Content uploaded by Adam Sulkowski
Author content
All content in this area was uploaded by Adam Sulkowski on Jul 16, 2017
Content may be subject to copyright.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
THE RAIL TRAIL FLATBREAD CO.
Adam Sulkowski, Babson College
Angela F. Randolph, Babson College
Benjamin Luippold, Babson College
Jennifer Bailey, Babson College
CASE OBJECTIVES AND USE
This case is designed to highlight the interdisciplinary nature of entrepreneurship – how key
take-ways from accounting, entrepreneurship, law, and operations can be helpful when making
difficult decisions in starting-up a business. It works well as an introductory case to help
students understand how issues and principles related to different academic disciplines are
really--in reality--tangled together like “multiple strands in a plate of spaghetti.” There are four
parts to this case. The first part concerns an unforeseen opportunity that at first appears
unattractive for a number of reasons. It challenges students to ask what further information they
would want before making a final decision as to whether or not to proceed. It also challenges
them to consider whether they would accept an offer to enter into a verbal agreement with a lack
of specific and certain terms involving real estate. The second part ultimately asks whether, in
the place of the protagonists, the reader would be flexible and alter their original vision when
confronted with new ideas. The new ideas arise as creative ways to work around obstacles or in
response to idiosyncrasies in the physical space. The third part challenges the reader to consider
how one would actually start attracting and serving clients. Finally, the fourth part reveals a
typical problem of start-ups – failing to adequately plan for roles and operations, such that duties
are adequately delegated and a constructive culture maintained. The questions of how to expand
and bring in an additional partner are also raised.
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
CASE SYNOPSIS
Karim and Michael met at Babson’s MBA program. Karim, at the age of nine, developed a
passion for pizza, whether freshly made or in microwave package form. One of the reasons
Karim came to Babson was to explore his idea of a pizza business, featuring a mobile pizza oven
in a delivery truck. During the first year of his MBA program, Karim met Michael, who grew up
working in his Greek family’s pizza business in Massachusetts. As part of MBA work, Karim
and Michael worked together to investigate options for starting a pizza business. A year after
their MBA program, they started to explore options. Michael’s uncle had a vacant space in
Hudson. The town of Hudson was seen as an economically collapsed mill town one hour’s drive
west of Boston on the “outer beltway” of I-495, past suburbs of the city, in the semi-rural
outskirts. As of 2011, the population was roughly 15,500 with a per capita income of about
$35,400. This case explores the issues and obstacles entrepreneurs face as they pursue their
vision, beginning with the decision of whether to accept an unforeseen offer to locate in Hudson.
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
The Rail Trail Flatbread Co.
Case Study
Abstract
This case presents challenges related to multiple disciplines. At any of the decision points
in the story (as in most scenarios in life) there are several issues tangled together, providing an
opportunity for an interdisciplinary conversation. It is a chance for students to relate and apply
concepts from the fields of accounting, entrepreneurship, law, and operations to tangible “real
world” scenarios. The note following the four parts below is intended to (1) help steer these class
conversations and (2) assure that instructors have at their disposal some key take-aways and
observations from both the authors and the protagonists.
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
The Rail Trail Flatbread Co.
Case Study
Part One
An Unforeseen Opportunity
Karim, his hand having been injured by a piece of dough-kneading machinery and his
girlfriend, happily engrossed in her career in new media in Dubai, reflected on the offer to lease
vacant retail space in a collapsed mill town in Central Massachusetts. This was not what he had
expected when he had graduated from his MBA program less than a year ago. Karim and his
girlfriend enjoyed living in Dubai and had contemplated a future together there. Accepting an
unforeseen opportunity to start a food business in a small town in Massachusetts would
necessitate convincing her to give up her career and home for the foreseeable future.
Backstory: how did Karim come to this moment?
Karim and Michael met at Babson’s MBA program. Karim grew up in Canada and Egypt
and most recently had come from Dubai, a cosmopolitan place both he and his girlfriend loved.
Karim, at the age of nine, developed a passion for pizza, whether freshly made or in microwave
package form. One of the reasons Karim came to Babson was to explore his idea of a pizza
business, featuring a mobile pizza oven in a delivery truck. During the first year of his MBA
program, Karim met Michael, who grew up working in his Greek family’s pizza business in
Massachusetts. As part of MBA coursework, Karim and Michael worked together to investigate
options for starting a pizza business. Karim was inspired to pursue the idea post-MBA.
Michael, unsure of the idea, suggested that Karim work for his Uncle Teddy in a pizza
business for a few months while Michael went on a Babson-related trip to Chile to work for a
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
start-up. The summer exposed Karim to the realities of working in the pizza business. It was hot
and hard work, and even dangerous. Ironically, in the midst of sharing safety guidance with new
colleagues, he injured his finger in some of the equipment.
Upon Michael’s return from Chile, Karim was still enthusiastic about starting an eatery.
They started to explore options. Another of Michael’s relatives, Uncle Nick, had a vacant space
in a collapsed mill town.
