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Florida and Tennessee. TGI Friday’s in Texas, Tennessee, and Indiana. Within one six- month period at Friday’s, he got two promotions, two bonuses, and two raises; then his boss left, and he got fired. That did it. Dunn was fed up with big chains.

At the age of 29, he returned to Atlanta, where he had attended Emory University as an undergraduate and where he began waiting tables at a local restaurant.

There he met David Lynn, the general manager of the restaurant, a similarly jaded 29-year-old who, by his own admission, had “begun to lose faith.” Lynn and Dunn started hatching plans to open their own place, where employees would enjoy working as much as customers enjoyed eating. They planned to target the smaller markets that the chains ignored. With financing from a friend, they opened McGuffey’s.

True to their people-oriented goals, the partners tried to make employees feel more appreciated than they themselves had felt at the chains. They gave them a free drink and a meal at the end of every shift, let them give away appetizers and desserts, and provided them a week of paid vacation each year.

A special camaraderie developed among the employees. After all, they worked in an industry in which a turnover rate of 250 percent was something to aspire to. The night before McGuffey’s opened, some 75 employees encircled the ficus tree next to the bar, joined hands, and prayed silently for two minutes. “The tree had a special energy,” says Dunn.

Maybe so. By the third night of operation, the 230-seat McGuffey’s had a waiting list. The dining room was so crowded that after three months the owners decided to add a 58- seat patio. Then they had to rearrange the kitchen to handle the volume. In its first three and a half months, McGuffey’s racked up sales of about $415,000, ending the year just over $110,000 in the red, mostly because the partners paid back the bulk of their $162,000 debt right away.

Word of the restaurant’s success reached Hendersonville, North Carolina, a town of 30,000 about 20 miles away. The managing agent of a mall there—the mall there—even stopped by to recruit the partners. They made some audacious requests, asking him to spend $300,000 on renovations, including the addition of a patio and upgraded equip- ment. The agent agreed. With almost no market research, they opened the second McGuffey’s 18 months later. The first, in Asheville, was still roaring, having broken the $2 million mark in sales its first year, with a marginal loss of just over $16,000. By mid- summer, the 200-seat Hendersonville restaurant was hauling in $35,000 a week. “Gee, you guys must be getting rich,” the partners heard all around town. “When are you going to buy your own jets?” “Everyone was telling us we could do no wrong,” says Dunn. The Asheville restaurant, though, was developing some problems. Right after the Hendersonville McGuffey’s opened, sales at Asheville fell 15 percent. But the partners shrugged it off; some Asheville customers lived closer to Hendersonville, so one restau- rant was probably pulling some of the other’s customers. Either way, the customers were still there. “We’re just spreading our market a little thinner,” Dunn told his partners. When Asheville had lost another 10 percent and Hendersonville 5 percent, Dunn blamed the fact that the drinking age had been raised to 21 in Asheville, cutting into liquor sales.

By the end of that year, the company recorded nearly $3.5 million in sales, with nom- inal losses of about $95,000. But the adulation and the expectation of big money and fancy cars were beginning to cloud the real reason they had started the business. “McGuffey’s was born purely out of frustration,” says Dunn. Now, the frustration was gone. “You get pulled in so many directions that you just lose touch,” says Laibson. “There are things that you simply forget.”

What the partners forgot, in the warm flush of success, were their roots. “Success breeds ego,” says Dunn, “and ego breeds contempt.” He would come back from trade shows or real estate meetings all pumped up. “Isn’t this exciting?” he’d ask an employee. “We’re going to open a new restaurant next year.”




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