This past summer I was involved in
a startup for a restaurant that will be opening up in a few years. This
particular restaurant is a family run business and is dedicated to providing
health conscious food options for consumers. More specifically, this restaurant
is distinctive in the sense that it offers a tremendous variety of foods to
meet a niche market. My role in this startup was to help coordinate a business
plan and implement it by helping to develop new products that the restaurant
would provide, plan, and organize future workers for the restaurant including architects,
chefs, and food suppliers. It was a very novel experience and has helped me
tremendously by providing the experience that I need to start and run a
business.
The structure of the restaurant was
based on a hierarchal structure. My co-workers and I would work together in a
group in order to do all the research and attend to business meetings in order
to implement the business plan. Ultimately, our input was reviewed by the two
owners of the restaurant, who would then sign off on our work or provide their
input in order to point us in the right direction.
The initial process of starting up
the restaurant was very political. The paper work required in order to legally
establish this restaurant was incredibly arduous. Everything from safety
requirements to building codes had to be signed off by a committee in the town.
Several attempts were made to submit the proper paperwork for review before the
committee was able to grant the right to start building the restaurant. Furthermore,
the board of committees were very demanding about having the right referrals
from people. This process was denied several times before we were able to hire
a lawyer in order to present our submission for this business.
After we obtained the right
licenses in order to build the restaurant we had to attend various business
meetings in order to hire the people to run the restaurant. The interview
process for the chefs were relatively straight forward. We interviewed several
chefs and rated them based off their skill and knowledge about health foods,
specifically those that were knowledgeable about vegan as well as gluten free
cooking. My co-workers and I offered our opinions about each chef and
ultimately the owners took this consideration into account when selecting the
right chef.
The transaction costs associated
with starting up a restaurant were numerous. One of these is the fact that we
did not have enough information to make an insightful decision for our
suppliers. We were looking into various organic and small time farmers in the
local area that we could depend on specifically for our menu items like
smoothies and salads. It was very difficult to discern between the quality of
certain fruits and vegetables. The organic market is so diverse in the sense
that the requirements for a product to be labeled organic is so lenient. It is
very difficult to find a quality product that would be cheap enough to still
make a profit as an item on the menu. Another transaction cost that I
personally experienced was the negotiating that was involved in starting up the
restaurant. There would be several rounds of negotiations between the committee
in order to get the restaurant approved. Furthermore, there were numerous
meetings with the architect in order to design a building that would meet the
building code regulations but would also suite the needs of this particular restaurant.
We had to bargain for the implementation of separate refrigerators and kitchens
in order to prevent the cross contamination of gluten free products.
That's quite an interesting story. I've had a thought in the back of my head since I've retired to start a fast food vegetarian chain aimed at college students, where the idea would be that the food would be pre-grilled and then served cold. I've got no clue whether it could work or not, but I do know that when I cook sweet potatoes and bell peppers on the grill, they really taste great the next day when eaten cold and make really good "finger food."
ReplyDeleteOne of the things I didn't quite get in your story is where the idea for the restaurant came from. I also didn't understand whether there was some substantial human capital of the right sort in the group or if everyone was new to the venture like you were. It sounded like your team needed someone more experienced. The question then is whether that sort of person can be identified and attracted to the activity.
I agree with Professor Arvan in that it sounds like your group would have benefited from adding someone with a little more experience to your team. Specifically, it sounds like you could have eliminated a lot of your transaction costs from all your applications by hiring a lawyer sooner. I'd be interested to know if there were any other transaction costs that could have been eliminated or minimized if the owners had known about them before starting the process.
ReplyDeleteI'd also be interested in if anyone on your team was going to help run the business when the restaurant eventually does start up, and how their roles and the hierarchy might change. Was that discussed at all?
The idea for the restaurant came from the initial owners and founders. This particular person has worked as a food scientist for several decades. She has developed several vitamins and supplements from super foods that are available on the market today. It was her idea to implement her knowledge of food science in order to reach a greater market than just through food supplements. Because of this it was incredibly difficult to utilize ingredients such as tea, broccoli, kale, etc. into a menu item that would appeal to an average consumer.
ReplyDeleteThe financing for the restaurant was a mix between investors and loans. Although I was not directly involved in the finance aspect of the restaurant I know the total budget for the start up of the restaurant was in the range of several million dollars.
Furthermore, I disagree with the fact that the transaction cost of hiring a lawyer could have been eliminated from the beginning. For opening up a restaurant in a place such as Cook County, it is more about who you know rather than having the right documentation in order to get your business proposals approved. The transaction costs of finding the lawyer with the right connections took several attempts. It is a very political process that cannot be avoided. We knew from the get go that it would be a difficult process to get an approval. It was just a matter of finding a person with the right type of connection to the board of committees. Really unavoidable unless someone already has this type of connection beforehand.
I found your business venture with the restaurant pretty interesting. Starting and running a business is extremely hard, so kudos to you and your colleagues for undergoing the challenging process. I had not realized all the grueling paperwork and negotiation with city committees that needed to be done. Not only is that crazy but so are the start up costs associated with a new restaurant. I do think the transaction costs (paperwork, lawyer, meeting with committees) are unnecessarily burdensome, as they are for any enterprise.
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