You’ll Manage — Fall 2009

Building business in Bellevue
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Sabatino “Sam” DiBattista dreamed of revitalizing sleepy little Bellevue as a means of improving not only the business at his Bellevue restaurant, Vivo, but the merchants around him on Lincoln Avenue. His dream slowly became a crucible as the forces of easy money and lax lending practices converged against him just when he thought he was starting to win. His plight illustrates the fate of many businesses born of the go-​go late ’90s when most Americans didn’t realize that, if it sounds too good to be true, it usually is.

Sam is a true Renaissance man. Usually decked out in jeans, black T-​shirt, Doc Martens and facial stubble, the combination chef, economic developer and music aficionado is also a classic lifestyle entrepreneur.

Lifestyle entrepreneurs tend to run businesses that provide a good standard of living. The businesses are not run by following detailed business plans or high-​level management practices. They are started with a small amount of capital — most as little as $25,000. Many are retail in nature. And they really drive our economy because small businesses employ more than half the people in the United States.

Sam epitomizes many successful lifestyle entrepreneurs. Shoot from the hip and be hip when you shoot. Being successful meant great product, customer intimacy and love. A good businessman should have all of his numbers in his head not on some Excel spreadsheet that no one will read.

Conversely, “high-​growth” entrepreneurs typically develop detailed business plans and raise significant capital from professional investors to create large businesses and rapid revenue growth. Managers have a high level of experience in the industry’s target market. The objective is selling the business through a merger or an initial public offering that gives investors a superior return.

Test Case: Bellevue

After leaving a reasonably good engage-​ment running a major corporation’s cafeteria, Sam and his wife, Lori, opened Vivo in 1999 when people were flush with cash and the Pittsburgh fine-​dining scene was beginning to blossom. Sam became head chef, and Lori ran the front of the house and was the pastry chef.

Sam didn’t buy into the real estate mantra of location, location, location. He chose Bellevue, eschewing higher-​rent locations such as Shadyside, downtown Pittsburgh, Sewickley, Fox Chapel or Mt. Lebabon, where “foodies” live. He took the Field of Dreams approach of “build it and they will come.” All he’d need was great food.

Foodies’ lives revolve around the Food Network and dining “experiences”; they loved his simple approach to basically grilling expensive and exotic raw ingredients. Business boomed. People had to call two weeks ahead for a table. After risking so much, life was finally coming together for Sam and Lori. Awards from local magazines and positive reviews multiplied.

Then, some terrorists decided to fly planes into the World Trade Center, and the dot​.com bubble burst. Business slowed as diners, eyeing their skinnier 401k plans, reduced their midweek meals out. Competition cropped up.

Unlike typical restaurant goers, foodies will leave the beaten path for a new dining experience, going from one trendy new spot to the next. Attracting them was critical for Sam, because, for typical Bellevue residents, fine dining is reserved for special occasions.

Sam decided to combat the malaise by making Bellevue a destination — Pittsburgh’s Greenwich Village — by encouraging the creation of coffee shops, offbeat fast food and funky retail.

If I build it, they will come. And my businesses will benefit.

He became a one-​man gang of economic development. He encouraged his sister and brother-​in-​law to create an edgy hot dog shop called Frankfurter’s, which was featured in local print and television. He helped them develop the concept and menu — a variety of sausages, homemade soups and sides. Business was good.

The next project was an attempt to create a Starbuck’s with an attitude called Affogato. The finest coffees, teas, fresh baked goods and panini sandwiches were served in a combination coffee shop and art gallery. The clientele was young and artsy.

He encouraged an Italian pizza maker to create a popular Neapolitan bistro called Regina Margherita, which also did well.

Sam’s vision was starting to gel. But the small town needed some sort of “anchor” store. And his final piece would be the creation of a Nordstrom’s of vintage clothing in a renovated G.C. Murphy building that had been lying fallow for a few years.

Sam obtained a high-​interest subprime mortgage and a recruited a few investors to buy the building. And just like Vivo, Frankfurter’s and Affogato, he and his merry band of local free spirits would complete all of the construction on a shoestring with used and lower-​cost building materials from places such as Construction Junction.

