Cereal bar start up: Wrap-up

Huddled in a cramped storage closet surrounded by towering shelves of Froot Loops and Lucky Charms, Kenneth Rader was breathing a little easier. It had taken nine months, but The Cereal Bowl - the company he launched with his twin brother Josh and best friend Michael Glassman - was on track to turn its first monthly profit.

To top it off, The Bowl was featured in the latest issue of Entrepreneur magazine.

Things didn't always seem so promising for the restaurant started by the three 25-year-olds.

The first time a press release for The Cereal Bowl was forwarded to me, just over a year ago, a colleague had typed across the top: "How ridiculous." After all, luring customers to a café offering little more than off-the-shelf breakfast cereal didn't seem like much of a business plan.

Sure, The Bowl would give clients the chance to mix and match more than 30 different kinds of cereal and 40 different toppings, but would people really pay $2.99 to see what Trix and Sugar Smacks taste like covered in Gummi Bears and sprinkles?

For the past year The Miami Herald has been following progress at The Bowl, tucked away in a strip mall at 1560 S. Dixie Hwy. near the University of Miami, in hopes of giving readers insight into what goes on in the life of a typical start-up business.

Over the months, we've watched the men find their stride - not so much by forging ahead as by learning to side-step.

When they realized many of their customers were far younger than the college crowd they were aiming for, they started offering birthday parties and marketing themselves as a summer camp destination - filling deadly midday lulls in the process.Seeing volume sag on weekend nights, they launched concerts that have turned into steady money makers.

And, perhaps most importantly, they found a fresh stream of revenue through catering. Now, out-of-store sales account for about 10 percent to 15 percent of business.

IN THE MONEYDespite The Cereal Bowl's penchant for tweaking and flexibility, profits were always just around the corner. But thanks to a boost in weekday sales and a record-setting parents' weekend at UM, the business is on track to pull in between $35,000 and $38,000 this month.

That would cover all the partners' costs, including their whopping $7,000-a-month rent, payment on their 15-year SBA loan and the considerable legal fees they are racking up as they hammer out franchising documents. And still, they're expecting between $5,000 and $8,000 in profit.

ROCKY STARTWhen we first checked in with the three friends from Kendall last October, they were struggling with permitting hassles and construction delays as they tried to turn a cavernous 1,700-square-foot store into a cozy café full of plush couches and flat-screen TVs.

The recent grads had five degrees between them but zero real-world business management experience. And their education got off to a rough start when - before they ever made a dollar - they were forced to hire lawyers to respond to a menacing letter from the competition. Chicago-based Cereality, considered the pioneer of the cereal bar concept, warned them that if their store looked too much like a knock-off, they could expect a lawsuit for copyright infringement.

Hurricanes and other snags ultimately delayed their opening for three months, and all the while The Miami Herald was dissecting their foibles in the pages of the business section.

When they finally did open in February, it was still too soon, said Josh Rader, the company's vice president and chief financial officer. The staff wasn't familiar with the machinery, the menu boards weren't ideal and the operation wasn't polished, but they feared having another headline in the paper with the word "delay" in it.

"If we didn't have as much pressure to open as quickly as we did, we would have benefited from another three or four weeks, " he said. "Those first couple of days were hectic."

MEDIA MANIAIf the early days were hard on the ego, the ensuing media frenzy made up for it. As the national media woke to the smell of cereal cafés spreading across the country over the summer, The Bowl trio were in demand. They were featured on a Chicago radio program, in Time magazine and on CNN's 360 with Anderson Cooper. But to be featured in a national business magazine has been special, said Kenneth.

"I used to read Entrepreneur magazine in college, " he said. "So for me personally, this is very cool."With each new appearance, their inbox has buzzed with hundreds of franchise requests and investor queries from as far away as Dubai and Ireland.

That kind of media attention is exceedingly rare for new ventures, said Marc Junkunc, an assistant professor of management at the University of Miami who teaches entrepreneurship. Before becoming a professor, Junkunc owned a coffee bar in Los Angeles during the pre-Starbucks era. It was open for nine months before it ever got its first mention in the Los Angeles Times, he said.

Media attention, particularly in the early stages of business when marketing budgets are tight, can make or break a business.Restaurants can have great food, great service and great prices, "but if nobody knows you're there, you don't even get a chance to show [customers] that service, " Junkunc said. "Many restaurants that deserve to survive may not because of lack of awareness, even though they are scoring high marks in all other areas."

WATCHING EVERY WORDIf the media attention has been good for business, living under the spotlight hasn't always been easy.

Kenneth claims he still can't bear reading The Miami Herald articles for fear of what he might have said. After he quipped about a cup of coffee consisting of little more than a dime worth of ground beans and some hot water, The Bowl was hounded by customers asking for the 10-cent cup of Joe.

When Glassman called last year's hurricanes "The Ya-Ya Sisters" and referred to his manager as his "double dragon, " Michael and Kenneth fretted that readers in the business community would think they were yahoos.

And Josh still feels anxious about being so open about quarterly earnings, for fear future investors or franchisees might construe his quotes as earnings statements and leave them open to litigation.

"It has been unusual to be under a microscope for a year, but all in all it has been a positive experience for us, " he said. "We opened ourselves up, and thankfully there was more good than bad, and we hope it stays that way."

BEATING THE ODDSThe Bowl still isn't in the clear. Conventional wisdom has it that 90 percent of all restaurants never make it past the first two years. However, a recent study by the University of Ohio found the failure rate closer to 60 percent over three years. Still, the odds aren't good.

And a single month of profits is not a glowing track record, admits Josh: "From a financial standpoint, we are still far from being successful."

On the personal front, too, the job is not exactly lining their pockets. Michael is the only one drawing a small salary from the operation, and both he and Kenneth live with their parents "and eat a lot of cereal" to cut costs.

