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Business Observer Friday, Dec. 5, 2003 14 years ago

Sizzling Insights (Sara/Mana edition)

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A founder of Outback Steakhouse speaks to University of Tampa business students. It's 'no rules, just right' for the chain.

Sizzling Insights (Sara/Mana edition)

A founder of Outback Steakhouse speaks to University of Tampa business students. It's 'no rules, just right' for the chain.

By Francis X. Gilpin

Associate Editor

Chris T. Sullivan may be Tampa's most successful entrepreneur of the past 15 years.

Sullivan, 53, co-founded Outback Steakhouse Inc. in 1988 with two colleagues who had trained to be Steak & Ale managers with him in the 1970s. Outback has since exploded into an international presence in casual dining, with fiscal 2002 revenue of $2.4 billion. The Tampa company plans to open 150 new restaurants next year, including offshoots such as Carrabba's Italian Grill and Bonefish Grill.

The University of Tampa's business school, as part of its Florida Entrepreneur Speaker Series, recently invited the Outback chairman and chief executive to talk about how it all came together. Here are excerpts from Sullivan's remarks:

Choosing Australian

Myself and Bob Basham and Tim Gannon were all in the restaurant industry. We worked together at Steak & Ale. Bob and I had been in the Chili's business. That was a great transformation, out of being a corporate environment into being a franchisee. So we learned a lot about it.

We decided that, you know, the casual steakhouse business wasn't being served. And it wasn't by the national brands. It was out in the Tampa Bay market. Our old company, Steak & Ale, had kinda really lost its way, in our minds.

Red meat, even in the late '80s, while the media was telling us that we didn't want to eat it, that if you went to good steakhouses, there were standing room only. We have Bern's in this town and around the country there was some more of that. And we decided that we were going to do that, get back in the steakhouse business, but do it a little bit differently¦

We did the Australian thing just strictly as a point of differentiation. Something that we knew in the Tampa Bay market, through some research, that this was a market that traveled to Australia. And Americans, it's the number one destination that we want to go to outside of the United States. People just think the world of Australia. Crocodile Dundee was going.

We thought it was going to be a fun way to market, something that we could do that had not been done before. We certainly didn't want to do another western-themed steakhouse. Didn't want to do that. So we did the Australian outback, which I guess is another western steakhouse, but it's Australian.

Outback funding

Bob and I funded most of it, from when we sold our Chili's franchises. We had some revenue and had some capital resources.

Of course, you don't want to take everything you've made and put it out there. We had had a mentor who never signed for anything personally. That was his mantra: Never sign personally for anything. It's hard to start a startup. It's hard to start a new business, without putting your personal resources on the line.

So Bob and I did that. Somebody asked me the other day, how much money we invested in this company. Between us, we invested a half million dollars. From that, we got what we got.

In retrospect, we probably should have invested a little bit more and not maybe taken in as much money on the venture capital side.

'No Rules. Just Right.'

We were trying to figure out a way to communicate an attitude, not only to the consumer but to the people inside the Outback family about how we were going to live up to our commitment to our customers. One of the things that we all learn in business, and we know ourselves, is we hate the word "no." And we hate "can't" and we hate "won't," as consumers. We just don't like that. As human beings, we don't like those things.

In the restaurant industry, there can be a lot of rulemaking going on, as it relates to customers, especially in the heat of battle. It's Saturday night. You've got an hour wait going on. Your kitchen's being slammed and somebody wants to do something special. At a lot of restaurants, the chef back there is sometimes very tough and doesn't want to do that. The staff doesn't want to ask because they're afraid the knife will come flying out.

We wanted to make sure that everybody in our system understood that we were going to do everything possible to live up, to execute on the requests of customers. So it became one of our commitments in our system of no rules. And "No rules. Just Right." helped us in terms of the branding of Outback.

Going public

Our challenges were very manageable early on.

When you become a public company, you get into the double-digit growth game. Early on, you have 50% growth. And every year, you're dropping down that growth number. And every year you drop down that growth number, your P/E drops. And then you're going to settle in somewhere.

The biggest challenge of being a public company is being able to continue to generate double-digit growth. Our biggest challenge was to find other ways to do that, other than the Outback Steakhouse brand. To be a public company and have just a one-brand idea, you just don't know what's going to happen out there.

So we wanted some insurance. We wanted some other growth vehicles. Our biggest challenge was really figuring out how to do that. And we almost blew it. We almost blew it. Carrabba's grew too fast. We didn't put the necessary resources at the top. Bob and I were trying to do our thing with Outback, at the same time do the deal at Carrabba's. And that was a mistake.

