Take It From California Tortilla: Without Lots of Capital, You'll Fold

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

I can't get enough of the fast-food business, so I recently phoned Bob Phillips, president of California Tortilla Group, one of the fastest-growing chains in the Washington region.

Cal-Tort, as employees and regulars fondly refer to it, has 37 stores up and down the East Coast, starting with its flagship in downtown Bethesda.

I am not a regular, but I have eaten at the Bethesda Cal-Tort dozens of times in the past 10 years. I live in Chevy Chase, Md., and my wife, Polly, and I love the quesadillas with jalapeno peppers. I also order the crispy beef taco, upon which I amply sprinkle Texas Pete's hot sauce. That last sentence construction sounds like Yoda talking.

Anyway. Yum.

Bob lives in Potomac and is an accountant by profession. He is an avowed entrepreneur, and the fast-food business is in his blood. He is a Wharton grad, so he has some business chops. He is easygoing. He owns a Broadway Pizza in Potomac, and a Ranch 1 at Reagan National Airport. I wrote about him and Cal-Tort's ambitious expansion efforts just a few months ago.

So Bob, how is the Mexican fast-food business?

"It's good. People are trading down from more expensive meals, so our segment is going to be okay," Bob said. (Readers take note: Coca-Cola, of which I own a little more than 100 shares, said its U.S. restaurant sales had dropped 3 percent because cash-strapped consumers were eating out less.)

I asked Bob what he would tell a budding fast-food entrepreneur.

"I would certainly tell them to make sure they have sufficient capital," he said. "That seems to be the biggest reason restaurants fail. They don't give them enough time to succeed. Some locations take off immediately, some locations you have to nurture for a while. What you don't want to do is be undercapitalized."

Bob had more advice, which reminds me of what my wife and I say to each other when we visit a restaurant or fast-food joint where the service is great and the food is pretty good. "Owner on premises!"

"You don't want to be an absentee owner. You don't want to make an investment in a fast-food business and then rely on a hired management team to run it for you," he said. "It's best when you are actively involved. Nobody will care like the owner. . . . Your employees need to see it and understand it. The restaurant business is a thousand details."