Why Invest in Restaurants? Why Not!

You have all heard some variance of the adage, “Nine out of ten restaurants fail within the first year.” I can’t argue that makes it hard to sell restaurants as an investment. Except for one thing—it isn’t true.

Not even close.

In fact, only 17% of restaurants fail within the first year, the lowest number of any service providing business including real estate agents and brokerages. This myth has been debunked over and over, but the data I am using comes from a comprehensive study by two economists. The summary was published in Forbes.

Hmm. How then, given that the facts override the myth does it linger? Well there is one theory, but this isn’t a column about what are facts, do they matter, and can I make up my own facts if I want to? I’ll save that for another time (teaser: you in fact can’t make up your own facts).

Accepting for now that facts are facts, I think this quote from the researchers sums it up:

“Perhaps due to the visibility and volume of restaurant startups, the public perception is that restaurants often fail. However, as shown in this paper, restaurant turnover rates are not very different from startups of many other different industries.”

The fact is, what we do is for all to see. If the price of gas on a big sign is an indicator of the entire energy sector, or the economy for that matter, then the restaurant on the corner of your block, or the turnover in the entire neighborhood, is a sure sign of the risk of the industry, right?

Hardly.

Humans are notoriously terrible at estimating risk (if we were good at it, we would never drive a car), and the fact that our business successes and failures play out literally in the streets for all to see doesn’t help defeat false narratives.

The reality, however, is that many restaurants and bars and other food and drink businesses make it. In fact, many of these businesses scale far beyond their first store, and there are many opportunities for follow on investments and exits.

Don’t believe me? Fair enough. But would you believe Steve Case? The billionaire co-founder of AOL and founder of venture capital fund, Revolution LLC is very bullish on food. To the tune of tens of millions of dollars over several rounds poured into local startup, Sweetgreen (personal favorite: Rad Thai) and other food ventures. From its inception as a tiny salad spot in Georgetown, Sweetgreen has grown exponentially and is now valued at over $500 million. That’s a lot of green.

That’s one example, and a high profile one at that, but I assure you the list goes on. Whether it is Cava Grill raising $60 million (mostly from Revolution), or Spider Kelly’s entering our seventh year with rosy sales forecasts, examples of successful companies in this business abound.

But sure, there is risk. There are no guarantees, and it is a tricky business—customers are fickle and competition is fierce.

So, what is the secret? How do you improve your odds of picking the right opportunity and mitigating the risk? Ahem. Allow me to introduce myself…

By carefully selecting the founders I work with, patiently curating the concepts so they are ready for primetime and balancing out our portfolio to diversify, I am working hard to put our investors in the best possible position. And of course, I am jumping in with them, side by side.

Will that guarantee success? Absolutely not. But I sure as Hell can beat a 90% fail rate. And you shouldn’t need Steve Case to know that.

Reach out if you want to learn more.

mothersauce press

Don’t Let the Wine List Intimidate You: Ordering wine in a restaurant should be fun, not stressful. Try this approach.

This article first appeared in Arlington Magazine on May 15, 2017

It’s hard to say what I love most about wine. The taste? The feeling it gives me? The vineyards it comes from? The memories it helps to make? I could go on and on.

What is easy for me, by contrast, is naming what I hate most about wine.

My biggest issue with wine is the culture of intimidation that surrounds it. It makes me crazy that a beverage that is so accessible, so broadly appealing and so conducive to conviviality remains, for many, unapproachable. Why? Mostly because it can be hard to buy it or order it in a restaurant.

Do wine lists leave you feeling bewildered and moderately illiterate? As a guy who has spent 20 years in the restaurant business, let me say, first and foremost, that it is the restaurant’s job to make you feel comfortable and help you find something you like. But good communication between the customer and the house can also demystify the process. Here’s where you come in:

Know what you like.

Seems simple, right? It’s not. A lot of people order wine that they think they like, that they think they are supposed to like or that someone else likes. The best way to identify what you like is to try a lot of different wines. Take advantage of tastings at wine shops, festivals, even the grocery store. If you’re trying to decide which wine-by-the-glass to order in a bar or restaurant, ask to taste more than one. I have seen people’s eyes widen with joy the first time they taste a wine that truly suits their palate. You don’t have to buy a whole bottle to find out that you don’t like a particular grape.

Start basic.

