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Neighborhood Watch

Around the Block: The Business of a Neighborhood takes us on an odyssey of business success, failure and survival in one New York City community.
March 1, 1998
URL: http://www.entrepreneur.com/article/15298

Is the american dream still achievable? That's the question underlying Around the Block: The Business of a Neighborhood (Harcourt Brace & Co.), Tom Shachtman's account of a year in the life of one group of New York City businesses, beginning April 13, 1993. The protagonists are not Fortune 500 CEOs but, rather, local dry cleaners, shop owners and the like. In this excerpt, Shachtman writes of one former high school science teacher who gambles his life savings to become an eyewear entrepreneur, and a pair of struggling restaurateurs who hope their newly retooled establishment will pull in more neighborhood patrons. It's the stuff of real-life, nitty-gritty entrepreneurship--and dreams.

1993--Sight on Seventh, scheduled to open May 15 on the east side of Seventh Avenue, is the brainchild of a former Long Island science teacher. Myron Michaels retains the studious and inquisitive air of the science classroom, leavened with ebullience and energy. Middle-aged, with thinning hair, Michaels wears crisp shirts and, of course, very stylish eyewear. Before signing his lease, he recalls, "I went down to the Bureau of Records and worked the computer, calling up demographic data, foot-traffic patterns, that sort of thing." The results of his research excited him: The residents in the area were for the most part middle class, relatively young, but with significant disposable income. To be just a few steps from [clothing store] Barney's, he believes, will mean many potential customers already primed to buy quality, stylish merchandise.

There is competition two blocks south, a branch of a four-unit chain called Myoptics, but Michaels considers it far enough away so as not to detract from his own business. His customer base, he believes, will come from the many apartment buildings and businesses around here. He reminds a listener that the American population is aging and that older people need eyewear and that younger people are also spending more money on eyewear, conceiving of it as a stylish clothing accessory.

Only time will tell whether Michaels's assumptions about his location and the population he can serve are right or wrong, but at the outset, Michaels is upbeat and has a specific reason for optimism: He is on an approved-provider list of the Traveler's, the insurance company that covers many Nynex employees--and a Nynex facility is right across the street.

"You have to have certain minimum spatial requirements to properly measure how a patient reads the letter chart," says Michaels. The smallness of his space has been an intriguing design problem. It's been a challenge to fit in the examining area for the optometrist who will come in one day a week, the display counters, the storage space for frames, and still have enough room so customers won't feel crowded.

Eye To The Future

Optical work, with its emphasis on mathematics and precision and the principles of physics, appeals to Michaels. Also, he reasons that if he could deal with teenagers in the classroom, he should certainly be able to satisfy customers for eyewear. His first optical business was part of an HMO on Long Island, but the organization failed. He then worked for an optician near Eighth Avenue and 23rd Street. At that time, he had wanted his own shop but hadn't been ready. Then "this opportunity came up" in an area he liked.

As with most entrepreneurs, Michaels is reluctant to divulge to an outsider the precise financial details of his tenancy or his capitalization, but he reports that he has signed a multiyear lease that he finds "comfortable." In New York, most commercial leases contain a clause that permits the renter to stop paying and vacate the space if the business fails, an important comfort to a start-up venture. Most storefronts in this area rent for around $75 per square foot per month, which would put his rent at a hypothetical $3,000 per month. Rents have been creeping up and, in the process, changing business assumptions: Whereas in the past, businesses could figure that rent would cost them one-quarter of their gross income, now they must figure it at one-third of their gross or more. The hypothetical $3,000-a-month rent will likely require Michaels to sell something like 20 pairs of glasses just to meet it, and twice that many pairs per month to meet his other expenses, pay himself a modest salary, compensate his optometrist, and begin to amortize his start-up costs, which neighborhood observers estimate at between $35,000 and $75,000.

The start-up money, Michaels says, came from his own savings and from "people who believe in me." Michaels certainly appears to be a man on whom friends might reasonably bet: He has a business plan and is experienced at his craft, if not completely as an entrepreneur, and he has what is probably the correct philosophy (and budget to match), one that recognizes it will take time to build a client base and that for a while outgo will likely exceed income. Whether his shop will be different enough from the competitor down the avenue to be commercially viable, say, within the year, is a toss-up.

