Alinea - The Business Plan

[jglazer75]

Moderator Note...this question has been split off from the general discussion thread so that it can be addressed specifically.

I had a question that I think goes more to the practical aspects of starting ANY restaurant, but which I think may also raise interesting questions about THIS one in particular. As a disclaimer, I understand that much of the answer may be 'confidential' so don't be afraid to say "none of your beeswax." And feel free to answer as generally or specifically as you'd like.

How does one go about arranging financing for such an operation? What percentage is your 'own' money and how much is outside equity and how much is financed? How did you did you decide on the needed amount of start-up capital? Did you form a close-corporation or is it a partnership? Who did you look to for financing? Is it people you know and are close to or did you go through an organization that matches investors to projects? Do they (the investors) have any input on the creative process or did they hand over money and say "go to it" no strings attached? How does this project differ from other, more "conventional," restaurant start-ups?

Like I said, I know this a fairly confidential-type question, but for many of us who are outsiders to the process these are questions that you never see answered. But if I were considering opening a restaurant (which I'm not) I would definitely want to know before I ever even started. I guess I wanted to start this thread at the very beginning of the project because I know at this point the project has been on-going for a few months now, so I wanted to try to catch up to 'where we are today.'

ps. good luck, this project sound phenomenal and I'm looking forward to seeing what the food lab churns out? Is there a plan for pictures of the results??

[phaelon56]

I had a question that I think goes more to the practical aspects of starting ANY restaurant, but which I think may also raise interesting questions about THIS one in particular. ......

How does one go about arranging financing for such an operation?

This very topic has been covered in great detail on BondGirl's

Blog: Starting a restaurant in NYC

She's actually still in the throes of the planning and financing stages if I recall correctly. You'll find lots of discussio about her varied experiences with the financing issues - all of it quite fascinating and pertinent to restaurants in general (apart from the fact that it just costs so darn much to start a place in NYC).

[nick.kokonas]

As you stated, much of the information you requested is confidential

and private. But I can answer you generally and still give a decent

answer to your questions.

Chef Achatz had already drawn up a general business plan before we

began discussing the possibility of working together. I read that

plan thoroughly to help me understand the scope of the project and

type of restaurant Chef Achatz wanted to build. Chef Achatz and I

spent many hours discussing his vision for what ultimately became

known as Alinea.

From there, I outlined the type of information we would need to

adequately estimate the amount of start-up capital needed. Some of

that information was easy to find but time consuming to execute. For

example, Chef Achatz prepared several spreadsheets outlining all of

the necessary front-of-house and back-of-house purchase requirements

in detail -- literally down to the "13 Cambro Red Lids at $2 each =

$26" level. That was hundreds of line items. Again, that was the

easy, known information.

Then we began to survey real estate pricing in the likely areas we

would want to locate a restaurant. This was done at the gross -sq.-ft

level, and we already knew roughly how many square feet we would need.

So that became another series of price ranges. We then met with

architects and designers to ballpark building costs given various

types of construction. On and on. Payroll, professional fees, legal

work, etc. This entailed hundreds of emails between us, and 3-4

months of work.

Ultimately, we arrived at a point where we felt confident that we had

gathered all of the "build-out" information we could. There were many

unknowns and many estimates, but all were based on realistic goals and

researched information.

This was then presented as a business plan. The plan consisted of

approximately 10 spreadsheets, one long written piece detailing the

vision of the restaurant and a timeline and description of methods of

executing the plan. This being Grant and a high end restaurant, we

packaged the plan in a beautiful box on hand made paper, along with a

digital copy of the plan, press kit, etc. etc. And of course, a

miniature 4 course tasting menu in small vials consisting of a dry

martini, lamb, and desserts!

I have started several businesses and invested in others, so I had a

group of people who knew and trusted my work -- and I would be

investing a substantial amount personally. In addition, the investors

were highly appreciative of Grant's cuisine and believed that he would

ultimately be successful. The money raise was done with a small group

of committed investors who believe in Alinea both as a business and as

Grant's vision. It is important to us that Alinea works as both a

grand restaurant, and as an investment for the backers who believe in

our work.

