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Ditching the Courtroom for California Pizza Kitchen
By Colleen DeBaise In 1985, after a grueling trial ended in a hung jury, criminal-defense lawyers Larry Flax and Rick Rosenfield decided to call it quits. The long-time business partners, then in their 40s, embarked on a radically different second career: Selling California-style pizza with unusual toppings, such as smoked gouda, cilantro and barbecued chicken. The verdict? Delicious, according to customers who mobbed the first location in Beverly Hills and prompted the lawyers-turned-restaurateurs to expand throughout Southern California. Today, publicly traded California Pizza Kitchen operates more than 250 restaurants in 33 states and nine countries; sells frozen products through Kraft Foods Inc.; and reports annual revenue of $677 million. Flax, 67 years old, and Rosenfield, 65, serve as co-CEOs.Edited interview excerpts follow.
Q. Tell me about the transition from law to pizza.
Rosenfield: We met in 1970 as federal prosecutors, and formed our own practice in 1973, Flax & Rosenfield. As criminal defense attorneys, primarily doing white-collar work, we traveled around America [eating in different cities]. That sparked our interest. Plus we both like to cook. We always had restaurant ideas, but clients kept giving us big retainers – dashing our restaurant dreams for awhile! Ultimately, we found it stressful to be defense attorneys.
Q. How did you decide on pizza?
Rosenfield: It actually started as a pasta concept I'd seen in Chicago. We checked out a similar restaurant in Glendale, Calif., and saw not-particularly-good pizza going around. But half the people were having a slice. Literally, that day, we said: 'Let's scrap the pasta and make it pizza.'
Flax: At that time, everybody was used to pizza made in [electric] deck ovens. We thought, what if we put one of those open-hearth ovens in the middle of a casual-dining restaurant? We thought it could be really cool.
Rosenfield: This was when California pizza as a concept was just starting, with Alice Waters at Chez Panisse up in Berkeley, and Wolfgang Puck at Spago.
Q. Where did you get your start-up capital?
Rosenfield: We put in $250,000 from our law practice, and thought we'd borrow the rest. But everybody was saying, 'Two lawyers going into the pizza business? That's crazy.' The bankers were mortified.
Flax: And we might point out that we way underestimated what the restaurant was going to cost us.
Rosenfeld: So we decided to see if we could entice any friends into this. Our lawyer suggested we make them limited partners. We made 23 calls to family and friends, got 22 yeses, and raised $300,000.
Q. Did you plan to make CPK a chain?
Rosenfield: Yes. We wrote a very unsophisticated business plan. It basically said we were going to create the third style of pizza – New York, Chicago, and now California. That was pretty bold for two guys who hadn't been in the restaurant business.
Q. How fast did you grow?
Flax: We knew right away we needed a second restaurant. We had to live off this. The only we could do that was to turn CPK into a major business before it was. We took our feet off first before we knew we could steal second!
Rosenfield: We converted our limited partners into shareholders, and said, 'Now you can put money into the company.' That helped us raise money for the second restaurant. Every time we needed money, we sent a letter to the shareholder base. By 1992, we had grown to 300 shareholders and $55 million in revenues.
Q. That was the year
acquired a 50% stake in CPK. What was the return for your investors?
Rosenfield: If you had originally invested $20,000 (which most LPs did) and chose to retain your holding, you got a $189,000 dividend. If you chose to sell your shares at that time, then your total return was $424,000. We made a lot of friends.
Q. But it wasn't smooth sailing after the Pepsi acquisition. What happened?
Rosenfield: Pepsi wanted us to build 50-100 units a year. When you have an unlimited check, you just put these things wherever. We did the classic mistake of a small business growing too fast. We put CPK in neighborhoods where people didn't know who we were. Pepsi eventually sold its interest to a private equity group, Bruckmann Rosser Sherrill & Co., in 1997. Pepsi acted in a very honorable way. We still serve Pepsi.
Q. BRS brought in a seasoned crew to take the company public. [CPK went public in 2000, raising $72.5 million and paying off some $40 million in debt.] During that time, you remained co-chairmen, but weren't running day-to-day operations. What was that like?
Rosenfield: There wasn't anything atypical going on, but it wasn't a fun period for us. I got better at golf.
Flax: I stayed at the office, but people thought I was a ghost. You sort of have a sense that one day things will change, and you don't want to let go.
Q. Ultimately, in 2003, the board asked you to run the company again. What was that like?
Rosenfield: We were very insecure. We hadn't run it in several years, so there were some people who had no allegiance to us.
Flax: But we had learned a lot [by that point]. We had opened up a ton of restaurants and run up debt. The mistakes become lessons. Every step of the way, we believed in the concept. In entrepreneurship, that keeps you rolling.
Q. What's next for you and CPK?
Rosenfield: We are very passionate about maintaining our standards, and growing globally. We're already in China, Japan, Hong Kong. Next year, we are opening in India. And we are not planning on retiring anytime soon.
Q. What's your best advice for other entrepreneurs?
Rosenfield: Be well-capitalized. So many concepts fail because the entrepreneurs misjudge how long it takes them to be successful.
Flax: Be optimistic. Bad times create openings of doors. A lot of people might think this is a terrible time, but it's not. There is a lot of money out there for good ideas. Real estate is cheaper, and there are more people looking for work. These are times when optimists can really take advantage. Now is the time to strike.
Q. Do you miss practicing law?
Flax: Not at all. Write to Colleen DeBaise at firstname.lastname@example.org