Tom Rutledge, Restaurant Management Consulting

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Wow, who doesn't know a creative idea when they see one in the restaurant business. But. There's a lot more to running a restaurant than being a good chef. And that's the topic today with my guest, Tom Rutledge. Tom, welcome to the

show. Oh, thanks for having

me on. And like I said, I've loved exploring this idea and every time I get a chance, but when your name came across my desk and said, here's a guy with 30 years of restaurant experience, but also now in management.

estaurant. I said there's an [: 00:01:00

have you. I appreciate it. Yeah it's an interesting field. And, making money oddly enough for this business is often the last thing on someone's mind.

Which is a problem in the industry. It's a large scope. Everyone comes in and artistically I want to make the best this or I've I'm passionate about beverages and I want to open a bar wine pairings. But then the reality sets in the minute. The key kind of goes into the door and you got to figure it all out.

And frankly, I think there's a lot of it's professional problem solving more than any small businesses. You're a professional problem solver. You wear a lot of hats. The restaurant business just tends to get people where. That last step, that whole idea of profitability, how to keep the doors open so you can continue to pursue your dream and your creative endeavors artistically comes like a absolute avalanche.

lly have to pay attention to [: 00:02:00

Let's start peeling that back. Tom's role, he co founded a group called the RDMS group. It's a solutions for restaurant management and accounting.

And maybe we just start there, the accounting because that's Obviously, people want to open a business to make money. But accounting doesn't sound any a lot of fun. Making money does. But what do you, what does the mind of the entrepreneur, the restaurateur, who says, yes, I want to make money.

Of course, I want to make money. But what are they willing to do to actually put that into place?

So we, I didn't get into the industry to open an accounting firm. I'm on the same level. It came as a great business model for us out of a place where we go. A lot of people are a lot better at me than cooking.

ffecting the bottom line. So [: 00:03:00

And we pick up all the things people don't want to do. But more importantly, accounting is actually learning just another language. It's the language of business. So an entrepreneur can't move forward if they can't speak the language. Of what they're doing. So if you can be a chef, congratulations, you better know all the different mushrooms and vegetables that are out there, but if you can't speak to food costs you're only doing half the job, right?

manager of a restaurant and [: 00:04:00

So what we do is we come in and say, there's an education here that we're going to work with you on. It's amazing that you've been able to produce this menu, but you have to be able to make it sustainable. You have to be here next year to keep doing it. You have to know, Hey, if you want to. Buy new plates.

The food's got to make money to get that cool plate you want to buy. It's all encompassing. And so that's, can you build your team so they can make your food? Can you build a menu so it is profitable? Not just. entertaining, not just wowing people and getting you written in magazines, but will you be here next year is what we're trying to bring to people.

So I, people's eyes roll back when I walk in the room. Boy, that's

it going to go? Yeah. Yeah. [: 00:05:00

Congratulations. You got people sitting in your chairs and, the biggest lesson we teach people it's about going back to problem solving.

People need to realize that to be a good restaurant owner, you need to be a landlord and you're a landlord of the seat that the person's sitting in, right? So if you can change someone's dynamic of how they're approaching, and it's not my menus, the best tasting menu in the city that I work in. Okay. Okay.

Not everyone knows as much about food as you do, so they may have a difference of opinion, right? But if you can take your idea and say I am the landlord of this seat now think about it If you're McDonald's your rent for your seat is 10 to 12 bucks these days Therefore you can give them a plastic chair and a melamine tabletop and a plastic thing If you're a Michelin three star restaurant, your rent is maybe 000.

things. So getting people to [: 00:06:00

You've just restructured how they think about their business.

this interview in the fall of: 2019

It's a total new business.

I said at the end of: 2020

All of the loan programs are starting to be paid back. We call it in the industry a cover. So a guest who dines at a restaurant, they call that a cover. So paramount to what we look at, one of those little metrics that's super important for us is what's called the cover count. How many people did you serve yesterday?

For a lot of the country. The amount of money people are spending at restaurants is pretty much the same, but less people are going out. That's the trend. Less cover counts. We have to find ways to, like you mentioned, get them with a QR code so that they can... Get into our database to actually the funny part is technology is interesting in our industry because it's so disparate.

t of your software. You're a [: 00:08:00

Did it not work for you? People live in silos. They're not using that hive, that industry get together enough. We try to foster that by being able to see all the trends that are going on. The, it is harder today than it is to run a restaurant than anytime during the pandemic, because the economies are that much difficult, literally right now, most closures are going to happen in the next six months to a year, or most.

That's a misnomer. I want to even rephrase myself. Not as many restaurants fail as people think. Many of them change hands. Interesting. There's a difference there. Very interesting. It's undercapitalization is main issue facing us today.

You bring up this idea of not enough idea sharing and the hive mentality, and maybe because it's the old, competitor mentality.

