Monday, January 12, 2015
What Startups Can Learn From The Pizza Business: Samit Varma
Story by Benjamin F. Kuo
In our interviews, we normally talk to entrepreneurs, investors, and others involved in the technology startup industry. However, for today's interview, we've decided to venture a bit farther afield--talking to Samit Varma, founder of Los Angeles-based pizza franchise Pizza Studio (www.pizzastudio.com). Varma is actually a former technology investor at Santa Monica-based venture capital firm Anthem Ventures, and we thought it would be great contrasting his experience starting and running a restaurant franchise with the technology startup world.
What is Pizza Studio?
Samit Varma: Pizza studio is a fast casual pizza concept, where guests come in and choose one of our multiple flavors of crust, and go through an assembly line format that is similar to Chipotle, adding what toppings they want on their pizza, which is then cooked in a specialized oven, which cooks the pizza in about two and a half minutes. The whole process takes about six minutes, from where you start ordering to where you have hot pizza on your table, with your own personalized toppings.
Where is the business right now?
Samit Varma: We've raised three rounds of capital, and at this time last year we had three units open. We're now at 24 units, and have sold to different franchisees across the country. Those franchisees are pretty major guys, who have been working with other restaurant concepts like Panera and Buffalo Wild Wings, Wendy's, and others. Eighteen of our restaurants are franchised, and the other six are corporate.
How did you go from venture capital to running a franchise restaurant chain?
Samit Varma: I was an entrepreneur before going to the VC world. I was part of the startup Odyssey Labs, which was backed by Anthem Ventures, and did that for a few years before going over to the venture side. The whole time, I was focused on very early stage entrepreneurs, so I got my hands dirty and rolled my sleeves up. I did that for eight years. Through that process, I really got a chance to see the entrepreneur's side of things. Pizza was a passion of mine growing up, and I have always been into food, so I thought I'd give this a shot. I talked to my partners, who were very supportive, and since then have been off to the races.
What are the biggest difference between technology startups and running a restaurant franchise?
Samit Varma: I think there are a lot less differences than people would think or that you would assume. Pizza Studio is like any other technology company. It's very fast paced, it's focused on people as number one, and hiring the right people is our number one strategy. We manage our P/L like any other company, we're extremely high growth like any other tech company, and it helps to have a technology background, because we are bringing many technology pieces to our business. We're selling a physical product, and we're in a brick and mortar environment, but there are lots of similarities in running the business and managing growth.
For those in the technology world, talk a bit about the franchise model?
Samit Varma: The franchise model is a lot like the software royalty model. In this case, we create a prototype of a store. That prototype of the store, manuals, how to operate the store, how to order stuff for the store, is effectively creating a software program. We license that to all of our different franchisees, who have the infrastructure to pull off individual units. As such, they pay us an upfront fee of $40,000 per store, and they pay us a half a percent royalty on gross sales. It's the same as a software company, which might take a lot of time and investment to develop a software program, and then license it on a per-seat basis to their enterprise partners. We're sort of set up the same way.
What lessons have you learned in the restaurant business, compared with the technology business?
Samit Varma: There are lots of analogies that I've picked up over the years in the technology business, which are the ones I continue to use in the restaurant business. It's the same things around managing growth, creating a great user experience when people come in. We people to feel like it's something super clean, like Uber. You come in, it's an easy experience, it's not complicated, you pay, you leave, and you are satisfied.
What do you think technology companies could learn from the restaurant business?
Samit Varma: On the technology side, I've always been a proponent of unit economics. I think the technology world could probably focus on that a little more. It doesn't matter if you're profitable now, tomorrow, or two years from now, but the fundamentals of your business have to be sound. That all comes down to unit economics. You have to sell your widget for more than it costs you to make that widget, and acquire customers for that widget. I think that a lot of the time, those fundamental economics are challenging to get in the technology world. With us, we know exactly how much it costs to open a restaurant, how much pizza we need to sell to break even, and how much profit we make on each pizza. It's very nuts and bolts, and very fundamental, in a way. Focusing on unit economics really is important.