The Location
The municipality in question was an economically collapsed mill town one hour’s drive
west of Boston on the “outer beltway” of I-495, past suburbs of the city, in the semi-rural
outskirts. From 1850 until almost 1970, the town had over a dozen shoe factories which attracted
immigrants from French Canada, Ireland, and the Portuguese-speaking diaspora. This history
helps explain the town’s demographic profile: over 90% of the town self-identified as of
European descent. Starting-up a business in a context in which some might perceive the
entrepreneur to be an outsider might have been a factor for some people in the place of Karim.
As those close to him later described, there was a sense of Karim seeming somewhat of an
“international man of mystery” in the context of a predominantly white and working class small
town. Their half-joking advice was to just say he was Canadian but “remember to say you love
the Bruins” and other Boston area teams.
As of 2011, the town’s population was roughly 15,500 with a per capita income of about
$35,400. The walkable downtown with buildings from the late 1800s was largely deserted in the
evenings; several retail spaces were vacant and shuttered, and remaining businesses would close
early before nightfall.
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
In short, geographically and demographically, the town was not – especially at first
glance – what most people would imagine as a prime location to open a novel culinary
destination. Imagine over-100-year-old brick buildings that were shuttered or shut along Main
Street that was deserted at dusk: what could possibly make that work as a location for a
restaurant? See Exhibit A: Downtown Hudson.
Uncle Nick made an offer. The proposed deal was to start a business in his vacant space
in downtown Hudson for minimal initial payments (to be adjusted upward to an unknown extent
at an unspecified time). Further, Nick offered carpentry services for deferred payments. Both
agreements (for the cheap initial lease payments and deferred payments for carpentry services)
were offers to make verbal “gentlemen’s agreements” (with nothing set in writing).
Decision Point Questions
Karim and Michael have much to consider as they evaluate this opportunity. As you think
about the information Karim and Michael have thus far, consider the following questions:
1. How would you go about evaluating this opportunity?
2. What further information do you need before deciding whether opening a pizzeria in this
town is a good idea?
3. Imagining yourself as Karim, would your friends’ concern that you might be seen as an
outsider play a role in your comfort with pursuing the opportunity to start a business in this
context?
4. Assuming you wanted to start a business in the offered location, would you accept Nick’s
offer to enter into a verbal agreement, and please list the reasons why you would (or would
not)? Could it even be an enforceable agreement later (and why or why not)?
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
Case Study - Part Two
What to do with an idiosyncratic location, and should the vision radically change?
Their vision evolved. Before settling on the idea of a pizza take-out counter at the
Hudson location, Karim and Michael considered buying, refurbishing, and selling pizza
restaurants. The low-cost location offered by Michael’s uncle featured several odd problems in
terms of layout. One issue, for example, was an inconveniently-situated restroom. If they were to
allow access to the restroom, a walkway right past the kitchen that was practically part of the
kitchen space would be required. This prompted consideration of whether to possibly lease the
adjacent space instead of use it for the take-out restaurant. The problem with the adjoining area
was that it was awkwardly narrow and long and its floor height was several inches higher than
the initially contemplated area. These idiosyncrasies appeared to make it extremely inconvenient
to add-on the additional space. For example, designing a wheelchair accessible ramp to the
restrooms would require an extra month or two. However, the use of this adjacent space would
greatly expand the size of the eatery, opening up the potential of including seating areas and
room for a bar. See Exhibit B: An Idiosyncratic Location. The question of how to use the
awkward physical space was inextricably connected to the core question of what kind of business
they planned to run. Should it still be a pizza pick-up counter?
They considered many ideas, including abandoning the idea of a low-cost take-out
counter and instead creating a restaurant. One option included serving scratch-made food made
with locally sourced ingredients. In terms of quality and price, they could consider offering
higher quality menu options featuring new flavors and ideas. Yet they were also mindful that
their target market was working and middle class families still feeling economic uncertainty in
2011 - they wanted to keep the price of a meal for a family of four to $30-40. They were torn
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
between wanting to offer conventional American comfort food and the possibility of offering
novel cuisine. There also considered offering a menu of quality local craft beers at the bar, yet
they wanted to maintain an atmosphere where families could feel comfortable. In sum, there
were several options to consider about multiple aspects of menu offerings, if they were going to
change their format to a dine-in facility.
One idea, in particular, captivated the imagination of the partners (once they started
imagining a sit-down eatery): having a wood-fired flatbread oven. The oven had the potential to
create a charming atmosphere for the expanded seating area. But no manufactured or second-
hand option existed to purchase the wood-fired pizza oven that the partners imagined. They
wanted an oven that would create an ambiance in the immediate seating area. This entailed
certain specifications related to the size of the oven’s door and its height above the floor. Further,
every customized solution that they explored would be too costly.
Thinking back on their Babson days, they recalled their trip to the Las Vegas Pizza Expo
that their professors had encouraged them to attend. Michael recalled sitting next to a man who
leaned over and told him in a Russian accent “I am from Ottawa. I custom make wood-fired
pizza ovens.” Michael mused: what are the chances that a completely random, out-of-the-blue,
isolated self-introduction could lead to something valuable? All he had as a lead were those three
facts (a Russian in Ottawa who makes pizza ovens) - was it worth his time sleuthing and
searching for him online?