Generally speaking, arranging financing in the sense that you mean is

not possible for a business like this. Alinea is to be built from

scratch, and as such has no credit history and no cash-flow history.

Unless personally gauranteed, no bank on earth would loan money to

such a start-up.

I do not wish to discuss the type of business structure we created or

how management is compensated. I will say that I relied more on my

experience with private equity raises in the technology and real

estate areas than I spent time trying to figure out what a restaurant

"usually" would do. Nor do I expect that there is such a thing as a

"standard" restaurant deal. As with all such business deals, the

resulting agreements are longer and more complicated than one would

expect at first glance.

I do think that our plan differs significantly in that we are a

totally chef driven restaurant... we will live or die by the work,

cuisine, and vision of Chef Achatz. I feel very strongly that nearly

every fincancial investment one can make is an investment in the

people involved, and in this case that fact is more evident and

obvious than in other investments.

In that regard, the investors are active only on the business side of

the restaurant. All are professionals in their fields and have

extensive business experience -- it would be foolish to not get thier

input. But no one is "walking into" the kitchen to tell Grant to make

sure a creme brulee hits the menu! There is no point in investing in

Chef Achatz, and then getting in his way.

For the most part, my work will be 97% done when Alinea opens its doors.

-----

On a personal note, I am very excited to be involved with this eGullet project and am excited for Alinea to embrace the online "foodie" community. I will try to answer any questions as quickly as possible.

[Holly Moore]

A few follow up questions. I understand if some or all of this is confidential.

1. Undercapitalization is probably the most common reason for restaurant failure. What percentage fudge factor are you adding to pre-opening costs to allow for the unexpected?

2. I've heard of setting aside anywhere from 3 to 24 months anticipated operating costs cash reserve. Given the buzz that will come with Alina's opening it might not be as important for you as for the typical operation, but are you setting up a cash reserve to cover start up months and, if so, how many months do you feel is necessary.

3. And really pushing your willingness to share information, are you anticipating that Alina will open at break-even or a profit? If not, how long do you anticipate it will take before you achieve break even?

[KatieLoeb]

Do you have an in-house "CFO" or Controller? If not, is the position still available??

I'd even put up with Chicago winters for an opportunity like that!

[nick.kokonas]

To answer Holly Moore's Questions:

1) We budgeted everything at the high end of what we could expect. For example (and these are hypothetical numbers), we put $50 per square foot for a 5,000 square foot space into our plan, realizing that it was likely that we would pay somewhat less. Some known numbers we budgeted exactly, but others I assumed would cost 20-30% more than expected. On the whole, we have margin for error, though with each expenditure, potential return to investors is diminished. We are operating as smart and tight as is possible.

2) We have set aside a cash reserve in the ballpark of 10-15% of our money raise. We believe that this will be sufficient given the cash flow and fixed costs. Really, we only need to make the fixed costs in order to survive, so those are the outoing dollars I concerned myself with when setting the reserve. If all goes well, we will return that reserve to investors in a relatively short time.

3) That is impossible to say! We are hoping for the best and anticipate doing well.... we are confident that the end result will be an experience that diners will enjoy and want to experience. That said, we are tempering our expectations and planning for the worst... just in case.

Regarding KatieLoeb's question: I think I am the CFO... though I hate business titles! At the very least, I will be fulfilling those duties personally.

[jglazer75]

Can you share staffing requirements, if known? What kind of people will you be looking for? Where will you look for them? What training do you expect? What kind of training will you have to provide?

Thanks for the reply, it was really more than I expected! and a very useful peek under the hood.

[nick.kokonas]

All staffing will be handled by Chef Achatz and our GM, Joe Catterson. We have received quite a few inquiries already, but are not yet accepting any applications.

When we are closer to the opening we will post employment information on our web site. Until then, thanks for the interest....!

[GordonCooks]

May I inquire as to the approx expense of the wine cellar

[nick.kokonas]

I do not wish to comment on that specifically in dollar terms.

Joe Catterson is the Wine Director and will be charged with building the cellar.

