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Musings on the Restaurant Business

Posted on Friday, Jan 27th 2006

Did you know restaurant services in the US is a $430 Billion per year industry? I didn’t.

Common sense would suggest that good restaurants be placed in high-income areas such as Silicon Valley. Why then does PaloAlto – Menlo Park – Los Altos have so little to offer? After all, the population here eats out a lot, and with the tech-generated wealth in the hands of relatively younger people, the demand is certainly there.

Here are some San Francisco restaurants that I would like to see in the valley:

-Thep Phenom : A wonderful Thai restaurant in the Haight-Ashbury district of the city, on Fillmore Street.
-Chez Nous : A French-Mediterrenean fusion restaurant, also on the Fillmore, but further up North in Pacific Heights.

Of course, given the Stanford student population, some cheaper alternatives could also be great to have around. Pakwan is perhaps the best Pakistani-Indian restaurant in the Bay Area, but is conspicuously absent from the valley. In the cheap-eats category, this would be my pick.

In the last couple of years, a few good additions have happened to the restaurant scene in Palo Alto, Coupa Cafe being a notable and very successful example. We were at a dinner party this week with the owners, Nancy and Jean-Paul, and listened to their plans for a new Coupa Cafe on North Canon Drive in Beverly Hills. These are ambitious entrepreneurs.

Another successful one is Tamarine from The Vung Tau Group. The group’s Vietnamese cuisine blends gained its initial popularity with a loyal following among Vietnamese people. The original Vung Tau restaurant, a twelve-table eatery, opened in 1985 on San Carlos Street in San Jose, Calif. In less than two years, proprietors Nhan Huynh and Anthony Le moved the restaurant to its current location at 535 East Santa Clara Street, and went from serving 32 guests to 150.

The family opened a second Vung Tau restaurant in Milpitas, Calif. in 1996, and four years after that, opened a third Vung Tau in Newark, Calif. Tamarine, the family’s first contemporary Vietnamese restaurant in Palo Alto is run by proprieter Anne Le (the prodigal daughter), and chef Tammy Huynh.

The Le family and the Vung Tau group offer a great example to follow for the likes of Thep Phenom. Chez Nous and Pakwan are both on expansion paths. Pakwan has chosen Fremont as the place to go after the city. Makes sense, because of the density of Indians. They could also go the Tamarine route, and open a classier version in Silicon Valley, rather than the dives they currently have.

And if you have spare capital, and want to buy a promising restaurant concept, all of these have their basic right.

Great food, I mean.

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IPO: Tougher

Posted on Thursday, Jan 26th 2006

WSJ article IPO Obstacles Hinder Startups offers a good coverage of how IPOs are becoming tougher for small venture-backed companies.

This raises the question, what should CEOs and early-stage VCs do, once a company has reached $100 M+ in annual sales? (Below this threshhold, it is absolutely undesirable to go public; investor courting, ongoing investor management, Sarbanes-Oaxley compliance related paperwork and massive expenses – being some key distractors …)

In general, by year 5 or year 6 in a company’s history, the Series A investors, the Founders, and the early executive team that is still around – get itchy to extract some liquidity. Today, given the sophistication, the available money, and the level of activity in the Private Equity industry, a late-stage / LBO fund could easily step in and provide the necessary liquidity.

Liquidity, I believe, is no reason to go public prematurely. An enterprise that has built-in scalability should stay private, stay on course, and execute, execute, execute. If, however, the business does NOT have built-in scalability – and most don’t – they should absolutely NEVER go public. They should get acquired, and become part of a larger portfolio.

Last year, 41 start-ups backed by venture-capital investors became publicly traded U.S. companies, down from 67 in 2004 and 250 in the boom year of 1999, according to research firm VentureOne.

I would say, the recent numbers are much closer to what they should be.

After all, how many enterprises really have built-in scalability in their business model?

Most companies simply go public and then struggle, giving smart investors absolutely no reason to touch them, and hence, giving analysts no incentive to cover them!

Rather, a secondary exit market for private placements of a chunk of the company’s shares held by early shareholders – is a far better alternative.

Disney Jobs

Posted on Tuesday, Jan 24th 2006

The deal has gone through, of course, Jobs joins the Disney Board, and Lasseter takes charge of animation. Good news across the board. Market likes it, so does Silicon Valley … this little victory over Hollywood.

Now, what?

R: The enormously talented Lasseter needs to come up with a cast of popular characters a la TinTin, Asterix, Dilbert, etc. which in micro-content format can delight iPod audiences. In an exclusive distribution deal with Apple, Disney will have immediate access to the market and rake in beaucoup, hugely profitable bucks.

Fast forward into the future where the Apple iPhone is ready … the same franchise would win them further viewership.

Video FAQs

Hollywood Disenfranchised

Posted on Monday, Jan 23rd 2006

Video as a micro-content category is increasingly gaining momentum, as statistics such as this become available: Apple Computer Inc.’s iTunes store, which was the first to secure a major licensing deal to sell TV content online last October, sold more than 8 million videos in three months.

