Rachel Stainton:
Last episode, we sat down with MarginEdge's CFO in Residence, Gina Cavendish, for a fascinating discussion about growth and all of the different things a founder needs to consider when deciding how and when to expand. Today we're giving you the second part of that conversation where Gina tells us about some of the key factors that, in her experience, have had the biggest impact on the growth process. She calls these factors, the Four F's.
Gina Cavendish:
So the Four F's, I think each one of them is super important, and I think, really, these variables are going to determine how you grow your business.
Rachel Stainton:
Understanding the Four F's could be the difference between a successful growth strategy and one that fails to deliver. Today, Gina will walk us through how the Four F's empower operators to really gain a deeper understanding of their business. Before charting a course for future expansion.
Gina Cavendish:
Identifying who you are is going to tell you what you need to help you grow.
Rachel Stainton:
I'm Rachel Stainton and welcome to Science of Service, the podcast where we uncover the strategies behind building successful hospitality businesses. Whether you're a seasoned operator or just starting out, you'll find insights and inspiration to help you thrive. Before you begin to chart your path for growth as an operator, you must understand the ins and outs of your business, and to do that really effectively, according to Gina, you first have to understand yourself, which brings us to the first of the Four F's, founder.
Gina Cavendish:
This is very generalized. There's always one that doesn't fit the mold, but I would say what I have typically seen is there's three different types of founder, right?
There's the data-driven founder, so they probably come from a professional background or a corporate background, like they're an ex-lawyer and an ex-accountant, and they want to use data in their business to help drive decisions because that's their background. That's what they're used to. They like making decisions in that way. I would say the most common founder that I have come across is the goes-with-their-gut founder. They're like, "I have a feeling that this is the right thing to do and it's never served me wrong." They are uber creative, create these wonderful, amazing concepts, but can lack a little bit of focus on the structure of the business. And then the last one, less frequent, but does happen, is just a hands-off founder. Like, they open the restaurant, but they very happily let other people kind of take care of it.
Rachel Stainton:
So if you're more of a data-driven numbers person, you might want to hire some creatives to help with PR or marketing decisions. Or if you're more of a go-with-your-gut type founder, Gina suggests bringing on a CFO or controller to help you with the organizational side. As for the hands-off founder, Gina's advice is that you're probably going to want to have all the above. Now that you've done a little soul-searching and know more about who you are as a founder, it's time to move on to the second F, funding.
Gina Cavendish:
So how are you funding your business? Is it a high net worth individual that's put their own cash in and can continue to put cash into the business? Or is it investment from friends and family? Is it private equity investment that you want to seek? Are you going to grow the business through debt, through bank loans or other debt instruments? It's really important to think about that because how you fund yourself dictates, often, the speed in which you grow.
Rachel Stainton:
Taking money from private equity? You'll likely be able to expand more quickly, but be ready for higher expectations when it comes to reporting on that growth and meeting targets or milestones. Using money from friends and family or cash from your operations? Your growth might start a bit slower, but you may have more freedom when it comes to decision-making as you have fewer people to answer to, which, speaking of pace, brings us to the third F.
Gina Cavendish:
The third one is fast or speed. Like, how fast do you want to grow? Because that's going to dictate the funding. So if you want to grow quickly because you have brand momentum, you've spotted something in the market, you've opened Rachel's Steakhouse and there's no steakhouses nearby and, "We've got something here," you want to do it quickly, so you're going to need to fund it appropriately.
Rachel Stainton:
So this F really works in tandem with previous two because the type of funding you get and the team you have available will determine how quickly you can realistically grow. Which brings us to the fourth and final F.
Gina Cavendish:
And then the last one is franchise. Is that something that you want to entertain? Some brands are like, "No way, Jose, I am never thinking about franchising. I want to own my brand. I want to own all the stores myself. I want to have control over it." So I think determining is franchising something that is completely off the table or something that you want to focus on. The franchise process is rigorous, so you are forced to put in place structures that you probably wouldn't have early on. So we're talking like franchise manuals, operating manuals, really deep, deep, deep branding guidelines that maybe you wouldn't have as a three-unit business.
