Mo's Chowder
An Entrepreneur from Within
Many people find the idea of running a restaurant appealing but lose their motivation at the prospect of creating a business plan, finding investors, navigating legal issues, and juggling the other complexities associated with new startups. For those disheartened by the prospect of such risky undertakings, buying an existing restaurant often seems like a simpler and safer alternative. Still, buying a restaurant is not for the fainthearted. According to a study conducted by H. G. Parsa, a professor in the hospitality program at Ohio State University, 25 percent of restaurants close or change ownership within their first year in business. Over three years, the number rises to 60 percent, a figure that is comparable to cross-industry failure rates cited by the Small Business Administration.
One avenue that might increase your chance of success, as well as your comfort level, is to buy a business in an industry you've worked in for a long time. Better yet, buy the actual business you've worked in for a long time, as Cindy McEntee did. McEntee is the current owner of Mo's Chowder, a diner chain along the Pacific Northwest coast. McEntee's grandmother, Mohava Neimi, or "Mo," started a neighborhood diner in Newport, Oregon, to support her two growing boys during World War II.
Mo chose the diner business because she loved to feed-and socialize with-her neighbors. For years, Mo's Chowder operated as a simple diner, where McEntee grew up working as a dishwasher, waitress, and cook. The evolution of Mo's into the business that would become an Oregon landmark didn't begin until the day McEntee asked her grandmother how much she paid for clams. Mo confessed that she had no idea. She had been content to use whatever was in the cash register at the end of the day to buy supplies for the next day's menu.
Because McEntee had worked in so many areas of the business, she was starting to see ways to improve the diner's operations. She installed accounting software and food preparation equipment to save time and money. Eventually, Mo and McEntee made plans for McEntee to formally buy the business from her grandmother over time. Mo changed the legal form of the business from a sole proprietorship to a corporation, and McEntee began buying stock in the company through payroll deductions.
Eventually, McEntee was able to buy more locations along the coast with some investment partners. Now a culinary tourist attraction, Mo's has more than 200 employees and $3.5 million in annual revenues, with six store locations and new distribution channels for its chowder. And the company recently won the Oregon Governor's Community Service Award for Restaurants and the National Restaurant Neighbor Award, given out by the National Restaurant Association. To learn more about what it takes to buy an existing business, watch the video case for Chapter 4 and then answer the questions and work the activities below.
Question
1. Which of the advantages of buying an existing business, as explained in the textbook, did McEntee enjoy when she bought her grandmother's diner? Explain.
2. How could an entrepreneur who does not have a stake in an existing family business re-create for himself or herself the advantages McEntee enjoyed?
3. What five features of family fi rms offer unique advantages? Which of these features did Mo's Chowder possess?
Activities
Imagine that you have just inherited $500,000 in business capital from an elderly relative who admired your entrepreneurial spirit. The only stipulation in the will is this: You must use the money to buy and run one of the small businesses for sale locally. Also, before the money will be released to you, you must submit a preliminary business plan to the trustees of the estate (your instructor). Finally, you must start the process of buying an existing business immediately or else the inheritance will pass to another likely entrepreneur in the family! How will you start?
1. Local businesses are often advertised for sale in the classifieds of the local paper. You can also find many listings by looking on the Wall Street Journal's online center for entrepreneurs at https://www.startupjournal.com or by conducting a Web search using the key terms "business for sale." Do some preliminary research to see what's available that interests you and select one of those businesses to use in this activity.
2. Once you have identified a company that interests you, find the template "Business Plan for an Established Business" on the SCORE website, at https://www.score. org/template_gallery.html. Fill out page 5, the General Company Description, with all the information that you can gather on your target purchase.
3. When your plan is complete, make sure that you have covered everything by checking your plan against the recommendations of the Small Business Administration at https://www.sba.gov/smallbusinessplanner/start/ buyabusiness/index.html.