AboutMike Handy Expertise I can answer any question about starting your own multi-restaurant delivery service, marketing your mobile waiter service, where to get supplies for your delivery service, who to go to for insurance, how to sign up restaurants and just about anything to do with this industry.
Experience Worked for Takeout Taxi as consultant while doing $80 million yearly. Started and owned first online Multi-Restaurant Delivery Service. Sold my service to large Dot-Com and became a consultant for the industry in 2000. My first customer is 2000 is now doing over $3 million in sales per year and I have about 30 other current customers.
Publications Small Business Opportunities - 50 Best Businesses to Start from Home - Made Cover!
Education/Credentials Wright State University - Cracker Barrel University
Past/Present Clients Over 30 - References available.
Question Hi Mike, what puzzles me is all I here are GREAT things about owning and
operating a RDS, what are some of the bad things? What are some of the worse
challenges you have encountered building your empire?
Answer Hey Shay,
Like any small business there are your typical challenges that relate to the owners ability to manage finances, sales, marketing, employee relations and customers service.
In addition to those everyday challenges, the RDS owner has a few more specific challenges that I will outline below.
1. Building a profitable model. Very few RDS's are cash cows. Most of them just barely squeak by in the area of profit because the owner didn't do his/her math correctly when they started planning for the business. They were overwhelmed with excitement due the response from their family and friends and jumped in before looking at a projected P&L that is actually based on facts instead of reasonable guesses. Having a RDS revenue model that depends on delivery charges going to the company instead of primarily going to the driver and driver equipment is bad not going to work. Increasing restaurant prices for a revenue stream is not a good idea because customers feel taken advantage of and the RDS gets fewer orders. Increase the delivery charge to be more than $5 or $6 dollars also decreases orders. Most people have a round number in their mind that they will pay for someone to pick up their food. It's about $10. Therefore, if you charge $6 for a delivery charge, your driver can expect about $4 for tip. The more you increase your delivery charge, the less your drivers tip will be, and the less they will stick around and put up with low tips and high gas prices. The bottom line is that a good RDS starts with a great marketing revenue model. This can be complicated if the new owner hasn't seen this model before. It's taken me about 10 years to really work out the bugs, develop the materials that will sell the marketing and implement a marketing plan that works for the restaurants, the RDS and the local businesses that advertise with us.
2. Sales. The one thing that many RDS owners fail at is sales. After telling their neighbors about their idea, and everyone agrees that they are a genius, the selling often ends there. Selling the client is not a stretch. You hand a mother of three that works 9-5pm a menu guide with about six different cuisine types that she can't typically get delivery from and tell her that the delivery is only $4.99, you've got a customer. The real challenge is selling the restaurants on the fact that you deserve a commission for selling their food. One big reason for this challenge is because restaurant managers and owner/operators are just too busy to really sit down and chat about your value and the benefits of your program. And when you do get the chance to get them in front of you, you will quickly find out that restaurants primarily work off about a 10% to 15% profit margin, and when you say that Mike Handy says he gets 27% to 30% commission from all his restaurant partners (not to mention an additional marketing fee) they laugh at you and tell you that they will be losing 20% if they partner with you. Without the correct presentation that explains "extra sales" and "extra costs" this is where most RDS's hit a brick wall of frustration. Some move on and come up with the brilliant idea to take the 10% commission offered and then just hike up the prices 20% and all will be ok...but like I said, they can expect very few orders, frustrated restaurant and unhappy customers. This model can work, but the RDS owner has basically built himself a job that will not amount to much.
Besides the wonderful "I only make 10% profit, how much of that do you want" There is the "my food doesn't travel well" reply that only a practiced reply will overcome. There is the "I've tried this before and it didn't work out very well" reply, there's the "how do I know you will pay me" reply (means the owner didn't build credibility)and then there's probably the most frustrating part of signing up restaurant partners and that's sitting down with a manager, going through your well practiced pitch, getting a great response like this is what we've been waiting for to increase our sales, then hearing, I have a boss/partner/wife/etc... that I need to run this by and I'll get back to you. This is frustrating because the Assistant Manager will never sell the program to his boss like you will. As a matter of fact, the big boss usually uses the opportunity to tell the underling "we would lose 20%" or "our food doesn't travel well" and considering the assistant manager doesn't have any comebacks, you lose the sale. And unfortunately, you typically only have one time to sell the deal.
