Former restaurateur and current tech company cofounder David Joseph took the adage, “Be the change you want to see in the world,” to its furthest conclusion. The owner of a celebrated restaurant in Montclair, New Jersey that enjoyed an 18-year run before he sold it, Joseph is no stranger to the stress of staying on top of the outflow of cash from a restaurant. When his frustration reached its peak, Joseph decided to do something radical–endeavor to solve the problem for the entire industry.
Clover’s Content Marketing Director, Andaiye Taylor, recently spoke with Joseph about the hair-pulling frustration of managing sales taxes and the company he created to do something about it; the wrong and right way to think about restaurant management; and one thing everyone else in business can learn from what restaurateurs do well.
Andaiye Taylor: You’ve told an anecdote about a time when you still had your restaurant when you reached a breaking point with sales taxes. What was that incident?
David Joseph: I remember that incredibly well.
Our bookkeeper came to us and said, “I have your sales tax return. You need to have $9,000 next week.” And I said to her, “Didn’t we just pay sales tax last week?” Because when you’re in a restaurant business, you don’t have notions of time because you’re just so busy all the time.
I walked out of our kitchen and I said to my wife, “Why can’t someone do our sales tax the way ADP does our payroll?”
I knew that the secret was putting sales taxes aside daily. That was the big struggle. You collect a few pennies per sale, but at the end of the month or the end of the quarter, it just becomes thousands of dollars. It’s a cash management issue, but people don’t open restaurants or open businesses to become tax collectors.
From there on, my wife started making all of the managers, at the end of every shift, put the sales tax money into an envelope, mark it with the date and drop it into a safe. She was the only one who had a key to that safe. We did our own daily cash management. The daily putting aside was a solution. And that’s how it all started.
Andaiye: Why didn’t someone come up with this sooner?
David: We ask that question all the time. It’s like if this is so obvious, why didn’t someone else do this?
We’ve always known it was really good idea, and it takes grit – you have to believe in what you do to stick with it.
When I said, “Why can’t someone do our sales tax like ADP does our payroll,” that was probably 1999 or 2000. The only way it would ever be successful is if we got a patent on the process, and so we applied for the patent in 2000, and we got the patent in 2010–10 years. Between 2010 and 2012 we raised money.
It’s been very long process, but we never thought that our idea was bad or that it wouldn’t be successful. It would be successful because there’s a need. And we knew that our solution was the best solution.
Andaiye: You were praised for creating a solution to a problem instead of a solution in search of a problem with your technology. Are there other problems, based on your time in the restaurant industry or what your customers are talking about, that you feel DAVO is well-placed to solve?
David: What we realized after we got our patent and started working with this application is that we’re ultimately a cash management company. We’re money movers.
We’ve taken that concept and we’ve developed other applications with it. We have two new apps now, and these two apps, they do the same thing.
Sweep and Save puts aside a percentage of sales, and on the first of the next month, sends it back to you. If your rent is $600 a month and you’re open every day, you can put aside $20 a day and have $600 in your account on the first of the month. You don’t have to think about it. It’s done for you. Twenty dollars a day is a lot easier than coming up with $600 a month.
Our other app, Savings Club, is a rainy day fund. How many times do restaurants say, “Oh, the air conditioner broke. The refrigerator broke.” So Savings Club, you put aside a little bit of money every day, and there’s a little bit of a rainy day fund there. If you put aside $20 a day, at the end of the year, you’re going to have somewhere around $7,000.
It’s interesting because it’s a thing that people can technically do themselves. But there’s so much else going on that it’s tough to do. It’s the psychology of having to manage so many things–the automation makes a difference.
I often say they don’t call it running a business for no reason. It’s called running a business because you’re not walking, you’re running a small business, and you are running 24/7.
Really good business owners, a lot of times, have a hard time paying themselves, budgeting for a rainy day, and making sure tax gets paid on time. These are things that are the pain points of running a business right, but they’re really important to, and our apps address all of those issues.
Andaiye: You guys have a perfect five-star rating on Facebook. People use words like “love” and “blessing” and “rescue” in the reviews to talk about what your technology means to them.
People have responded in such as visceral way to the service. When you started this company, where you confident that this was the response you were going to get?
David: Absolutely we did. Paying taxes–it’s a personal thing. You’re writing out a check to the state that’s bigger than your paycheck, that’s bigger than rent, that’s bigger than your payroll every month.
As a business, look at this way: I get nothing. I write a check for $9,000, and what did I get for that? I didn’t get more customers. I didn’t buy food. I didn’t make an improvement to my restaurant. I didn’t get the benefit of a bigger paycheck. Nothing. Zero. So it becomes an emotional thing when you’re signing this huge check every month.