All of these ideas represented zany departures from original plans and a host of new
issues. Besides questions of how to physically arrange the large space and construct or purchase
equipment and fixtures, human resources would now be a significant challenge. A talented chef
would be needed, as well as someone to curate and run the bar. A local talent pool of chefs,
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
kitchen workforce and wait staff needed for this type of venture did not exist in Hudson. So the
business partners would have to consider various options, including attracting talent from
elsewhere, or possibly training people – a “scratch-made staff” in addition to making scratch-
made food (which might mean hiring people who had no pre-existing skills or training or who
had possibly made mistakes in life).
At this point in the story, Karim and Michael had not opened the business. They were in
the midst of months of renovations. They did not yet imagine their precise roles in their own
organization once it started operating. The deadline for finishing renovations has several times
been passed and extended. One of the reasons for the delays was their ongoing willingness to
entertain new options and possibilities as they emerged. For the current vision of the business of
a sit-down restaurant, Karim and Michael estimated the following costs:
Food costs 25% of sales
Labor costs 25 - 30%
Rent costs 5 - 10%
Goal profit 5 - 10%
Cost to outfit a steakhouse = $500 / sq. ft.
Cost to outfit lower level restaurant = $200 / sq. ft.
The location is 4,000 sq ft. which could fit 109 seats at 24 tables.
Decision Point Questions
1. Assuming these cost estimates for a sit-down restaurant mentioned above, how would you
move forward?
2. Would you, as one of the business partners, be open to considering massive and fundamental
changes from your original vision and plan? Why or why not?
3. What options do you see for overcoming – or even benefiting from – the challenges related to
the physical space, equipment, menu offerings (including sourcing and pricing), a bar, and
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
finding and training kitchen talent and wait staff? Of the options that you imagine
investigating, what are the risks, costs, and benefits?
Case Study - Part Three
Are we ready to open?
Over the course of 2012 the partners committed to a sit-down restaurant featuring locally
sourced food including flatbreads. The remodeled restaurant space included a two-tiered seating
area with a bar on the upper level and an open kitchen on the lower level. An apprentice of the
“mystery pizza oven maker” from Ottawa constructed a customized pizza oven that was to be the
visual and operational focal point of the restaurant, creating a warm ambiance. They were
successful in wooing a sous-chef from a top brand restaurant in Boston, who worked with them
on “classing up” American comfort food and hired employees from the local population. As of
December 2012, however, the partners were nearly broke and had delayed opening several times,
to the point it was almost a running joke in the community. The physical space was barely ready.
Decision Point Questions
1. What are the precise steps that you would take in opening a new restaurant?
2. How would you market the opening and attract customers?
Case Study - Part Four
A rebellion, and what to do next?
Within months of opening the following issues arose. First, the two founding partners
were stretched to breaking point, starting their days early in the morning and working past
midnight into early the next day. There were a couple of potential solutions. One possibility was
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
to invite a childhood friend of Michael’s, Jason, who had industry experience, to be third partner.
Another was to hire a manager to help with the responsibilities. Second, problems emerged
among the staff. Some of the employees had made mistakes earlier in life related to substance
abuse and criminal behavior and their old habits were hard to eliminate. Other employees hurt
morale and were disrespectful to the partners, gossiping and infecting others with bad attitudes.
Third, while customers were happy with the food and drink offerings, some had asked about
dessert options as Rail Trail did not offer many desserts. While the atmosphere of the downtown
was gradually improving, there were still vacant retail spaces including one across the street.
Decision Point Questions
1. How would you transition from the phase of imagining your start-up to operationalizing daily
functions such that you do not burn out?
2. How would you deal with a rebellious workforce?
3. Would you take-on partners, and, if so, how would you go about including them? Would you
formalize the structure and what business form would you choose?
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
Exhibits
Exhibit A: Downtown Hudson
Exhibit B: An Idiosyncratic Space
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
Exhibit C: Success
Photos courtesy of The Rail Trail Flatbread Co.
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
The Rail Trail Flatbread Co.
Teaching Note
Case Overview
This case proceeds in four parts. The first part concerns whether to accept an unforeseen
opportunity that at first appears unattractive for a number of reasons. It challenges students to ask
what further information they would want before making a final decision. It also challenges them
to consider whether they would accept an offer to enter into a verbal agreement with a lack of
specific and certain terms involving real estate.
The second part ultimately asks whether, in the place of the protagonists, the reader
would be flexible and alter their original vision when confronted with new ideas. The new ideas
originally arise as creative ways to work around obstacles or in response to idiosyncrasies in the
physical space.
The third part prompts the reader as to how one would actually start attracting and
serving clients. It ultimately relates to marketing.
Finally, the fourth part reveals a typical problem of start-ups – failing to adequately plan
for roles and operations, such that duties are adequately delegated and a constructive culture
maintained. The questions of how to expand and bring in an additional partner are also raised.
Learning Objectives
Key learning objectives relate to accounting, entrepreneurship, law, and operations:
Accounting: first, there is adequate “back of the envelope” basic data to calculate whether
the business has a chance of being profitable.
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
Entrepreneurship: second, the case illustrates the complexity, uncertainty and flexibility
that is inherent in the entrepreneurial process. Entrepreneurs often change their plans and may
adapt their vision based on new information and opportunities.
