Formation of Flynn
That journey Flynn speaks of began in the mid-1990s via World Wrapps, a restaurant that “started the whole wraps phenomenon,” he says. The company was founded by a classmate from the Stanford Graduate School of Business, and Flynn decided to make a small investment. The first unit opened in San Francisco in February 1995, with lines around the block.
“Everyone thought ‘oh my God, we’ve got the next Starbucks on our hands, and we need to bring this to market as fast as possible,’” Flynn recalls.
To accelerate development, Flynn agreed to build stores in Seattle, where he was growing a budding real estate business. Between 1995–1999, he opened 14 units, and was quickly introduced into the “school of hard knocks for running restaurants.”
He learned to be a jack of all trades working in the front of house, back of house, construction, and other various tasks. Flynn also recognized that because he was in the beginning stages of an independent restaurant transforming into a small chain, he was playing in the riskiest end of an already treacherous sector.
Nearly all aspects were inherently more difficult, whether it was convincing landlords to lease space, vendors to sell their equipment, employees to come work, or customers to try the food.
“And you can’t borrow a dime for it, except on a full recourse basis,” Flynn explains. “Basically, you have to come up with all the money to do this.”
But in the late 1990s, he became aware of a financing opportunity in which he could receive all the necessary funds to buy into a top-tier franchise restaurant.
“I looked at this and it’s like wait a minute, I can borrow all of the money on a non-recourse basis to do this,” Flynn says. “And then once you do it, the customers already know you, employees know you and want to work for you, the landlords know you and want to lease to you, vendors know you and want to sell you equipment. Everything about it is easier.”
In that era, the hottest segment was casual dining, and the leader in the category was Applebee’s, Flynn says. So he took out a loan and purchased eight stores in the Seattle market.
He bought those Applebee’s restaurants from Cleveland-based franchisee Don Strang III, who owned roughly 70 units in Minnesota, Ohio, and Indiana, and was starting to develop New Jersey and Delaware. His Seattle outlets, however, were struggling due to expensive real estate, construction, wages, and food. The restaurants earned about $45,000 per week.
Flynn entered the venture with Brad Pettinger, who he recruited to build the World Wrapps business. Neither had much knowledge on running a full-service restaurant, but that void was filled by Dan Krebsbach, who spent years working for Strang in the Minneapolis and Seattle markets. Subsequent to the acquisition, he joined Flynn’s company as director of operations.
“He is perhaps the best restaurateur I’ve ever met in my life,” says Flynn, describing Krebsbach. “Consummate professional. And he said, listen, we can make it here in this market, but we need to do things differently than the way they’re done in the Midwest.”
Flynn and Pettinger gave Krebsbach freedom to make operational and CapEx decisions. And to ensure everyone’s interests were aligned, the duo shifted his compensation heavily toward profit sharing and gave him an equity interest. Krebsbach launched multiple initiatives, such as leaning into the bar and late-night business, shifting promotions to different lines or products, and stacking employment to meet higher sales volumes.
Within half a year, average weekly sales grew to $60,000. The group proceeded to open a ninth and 10th restaurant, which debuted with high volumes. It was at this point Flynn and Pettinger realized they were on to something major.
A couple of years later, Flynn contacted Strang again and bought the rest of his stores, swiftly expanding the footprint from 10 to 72 units.
“When you think of when was Flynn Restaurant Group founded, maybe it was when we first got in the restaurant business in ’95, but maybe it was when we first got into Applebee’s in one market in ’99,” Flynn says. “That’s what I normally think of it as, but maybe it was in 2001 when we assumed our current configuration of being a multi-market operator.”