Josh, on the other hand, was recently married and has kept his full-time job at the Miami accounting firm of BSS&S. "It has definitely taken a toll on us financially, " said Kenneth, who has been living off savings. "But we are working so many hours right now that there's really no time to spend that money that we're not really making."

But that could all change very quickly, if The Bowl goes ahead with plans to sell a franchise early next year.

The company is already drawing up the required legal documents and has hosted a group of investors from California. In coming weeks they are hoping to find a commercial space where they can set up a larger office and a mock counter to test new products and train future franchisees.

But in order to focus on expansion, their current store will need to run by itself, and that makes Glassman, the VP and chief operating officer, a tad anxious.

"Since we opened, I have been there five to seven days a week, " said Glassman, who developed many of the operating procedures and hired and trained the staff. "The scariest thing is that I know I'm going to have to let go, like the first day you drop off your kid at kindergarten. . . . And I always question myself, 'Are the operations good enough? Have I done everything I could do?"'

If putting the store on auto pilot carries risk, so does the growth process. The trio have read enough business books to know the list of once good companies that ruined themselves by giving into the temptation of quick growth is long.

"The three of us need to be patient and not so eager, " said Josh. "But when you get a call from Canada saying they want to franchise the whole country, you do get eager. . ... But just because someone waves $30,000 in front of our face to open a franchise doesn't mean we are going to take it."

Even so, the company hopes to be hammering out its first franchise agreement (probably for stores on the West Coast) as early as March.

On a recent Sunday morning at the store - as families chatted around tables and college-age couch-slouchers shoveled away cereal and stared at flat-screen TVs - Kenneth said that despite all their success over the past year, it's too soon to declare victory.

"I don't consider ourselves successful, and I probably never will, " he said. "Because once you are content with that, where do you go from there?"

MEET THE ENTREPRENEURSKenneth Rader, 25, President and CEO: The creative force behind The Cereal Bowl, Kenneth oversaw construction, design details and general strategy. He's now focusing on expansion plans.

Background: B.A. business and professional management, Nova Southeastern University Huizenga School of Business and Entrepreneurship.

Favorite Cereal Bowl mix: The Sweetest Thing - Cinnamon Toast Crunch, Lucky Charms and Fruity Pebbles topped with sprinkles and vanilla wafers.

Joshua Rader, 25, Vice President and Chief Financial Officer: The only one of the trio to keep a day job as an accountant, he is the point man on financial items and at tax time. He's also taking a lead role in franchising plans.

Background: Master's of accounting, Nova Southeastern University and a B.S. in communications and media management, and history, University of Miami.

Favorite Cereal Bowl mix: Dad Knows Best - oatmeal with strawberries, bananas and blueberries.

Michael Glassman, 25, Vice President and Chief Operating Officer: As the store's general manager, he has been in charge of hiring and day-to-day operations - everything from the way the food is stored to staff duties to customer flow.

Background: B.A. in organizational communications, Florida Atlantic University; master's degree in organizational resource leadership from Palm Beach Atlantic University.

Favorite Cereal Bowl mix: 3 on 3 - Froot Loops, Apple Jacks and Fruity Pebbles topped with strawberries, bananas and blueberries.

FROM DORM DREAM TO PROFITSThe Miami Herald has been following developments at The Cereal Bowl in a series that chronicles the first year in the life of a small business. These are the highlights in the short history of The Cereal Bowl:

September 2004 - Inspired by late-night cereal-eating marathons at school, Kenneth Rader decides that a hangout serving breakfast cereal might make a good business. The "Cereal Project" is born with a flurry of e-mails to his twin brother Josh and longtime friend Michael Glassman, who ultimately become partners in the venture.

April-August 2005 - Armed with a business plan and money from family and friends, the trio secure a 15-year loan from the SBA and sign a five-year lease on a 1,700-square-foot storefront near the University of Miami.

October 2005 - Amid construction delays and menacing letters from Cereality, a Chicago-based company that pioneered the cereal cafe concept, The Miami Herald starts its year-long series following The Bowl.

November-January 2006 - Hurricanes, permitting snags and construction delays scuttle plans for a November opening.

February 2006 - It takes about four months and $108,000, but on Feb. 4, The Cereal Bowl opens its doors and sees about 400 customers its first day.

March 2006 - Despite being aimed at the college crowd, The Bowl finds its family-friendly atmosphere is pulling in soccer moms and high schoolers. The partners shift gears, offering birthday parties and other kid-friendly amenities.

April 2006 - Hoping to boost sales of high-margin items such as coffee, The Bowl hires an outside marketing firm to help get the word out to the commuter crowd. They also launch a catering service.

May 2006 - The Cereal Bowl does just more than $90,000 in sales during its first quarter of operations but is still shy of making a profit.* June 2006 - As part of its marketing efforts, The Bowl sponsors charitable events, including the launch of a new cereal by Olympian Lauryn Williams. A Time magazine article about the national cereal craze includes The Cereal Bowl. * July 2006 - With the college crowd largely absent during the summer, The Bowl promotes itself as a summer camp destination. It's featured on a segment of CNN's 360 with Anderson Cooper, creating a barrage of franchise requests.* August 2006 - School is back in session and The Bowl starts seeing crowds return, but the operation is still shy of turning a profit.* September 2006 - Amid hundreds of franchise requests, the partners hire a law firm to assist in developing a franchise agreement.* October 2006 - As The Miami Herald ends its series, The Bowl is on its way to success. The company makes the pages of Entrepreneur magazine and expects to have its first franchise signed by year's end. It also records its first monthly profit.

This story was originally published October 30, 2006 at 3:58 PM with the headline "Cereal bar start up: Wrap-up."