Law: third, there are several points at which key legal concepts become vital: verbal
agreements concerning real estate are not enforceable – and more fundamentally, agreements
lacking specific and certain details are not enforceable. In other words, the agreement at the birth
of the business is not a true contract. Yet the case illustrates that sometimes trusting business
partners is of paramount importance. Also, the agreement to “try out a partnership arrangement
without a contract” is also not what most law professors would suggest, but, again, the case
seems to be an exception that proves a general rule. This is valuable, inasmuch as the case
illustrates that arrangements in reality may be messier and based on trust than a textbook would
lead us to believe. It is also interesting that the partners did not pursue the idea of franchising
their idea, but rather doubled-down on their investments in Hudson. The case illustrates how this,
coupled with their involvement in the local community, led to their winning the legal right to a
second liquor license.
Operations: finally, the case illustrates the importance of planning operations before
actually opening the business.
Part One
Evaluating the location, what further information to consider, and arriving as an outsider:
despite downtown Hudson at first seeming to be a problematic location, the partners did due
diligence before deciding what to do. They highlight the importance of what they learned at
Babson about market research methods: they asked questions of police and others, joined and
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
became active in the Hudson Business Association, and spent three weeks looking-up
demographic data. The demographic data related to the surrounding towns turns out to have been
the key additional information that the partners needed in making their decision to pursue the
offer to locate in Hudson. They could “make the business case” that, given proximity to wealthy
suburbs with limited dining options and no walkable town centers of their own, it made sense to
accept the offer of space and to try a pizza business there.
Regarding moving to a small, predominantly white former mill town: one might imagine
a moment of hesitation or doubt on the part of Karim as to whether an “outsider” would be
welcomed in Hudson. But Karim had lived in seven countries and even more cities, so it was
“nothing new to be the new outsider” – Karim was the first of the three to move to Hudson.
Karim reflects: “I don’t need to be anywhere else. By moving here, I sent a huge
signal. I’m not an outside investor; I’m here. It’s a friendly town. I joined the
Hudson Business Association as a business owner. At a moment, there was a bit
of hesitation only about moving to a small town because I grew up in
cosmopolitan places – I thought ‘It’s going to be small, it’s going to be
different.’”
Jason, who eventually became the third partner (as discussed in Part Four), recalls that
Hudson’s potential and the business’ eventual success was far from an obvious inevitability. His
recollection is that the area was “dilapidated, with broken windows, shuttered fronts … now it all
looks obvious. At the beginning it did not. I was the unofficial cheerleader – they definitely
worried. There was talk of a fast casual offering having a lower dollar value, and then ‘Holy ___,
are we doing full service?’ Then I recall Karim calling from this place in Hudson to [where we
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
lived] Brookline: ‘we just saw people running with guns!’ and I’m thinking, ‘into this town is
coming Karim, the international man of mystery and two kids from Belmont…’”
The partners joked about coaching Karim on how to fit-in smoothly: “never speak ill of
the Red Sox, Patriots, and Bruins, and remember, you’re from Montreal but you like the Bruins.”
They point out some people had problems getting his name right: “he’s been called Hakeem,
Kamal, Kameel, El-Gamal…”
The role of serendipity and the evolution of ideas to opportunities: During their time at
Babson, Karim and Michael considered other ideas first, such as buying a small business. Then
they analyzed another idea: acquiring small pizzerias – buying them cheap, making
improvements, then consolidating and growing them (using a common set of books and menu
and supply chain), and then selling them off. There would be two profits – the operating profit of
the locations (each of which would be more efficient, and then again at the time of sale. It turned
out not to be as great an idea (and more expensive) than they thought. Few companies wanted to
sell viable locations, and those that did wanted too much for the good ones.
Accounting questions to provoke discussion: (1) What is it going to cost to start and run
the restaurant? (2) What resources will be required? (3) How will they acquire these resources?
Specific accounting issues: Moving forward with a business plan requires some
understanding of what resources one will need to meet their objectives. While it seems like there
might be an opportunity to have a location for little or no rent in the short term, it begs the
questions what other resources will they need? How will they rehab the location to meet their
needs? What will be needed to outfit it? How many people do they need to hire? How will they
live during this time? How can they fund this initiative?
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
Accounting take-aways: By starting their own business, they are venturing into the
unknown. While their costs aren’t known at this point, any understanding of what it will take will
not only give them a better understanding of the risks involved, but it will also give them an
understanding of what will be needed to succeed.
Entrepreneurship questions to provoke discussion: (1) At this point, does this seem to be
a viable opportunity? Why or why not? (2) What resources do the entrepreneurs have? What
resources are needed? What are their capabilities? What skills do they need? Who do they know
or need to know to develop this idea? (3) What experiment they do to gain more information and
move forward?
Specific entrepreneurship issues: An opportunity is often defined as a timely and
potentially favorable circumstance that may provide a good chance to provide a customer need.
What is the potential customer need at this time? Are the circumstances favorable?
Entrepreneurship is about organizing resources and providing leadership while acting on
opportunities to create social and economic value. What potential social and economic value may
be available if Karim and Michael act on this opportunity? What are the entrepreneurs’ goals?
What is their affordable costs in terms of time and resources at this point in their lives?
Specific entrepreneurship take-aways: The entrepreneurial opportunity can shift as more
information becomes available. As part of the process, entrepreneurs should take actions to gain
more information that can be used to shape the idea and vision for the company.
