Kent Rathbun

KENT RATHBUN Setting out on your own.

WORDS ANDREW CHALK

So you went through culinary school and have some years in the industry under your belt. You have worked at a handful of kichens, gaining experience in different types of cuisine. Finally you have risen to the position of Executive Chef at someone else’s restaurant and now you feel a need to expand even further -- your own place.

Is it really the right time? How do you go about this biggest of steps in your career? Where should you go? How much capital do you need? Without a moneybags family member, how do you get the capital? An investor? What type of investor, and what should be in, and out, of the contract between you?

There are few people more qualified to answer this, with an eye to the chef’s best interests, than Kent Rathbun. He has seen the highs and the very deep lows of owning your own place and, freely admitting his mistakes, could save many a young chef from the same thing.

Starting as a sous chef at The Mansion, Rathbun rose to Executive Chef at The Melrose, and Executive Vice President and General Manager at Dani Partners (they managed the Seventeen Seventeen restaurant at the Dallas Museum of Art). He even teamed with his brother, Kevin, to beat Bobby Flay on Iron Chef America along the way. In 1999 he founded Abacus with investment partner the late Robert Hoffman. Awards were showered on the restaurant and it became a firm favorite with Dallasites and a Forbes 4-star award winner, while doing up to 400 covers a night. He has been a pillar of the charity circuit, with a personal record of raising $100,000 on one auction lot for the American Heart Association. A lot in which he was one of a team of chefs at the Cattle Baron’s Ball went for $265,000, and Cattle Baron Ball auction lots with which he has been associated have raised $2,500,000 since inception.

Then, in 2006, Robert Hoffman passed away. His shares passed to William (Bill) Hyde, Jr., a former CEO of Ruth’s Chris. In 2016, the two split in what was to become the most fractious restaurant dispute in Dallas. It was not fully resolved until late 2018. During the near three year hiatus Rathbun’s livelihood was wrecked. No bad acts were cited against him. Instead, the disputes centered around whether he could continue to use his name and likeness in commercial activities, given an agreement he had signed in March 2009. For two years, the courts prevented him from doing so until he was able to convince the judge to overturn the injunction and the ruling was affirmed by the Texas 5th District Court of Appeals in November 2017. Based largely on the legal doctrine of ‘unclean hands’. A settlement swiftly followed.

I asked Kent when he decided he wanted to run his own place. He explained that for the first few years of his career he was focused on getting broad culinary experience. He had learned classic French technique in his hometown of Kansas City. The Mansion on Turtle Creek, under Dean Fearing, taught him refinement of that, and also the New Southwest Cooking that briefly surfaced in Texas. The Melrose turned out to be a particularly productive move as the hotel was acquired by the Dusit Group, a luxury hotel chain based in Thailand. They flew previously passportless Rathbun to Thailand three times during his tenure to infuse Thai cooking. Diners who went to Abacus can attest that it left an indelible mark on his culinary style. No high-end chef in Dallas is more conversant with southeast Asian food. After The Melrose, at Seventeen Seventeen, he developed a high-end New American menu.

Now, he points out to me something so incisive that when you hear it, it is obvious, like a lot of good ideas “Cuisines from specific countries have spread around the world. Culinarily, we are one county. We may be separate national entities, but culinarily, there is just the world”. That gives us

First Rule Of Going It Alone

Don’t go it alone until you have broad experience in a number of cuisines and feel completely comfortable with all of them.

Get a reality check. He says to ask established top-tier chef-proprietors “If I were considering starting my own place, what would you say are my strengths and what are my weaknesses?” I would alter the example slightly. Get a trusted colleague to ask the question about you. The other chef is likely to be more forthcoming as they will not be concerned about hurting your feelings.

I turn the question around. If he were asked to stake a young chef in his or her first sole venture, what would he look for in them? In his view, the chef must: • be honest; • have good financial nose; • have good guest relations skills; • have good vendor and employee skills; • handle massive pressure with reason, not emotion;

He would want to see the chef’s idea written down in the form of a business plan. And he would have to feel ‘strong about the deal’.

In the restaurant business a new concept typically has one ownerproprietor at the top. However, sometimes there are two. This especially makes sense if the other person is a top-class front-of-house person.

PRECONDITIONS When he started to think about

being a restaurateur rather than a chef, Rathbun’s broad experience had given him culinary expertise. As he puts it “You have to own the plate”. He had been a restaurant general manager (GM) so he had dealt with staff, suppliers, and customers. He had got past the stage of wearing his baseball cap backwards habitually, and now did it with forethought. He had over a decade in the industry, and he still loved it. He went to work excited every morning and willingly worked long hours. That gives us Rathbun’s second rule of going it alone.

Second Rule Of Going It Alone

You must go to work every day excited and intent on achieving. Any doubts, then don’t do it.

GOING ABOUT GOING IT ALONE

He points out that there is no manual on setting up your own restaurant. The most important way to get the information is to network. Talk to experienced chefs who have succeeded and those who have failed (so as to avoid their repeatable errors). Talk to experts in real estate and finance about locations and financing. Befriend, befriend, befriend.

Third Rule Of Going It Alone

Network with experienced chefs, and experts in real estate and finance. It may be a year before you need to ask them a specific question, but you will already have their contact information and an introduction.

Some hard lessons he learned on which he will draw a line:

Location: Go where the customer goes. Don’t expect to become a destination restaurant out of the box, particularly if traffic is bad and the area is dodgy. In cities, people have too much choice to go to the trouble of finding you at all or as often as they would if you were located near them. He recognizes it can be done, and cites his brother, Kevin, in Atlanta for having an impact in turning around the Inman Park neighborhood. However, usually that lower rent is too expensive.