Due to the nature of Chef Achatz' cuisine and the tasting menu, or

degustation, format, Alinea will offer wine flights to pair with

particular dishes. In my opinion, Joe is a master at doing this and

it was always my experience that this was the best way to approach a

meal prepared by Grant. In addition, we may offer "reserve" flights

if patrons want that option.

That said, Alinea will have a unique and broad selection of wines by

the bottle, and we intend to make allowances to let a diner "insert" a

chosen bottle off of the list into the flight if they so choose. That

way, the diner can get the best of both worlds: the flight and the

list.

I am sure that at some point in the future Mr. Catterson will address

this board in detail about wine selection, pairings, and building the

cellar....

[slbunge]

I've known a few people who have invested in restaurant ventures, mainly 'American Bistro' sorts of things where I think the draw was potential success via franchising if the restaurant is successful. This, quite obviously, is another animal and I am wondering about the investor mindset as they make their decisions to be financial backers. General terms, not specifics.

It seems to me, that investing in a restaurant such as this might be akin to the way some invest in art: there is certainly confidence about return on the investment but part of the decision to invest is a very personal connection to the art. Whether it be the fact that you get to look at the painting on your wall, share it with the public by lending it, or just that you feel the buzz of supporting an artists (a sort of vicarious living, I suppose).

Based on what I have read here, Mr. Kokonas, it appears that this passion for the Chef's art is at least part of what drives you to be a partner and investor. I am curious about the others in the group. Do they share that passion?

Edit: spelling

Edited August 31, 2004 by slbunge (log)

[Bond Girl]

I'll throw in my 2 cents here since I am in the process of raising miney for my own restaurant. What I discovered since I began this journey is that you want an investor or group of investors that has some understanding of the restaurant business, otherwise, you'll just have more road blocks to overcome. In that sense Slbunge's analogy to art is very appropriate. More so than the personal connection to the restaurant is the investor's understanding of the operator/chef's vision and his believe that the vision makes good business sense.

In another word, the buyer of a Picasso shouldn't have to ask why the girl in the painting looks looks like a car has ran over her.

[nick.kokonas]

Personal motivations are often difficult to discern -- but here is a shot at it:

I believed after dining at Trio a number of times that Chef Achatz was producing the best cuisine I had ever had. Not only was it highly creative and highly experimental, but it tasted fantastic -- as in, that was the best "xyz" I have ever had. I have been fortunate enough to eat at some of the best restaurants around the world, and I was truly shocked at the level at which he consistently performed. Given his age, it was likely to get even better as he grew in experience. It also seemed like a given that someday soon he would have the opportunity to run his own restaurant.

The opportunity to be associated with a person that operates at a high level is always exciting and professionally fulfilling. My best experiences in business (or in life in general) have been with people who were exceedingly committed to their endeavors, and that committment goes hand in hand ultimately with success.

When I mention to people that I am involved in "building a restaurant" I usually get one of two reactions, or both: 1) I am naively entering a business where someone has duped me into investing money only to see it vanish within a short time; or 2) it is a vanity project to stroke my own ego or feel the 'buzz' that you mention.

Meeting with Grant the person, not "Chef Grant", let me know that he was savvy about the business side of restaurants -- he was involved far more than a typical chef. In fact, he was pragmatic and willing to listen to business considerations. I would not have begun this project with him, or allowed it to go this far, if I did not consider this a solid investment money wise. In addition, there is no way that I would pitch this to investors if I did not feel confident myself. I am solidly in the same position that they are. Though the other investors very much believe in Grant's vision and enjoy his cuisine, ultimately they would not have invested if they did not believe in the business plan.

So, I guess I am a true believer on both fronts: the business and the art. But this is not akin to me buying a painting, or even commissioning one. I have spent, and continue to spend, a majority of my waking hours working on many aspects of Alinea. I have not actually eaten a bite of Grant's cooking since May 4th (an investor's dinner) -- so it has not gotten me any special "access to the art", with the exception of some shared take-out pizzas. He has had to endure my cooking more than I have enjoyed his.

But it continues to be a very fulfilling project and one that I enjoy working on immensely.

