TO WATCH (Lee-Collier): Tony Phelan

ENTREPRENEURS TO WATCH: LEE/COLLIER

PINCHERs Crab Shack

Tony Phelan

Restaurants are notorious for their short lives. In an economic downturn, their survival rates are even more dismal.

Tony Phelan knows all about that, but he's not going to be one of the casualties this time around. Phelan owns a chain of seven seafood restaurants from Sarasota to Naples called Pinchers Crab Shack.

He built his chain using the lessons he learned in Texas, where the oil bust wiped him out in the mid-1980s. The biggest lesson: Keep overhead low so you can operate during good and bad times.

Phelan never filed for bankruptcy after his four Texas restaurants failed in the late 1980s. But he came close. Phelan, his wife and two children then packed two cars with all their belongings and headed to Florida to start over.

After he moved to Florida nearly two decades ago, Phelan took a job as a waiter at the Dock at Crayton Cove, an upscale restaurant in Naples. Phelan worked a series of jobs, eventually becoming a restaurant manager.

In his spare time, Phelan scoured the dumpsters for used restaurant equipment and once carried a stack of two-by-four boards he found near a construction site. He stashed them in his garage for the day he dreamed of opening a restaurant again.

Ten years ago, Phelan got another chance at becoming an entrepreneur. He leased a small, 4,000-square-foot space for $2,900 a month, determined never to overpay rent again. He also outfitted and decorated the Pinchers restaurant for just $17,000, using all the equipment and cast-off wood he had collected over the years. While he was building that restaurant, he didn't collect a salary for three years. His wife, Kathleen, took a job as a teacher and worked as a seating hostess at a Red Lobster restaurant.

Phelan opened subsequent restaurants in the same way. He refused to pay extravagant rents, decorated his restaurants by creatively using second-hand materials and equipment and he took no debt save for a few real-estate bank loans.

In an effort to control seafood costs and bypass middlemen, Phelan recently purchased 50% of a crab-processing facility on Pine Island in Lee County called Island Crab. Call it a case of hedging future crab prices, which rise sharply during season and fall dramatically during the off season (could we one day be trading crab futures like soybeans or corn?). He says the facility could also serve as a distribution center to supply seafood restaurants on the Gulf Coast.

Phelan has set his sights on replicating his success elsewhere and he's working to formalize procedures. Other coastal cities such as Savannah, Ga., Charleston, S.C., and St. Augustine could be good locations for Pinchers. "We've committed to not opening a restaurant this year to make ourselves better," Phelan says. Judging by the last few years' revenues, Pinchers is already doing well.

Entrepreneurial TIP:

Q. What mistake have you learned from the most?

A. Tony Phelan had built a chain of four successful restaurants in Texas when the oil bust occurred in the mid-1980s. The collapse of the oil market revealed a serious weakness: "We were overleveraged," Phelan says, looking back. This year, his chain of seven Pinchers Crab Shack seafood restaurants is on track to break $20 million in sales and he owes less than $800,000. One of the biggest lessons from that mistake was being careful not to overpay for restaurant space. "Twenty years ago [in Texas] we had great leases, but I was working for the landlord," Phelan says. Now, he won't consider leasing space unless it makes financial sense, even if it means turning down a great location. "We've looked at 200 locations and turned them down to get to the seven now because they weren't good business deals," says Phelan.

BY THE NUMBERS

PINCHERS CRAB SHACK

Year Revenue* % change

2005: $8 million

2006: $10 million 25%

2007: $14 million 40%

3-year ave. annual growth: 33%

Employees

2005: 150

2006: 200

2007: 300