6 Questions for ‘Billion Dollar Buyer’ Tilman FertittaThe hospitality mogul reveals what makes products innovative, why some startups fail and more.
Small business owners with a product to sell or a restaurant to run can learn a thing or two from billionaire hospitality mogul Tilman Fertitta.
As CEO of Landry’s, Inc., Fertitta owns more than 500 properties including restaurants, hotels and casinos, and he spends $2 billion annually supplying them with everything from food and drink to furnishings and décor.
On his new CNBC Tuesday night series “Billion Dollar Buyer,” Fertitta meets with two small business owners each week to determine if he likes their product — and whether they can handle a major order, dispensing guidance and advice along the way.
“I’m looking for something edgy, something innovative. But can you deliver it? Is there quality control there? Is your production there? Is your distribution there? And are you going to be able to deliver me this much product if I buy from you?” Fertitta wants to know.
In this Q&A Fertitta shared what else will — and won’t — make him open his wallet, mistakes he sees small businesses make and more.
(Tempted by the show? It’s looking for companies to appear in Season 2.)
What makes a product truly innovative and right for you?
I’m looking for something edgy that has good flavor that fits today’s taste — that’s the food end. There’s a show coming up with heated furniture, linen sheets. But can I make them work in my business? It has to be scalable to be mass-produced and have universal appeal.
What red flags deter you from ordering from a vendor?
They don’t know their numbers. They don’t know their labor costs, cost of ingredients, the costs of scaling up, production, packaging. I ask, ‘How much can you produce in a day, a week or a month?’ They say, ‘I don’t know, I never thought about it.’ Well, what would you do if I gave you a big order? I get into all of this with them.
What other mistakes do small businesses make?
They don’t understand working capital. When you’re a small company, nobody wants to extend you credit, but a company has to extend customers credit. If you have to pay out right now but you won’t get paid for 30 days, what will you do for working capital in between? A lot of people don’t realize they have to pay for their product immediately but won’t get money coming in for 14 or 30 days. So there’s a gap and you’re out of business.
A lot of people open a restaurant, it does great so they open another one and it starts losing so they open a third and have more overhead and instead of making $800,000 with one restaurant they’re making $400,000 with three. I see it happen all the time.
You started out in your father’s restaurant peeling shrimp. What did you learn?
I’m not a chef but I can walk into any kitchen and ask ‘Why haven’t you changed your grease, it’s brown. Why did you chop your tomatoes this way?’ I know what’s right and what’s wrong.
My four kids are in high school and college and they all love the business. They’ve all worked summers in the kitchen, as waiters. They know what to look for: cleanliness, a burned out light bulb, hot food should be hot and cold food should be cold. They know you’ve got to stay current. They’re on it. They all have the eye.
What bold moves have you made that helped to get you where you are today?
There was a hot restaurant market in the early 1990s when chain restaurants started going public — Olive Garden, Chili’s, Outback, Cheesecake Factory, we all did it in a three or four year period. I owned 100 percent when I took it [Landry’s] public. It was public for 20 years, and then when we had the recession and all the stocks were down, I took it private and I still own 100 percent. That was a bold move.
Right after that, the recession was still on, and I took the opportunity to buy Bubba Gump, McCormick & Schmick’s, Morton’s Steakhouse. I looked for poor management but good concepts. But I’ve had lots of failures, from bad locations to bad operations to bad food. If you do deals, you’re going to fail. Just make sure the next five are successful.
What are the keys to a startup’s success?
Don’t get a partner who knows what you know. Pick a partner with talents you don’t have. One of them needs to know the numbers, one of them needs to know sales and marketing, one of them needs to understand operations. It’s such a competitive world out there that you better know all aspects of that business.
Don’t ever think you know it all. Wake up every day and be a sponge, keep taking in information and learn. You’ll be a much smarter person.