As for the risk involved: A good friend told me that he looked at his business risks this way.... if you feel fine when you go to sleep and wake up, you are not taking enough risk. If you are throwing up consistently, you are taking too much risk. A nice, even nausea most of the time is just right. Generally speaking, this risk feels just about right.

[mikeczyz]

He has had to endure my cooking more than I have enjoyed his.

What do you like to cook? Any cookbooks you draw inspiration from? What about other food related literature? Is it nerve wracking cooking for a chef of Chef Achatz' caliber?

These questions may be a bit off-topic from the business plan, but i think we'd all appreciate learning a bit more about what makes you tick.

mike

[soupsister]

Wow, and all this time I thought the "nice, even nausea" was the result of the weekly carry-out taco pizza from the local gas station/deli/pizzaria. It's nice to know it's the right feeling to have when you've invested in your own business.

[herbacidal]

As for the risk involved: A good friend told me that he looked at his business risks this way.... if you feel fine when you go to sleep and wake up, you are not taking enough risk. If you are throwing up consistently, you are taking too much risk. A nice, even nausea most of the time is just right. Generally speaking, this risk feels just about right.

Very nicely put.

Not just this part, but your entire response was balanced and appropriately organized.

[nick.kokonas]

What do you like to cook? Any cookbooks you draw inspiration from? What about other food related literature? Is it nerve wracking cooking for a chef of Chef Achatz' caliber?

Very off topic, but here it is anyways:

I became interested in wine before fine dining and cooking. I read a number of wine related books. I also very much enjoy travel essays, and that led me to the Peregrinations of an Epicure (mentioned in the opening Alinea piece)...and that and a few others like it led me to open up to fine dining.

Some time ago I read Michael Ruhlman's The Making of a Chef, followed a few days later by, The Soul of a Chef. Those books as much as anything had the right blend of travel essay and food essay. They were very inspirational and made me rethink my own approach to cooking. It is ironic that Chef G makes an appearance in The Soul...

Who doesn't enjoy reading Steingarten?

My wife and I both enjoy cooking and entertaining, so we have a myriad of great cookbooks. Too many good ones to mention, really.

I haven't cooked anything but casual lunches for Chef G.... and the first one was nerve wracking, but for no good reason -- you can't try to compete, right? The second one I forgot to salt -- at all -- and great chefs love their salt. So at that point, I just didn't care anymore... it wasn't going to get worse. My wife quipped that she spent 10 minutes making sure the foam was beautiful on his cappucino -- since we were so used to being well treated, it is hard not to want to return the favor.

But before long, it was carry-out pizza time... though we usually drink good wine.

[slbunge]

As for the risk involved:  A good friend told me that he looked at his business risks this way.... if you feel fine when you go to sleep and wake up, you are not taking enough risk.  If you are throwing up consistently, you are taking too much risk.  A nice, even nausea most of the time is just right.  Generally speaking, this risk feels just about right.

Very nicely put.

Not just this part, but your entire response was balanced and appropriately organized.

Agreed. Thanks for the response.

[EllenC]

I would like to know more about your staffing requirements. Please approach it from the standpoint of management. I am most interested in how you decide how many and what type of people to hire as part of your business plan. Believe me, I am not looking for a job, I am just curious how that part of the process works.

Thank you.

[nick.kokonas]

I would like to know more about your staffing requirements.  Please approach it from the standpoint of management.  I am most interested in how you decide how many and what type of people to hire as part of your business plan.  Believe me, I am not looking for a job, I am just curious how that part of the process works.

Thank you.

←

In this regard Alinea is fortunate to have a unique owner in Chef Achatz. Grant has been involved in the industry since he was a teenager, has worked closely with several inspirational chefs, and has run his own top-notch kitchen for years. Due to his experience and reputation he regularly receives applications from chefs and service personnel who are eager to work with him. He also has a reputation as someone who is a good leader and is good to work for -- from what I have seen he inspires a great degree of loyalty in his staff.

All of the staffing requirements were determined by Chef Achatz. In addition, we have Joe Catterson as our GM, and service will be run by Joe and Grant. I am sure that it will be their combined effort that determines our front of house staff.

