The Recipe for Wealth

By Thomas Heath
Monday, March 17, 2008

Thomas Heath's "Value Added" is a new column appearing each Tuesday on the WashBiz blog. Most weeks, he plans to profile local entrepreneurs, asking them how they make their money and what they do with it.

Restaurateur Dan Mesches, who runs D.C.'s Zola, Spy City Cafe and formerly the red-hot Red Sage restaurant, now defunct, talks about the "aha moments" that change your life. That's when something crystallizes in your brain and a path or explanation opens up in front of you.

Mesches's aha moment came a few years ago when Bill Allen, the chief executive of Outback Steakhouse, asked the budding restaurateur what his exit plan was.

"I said I don't know what my exit plan is. And he said, 'What are you doing to create wealth?' And that was like getting hit on the side of the head with a baseball bat."

Mesches is the sweat-equity guy who helped invent Star Restaurant Group. Sweat equity means he gets a piece of ownership in return for the skill he brings to building the business. Real equity is putting up money. Sweat equity is putting in your time.

Zola and Spy City Cafe are in the Gallery Place/Verizon Center area. He also owns a restaurant consulting business.

Mesches said he will open a rustic Italian restaurant and bakery this year near The Washington Post, at 15th and H, in the Woodward Building. No, not Bob Woodward.

The new place will include a great bar (I love nice restaurant bars), outdoor cafe and views of the Washington Monument and Treasury building. How do you get a view from the first floor? Well, the street slopes down and you are eating on the high ground.

Mesches, 49, went to Union College in Schenectady, N.Y., and he grew up in the Hudson Valley. Beautiful place. He went to grad school at the University of South Carolina and almost went to work for the CIA. He didn't get in. Rather than finish his thesis on, get this, "Soviet Constraints on Finnish Defense and Economic Systems," Mesches went into the restaurant business.

Good call.

That was 1982. After stints running restaurants for W.R. Grace and for Marriott and other places -- remember the Pleasant Peasant? Nick's? Raku? -- he joined Red Sage as director of operations and kept it from going bankrupt. How did he do that? He renegotiated the lease. Renegotiated bank loans. Re-did the menus.

With Raku, which has locations in Dupont Circle and Bethesda, he "hit the cover off the ball" with a success.

But tired of working for someone instead of owning something, Mesches started Star Restaurant Group in 1998. "I wanted to control my destiny. I wanted to create wealth."

He became a general partner in Red Sage instead of an employee, cleaning up the balance sheet even further and buying new carpets, furniture and kitchen equipment. Then he started consulting for Delaware North, a $2 billion food service company, helping Harley-Davidson launch a restaurant at its Milwaukee museum, which opens this year.

Mesches said he hated to close Red Sage a couple of years ago, especially because the restaurant was cash-positive. But the landlord doubled the rent.

Mesches said the key to being successful is to find good mentors and follow their example. He counts Rich Mellman of Lettuce Entertain You (which owns restaurants such as Mon Ami Gabi and others) as one of his mentors. Milt Maltz, a successful and wealthy guy from Cleveland, who himself was an understudy of billionaire John Kluge, is another mentor. Maltz is an investor in Mesches' Star Restaurant Group. He also cites Bill Allen, the Outback chief executive.

"I learned something different from each one," said Mesches. "Everyone is about passion. It's that simple. Every time I made a mistake, and I made a lot of them, I was fortunate to learn from it."

What does he do with the money he earns?

"I plow money back into the businesses. I work with a guy at Morgan Stanley and invest in the future for retirement and my kids. I buy stocks and mutual funds, but mostly mutual funds. I want to worry about my own business and what I am good at."

Mesches owns some American Funds and has "a good mix of overseas, European, Asian stocks through several different funds."

"It's easy to earn money but it's also easy to lose money. But it's harder to lose wealth."

Here's his advice to would-be savers who keep putting it off:

"Just because you're making money today doesn't mean you will be making it tomorrow. Am I there yet? No. But I am getting closer."