation and Sweet Tomatoes, twin San Diego-based chains with 120 locations, kicked their expansion plans into high gear in the late 1980s. While things went well for awhile, it soon became obvious that their parent company didn’t set high enough standards for sites and managers.
"We were too full of ourselves," recalls Michael Mack, CEO of Garden Fresh Restaurant Corp. "We felt that anywhere we opened a unit, it would be successful." Once same store sales began to dip, Garden Fresh realized its mistake and developed a much more rigorous site selection process. Mack’s team ramped up analytics, looking at traffic flow and customer behavior in each area. And instead of assuming a location would work, they changed their perspective to one of doubt.
The second plan of attack was assessing those managers who were already in place to see if they were capable. Simultaneously, their jobs were simplified. The 25 or so actions expected of them were whittled down to the five most important.
"During the assessment phase, we also looked at how we could best attract and retain quality managers," says Mack. "We learned that the highest priority was to keep the workweek as close to 40 hours as possible. So we created the ‘Best Job’ program in which managers get the same pay to work a reasonable workweek." Although Mack admits the program is not yet perfect, it has proven effective in the hiring and retention of top people. "And our managers report that they are leading more balanced lives," Mack adds.
Mistake Pain Index: 8
"Choosing suppliers based solely on price? Not good."
— Scott Jennings, President, Cheba Hut
Scott Jennings owns Cheba Hut, a marijuana-themed, six-unit Fort Collins, Colorado-based chain that serves toasted sub sandwiches. Just starting out, the small chain found it tough to get good deals from big national suppliers, so Jennings went with a local supplier that claimed it could give his company a bargain.
However, the supplier couldn’t actually afford the prices it was offering, and went belly up on grand opening day for a new Cheba Hut unit. The next supplier Cheba Hut went to, a big national company, offered a bargain compared to other vendors. That supplier went bust a year later. Jennings learned his lesson. "If a deal sounds too good to be true, it probably is," he says.
Now he conducts extensive background checks on all suppliers, looking at their longevity and their balance sheets. He also has two back-up suppliers in case of emergency.
Mistake Pain Index: 8
"I didn’t create a clear mission statement."
— Bob Johnston, CEO, The Melting Pot
From 1985 to 1995, The Melting Pot tried to launch a franchise program, but things didn’t progress as hoped. In 10 years, the Tampa, Florida-based concept only grew from five to 19 restaurants.
"We had trouble attracting franchisees because we were self-centered and focused primarily on the bottom line," claims Bob Johnston, CEO of parent company Front Burner Brands, which also runs Burger 21 and Grillsmith. "Potential franchisees did not understand our principles and vision because we were not communicating well. Plus, we were making decisions for the wrong reasons—we should have been paying more attention to team members and guests."
With input from management, suppliers, franchisees and team members, The Melting Pot set priorities that put everyone on the same page. "We formulated a mission statement that could be printed on a four-panel card the size of a business card," says Johnston. "Everyone in our company carries it—from management to servers. It’s a platform from which we can coach and develop."
In simplest terms, the company’s mission centers on improving the quality of the experience. That translates into providing enough labor to make the guest experience the best; no more cutting corners to increase the bottom line; and investing in food quality and the physical plant.
During The Melting Pot’s second decade—from 1995 to 2005—the chain grew from 19 to 100-plus units, and there are now 142 restaurant locations. "I attribute that growth to the power of an organization that has a single, concrete mission with the same thinking and goals," believes Johnston.
Mistake Pain Index: 8
"I got overeager."
— Jon Luther, Chairman, Dunkin’ Brands
It could be part of restaurateurs’ DNA: Working for someone else, they can barely wait to operate their own venture. So when an ownership opportunity came Jon Luther’s way in the late 1980s, the industry vet eagerly made the jump from executive to entrepreneur.
And in his haste, he forgot to put on a parachute.
"I was so enamored at that point in my career with owning my own business and putting my imprint on it that I didn’t think to protect myself," says Luther. He didn’t have a management contract, there was no guarantee if the venture fell through, and he wasn’t covered if one of the principals walked away, robbing the business of critical support. Which was exactly what happened; the venture failed.
"I had to start over with two kids in college, stone-broke," recalls Luther.
He would go on from that career low to top posts at Popeyes and Dunkin’ Brands, where he still serves as chairman. But the experience changed his thinking.
"The big learning was I was never going to let that happen again," he recalls. With each subsequent position, "I did my due diligence" and "made sure I had the right contract, the right protection, the right people working with me and a relationship with the financiers."
"The other lesson was always, always, always take calculated risks," he says. "In 1987, I didn’t take a calculated risk, I just took a risk."
Luther also hasn’t forgotten what it felt like to be left with nothing despite giving the situation his best. "It changed my whole outlook," he says. "The learning was I made sure I took care of people, because you’re also taking care of yourself."
Mistake Pain Index: 9.5
"I thought we’d make more money, and we didn’t."
— Al Bhakta, CEO, Genghis Grill
Entrepreneurs wouldn’t bet their resources on a doomed endeavor, so their optimism for a venture can run a little high. Just ask Al Bhakta, the CEO of 70-unit Genghis Grill.
