By Kevin Tam
Getting wealthy in the hospitality industry involves buying multiple businesses and running them all at a profit. That is pretty much the path to wealth when you break it down to its basic elements. However most people do not go past one bar.
I have often wondered what the differences are between those that run one business vs. multiple businesses. I work with a lot of different people that have gone from owning one to several bars, and I have seen the similarities for how this goal is accomplished. I also have personally expanded my business to go from no businesses a short five years ago, to now owning and operating four different ones. So to a degree I have also walked the walk when it comes to the game of rapid expansion. Here are some tips if you want to expand rapidly and become a multi-venue operator.
1. Silent Partners with Money
If you have plans to expand rapidly, you need to have a partner with enough cash to finance your plans. Usually banks are much easier to get on board when you have cash. So having silent partners with cash is where it all begins. Ask yourself: Who are the people coming in with cash? Also, which banks will do the deal? If you do not have answers to either of those questions, you need to get this sorted out before anything else.
Ideally, your partner has enough money to finance your entire plan. If your plan is to open 10 bars, and each one requires $500K cash, your silent partner needs to have $5 million (10 x $500K) ready to do the entire deal.
If you need to find a different cash partner for every deal, then every new business you buy will be run differently. That’s not good from an operational standpoint. You want everything run the same. It’s also not good from a time management perspective. Finding a cash partner is a sales job, and if you have to spend time, money and energy to find new cash partners for every new deal, your growth will not be rapid. It will still happen if you’re good at finding money, but it won’t be quick. Rapid growth requires cash and ideally, releasing the funds should be one phone call away.
2. Operational System
Running each location with proven and easy-to-learn systems is a key characteristic of a fast growing hospitality company. You need to know what apps, spreadsheets, and tools are going to be used at each location before you even go in there. And ideally, all of those systems are so easy to use that it doesn’t take a team of superstar employees to learn how to use them.
A common failure I see is when a company is run by a guy that is brilliant, but fails to make things simple for others. I know one guy that owns multiple locations, but he has a hell of a time finding and keeping managers because of how hard it is to work for him. The owner has built massive spreadsheets that he is proud of, but no one except him or a comparable excel expert knows how the hell to use it. He is also too cheap to hire book keepers or pay for apps, so he expects his managers to run payroll, code invoices, schedule and inventory control on this enormous spreadsheet that has formulas within formulas. When I was consulting with him, I felt bad for his managers, who were tasked with things that no hospitality manager should expected to know.
To expand rapidly, your business should be easy enough for a 20-year-old server with half a brain to run. If the learning curve it takes to work for your company is too steep, very few people will make the climb and the pace of your expansion will stall.
3. Marketing System
To open multiple locations rapidly, each location needs to open with a bang, and to do that, you will need to do continuous marketing campaigns to residents and businesses in the surrounding area.
Ask yourself, do you have a plan of action for your PRE-Launch and your POST-Launch? Having a successful PRE-Launch with no marketing can actually be a curse because you can be so busy your first few months that you ignore any need to continuously market. However, experienced operators know the “honeymoon” phase of being the new kid does not last forever. The key to sustained success is to market every day, and every month as if it were PRE-Launch ALL THE TIME.
It has been my observation that most bars owners vastly under estimate the amount of marketing skill, budget, and continuous action that is required to actually keep a bar full all year round. Rapid expansion requires massive action all year round, the determination to execute the plan, and the understanding that this work will continue into perpetuity.
4. Financial Plan
To manage rapid expansion, you need to keep the long-term perspective in view. After the business is purchased, it will go through a process of paying back the people that backed the plan from the beginning. Some people work in partnership with their financial partners and pay ongoing dividends, while others pay them back like a loan. If you have traditional lenders like banks involved, they will also want payments.
Whatever your arrangement is with your money people, you’ll need to know two big things: how much per month do they get, and how long does this thing go on before they’re paid off?
Paying people off can be a tough time time to own a business. There may be some times where you take very little profit for yourself because most of the profit is going towards paying people off. However, what keeps you motivated to put in the work and make the business the best it possibly can be is keeping the long-term financial picture in mind.
When you reach the end of your payment schedules, all that money that was going to partners / lenders is now going into your pockets. Knowing your payment schedule is also great motivation for getting off your ass and marketing like a maniac. If you make the business so successful that you can exceed your partner and loan payments during the repayment phase, you are setting yourself up for massive paydays once everyone is paid off.
The foundation of rapid expansion is a culture of integrity, where your team does what they say they will do, especially when you are not looking. That comes from the character that is established at the top of the organization (you). So if you have even one area of your business that is shady, know that although it may seem like a minor thing to you, it can be the major thing that is preventing your ability to grow. Your negatives will also grow as your company grows. If those negatives are not resolved before expanding, they become multiplied and have the potential to derail the entire operation.
Back when I was in school, I worked as a bartender with a company that, at that time, owned many popular bars on one of the busiest streets in the city. However the company had no integrity in any of its dealings. Theft was rampant. It was just normal for employees to drink while working, drink beers after work (without paying for them of course), and non-stop games to be played with bartenders short pouring, stealing, and doing all kinds of shenanigans.
Because this company expanded during a period of massive economic prosperity, they did not care to curb the shenanigans that they eventually accepted as just “how things are done.” However once the economy cooled off and profits got a bit tighter, the company began crumbling from the inside out. One-by-one their pubs, restaurants, and nightclubs shut down. And what was once a dominant player is now just a shadow of its former self. Suffice to say they did not experience rapid expansion in different cities like they had hoped.