A Seventy-Six-Year-Old Dude’s Attempt to

Salvage his Financial Future

A Case Study of the Medici in Normal

June 2009

Table of Contents
1. When I was a Seventy-Four-Year-Old Dude
2. Establishing the Medici in Normal
3. Thoughts on Ethical Business Behavior
4. What Went Wrong
5. Plans for the Future

Hans Morsbach
Hmorsbach@Gmail.com
 1. When I was a Seventy-Four-Year-Old Dude
In 2005, I was a 74 year old dude who had devoted
most of his life to making money, with mixed results but
on the whole respectable success. I had achieved some
extraordinary feats that had no apparent chance of success
and I had amassed a respectable nest egg in the high eight
figures—ample enough to provide a comfortable retirement
and become a minor philanthropist. Of course, I also made
many blunders and missed countless opportunities to make
a lot more money.
For most of my life, I have been a small-time entrepreneur,
and have run many small businesses. My main operation
is the Medici Coffee House on 57th Street in Chicago, a
business I acquired in 1962. I bought it for $1700, and since
I could not afford a new sign at the time, the name remained.
It sold coffee and sandwiches and was located behind a
bookstore. Slowly, together with a musician friend, we built
up the business gradually and steadily. We added pizza and
moved to a larger location and incredibly, it is now a multi-
million dollar enterprise.
Personal History
I emigrated form Germany in 1951, attended Georgetown
University and graduated from the American University
in Washington D.C. I was an average student and did not
receive a stellar education, though I excelled in swimming
and chess.
Upon graduation, I accepted a management training
position in Milwaukee. Soon it became apparent that neither
my employer nor I was happy, so I got terminated, went to
Chicago and got a job in a manufacturing plant. The employer
was kind enough to pay my tuition for graduate school
and eventually I received an MBA from the University of
Chicago. My job was devoid of challenges and I suggested
several ways of doing things better. But rather than being
appreciated was regarded as a nuisance who had too many
ideas. When, in the Christmas season of 1960, I declined
to attend a Christmas party because the only black foreman
in the plant was not invited. The switchboard operator
conveyed the message all over calling me a “nigger lover”.
Soon thereafter the personnel manager called me in his office
to fire me. I was about to receive my MBA and had little
difficulty finding a better job. Soon thereafter, I ran across
a real estate operator looking for somebody to run a plastic
molding business. I accepted the offer and was paid a decent
salary of $12,000 and proceeded to manage an injection
molding plastic plant. It was a great experience. The business
was run down and mismanaged. I streamlined the operation,
and became familiar with the engineering, marketing and
administration. I worked very hard and I thought I did well.
We did not make money but broke even in a very competitive
industry. My boss, however, encountered problems in his
real estate empire and had a sudden intense need for funds
and demanded that I sell an injection molding machine and
give him the proceeds. I told him that the machine served as
collateral for a bank loan. But apparently that did not matter
to my boss.. He sent one of his cronies to demand that I sell
the machine immediately and then said that if I thought that
I could be so straight, he could get evidence to get me into
trouble. Wow! That was a new experience for me. I walked,
and he ended up in jail. Running the business was great
experience for me and was the foundation for later success.
Twice again I tried to establish a career in corporate
business, once as a consultant and then as a programmer
for a P/R application. I was not happy, so I started another
restaurant, the Court House Restaurant near the University
of Chicago. I formed a partnership with an experienced
restaurant lady, but fired her for craziness and incompetence.
Again, I found myself in a desperate situation: under-financed,
untrained in running a high class restaurant, and unable to
attract a competent chef to the south side of Chicago. I did the
best I could and though the landlord had offered the space in
anticipation of my demise to another operator, I hung on. As
a matter of fact, eventually the Court House Restaurant was
voted the third best restaurant in Chicago. My success was
based on one dish: Bouef Fondue Bourguignonne, which
was easy to do and folks loved it. I am about to introduce
it in Normal. I survived again, operating the Court House
for thirty years until 1995 when the market changed and the
present location became untenable. But in the meantime, my
pizza business at the Medici on 57th Street flourished.
Making Money in the Market.
I focussed much of my attention on speculation. I did well
on real estate and the stock market. I also invested in farm
land. I had read a report that the grain demand from China
would cause US farmland to appreciate. It did, but when I
read that some farmers moved to South America grow three
soybean crops a year, I got scared and sold my position
prematurely. All the while, I speculated successfully on the
stock market. I thought that my ability to select stock was
very sound. I survived all recessions and did so well that I
derived most of my income from the stock market and it did
not matter how much money I made in the pizza business.
I enjoyed owning the Medici, it has been well regarded
in the community. As a matter of fact it became kind of
an institution and, more recently, I even got a bit of fame
because Barack Obama frequented the place. I was living
well and prosperously.
I was 74 years old, at an age where many of my peers