AtomFilms Studio is a new effort from Atom Entertainment, focusing on the same opportunity, and intends to produce short films.

Most interestingly, this niche is likely to trigger a broad array of new small businesses, each with a different nuance, segment focus, and style.

Hollywood hierarchy will encounter further defiance.

Venture Fund Investment & Endowments

Posted on Monday, Jan 23rd 2006

An interesting article in WSJ today: Venture-Capital Bets Swell Stanford’s Endowment.

The author argues that the top schools’ ability to invest in the best funds and their continued access to the top applicants, students, and alumni – will further stratify US higher education.

Well, I do not have a problem with this. Top intellects gathering within the framework of a highly effective system is a very good way to generate advanced thoughts, ideas, innovation.

However, these top schools ought to take some responsibility in sharing their methodology with educational institutions worldwide to raise the general level of education, as well as to standardize the world’s widely taught disciplines along best practices vectors.

MIT’s effort along these lines is the Open Courseware (OCW) project.

I believe, Harvard has a similar effort, but I don’t have a URL for it.

On the other hand, the 1,000-1,500 Engineering Colleges in India ought to align their courses and syllabus to that of MIT’s, to enjoy the benefit of OCW.

India as a Jewelry Manufacturing Hub

Posted on Friday, Jan 20th 2006

On my recent trip to India, I had an opportunity to explore a non high-tech outsourcing opportunity.

Some of you may recall my previous article: Digging for Diamonds. Well, I was invited by one of the top jewelry houses in India to explore this opportunity.

Here are some nuggets from my visit:

Just as we learned in the early days of software outsourcing that the design and architecture of a system was best done in the US, in jewelry too, design is best done in the US (or in Europe or Japan). Otherwise, there is too much disconnect between the local market’s taste and that of the Indian consumer. Indian jewelry tends to be heavy and complex, not appropriate to be worn with western clothes.

This will change with greater awareness, but at this point, bulk of the jewelry export from India goes to countries with similar taste, the Arab countries being a major conduit.

There are exceptions in the commodity segments of the market (hearts, crosses, solitaires, studs, etc.) where simple diamond price arbitrage may produce a business opportunity. However, this is a low-margin business, and one with intense competition. Blue Nile has managed to create a big brand in this segment, by becoming the Dell of diamond jewelry.

From the perspective of manufacturing capability and metalwork skills, however, India has a tremendous resource base. Ditto in enamel-based craftsmanship.

Hence, the real opportunity that I see, is to create high-end brands for the western markets, leveraging this enormous skill-base in India.

Margins could be tremendous, judging by the prices of jewelry by Gurhan, Roberto Coin, David Yurman, etc., especially with a branded retailer relationship such as Bergdorf or Neiman Marcus.

The key differentiator, however, would have to be Design.

One more

Posted on Friday, Jan 20th 2006

Back in November, I wrote Cisco: Inching Us To True Convergence.

Yesterday, I wrote that Apple should focus on gaining PC market share.

R: Apple and Cisco ought to strike a strategic partnership in bridging the gap in the software / user interface end of the convergence spectrum.

In other words, questions such as Where is downloaded digital content stored?, What is the interface to navigate and manipulate the display environment for content? TV? PC-Sreen? Home Projector? – and myriad other such – are best answered by a UI expert such as Apple.

Left to Cisco’s incompetent hands, this will be another disaster a la Linksys.

Not Predictions

Posted on Thursday, Jan 19th 2006

Prediction is not my business. Recommendation is.

In early 2006, here are some:

Disney is in serious talks to buy Pixar. The deal would make Pixar CEO Steve Jobs the largest individual holder in Disney. Safe to guess that this deal will go through. This will free up Steve to focus exclusively on Apple, while leveraging Disney. R: Steve should now make gaining PC market share his #1 agenda and free the world from Windows tyranny.

Autodesk COO Carl Bass was named president and CEO, as Carol Bartz moves up to Executive Chairman. Earlier, Autodesk announced a strategic alliance with Microsoft that is intended to eventually bring business and technical productivity improvements to manufacturers. Specifically, the companies will integrate Autodesk’s engineering data management (EDM) software with Microsoft Business Solutions (MBS) enterprise resource planning (ERP). R: Microsoft should buy Autodesk this year.

The digital content and media industries have turned upside down in 2005. Finally, a business model has emerged, making online content & communities viable. R: Entrepreneurs, VCs & LBO firms should focus heavily on this industry, as the resulting discontinuity opens up many opportunities.

In India, growth conitinues at satisfactory rates. However, some reshuffle is in the works in terms of geographical focus. Bangalore infrastructure and human resource pool is crumbling. Other cities such as Hyderabad, Chennai, Pune and Delhi are also starting to become stretched. Infrastructure is now India’s biggest bottle-neck to support the growth. R: If you are looking at a new India operation, you need to look at places like Kolkata, Nagpur, Kanpur, Indore, Cochin.

More later.