David Overton set aside his dreams of becoming a professional drummer in the 1970s to help his parents with their struggling wholesale cheesecake business.
By the end of the decade, Overton decided to open a restaurant in Beverly Hills, Calif., with his parents' cheesecake as the highlight of a full-course menu. Without any marketing or even a grand opening, customers began pouring in, he says. Today, Cheesecake Factory Inc. is a publicly traded company with $1.6 billion in annual revenue, 32,000 employees, three restaurant brands and a bakery. It is also in the process of expanding overseas, with 22 locations slated to open up over the next five years in cities throughout the Middle East.
Edited interview excerpts with Overton, 65, follow:
WSJ: What gave you the idea to start a restaurant with a cheesecake theme?
Overton: In 1972, my parents started a tiny [cheesecake business] in North Hollywood that was mostly wholesale. I would come down to visit from San Francisco where I was playing music at clubs and I could see that they needed help. So in 1975, I moved down there. Because it was difficult to sell to restaurateurs—we were the Cadillac of cheesecakes in terms of how good ours were and what they cost—I thought we should have a restaurant showcasing them.
WSJ: How did you come up with start-up capital?
Overton: I told my accountant at the time my idea and he said the magic words: I'll raise the money. There ended up being nine investors who put in [a total of] $125,000. We also got a small loan.
WSJ: What was business like initially?
Overton: On the first day, we were so nervous we decided we would open at 2 [p.m.] thinking it wouldn't be very busy. But a half hour before we opened, there was a line [of customers] all the way to the next store. Within 10 minutes, we had a wait.
There was no marketing. We don't know why it hit the way it did. Maybe it was the name.
WSJ: So you were financially stable from the very start?
Overton: No. Even though we were very busy, the first year financially was very difficult. We couldn't get as much credit as we wanted. We really scraped until we realized how to manage our costs.
WSJ: What was the competitive landscape at the time?
Overton: In Beverly Hills, there were a couple of quick-service restaurants but everything else was very expensive. There wasn't anything considered casual dining. We had very straightforward food that was prepared fresh daily, no restaurant tricks, no steam tables, no fryers.
WSJ: Why did you pick a dessert for a moniker if you were planning to serve a full menu?
Overton: At first I didn't want to call it Cheesecake Factory. I didn't want people to be confused. But in the end I thought about how I was doing this to help sell my parents' cakes. Even though it was an unusual name, it helped somehow. It caught people's attention. There are still people today who don't realize how big of a menu we have—it has over 200 items—and some people still think we only have cheesecakes.
WSJ: Did you regret any moves you made while expanding the business?
Overton: Before we opened, I thought I had the menu priced out properly. I showed it to some people and they thought it was too high. So I lowered my prices and that was a mistake. Instinctively I knew what I wanted to give people and how I wanted the food to be. Although I raised prices four times that first year, we didn't lose any money. I did it slowly.
WSJ: How did the restaurant evolve?
Overton: After five years, we had gotten to know our business and the restaurant business. We were a huge success so we decided to open four more restaurants, three in California and one in Washington, D.C. Then we were approached to go public even though that was very unusual for a business with only five restaurants. Each was owned by a different investor group and I thought it would be nice to pull it all together into one company that could grow. I would be able to help retire my parents and through stock options, I could give the people who helped me run the business a stake in it. We went public in 1992 and between then and 2005 we grew an average of 27% a year. Overton: The Cheesecake Factory is complicated. It takes true restaurant pros to operate one so we don't feel that franchising will happen. All the complications of having such a large menu make it difficult. There are no cheesecake clones out there. The complication factor has been a great defense against competition.
WSJ: A lot of restaurant chains that launched after Cheesecake Factory are no longer in business today. What's your secret to survival?
Overton: Since the beginning, we've had a menu change twice a year and so we always try to put innovative new dishes on the menu. We're constantly looking for trends and updating recipes. This has kept us very current. Our menu is very much a 2011 menu even though the restaurant started in 1978.
WSJ: Have you considered franchising?
Overton: The Cheesecake Factory is complicated. It takes true restaurant pros to operate one so we don't feel that franchising will happen. All the complications of having such a large menu make it difficult. There are no cheesecake clones out there. The complication factor has been a great defense against competition.
WSJ: You're 65. Do you plan to retire soon and hand over the reins to someone in your family?
Overton: I don't have any retirement plans at this point. We have three boys and none of them are working on the business. They've all decided to do different things.
WSJ: Have any advice for someone looking to open up a restaurant today?
Overton: If someone's truly entrepreneurial, I believe they could open a business and repeat what Cheesecake Factory has done. I had no background in the restaurant business but it all worked out because I put one foot in front of the next.
WSJ: Do you still play the drums?
Overton: I do, but I have not played in a band in quite a while though I would like to.
This story first appeared on WSJ.com
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