Fashion Caf: Lack of Entrepreneurial Persistence - Case Study Example

? Table of Contents Introduction 2 2 Fashion Cafe 2 3 Situation over time 3 2. Reasons for failure 4 2 Lack of entrepreneurial persistence 42.2 Lack of corporate culture 4 2.3 Lack of feasibility study 5 2.4 Lack of vision and planning 6 3. Analysis of the situation 6 4. Recommendation 7 References 9 1. Introduction Businesses start with optimistic plans but to Dun & Bradstreet reports, restaurants have only 20% chances of surviving two years against 37% chances of survival for four years in the case of other businesses (Mason, 2011). Small opportunities are the beginning of great enterprises but it is often fraught with pitfalls and challenges (Solovic, 2004). This is precisely what Fashion Cafe faced in the 1990s. Fashion Cafe is a themed restaurant and according to a Dunn & Bradstreet publication, the failure rate of all restaurants is high and the failure rate of themed restaurants is even higher (Greer, 2008). About half a million businesses start-up each year and more than this number also fail each year. Reasons could vary across firms and sector but there are certain common mistakes that most entrepreneurs make. 1.2 Fashion Cafe Fashion Cafe, a glitzy theme restaurant, was founded in 1995 by Tommaso Buti and his wife. This was a theme-park restaurant with an animated environment and having a store on the side. This themed restaurant serving burgers and appetizers, was founded by supermodels and fashionistas. They offered and served $20 salad made exclusively for Naomi Campbell (Businesspundit, 2009). Fashion Cafe was in the restaurant business which itself is tough, and the theme restaurants face even tougher challenges. Supermodels like Claudia Schiffer, Naomi Campbell, Elle Macpherson, and Christy Turlington joined hands with Tommaso Buti and the brain child was Fashion Cafe (Businesspundit, 2009). The vision behind the themed restaurant was to market food and sex as used to be with night clubs and restaurants. This time the owners planned it by way of offering burgers and chips to suit the body-conscious crowd. The theme was to use the girls as enticement and the entrepreneur thought that it would be easy to raise the money to foot their bill. Investors were easily attracted because each felt they owned the models. Because of the stars around the venture gained publicity on CNN and BBC. Buti raised $3 million within a short period and run only three restaurants – in New York, London and New Orleans (Berkman, 2011). Inside the restaurant lights flash, movies play and then there was a display of dresses, shoes and coats worn by the owners – the supermodels (Reichl, 1995). These could be bought at the store which was on the side. While the menu card was seven-pages the menus on the card demonstrated frugal meals to suit slim figures and models. At the same time, they planned to sell goods such as dresses and coats through the store in the side. Fashion Cafe was over-franchised and has been accused of mismanagement (Businesspundit, 2009). 1.3 Situation over time Staff paychecks were bouncing and they struggled to hire good people. They reached a state when suppliers refused to deliver on credit (Berkman, 2011). The entrepreneur siphoned out funds to create assets for himself. The restaurant spent too much on refurbishing instead of providing cash for day-today running expenses (Willock, 1998). Super models that had invested and had been attached to the chain started resigning one after the other. The Cafe did not allow the stakeholders access to the accounts which goes against the norms of any company. The CEO Tommaso Buti has been accused of stealing funds from the company and diverting the corporate assets for personal benefits (Kelly, 1999). They have also been accused of defrauding the investors and the owners have been charged of wire fraud, conspiracy, money laundering and transporting of stolen property. The project had huge amount of investments with good financial backing but no business planning. It closed down three years after it was opened. 2. Reasons for failure 2.1 Lack of entrepreneurial persistence Holland (2011) defines entrepreneurial persistence as the positive maintenance of motivation to continue acting under challenging conditions. Time and circumstances influence persistence decision among the start-ups. Entrepreneurs usually have grand aspirations and expect huge future rewards. Tommaso Buti, the entrepreneur, had come to the US from Italy and befriended a lot of models. At the same time, he also got into food business. Despite his lack of experience he wanted to take advantage of the supermodel craze prevalent in the US at that time. He hence assembled a chain of high-fashion diners. Theme restaurant were booming at that time. He offered huge sums of money to the models apart from luxury traveling and lodging per appearance. The business failed mainly because the promoters did not realize that the current success of the world of modeling will never match the universal appeal of the movies. The cafe used supermodels to promote food. The models invested some money but basically allowed their names to be used for brand promotion. Menus were named after models such as Naomi Campbell and they would also find time to fly across the world to open new outlets for the chain Fashion Cafe. People with any decency would not visit a cafe to have burger and fries while watching the supermodels baring their midriff. 