In the early 1990s, Rhodes co-owned and operated the Lazy Bagel, which, at its peak, had two locations in the City. But he eventually closed the chain and went back to UVA for an MBA.
RBS chatted with Rhodes about the bagel biz and his job with a Richmond-based direct mail firm that has added dozens of employees in the past few years.
Below is an edited transcript:
Richmond BizSense. Let’s talk about your current company, Direct Mail Solutions. What does DMS do, exactly?
Tom Rhodes: We are in the production end of bulk mail. We do a lot of solicitation for nonprofits. We do the actual data work, the personalization, stuff envelopes, put on stamps.
RBS: The business is thriving, no?
TR: We’ve gone from 30 to about 100 employees in the last seven years. Ironically, 2009 was our best year top and bottom line ever. It took a recession to get us to focus as being as efficient as could out of sheer terror. It worked. Revenue is up top line about 15 percent this year.
TR: Probably 10 percent over next year. We’ve added our biggest capital investment ever, a new machine that can help bring down bulk purchase cost on bulk mailings. We’re also focusing on picking up new clients and have a few toe-holds on West Coast. We’ve also gone to more and more regional marketing conferences, and we’re able to stand out a little more because other vendors are pulling out.
RBS: Switching gears, several of us in the newsroom think Richmond could support a bagel place. You ran the Lazy Bagel in the early 1990s. Do you ever miss it?
TR: You know, I don’t. I had a great time doing the bagel stuff. I graduated college in 1991 and spent about a year learning the trade. I worked at a Subway and went up to New Jersey to work in a local bagel restaurant. But there wasn’t a range of possibilities. Mailing to most people seems straightforward, but there are an incredible number of complexities and an awful lot number of ways you can expand and move into other things. For me, as a numbers guy, I love analyzing what I think are short- and long-term opportunities where we can put investment dollars. I get a kick out of figuring out what’s best for us and clients.
RBS: What was your first location?
TR: Our first one was in Carytown. That was pretty profitable. It made sense and had a big weekend crowd. We could do half a million a year in revenue. But keep in mind a McDonald’s or a good Wendy’s does over a million. We also added a second one near Bank of America building downtown, but the rent was killer.
RBS: What kind of margins are in the bagel biz?
TR: You could do 20 percent.
RBS: What was the biggest perk of the Lazy Bagel?
TR: I love eating my inventory and loved managing it.
RBS: What are the limitations of the bagel business?
TR: At a certain point, you have to step it up to visualize franchises to continue to have that growth and the possibilities and what you’re looking to accomplish. The competition moved in hard, and it was going to be extraordinarily challenging. At that point in my life, I needed more formal training.
RBS: So you went to Darden. I imagine you were one of the few students who had owned and run a business.
TR: There were a few of us. For me and some of more entrepreneurial folks, there is just some of this stuff you gotta know.
RBS: Can you compare the formal business education with the bagel school of hard knocks?
TR: They complimented each other. I was an undergrad history major and took a lot of math. Intuitively, I knew there was more to how you could analyze a business, but I didn’t have those tools. I wish I had. Of course, that’s a chicken and egg situation. I was able to apply a lot of what they taught to what experience I had. And it helped me more. For example, take the operations class. I thought phenomenal. A lot of people looked at them as theoretical in nature.
RBS: If you had gotten and MBA first and then started the bagel business, what would you have done differently?
TR: I would have considered different financing and marketing. There are some things I was not aware of, some possibilities I was not aware of. I think had I gone back first, who knows. Very likely I would have never considered a bagel business, so it’s a moot point.
RBS: Do you think you will ever get back into food?
TR: I love food. I love going to restaurants and all that stuff. But it is a pretty brutal business. There are two avenues to great success. Obviously hitting on some really good niche and good marketing package and going the franchise or chain route. Or being 100 percent dedicated to craft and having one or two locations and just being there all the time, making sure everything is perfect all the time. That is tough.
RBS: What’s the biggest lesson you learned from the Lazy Bagel?
TR: You’ve got to be real careful about being penny-wise but pound-foolish. We scraped it up to get started and did it on a shoestring. Had we spent a little more upfront and did a few things upfront, had we been a little bit more aggressive with investments – I think it would have paid off really well.
The principal owner of Direct Mail Solutions has a good gauge on that. I am a thrifty person by nature, and he is more of a visionary. You have to spend some money to make some money.
Aaron Kremer is the BizSense editor and would consider opening a bagel location if he knew how to make a great bagel. Please send news or bagel-making tips to [email protected].