This is totally theoretical, but intended to illustrate a point about how comparing âfoodâ businesses is like comparing apples to pinecones.
Burger Restaurant
Letâs say you start a high volume, reasonably successful (top quartile) burger joint in a major US metro.
Youâre going to look something like this [1]:
$700k buildout
18 months from idea to opening date
2000 square feet
$6k/mo rent
30 employees
$15 average ticket
$1,500,000 million top line sales
$180,000 net income
At lunch or dinner, youâre constrained by the number of people who can sit in the physical space. From 9-11am, 1:30pm-5pm youâre losing money.
Not bad, but fundamentally youâre a space constrained business thatâs just selling to the people who live or work nearby. Your âtotal addressable marketâ isnât the metro area, itâs the 5 mile radius around you.
Thatâs a decent living and you can grow and footprint a bunch of burger joints. Maybe you put up $180k, borrow the balance, and get another one and youâre doing 100% cash on cash returns and hiring a team to manage this 18 month planning, buildout, and opening process.
Do this a bunch and now youâre Torchyâs Tacos. Pretty great.
Direct-To-Consumer Donut Biz
But itâs 2021.
Iâm not using fax machines or writing paper checks or going to a travel agent in the local mall to buy an airline ticket. Sure I *COULD* do that (and itâd be fiiiiiine).
And I *COULD* use a 200 year old brick and mortar restaurant business model with barely any improvement [2].
But Allbirds and Casper and Away and Brooklinen have already written the playbook for how you can reach a bigger audience, decouple the revenue caps from geographic or showroom size constraints.
Levain is doing this at the national scale with cookies (50mm in sales maybe?) which is closer to the DTC Ecomm playbook, but you can also do this at the MSA scale. The meta concept is: âdecouple sales from floorspace.â
So now my completely fabricated DTC single MSA donut biz pro forma:
$10k startup costs
1 month from idea to opening date
200 sq foot rented shared kitchen with no customer seating, month to month
$1500/mo rent
6 employees
$30 average ticket (lots of dozen donut orders)
$4,500,000 million top line sales
$3,000,000 net income
Iâm not saying itâll be easy, but I think itâs definitely doable. To get there though, you have to be running a different game.
New technology, new market, new world, new markets. The lessons donât ALL transfer, but using NONE of the ânew economyâ lessons is probably a mistake. [3]
[1] This is⊠say⊠Philly. I dunno, I just made up all these numbers, but itâs illustrative. In NYC youâre 600 sqft and $75/ft and in San Antonio youâre 2000 sqft at $22/ft but you get the point. If you want to debate the exact numbers, feel free to just send me an email and Iâll promptly delete it.
[2] Sure, Torchyâs is using Excel instead of pen and paper and an iPad instead of a manual cash register, but the business model hasnât fundamentally changed
[3] Also, the cost of failure in the second case is very low, in dollars and in time spent â which is because itâs much easier to have a âlean startupâ approach to this.