had been retired for more than a decade worrying about
their health and watching TV. I had taken out time to get
involved in the environment as the chairman of the board of
a recycling non-for-profit in Chicago. I also had acquired a
farm where I planted trees. When I found that nobody had
written a sensible book on woodland management, I wrote
one: Common Sense Forestry, which is now the most read
2. Establishing the Medici in Normal
My existence in Chicago was enviable. I enjoyed owning
the Medici on 57th Street near the University of Chicago.
Everybody likes the Medici, the guests, the neighborhood,
and the employees. The sales volume was a respectable $3.5
million. I have lunch there everyday with Kirsten Esterley,
my general manager. She does an excellent job and although
profits are modest, Kirsten is trying to do things better.
Owning the Medici is a pleasure as the community and the
employees appreciate it. Yet everyone assumes that Hans,
being a smart dude with an MBA is making a lot of money at
the Medici. But appearances can be deceiving. Surprisingly,
the Medici was only marginally profitable, making 1 or 2%
per year. I am happy to state that since there has been a cash
drain from the Medici in Normal, the Medici in Chicago has
responded and become much more profitable.
For years I had been lamenting the fact that the Medici,
being located next to a school, was not allowed to sell liquor.
So I wondered how much more money would I make if my
guests could enjoy a beer with their pizza? What about an
open bar with lots of college kids watching a ball game and
enjoying a beer? If a third of my sales are liquor and if the
cost of goods sold is 22%, could I increase my income by
almost $1 million? I also had many ideas how to design a
restaurant, and how it would be my dream place. I had also
started a furniture business on my farm where together with
Amish neighbors I produce stunningly beautiful end-grain
furniture I could showcase in the new restaurant! I had the
money and the know-how to establish and operate a new
restaurant. So, I decided to do it. It was inconceivable to me
that it would not be very successful. Even if it was not an in-
stant success, there was just no way the new restaurant could
affect my comfortable life style! I had $2 million in reserve
and was absolutely convinced that opening a new restaurant
was a sensible idea and very likely to succeed. I am still con-
vinced as I write this paper, that my reasoning was flawless.
Well, I was very wrong.
When my son Paul and I came to Normal, we dropped
into Mayor Chris Koos’s office and inquired how he felt
about a new pizza place coming to Normal. No interest, we
were told. There are too many pizza places already. But the
Medici is special, I asserted, and the mayor promised to
book for small woodland owners.
I should have been happy, a well-to-do and respected
citizen and author of a highly regarded book. What could
be better.? It is here that the latest chapter of my existence
started, and what I want to relate to you.
check it out. He came to Chicago and dined at the 57th Street
restaurant. He liked it and has been a Medici fan ever since.
The next task was to find a suitable location. There was
an empty storefront (formerly occupied by Other Ports) ide-
ally located in the center of Normal. The owner, a former
ISU professor, Bob Steinman, did not want to sell. He had no
specific plans, but he was too young to retire and wanted to
get involved in some new business. When I asked him wheth-
er he would consider becoming a partner in a restaurant he
said yes. Thus Bob Steinman, Paul and I became partners in
the Steinbach Corporation, which owns the Medici in Nor-
mal. Bob’s father owned a restaurant, so he knew about the
business. We liked each other, and joining forces appeared a
sensible step.
We hired an architect, Josh Behr, a one-time waiter of
the Medici in Chicago. He was not very experienced but he
is very creative and though the main layout was my idea,
much of the design is his. I forgot who first thought of put-
ting a tree into the restaurant but we all agreed it was a good
idea. The beautiful woodwork was made in my shop (Shima
Woodcraft) in Wisconsin.
When Bob found out that the neighboring building was
for sale, we agreed that it was a good location for a bakery.
The Medici Bakery is doing well in Chicago, and since there
is no good bakery in Normal-Bloomington, we felt certain
that the Medici Bakery in Normal would be successful.
We spared no expense making the Medici beautiful and
functional. We used the same restaurant equipment firm (JS
Design) whose owner has been a good friend for forty years.
We were happy to make a deal with Flemley Dickerson con-
tractors and we thought we had a good crew to construct
a beautiful restaurant. While it took more time and more
money than anticipated, we were pleased with the result. I
am glibly summarizing the building of the Medici in a few
paragraphs, but be aware that it involved several years of
our time, a huge investment and much planning. It involved
weekly conferences with construction contractors, engineers
and city administrators. Still, it was a fun project and watch-
ing your dream project rising can be a wonderful and excit-

