invested in the concept and helped him get it off the ground.
Once French was able to show lenders eight months of profit-
and-loss statements, he more easily obtained a loan to open a
second location, then a third and fourth. “We found out that
you still borrow your own money,” he says. “You have to build
a personal guarantee on any money you borrow. And a lot of
people underestimate costs—you need working capital, not
just the money it takes to get a second location open.”
Arena agrees that every time you go to a traditional lender,
you put your personal assets on the line, while you risk giving
up ownership with venture capital. When opening an addi-
tional location, he recommends seeking out an existing turnkey
operation; it requires a smaller investment, and you can simply
convert the operation to fit your brand. “As an independent,
you can self-finance, but you bet double or nothing,” he notes.
“Every failure risks what you have.”
Scott Svenson, co-founder/CEO of the 15-unit MOD Pizza
( modpizza.com), based in Seattle, notes that although investors
offer more expensive and dilutive capital compared to loans,
acquiring debt comes with its own constraints and risks—so
evaluate the options carefully to find one that’s right for you.
“You want to marry the right capital strategy with the right
growth and brand strategy,” he says. Thus, he recommends being more adventurous with risk if your growth strategy is less
expansive, or less adventurous financially if you want to grow
to larger proportions.
Weighing the Options
According to Hayman, there is some good news for operators
looking to raise expansion capital. He notes that, in regions
experiencing growth, some banks are starting to loosen their
purse strings, and operators with an established track record,
combined with good credit, face less skepticism from lenders.
To get started, he suggests approaching a bank with which
you have an established relationship. Just keep in mind that
Metro Pizza has grown its reputation in the Las Vegas area through a winning combination of painstaking record keeping and a proven product.
MOD Pizza with a formula of convenient, quick, artisan-style pies was
launched in 2008 and has quickly expanded.
ME TRO PIZZA