StarChefs Panel Reflects on Deals Lost and Lessons Learned
The StarChefs Congress, which ended last night, hosted numerous panel discussions. It's safe to assume that none were more informative than "When to Walk Away from a Deal," which saw participants Akhtar Nawab, Norman Van Aken, Joe Isidori, Josh DeChellis, and Paul Liebrandt hold forth on what they learned from Restaurants That Seemed Like a Good Idea at the Time.
Pushed and prodded by the panel's moderator, the disturbingly imperious Antoinette Bruno, the chefs shared some insight on their heavily publicized travails. Van Aken provided some valuable framework for the discussion, describing the necessity of having 51 percent equity in a restaurant and neatly summing up the relationship between investors and chefs: "We're the honey and they're looking for the bees."
Nawab spoke about his nightmarish involvement with Allen & Delancey, describing the ruinous effects of the restaurant's "astronomical" construction costs and seven months of fighting with its owner, who he didn't know well prior to making a deal with him. "Not doing due diligence was part of the problem," he admitted. That wasn't the problem at Elettaria, where Nawab knew almost all of his partners. Instead, it was the restaurant's location, on a stretch of West Eighth Street known more for fast food and cheap shoes, that posed a bigger obstacle. The difficulty of the location was reflected in decreasing revenue, which was in turn reflected by Nawab's inability to make rent. Lesson learned? Location (to say nothing of favorable rent) really is everything.
Location was also an issue for Isidori, who was given the task of opening a five-star hotel restaurant for Donald Trump in Las Vegas, perhaps the most heavily unionized city in the country. Because the hotel was not unionized, Isidori found himself paying bartenders $19 and hour and servers $12 an hour to keep the union off his back; his labor costs soon skyrocketed to an incomprehensible 300 percent. "Labor costs destroyed me," he reflected. It took only five months for the restaurant, which was doing at most 40 covers a night, to implode; after laying off 84 employees, Isidori realized, too late, that "this [was] going nowhere."
For Josh DeChellis, the demise of BarFry wasn't nearly as spectacular: when the restaurant closed in April of last year, he remained on good terms with his partners, Zak Pelaccio and Rick Carmac. Once he realized that the restaurant wasn't making its numbers, he simply chose to cut his losses: "When the negatives outweigh the positives is when to walk away." DeChellis was introspective about the experience: "The biggest thing to ask before the deal is what is the deal?" he said. "Before you get to the table, ask yourself, what is important to me? What are my goals?"
Like Nawab, Liebrandt also emphasized the importance of knowing who you're getting into business with -- especially if that business partner happens to get deported back to England for embezzling $40 million. "Choose who you go into business with very carefully," said Liebrandt, who was unceremoniously fired from Gilt while he was on vacation in Spain. "Relationships are everything. Numbers are numbers, only a piece of paper. The biggest due diligence is sitting down, having dinner, and talking."
As sobering as the chefs' experiences were, perhaps the most memorable guideline for when to walk away from a deal came from Van Aken, who reflected on the day he severed ties with a business partner: "I walked away after getting into a fist fight with that fucking clown on the beach with Mickey Rourke watching," he said.
So, to recap: do due diligence. Keep your labor costs down. Trust your gut. Get 51 percent equity. And once Mickey Rourke enters the picture, then it really is time to call it a day.
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