The department store would be called simply “517÷521,” its address on Lincoln Avenue. It would be a cross between a consignment shop and a vintage department store where a variety of store owners would operate their own “departments.” If this were the early ’70s, you’d call it a cross between a retail commune and a co-​operative. Each department owner would rent space, and the store would get a percentage of sales for managing operations, such as building maintenance and the store’s cashiers. Upstairs would be a multipurpose working space for artists and writers.

He had his subprime loan and a little investment money, and some financing collateralized by his other properties. He had the building. The process was quite easy. Maybe too easy.

What happened to Mr. Banks?

When our financial system nearly froze last fall, we all started to wonder how the conservative Mr. Banks from “Mary Poppins” became Gordon Gekko from “Wall Street.” What happened to the conservative lending standards that made us feel our money was safe? When did your mortgage lender turn from community partner to someone selling an addictive elixir in the shadows?

In years past, small business owners underwent exhaustive application processes to obtain financing. A loan officer evaluated the loan application and, most important, the business itself. It’s called due diligence. Face-​to-​face meetings with the applicant and his customers. How was the market? What was the borrower’s track record? In short, could the business generate enough money to pay back the loan?

If it looked good, the loan officer developed a detailed loan request or “write up,” which he submitted to the bank’s loan committee. If, after discussion, the loan committee approved the loan, the loan officer had regular follow-​up meetings with the owner. The lender was also charged with advising the business owner if his business began having problems. If the situation got really bad, the loan would go into “work out,” which many times resulted in a restructuring or, in the worst case, liquidation.

Too good to be true

With sam, none of this took place. He got his loan with minimal interaction with the mortgage company. No site visits or regular follow-​up. No deep relationship between lender and borrower.

Sam had secured enough money to buy the building and open it, but he didn’t have enough capital to fill the store with inventory. Sales were not as brisk as Sam needed, but he was able to create a decent amount of rental income. However, cash continued to be tight as he completed build outs for new tenants. Cash flow became strained when some of his larger tenants were late paying their rent due to bureaucratic foul-​ups.

He was forced to subsidize the building’s operation when rent couldn’t cover the high price of the subprime mortgage. After coming close to selling the building and trying to restructure the debt with the lender, Sam threw in the towel. In April, he handed the keys to the mortgage company, which was painful to his credit rating and his state of mind. The word “quit” is anathema to Sam.

He remains undaunted and optimistic. Vivo’s business is improving, and he is considering new restaurant concepts. He has an idea for a new audio project. He has designed and will soon produce a low-​cost mail-​order kit enabling audio hobbyists to build their own record turntables. He plans to market it via the Internet. As Sam would say, “Vinyl is back, man.”

Yes, Sam would have benefited from a bank that was a partner, not a pusher. Perhaps a thorough loan officer would have helped him foresee and avoid problems from the beginning. Maybe more capital. Maybe a better business plan. But Sam probably wouldn’t have liked that idea. After all, a field of dreams is supposed to be built in an Iowa cornfield, not a strip mall.

Chris Allison

For 16 years — 10 of which as Chairman and Chief Executive Officer — Chris led Tollgrade Communications Inc. from technology startup to public company to being recognized as one of the Best Small Companies In America by Forbes, Fortune, Business 2.0, Bloomberg Personal Finance and Industry Week. In the year 2000, sales of Tollgrade’s centralized telephone test systems reached $114 million. That year, its value on the NASDAQ exchange also reached $2 billion. For his efforts, Chris was named Entrepreneur of the Year by Ernst and Young, as well as by the Pittsburgh Venture Capital Association. Chris was also named CEO Communicator of The Year by the Public Relations Society of America.

Chris has been a columnist for Pittsburgh Quarterly since the magazine’s inception in 2006. His column, “To Boldly Go” deals with the subject of innovation. For his writing, he is a two-​time nominee and one-​time winner of the Golden Quill Award by the Press Club of Western Pennsylvania.

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