This inaugural post is an expanded version of an email conversation I recently had with a well known local entrepreneur turned investor. --Jeff
As a new startup building a technology platform targeted at restaurants and their customers, we get this question a lot. Other friends, family, other entrepreneurs, potential investors, and even those in the restaurant industry... they wonder why a couple of people with backgrounds in technology and digital marketing would be interested in building a startup that would pick this particular niche.
The consensus is that restaurants are generally late adopters, require too much direct interaction, and are too cheap to scale as a customer base. At some level, these are all true. But as with any generalized statements, there are exceptions, nuances, and signs of change. We've had the good fortune of meeting with many of our would-be customers over the last year, and had the opportunity to see what drives these perceptions, and how things are changing in the market.
We thought it might be useful to share some of our experiences and thinking, and maybe start to change the perception a little bit.
Behind the times
Restaurants have a bad rap for being late to the party when it comes to technology. You only need to look at a few restaurant websites to see why. There's been a lot written about this recently, so I won't go into full detail, but when it comes to a restaurant website, visitors want:
- Easy to browse/read menus
- Phone number/reservations/online ordering
- Information on private events/catering
What they frequently get instead is:
- A glitzy Flash intro animation (and maybe even soundtrack)
- A site with inconsistent navigation
- Menus that are in Flash/PDF and/or horribly out of date
Many restaurants don't even have their own site, so users are left with what was grabbed by a local search engine a few years ago when content was entered into some system, somewhere, and promptly forgotten.
Why? Well, let's face it -- unless you know how to build and maintain a kick ass website yourself, it's a major expense ($10-20K or more) to get a professional firm to build a new site, and then there is the ongoing expense of maintaining it, hosting it, and doing a major refresh every few years.
This certainly is not a problem limited to restaurants, or even small businesses in general, though -- I've seen quite a few VC and investment group websites that face a similar problem, and they're putting many millions of dollars a year into high-tech startups!
Changing of the guard
It is certainly true that many of our favorite restaurants today come from a long line of tradition, and that there is a strong desire to keep the traditional experience just as it is. There is certainly a bias against letting technology intrude too much into one of the last places we can go to escape it.
And, honestly, we in the tech-world don't necessarily have a good reputation with some of the owners/operators/chefs -- after all, we're the ones who sold them on the crappy website to begin with, and designed it in flash, and thought PDF menus were a great idea, and then went and ran away with new ideas on how to build things better. So those in the old-guard who are weary of technology and see no good reason to invest more hard earned capital in the latest new-fangled technology fads.
Despite this, there is a rising new guard in the restaurant industry: chefs, owners, and operators who are bringing the best of our technology and practices, and blending them with an old-world fine dining experience. These men and women are great when it comes to product management -- what matters to them: Product (amazing dishes), Service (outstanding staff, great overall experience), and Marketing (generate word-of-mouth advertising). They get it -- they use the right tools, at the right time & place, and focus on Product, Service, and Marketing.
In deciding to start CraveLabs, I definitely got a lot of my inspiration from my good friend Brian Poe. Brian joined up with the Rattlesnake Bar and Grill as Executive Chef a few years ago, right around the same time my last startup (doing location based services) moved offices to right across the street. That company was going through a lengthy M&A and post-acquisition roller-coaster at the time, so with it right across the street, the 'Snake became our local watering-hole and after-work place to grab a bite to eat. At first, the food was nothing to write home about -- standard American pub fare: burgers, wings, nachos.
Slowly but steadily we started to see changes in the menu: at first the wings took on a distinctive flavor ("is that cumin?"), then the nachos started taking on new ingredients and became a signature item, then the burgers upgraded with some more spices. Being regulars, week after week we would see these subtle changes. After a while, it became clear that our palates were being intentionally readjusted, as were our expectations of what kind of food we would find. Fast forward a few years, and the menu today looks nothing like what it once did. The entire product line changed -- now it includes signature dishes like the Hudson Valley Duck Tacos, and the Poe Burger which combines kobe beef, lobster, and truffles.