Legal questions to provoke discussion: if students don’t bring up these issues sua sponte,
ask them to consider: (1) Does the suggested agreement fit one of the five contexts covered by
the statute of frauds? (2) Does the lack of specific terms make the agreement non-enforceable?
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
(3) Assuming that the verbal agreement could be enforced, what are the pros and cons of
documenting something in writing?
Specific legal issues: as far as the offer to make a verbal agreement to adjust the lease
over time and to defer the cost of carpentry work: this could be an instance of “an exception that
proves the rule.” First, as a matter of law, a lack of specific terms may doom an agreement as
ultimately non-enforceable. In other words, a lack of specific and certain terms means that an
agreement is a void contract (or, put another way, not really a contract in the first place). Second,
agreements concerning real estate are one of five instances where an agreement must be in
writing to be enforceable. So, for two reasons – lack of specific and certain terms, plus the fact
that the agreement concerns real estate – the verbal offer from Uncle Nick and possible
acceptance by Karim would not constitute a valid contract. It would not be enforceable later, in
the event of a dispute. Further, while some verbal contracts are enforceable (assuming you can
prove the exchange of verbal promises occurred), it is normally advisable to document an
agreement. Nonetheless, Karim and Michael agreed to the verbal offer and do not regret their
leasing arrangement with Uncle Nick. This underscores that trust in one’s business counterparts
is paramount – a partner or counterpart’s trustworthiness and reliability may ultimately matter
even more than legal formalities.
Further take-aways related to agreements: In the experience of Karim and Michael, they
stressed that a lot of their significant agreements have been and continue to be verbal. In fact,
they say that one supplier (the milkman) “might be insulted and stop doing business” if they
were to insist on written documentation of agreements – that it would be a sign of lack of trust or
a “slap in the face.” The one time they had a well-written contract, “the other side turned out to
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
be crooks and we lost $15,000.” So, in their experience, knowing your business partners is more
critical than having a well-written agreement.
Part Two
On massive and fundamental changes to the plan: one of the major take-aways of their
story, according to the business partners, is that plans are obsolete the moment that they are put
into effect. Their story illustrates the flexibility required in entrepreneurship. Entrepreneurs can
and do change plans continuously to optimally take advantage of serendipitous discoveries and
unforeseen opportunities. At first Karim and Michael planned a fast casual counter service. Their
ideas evolved radically: “it was more like a sledgehammer, not a pick-axe.”
Michael recalls that the first moment where he realized they would massively change
their plan on the fly: it was during construction – when they decided to double their physical
space from 2,000 to 4,000 square feet. As he sketched out and described: they thought that their
business would be half the space they ended up using – originally it was just supposed to be a
pick-up counter. The location of the bathrooms played a role in the decision to have an “open
hallway” and open kitchen rather than a hallway to the bathrooms.
When visiting, Michael suggests sitting at a booth across from the oven to feel the
warmth and see the immediate surroundings partially illuminated by the wood fire inside – the
placement of its opening to create these effects was intentional. It adds to the atmosphere
tremendously. Yet this primal, campfire-like ambience was not part of their original vision – it
flowed from the awkward location of the bathroom and abandonment of the pick-up counter
concept in favor of an open kitchen and seating area.
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
The design and construction of the pizza oven is another illustration of the role of
serendipity and value of networking. When they realized that they wanted to custom-design and
build their own flatbread oven, the partners were disappointed to learn that no one would do it
for less than $50,000.
However, Michael recalled a random stranger at a Las Vegas pizza expo who he thought
might help them. The man had leaned over for no apparent reason and said just one line: “I am
from Ottowa – I make wood-fired pizza ovens.” The only other fact Michael knew about him
was that he sounded Russian. He managed to find him online and the partners managed to get an
apprentice of his from upstate New York to combine two styles into one revolutionary oven with
the opening at eye-level to guests sitting in booths across from it.
The oven is now a focal point of activity of Rail Trail both visually and in terms of
creating dishes. But it was random chance that the wood-fired oven builder decided to share two
details about himself at a pizza expo (which the partners had decided to attend at the last minute
on the advice of professors).
Michael pointed out, sitting at the booth across from the oven: “note that when you enter
an eatery that is well-designed, the client walking in should always see, in order: (1) beer
(drinks) and (2) food. Ergo the placement of the bar and layout with the kitchen and oven being
the next thing you see after the bar.
Adapting to small idiosyncrasies played a recurring role in other adjustments. Michael’s
uncle – a colorful personality described as “this older guy off the boat from Greece – stubborn,
liked challenges, a great carpenter, wanted to make a few things ornate – recognized and urged
two of these unforeseen modifications: that the floor under the oven would need reinforcement,
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
and to take care when removing the dropped ceiling, given the value of the tin ceiling concealed
above it.
Disadvantages of the location were turned into advantages. The removal of the dropped
ceiling, the different, long, narrow strips of space at two different levels, the bathroom access
issue, deciding to put an open kitchen in front and parallel to the seating – as the space evolved,
in all of these instances, the partners found ways to capitalize on what first looked like problems.
Some of the layout was worked-out with cardboard cut-out model pieces that could be moved
around like a puzzle.
