Our financing model wasn't the result of some math and finance wizards running experiments in a lab and having a "eureka" moment, it came of out of the struggle we faced as restaurant operators ourselves.
Back in 2015, the co-founders of inKind started a restaurant incubator in Washington, DC. The thinking was that we knew a bunch of super talented chefs who, having worked in someone else's restaurant, were itching to try their own thing but lacked the opportunity. We created a space in which they could test their concept to see if it resonated with the public and could be a financially viable business.
The experience, while highly stressful, was invaluable. There are so many moving parts to running a restaurant - accounting, front of house labor, back of house labor, customer management, maintenance of sophisticated equipment, taxes and regulation, social media and marketing...the list goes on. Here's a little take on some of the issues we had and the lessons we learned.
Technology There are lots of helpful products on the market to assist local businesses like a restaurant - from inventory management to social media posting. The big difficulty I had was finding the time to review, test and implement them. Even if I knew something could save us time in the long run, that initial learning curve often felt prohibitive, particularly in an industry with high staff turnover, so the chances of me having to do the same training with a new staff member within three months was rather high. The best tactic I found was to identify the person for whom the technology would have the biggest impact on their day-to-day duties, and got them to take responsibility for learning about it and teaching the rest of us about it.
Lesson: Delegate learning about a new technology to the person whose life will be made easier by it.
Government and regulation Despite the fact that small businesses are the backbone of America, employing a majority of the working population, the government wasn't too supportive in our experience. After getting through our first year, I receive a letter from the IRS detailing a $20,000 fine. Our offence? Filing our tax return via mail rather than online. Like most small businesses, we didn't have a spare $20,000 lying around and the matter was harder to stomach given that our accountant had told us we couldn't file online because it was our first ever filing. After 25 minutes on hold with the IRS, a nice gentleman told me to write a letter asking for forgiveness and it would be waived as it was our first offense. It eventually was, but that was an added stress I didn't need and, was filing via mail rather than online really an offense worth of such a hefty punishment?
Lesson: Government sucks, but often the people working for it do not, so if you can have a conversation with a real person (phone or in person), that's the best way to sort out any issues - don't send letters and fret until you hear back.
Uncontrollables As a control freak, my biggest headache were the uncontrollables. I could have lined up my staff, the product, marketed an event, and then some stupid external factor would flip everything on its head. In February 2016, DC had a particularly bad snowstorm. We were in an area packed with offices rather than residential and thanks to the advances in telecommuting, all of our regular client based vanished for over a week as they worked from the comfort of their living rooms. While you often can do little more than just minimize expenses in such times, it's important not to stress out too much, recognizing that sometime in the not too distant future there will be an unexpected event that has a positive impact - we doubled our sales the day of the Women's March in DC as there were so many people in town.
Lesson: Don't get caught up on the bad days because there will be surprisingly good ones due to forces beyond your control, too.
Investors We equity crowdfunded our restaurant incubator, which meant we had over 300 local people who invested between $100 and $5,000 and each got a little piece of the business. These guys were awesome and definitely kept the place busy and buzzing. Margins in a restaurant are super low, so while we wanted to return some cash to our fantastic investors, the money just wasn't there. What we did have though, was plenty of delicious food and great drinks. We started "paying back" investors with credit to use at the incubator. For many of them, they were just as happy to receive $100 in credit as they were $100 in cash, because they were coming in and spending more than $100 on nights out at the incubator. For us, paying in credit was way cheaper because we were already paying our rent, chefs and managers to serve regular guests, so when an investor came in to redeem credit, the cost was just the cost of goods sold (e.g. the $2 we spent on gin for an $8 gin and tonic we sold).
Lesson: House credit is a great way to reward your biggest supporters, that costs you less.
By solving the struggle of how we keep our investors happy when we didn't have cash to return to them, we developed the groundwork for the financing model inKind has now successfully provided to over 40 local businesses in the US. Learning the lesson ourselves allowed us to create a financing model that helps not harms local businesses and engages the community even more.
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