When I was in my late twenties I produced a show in Las Vegas. When we were negotiating the contract, the owner of the casino said we wanted too much money. One of the requirements of the show was a 2 drink minimum, because I knew the Restaurant and Bar business and believed in the show, I came up with an idea that I was sure would work. Since I knew the cost of drinks in those days were about 15% of the gross I told him that I would be happy to take 30% of the take in the bar, leaving him 55% profit; he of course said yes because he wasn’t taking any chance at all.
The show was such a success that after 4 weeks we were called into his office. He told us we were making too much money and he wanted to go back to our original deal, but he would give us a little more than we asked for because the show was doing so well. Being so young and not so smart I said we have an iron clad contract, he apologized and said he would honor our deal.
The next day no bartenders showed up. When I called him up he said they were having a union problem and it would be worked out in a few days. Three days later, the bartenders showed up but there were no servers to take the orders. I called my lawyer in Los Angeles and he warned me not to close the show or I would be in breach of my contract. Like a dummy I kept the show open trying to work out the problems and finally ran out of money. I then proceeded to sue the casino with a Nevada lawyer, since my lawyer couldn’t practice there. That will be a story for another day.
The lesson I learned is when you make a deal, make it fair for both sides. If the deal is too good for you, the only thing the other person wants to do is to get even with you. In fact a few times in my life after a deal was in place for a few months and I saw that the other side deserved more, I called them up and changed the deal so it would be more fair for them.
The moral is simple. When you try to take advantage of people, they are going to spend a lot of time trying to get even at you. When you’re fair you can make a lot more money.
When I first started out in business I was told that Cost of Product and your Percentage Profit Margin was very important, and it is. Over time I realized that Profit Per Unit is much more important.
Using my restaurant as an example, if 2 customers come in and 1 only orders coffee because he isn’t very hungry my cost of goods on the $3.00 purchase is 10%. If the other customer is very hungry and orders a $30.00 meal my cost of goods could be 50%. On the coffee at a 10% cost I made $2.70. On the meal at a 50% cost I made $15.00.
I can pay more bills with $15.00 than $2.70. My conclusion is that Profit Per Unit is far more important.
Years ago a friend and mentor of mine asked me what my largest expense was in my restaurants. I immediately said labor, he said “no”. I then said food cost, he said “you’re not even close.” He then pointed to an empty chair; “that’s by far your largest expense, nothing is more important than keeping the restaurant full.”
Also, many years ago I was in a meeting with a group of executives of a very large hotel chain, my partner and I had come up with a product that would save them a fair amount of money. After the presentation most of the group started clapping. The chairman of the board said our product was great but they couldn’t use it at that time. When I asked why this was his explanation, “we have a goal to open 1500 hotels and right now we have over 300 to go, we can only concentrate on that right now. After we achieve that then we’ll concentrate on making money and will look at every area of the operation.”
To sum this up; without sales volume, doing everything else right doesn’t mean much.
If I was forced into defining management in one sentence it would be “Taking Care of Situations.” A manager needs many skills, but the most important is taking care of the unknown.
When I trained restaurant managers I used to tell them to expect everything to go wrong that could go wrong. When you start your morning, expect to have a bus boy in jail, a server whose car broke down while she’s in Palm Springs and the air-conditioning isn’t working. If you can’t stay calm under these conditions, you’ll never make a good manager.
If everything was perfect, the vendors would all deliver the best quality of food to me. The weights and trim would always be great. The food would be prepared perfectly and the customers would be thrilled. Once a week I would get a knock on my door and one of my managers would say to me, “everything went great all week, we paid all your bills and here’s your profit for the week.” Since this is never going to happen, that’s why we need you. If not, I could hire all minimum wage employees.
The truth is if you come to work and there aren’t any problems you should create some; That’s job security.