Rachel Stainton:
When it comes to franchising, Gina says it tends to be a slower path for growth because it requires more time to consider how you'll protect your brand as you entrust it to your franchise partners and to fill in any gaps in your knowledge base, especially while expanding into new markets, setting up standard processes, brand packs, and systems all take more time to get right before you can start bringing franchisees along for the ride.
So just to quickly recap, the Four F's are founder, funding, fast, franchise, try saying that four times fast, and all are extremely important for a restaurant business looking to grow. Knowing your F's are important, but making sure you're giving each one proper time and consideration is also pretty critical.
Gina Cavendish:
I think if you focus too much on one area of the business, and I've seen this happen before where it's like a huge focus goes on margin control and, "We want to raise more money, so we need the financials to look great," and then revenue starts to suffer as a result because you're tightening the hold. You have to do things very delicately. It is a delicate, delicate dance. And you have to be mindful of how it's going to be received, not only by your customer but also by your staff, your team. They're the ones that are with your customer every single day. So you want them to be engaged and understand and agree with stuff that's going on in the business and feel like they're a part of it.
Rachel Stainton:
Having tunnel vision and being only focused on financials can be an issue for founders who are more data-driven. But what about those gut-led founders who like to make decisions based more on feeling than hard data? Well, Gina has advice for how you can bring a bit more quantitativeness and predictability to those vibe-based decisions.
Gina Cavendish:
I would say, more often than not, those gut feels have been right. I've seen this. Someone's like, "I think that this store is going to do this," and I'm like, "It's not in a prime location. We don't have any footfall traffic data," and it makes me all nervous because I like to see the numbers before we make these decisions. And then we do it and then it's like, "Wow, it was right." And I think what you have to do is go back and figure out what is the pattern that aligns with the instinct.
I have an example. One founder I knew would go to a prospective location and spend several days there just walking around at different parts of the day, getting a feel for the area, and from doing that would know this store is going to be successful or not. And I think that's time-consuming, but it's really important to do it, right?
Rachel Stainton:
Yeah.
Gina Cavendish:
And then that can translate into, "Okay, so we need to know the footfall data at this time, this time, and this time," because that's going to indicate whether this store is going to be a $25,000-a-week store or it's going to be a $50,000-a-week store. This is coming from a finance person. One should never ignore the gut instinct, in my opinion, because it's, more often than not, right, and as a founder, you know your business well, it's your baby, but trying to tie it to data is super critical.
Rachel Stainton:
Can you share a real example of a founder who maybe misread themselves early on and how that showed up operationally as the business grew?
Gina Cavendish:
Yeah. Firstly, I've been very, very fortunate in my career and worked with just amazing founders. All very different, but all fantastic. I would say one example would be a founder that I would say would fall into the category of hands-off founder, but equally didn't want to bring people in to support things. And the way that showed up in the business was the business was in a bit of a state of disarray, I would say, when we came in, a lot of structure needed to be put in. One thing that I've seen as well that's quite common as well, especially in this case, is the hiring of friends and family, which is sometimes a great idea. Family's great, you can trust them, very reliable.
Rachel Stainton:
You know where they live.
Gina Cavendish:
Yeah, exactly. They're not going to call out.
Rachel Stainton:
Yeah.
Gina Cavendish:
But at the same time, what can happen then is you have people that maybe have learned their way of doing things in the space but don't necessarily know the best practices of how to operate or how to set things up in the best way. So that was definitely the case in that scenario.
And then I've also had the scenario of comes from a professional background, has fingers in every single pie, and struggles to let go. And I can totally relate to that. It's your baby, you're bringing something into the world and you want to make sure it's perfect. And I've seen that a lot in my career of chasing the perfection, which is great in some ways. It's great if you've got a ton of time because you can spend time perfecting things, but more often than not in this industry we don't have time, so we have to get something out there quickly, we have to serve customers quickly. So it's balancing those two things like perfection with execution.
Rachel Stainton:
These are some very helpful tips for founders trying to bring balance to their organization. Use hard data to back up your gut feelings and stay mindful of how tightening the belt is going to impact your employees. And then you've got to resist the urge to micromanage and delegate some control to make sure the business continues to execute. That need for balance is especially critical when it comes to funding, where Gina says that businesses need to stay disciplined and resist the temptation to spend, spend, spend even after receiving a fat check of investor cash.
