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.

Is the american dream still achievable? That's thequestion underlying Around the Block: The Business of aNeighborhood (Harcourt Brace & Co.), Tom Shachtman'saccount of a year in the life of one group of New York Citybusinesses, beginning April 13, 1993. The protagonists are notFortune 500 CEOs but, rather, local dry cleaners, shop owners andthe like. In this excerpt, Shachtman writes of one former highschool science teacher who gambles his life savings to become aneyewear entrepreneur, and a pair of struggling restaurateurs whohope their newly retooled establishment will pull in moreneighborhood patrons. It's the stuff of real-life, nitty-grittyentrepreneurship--and dreams.

1993--Sight on Seventh, scheduled to open May 15 on the eastside of Seventh Avenue, is the brainchild of a former Long Islandscience teacher. Myron Michaels retains the studious andinquisitive air of the science classroom, leavened with ebullienceand energy. Middle-aged, with thinning hair, Michaels wears crispshirts and, of course, very stylish eyewear. Before signing hislease, he recalls, "I went down to the Bureau of Records andworked the computer, calling up demographic data, foot-trafficpatterns, that sort of thing." The results of his researchexcited him: The residents in the area were for the most partmiddle class, relatively young, but with significant disposableincome. To be just a few steps from [clothing store] Barney's,he believes, will mean many potential customers already primed tobuy quality, stylish merchandise.

There is competition two blocks south, a branch of a four-unitchain called Myoptics, but Michaels considers it far enough away soas not to detract from his own business. His customer base, hebelieves, will come from the many apartment buildings andbusinesses around here. He reminds a listener that the Americanpopulation is aging and that older people need eyewear and thatyounger people are also spending more money on eyewear, conceivingof it as a stylish clothing accessory.

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

"You have to have certain minimum spatial requirements toproperly measure how a patient reads the letter chart," saysMichaels. The smallness of his space has been an intriguing designproblem. It's been a challenge to fit in the examining area forthe optometrist who will come in one day a week, the displaycounters, the storage space for frames, and still have enough roomso customers won't feel crowded.

Eye To The Future

Optical work, with its emphasis on mathematics and precision andthe principles of physics, appeals to Michaels. Also, he reasonsthat if he could deal with teenagers in the classroom, he shouldcertainly be able to satisfy customers for eyewear. His firstoptical business was part of an HMO on Long Island, but theorganization failed. He then worked for an optician near EighthAvenue and 23rd Street. At that time, he had wanted his own shopbut hadn't been ready. Then "this opportunity cameup" in an area he liked.

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

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

Chew On This

There's a saw in the restaurant business that anyone whowants to do something other than what he or she is doing opens adining establishment. That makes for lots of amateurs in thebusiness and for results that are often disastrous. Fifty percentof the restaurants that open in New York shut within three to fiveyears, a failure rate that is even higher than the basic failurerate for businesses. Running a restaurant entails a daily outflowof cash much greater than that of a clothing store, in which thestock is replenished only when items are sold and the owner is themainstay of the staff.

Moreover, restaurants have to obtain licenses, pass inspectionsand maintain considerably larger staffs. But if a restaurantbecomes popular, it can generate profits of hundreds or thousandsof dollars a day, depending on its size. To obtain such intangiblesas ingenuity of cuisine and atmosphere, customers of restaurantsare used to paying substantial fees.

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

A labor of love that encompassed everything the partners likedin a place to dine, R&B opened in the fall of 1983, when thearea was in the first flush of gentrification. Rogers & Barberowas a brave outpost of haute cuisine among bars and delis cateringto the working-class poor, a lushly appointed, candlelit, romantichideaway serving classic French and Continental dishes andfeaturing a formidable wine list, as well as one of the firstcomputer systems in a restaurant. An article in The New YorkTimes then put the cost of construction and start-up at aquarter million dollars; 10 years later, Barbero [says] the tab wascloser to a half-million and included innumerable unpaid hours ofthe partners' own labor.

Theirs was an ingenuous gamble of considerable proportions, butthe investment was rather rapidly amortized because, Barberorecalls, "We did very well at first." He was then 30 andhoped to leave his work in real estate behind forever. Rogers, thecomputer expert, was a bit older. Their restaurant drew a sizabledinner crowd. Lunchtime was profitable as well. Their best year was1987.

Crash Course

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

Most of the problems renovation couldn't fix. When arecession takes its toll on a small business, Barbero explains,"You still have to pay your suppliers, your [employees], yourtaxes; the last people to get paid are the owners." By 1992,to stay afloat, the R&B partners were spending most of theirtime working outside the business, Barbero as a real estate brokerand Rogers as a consultant to a company that helps computerizerestaurants. They continued to open R&B's doors everyevening but knew they couldn't go on losing money muchlonger.

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

Preparing For The Renaissance

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

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

Seeing Is Believing

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

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

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

Competition among the area's optical stores has increasedsince Sight On Seventh made its debut. Though several new shopshave opened during the past four years, Michaels is staying aheadof his competitors by focusing on the things that keep customerscoming back. "We try hard to provide excellent service, goodproducts and competitive prices," says Michaels.

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

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

A Changeable Feast

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

This marks a departure for the partners--one Rogers says the twoshould have recognized with their first restaurant, the upscaleRogers & Barbero (R&B). "That was a perfect example ofnot recognizing the change," says Rogers. R&B, whichopened in 1983, was succeeded by Food Bar in 1993.

Featuring low prices and a casual atmosphere, Food Bar had beensuccessful. But Rogers noticed that within three years of FoodBar's debut, most of the restaurants in the immediate areabegan catering to the same low-price market. "We could havegone a couple more years with Food Bar, but we wanted to cut itwhile people still thought of it in a positive way," explainsRogers. Food Bar closed in October 1997 and reopened in November asChe 20 20, a restaurant with sophisticated décor, higherprices and a slightly older, more upscale clientele.

"In New York City, very few restaurants can exist for along time," says Rogers. "Any restaurant in my home townof Wichita Falls, Texas, would last forever because peopleprimarily 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 theiroperation. Joe Fontecchio, the original chef at R&B, is now afull partner, and Judy Mancini has replaced Fontecchio as chef andis also a partner.

Rogers admits the profitability of his restaurants fluctuatesfrom year to year; he has experienced everything from losing moneyto 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 hispartners opened in January 1997, pros-pects look good for Che 2020. Says Rogers, "We have a very loyal clientele in this partof 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, NY10011, (212) 627-4488