2. Marketing. After you get the restaurants signed up, most RDS owners do a fairly good job of doing their initial marketing push to "get their name out". They typically try to hit as many people as they can because that is how they think they will get the biggest bang for their buck. Wrong. Informing people with what you are doing, very rarely results in sales. A marketing piece must be set up not only to inform, but to build confidence and then to give the buyer a reason to act now. RDS's have two options for effective marketing. I will tell you what those two resources are not. They are not coupons in an advo pack or clipper magazine, or magazine ad, or news paper ad or anything like that. These resources might work after you have established yourself in a market over a long period of time, but initially they are a waste of money...and most new RDS's waste a lot of money just "getting their name out there".
3. If an RDS owner is lucky enough to develop a good marketing revenue model, sign profitable partnership agreements with good restaurants, and put together an effective marketing plan, now they are faced with a new challenge. Hiring and training good drivers that will stay around. And in reference to drivers, there are issues like limiting liability, limiting costs, keeping up moral when tips are low, making sure they double check orders (left off items are a big problem), making sure they actually wear the logo shirt you gave them, making sure they put their car toppers on their car (not a chick magnet), making sure they don't get lost, and then making sure they collect the correct amount at the door. Not fun. Plus, when you do finally get a good group of drivers, you can assure that within six months, they will all be gone onto bigger and better things because there is a limit to how much money they can make as a mobile waiter. How that we've talked about drivers, we have to talk about order takers. Because they are the same pay grade, besides worrying about them getting lost, you can expect all of the same issues that the drivers have, plus you need to watch over their shoulder to make sure they spell the street name, review the order for correctness, try to upsell sodas and then remind the client that our mobile waiters do work for tips and 15 to 20% is customary.
4. Re-marketing. So if you do overcome the many barriers to entry and you are able to start up a good, profitable, well staffed RDS, it is very common to fall into an Ahhhh kind of state thinking "I did it". But the fact is, we are a marketing company, and without a constant reminder to the many businesses, hotels and residents in the area, they will forget about you (no matter how cool and catchy your name is). So it is very important to put a marketing schedule down and stick to it.
So, I guess you've realized that I'm a realist. This does not mean that I don't think this is a great business. Done correctly, I think this is the best business that you can own. The clients love you, the restaurant love the extra sales, hotels without restaurant love you, local businesses that use you for marketing love your direct marketing, working Mom's love you, Pharm Reps love you, business meeting planners love you, your drivers that make good tips love you, etc.... And I've seen many success stories where the RDS owners have made back their initial investment within six months, put a couple thousand dollars per week in their pocket and still spend good quality time with their families. I've also seen a college student start an RDS years ago and build it up so that he profits over $20,000 per month and he hasn't taken an order, hired a driver, etc... for years now.
To summarize some solutions to the prior challenges see below.
1. Invest in a purchasing a system that works, with proven success stories and then follow the system to a "T".
2. Hire a professional to help sign up restaurants and train you how to continue to sign restaurants and use their materials.
3. Do the one thing that brings in orders better than anything in your market and that is develop a menu guide and distribute it to the people that will order (homes, businesses, hotels).
4. When people ask me, "How do I keep drivers", I always answer "you don't, you hire drivers". The best way to keep drivers is by building more sales. They are their to make money so if you give them that opportunity, the good ones will stay. Always build sales and always hire drivers. In reference to order takers, I suggest using a call center. Free yourself up and get out of the office and market.
5. Work your butt off. Nothing good ever comes easy. The best people in this business are hustlers. Someone good with relationships (drivers, customers and restaurants) and a little more energy than your typical person will succeed in this business.
6. Get help. Yes, I'm saying this in part because I make money when people get my help, but the fact is that 99% of the people out there trying to re-invent this business, fail. And when they fail, it hurts me, my partners and our industry. So, get help and help us all.