On finding furnishings: the story of how Karim and Michael found furnishings and
equipment bears mentioning, because it illustrates how the partners creatively minimized costs:
“We found it all at auction… almost every piece of equipment. It was out of necessity plus
following the example of Michael’s relatives… you can find a good table for $20-100. But
sometimes buying equipment at auction means you are responsible for removing the items –
meaning you may need to open windows to pivot booths out… 200 pound booths. You might get
bar equipment for $2000-3000 but may need 8 hours to remove it.” The partners have collected a
lot of equipment, to the point they have been asked: “why do you have all these things?” Karim
said: “I could open a diner with all the s___ we have…” If one presents these quotes to the
students, one could provoke them to consider the benefits and risks and costs. Is the time and
money invested in removing and moving and storing old equipment always worth the money
saved on acquiring it?
On attracting their chef, Tom: This vignette is worth sharing because it illustrates the role
of serendipity and sharing one’s vision, and how a creative tension and diversity of styles can
lead to an eventual unforeseen outcome that is “greater than the sum of its parts.” The
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
identification and recruitment of a top quality chef fundamentally altered what Rail Trail
eventually became. As the partners explain: “How did he find Tom? Originally we were looking
for a friend or expert in the culinary arts to review and vet the menu. Tom came with stripes –
he’s mentioned in a tell-all book [about the best kitchens in Boston]… as an ambitious young
cook called “Kenny”… he was working at the top. But we thought: ‘if he sees this potential
beauty, and sees the building, and knows there is an open head chef position… he may want to
stay.’”
The partners elaborated: “Tom is from upstate New York – a town of 2000 – the kind of
place where people are born and then die there – ‘from baptism-to-death.’ So we saw the chance
that he might like Hudson. We delicately romanced him to join the team. On the ride out we
deliberately took back roads. We just hit it off. We discussed all the taboo topics: politics,
religion, love, music. Eventually he said ‘I would love to work for you guys, but I need to make
a change to the food we’d be serving.”
Tom had suggested the style for which Rail Trail has become famous and praised:
“casual, quick American made in gourmet manner,” as the partners call it, “like duck on a
flatbread… or with smoked Spanish octopus.”
The partners describe an interesting creative tension with Tom that they partially attribute
to their different backgrounds: “Tom wanted ‘nice nice stuff’ and we kept saying “get your mind
out of Cambridge … no … we want it really casual. Tom loves junk food … but he turns it into
something fancy. Like a chicken patty sandwich, but he’ll make it a Thai chicken patty… with
fresh herbs, fish sauce … 15 steps … and on buns that we cooked. He is talented and hard-
working, but completely unrefined and not a planner. He’s an instinctual person. Apparently
Tom knew on a deeper level that things would work out. He is a ‘visceral-gut-feeler-type’ … on
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
a gut-level, he felt an instinctual ‘yes.’” In contrast, Michael says: “Karim is more strategic,
playing out all options … he thinks-through and deliberates. Tom doesn’t do that, he’s more of a
‘feeler.’”
Another moment of pivoting to a new concept was the partners accepting the idea (from
friends who consulted with bars) of having a beer selection, and then abandoning the idea of
offering just three well-known beers. They ultimately accepted the advice to have a curated
selection – deciding to be full-service and higher quality – and offering twenty craft beers.
Accounting questions to provoke discussion: (1) What options do you have for outfitting
your restaurant? (2) Given the size, what investment will it take? (3) In general, how much
revenue will you make per party? (4) What is the average cost of serving that party? (5)
Determine the payback period.
Specific accounting issues: The big issue here is outlining what it will take to get the
restaurant up and running. The costs of outfitting a restaurant range from $200 - $500 per square
foot. If they go with the expanded size, they are looking at an initial investment that could range
anywhere $800,000 to $2,000,000. I might be helpful to discuss the advantages/disadvantages of
being on the lower range v. higher ranger (e.g., how nice the place looks, durability of
equipment). You could also talk about ways they might be able to do things more cheaply, as
they actually did in the case (e.g., buying used, at auctions, at flea markets, etc.). They also want
to consider the amount of revenue they can expect per party. If most parties are spending $40 and
the costs of serving each party are 60% of that (25% for food, 25% for labor, 10% occupancy),
each party will contribute on average $16 to cover their initial investment (assuming that there
are no other costs). That means it will take serving 50,000 parties to cover an initial investment
of $800,000. Their current setup has 24 tables. If they could fill each table 4x per day, it would
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
take about 520 days to recoup that investment. Remember that is 500 days after the investment is
open. Assuming that much of this investment was required before the restaurant opened, you
could potentially add another year or more to recouping that investment.
Accounting take-aways: While this analysis is simple in nature, it gives the students an
understanding of the risks and payback periods associated with opening a business.
Entrepreneurship questions to provoke discussion: (1) At this point, does the idea of a sit-
down eatery seem to be a viable option? Why or why not? (2) Why did Michael and Karim
decide that a family of four is their target market?