In addition to evolving the product, the way in which it was marketed to customers changed over the same time period. A new brand was formed around "Poe's Kitchen" -- and with this came a lot of time invested into leveraging what was still then cutting-edge social media tactics for small businesses. Blog posts about the changes, then a Facebook page and notices to become a fan on the specials menu, and twitter accounts. As twitter, foursqare, and eventually Facebook places really began to take hold, Brian started doing something that is still quite amazing to me: He would constantly keep an eye on the feeds and react in realtime. If someone on the roof deck complained on twitter, within minutes it would be rectified by sending someone to the table to make amends. When regular customers started checking in on foursquare and Facebook Places, he would often come out and say hello. This is, in fact, really how we became friends in the first place -- my coworkers and I had a passing fascination with becoming the Mayor for the Rattlesnake, and one night Brian came out of the Kitchen to see who was "checking-in". Over time, this became a long series of brief discussions on how he was using technology, what my coworkers and I were working on at the time, etc.
Looking back on it, it is truly amazing to have witnessed the changes that went on over those first few years at the Rattlesnake. Chef Poe could certainly teach a thing or two about Pivots and MVP Product Launches to those of us in the Lean Startup community.
Brian's not the only one on the leading edge. Just here in Boston, we've seen Barbara Lynch's Drink forgo a traditional website in favor of a Facebook page, and Chef Jose Duarte at Taranta has been experimenting with QR codes printed on plates and branded into tortilla shells.
Having spent years building and selling high-tech products for enterprise and healthcare verticals, these are steps that I cannot possibly imagine any of my old customers being nimble enough to even attempt.
Again, this is somewhat true -- restaurateurs require direct contact to become customers. As we started launching CraveUp as a service to restaurants, we had to go into their restaurants, and actually meet with them in person in order to see if they were interested in our product. I fully expect this to continue -- we're going to have to go door-to-door during restaurants off-hours in many cases to acquire customers. If you've spent any reasonable amount of time in the kitchen or back-office of a working restaurant, you'll immediately know why: telephones and computers do not mix well with loud kitchens, and nobody wants to spend a lot of time in the closet of an office that has the Internet connection in it. A laptop with WiFi might be fine to set up during the slowest hours in the dining area for a few minutes, but during most of the day/night, it's not acceptable.
So yeah, we have to go in to meet our clients and potential clients face-to-face. You know what? This is an AMAZING BENEFIT!
Being a long-time proponent of Agile and Lean development techniques, and customer-driven feature development, it is incredible to have such a directly accessible customer base. We can walk into any restaurant, sit down and see how things operate. We can almost always reach a decision maker just by asking to talk to someone, and maybe waiting a few minutes for them to break free. As long as we're polite about it and somewhat interesting, we get the opportunity to ask about what they're doing in terms of social media, marketing, etc., and give a quick pitch. And we generally have a pretty good discussion that expands out to other topics of technology, just because of curiosity.
We get lots of feedback from establishing direct relationships with restaurants. I'll get quick text messages, Facebook messages, or the occasional email saying "Hey, it would be cool if the product could do X" -- and in a lot of cases yes, it would be REALLY cool... let's either start working on it and see if it is what they had in mind, or maybe let's put it in the backlog and try to get there.
We've also gotten requests to help out with special projects: "Hey, I'm doing this event with 30 or so other local chefs, you think we can do a menu for the event?" -- Are you kidding me -- YES!
It's also the only market I've ever known that will happily introduce you to their "competition" in the neighborhood, as long as you take good care of them.
Oh, and did I mention that these restaurants all tend to serve some amazing food?
So, restaurants generally operate on a cash-flow structured business model. That's not likely to change anytime soon. They're also relatively low-margin businesses compared to enterprise or technology companies. They have high costs of goods (which hopefully translates to better quality ingredients), labor (that service component), rent (good locations are expensive), and spend a fair amount (~3% of gross revenue) on marketing. I'm not sure there's much room in the model for change that would result in across-the-board improvements.
You know what, though? This is where the new-guard of startups can help. As we shift into SaaS models, and move our big costs into the cloud, we can build services that fit better with cash-flow sensitive businesses. As long as we can show that we bring in more $$$ or save more $$$ each month when we sell to an SMB, and we don't require large setup fees or big hardware investments, the nominal fees a SaaS company asks for fall into line with the customer's business model. Not to say that there is not price sensitivity -- there is, especially if you're arguing to take a cut of every transaction, whether or not you actually produced a new customer. These kinds of behaviors can be seen as predatory -- tread carefully here.
Needless to say, I think there is a lot of potential in creating products and services for restaurants. If we can find the right mix of product features, and deliver it cost-effectively to the market, and above-all-else help both restaurants and their customers in some way, then success can be found. Restaurants are at the forefront of the hyper-local & social tech scene, just because that's where people most often go when not at home or work.