[herbacidal]

All of the staffing requirements were determined by Chef Achatz. In addition, we have Joe Catterson as our GM, and service will be run by Joe and Grant. I am sure that it will be their combined effort that determines our front of house staff.

←

Edited September 9, 2004 by herbacidal (log)

[ducphat30]

Really enjoying the thread and am very thankful for your candid responses to such a normally private and often elusive topic, the business plan.

I have a couple of questions feel free to answer as broadly, specifically, as much/little as you'd like.

1) What was the cost of planning the business plan? I know that architects are always looking for an initial investment before they start doing drawings. Did this then become part of the expenses in the business plan?

2)

We have set aside a cash reserve in the ballpark of 10-15% of our money raise. We believe that this will be sufficient given the cash flow and fixed costs. Really, we only need to make the fixed costs in order to survive, so those are the outoing dollars I concerned myself with when setting the reserve. If all goes well, we will return that reserve to investors in a relatively short time.

Are you planning to return the reserve as soon as you have a cash flow established?

3) Was a minimum per person investment set, or were you more interested in finding investors that were in tune with the business plan and Alinea as a project on the whole.

Thanks for your time,

Looking forward to the months ahead.

[nick.kokonas]

Ducphat...

to answer your questions in order:

1) The cost of planning the business plan was largely Grant's and my time -- and there was a lot of that involved. In raw dollars it was probably under $1000, though at that point in time I was largely doing this on spec, so I wasn't keeping close tabs. The architect and the designer were willing to explore the possiblity of taking on this project with us without charge largely because I had worked with both of them on prior projects. Their fees for the actual project work were agreed on later.

2) That is not committed... and is unkown. It all depends what our cash flow looks like and what are reservation book looks like. Ideally yes, we will return a portion of that money within a short time frame... but there will always be some reserve on hand.

3) Officially there was a minimum, but in practice we didn't need it. We were able to raise the money needed between a small, committed group of investors. I had worked with all but one person previously, so the investors understood the way I work and understood the business plan well. The money raise, thankfully, was one of the least painful parts of this process. I am lucky to have such a great core group of business associates who appreciate a good plan -- and fine dining!

[C_Ruark]

Mr. Kokonas,

- Can you outline what was contained in Chef Achatz' initial business plan as it was presented to you? What has been added since?

- What components of the BP seemed to be the most volitile prior to it’s delivery to investors?

Thanks again for allowing us this opportunity to see Alinea develop. Best of Luck!

-CSR

[nick.kokonas]

Mr. Kokonas,

-  Can you outline what was contained in Chef Achatz' initial business plan as it was presented to you?  What has been added since?

-  What components of the BP seemed to be the most volitile prior to it’s delivery to investors?

Thanks again for allowing us this opportunity to see Alinea develop. Best of Luck!

-CSR

←

Chef's original plan outlined his vision for his restaurant, contained the overview of his professional history, and included 3 distinct sets of financial projections based on seating, check average, etc. etc. I was pretty surprised to see a plan done as well as it was given this was not Chef's area of expertise. I am sure Chef Achatz can add some detail to how he wrote and conceived his plan.

We added significantly to the plan after that. As I mentioned elsewhere, we created an overall budget to build the restaurant and a seperate "goal case" spreadsheet to figure out how to best structure the business and pay the investors. The build-out budget included line items such as furnishings that were then broken down further within the category -- for example, 80 Custom Dining Chairs, 36 Silk Decorative pillows etc. This was done across the board in 16 distinct categories comprising 409 distinct line items. A similar spreadsheet was created for the operation of the restaurant. Both of these were presented to investors.

I am not sure that any part of the plan was significantly more volatile than the other. To a certain extent, we worked backwards from what we thought we could raise and what we could afford to spend on the build-out given reasonable projections. When we didn't know a number, we investigated it. So it was more of a lumbering, slow fill in the blanks than it was a stab, guess, and modify.

Frankly, at this point, I can't even remember some of our early assumptions very well. Perhaps Chef can add some thoughts on that as well.