That’s why when it’s out of their account, they say “I sleep better at night.” We knew that it was going to be an emotional thing for people. We knew that it was going to take a lot of stress out of their lives.
Andaiye: I want to pivot to your restaurant experience. You talk about how paying taxes doesn’t add to the bottom line. You said that’s the reason people should try to get it done as quickly and cheaply as possible. What are some of the things that restaurants should do that add value to their businesses that they don’t generally spend enough time on?
David: I think most people are taught incorrectly about how to run a restaurant.
The general teaching is there are three things you have: food costs, labor costs and overhead. The old equation was, a third, a third, a third, in your restaurant. And that’s the completely wrong way to look at how to run a restaurant.
Chefs and owners need to think like investment bankers. Every time they purchase something, they’re making an investment in something, and that investment needs to make a return.
I look at a restaurant as though it’s run on two numbers: how much you paid for something, and how much you sold it for. How much did we buy this food for? What was the total of all of our receipts that day, and how much did that earn us at the end of the day? Those two numbers determine everything else in the restaurant. It’s going to determine whether you can pay your rent, whether you can pay your payroll, and how much money you’re going to make. As an owner, you have complete control over that every single day.
The problem in the restaurant business is that if you ask most chefs and most owners what their food cost is right now they’ll say, “Last month, it was 34 percent.” Last month? You should be doing that every single day.
The same thing with sales tax. They look at periods of time that are just too long. And once they start thinking about the restaurant in terms of investment in food each day, and what it returns at the end of the day, they actually start homing in and making the restaurants very, very successful.
That ties into Clover. A restaurateur once said to me, “The most expensive seat in a restaurant is the empty one, because it’s costing you. It’s not bringing you money. It costs.” That’s a different way of looking at it, but that’s how you have to look at it.
So how many times in a night can you put somebody into a seat in your restaurant without making your restaurant bigger? How can you turn more tables? This is what Clover Flex is all about. If you can speed that up and at the end of the night gain ten more seats, and each one of those chairs is worth $40, you’ve just made $400 more that night. You didn’t add more seats to your restaurant, you simply found more efficiency for your restaurant.
Restaurateurs don’t think this way because they’re so busy running their restaurants, and then running and running and running. And when you get rid of certain things like sales tax it becomes more efficient, and you have more time to do those things.
Andaiye: In terms of specific skills, what’s a skill that you think restaurateurs should work on more?
David: One of the skills that restaurateurs, and business owners in general, need more of is cash management skills–really understanding the flow of money in and money out. They’re very good at getting money in, and Clover helps them do this. There’s loyalty. There’s gift cards. But the outflow of cash, which is where they have to manage that money–most business owners really lack this skill.
It’s very easy to say, “I don’t have money. I’m gonna fix the refrigerator instead. I have a big wedding. I’m gonna put my sales tax off.” And then they get hit with this huge penalty.
Andaiye: What is a skill or a set of skills that you think a lot of restaurateurs have in common that they do very well and should feel good about?
David: Something they do really well by virtue of being in this industry: I think restaurateurs are incredibly passionate and proud of their work. It’s demanding, it’s hard, and it’s creative. And it doesn’t matter whether it’s Le Bernardin or your corner bar. I think in general terms, they’re incredibly proud, hard-working businesses.
And I think sometimes they don’t get enough credit for that. It’s a really hard business, but it’s also very rewarding. And it’s a constant challenge.
I hear from people who are in other professions. They say: “I can’t wait to retire. I can’t wait to get out of it.” I don’t think there was ever a day at the restaurant that I regretted being there. It was always interesting, and it was always fun. I think that’s something that small businesses really have in common. Is the love of what they’re doing, and the passion for it. They’re not passionate about sales tax.
Andaiye: And speaking of that, have you encountered anyone who started off with the passion and the love for it, and then became disillusioned with it? And have you ever encountered someone who’s gotten to that place and then worked their way back to loving it again? How did they do that?
David: So, I don’t know. I’ve learned a lot about startups and about technology. Companies like I have now are very different than restaurants, but I think there are lots of things that are applicable to it.
First of all, you have to believe wholeheartedly in what you’re doing. There’s a reason for showing up to work every day. And you have to be passionate about it, and you have to stick to it.
We’ve had people come up to us and say, “This is a great idea you guys have. You are turning something on its head, but with a great solution.” There are two guys who want to partner with us to explore other ways of using our process. They’re actually talking with another company about using it as a bill collecting method for them. So it’s interesting. I love showing up for work every day.
Andaiye: Have you ever longed to still be in the restaurant industry? Is it something you would do again?