Red or white? Lighter or heavier? A little sweet or a little dry? Creamy and buttery or crisp and minerally? Fuller mouth feel because of malolactic fermentation? Okay, just kidding on that last one, but you can see how people can get carried away. You shouldn’t have to know what that means to order wine off a wine list. If you have a general sense of what suits you and you can articulate those characteristics in lay terms, then it doesn’t matter if all the wines on the list are Italian and you’ve never heard of them. Describe what you are in the mood for and a good staff member should be able to match that up with what the place has in stock.

State your price point.

Don’t be shy. Money is weird, and oftentimes guests don’t want to say (and have their entire table hear) that they want to keep it under $30 a bottle. Of course that is your prerogative as a customer, but if you aren’t specific then you leave the staff guessing. A good bartender, sommelier or server will suggest wines at different price points to tease out a sense of your budget, but if you’re up front about it, the conversation will go a lot faster. The good news? Restaurants now offer incredible wines across many different price points, particularly as they tap into emerging wine regions in lesser-known places like Croatia and Bulgaria. You don’t have to spend $100 to find a bottle that will blow you away.

Fear not the screw top.

Cork trees can take 100 years to mature (not exactly sustainable), and screw tops keep wine better preserved anyway. Great wine comes with twist-off caps. Trust me.

Don’t like it? Speak up!

There’s no need to ruin a good meal by suffering through a wine that isn’t working for you. A good restaurant will have the policy that you get the wine you want, period—even if your dislike isn’t immediately apparent upon your first sip. Keep in mind that a wine will change quite a bit as it breathes, and it may taste different once you pair it with food, so there is no shame in switching bottles a few minutes in. (Although if the bottle is half gone, don’t be that guest.) Don’t fret that the wine will go to waste if you send it back. It won’t. Provided the bottle isn’t corked (a fancy word for wine that’s “turned” or sour), the restaurant management may offer it by the glass, use it for staff education or drink it themselves. This is basic customer service and a cost of doing business. But if you don’t speak up, they may never know.

 

Nick Freshman is a co-owner of Spider Kelly’s in Clarendon and principal of Mothersauce Partners, an Arlington-based investment and consulting venture that helps D.C.-area chefs and restaurateurs bring new food and drink concepts to fruition. www.mothersaucepartners.com

Real Change. Right Here.

For many years, I was a Big Brother. Of course, I have been a big brother for all but those first two blissful years of my life (sorry, Ben), but the capitalized version is different. Big Brothers Big Sisters is a one-to-one mentoring organization that provides youth with adult role models—someone to provide guidance and positive examples. It is a great organization, and the reason I did it was that I wanted to be a part of change I could see right in front of me, right here where I live. There is no anonymity in mentoring, and the change you see is immediate and personal.

I have been looking for some time for an organization that can have the same effect, but on the broader community I live in and the industry I work in. I found it in La Cocina VA. After hearing a piece on NPR about the organization, I called the same day. I joined the Board of Directors weeks later.

La Cocina VA is primarily a culinary training center that provides people—primarily recent immigrants—with the skills and certification they need to work in the hospitality industry. “Job creators” are useless if there is no one with training to fill the jobs. La Cocina provides our industry with qualified and eager workers—something that we desperately need.

More than that, however, La Cocina VA offers hope to our most vulnerable community in the DC area. Language training, conflict resolution, counseling and food assistance are all a part of the program. La Cocina VA wants our members to become impactful members of the community beyond their job, and they understand that the ripple effect of that can be far and wide.

I am thrilled to have been asked to serve, and I hope that I can offer help in taking the organization to the next level. We are currently planning an ambitious new center in South Arlington. There will be a café and catering company to serve the Arlington residential and business community as well as an expanded training center and a culinary incubator to help members learn about the possibilities of entrepreneurship—yeah, I am all over that last part…

From the tiny basement of a church two blocks from where I grew up in Arlington, in the next couple years La Cocina VA will grow into a powerful force for change right here where we live. Skeptical? Look no further than the Founder and CEO, Paty Funegra. She quit her job to start La Cocina VA, and in its short existence, they’ve been visited by Senators and Congressmen, and she has been invited to the White House to talk about the mission.

I hope you’ll keep an eye on our progress and come visit us when we open the center—coffee is on me. Wait, foget that. Pay up—it’s for a good cause.

