Paying Your Investors Back in the Restaurant World

Restaurants are insanely hard businesses.  The rents fluctuate, food costs change, some chefs are better than others on food usage to create a high margin, the turnover on staff is high, customers come and go and peoples taste change.

I met with a restaurateur the other day to do a podcast and she shared with me something she does for her investors.  It is extremely smart.  As an investor in the restaurant space, although very very few, I know how difficult it is to get a return on our investment.  I am not looking for huge returns but hopefully capital back because I am investing in the community.

What she does is give each of her investors, based on how much they put in, a tab with a cap every year that gives them the ability to come in and dine for free.  That goes to paying them back for their investment.  It makes it easier on her to return the capital in payouts because it is just about less being made that evening.  It also gives her investors the desire to bring in friends to dine on them which turns into new customers.

Such a great idea.  Certainly, every investor of a restaurant wants a seat at the bar or a table and knowing that there is an open tab up to a certain amount each year makes you want to come in even more.  So if you are starting a restaurant and talking to investors, think about this idea.  It is super smart.

Comments (Archived):

  1. Justin Fyles

    This isn’t super dissimilar to the theatre world, where investors (who are almost always patrons of the arts as well) get a reserved set of tickets to a season of shows, in addition to a possible profit share if the show does well.

    1. Gotham Gal

      Makes total sense

  2. LE

    One thing about restaurants is that they are not a ‘rest on your laurels’ type of business. Other types of businesses don’t keep you on your toes and you can float by and make mistakes and still make money.Other similar examples where you can’t rest on your laurels are entertainment (where you are only as good as your last hit) or, say, sales typically where I mean ‘sales’ not ‘order taking’. (And you know the difference).Generally businesses that fail over time tend to be ones where you don’t have to be on your game as much generally because you have either a monopoly or you have long standing customers that don’t have incentives to try another vendor even if there are alternatives. So in those types of operations a business owner and/or managers would tend to get lazy and complacent. It flows from the top.While there are always threats to all businesses as a general rule the ones that require you to always be on your toes provide more satisfaction (to operate; you get highs and lows) and keep you actively engaged because you can’t rest on past success. (Fashion is another example).A few weeks ago I met with the son of the owner of a small supermarket chain about renting some space. After meeting with him I thought I couldn’t imagine anything less challenging and boring than running a family supermarket day to day in a market where there isn’t really any chance of new competition. With people just showing up and you just have to keep the shelves stocked and deal with complaints on a daily basis. I would shoot myself.

  3. awaldstein

    Had dinner the other night at the Odeon. First time in many years, though actually started going there in the 80s!Was packed–crazy packed as Wall Streeters have rediscovered it and honestly food was solid, not great, and half the price of a steak house.Sill owned I believe by one of the three original owners.

    1. Gotham Gal

      Amazing. I believe that Keith McNallys ex-wife owns it

      1. awaldstein

        You are right as Keith’s (then wife) and his brother started it together I believe.Bit of my past is all and cool that it still is basically packing it in.When I used to live in Soho, Lucky Strike, was always the place you could get either a plate of home made meatloaf, Matza Ball soup, or an omelet at 3am. Kinda cool that it is still the same and still seemingly thriving generations later.

    2. Kirsten Lambertsen

      I have such a soft spot for the Odeon. I’m glad to hear it’s thriving. I started going in late 80’s as well. I used to see their ads in Interview magazine every month as a college kid in Colorado. It was one of the first places I went when I finally made it to NYC, and it didn’t disappoint. David Byrne was sitting at a nearby table, to boot. I was in heaven.

      1. awaldstein

        great story!

  4. Eric Woods

    As you said, restaurants are about creating community. This is a super smart idea.