Does every [: 00:09:00

I think that there, when you find a cluster, like sometimes you hear of that hot neighborhood.

That's right. That hot neighborhood usually has a lot more of a convivial attitude. I'm so excited you opened. More people are coming to our neighborhood. They'll try you on Wednesday. Eighth street is really happy. Yes, exactly. Those areas tend to realize that people can feed off each other. Now, if I own a taqueria and you open one next door, we're going to have.

Problems, right? But the concept of walking down the road, there are, you can go to any major city and probably find a restaurant association where they hold meetings, but go into the suburbs. And you don't that I find that the urban environment sees it as an ecosystem. And more often than not, the suburban sees it as competition.

mistake, because the suburbs [: 00:10:00

So you need more cohesion when you get out into the suburbs. So

interesting. Thanks for this glimpse inside the business. Let's talk about your business for a little bit. You decided to focus on this restaurant industry and really develop relationships and yet relationships. Last as long as the restaurant, I guess it was less than you were talking about changing hands.

Are there people who are in the business, and yes, decide that they're going to be restaurant tours, whatever brand, hangs on the shingle that day.

nsient nature of that job in [: 00:11:00

And by and large, if you're talking purely statistics, that is true. When it comes to ownership and management, we still see the lifers. There's something about the industry that attracts people to it, whether it is the odd hours or how complicated it is, or that are that want to pursue that artistic endeavor, we've been fortunate.

I, I love my industry. I came at this, as I mentioned from the artistic pursuit, I've, I came at it from a want to pursue culinary and just being obsessed with, I like to play where I work, if you will. And. My business model came from out of a deep want to help the people I was working with in a way was not just one location or building one company, but helping the small business.

much business the restaurant [: 00:12:00

So to expand your question there, there is such a diverse world that supports this business. That's really what gets us pretty excited.

Boy, that's interesting. My guest is Tom Rutledge. His company is RDMS Group. He's consulting restaurants of all kinds. And I'm curious, based on all the dynamics and challenges and obstacles, but opportunities do most of your clients come to you, let me call it a rescue mode, like they've tried it already.

And now I'm not being as successful as I hoped. Tom, what can you

r not, if your accountant is [: 00:13:00

And there's a difference between the accountant who's doing your taxes, your CPA at the end of the year, and a financial professional, whether that is an accountant, a bookkeeper, an analyst, whatever you want to call that position. It has to be a return generating process. You have to know what's going on in your on the day to day in the week to week of the business and People learn that quickly whether it's the bank account Slowly becoming to the point where you're not going to make payroll that you realize you have to fix that the business people who get into the restaurant business call us before they spend a month a dollar on construction before they're writing their business plan and we start the process at that point, we help them with fun, what kind of funding makes sense, how much funding I will tell you out of 90 percent of the people who reach out after they opened the business, 90 percent of those people started with not enough money to open the business.

ns and they're. That is what [: 00:14:00

The list is more or less endless. This is that creative problem solving. Don't pretend you know everything. Get feedback. You don't have to spend an arm and a leg for professional services. Most people are looking for long term relationships. So whether that's a lawyer, don't find someone who's just going to write an operating agreement.

Find someone who's asking questions about what you want to do for the life cycle of the business. Same thing with the bookkeeper. And

pardon me. Of course, we've been talking about profitability, scalability and all that sort of thing. You've dialed us all the way back to, concept pre construction, looking at all the costs.

s about the business models, [: 00:15:00

So I'm gonna answer your question by bringing up maybe the most important number for any restaurant tour to focus on, which is called prime cost.

Okay, so If you don't know that term, this is the absolute gold of a restaurant for restaurants in particular, prime cost is your total cost of goods plus your total cost of labor compared to top line sales. So just to give you some metrics, if you're at 65 percent prime cost, so for every dollar somebody spends at your restaurant, if you can limit it to only 65 cents, go to your cost of goods, food, beer, wine, liquor, any beverage, and your total cost of labor, you're doing pretty good.

ying to figure out what that [: 00:16:00

I'm based in California, so we have mandatory sick pay, mandatory 401k in San Francisco and the list goes on. Where we used to be maybe running 28 or 30 percent labor cost. We're seeing 35 to 40 in a lot of operations and they don't know how to curtail it. To go back to your earlier comment if I don't have to pay a person to get the food to the table, a QR code sounds pretty good.

But the good operators are thinking this is still a service model. They're still here to celebrate something, even if it's just blowing off steam and getting a cup of coffee. This is a human business. And people go out to interact either with the other person on the side of the table or the environment as a whole.

erver, put them on the floor.[: 00:17:00

They've been a server for 20 years. That game is done. That doesn't exist anymore.