ing experience. Sure, we spent more money than anticipated,
but that is not unusual and was not perceived a problem at
the time. Most importantly, the result was spectacular and
we were all proud. Confident of our experience as restaurant
operators, we were looking forward to instant success. Sure-
ly, our expenditure of $7 million was justifiable considering
the stunning beauty of the Medici.
When I gave a little speech on opening day, I said, “This
is a beautiful restaurant, and if somebody else had done it, I
would be jealous”. Of course, since then I often wished that
somebody else had done it and was stuck paying for it.
We were on top of the world and confident of success. We
got a lot of publicity, principally because of the tree, and lo-
cal citizens appeared curious and excited about the Medici.
The Town of Normal had exciting plans for the district (they
now call it Uptown). A very sympathetic developer (One
3. Thoughts on Ethical Business Behavior
I decided to sneak into my Medici story a chapter on busi-
ness ethics. It is not an intricate part of what I set out to tell
you. Just the same, you may find it interesting, but feel free
to skip this chapter if pressed for time.
I try to live by high ethical standards. I live within the law
(so at times I feel that bad laws can be ignored). I feel that it
is a citizen’s duty to pay his/her fair share of taxes. When I
started running my own business, I had no idea how many
small businesses cheat on taxes because I just did not think
about it. But as you compete with others, you find out that
your competition, by not paying taxes, has a huge advantage
over you. When I find out that a competitor is skimming, I
boil with fury, as I know that he makes much more money
than I do, with less effort. It is as annoying as when some-
body cuts in line ahead of you.
SKIMMING
Skimming is the use of cash without paying taxes. To
illustrate how the system works, take my employee Fran-
cisco, who is being paid cash by a competitor. Francisco is
a busboy and is being paid about $6 an hour, and incred-
ibly, has worked for me and a competitor down the street for
28 years! He also pays taxes on his tips, which constitutes
most of his income. Working for the Medici, he receives af-
ter taxes about $5 (payroll deductions of $1 on his pay and
about $1 in taxes on gratuities). I never inquired how much
cash Francisco receives from my unnamed competitor, so I
assume that it is about the same. I do know, that the Medici
deducts about 25% of his gross pay for payroll taxes (ss, fit,
sit totalling $1.50 per hour). In addition, Francisco has to
pay his share of taxes on his $6 gross pay (40 cents) and also
has to pay about $1.00 tax on his gratuities. In total there is
Main) was about to commence construction on several well-
designed residential buildings. A large hotel was being built
across the street and the town of Normal had sensible plans to
build up the town. A convention center was in the advanced
planning state. Our location seemed perfect, in the center of
town just a block from the ISU campus. The city was also
planning ample parking facilities. Also, being a economic
development area, there were to be some subsidies.
We had arrived at a point of profound optimism. Whenev-
er I had struggled to complete a project in the past, I always
felt certain that once the doors were open, everything would
go as planned. In realty, things never go quite that smoothly;
it usually takes more time than you expect to become profit-
able. However, this time we were facing not normal growing
pains but were stuck in a disorganized mess incurring sub-
stantial ongoing losses while creating ill-will in the market
place. A full blown disaster!
$2.90 in taxes, which constitutes 45% of his gross pay.
But there are more ways my skimming competitor saves
money: He pays cash to Francisco, and that cash comes di-
rectly out of the cash register and no sales taxes are deducted.
Sales taxes are 10.25%, so there is a savings of another 50
cents per hour. Also, my competitor is not paying overtime
which not only saves money but also gives him the luxury
to have Francisco take up shifts as needed without adding
an overtime premium. The precise savings are difficult to
quantify, but I figure savings are about 50% of payroll. How
much money has my competitor saved over the 28 years? If
his savings are as little as $3/hour, his savings are $120/week
and $168,000 over twenty eight years, not counting com-
pound interest. My competitor does not have to be smarter or
better nor serve better food to enjoy an income much higher
than mine! You may ask, why if this upsets me so much I
would not complain to the IRS? There are three reasons, (1)
I have been conditioned as a kid never to squeal, (2) I am
scared, as I can not trust the IRS not to reveal its source of
information. And, (3) I entertain a hope that our system find
a way to function better in the future.
Consider further that my competitor has other employees
who are paid cash. So the savings of paying cash are huge.
I was told by a former manager of Chicago’s most illustri-
ous chain of gourmet restaurants that he was told to skim. I
doubt whether the owner still skims; he is getting too big and
there may be no need to continue skimming. I am convinced,
however, that the practice helped him immensely in getting
the capital to expand his chain of high-class restaurants.
Returning to Francisco, he does not care about all the de-

