Todd Graves, co-CEO and founder of Raising Cane’s Chicken Fingers, took a high-risk funding strategy to grow his business, leading to a near-disastrous outcome that almost cost him his dream. To raise enough capital to open the first location of his restaurant, Graves worked long hours in an oil refinery and even fished for salmon in Alaska. He took out loans with private investors at a high 15% interest rate and then leveraged that debt at community banks, which treated it as equity, enabling him to secure even larger loans.
The risky decision of taking on substantial debt almost backfired for Graves when Hurricane Katrina shut down the majority of his stores in the Baton Rouge area in 2005, cutting off the revenue needed to avoid defaulting. Despite this setback, the business survived and quickly reopened after the hurricane, ultimately teaching Graves the importance of balancing risk. He now ensures that his company has less than three dollars of debt for every dollar it owns, a practice that has helped the business thrive in the long run.
Bryan Bean, executive vice president of corporate banking at Pinnacle Financial Partners, notes that Graves was fortunate that his heavy debt load did not sink Raising Cane’s. Keeping the cash flow leverage ratio below three times, as Graves now does, is considered the industry standard to mitigate risk. Bean emphasizes the importance of maintaining a healthy debt-to-EBITDA ratio, as businesses with too much debt may struggle to recover from unexpected events like natural disasters.
While taking out loans can be beneficial for growing a company, it also comes with significant risks, particularly in the face of unforeseen challenges. The ability to manage debt and navigate through tough times is crucial for the survival of businesses carrying a heavy debt load. Despite the initial difficulties and close calls, Graves’ risky move did not ultimately sink his company. He learned valuable lessons from his experiences and now attributes the close call to his youthful inexperience.
Graves’ success story highlights the importance of finding a balance between risk and reward in business. His bold gamble paid off in the end, leading him to an estimated net worth of $9.5 billion today. By leveraging debt strategically and learning from past mistakes, Graves was able to steer Raising Cane’s towards success. His journey serves as a valuable lesson for entrepreneurs, emphasizing the significance of making wise financial decisions and managing risk effectively in order to achieve long-term growth and sustainability.