2.2 Lack of corporate culture Themed restaurants are not the right places for good food. Moreover, themed concept is a business concept, not a restaurant concept. Themes cannot sustain fresh interest and repeat customers are rare. This was a celebrity-spawned restaurant and this creates additional problems with staffing. Staff is attracted for the glitter and glamour rather than for providing great customer experience. There are more than 600 entertainment restaurants sharing the market (Specialityretail, 1999). Fashion Cafe grew at lightning speed and if you grow too fast you cannot grow your culture. Without enthusiasm among the staff, the corporate culture does not grow. If the growth is very fast, the culture is lost. The staff must have passion for food and passion for serving people, which was lacking at Fashion Cafe. 2.3 Lack of feasibility study To screen an untried idea each aspect of the business has to be vetted. The technical feasibility, the potential market, the customer demands, compliance with regulations, and the identification of the necessary managerial resources have to be evaluated (Biais & Perotti, 2008). These dimensions are complimentary and even one single dimension has not been fulfilled or evaluated properly, the business could be a failure. Fashion Cafe expanded with the speed of lightning without solid groundwork. Within two years the cafe closed down as did two other celebrity-themed restaurants. The failure of this cafe did not impact the economy but is always remembered when well-known failed business launches are discussed about (Businesspundit, 2009). When the concept is novel, the critical dimensions have to be identified along which the idea must be assessed. Thus promising ideas can be unprofitable even if they fail on one single dimension. Hence experts must be employed to assess the different dimensions. Privately observed expert opinion must be gathered before venturing into such business. Fashion Cafe was not a novel concept as it was based on the Planet Hollywood chain which was successful at that time. Stealing the idea can be very tempting but this can lead to potential market breakdown. Many had started cafes like these using food and sex concept without studying the potential market and the customer demands. 2.4 Lack of vision and planning Overall, the business lacked vision and which is the most common cause of failure (Solovic, 2004). Buti just jumped into business ownership without understanding what is required. Top management involvement was missing which was the cause of failure. The focus too was on unimportant issues like refurbishing all the time. Instead, had the entrepreneur engaged in understanding the employees and their problems, in evaluating the customer demands, things could have been different. Buti thought he had the best idea but he failed to recognize that there were no buyers for his product. No financial projections were made and funds were raised ad hoc without planning. The Cafe found itself adequately funded and started misusing the funds only to realize that they were struggling to pay bills. Another flaw in the planning was that he brought in partners just because they were willing to invest in the Cafe. 3. Analysis of the situation Opportunity Recognition (OR) is an important part of entrepreneurship and involves creating value by seizing these opportunities. It also involves utilizing the human, social and financial resources along with certain amount of risk taking by the entrepreneur. According to McIntyre (1998) vision usually distinguishes the entrepreneur from their competitive competitors but in the case of Buti, he was merely replicating the services offered by competitors. Entrepreneurship is a continuous learning process and vision should have been used as a guiding platform. Buti decided to give up instead of learning from the failure. However, failed entrepreneur does succeed because one learns from a failed experience than from success. Buti too has succeeded in his future ventures. The management of any business has two sets of problems, according to Deming’s consideration – the problems of today and those of tomorrow (Kruger, 2001). Business should take care of immediate needs and also focus on continuous quality improvement. While Fashion Cafe acted on the immediate needs of the society, and replicated the business model, they did not engage in market research to determine changes in customer demands and needs. Had they evaluated whether the customers still wanted this sort of restaurant where food was not important, they would have changed their business model. The very idea of combining food with fashion was flawed. 