Chew On This

There's a saw in the restaurant business that anyone who wants to do something other than what he or she is doing opens a dining establishment. That makes for lots of amateurs in the business and for results that are often disastrous. Fifty percent of the restaurants that open in New York shut within three to five years, a failure rate that is even higher than the basic failure rate for businesses. Running a restaurant entails a daily outflow of cash much greater than that of a clothing store, in which the stock is replenished only when items are sold and the owner is the mainstay of the staff.

Moreover, restaurants have to obtain licenses, pass inspections and maintain considerably larger staffs. But if a restaurant becomes popular, it can generate profits of hundreds or thousands of dollars a day, depending on its size. To obtain such intangibles as ingenuity of cuisine and atmosphere, customers of restaurants are used to paying substantial fees.

In a small, garage-like building on Eighth Avenue, Pat Rogers and Bob Barbero are busy destroying their dream restaurant, Rogers & Barbero, and making way for a new one. About half of all new small businesses are begun by people whose previous small enterprises have not done well but who believe they've learned enough to do better the next time around. (See "Bouncing Back" for more on overcoming business failure.)

A labor of love that encompassed everything the partners liked in a place to dine, R&B opened in the fall of 1983, when the area was in the first flush of gentrification. Rogers & Barbero was a brave outpost of haute cuisine among bars and delis catering to the working-class poor, a lushly appointed, candlelit, romantic hideaway serving classic French and Continental dishes and featuring a formidable wine list, as well as one of the first computer systems in a restaurant. An article in The New York Times then put the cost of construction and start-up at a quarter million dollars; 10 years later, Barbero [says] the tab was closer to a half-million and included innumerable unpaid hours of the partners' own labor.

Theirs was an ingenuous gamble of considerable proportions, but the investment was rather rapidly amortized because, Barbero recalls, "We did very well at first." He was then 30 and hoped to leave his work in real estate behind forever. Rogers, the computer expert, was a bit older. Their restaurant drew a sizable dinner crowd. Lunchtime was profitable as well. Their best year was 1987.

Crash Course

Due to the stock market crash of October 1987, by early 1988, even companies not directly connected to the securities industry were cutting back on discretionary expenses such as lunches at fine restaurants. That hurt R&B, as did the ensuing recession. Here, too, the downturn exposed a weakness: The restaurant was "too pricey for the neighborhood." But this understanding did not dawn on the partners immediately. At first, in reaction to the slowdown in business, the partners looked for an easy and inexpensive way out. Reasoning that the interior was too dark, "We lightened up the place, let the high ceilings take more focus, put in a big window, made the interior more inviting from the street." A few more customers came in because of the cosmetic surgery, but not enough.

Most of the problems renovation couldn't fix. When a recession takes its toll on a small business, Barbero explains, "You still have to pay your suppliers, your [employees], your taxes; the last people to get paid are the owners." By 1992, to stay afloat, the R&B partners were spending most of their time working outside the business, Barbero as a real estate broker and Rogers as a consultant to a company that helps computerize restaurants. They continued to open R&B's doors every evening but knew they couldn't go on losing money much longer.

Should the partners simply admit defeat and fold their tent? That would waste their most valuable asset, the extensive renovations already made and paid for. But something [else] had to be put in to replace the money-losing R&B. Ten years older than their first time out and "a lot more savvy about the restaurant business," Rogers and Barbero set about charting their new course. It was then they acted on the realization that R&B was too pricey for the neighborhood. The final nudge in the precise direction they took, Barbero recalls, came from a friend who casually reported that he and the group of young men who had gone out to celebrate his 25th birthday would have done so at R&B, but it was too expensive. "I realized young people like to go out several nights a week, and they have some money to spend, but they don't want to spend a lot all at once," Barbero says. This understanding led to an agreement among the partners that whatever they did next, it would not be a "tablecloth" restaurant, and that the tab for dinner must not be high.