David: I do consulting with restaurants, and I would rather do that than get back into it. I know my wife would probably kill me. A good friend of ours, we keep saying that when we retire we’re going to open a bar and call it Absinthe Minded.
Andaiye: I was reading the New York Times review of your restaurant in Montclair (New Jersey), and it was a glowing review. It cited the fact that your dishes were so original, and the one they cited was a dish made of organic field greens and maple balsamic dressing.
I’m curious about how important that type of originality is in the restaurant business versus sticking to the tried and true, and how you came up with these concepts that might seem off the wall, but then became fan favorites.
David: We were way ahead of our time. We were going to farmers’ markets and finding everything that farmers had at the end of the day and trying to source locally. Remember, this is like 1990, and I closed my restaurant 2003. This was way before the current farm-to-table movement.
My mother would say to us “Why would I ever order that at a restaurant? I make that at home.” That always stuck with me. We were always trying to stay ahead of everybody else and what you could find in the supermarket. I remember the maple balsamic dressing recipe – actually we’d seen it somewhere, I think up in Vermont at some restaurant. I was like, “This sounds actually really good,” and we created our own recipe for it. I still make it today.
Andaiye: What were you most naive about when you started your restaurant?
David: The restaurant kind of started out of ignorance. I was not trained in the restaurant business. I actually started a catering company prior to starting a restaurant. The space that we ended up in had a kitchen with a front retail space, and the retail space never did well. I thought, “We could do a lot better if it was a restaurant.”
And that was kind of how it started. I hired a couple of chefs, and one day one of our chefs didn’t show up and I thought, “I’ve been watching him. This is not rocket science. This is basic organization and cooking and learning skills.” I essentially taught myself about running a kitchen and cooking, and it grew from there.
We built the reputation around using the best quality ingredients. We sourced from really good people, and we just tried not to screw it up.
Andaiye: What do you wish you had known at the outset that you had to learn the hard way?
David: You pay sales tax on time. (laughs) That was a big one that cost us tens of thousands of dollars in penalties.
I think at the beginning, a lot of it was learning as we went. Successful businesses are constantly reassessing, and changing, and adapting, and becoming more efficient. And those who don’t do that will not survive.
You have to be constantly self-critical of yourself and of your business, and improving every day. That, I think, is a really important lesson. I cook better now than I did when I closed my restaurant in 2003. Why is that? Because you’re constantly looking at what did you do: what could I have done to make it better? That’s one part of it.
The other part is–I’m famous for saying this around our office–if I’m the smartest person in the room, I’m in the wrong room. You have to surround yourself with people who have better skills than you in certain areas, and you have to be ready and willing to admit that. It’s very hard for a lot of people in restaurants. There are a lot of really big egos in restaurants. You need to be confident in your own skills, but also hire people who are better at things than you.
Andaiye: Tactical question, back to DAVO itself. How does your team stay on top of all of the tax laws in all of all the different states?
David: Great question, and honestly, we don’t. Here’s the reason: our terms and conditions are actually quite clear that it’s a merchant’s responsibility to supply us with the correct data. It is their responsibility to make sure that their Clover is programmed correctly.
When someone calls us up and says, “What’s the tax rate in my jurisdiction?” we will never give them a tax rate. What we advise them to do is to call their State Department of Revenue and ask them. We don’t even we tell them to search for it online. We have a list of all the numbers for the states on our website.
Andaiye: In one of your previous interviews, you said that the tech for DAVO had to catch up to you guys’ idea. What was the capability that had to develop before you were able to actually complete the technology and bring it to market?
David: Remember, we applied for a patent in 2000 and we got it in 2010. For our application to work we need data. The old cash registers did not have connectivity, and there was no way for us to get data. The cloud is what enabled that.
Andaiye: Lastly, how did your integration with Clover come to be?
David: We were at the RFPA conference, which is essentially the cash register conference every year in Las Vegas. The first day we walk into the exhibit right outside. There was a display setup, and there was Mark Schulze and John Beatty. They were showing Clover, and they started telling us what they were doing, that they were creating, essentially, a cash register with an app marketplace like your phone.
They said, “What do you guys do?” And we’re like, “Oh, we got this little sales tax product.” They said, “That would be a great app. We want you to integrate.”
So we did the whole integration. We bought one of the very first Clover units, before the new Clover Station even came out. A really good friend had a bed and breakfast with a restaurant. We put it in there and we beta tested it. And that was the beginning of Clover for us. We were getting data from it. It was working. From there, we did the integration and the rest is history.
Clover is sold by leading U.S. banks including Bank of America, BBVA, Citi, PNC, SunTrust and Wells Fargo. You’ll also find Clover at our trusted partners including CardConnect, Restaurant Depot, and Sam’s Club. For more information, visit us at clover.com.