4. Recommendation In the themed restaurant themes rather than food drive all decision. Customers are attracted to these theme restaurants at least initially. However, over time boredom creeps in with the same theme and custo0mers seek some different experience. This different experience can come only through different food items on the menu every day. It is the food that drives a successful theme restaurant. To succeed in this venture the management should not have used glamour and enticement as the key to success. Even if they wanted to use the names the business model could have been different. Funds were siphoned out of the organization for personal use which is unethical. Investments that come into any business are meant for the business entity and not for personal gains. A proper vision to guide the management in decisions, technical feasibility and availability of resources, financial projections and investment model in place could have helped Fashion Cafe to succeed even when the competitors were failing and many such Cafes had closed down. As the funds were not available they could not hire the right people and people are critical to the success of any venture. Fashion Cafe could have different menus for different occasion and to suit different tastes. They could have used the models on certain occasions for just a few endorsements. Themed restaurants do not work and is a big challenge because takers are few. Prices should have been affordable as they did not commensurate with the quality and quantity served. This kept people away and hence if the prices were reasonable volume sales could have been achieved which could have put the Cafe back on rails. They partnered with the wrong people; they should have partnered with chain restaurants and used their brand name which would have created better awareness. The right financial management could have restrained the owners from withdrawing funds for personal benefits. Commitment to the vision is essential for any entrepreneurial venture but Buti did not seem to have one. He was headstrong and ignored advices as they were against his own ideas. Thus, fashion Cafe could have succeeded with the right people in operation, marketing and financials. References Berkman, J. (2011). Fashion Faux Pas, New York News & Features, Retrieved online 03 June 2011 from http://nymag.com/nymetro/news/bizfinance/biz/features/1003/ Biais, B., & Perotti, E. (2008). Entrepreneurs and New Ideas. The RAND Journal of Economics, 39 (4), 1105-1125 Businesspundit. (2009). The 25 Worst Business Failures in History. Retrieved online 03 June 2011 from http://www.businesspundit.com/the-25-worst-business-failures-in-history/ Greer, J. (2008). Theme Restaurants in the Culinary Industry - Great Food Still Rules. Retrieved online 03 June 2011 from http://www.culinaryed.com/article/theme-restaurants-greatfood-still-rules.htm Holland, D.V. (2011). Utility maximization? An expectancy view of entrepreneurial persistence. Management Research Review, 34 (3), 337-352 Kelly, K. (1999). Fashion Cafe's Tommaso Buti Schemes to Skim Rent From Guccis. The New York Observer. Retrieved online 03 June 2011 from http://www.observer.com/node/41312 Kruger, V. (2001). Main schools of TQM: ``the big five''. The TQM Magazine, 13 (3), 146-155 Mason, M.K. (2011). Research on Small Businesses. Retrieved online 03 June 2011 from http://www.moyak.com/papers/small-business-statistics.html McIntyre, S. (1998). Cataloging for entrepreneurs #4: 'the vision thing': using your entrepreneurial vision to fuel your catalog's growth. Direct Marketing, 44(4). Reichl, R. (1995). Diner's Journal. The New York Times, Retrieved online 03 June 2011 from http://events.nytimes.com/mem/nycreview.html?res=990cefd91130f932a15757c0a963958260 Solovic, S.W. (2004). Ten common mistakes start-up businesses make. WIB, May-June 2004 Specialityretail. (1999). Why Theme Restaurants Fail. Retrieved online 03 June 2011 from http://www.specialtyretail.net/issues/march99/restmain.htm Willock, J. (1998). Fashion Cafe fails to survive on a low-capital diet and goes bust. http://www.independent.co.uk/news/fashion-cafe-fails-to-survive-on-a-lowcapital-diet-and-goes-bust-1179592.html Read More