Gina Cavendish:
I watched this beautiful video on LinkedIn of Robert De Niro, who I think is a wonderful actor, saying, "When things are up, just stay calm. Just stay calm and stay level. Don't get wrapped up. Don't let arrogance creep in. Don't let overconfidence creep in." And I think that if I could give any advice to anyone, it's that. Because it's very easy when you have money, lots of money, in the bank to then go and overspend and just rapidly expand the business. But are you expanding for expanding's sake? Are you picking the right locations? Are you allocating capital well? So I think maintaining that sense of and almost operating like you don't have that money in your bank. One founder I worked with would put all of that money in a separate bank account and literally run the business as if we just had the money that was coming from operations. And I think that's a really smart way of doing it.
Rachel Stainton:
When it comes to finances, discipline is always a good thing. You can't always treat yourself. I know, it's a hard pill to swallow. But staying on top of your finances can look different depending on where your funding comes from, and the source of those funds, the different obligations they carry, can completely alter the course of a company's growth.
Gina Cavendish:
If you take the institutional investment, so like a private equity partner, venture capital, anything that is going to bring in a new board into your business, it just accelerates the need for structure. They have some level of understanding. They know that things aren't going to be perfect from the get-go, you're not going to have perfect KPI reports to share with them on a weekly basis, but the expectation will be there to bring things up to that level. They want weekly reports, monthly financials. They don't like it when the numbers change. They like to be apprised of what the plans are in the business, the menu changes, all of that kind of stuff. So it just accelerates the need for structure and I would say accelerates the need to bring people in.
If you had to take on bank debt, you have covenants to meet, right? So you've got to hit your numbers. It puts pressure in that way. There's less pressure on you to explain yourself, I guess, to a board. So that does allow you a little bit more flexibility in terms of not having such stringent reporting cycles, but you've still got a lot of pressure financially there to make sure that you meet covenants on your bank debt.
And then I would say probably the easiest is getting your family and friends involved. I say that. It is and it isn't, right? Family and friends, if they put money in, invest it in, there's probably some formalized annual report that goes out to investors, but, really, you have a responsibility as a steward of the business to make good decisions, but there's not as many voices around the table telling you what you should do. But handling things in that way adds complexity in terms of how you communicate with shareholders, reporting, that kind of stuff.
So every single option has its benefits and drawbacks, like anything in life, and I think it's really, "What are you prepared to deal with in your business? Are you prepared to have a new face of board members?" And that's where the relationship piece comes in, I think, with who you choose to partner with. It's a marriage, at the end of the day, so make sure you're getting into bed with the right people.
Rachel Stainton:
So for those following along at home, we've covered the founder and funding piece. So now let's go back and dig into franchising. Franchising is one of those things simply won't work for every brand, and not every brand will want TO franchise. But for those who do it well, it can be a really potent tool for expansion, especially into markets that you haven't been able to break into before. In her own experience, Gina's seen the fruit of franchising done and the F-ups when it's done very wrong.
Gina Cavendish:
Yeah. So I worked for a brand that's based in the UK, but franchises globally, they've been extremely successful. The product itself lends itself very well to franchising. It's the intersection between QSR and fast food, so lends itself nicely, it's easy to execute, they own the supply chain. And I think that's a really big piece for franchising is understanding your supply chain and owning parts of it like the secret source or whatever it is. They own the supply chain and they hired people that were experts, not only in restaurants, but franchising in restaurants. That's very, very, very different and I think that is why they did really well. They hired the right people with the right experience, they owned their supply chain, so they produced pretty much most of the products, and thirdly, they were very, very clear about what they were. So they had a couple of corporately-owned locations, but they were very clear, "This is our growth mechanism. We are growing through franchising."
So that would lead me into the second brand. They franchised too early. They were too small to franchise. They didn't have the right setup, so they didn't have the manual. Franchising US Stateside is complex. You've got to get FDDs done. They take a really long time to pull together and you've got to report on them every year. So getting your ducks in a row with that, that was not the case. So it was like playing catch up. And then, I mean, fundamentally, you've got to have a pipeline of franchisees that, right?
Rachel Stainton:
Yeah.
Gina Cavendish:
Like people that have franchised Pizza Hut and Domino's and this and that, or Starbucks, whatever it is, whatever fits in your space, you've got to have those connects. And if you don't have those connects, you have to hire people who have those connects, because those are the people that are going to say, "Yes, I am taking this area and I'm going to do 10 locations."