Preparing For The Renaissance

Their hard-won experience now permitted Rogers and Barbero to translate their notion of a modestly priced place into a host of secondary decisions. Costs would be pared by having no table covers or linen napkins to launder and by not going overboard on renovations. Potential profits would be raised by junking the extensive wine list and selling mainly beer and margaritas, on which the markup was higher. The risk would be minimized by taking in a third partner as the chef, a man who had originally started as a salaried chef at R&B and had gone on to Cafe Luxembourg on the Upper West Side. His presence would trim Pat and Bob's potential but would also reduce the amount they would have to invest and the weekly salaries they would have to pay. All this would be done in order to price entrees at less than $10.

After proposing and rejecting hundreds of suggestions for a name, the partners chose one reflective of the new establishment's stripped-down style: Food Bar would resemble "a nice diner." R&B closed on April 12, and the partners quickly dismantled the interior, brought in chrome and gray Formica tables and plain chairs; Food Bar opened on April 26. It was full the first night, and the flood of customers has hardly ebbed since.

Seeing Is Believing

Sight on seventh optical store has come a long way since its first months in business when the mailman was its most frequent visitor. Owner Myron Michaels credits a combination of repeat business and referrals for the steady growth of his busi-ness since it opened in 1993.

Although somewhat negatively affected by the closure of the nearby Barney's store, which drew clients to the area, Sight On Seventh is still very much in business. "We've developed a positive reputation," says Michaels.

The store is located near a subway stop, which Michaels believes helps make it accessible to a great many customers and may offset the lull in passersby created by Barney's closure.

Competition among the area's optical stores has increased since Sight On Seventh made its debut. Though several new shops have opened during the past four years, Michaels is staying ahead of his competitors by focusing on the things that keep customers coming back. "We try hard to provide excellent service, good products and competitive prices," says Michaels.

Michaels' strategy for maintaining business is simple. "We put most of our ad [budget] into our inventory. When people come in, the inventory is here and that creates word-of-mouth," he says.

In the past three years, busi-ness has tripled; sales last year were just under $1 million. Says Michaels, "I'm still here, and I'm smiling."

A Changeable Feast

Business hasn't changed that much--what we've done is changed our business," says Pat Rogers, 55, co-owner of Che 20 20 (formerly Food Bar) restaurant. Rogers and partner Bob Barbero have kept ahead of the pack by anticipating local trends in the restaurant business and being ready to change.

This marks a departure for the partners--one Rogers says the two should have recognized with their first restaurant, the upscale Rogers & Barbero (R&B). "That was a perfect example of not recognizing the change," says Rogers. R&B, which opened in 1983, was succeeded by Food Bar in 1993.

Featuring low prices and a casual atmosphere, Food Bar had been successful. But Rogers noticed that within three years of Food Bar's debut, most of the restaurants in the immediate area began catering to the same low-price market. "We could have gone a couple more years with Food Bar, but we wanted to cut it while people still thought of it in a positive way," explains Rogers. Food Bar closed in October 1997 and reopened in November as Che 20 20, a restaurant with sophisticated d├ęcor, higher prices and a slightly older, more upscale clientele.

"In New York City, very few restaurants can exist for a long time," says Rogers. "Any restaurant in my home town of Wichita Falls, Texas, would last forever because people primarily concern themselves with food and service. In New York, [customers] have to be thrilled and titillated."

Rogers and Barbero have added two more partners to their operation. Joe Fontecchio, the original chef at R&B, is now a full partner, and Judy Mancini has replaced Fontecchio as chef and is also a partner.

Rogers admits the profitability of his restaurants fluctuates from year to year; he has experienced everything from losing money to making a 15 percent profit. But with the success of R&B, Food Bar and a bar on 19th Street called G, which Rogers and his partners opened in January 1997, pros-pects look good for Che 20 20. Says Rogers, "We have a very loyal clientele in this part of the city."

Contact Sources

Che 20 20, 149 Eighth Ave., New York, NY 10011, (212) 243-2020

Sight On Seventh, 123 Seventh Ave., New York City, NY 10011, (212) 627-4488