When he and his partners opened their first Grill, "we put everything on the line for it." Naturally, they had a detailed business plan to guide them through the start-up, including a contingency for an initial flop.
But "we were very aggressive and didn’t think through our worst-case scenario," Bhakta recalls about the pro forma. "It wasn’t nearly as worst as it could be."
They’d anticipated sales of at least $18,000 a week. "We did $7,000 our first week," he says. "It was awful. We were on the brink of shutting down."
Gradually, volume started to climb. But "it took us weeks to get to break-even." In the meantime, "there were no salaries. We barely survived. It took a year to get out of that."
Success finally arrived. That first store was a franchise. Bhakta and his partners built more—being far more conservative.
Eventually they prospered enough to buy the franchise rights to Genghis Grill. But the lessons of that first store stayed.
"We went from that situation to being a debt-free company," says Bhakta. "When we sign leases now and when we create pro formas, we are very conservative."
Franchisees are encouraged to do the same. "I’d say most of them buy into it," says Bhakta.
"We probably wouldn’t be where we are if it hadn’t of been for that experience," Bhakta recalls of his first opening. "But it looked like we were going to be one-and-done at the time."
Mistake Pain Index: 10
"Too much overhead in my business model."
— Pierre Panos, P resident, Fresh to Order
When Pierre Panos launched his Atlanta restaurant chain, Stoney River Legendary Steaks, in 2000, he spared no expense. Each 7,000-square-foot location cost $3 million to $4 million to build. Preparing the complex, time-consuming entrees required the presence of a head chef. As a result, meals were expensive—averaging $28 a head and $90 per table.
When the economy was good, the chain prospered. But after customers started tightening their belts, the business saw a 15 to 20 percent decrease in sales.
"I made the mistake of exclusively focusing on perfecting the product without considering cost," says Panos. "Inevitably, the price point became too high and the wait time was too long for customers to handle. In the end I decided I had to sell the company."
In 2001, Panos sold Stoney River to O’Charley’s, Inc., and started another restaurant chain, Fresh to Order. This time, his goal was to serve the same quality of food for under $10 in fewer than 10 minutes. The key to doing this, says Panos, is buying cheaper locations and spending time and money upfront designing the perfect menu.
Mistake Pain Index: 5
"We entered a new market at the wrong time."
— Michael Ansley, Franchisee, Buffalo Wild Wings
In 2004 after seven years as a successful franchisee with Buffalo Wild Wings in Michigan, Michael Ansley decided to take on some additional territory in Tampa. His timing was terrible. "The market suddenly got very hot," he says. "We were looking at Manhattan-like real estate prices."
Ansley knew that the wisest move would have been to pick up his franchise contracts and go elsewhere. But because he had development agreements already in place, he had to follow through with building new locations. "We ended up with some very poor sites," he says.
Now, rather than relying on the promises of developers, Ansley thoroughly vets each new location. He scopes out the popularity of existing retail anchors and looks at plazas that are further along in development and feature retailers such as Target, Lowe’s or Home Depot. "We’re no longer interested in securing an end cap location and waiting or hoping for an anchor to move in," he says.
In sites where anchors haven’t yet opened, Ansley negotiates leases that have financial penalties for developers: "If they don’t deliver on the promised opening of, say, a Wal-Mart or a movie theater, we get back 50 percent of the rental agreement," he adds.
Mistake Pain Index: 8
"Embraced my entrepreneurial drive to a fault."
— Russ Umphenour, CEO, Focus Brands
Growing a restaurant chain requires more than lining up sites, as Russ Umphenour can attest. Today, as CEO of Focus Brands, he heads a support operation for six franchise brands encompassing some 3,300 stores. But back in his entrepreneurial pre-Focus days, he came close to bankruptcy because he had no use for that sort of infrastructure.
"When we had maybe 20 restaurants, I made a serious mistake in that I waited too long to hire a CFO," he recalls of the days when he was building an Arby’s franchise that would eventually extend to about 775 units.
"Me being the consummate entrepreneur, it was all about growth, about building stores," he said. "I was about eight or nine years in the business. I didn’t know enough to reach out."
The education was a painful one. With the switch from a "glorified accountant" to a "true" CFO, "I probably did it 10 years too late… It got us close to bankruptcy twice."
The lesson has stayed with him. "As I grew older and wiser, I realized we needed more smart people around," he says. "Not book smart, but smart enough to make the right decisions."
Mistake Pain Index: 8
"Sacrificing control of my kitchen."
— Jonathan DeSouza, Owner, 2312 Garrett
However, the chef’s ideas about how to run the place contrasted sharply with DeSouza’s vision. After three months of frequent clashes and arguments, DeSouza let the chef go. He closed the restaurant briefly, and re-opened with a new philosophy: teamwork. Jonathan DeSouza launched his gastropub, 2312 Garrett, a year and a half ago in Drexel Hill, Pennsylvania. Because it was his first venture in the restaurant industry, he thought it was wise to hire an expert chef to run his kitchen. "I entrusted the chef with my vision," says DeSouza.
"Now my team all works together—from the bartenders to the waitresses, to the kitchen, to the owners—and it’s a much better environment," he says. His current cook may not have the impressive credentials of the former chef, but he embraces DeSouza’s vision of a collaborative work environment.
Mistake Pain Index: 5