Texas Farmers Market Leaderboard Oct 2020

The Road to Brick-and-Mortar

by Kristi Willis

Many chefs have dreams to open their own restaurants, but the road from an idea to a successful, bustling business is rife with speed bumps—any of which can bottom out the project. Chefs must navigate a constantly shifting maze of city regulation and permitting, unavoidable construction delays and stiff competition. 

In today’s market, a developed and proven cuisine concept is necessary on the road to starting a restaurant—a tough test for an unopened business. To create buzz and prove their chops, pre-restaurant, many food entrepreneurs have turned to farmers markets, food trucks and other informal, less expensive routes to get the word out and build their customer base: Salt & Time Butcher Shop and Salumeria, The Mediterranean Chef Cafe, Odd Duck and countless others who wisely started on a small scale and worked themselves into a building. 

Some chefs are trying out new ideas, such as Dinner Lab (operating in Austin and nine other cities around the country) to help them accelerate the proof-testing process and hopefully fulfill their dreams. Over the course of 10 weeks, nine guest chefs will host a dinner in each of Dinner Lab’s markets. Diners then complete detailed surveys about the meal, and the highest-rated chef and city over the course of the tour will determine where Dinner Lab’s restaurant will be and who will be the lucky chef at the helm. “We wanted to take the guesswork out of opening a restaurant,” says Dinner Lab CEO Brian Bordainick. “People flew before radar, and that sort of worked. But then there was a better way.”

But even with a highly successful concept, chefs going the traditional path to brick-and-mortar still have to figure out how to pay the tab to bring their vision to life. Most banks are unwilling to lend the $500,000 to $1 million it takes to start a new place unless someone involved in the project has significant collateral to guarantee against the loan. Instead, restaurateurs often turn to private investors in return for shares of equity in the business. 

The Securities and Exchange Commission (SEC) carefully regulates who can invest in a business by requiring the majority of funding to be from accredited investors—people who have a personal net worth of more than $1 million or have earned a minimum of $200,000 in income for at least two years in a row. Businesses are also limited by how many nonaccredited investors they can turn to—often cutting off resources from family and friends. Of course, since not everyone has access to people with deep pockets, organizations such as Slow Money and angel investment groups help connect small businesses with accredited investors.

Restaurant-2Dinner Lab Menu and Dinner Survey by Jenna Noel. Lenoir interior by Knoxy.

A growing number of restaurant-hopefuls are also turning to crowdfunding tools, such as Kickstarter and Indiegogo, which not only bypass the SEC requirements but help raise money from the public by promising rewards or benefits instead of shares in the company. Greenman Consulting, an Austin-based food-and-beverage consulting group, started a local version of the crowdfunding model and recently helped Noble Sandwich Co. raise $10,000 to restore a vintage Dr. Pepper sign at its new Burnet Road location. And Salt & Time turned to Kickstarter to raise the rest of the cash for its build-out when a private loan via Slow Money fell a bit short. “We didn’t want to go buy bar stools when we believe so strongly in sustainability and local sourcing,” says co-owner Ben Runkle. “Kickstarter was a way to get a little extra money that we could invest in making sure we worked with people who take the same pride in their work that we do, and it mobilized our customers to spread the word about the opening, which was a great side benefit.” 

Yet, even though the current crowdfunding model works well to close gaps, Brian Stubbs of Greenman Consulting points out that no one expects to fund an entire restaurant concept that way. Fortunately, the SEC is crafting regulations for a new investment method called “equity crowdfunding” that would allow unaccredited investors to receive equity in the business instead of T-shirts and other perks. The current proposal would permit a business to raise up to $1 million via smaller increments, such as $500 or $1,000. “Equity crowdfunding could be really exciting for the industry because independently owned restaurants fall right in that initial startup cost range,” says Stubbs. 

Of course, once a restaurant’s concept is solid, the financing is in place and the doors are open, maintaining a steady cash flow is the next challenge. Chefs Jessica Maher and Todd Duplechan of Lenoir turned to a membership model often used by farms and other businesses to ensure a regular customer base. Through their community-supported restaurant (CSR) program, diners can buy an annual membership at the $1,000, $2,500 or $5,000 level and receive a minimum of 20 percent return on their investment. “The CSR program has given us a cash infusion so that we can improve the restaurant,” says Maher. “It’s a mutually beneficial loyalty program; the diner gets a discount, reservation priority and other benefits, and we get a cash boost at the beginning of the year and the exposure to new customers when members bring their friends with them—maybe one of the best benefits of the program for us.”

Whether it’s perfecting a concept, funding a startup or keeping things flowing smoothly after opening, local chefs are being called upon to be as creative on the business side of the house as they are in the kitchen, in order to turn their dreams into reality. Luckily for us, many continue to successfully answer that call.