ductions, he only cares how much money he receives to send
to his family in Mexico. Ceteris paribus, he should be more
willing to work for the competitor, where he may make a bit
more money than at the Medici. As a practical matter, Fran-
cisco prefers to work for the Medici: We are nicer to him and
tips are a little better.
CASH INVESTMENT
I have another example of the advantage of tax cheat-
ers. I owned another restaurant in Chicago, the Medici on
Surf, which I ran for about ten years. When I had problems
with management, I sold it to a big time operator of a small
but successful restaurant chain. During the selling negotia-
tion, the buyer took me aside and asked whether I would be
willing to sell for less if given cash. I was outraged that he
would suggest that his illegal money was better than my le-
gal money and informed him that I am a straight player. He
called me a “good boy.” The sale was completed, and upon
taking possession the new owners told my assistant manag-
ers that they were to be paid the “Greek system,” alternate
pay periods in cash.
The new owners did not have to change anything to make
money. If he did all the same things I did, his tax savings
from skimming were sufficient to have a successful business
and justify the sum he paid to buy the Medici on Surf from
me. His tax savings assured a healthy profit.
LEGAL FRAUD
Of course, small business tax evaders are no different than
the prevailing tax paying morale of larger businesses. Politi-
cians are very corruptible and schemes to avoid taxes are of-
ten complex. There is a huge industry devoted to find legal
ways to avoid paying taxes. Some of the most obscene tax
cheating goes on sanctioned by Congress. Here is one exam-
ple: our government has huge contractual arrangement with
contractors helping to fight our war in Iraq. Many of these
contracts are non-competitive and on a cost plus basis. One
company was the Bachtel Corporation which has close ties
with Vice President Dick Chaney. Cheating was so perverse
that Congress decided to ask questions. In open testimony,
evidence of cheating became so pervasive that lobbyists
prevailed on Congress to have a law passed making it il-
legal to investigate these contracts. In fact, Congress passed
a law making cheating the US Government legal!. What
considerations were passed on to members of Congress to
consider and pass such an outrageous law? How can all these
Congressmen sleep well after defrauding taxpayers legally?
Why did the taxpayers not revolt? There was no shame other
than an editorial in the New York Times. Lobbyists make
a lot of money and pass on campaign contributions which
ultimately find its way into the pockets of legislators. It is
legal corruption.
CREATION OF POISONED SECURITIES
Of course there are other ways for executives to enrich
themselves. As our current downturn in the economy reveals,
our financial industry has engaged in devising fictitious fi-
nancial contracts on which they made a lot of money. Execu-
tives received enormous commissions on trading “poisoned”
mortgage packages where the expected profits had not been
realized. Many of the highly paid executives are gradu-
ates of the most prestigious universities, such as Harvard and
the University of Chicago. Of course, they tend to think that
they are very smart and deserve all the money they are being
paid. The degree of self-delusion is astonishing as long as it
provides fat pay checks.
As we all know, the trade in “poisoned” undervalued se-
curities had grave consequences for the economy: (1) the
financial markets collapsed (2) the highly compensated fi-
nancial experts kept their unearned income (3) the value of
real estate dropped and home-owners had been sold more
mortgages than the value of their homes (4) employment de-
clined as housing and other industries came to a standstill
(5) the government spent several trillions to shore up the fi-
nancial industry to give the economy a chance to resurrect
itself. (6) In the long run all taxes have to be increased to pay
for the bail out (7) there has been a huge shift in wealth and
income in the US in favor of the most affluent.
The big cheese executives profiteered handsomely at tax-
payers’ expense.
EXCESSIVE EXECUTIVE COMPENSATION
Executives are paid huge sums because they typically de-
termine who sits on their boards of directors that determine
their pay, perks, and stock options. Even in money-losing
corporations the executives continue to get paid huge sums.
Who is to blame? Who is the looser? Executives are paid
by the stockholders and nobody takes on the task of helping
stockholders to protect their interests. The investment com-
munity, the mutual funds, pension funds, and hedge funds
should prevail on the boards of directors to protect stock-
holders’ interest. However, they find it more profitable to
get part of the pie rather than to rock the system. It is very
distressing and hopefully our society will find a way to deal
with the problem. The Scandinavian countries are doing a
much better job than we do. When in the big depression in
the 1929, it became clear that new legislation is required to
make our system work better, the Roosevelt administration
responded and made many changes on which our system is
based. Now, there is a need for new laws to regulate our
system, and hopefully the Obama administration will be able
to take appropriate steps. There are some early signs that
stockholders are becoming aware that they are being ripped
off by management. But it will take a groundswell of public
disgust to change the system.
THE PONZI SCHEME
In comparison to the sophisticated packaged mortgages
and the devilishly complex derivatives, the Ponzi scheme