And then you've also got to have the right people in place who know how to operate that. "How do we support the franchisee to open all of these locations? How do we monitor? How do we make sure our brand guidelines and standards?" So if you don't have any of that foundational stuff in place, franchising is often harder initially, in my opinion, to get off the ground because you've got to have structure that typically smaller businesses don't have in place. Like, you're giving your brand to someone else to go and expand and grow and you are in a different position of monitoring and supporting. So yeah, franchising is a tricky one to get right, but if done well, it can really help you scale very quickly.
Rachel Stainton:
That infrastructure that Gina mentioned, the SOPs, the manual documentation, brand guidelines, relationships with franchisees, knowledge of the market you're trying to expand into, all of these things need to be in place to ensure your franchise is successful. You don't need to be a restaurant accounting genius to see why Gina says going this route usually takes a bit longer. And beyond that infrastructure, making the right hiring decisions is even more critical for a franchise model.
Gina Cavendish:
A very solid VP of ops or senior ops person has got experience in franchising. Because even if you think, "I know how to do this. I can do this. I can put the manual together. I can put the SOPs together," sure you can, but they're going to have templates, they're going to know exactly what the franchisee is looking for. They're going to be able to do it faster, quicker, more effectively. It's worth the investment. And I think, fundamentally, just go take advice from someone that's done it and talk through what the best things are. I think people are often afraid to go and ask for help. There's so many people out there on LinkedIn that have done this before that can do a little 1-hour consult with you, spend a couple of hundred bucks, get the advice so you know what you are walking into.
Rachel Stainton:
Now, the only F we haven't covered in depth, fast, meaning diving into the speed of your expansion and the way that influences your decision-making processes. In part one of our conversation with Gina, which, by the way, you should definitely go back and listen to if you haven't already, it's pretty great, if I do say so myself. And honestly, do you even need an excuse to hear that accent one more time? Gina talked about how momentum can be a really fragile thing when you're first starting to grow. The downside of losing momentum is obvious, but I wanted to know from Gina what happens if a brand goes the other way, when they get a little ahead of themselves and expand too rapidly?
Gina Cavendish:
I worked for a brand in London that had taken institutional capital, so private equity investment, and then the expectation was an aggressive rollout. And they just made a lot of missteps. Really, really poor site selection. That's the biggest downfall. If you don't choose the right sites, if you pick five new locations and the footfall is terrible, it's not the right location, you've got just logistical challenges operating it, and then they're not making the margin that you need them to, then you're just draining the cash to reinvest in them to keep them afloat. It's not the wisest application of the cash that you've received.
The most successful ones I've seen are where there is a steady continuous pace. It's not like, "We are going to open 20 this year," it's more like, "we're going to open three or one a quarter and we're going to do each one of them really well." I like to think of it a little bit like it's like giving birth to a child. It's a new child that you are bringing into the world, and you've got to give love and attention to those children to set them up for success for the rest of their life and the rest of their operation as one of your restaurants.
So in the cases where it's been really aggressive rollout, that typically doesn't tend to happen as well. And there's also not enough time to look backwards as well. You have to have a balance of looking forwards at what you're going to open, at what you're going to do, but then also the discipline to look backwards and go, "What did we do well that we can learn from that we can apply to the next ones? And what did we not do well?" And also just keep a weather eye on the business that you have. That's, more often or not, what I've seen has caused issues as brand scale, is the constant looking forward and not remembering their core estate, like their core business, that got them the investment, it got them the brand awareness, and looking after them.
Rachel Stainton:
Are there any specific metrics or warning signs that would indicate that a business is maybe moving faster than it can handle?
Gina Cavendish:
Yes, I would say you're going to see it in the P&L, like, straight away. So if you've got a core estate, a core business that you've built this off that's performing fairly well and has consistently performed well from a revenue perspective, from a margin perspective, and you start to see revenues decline or you start to see margins start to slip, that is a very good indication that you are not spinning that plate.
And then with the new locations you're opening, I would say locations that are consistently coming in from a revenue perspective lower than what you'd anticipated and the margin piece as well. Like, if they are not delivering on the margins you've set forth, that would be a good indication that you're probably just go in a little bit too fast.
