David Kristal on rescuing Embers, his father’s company, and adding two new revenue streams

First David Kristal slowed the cash burn when he joined as CEO to save Embers restaurants, the company owned by his father, Henry Kristal. Then he dug deep for every possible new revenue source, eventually convincing local business tycoon Lyle Berman to finance the start of Augeo, an affinity marketing company. A third new venture, selling franchise rights to Joey’s Only Seafood Restaurants in the United States, targets a fast-growing niche in the food industry. Here’s how he fights to survive.

We were losing hundreds of thousands of dollars a month when I came back to Embers. I came back because I had an opportunity to save the business. We only had a year to turn it around.

When I joined in 1997, we didn’t have time given the losses, and we had taken on debt to buy out Dad’s partner. We took a three-pronged approach. One, we downsized underperforming locations. Two, we launched a form of a growth strategy. We set about converting existing family restaurants to our brand. Three, we started a new and innovative marketing scheme. The first 18 months, we cut in half our cash flow burn.

Meanwhile we had done some bridge financing. Between all of our companies over six years we’ve raised over $15 million in debt and equity.

We’d reduced our cash burn, but we were still losing well in excess of $100,000 a month. We needed to find ways to generate revenue more quickly. We founded Augeo as a totally separate company, with separate management other than me. We raised $3 million for that. Lyle Berman is our angel. He’s been an awesome strategic partner.

I had never met him, but of course I knew he was in food service. He had funded Rainforest Café and Grand Casinos. I called him and begged him for five minutes of his time. I promised not to waste it. I think he probably didn’t mean to pick up the phone that day [laughs].

He said it was a great idea but he sees a lot of great ideas. He said, “If you get it going, call back.” Six months later I called him again.

The premise behind Augeo: Corporate America is focused on building relationships with existing customers. The second premise is, small businesses need support. We’ve developed a network of tools and services that support small businesses, and strengthens their relationships with their large suppliers.

With Embers, Embers is a mature segment. We’re trying to redefine what the community thinks of family restaurants. A year from now you’ll see a different company. For example, we need to redefine our menu.

Then, we wanted something with faster growth. Joey’s Only is a hyper-growth opportunity, like Chipotle. Seafood is the fastest-growing segment. We have 12 open in the U.S. so far. We want to sign 30 franchise deals in 2004, then double that in ’05.

If your company’s in trouble, you clearly need to find a way to slow your cash burn. If you have to make tough decisions, don’t do it slowly. Do it all at once. We had to let people go and that’s gut-wrenching, but if it’s the life or death of the company you have to do it.

Then look for ways to drive your top line. We looked at, what assets do we have to leverage? In our case our assets were our management team. We said, how else can we leverage our team? So we bought Joey’s. Also, we had terrific expertise on the purchasing side, so how can we leverage that? That’s where Augeo came in.

The most important thing is don’t let the game end. Stay on the playing field. You will get a lucky break now and then.

Statistically, small businesses fail. We’ve run out of cash four or five times in the last six years, not in the last two years though. We scratch and fight and claw to stay in the game. Now watch, we’ll go out of business tomorrow[laughs.]

When I came in, I didn’t appreciate the significance of the management challenge we had. When you’re not growing, your management team gets tired. They form bad habits.

We put process teams together. We felt we couldn’t do incremental change. We invited employee leaders onto different teams, from bus boys to assistant managers. We had one for R&D, one for creative and design, technology, training, 15 to 20 people each. They’d have weekly or monthly meetings, and they’d go back to the restaurants and say that this is real. We’re changing.

We used a ton of those ideas. For each team we had specific goals tied to a greater objective.

I was thrown into a lot of situations at my positions before this. My dad likes to say I probably made more mistakes in my first year than he made in his previous 40 years [laughs].

We’re looking at new ideas to pursue. For example, we’re doing research on a call center business. We have a technologically advanced call center, and we’re looking at turning that into its own profit center. There’s no magic formula, though, when deciding what to take on.

We’re not sophisticated enough yet to have formal criteria. We look at what’s the revenue opportunity, what’s the down side risk, and what’s the human resource allocation cost. In other words, how much time we’ll be spending on that new thing rather than just going out and selling Augeo services to Microsoft. It’s all about leveraging our assets and minimizing the weaknesses.

—Interview by Beth Ewen

and Augeo: 651.204.5700; dkristal@joeysonlyusa.com; dkristal@augeomarketing.com; dkristal@embersamerica.com