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Recipe for Success

How do you launch a software business staffed by Web-wary employees and targeted at a tech-averse audience? Start with passion, add funding, season with experience, and serve.

We’re having lunch at one of New York’s hottest new restaurants, Craft. The broiled diver scallops are divine. The loin lamb chops, sublime. The foie gras terrine inspires a When Harry Met Sally moment of true bliss.

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Celebrity chef Tom Colicchio — recipient of the James Beard Foundation’s 2000 award for best New York City chef — sidles over. We gush. We rave. We clink our glasses in his honor.

But Colicchio, though polite, is only mildly interested in our food reviews. He has more pressing topics on his mind. He wants to talk software.

chef Tom Colicchio
Chef Tom Colicchio

He wants to explain how he can wake up in the morning, boot up his laptop, and find out which menu items topped the list last night at Craft and his other restaurant, Gramercy Tavern. He wants to discuss how he can immediately determine the number of bottles of cabernet left in the cellar. He wants to demonstrate how he can track whether his fish supplier is charging more for sea bass at Craft than at Gramercy — and whether his sous chefs are ordering too much venison and not enough lamb.

The new Web-based software that allows Colicchio to accomplish all that before hopping in the shower comes from a New York-based company called RestaurantTrade. Its operating system enables restaurants and their suppliers to simplify and streamline the messy procurement, inventory, and management functions that are critical to the day-to-day operations of the business.

“My staff saves three hours each morning on wine inventory alone,” Colicchio says. “You used to be able to access information about inventory, pricing, and customer trends, but it came in big reports that were very laborious to produce and that were very tiresome and confusing to study. Now that I’m running two operations, it’s all about the accessibility of that information.”

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Begin with a “wow” idea. Leaven with enthusiasm. Add zest.

Unless you’ve worked in the hospitality trade, it’s hard to grasp just how Jurassic the business side of the industry really is. In most restaurants, for example, a monthly inventory is conducted manually — jotted down by hand on clipboards, entered into spreadsheets, and then printed out for analysis. Bleary-eyed chefs place orders for the next day’s ingredients late at night, on suppliers’ answering machines. Suppliers announce new specials through a flurry of faxes, which generally end up in the wastebasket. Orders arrive in the morning, are inspected — frequently found in error — and sent back for another try.

And don’t even ask whether patrons liked the new monkfish entrée or whether the pinot grigio sold faster than the sauvignon blanc. Only a particularly anal bean counter could extract relevant data from the archaic point-of-sale system used by most establishments. To get the information they require, most restaurateurs need to run 8 to 12 reports detailing the average customer check, the total sales, the number of comps, and more.

In short, the entire industry is a nightmare of inefficiencies. It needs someone with the head of an accountant and the heart of a chef to straighten things out.

Enter Damian Mogavero, the tall, dark-haired CEO and idea man behind RestaurantTrade whose enthusiasm for the business bubbles over like champagne in the hands of a tipsy sommelier.

Mogavero developed a passion for the hospitality business as a 16-year-old busboy at a Hyatt Hotel in New Jersey. He explains, “The general manager of the hotel saw that I took an interest in my job and said to me, ‘Damian, if you really want to succeed in this business, you only need to know one thing: Exceed customer expectations.’ Since that day, I’ve had a love affair with the business. For me, producing that wow feeling is what it’s all about.”

But Mogavero got sidetracked on his way to a career in the industry. After learning the art of deal making at investment bank Dillon, Read & Co. and earning an MBA at Harvard Business School, he landed a job as CFO of the Matthew Kenney Group of Restaurants, in New York. That’s where he discovered the financial chaos raging behind the scenes at even the toniest dining spots.

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“It was really a shocker to me,” he says. “Matthew Kenney ran four restaurants and a catering company, yet the company had no tools to manage food, beverages, and labor costs.

“Chefs would say to me, ‘Damian, I’m not in the restaurant business anymore. I’m a paper pusher. I spend more time doing administrative work than I do cooking food. I’m playing phone tag with my suppliers while trying to take inventory and figure out my food and labor costs. I want to come up with new menu ideas. I want to cook. I don’t have time to do this.'”

Mogavero was appalled. He knew the daunting statistics that plagued the $169 billion restaurant industry. A study by Efficient Foodservice Response pegs losses at $14.3 billion each year due to inefficiencies. The Center for Foodservice Education estimates that nearly 90% of independent restaurants fail within the first five years.

“As a chef or manager, how can you exceed guest expectations if you’re bogged down with all this paperwork and working with four points of margin?” he asks.

Next, add passionate funding. Season with experience.

In July 1999, armed with a handful of credit cards, Mogavero set out to revolutionize the restaurant business. Before long, he attracted four passionate partners eager to join the venture if he could find backing. “We would just meet in various restaurants, because we didn’t have any offices and my studio apartment’s too small,” he says.

By early December, Mogavero had maxed out his cards and still had no funding. “I was with my girlfriend at Rockefeller Center, and we had to get home. I put my card in the ATM, and it just came back. I did put it in again. The screen said, ‘Sorry. You’re over your limit.’ We had to walk home. I was flat-out. I was done.”

