FACING BUSINESS CHALLENGES AT AJ WRAPS

Wrapping Up a Business - To Go

Alice Thomson and Judith Nantook are identical twin sisters whose passion for food led them into a gutsy decision: opening a chain of fast-food restaurants¾starting with one, of course.

AJ Wraps “probably began when we were teenagers working in fast-food restaurants,” says Alice. “Then our parents gave us a trip to Paris as a graduation present,” adds her twin Judith. “We fell in love with gourmet¹ French cuisine².” They had wanted to stay and study with the masters of French cooking, but it just wasn’t feasible. So they went home to Illinois to finish college (Alice majored in psychology³, Judith in premed zoology). Then Judith met and married Jeff Nantook, following him to San Francisco where he worked as a CPA and tax adviser⁴.

Before long, Judith was begging Alice to move to San Francisco and attend the California Culinary Academy with her. During the week they were learning about sauces and soufflés , and on weekends they were tasting and sampling the city's gourmet offerings while endlessly discussing the restaurant they planned to open after graduation. They were fascinated by the local trend toward multiethnic combinations--and by a "new" eating invention called the wrap. Some say it evolved from a Mexican burrito filled with unexpected ingredients. Others say the idea of a meal wrapped in an easy bundle shows up in every culture sooner or later.

Whatever its origin, the twins saw gold. They started planning a fast-food restaurant that would sell multiethnic, gourmet “wraps” containing exotic , fresh “fusion” (hot and cold) cuisine. They imagined a flavored red tortilla filled with Thai chicken, jasmine-lime rice, and fresh snap peas¾or a green one filled with blackened red snapper, Spanish rice, Napa cabbage, and lime-horseradish sour cream. They even started making samples in Judith's home kitchen, much to Jeff’s delight.

The twins knew wraps appealed to anyone with a hectic⁶ lifestyle¾and who doesn't fall into that category at least occasionally? Commuters want to eat behind the wheel, parents want to pick up dinner on the way home, and single people are looking for fresh, healthy, inexpensive meals. Wraps could satisfy all these needs, the twins believed. A National Restaurant Association survey on ethnic⁵ cuisine showed that consumers were eager to try more ethnic foods; moreover, a look at the Internet Food Channel’s “Ultra Trend Tracker” showed them that the wrap was leading the sandwich category, where focaccia was fading. From coast to coast, newspaper reviews were hailing wraps as the best new fast-food discovery.
Now Judith and Alice face some hard business decisions. Jeff has agreed to share his expertise⁷ as financial adviser, but who will manage the food and who will handle the books? How will they share ownership, pay taxes, and compensate⁸ themselves? What will they offer financial backers? How will the business grow? Alice and Judith have absolute confidence in their teamwork and their culinary expertise. But they also know that if they don't set the business on the right structural⁹ foundation, it could fail overnight¾as a lot of well-meaning friends keep pointing out.

Meeting Business Challenges at AJ Wraps

For a time, Alice Thomson and Judith Nantook thought their plans to open AJ Wraps were falling through . Judith's husband Jeff was offered a partnership¹⁰ in a large accounting¹¹ firm¾the catch was, he'd have to move to Los Angeles. However, with a little more research, the twins' enthusiasm was restored. They read about a company partly owned by actor Woody Harrelson: Yoganics, an organic food-delivery service, was apparently¹² reaping tax benefits from a location in South-Central Los Angeles. A 1992 racial uprising left a scarred community that needed to rebuild itself, and the area was designated a “revitalization zone.” State officials were offering tax incentives¹³ to spur businesses into the area. It was working beautifully, creating new jobs and a positive, thriving atmosphere.

Alice and Judith loved this idea. As financial adviser, Jeff thought the tax savings¹⁴ would help them get rolling , and an eager work force couldn't hurt. Reassured¹⁵ , the twins revised their plans. Their headquarters would be in South-Central Los Angeles, with the first two restaurants nearby. The third they'd open farther south, in bustling¹⁶ , middle-class Orange County. After three AJ Wraps were running successfully, Judith, Alice, and Jeff would sit down and prepare a plan for selling franchises¹⁷. When it reached that stage, they’d probably want to incorporate , but in the meantime, the business would function as a partnership . Now they had to decide how to divide the responsibilities¾and the compensation.

At first, they considered including Jeff as a third partner-after all, his input¹⁸ during the planning stages had been invaluable¹⁹. But in private meetings Judith and Alice decided²⁰ that giving Jeff equal management control could eventually interfere²¹ in the long-practiced, twin-bonded , team tactics that worked so well between the two of them. They were so attuned²² to each other's way of thinking and doing that they had always been able to make decisions in a snap.

For a while, they toyed with the idea of offering Jeff a limited partnership (eliminating his management responsibilities and limiting his liability) but realized they frequently needed his advice to make management decisions. As a limited partner, he wouldn't be compensated²³ for that weekly time investment. They also considered writing a general partnership agreement that limited Jeff’s management participation²⁴, but that approach could lead to some uncomfortable situations (such as having to tell him when to back off and when he was needed). Finally, the twins decided the best option was the simplest one: Alice and Judith would share the business as general partners, hiring Jeff as a consultant²⁵ and paying him hourly for his expertise. Besides, as Judith pointed²⁶ out, he'd be sharing in the restaurants' profits anyway as her husband. (At first Jeff's feelings were a little hurt when they told him he wouldn't be a partner. But then he saw the wisdom of it¾not to mention the lack of pressure and the easy income. He agreed wholeheartedly.)

Next, Alice and Judith decided that their financial backers (their aunt and uncle, at this stage) would be offered a limited partnership. When and if AJ Wraps incorporated, their backers would be given the option of selling their partnership back to the company or investing further as shareholders²⁷ in the closed corporation. This would all depend on the company's success, the twins realized, and they knew they could only plan so far ahead; first, their wraps must become a big hit in the new neighborhood.

One of the twins' early planning discussions was about the nature of their business: Were they a service provider or a goods producer? They decided they were both: When interacting with customers, they would provide attentive²⁸ service with a meal that was fast, inexpensive, and healthful. When working in the kitchen, they'd use all their culinary arts to “manufacture” the best wraps in Los Angeles¾or the West!

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