And the biggest, biggest indicator is not financial at all, it's your people. If your people start to leave and they're burning out and they're getting tired and they're going, and I am talking, like, your core people that have been with you since day one was a barista and then the manager and now they're your ops director, if they're leaving or they're starting to crack, that's a really good sign that you're going too fast.
Rachel Stainton:
Going too fast and not being intentional about your growth can definitely be a recipe for disaster. And when it starts going wrong, you'll likely see the first red flags in your P&L and a amongst your team. But let's imagine for a second that your business hasn't made that mistake. You've secured funding from a solid source, you've made some smart hiring decisions to complement your strengths or weaknesses as a founder, and you're growing steadily. Once you move past that small business stage and become more corporate, it unfortunately becomes much harder to easily get a holistic sense of the business and be able to detect any problems that pop up before they become catastrophic. As your business scales, so do your problems. That's where Gina says leveraging technology can be a major asset.
Gina Cavendish:
I think, as a restaurant person, I'm a little cautious, cautiously optimistic about AI.
Rachel Stainton:
Yeah.
Gina Cavendish:
Because I do value the human experience, right? Doing this role and being in the restaurant industry is a very human-led experience, hospitality by its core. But that doesn't mean to say that AI doesn't have a place in it, it's where you apply it. So having tools in place that give you that data at your fingertips is super critical. Because, at that stage. You have done, hopefully, all of that homework and that foundation and the groundwork that's helped you grow to that stage. So you're really, at that point, at the refinement stage. "How do we increase sales here? How do we encourage people to buy more drinks with their meal? How do we encourage people to buy dessert more often?" Whatever it is. That is where having a good system in place is just super critical to help with that refinement and development and continued improvement of your business.
Rachel Stainton:
So tech is undoubtedly an indispensable tool for a growing restaurant business, but there can be a bit of a fine line to walk there when it comes to investing in new systems. Overinvesting in tech can leave you cash-strapped and saddled with a whole bunch of functionality you don't actually need, or worse, don't understand, and underinvestment can leave your team scrambling to stay on top of things, which leads to burnout and potentially stunted growth. Gina's seen businesses get it wrong in both directions.
Gina Cavendish:
I have seen both scenarios, so I'll go on the overbuying tech. I walked into a business once and they had, there's the core four, I would probably say, which is POS, you've got to have that, a labor management scheduling tool of some kind, RMS, so inventory management, invoice processing, ideally in the same place, an accounting system. They're the core four that you need.
I've seen businesses then buy tools that sit on top of tools that sit on top of tools that do this consolidation exercise, which is useful, but I think you have to ask yourself the question, "Do I really need it?" I have seen an example where there was probably two or three different layers of BI and intelligence tools and you get suckered into, "Oh, this is really good, it's going to help me do this." And it's like, "Yeah, but that data already exists in your POS." "I do not need this right now. It's a nice-to-have. It gives me this one report I really like, but is that business-critical?" And the answer, most of all, is no.
I have seen the converse of that where it's like, "We don't want anything. We want it as simplistic as possible," and the application of all-in-one tools. "I want something that does everything so I only have one place to log in."
So I think the idea of less is more, yes, but I would disagree on the all-in-one option because I've never seen it be successful and I've almost always seen, we simplify and then we end up breaking it out into the specialist areas again in the future, because you need that labor tool that's going to go the extra mile and give you the extra data that's going to help you be even more strategic and smarter with your scheduling decisions.
Rachel Stainton:
Yeah, it's kind of like if you think about the huge, huge, huge brands, I think like Bloomin' Brands or Red Robin or Olive Garden or these big guys, they typically always have their own proprietary software, because if they can't find a one-size-fits-all, they have to get something that fits to their business.
Gina Cavendish:
Yeah, absolutely. And look, sure, if you're Olive Garden, you can build your own proprietary software. You have the cash, you can pay a people that can do that for you.
Rachel Stainton:
Right. Right.
Gina Cavendish:
Should you be doing that when you're a smaller business? I mean, sure you could invest in it, but is it the wisest use of capital? I would ask that question. And that is a choice every operator makes. But I would say if you're doing something super-duper specialized, like you're a flower shop and a bookstore and a coffee shop and you do events in catering and you do some crazy stuff, yeah, maybe you need your own software. But if you are a up-and-coming, fast casual, full-service restaurant, you are going to be able to find a very nice suite of software out there that's going to help you get where you need to be. And then when you have 500 or a thousand locations all across the US, then you go build your own software.