And how do you counsel people then? Let's come full circle to why you wanted to open a restaurant to begin with great food. I'm going to underscore as I do with my clients, the brand experience. Yes. That most, you can get a steak at a lot of places.

You can definitely get a cup of coffee at a lot of places. So there's got to be something about my experience in this. Do you help counsel? Again, I'm thinking about the costs and tradeoffs and profitability of creating some experiences

Without a doubt you have to frame it. I go back to my landlord conversation What kind of money is that person spending at your location?

you charging enough? Do you [: 00:18:00

Or, have you overvalued yourself and to your point, the guy down the street is doing the same thing and they're going to pay half price. You don't have a model. So first we have to understand that. We break that down to the average check. What is your check average? What are people spending when they get here?

And does it fit? If you're in San Francisco and you're going out for a reasonably priced meal, you're at 40 to 60 bucks. That's a baseline price. That's a neighborhood restaurant price for a person to go dine. If you're going to do that 45 minutes up the road in the suburbs, you just entered finer dining territory for the suburbs.

of the story you're telling, [: 00:19:00

Now they need to take notes, right? To be like, Hey, what is a biodynamic carrot and get a story like, Oh, these guys really care where it comes from. That's super cool. Those are two very different experiences.

All of a sudden I had an episode of Portlandia coming into my head right there for a minute.

It's amazing.

Tell me about this carrot.

How was it born? I was in a town about 15 minutes north of me and it's a fun town, it's quirky, and a woman went up to a person at a grocery store and said, did this apple fall from the tree or was it violently picked? Yes. Yes. And the guy, and I said the same thing.

t, we have to understand the [: 00:20:00

Not many restauranteurs have the luxury of. Doing only what they want to do. You have to listen to the guest. You have to be willing to modify and compromise and adjust. And more importantly, have systems to coach your entire team, to make that vision a reality. That's where a lot of people, the consistency of that experience is what we focus on.

You did it well last week, but you're not doing it this week. And what are you going to do next week? Where do your systems come together? And my favorite word in our consulting is accountability. Restaurants. desperately lack accountability in most of what they're doing on a day to day basis. The system behind accountability, I should say, and we try to bring a lot of good lesson to learn.

ur industry, your, avenue of [: 00:21:00

And myself in the accounting firm while I'm in the restaurant business, I can't be selling the equivalent of a 50 hamburger for 30. I'll go out of business, right? Excuse all the food metaphors. It's what we do for a living.

Oh, exactly. And on the other hand, you can't charge 50 for somebody who says, you're not delivering me a 50 hamburger and or hamburger experience.

It goes hand in hand. Correct. Tom, you've given us such great background and insight. Thanks for lifting the hood on this industry. I want to go back to then the the purpose or, why somebody opened a restaurant, but sit in that seat for a minute, guide us from the insider point of view.

er customers and support our [: 00:22:00

you. First one, especially modern day right now, go to the local restaurants, go support somebody who took the time to open the business even if it's for that cocktail on the drive home, if it's for that appetizer that maybe you just wanted a snack, getting out and showing support.

is the biggest step for helping restaurants today. It gives them what they need. If I may be so bold, owners and managers, good owners and good managers, they want feedback, but they don't want it on Yelp. Give that five star on Yelp and write an email to the owner about anything that you thought was lacking.

They, I personally love, Love to read them when I send people to a restaurant that I own or manage or whatever it may be and they go, it was great. Everything was perfect. It doesn't help. Was the lighting too loud? Was the, too bright? Was the music too loud? Was the server not get you, your refill on your water?

ng feedback in an honest way.[: 00:23:00

Three years ago. Yes. Okay. You didn't love it that much. Go out and support it. The other one is, and I hate to say this because I don't want to give excuses, a little bit of patience these days is helpful. It is hard with staffing nationally. We work with people all over the place. It is just difficult to hire, train, retain, and everything else.

So like any business, right? If you go to your mechanic and he says he's super busy because he's got to put you back a week. He's probably missing another mechanic right now. The restaurant is in the same place. You just feel it more intimately. So I would say for all small businesses, a little bit of patience these days is appreciated.

I was going to say

every store around the [: 00:24:00

At 100%. Yes,

indeed. My guest has been Tom Rutledge of the RDSM group. We have stamped our creative passport north of San Francisco today, and we're going to continue our around the world journeys with creative practitioners.

What's been fun about this conversation is that everything we can learn about the restaurant business, restaurant owners, operators, the ecosystem, all the suppliers that you've been talking about to the servers. And how we, the customers can play a part in that ecosystem. It's just been a great conversation, Tom.

I can't thank you enough. I appreciate

it. It's so much fun to talk about it.

Yes. And listeners come back again next episode. We're going to continue these conversations about how we can get inspired. But most of all, how we can organize and really put a business plan and a financial plan behind our businesses after all.

We need to have the plan in [: 00:25:00