Restaurant Owners Learn There’s More to a Kickstarter Campaign Than Clicking a Mouse
Left to right: GYST owners and sisters Kylene and Mel Guse gather at their fermentation-focused bar with team members Jill Mott and Jim Bovino. With additional funding from a successful Kickstarter campaign, GYST opened in Minneapolis in December.
In the world of restaurant ownership, Mel and Ky Guse were ahead of the game.
They had a compelling concept and a strong business plan. They’d signed a lease on a Minneapolis corner spot with high foot traffic and their chosen architectural firm was drawing up the plans. But as the sisters set about making GYST Fermentations a reality, another reality set in: they needed more money. Even with some bank financing and investments from family and friends in place, the duo faced a funding problem common for startups.
Instead of heading back to the bank, however, the sisters turned to Kickstarter and became part of a growing trend among entrepreneurs—in the food industry specifically—who seek seed money through crowdfunding.
The sisters, along with team members Jill Mott and Jim Bovino, launched their campaign last summer with a goal of $40,000, money earmarked to build a kitchen and make several other needed infrastructure improvements at what was previously a vintage shop.
GYST, which specializes in cheeses, charcuterie, coffee, wine, beer and other fermented foods, ultimately reached its goal, raising $40,471 from 229 backers. (Kickstarter backers don't receive a stake in the business but rather rewards such as a T-shirt or meal.) And although the actual campaign only lasted 30 days, Mel recalls it being an incredibly labor-intensive process that’s still ongoing as rewards are being fulfilled.
“There’s so much more that goes into it than you’d think,” says Mel of the phone calls, emails and constant effort to promote the concept within the community. Not to mention time spent before the launch putting together every aspect of the campaign, from shooting an introduction video to making sure reward levels fit the donation amount.
“But we know we’re in a high-risk business,” continues Mel. “[Kickstarter] builds a buzz. It helps people to understand what the project is … and hopefully build ongoing customers. There’s a sense of community in helping to build this business.”
GYST opened in December at the corner of 1st Avenue South and East 26th near Eat Street. Both Mel and Ky credit their past experiences—Mel is a certified sommelier and helped open restaurants in San Francisco and Minneapolis, while Ky studied social entrepreneurship and worked at San Francisco’s organic and artisan-focused Bi-Rite Market—and those of their team for their success with GYST. But like owning a business, Kickstarter, Mel cautions, isn’t for everyone or every project.
OWNERS IN ADVICE MODE
“Really do your research,” Mel advises. “Compare what’s out there, what’s worked and what hasn’t worked.”
Chef Marshall Paulsen and owner Tracy Singleton celebrate the opening of the remodled Birchwood Café following a successful Kickstarter campaign.
“The campaign has to be really engaging all the way through,” adds Ky, who credits an open house-like event with reenergizing their effort halfway through.
Kickstarter is more commonly a choice for startups, but it can also be ideal for an existing restaurant. In fact, it was precisely the longtime community presence of Birchwood Café that helped it raise $112,126 in 2013 to remodel and expand after 18 years in the Seward neighborhood.
Though she acknowledges some people were “put off” by an established business asking for money, owner Tracy Singleton says many more—980 to be exact—were thrilled to show their support.
“There’s a community good element to the Birchwood and we wanted to share more of that story,” says Singleton of the local and organically focused café. “It was pretty overwhelming to have people I’ve never met give us money.”
But when undertaking a Kickstarter effort, she continues, know what you’re getting into. A business only receives its donations if the project is fully funded, and even then, Singleton says, 5 percent of the total goes to Kickstarter and another 4 percent to Amazon for processing the payments.
Then there’s the issue of manpower. Because she and her existing staff were still running a restaurant during their campaign, Singleton hired a project manager and worked with local marketing consultants from Field Guide.
“It’s the most expensive money of all the money I got,” says Singleton, whose total renovation project costs topped $1 million. “But there’s no amount of money I could have paid for all that positive PR.”
Still, Kickstarter isn't magic and a fully funded campaign doesn’t guarantee long-term success. Donut Cooperative raised $12,000 to open its Seward shop in 2010; it later closed in December 2010. Likewise, The Lynn on Bryant brought in close to $35,000 with Kickstarter in 2012; the restaurant closed last year.
But neither does an unfunded campaign mean the idea is dead. Though unable to hit their Kickstarter goal in two separate efforts, Prairie Dogs Hot Dogs & Handcrafted Sausage is preparing to open this month on West Lake Street in Minneapolis.
Prairie Dogs hadn’t secured a location when the first campaign was running, however, something co-owner Tobie Nidetz believes was a key reason they raised less than $4,000 of the $30,000 they originally sought.
“We understood that we were just a little too early,” says Nidetz. “We didn’t really have any name recognition.”
From the start Nidetz says the plan was to raise the bulk of the money through private investors, not bank loans, and anything gained from Kickstarter would just help speed up the opening.
Nidetz and co-owner Craig Johnson also undertook another funding effort, what they call the Prairie Dogs "crowd fund store," in conjunction with the second Kickstarter. People can buy in for anywhere from $15 to $5,000 for rewards such as a secret handshake for free hot dogs and a tasting party for 20. The aim was for one to feed off the other, and though that didn't happen to the extent the owners hoped, they do get to keep any money made through their own site.
Reflecting on Kickstarter round two, which saw 37 backers pledge $1,346, Nidetz says he and chef Johnson could have done more to get their name out to potential donors. But even though they didn't reach their goal, Johnson said the buzz they did generate with the campaign helped attract other potential investors who saw there was some level of consumer interest in the concept but didn't simply want to be donors.
If they had to do it all over, Nidetz says he'd focus his attention on getting more attention.
“Get the media involved as well because they’re going to be the ones driving people to the site. There’s so much other noise you have to break through.”
The startup nature of many new restaurants brings with it an inherent challenge when it comes to qualifying for a bank loan. Without any historical income to assess credit risk, lenders must often focus instead on personal income or property to determine support for debt repayment.
Chef Craig Johnson puts out craft hot dogs and fries during a Prairie Dogs pop-up to generate buzz for the new restaurant.
“There’s banks that won’t touch restaurant loans,” acknowledges Chris Young. “At Venture Bank, we look at every deal on its own merits.”
As manager of the Bloomington-based bank’s Small Business Administration program, Young has reviewed numerous restaurant loan proposals and says a strong business plan with a detailed budget are key factors.
“But the greatest scrutiny is probably management,” she says. “Who’s running the restaurant? What’s their experience, their qualifications? What’s their track record?”
How those in management handle their personal finances is a key, Young says, as are things such as working capital and collateral.
“Check your projections. Have a base case, best case and worst case, and make sure you have that working capital to cover the worst case.
“I’ve had folks come to me and say they want to open a restaurant because they love to cook," Young continues. "And that’s the extent of their experience. Go through the business planning process. That will tell you if you’re ready or not.”