Cooking styles: Right now highend dining is out of favor with consumers and expensive to put on effectively. Avoid it.

Sites: Don’t get so swept up with the idea of opening a restaurant that you sign a lease on a site without examining lots of alternatives and getting a second opinion. The agent may call it a “hot location” but guess what, so is every site.

INVESTORS

Robert Hoffman entered the scene as a customer at The Melrose. He did not just hand over millions of dollars for what would be Abacus. He set Rathbun tests, unbeknownst to him, to see how he could cook. He part-owned Dani catering and brought Kent in as executive chef on the recommendation of Dean Fearing to replace Nick Barclay who was leaving to open his own place, Barclay’s. After three months, Rathbun was promoted to Executive Vice President and General Manager. The two spoke about opening a restaurant, and Rathbun established that here was someone who, like him, wanted to create something world-class in Dallas.

During an extended planning period, the two travelled to New York, and made several trips to Italy. Rathbun realized that Hoffman really did know world class food and beverage, despite no formal training in culinary arts, and he also knew business, which Rathbun was modest enough to admit he did not.

More importantly, the two realized that they saw eye to eye on the concept for Abacus. They had similar goals, they got along, and Rathbun enjoyed travelling with Hoffman (something he characterizes as important about a business partner). That leads us to Rathbun’s Fourth Rule about going it alone.

Fourth Rule Of Going It Alone

Trust and respect is the most important thing in choosing a business partner.

It is a ‘nice to have’ if a partner has legal, real estate, or financial skills, but not key. Those specialties can be hired, trust cannot.

Numerically, Rathbun would ideally deal with one investor, but that isn’t a hard and fast rule. In particular, restaurants are one of the riskiest investments around, so investors like to share the risk.

Rathbun tests me with a question about the relative value of two potential investors who otherwise meet all criteria: If I had to choose between a billionaire oil driller from West Texas or an in-town socialite who is ingratiated with the business and art communities, as an investor, which one would I choose? The correct answer is the latter because every connection they bring is multiple reservations.

Rathbun and Hoffman had a written agreement but Rathbun negotiated it without his own attorney. It worked out because he had fortuitously linked up with someone very special. Rathbun describes how Hoffman taught him business and widened his horizons. In his words “I would not be where I’m sitting without Robert”.

However, in the fourteen years since Hoffman’s passing he has learned other lessons. I ask him point blank, should a budding chef-proprietor have their own attorney when negotiating an investor agreement? “Absolutely, yes” he replies. The cost is trivial compared with the amount at stake. You are about to start a multimillion dollar business.

Fifth Rule Of Going It Alone

You absolutely must have your own attorney when negotiating with an investor.

THE INVESTMENT AGREEMENT

Some provisions that Rathbun thinks should be in the agreement:

The investor (or investors) will likely own the lion’s share of the equity starting out, but the agreement should include a buyout provision whereby the chef can buy back the equity, likely over time. The smart investor (as well as the chef) will like this as it incentivizes the chef to constantly achieve.

Salary levels should be reasonable, not hammered down on the basis that the chef is an owner. This is true at all levels. Rathbun describes Robert Hoffman’s advice when he went to him regarding someone he planned to hire as sous chef at Abacus. Hoffman suggested raising the applicant’s salary by $10,000 and additionally putting him on a bonus. The objective was to make the sous chef really want to be in the job. The quid pro quo was that he would be expected to work hard, something which is pretty much a given among sous chefs anyway.

You must be able to earn a living if the partnership does not work out. Have a buyout agreement in advance and don’t accept restrictions that stop you working. Small geographical restrictions can be acceptable, but should you be forced to move out of town? Certainly not, in Rathbun’s view. And while you may grant the investor the right to continue to use your name on existing establishments, the agreement should not restrict you from using your name in commercial activities.

Include mandatory arbitration. It will save you a lot of legal costs and resolve legal issues in months, not years. The decisions of an arbitrator are legally binding on the parties and will be enforced by the courts.

Sixth Rule Of Going It Alone

Include mandatory arbitration in the agreement. Include everything in the agreement on which there could be a parting of the ways. Rathbun expects that the exact contents in any given agreement would vary but it must cover: • Culinary freedom (can the chef decide to make ‘Le Bistro’ suddenly Tex-Mex?) • Conditions under which the chef can be fired (e.g. embezzlement, drug dependency, moral turpitude, etc.) • Terms regarding other activities (e.g. does a speaking fee go into corporate funds? What about that $100,000 in cookbook royalties? What about the royalties on the chef’s book on motorcycle maintenance that he began to write in college and published after the investment agreement came into effect?) • Succession rules?

Rathbun repeats that everything that could possibly be divisive should be discussed in advance so that chef and investor are on the same page.

OTHER CAPITAL

I ask about Trinity Groves, Phil Romano’s solution to the capital-raising issue in which he and his investors back multiple restaurants, all in one location, in exchange for equity. Rathbun finds the concept interesting and thinks that it may be the answer for some chefs. Ultimately, the arrangement has to feel equitable to all involved.

Crowdfunding has got a lot of attention in recent years and Rathbun has participated in a GoFundMe campaign for restaurant equipment. He isn’t sure whether it would work for a restaurant where presumably investors would get food coupons.

KENT’S BOTTOM LINE

Striking out on your own is likely the biggest decision of your professional life. Don’t hurry it. Get lots of advice. Find an attorney you trust. When finding investors, spend lots of time with them before committing.