Specific entrepreneurship issues and take-aways: Karim and Michael spent a lot of time
debating what the business should be. They considered multiple business models. They thought
about buying, refurbishing, and selling pizza restaurants, a take-out pizza counter, and multiple
restaurant ideas. Each business model had its own advantages and disadvantages and its own set
of revenues and costs. While refining their opportunity and thinking-through potential business
models, Karim and Michael kept their target customers in mind. They also stayed within their
passion and strength – pizza (or as they would later call it, “flatbread”).
Operations questions to provoke discussion: (1) At this point - what was the central
business idea? (2) At this point, what was the identity of the proposed restaurant idea? Low
Cost? Quick Service Speed? High-End/High Quality? Customized Menu Offerings? (3) Was the
business identity aligned with their location choice, based on the location demographics? (4)
How would the decision to source locally affect the menu items choices? (5) What are the
benefits and risks of local sourcing?
Specific operational issues: Since restaurant sales ebb and flow by day and hour - space
capacity estimates will have to account for the peak sales volume, because this is a fixed
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
resource. Final capacity was 109 seats. Under-forecasting or over-forecasting food volumes
means you will either run out of food (leading to poor customer service ratings) or have to throw
away unused food (leading to lower profits). There are many choices restaurants can make to
manage sales and costs. One option is to limit the range of menu choices - “Make your own
flatbread” but with “minimal options.” The owners found that in their uncle’s previous pizza
business, customers were given numerous options but seldom actually customized their pizzas.
So they decided to go with a less-is-more approach. This is based on the principle of the
“Paradox of choice” – people are more satisfied with fewer options. Fewer options also makes
material planning and sourcing easier to manage. It is also important to consider how the
decision to source locally would affect the menu items choices. Karim and Michael decided to
leverage local sourcing to change the menu every few months. Karim described their supply
chain and operations as something of an ad hoc (flexible, relying on contacts) approach to local
sourcing where someone scouts and sometimes buys large amounts of something because it’s
available, and then they figure out what to do with it.
Part Three
Opening: At this point, the case protagonists emphasize how close to disaster they were.
“We were so broke – we could not afford any more waiting – we were months overdue with
construction… a joke downtown… it became a joke ‘when will it open?’” They added: “We
were on edge all the time… is this the right decision [regarding several questions]” and they
were asking themselves: “… every day we are not open, how much does it cost?”
On December 5, 2012 they had a “soft opening” for family and friends. There was still
“cardboard and butcher paper on the windows… anybody in the house… was still sweeping and
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
polishing.” The soft opening allowed them to catch and resolve glitches before opening to the
general public. They decided, “we’re ready enough” and opening night was set for December 12,
2012 (12/12/12). That night they were still training people and had no money to pay anyone, yet
had twenty people waiting outside their door to try the new restaurant in town.
Entrepreneurship questions to provoke discussion include: (1) When do you open the
doors to your business? (2) Does everything have to be completely ready? (3) How good is good
enough in terms of quality? (4) How would you estimate a reasonable opening date estimate? (5)
When would be the best time of year to open? (6) What are the key operational/managerial roles
needed? (7) What processes and systems do you need to have in place for opening and managing
the restaurant? (8) What would be your biggest area of operational focus/concern?
Specific entrepreneurship issues: A reasonable opening date estimate would be based on
the all the key tasks and their lead times, paying attention to the tasks that are expected to take
especially long including (1) building completion (2) safety inspections and certification, and (3)
acquiring a liquor license. It would be best to open during a non-peak season when there is less
pressure on the business and more time to perfect the day to day processes.
Marketing questions to provoke discussion include: (1) How would you get your start-up
noticed? (2) How would you promote your business? (3) How would you gain positive media
coverage?
Marketing take-aways: The partners decided on “no normal media… we focused on
Facebook – getting to 3,000 or 4,000 followers (the maximum that a p.r. firm thought they would
get).” They now have 6,000. “You can almost pay for likes… but ours are organic… our
followers sought us.” This was something Jason “was excited to do… he said ‘gimmee access’
and posted on Facebook. Karim’s wife and Jason built momentum [on social media].”
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
They have continued a no advertising policy, preferring to just engage in local
sponsorships of charitable and other good causes. Because no dollars go into advertising, they
have resources to “support local education, arts… charities… sports… we have a policy that we
will sponsor anyone with a local cause. We learned about this at the pizza expo. We give any
local cause donations in the form of gift cards worth $33 – so it is easy to track them back… any
request from a 501(c)3… a local baseball team… we want them to eat here… we are a
community-based business.” As illustrated in the final part, this use of marketing dollars
exclusively for supporting local charitable causes paid surprising dividends later.
Part Four
Stretching themselves to breaking point and dealing with “cancerous” employees:
The content offered students should be enough to imagine the basics of the worker rebellion –
how a small number of people can spread an infectious bad attitude and negatively affect
everyone in the organization. It may help the instructor using the case to have some specifics to
share. The protagonists offer these quotes to imagine the context of the crisis: “our head
bartender disappears… we had cooks with mental meltdowns… former druggies… someone had
expected ‘$13-an-hour to cook…. but this is different... we’re working our ass off!’ Another
employee declared ‘this sucks…’ our response was: ‘then go! I’ll do it!’”
