told me that the business, even with low sales, was making a respectable profit.
He had only been open for six or seven weeks and said, “Jim, I don’t have a financial statement or a set of books. I have been accumulating sales information which shows how much money we have taken in each day, and I can show you what I have paid out and let you look at my checkbook, but I haven’t got a profit and loss statement or a balance sheet to show you.” I said, “Dave, why don’t you just gather up whatever records you have and deliver them to my accountant, Hugh Shillington, who is a CPA. He can prepare a financial statement for you. This should affirm the level of investment you have made in the business, and it should also show you how profitable the business has been since you opened.”
This was acceptable to Dave, who had previously told me that the business was already profitable, although he didn’t have the exact figures to prove that. Citing the restaurant’s ability to deliver low labor costs, he speculated that the operation was producing a profit of close to 28 percent of sales. I could hardly believe that this small business could produce such a high margin of profit on such limited sales, but I did accept the idea that this was a profitable business. Dave delivered his “books,” which were papers of all kinds stuffed in a peach basket, a container he had picked up from the local produce market. He simply threw in his sales records, checkbook, and various invoices representing the purchase of his equipment, bills representing pre-opening expenses, and miscellaneous expenses he had incurred in opening and operating the business. Several weeks later Mr. Shillington presented a financial statement on David Edgerton—sole proprietor and owner of the Insta-Burger King business located at 3090 NW 36th Street, Miami, Florida. The statement was at considerable variance from Dave’s estimate of the operating results. Not only was he not making 28 percent profit on sales, the report stated that he had actually lost 56 percent on the sales he had been able to generate up to that point.
Why was I willing to invest in a business that was reporting such dismal results? The answer is that the financial statement covered only a very brief period of time and it involved a lot of start-up expenses that tended to distort the picture.
I was willing to look at it that way, but I was really more interested in looking at the character of David Edgerton and asking myself if this fellow would make a good business partner. I was completely satisfied on that point, so I was willing to trust my instincts as far as Dave’s integrity and his commitment to the business were concerned. My major focus was on the business concept itself, and I liked what I saw there. The Insta-Burger King idea was a simple food-service concept that with adequate sales could easily be expanded into a multi-unit chain of restaurants. This was exactly what I was looking for. I could see that there were a number of operational problems to iron out, but the simple menu, low prices, high margins, and fast service were all ideas that made a lot of sense to me. I was ready to put everything I had on the line and join up with this very intelligent and interesting individual.
The financial statement from Hugh Shillington showed that Edgerton had made an investment of approximately $20,000 in the business. This was consistent with what Dave had told me. I agreed to match that capital, and on June 1, 1954, three months after Dave had opened his first Insta-Burger King restaurant, we formed a corporation called Burger King of Miami, Inc. This new company took title to Dave’s proprietary assets and assumed all of his business liabilities. We issued 50 percent of the stock to each of us. Our statement showed that we had invested $40,000 and owned one Insta-Burger King restaurant. After investment, we had enough cash, if levered properly, to open a few more restaurants. We had a record of losses on the books, but aside from that we had confidence in the prospects for growth and expansion.
Recognizing the opportunity put in our paths motivated us to push forward in spite of the potential shortcomings that could be in store. We had the passion, enthusiasm, and the capital to move ahead. The lesson would be not to let a narrow perspective or former track record deter us from pursuing that opportunity.
Original Burger King pre-1957 and the creation of the Whopper
The decision to join Dave and invest in the Insta-Burger King business was among the most crucial business decisions I had ever made up to that time. I had no way of knowing whether this novel concept of food service would catch the public’s fancy or be successful. To me it was starting out all over again with the same fears and anxieties that had attended the opening of the Colonial Inn and the Brickell Bridge Restaurant. While I believed the concept would work, the nagging question was: could the business succeed? Could the two of us make a success out of building a chain of restaurants using this self-service concept and two screwy and temperamental machines? This wacky idea had never been tested in the marketplace. Like I had done so many other times in the past few years, I was putting all my available capital on the line and risking everything on the assumptions that we could make a success out of a completely new and still unproven business idea.
Looking back, I had to question my judgment. At the time I had a net worth of just a little over $20,000, all I had been able to accumulate after being in business for almost five years. Now I was betting the whole bundle on something my instinct told me was okay even though I knew very little about this new and untested business. Nancy and I had just bought a new home, which was heavily mortgaged. With three small children to support, it was risky to take on such a heavy financial burden. I had very little backup capital; I was in a fifty-fifty partnership with a person I liked and respected but about whom I knew very little. As it turned out, Dave and I got along wonderfully. At least on that score, my instincts were good. We had differences of opinion and a few disagreements from time to time, but we enjoyed an exceptional relationship over the years and became close personal friends as a result.
Dave and I discussed how much each of us should draw from the business. We reached a decision that I would draw $12,500 per year, and he would draw $10,000. Dave could see that with a new home and a family of five to support, my financial needs were greater than his. I genuinely appreciated his thoughtful, understanding, and unselfish attitude.
Soon after forming our corporate partnership, we arranged to build two more Burger Kings. Without financial means to develop real estate, it was necessary for us to convince investors to acquire land and build our single-purpose building on lease-back arrangements. The early Burger King buildings looked similar to soft-serve ice cream or root beer stands. The buildings cost around $15,000 and the land averaged about $25,000, so a real estate developer willing to take a chance on us had to make an investment of $40,000. If the business failed, the building would be of little use to a lender, the developer, or anyone else. There was a good amount of risk involving for everyone, including us.
We convinced two different property owners to build two restaurants for us in Miami. The first one at 6091 SW 8th Street and the second one at 8995 NW 7th Avenue. There was nothing spectacular about either opening, and this was very discouraging to us. Both restaurants had uncovered patio areas for customers, but most preferred to eat in their cars. We opened our fourth store on US Highway 1 in Homestead. It was a long way from Miami, but the owner of this site was willing to have us build a Burger King store there.
Sales in all the new stores turned out to be very disappointing. In addition, the Insta-Machines were continually breaking down and causing serious business interruptions. This put us face-to-face with some serious financial problems. Our monthly operating statements told a grim story that we were losing money and losing it fast. The public seemed to be indifferent to our concept, and we couldn’t figure out the reason. It looked like we weren’t going to make it. Dave and I were shaken as 1955 drew to a close. We were up against a financial wall, and we knew it. We needed to do something, and soon.
There was a bright side in my personal life, however. 1955 was a special year for our family. On September 3, Nancy delivered our fourth child, another little girl whom we named Susan Evans. Little Susie soon became the centerpiece in our home. She