Rachel Stainton:
Now that we've got a deeper understanding of each of the Four F's and have talked about how tech can help augment your company's growth trajectory, let's get a better sense of how you'd actually apply these ideas to help fix your own business. So I asked Gina, for a hypothetical operator who feels busy and stuck trying to grow their business, how should they use the Four F's as a framework to diagnose and fix what's going wrong?
Gina Cavendish:
So if they are busy and stuck, I would hazard a guess they're most likely going to fall into the first category, first or second, where they are deep in the business, maybe come from a professional background, maybe don't, but probably need to let go of a little control. So it's delegation at that point. So I would say from a founder-led standpoint, it's then working with them on like, "Well, what can be let go? What can we delegate?"
There's often this crux of, "I don't want to affect my margins by hiring people and I don't want to invest money." And it's like, sometimes you have to just to get you over that. Because you've got to think of the time value of your money. "Would my time not be best thinking of our next product launch? Our next marketing post on social media? Is that not the best use of my time versus, yeah, doing some of the more repetitive day-to-day operating tasks?"
I once worked with two founders, actually, who had this small business, three locations, and I mean those two had not had a day off in years. Eventually I managed to talk them into going and taking a couple of days out and I was just like, "Just go take a couple of days out. You've got team. Anything goes wrong, I am actually physically around, so I can go help if I need to. Go take the time off." And they had that time away and they came back. They were so refreshed, different perspective, they'd been and seen different things. They weren't in it so deeply. So you have to give yourself that time as a founder to step away a little bit from the business so that you can see things more clearly.
Rachel Stainton:
An owner being able to delegate control and day-to-day tasks is not just important to the success of your business, but also to the longevity of your career as a founder. You can't do it all. And I loved Gina's suggestion that sometimes taking some time away can do wonders for gaining a fresh perspective. She also touched on the very common fact of owners and operators not wanting to delegate tasks because doing it yourself feels like it's saving you money. And spoiler alert, that's not always true. Which brings me to the final piece of this Four F puzzle.
When you're expanding, there will be times when you have to spend more money in the short term so you don't miss out on opportunities, and some operators respond to that by trying to cut costs in other areas of the business. And that's understandable. But Gina cautions against taking that approach in one area, specifically.
Gina Cavendish:
Compromising on the quality of the product. It almost always backfires. So you have a business, it's successful, and then sometimes this is where the professionals, you have to be mindful of this, coming in and going, "Oh, I can get this, this, this, and this and this for cheaper prices." And yeah, sure, of course you can. So then we go and get the cheaper prices, but then the quality is terrible and it's the first thing the customers notice and then they go, "Oh, they've changed the menu, they've done this. It's not as nice." They don't come back as much. Sales start to decline. Terrible. And then you have to work 10 times harder to get them to come back. So I would say the worst cheap decision I've seen is compromising on the quality of the product to make a quick buck on margin, but it really backfires in revenue.
Rachel Stainton:
That wraps up part two of our conversation with Gina, and once again, she brought some incredible insights when it comes to growing your restaurant business. No surprises there. The Four F's are, first and foremost, a framework for understanding who you are as a business and then using that understanding to build a growth plan that works for you. So are you all about the numbers or do you go with your gut? Are you answering to investors every month or managing your funding on your own? How quickly do you want to expand? And if you do want to go the franchise route, do you have the infrastructure and institutional know-how to make that happen? Growth is so exciting, but there are so many variables to consider, and getting them all nailed down before you begin to scale can alleviate so much of that stress and pave the way for your business to grow to the heights.
If you'd like a recap of today's insights, you can find them in the show notes. Thanks again to Gina for sharing her wisdom with us and empowering listeners so they hopefully won't repeat some of the missteps she's seen businesses make in the past. I'm Rachel Stainton, and if you enjoyed this episode of Science of Service, please rate, review, and subscribe. And if you know an operator who's thinking about growing or has been trying to but is just about ready to say F it, send this episode their way. Thanks for listening, and we'll see you next time.