Archive for February, 2012

In a famous route of the USA there is a petrol station that has survived different periods throughout the years according to the economic changes of circunstances  of the country; some of these were splendid but others were marked by the crisis.

More than 50 year ago Tom McPherson, a descendant of Scottish emigrants, decided to open a hot dog stand.  The beginnings were tough because there was already a small restaurant nearby and the truck drivers preferred their meals with plenty of French fries and onion rings. But gradually Tom started to have some clients who took the opportunity to have a faster meal so they could take the road to work right away.

As Tom also offered  some drinks and coffee he thought that by opening his stand some more hours the business results would improve . Therefore he took on his friend’s son, John, a young farmer of the village to cover the hours he wasn’t able to work because of  family responsibilities.

John had an innate ability of making business and proposed  Tom buying a practical little stove for frying potatoes and onions. Tom accepted the proposal in order to be pleasant to John rather than  believing in his expectations.

The success took even John by surprise. He suggested to Tom to start a restaurant next to the stall. Tom asked for a credit, they built it and  set it up in a short time.  A few months later the old restaurant also located  in the petrol station area started to lose its customers so the owner offered Tom the possibility of buying it. After consulting with John, Tom purchased the establishment and added it to his stand.

The new restaurant was the sum of the two establishments and became popular on the route. Dishes were excellent and assorted since John’s new wife was an expert cook and was in charge of the kitchen while John ran the whole business. Neon signs announcing the restaurant were installed and the success was absolute.

Tom was proud of the growth of his business and praised John for his excellent work, therefore he proposed  him to join the company with a minority share that John immediately accepted.

In the meantime Tom’s children were studying at the university, thanks to the restaurants. But they weren’t used to going round the establishments since they were not interested in them because  they lacked glamour.  They only occasionally went to eat some hot dogs  to justify the allowance they received for being Tom’s children.

With the obtained profits John suggested to Tom to open some more restaurants in other petrol stations on the road.  So gradually they opened new restaurants, they built an industrial kitchen, where John’s wife cooked in her traditional spirit, as well as a small sausage factory to supply all the establishments. Some special vans distributed the freshly cooked dishes twice per day.  Each restaurant had its own section with the traditional hot dogs and the chain of restaurants became very popular all over the country.

As  time went by, Tom fell sick and died after appointing his son Perry as his heir. Perry at that moment was working as a consultant in an investment company. Although the profits of the company had been very elevated during several years, at that time the country was in the grips of financial crisis and the cash flow of the chain fell down a 50%.

Despite the fact that his father often used to talk to Perry about the business, he didn’t  really know the internal history of the company or the development of the business. To obtain an independent opinion about everything Perry called two friends who were advisors in order to ask them to draw up a diagnosis.

The advisors lived and worked in the centre Boston, they hadn’t eaten a hot dog for many years and they didn’t have any experience in this field.  The first step they took was aimed at applying the ABC costing systems to know the profitability of each establishment in the chain, as well as the effective profit margin of each culinary variety in order to reduce the menu.  They wanted to concentrate the efforts on the dishes with most  margin of profit and to close those restaurants bringing less returns. That way, and against John’s point of view, Perry started to give instructions to the financial manager and to the production manager  to suppress some specialities on the menu and to order the closure of some restaurants as well.

As a result of the closure of the establishments and the decreased  production of some dishes, the chain started to lose some customers, the turnover went down and the structural costs rose so that the benefits also went  decreased. John discussed the strategic mistake with Perry who, advised by the advisors, by the financial manager and by the production manager, who aspired to hold John’s position, decided finally to dismiss John. However Perry also bought John’s minority share in order to freely decide what to do in the future.

The restaurants’ chain  quickly lost its splendour. They were forced to close the sausage factory as well as the industrial kitchen. In the end the whole business went bankrupt without Perry knowing what had happened.

In the meantime John bought one of the restaurants Perry closed, he started again from scratch and, thanks to a credit, he bought the bankrupt chain. He installed neon signs at his restaurants, started the production of the same traditional meals and consolidated the business obtaining success and a big professional recognition.

John’s children are finishing their studies at Harvard University although during the holiday and at weekends John has them busy working  the hard way up in life; one is cooking hot dogs and frying French fries and the other one is distributing the food to all the restaurants wearing the customary uniform.

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