Turning the Old Country Store into the Next Failed Restaurant Chain…

Note: I have no positions in Cracker Barrel (CBRL), and actually no holdings (short or long) of any public companies. I recently told my investors that I am doubling down personally on Early Light, Fund 2 - and will remain heavily weighted in venture. However, I do watch public equities for a variety of reasons…

My wife absolutely loves Cracker Barrel. From the rocking chairs to the retail store and old timey vibe - it’s her happy place. She’ll gladly drive way out of her way to eat their breakfast, and even wanted to have our first birthday dinner as a couple at Cracker Barrel. Although the service is generally super hit or miss, I don’t think there is anything she would change. 

The new CEO sees things very differently - and thinks Cracker Barrel is “not as relevant” as they once were. She also wants to make a bunch of changes to the experience - including axing Taylor Swift’s favorite menu items, and raising prices. Although I can occasionally best my wife at the Barrel Peg game, she’s the Cracker Barrel connoisseur and expert. But, she’s also not necessarily their core customer – we live 20+ minutes from the closest Cracker Barrel. And, if you look at their 662 locations in the US, it’s painfully obvious that they’re making huge mistakes. 

Most Cracker Barrel locations are in the southeast (or in northern areas that are culturally similar to the south). Although the management team may not like the long-time Cracker Barrel customer, those customers comprise their entire brand. There are also adjacent segments that could be brought into the fold, including the kids/grandkids of their longtime fans. Hell, they could work with popular country artists or a megastar like Taylor Swift on special menu items – and drive lots of quick traffic. Instead of making huge directional shifts and doomed investments, they should make incremental adjustments. 

I’m not a restaurant industry guy, and candidly, don’t even love Cracker Barrel’s food or country music. But, I’ll willingly eat at a Cracker Barrel anytime my wife wants - I love rocking chairs, and the vibe. It’s also hard to beat all day breakfast, and great people watching. 

I could take this article in a variety of directions, but will stick to just one – doubling down on your authentic brand and your core strengths. Improving weaknesses and covering blind spots can be important, but you can only be truly unique or special at certain things. Cracker Barrel has been around for 55 years, and has had a very clear identity. It’s also created many special memories for families across the south - these experiences are connected to the roots of the brand. If the current management team veers too far, they’ll lose their foundation (and decades of goodwill). If they doubled down on this heritage, and tried to link the past with the present customer base, they’d only sharpen their edge. 

I’ve lived the Cracker Barrel situation myself in past jobs, and most recently in Early Light. My angel thesis was focused on backing very early (true pre-seed) companies at real valuations in 2nd tier cities, run by primarily first-time founders. These founders are insatiably hungry, deeply competitive with themselves, and passionate about the problem they aimed to solve. As an angel, I made all investment decisions myself, did all the diligence, and generally knew very quickly if I wanted to invest. I also picked the check sizes, and deployment pacing – if I didn’t see anything I really liked, I’d keep my checkbook closed. 

This thesis and “lone wolf” mentality is not very institutionally backable or super scalable. I’m not going to raise a $100m fund based on me doing everything end to end…and calling all the shots. So, Fund 1 was structured completely differently, and in many ways, buttoned up. We had a 4-person investment committee, every investment/reinvestment decision had to be unanimous, and there was an emphasis on making concentrated checks. The core idea was to create something that could be institutionally backable - and scale. 

Fund 1 should hold up really well vs. the 2019-2021 fund vintage, but I’m not necessarily happy with the results. As my Fund 1 investment committee often tells me, I operate far better as a “lone wolf” investor. I like having control, being fully accountable, and having the pressure pointed directly at me. Although my realized angel checks could easily produce a 10x+ realized multiple and 60-70%+ IRR within the next year or two, institutional investors still will not care. I’m not even sure family offices will pay attention. But, it’s also how I get the best results, and part of my identity. 

It’s taken me many years to grasp why I’ve always gravitated toward somewhat abnormal venture deals, and why I had so many continued issues with the Fund 1 process/structure. While it took a lot of processing and lessons learned to reach this conclusion - it also came down to a clear reason. I identify tightly with these founders, and their missions. I love being an underdog, thrive on being counted out, and am dramatically more competitive than most people realize. Failure bothers me to my core, and I have trouble walking away when I think I can make something work. It’s why I’m horrible at assembling crappy furniture (I don’t give up), sleeping (my mind can’t turn off), and even taking time off (something that does need to improve). While I have plenty of flaws and my share of weaknesses, I also now know who I am - and how I thrive. 

If I were to change work identities and follow the normal venture route (chasing unicorns), I’d probably have a much easier time fundraising. I’d be more institutionally backable. And, I’d have a lot less ground to cover (basically only focus on Silicon Valley, NYC, and maybe Israel). However, I’d also fail miserably. I’m not a good high stakes gambler (unicorn hunting), not good at just letting things fail (these investors have heavy write off rates), and am way too rational (I don’t buy crazy visions). I’d also have major heartburn over the valuations, burn rates, and generally ridiculous investor updates (more on that in a future article). Most importantly. I’ve spent my career building bridges into 2nd tier markets, and building a high hit-rate track record. If I started unicorn hunting, I’d also be starting from (almost) scratch - and building something that would likely fall apart. 

Cracker Barrel is headed down a unicorn hunting path - they’re straying from their core competencies, and stretching their finances. Worst of all, restaurants are struggling, and the macroeconomic picture is not likely going to get rosier. If anything, things could get downright scary. Cracker Barrel is sitting on ~$1.1B in long-term debt and only generated $82m in TTM free cash flow. They are not exactly in an opportunistic position - especially if they spend $700m more on changes/updates. If anything, they should cut costs, cling to their core identity, and try to build up some slack on their balance sheet. Even if the macroeconomy somehow stays duct taped together, they’ll maintain an engaged core customer base, cleaner balance sheet, and leaner organization. While this is a very boring strategy, it’s also a good path. And, it’s exactly the path I’m on with Fund 2. 

Fund 2 has no institutional investors, and I doubt any future funds change course. I’m a “lone wolf” again - and will call all the shots. Although it’s more pressure, and 100% accountability, I love it. I cherished the pressure of proving this thesis with my own money. I liked being an investor with a clear, kinda unorthodox identity. And now, I can apply all the lessons learned from Fund 1’s completely different process/structure, into Fund 2. I’ll stay very patient on deploying money, but I may have to hurry into our local Cracker Barrel…it may not be around forever.