City Paper Feature Article

 

city state

City-State Brewing Co. Has a Can-Do Attitude: Husband-wife team is all about celebrating life in the District

This article first published on Eater Washington DC on April 21, 2017

If they’re going to pour their life savings into opening a brewery anyway, City-State Brewing Co. co-founders James Warner and Kim Carnahan figure they might as well build something to grow into.

 “To go as big as you can from the start can set you up for success in the future,” is how Warner explained his desire to start with a 30-barrel system — by comparison, DC Brau Brewing Company has built up its presence with a 15-barrel system; a new 30-barrel brewhouse is in the works — outright. The aspiring entrepreneurs are looking for a 10,000-square-foot facility (Ivy City, Edgewood, and Anacostia are all on their short list) able to accommodate a production brewery, taproom and beer garden.

In addition to being a supportive spouse — “James is so ecstatic when he’s making beer,” she told Eater — Carnahan, who works for the State Department, said the pair crunched the numbers and remain confident there’s still money to be made in craft brewing.

A former congressional aide (Warner said he and Carnahan met while working on climate change issues and energy policy), Warner has been home brewing for years. He’s also spent time within the industry, having worked as a server at ChurchKey, and currently handling sales for a major beer distributor.

 He noted that some of the products bookmarked for the City-State launch are literal labors of love. “Some of these recipes started life getting ready for our wedding in 2013,” he said. (Their theme was “celebrating D.C.”)

Core City-State beers

  • Holy Go-Go: Abbey Dubbel brewed with grains of paradise from West Africa and sugar from Latin America as an homage to the city’s musical history
  • Eight Wards Independent Pale Ale: expected to feature an ingredient representative of each part of the District
  • The Brookland: saison
  • Equal Marriage: dark wheat beer
  • Self-Determinator: German-style lager

“Each beer will tell the story of D.C. in a different way,” Warner said of his portfolio of beverages.

Warner and Carnahan are working with Nick Freshman, a hospitality vet who last fall launched strategic consulting firm Mothersauce Partners, to find investors for the ambitious project. The goal, Warner said, is to have the taps flowing at City-State by summer (or fall) of 2018.

“We think there’s plenty of room in D.C. still,” Warner said of the local beer scene.

Spring Brings New Deals

I have been dying to write this blog post as all the details were being settled and all the documents signed. There is a long blog post in me about my love-hate relationship with lawyers. One of whom is my partner. Another time.

Nonetheless, as I write this the sun is bright and warm, and the air smells sweet from new blossoms and feels soft on my skin. Spring is here, and it is the time to leap forward with excitement and hope. As the last nails are hammered in for Takoma Beverage Company, they are only a moment from bursting into life. It has been an incredible—and incredibly fast—journey with founders Seth and Chris, and I am thrilled to see the opening just ahead. I hope you will come visit the store sometime to see for yourself what makes it such a great concept.

And more is coming to life in this season of naissance. We have partnered with two incredible concepts, and we are fundraising for both. Take a look below, and feel free to reach out to me if you are interested in hearing more.


 

City-State Brewing Company
The Flavor of the District

Founders James Warner and Kim Carnahan are committed to paying homage to their adopted hometown of Washington, DC, but they know that it will take more than a name to make a mark on the DC beer scene. James quit a promising career in politics to go all in on his hobby. He has worked in every capacity in the business, and all the while with the intent to learn as much as possible about the beer business so that City-State can be as successful as possible. I was sold on the beer at first taste, and it didn’t take much longer for me to be sold on the team. With a solid business plan in place and a significant amount of money already raised, James and Kim are far along in the process. Mothersauce will join with them to get City-State across the finish line and open for business.

The Eleanor
Bowling Lounge, Music, Bar & Grill

Adam Stein is a well-respected Chef and industry veteran who has launched multiple successful concepts over the years, and now he is ready to launch his own. The Eleanor will help to define Ivy City as the District’s next great neighborhood. The 7,000 square foot location will feature four bowling lanes, event/music space, a movie screen, bar and lounge area and an outdoor patio geared for large scale food and drink events like pig roasts and crab boils. Think of it as a cooler, bolder Spider Kelly’s. The Eleanor has the size, the style and the skill to make a huge impact that will go far beyond its neighborhood. With an LOI in hand for the location, the founders are ready to get going.


I hope that you enjoy this season and the hope and excitement it brings. It is great time for our company, and if you are interested in being a part of all that we are doing, feel free to reach out to me anytime at nick@mothersaucepartners.com.