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Posted: March 22, 2011

Colorado success stories: Smashburger

They had a better idea

David P. Mead

Editor's note: This is another in a series of Colorado company success stories as told by CEOs and business owners.

Smashburger is the fastest three-year start for a restaurant company - in history - to almost $135 million in system wide sales. I recently spoke with Smashburger CEO Dave Prokupek about the appeal and trajectory of the company in the midst of the worst recession in a generation. He will be among the featured speakers on April 27-28, 2011 at the Rocky Mountain Corporate Growth Conference.

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Why would someone invest $20 million in a new hamburger chain?

While it might seem, illogical, we saw several factors that made this business very appealing. First, research showed that while the hamburger was America's favorite food, people were dissatisfied. There was opportunity in the ‘better burger' category - a segment which is projected to double over the next decade. Second, we saw an opportunity for a disruptive innovation with a new restaurant model that we believe will be the model of the coming decades. The model has a small footprint (about 2,000 square feet), sit-down service, good food, beer and wine service, and fast service (average 23 minutes).  

You're not competing with McDonald's and Burger King. Who is the competition?

We don't primarily compete with the big three burger chains which control 70 percent of the market. In the "better burger" category we compete against Five Guys Burgers and Fries, the local Bar & Grill, or casual dining restaurants like Red Robin or Applebee's. Interestingly, our biggest upside surprise is that about half of our customers say they would have gone to a non-burger sit-down restaurant such as PF Chang if they hadn't dined at Smashburger.

To what do you attribute for the fast growth?

We had a better idea and are very well capitalized. We took advantage of the recession and have been able to make very good real estate decisions and attract very talented, experienced people. We started franchising very early - after only four stores. Since it requires a relatively low investment to open, Smashburger locations offer a superior return on capital. We were able to attract 32 of the top restaurant franchise companies which committed to open 450 locations and who currently manage over 650 restaurants. These companies had the capital so that they could expand aggressively during the recession without the need for bank debt. These franchise partners see Smashburger as a better use of capital than other restaurants. Today, we are about 50 percent franchised vs. company-owned locations. Over the next five years, we expect that to flip to 60 percent-80 percent franchised.

That addresses the business-side of your growth, what attracts the customers?

Consumers give us high marks for ‘great food' (93 percent) and ‘friendly service' (94 percent). The 'smashburger process' seals in the juices so it's a great burger. We recruit and screen our employees for friendliness and a service personality, and we train to a casual dining hospitality standard-of-service. We have secret shoppers in our restaurants every week. We also offer a cash bonus to server crews for high service marks and the cooks for speed and accuracy. Over 90 percent of our customers say they will visit us again.

What are your biggest challenges?

Maintaining culture and consistency as we grow. We continue to recruit from top restaurant companies to help manage the growth. We look out two years and hire people with the potential to rise two to three levels in the organization.

We recently instituted what we call our "high fives": excite and delight, perfect food, pride in place, ‘it starts with me', and ‘do well, do good'. These ideas reflect the core values of Smashburger that we want to reinforce every day with every customer. We are very consumer and metrics-driven. We measure and reward the attitudes and results that are important to our continued success.

You have an interesting blend of people with restaurant experience as well as those with other backgrounds?

It's about 50 percent/50 percent. We think that helps blend new ideas and approaches with the critical restaurant expertise. We recently have developed a training and modeling program which pairs very bright, talented "30 somethings" with our senior executives to accelerate their experience and growth to be able to fill future leaders.

What keeps you awake at night?

We have some clear advantages. Being well-capitalized is a clear differentiation. We have to continue to be smart with real estate decisions, especially in new international markets. We need to continue to stay on top of consumer trends - continually innovating our offering including our food. We launched the brand very cost effectively essentially with social media, PR, and active cultivation of the ‘food bloggers: and our fans.' We need to continue to develop that social media capability and connection.

So what's ahead for Smashburger over the next five years?

We are focused on building the #1 brand in our space. International expansion is a key strategy. We are currently looking at Canada, Australia, London, and the Middle East. We are evaluating whether we will offer a localized menu or western menu in each location. We already offer a specialized local burger in each of our U.S. markets. We have tremendous upside - we plan to be a $500 million revenue company within the next few years.
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David Mead is President of The Mead Consulting Group, a consulting and advisory services firm, based in Englewood, that has been helping Colorado companies grow since 1981. The firm's 40+ senior consultants with operating backgrounds assist Colorado-headquartered companies with strategic growth and execution, improving profitability and cash flow and maximizing value at exit. Dave is the past Chairman of ACG Denver and a long-time Board member and is on the Board of Young Americans Bank. Contact Dave at: meaddp@MeadConsultingGroup.com or (303) 660-8135.

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Readers Respond

Excellent and inspiring article for a fellow entrepreneur. FYI, private company Smashburger's revenue were $72 million in 2010. (Half of its systemwide units are company, balance Smashburger - actually called Smashburger Master LLC - the co. receives a royalty.) Source: PrivCo Private Company Financial Report: Smashburger Master LLC http://www.privco.com/investors/private-equity-firm/consumer-capital-partners By Sam on 2011 03 25
Sam, don't know where you live, but here in Mesa County, same thing - three Smashburgers, two have closed just in the last few months. I, too, am curious how this compares with other areas. By Vicki on 2011 03 22
David, Interesting article on Smashburger. I ate there several times, finding the food and service good, but the place lacked atmosphere. The price point was comparable to Red Robin, but decore was more in line with the big 3. Our local franchisee opened 3 outlets and has since closed 2 of them within a years time. How does this attrition rate compare to the rest of the chain? By Sam Wegh on 2011 03 22

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