The partners also offer these quotes to elaborate on how many hours they were working:
“at midnight we closed and started making bread for the next day… so we were working until
3am for next day. We did whatever was required… that’s how we all ended up sleeping across
street.” It seems like it would have been difficult to imagine systems even if they had tried: “we
were not talking operations… suppliers, employing… and stress-testing equipment… something
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
might not have been hot enough… something else getting clogged… at 7am realizing a plumber
was needed. 12 midnight would come… and the question would be ‘now what do we fix?!’”
They said it is difficult to convey how chaotic things were – between the problematic
employees and not having everything systematized: “we had a 110-seat facility with no
sections… the wait staff was cutting its own sections… we were pooling tips… and the problems
of cancerous employees started – we heard ‘we’re not coming in unless you give us a raise’ –
this was when we were relying on everyone to help out… we were still in the mode of ‘let me
show you how to do this.’”
So what do you do with unruly/insubordinate/sabotaging/cancerous employees? Karim,
Michael and Jason (plus uncle Nick) decided to be aggressive with hiring and firing when it
became clear that some employees were a cancer. They reached “a point of realizing we will do
this on our own if need be, but we will take back ownership.” They elaborated: “anyone who
attacks company culture is a cancer – whether it is harassing other employees, intimidation,
disobeying, tardiness…”
“It became a question of ‘how much do we put up with?’ We decided we must gain
momentum in hiring – to have enough people that we could easily fire the people who infected
others with bad attitudes. We have created a culture now… but there were a lot of s___heads in
the beginning… for example, a server with an active campaign against how we were doing
things, hinting that she may leave – and this was our best server – she could sell anything, but
she was cancerous, terrible for our culture… and we were asking ‘when can we move on, when
do we cut bait?’ We had other tough employee situations – a drug addict that lets you down,
formerly on heroin. We may have had a 50/50 ratio of better vs. worse staff. Some were great.
But we had to become more selective. We had to aggressively hire so that we could fire.”
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
The partners had to directly involve themselves with all the staff issues – they added:
“Tom is a great chef – but he’s not into management – he’s a worker octopus.”
Operations take-aways: operationalizing the business after it opens is a common mistake
for entrepreneurs. The two key take-aways illustrated by this case are that operations should be
planned ahead of time, and that more people should be recruited than the absolute minimum,
such that no employees feel indispensable and at liberty to turn rebellious.
Legal questions to provoke discussion: (1) How would you go about including additional
partners? (2) Would you formalize the structure and what business form would you choose?
Legal take-aways: once Karim and Michael decided that Jason could add value to the
operation, much as with the initial question of whether to accept the offer to lease the location,
most attorneys would advise agreeing upon specifics in a written agreement. Again, this case is
arguably “an exception that proves the rule.” The three agreed to try out working together for
several months before agreeing that they would put down an agreement in writing. They chose to
form an LLC and agreed upon a detailed partnership agreement. The partnership agreement
contains provisions on how decisions are to be made and succession contingencies. The LLC is a
good choice given the specifics of their case: it is quickly formed, limits the own owners’
liability to the value of their investments, and distribution of profits to the owners are taxed just
once as the personal income (avoiding the phenomenon of the LLC’s profits being taxed first –
sometimes referred to as “double-taxation” in the case of C corporations).
Interesting relationship of the partners being local heroes and their legal rights: it is
instructive to point out that the partners, by living in Hudson, revitalizing the downtown, and
deploying their marketing dollars into sponsorship of local charities, garnered a tremendous
amount of good will. They also doubled-down on their local bet by not expanding beyond
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.
DRAFT - please write to asulkowski@gmail.com for guidance
on citation and information on where to locate final drafts of
student materials and teaching notes.
Hudson. Instead, the LLC formed by Karim, Jason, and Michael leased a vacant space across the
street and opened an ice creamery. When an additional liquor license became available, the local
committee passed-over a proposal from a large chain restaurant and awarded it to the three
partners. They used it to open a speakeasy – an unadvertised bar behind an unmarked door at the
back of their ice creamery. The case therefore illustrates that generating good will in a
community can directly lead to winning a legal right that they otherwise may not have enjoyed.
Vital to share: Most students will likely declare that they would never consider the
opportunity presented in Part One. Yet, despite all the risks, Rail Trail now attracts diners from
Hudson, surrounding towns, and even Boston and beyond. It also earns top reviews from
gourmands. The reputation of Rail Trail is such that clients have been known to come and wait
two hours to be seated on weekend evenings. Likewise, the partners’ New City Creamery and “<
>” speakeasy (pronounced and sometimes written as “Less Than Greater Than”), situated across
the street, are popular and profitable businesses. See Exhibit C: Success.
Course Usage
This case is designed to highlight the interdisciplinary nature of entrepreneurship – how
key take-ways from accounting, entrepreneurship, law, and operations can help make difficult
decisions in starting-up a business, or avoid risks and problems later. It works well as an
introductory case for MBA coursework to help students understand how the different academic
disciplines are really tangled together like “multiple strands in a plate of spaghetti.” It provides a
chance for students to relate to concepts from the fields of accounting, entrepreneurship, law, and
operations in a tangible “real world” scenario. The case could also add value to courses on each
individual discipline: accounting, entrepreneurship, law, or operations.
DRAFT
Please write to asulkowski@gmail.com for guidance on citation and for information on where to locate final drafts of student materials and teaching notes.