You need people working on a business that is a fast-growth business to have 100% focus on that, and that's all they're thinking about. So we learned about that.

Now every time we have a new idea or we find a new venture to get involved with, we put the necessary executive talent in place and that's their focus.

So we lost focus for a while. And, in every business, when you lose focus, you get in trouble.

Managing the concepts

Nobody works at Outback and also works in Carrabba's in marketing or in operations or in training. And the food side of it, there's no crossover in the R&D section between those concepts. There are dedicated people in food, dedicated people in service, dedicated people in the bar. That way, every one of them gets their own distinct operating attributes, concept attributes. Again, we learned that early on from the Carrabba's experience.

We knew better than that because we saw the same thing at Steak & Ale and Bennigan's. I was involved in that. One time, I was overseeing Chicago - Bennigan's and Steak & Ale. You started to see things from one concept going into the other, and visa versa. People running at Steak & Ale and next week they're over working at a Bennigan's. Finally, after a couple of years, I got those split.

Companies go back and forth on centralization and decentralization. We're kind of a blend of both. Concept-wise, the only way it works for us is to be very decentralized there. But we're centralized in areas of construction, purchasing, those kinds of areas. It doesn't really matter which one they are.

There's specs for each brand. But it doesn't require a team just working on that business to do that. Then we lose our leverage, in terms of purchasing power and those kinds of things. So it's a combination of those two things. Accounting does not need to be concept-specific, per se. It's easy for people to go from one to the other. As an example, HR can go from one to the other, as long it's not training.

It's that kind of organization that allows us to stay focused, really, on the people in that business, stay focused on execution and the right growth rates and allows us to grow pretty rapidly.

Managing the managers

They don't have any authority to change specs, change pricing, those kinds of things. But they certainly, in how they go about running their restaurant day to day, how they want to schedule it, how they want to organize it. That's up to them. At the end of the day, if they get the right results, there's lots of different ways to do these things.

It's not very exciting to go in there and be a robot. You've got to do it this way. And that's where in our industry, the service industry, got off base for a while. The corporate ivory tower would send them their schedules by computers. Here, you do this much per hour and this is the staffing level you need to have today. People don't think that way.

We want people in our restaurants, we want the leadership in our restaurants, we want the people in the hourly (positions), we want them to think. Because you really can't overcome stupidity. I mean, we all know that. It's very difficult to overcome that. If you set up systems where people don't have to think, they're going to become stupid, in that particular part of their life. And that's the last thing you want.

Incentives for managers

I remember, in 1991 we were going public, I didn't know how Wall Street was going to react, the investment community was going to react to the fact that our general managers, which we call managing partners, had basically a 10% sweat equity piece. They invested $25,000, which is a lot of money. But, really, in the capital scheme of things, it really is a sweat equity piece.

We were so, so pleased when Wall Street¦got it. They understood it. They could see it was working.

We're really so committed to that kind of relationship with our people, as partners, when they have an ownership stake in that business. That is really something that allows our communication to be at a different level. How they see themselves is at a different level.

When we did this and our competitors that ran the same casual steakhouse business, our growth rate of average yearly volumes went from 2.2 million (dollars per restaurant) to 3.4 million over about a five-year period while their average yearly volumes went from 1.6, 1.7 to 1.8, 1.9.

There's such a difference in culture, such a difference in relationships between the people running their restaurants and the people running our restaurants because our people are partners.

Health concerns

If you give a menu item a heart-healthy designation and it's a good seller before, it will become a bad seller because y'all don't buy that usually when you go to restaurants. You want something that tastes better.

Our job is to create product that you have cravings for. Otherwise, we've done a bad job.

When Tim Gannon left Steak & Ale and became a restaurateur in New Orleans, Tim developed these relationships with all these great chefs in New Orleans. I believe New Orleans has some of the greatest food in the world. There's just an incredible understanding, in the chef's world, of creating great dishes.

When we started Outback, that became our standard. Bring these people in. They created the menu items for us. And that's how we did it.

Why'd Zazarac close?

Nobody came. Zazarac, we loved it. We opened two of them, one in Tampa, one in Orlando. We mis-priced the concept. When I say that, the price point per customer per experience was about $10 higher than it needed to be. So we couldn't get the frequency in the restaurant.

People loved it. When you close something, you find out how many people love it: "It's my favorite restaurant. I love going there."

"When was the last time you were there?"

"About six months ago."

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