|
SMART
BUSINESS DECISIONS, BY DESIGN
July/August
2006
Two women walked into a restaurant equipment showroom. No, this
is not a really bad joke. It is a true story. Full of energy and
excitement, they were planning to open a new restaurant and had
done some homework on the equipment they thought might be required.
It is a common place for aspiring restaurateurs to begin the development
process. They had an equipment flyer full of notes, circled items,
and folded pages that had clearly been well used.
As they entered the store, they asked to speak with someone about
the design of their new restaurant. That is when they met me,
and the conversation took a turn that they never expected. These
well-intentioned women started showing me each piece of equipment
that they had selected. They were quite confident about the options
and finishes that they would need. But in reality, they were far
less prepared than they realized. I allowed them to finish sharing
their equipment selections, and then explained that I wanted to
focus on some questions that were not directly related to the
design of their new restaurant. Here are the questions I asked,
and the answers I received.
Question: Are you planning to lease a location for this
new restaurant?
Answer: Yes.
Question: Have you signed the lease yet?
Answer: No.
Question: How long is the term of the lease the landlord
is offering you?
Answer: One year.
Question: What kind of tenant improvement (TI) allowance
is the landlord offering?
Answer: None. I did not know that was an option.
Question: What type of business last occupied the space?
Answer: A bookstore.
With this information I abruptly blurted out "Don't Do It!"
before one of the kind women could even finish her last answer.
I had heard enough. These two women were shocked, to say the least,
and had a look of bewilderment that they found difficult to shed.
They were clamoring for a more detailed answer and an understanding
of why I wanted to squash their dream with such conviction. After
all, they came in asking about design and equipment, not leases
and TI allowances. They, unfortunately, did not see what I saw.
The Stop Sign
Restaurant development can be tricky, particularly for first timers
like these two women. It was clear that they had never developed
a restaurant before. In a nutshell, this is what I read from the
situation. The space was previously a bookstore, not a restaurant.
That meant that there was a significant amount of building improvements
that would be required to support a restaurant. The underground
plumbing system would have to be added, the electrical system
upgraded, and the HVAC modified to accommodate the new hood system.
There was a lot of work to do.
With no offer of TI dollars for building improvements from the
landlord to offset some of the construction costs, the tenant
would have to pick up all expenses for the building modifications.
Finally, the one year lease option would place all of the funds
utilized for building improvements at tremendous risk, many of
which would be permanent and not transportable.
It was pretty clear to me that the landlord did not believe that
these women would succeed. This was evidenced by the offer that
the landlord presented. Furthermore, he was placing nearly all
of the risk on his potential tenants. If the restaurant were to
succeed, the landlord would win because he would have a tenant
at desirable rates and bumps in the rent scheduled to follow a
very short initial term.
If, on the other hand, the restaurant were to fail in the short
term, the landlord would win once again. With a building full
of recent improvements and an infrastructure required to support
a restaurant - funded by the tenant - the landlord would be free
to lease the upgraded space to a new tenant at a higher rate than
the facility would have retrieved before the improvements. The
tenant would have no ability to recapture the money used to fund
the building improvements. In this scenario, the tenant would
carry a disproportional amount of risk, and I felt obligated to
point this out … before these women made what I felt would
be a horrible mistake.
Supporting the Business Decision
I could have developed the world's greatest design for these two
women, but if the design did not support the business decision,
then even a great design would have been a waste. The design needs
to support the objectives of the business, not the other way around.
This is true not only on small restaurant projects, but on projects
of every shape and size.
Too often I have seen designers obsessed with the design objectives
related to a project, and blind to the business decisions behind
the project. Often, this has resulted in designs that may look
great, but do not work … for the business. This is a variation
of a common theme I have shared in the past - form follows function.
These design professionals must remember that their purpose is
to develop a design that will support the objectives of the owner.
Granted, sometimes the design style may in fact be an integral
part of the business objective, which is perfectly acceptable.
The scenario I am concerned with is when the design objectives
begin to override the business objectives. To ensure that the
design stays on the right track, it is incumbent upon the owner
to clearly share the business objectives with the design team
on a regular basis.
The owner (or the owner's representative) should take a hands-on
approach to ensure that the design process is headed in the right
direction. Also, the entire development team should schedule dedicated
times during the design process to stop and review the current
direction versus the business objectives. If all is well, then
by all means - proceed. If corrections need to be made - make
them.
A Sobering Experience
So, you may be wondering about the final decision made by the
two women in my earlier story. Well, I successfully talked them
out of pursuing that opportunity. Eventually they saw the potential
risk associated with the scenario presented by the landlord and
determined that the risk-reward scenario was not favorable. It
was the right decision. Once the initial shock wore off, they
realized that I was trying to act in their best interest.
Though these ambitious, aspiring restaurateurs were in search
of assistance with equipment selection and design, our discussions
were focused on more pressing needs of the business they were
looking to start. We never did discuss the design. Before they
left, I asked if they had perceived my approach as negative. "No,"
they told me, "it was sobering … exactly what we needed."
They thanked me for helping them avoid what could have been a
very big mistake. No problem. It's all in a day's work.
|