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But on December 17, Mogavero received good news from two venture-capital groups: T.H. Lee Putnam Internet Partners, the $1.1 billion fund led by Snapple backer and noted foodie Tom Lee, and Onex Corp., a large Canadian fund that backed food-distribution company ProSource and airline caterer Sky Chefs. While Mogavero won’t reveal the exact amount, he will concede that it was enough to fund operations for 11 months.

When T.H. Lee Putnam climbed on board, Mogavero gained access to BuildNet, another Lee-backed company that provides management software to the residential-building industry. “There are a lot of similarities between the home-building industry and the restaurant business,” Mogavero says. “They’re both behind the technology curve, very fragmented, and seasonal in nature.”

Following an introduction from Lee, Mogavero and his small team flew to North Carolina to meet with BuildNet’s CEO and CTO, and to learn from BuildNet’s mistakes.

“While capital is great, calling on people who can contribute more than just dollars is critical to a young organization,” Mogavero says.

Soon Mogavero lined up a number of other strategic investors, all of whom also had a particular interest in the restaurant business.

Rob Stavis, a partner with Bessemer Ventures and Main Street Restaurant Partners (owners of Union Pacific, Calle Ocho, Rain East, and Rain West restaurants) knew that he wanted in as soon as he saw the company’s business plan. “RestaurantTrade had a vision to bring together people with deep domain knowledge and strong technical skills to develop a tool that would help independent restaurant operators increase efficiency,” he says. “As an investor and longtime software developer, I knew that writing these applications would be a difficult task. But I also knew that the product had the potential to serve hundreds of thousands of restaurants.”

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Then mix in first-rate talent. Sprinkle with top-notch techies. Stir well.

With a gaggle of food-loving investors on board, Mogavero set out to find employees with a similar passion for the industry.

“I knew that it was important to hire people who ‘got’ the business,” Mogavero says. “I don’t know how anyone can develop software for the restaurant industry unless they understand the day-to-day operations of the business.”

Mogavero assembled a staff of 42 people. Collectively, they’ve managed, operated, developed, owned, or served as chef at 120 restaurants across the United States. Though 13 employees boast degrees from culinary schools, some had never used a computer before, and many more didn’t have a personal email address.

“At first, it was difficult to attract those people,” Mogavero says. “They said, ‘You want me to work for a software company?’ “

Robert Bohr was a sommelier at Babbo when Mogavero tapped him to be director of product development. “I was very, very reluctant,” Bohr says. “To say I was ‘tech backward’ was an understatement. Put me at a desk, and I’m lost; put me on a dining room floor, and I swim like a fish.”

Mogavero paired Bohr with a software developer he lured from NASA and told the pair to get to work. In three months, Bohr was writing HTML and had a working knowledge of SQL, while his IT buddies were becoming gourmands. “Programmers come to us thinking McDonald’s Filet-O-Fish is a great seafood dish,” Mogavero says. “Within three months, they’re asking whether I’ve tried the tuna tartare.”

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Once the RestaurantTrade product was built, Mogavero sought beta testers who could critique its usability. Colicchio, an early user, suggested that the product be expanded to allow chefs to do business with favorite suppliers outside the RestaurantTrade network. The most recent iteration of the product will integrate Squirrel, one of the industry’s leading point-of-sale systems, so that restaurants can finally get an accurate snapshot of day-to-day sales — from the average check size to the most popular appetizers.

Go easy on the special sauce.

In building his business, Mogavero made at least one other strategic decision that, in hindsight, proved remarkably astute: He resisted the urge to spend big money to build the business.

Mogavero remembers, “In the first quarter of 2000, our venture partners were urging us to exit ‘stealth mode.’ ‘Spend money!’ they said. ‘Hire more!’ But I told the board that RestaurantTrade needed to build a product first. I was shunned.”

Mogavero and his CFO stuck by their no-frills policy. Even today, the company inhabits a modest office building off Times Square, where the design aesthetic owes more to Staples than Herman Miller. “We hate to spend money,” he says cheerfully. The only indulgence is a small staff dining area furnished like a Moroccan tent, with real china dishes, fine glassware, and a small wine cooler.

Bake well, garnish, and serve.

Seventeen months after that bleak day at the ATM machine, RestaurantTrade is thriving. The company now boasts 76 restaurants and suppliers among its customers — including such classy establishments as Tavern on the Green, Russian Tea Room, Grand Central Oyster Bar, Gramercy Tavern, D’Artagnan (the foie gras producer), and Riviera Produce. The sales force continues to sign one new restaurant each day.

Mogavero estimates that 2001 sales will reach between $1 million and $1.5 million. He expects RestaurantTrade to break even by the fourth quarter of 2002.

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Better yet, on May 1, Mogavero stood on stage at the James Beard Foundation awards — the restaurant industry’s version of the Oscars — to present Gramercy Tavern owners Tom Colicchio and Danny Meyer with the award for best customer service, an award that RestaurantTrade sponsored.

“Last year, I was just an observer at the Beard awards,” Mogavero says. “When I first started, I looked up to Colicchio and Meyer as the leaders in hospitality. They practically invented it. The fact that they’re RestaurantTrade customers and part of our company made it an unbelievable moment. People said that they couldn’t believe my smile. I was more excited than the winners.”

Contact Damian Mogavero by email (Damian.Mogavero@rtnyc.com), or learn more about RestaurantTrade on the Web.

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About the author

Linda Tischler writes about the intersection of design and business for Fast Company.

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