employed by a Bernard Madoff is quite primitive. His
scheme was to promise to pay a high return to folks eager
to do well on their investment. He used funds entrusted to
him by new investors to pay relatively lucrative dividends to
his earlier investors. As long as he continued to attract a lot
of new funds to invest, his scheme worked well. It was only
after some folks wanted to make withdraws that his fraud
was exposed. Strangely, one financial wiz had written a let-
ter to the SEC urging the agency to investigate Madoff. He
was not believed.
 REWARDS OF CHEATING EXCEED THE RISK
The higher the rewards for cheating and the smaller the
probability to get caught, the higher the propensity to cheat.
The government is doing a lousy job of collecting taxes and
many businesses get away with cheating.
Some time ago, I decided to make my feelings known
and wrote an OpEd piece for the New York Times which was
published in April of 1995. It elicited some reaction form
readers who agreed with my assertion, but of course, it did
not change anything.  tion of make millions. Later, he was nice enough to help the
Businesses have many ways to make money at tax-pay-
ers’ expense. Moving subsidiaries overseas saves a lot.
There are numerous ways to gain tax advantages and Presi-
dent Bush had successfully avoided paying millions in taxes
owed when he was in business.
CAN BUSINESSES BECOME MORE ETHICAL?
I would assume that a good business school would in-
still a sense of responsibility in their students. My son took
courses in the University of Chicago School of Business and
ethics were never mentioned. Is it different at ISU? Are you
being told how much cheating is going on by your profes-
sors? Frankly, I would be surprised if business ethics are
given much attention. The underlying assumption is that it is
more important to learn how to make money than to main-
4. What Went Wrong
My business experience provided me with repeated chal-
lenges which I fought hard to survive, and I did. So, I felt
confident that I would be successful in Normal. I felt very
secure that I could overcome any difficulties. I was wrong,
very many things went wrong. What were they?
1. Selecting poor general managers. We were very
happy to locate a very bright GM who had been running
a chain restaurant for fifteen years and was eager to work
at a higher-class restaurant. She knew the local market and
assured us that she had enjoyed excellent rapport with her
former employees and many were eager to follow her to the
Medici. We completely trusted her and initially she seemed
capable. Long before we opened, she wrote procedures,
bought supplies, made contacts with suppliers, interviewed
tain high ethical standards. 
Sometimes I wonder how cheating affects the perpetra-
tors. Do they sleep well? I am sure that my unnamed com-
petitor sleeps very well in his million dollar home paid for
in cash. Rich people sleep better than poor people; they do
not have to worry about money. Also, running a business
with a huge competitive advantage provides a nice cushion.
I have a harder time making money honestly and running a
business in a low profit margin industry can be stressful. On
the other hand, I must assume that Mr. Madoff may have had
a few sleepless nights. Ripping off $50 billion often from
retirement funds should entail some stress. But the folks
being caught and persecuted by the government is a small
percentage and the folks going to jail is a minute number.
The upshot is, it pays to cheat. Our society holds successful
businessmen in high esteem, even if they are known cheat-
ers. Consider Joe Kennedy, the father of John Kennedy, who
made fortunes manipulating stocks before the depression of
1929. He had figured out how to manipulate stock transac-
feds to pass legislation to make stock trading more honest.
His suggestions were the foundation of the establishment of
the SEC. Some cheating profiteers come out smelling like a
rose, others become big time philanthropists. On a positive
side, the richest men in the world are honest (Warren Buffet
and Bill Gates) and so things are not all bad.
I apologize for digressing from my announced topic, I
just cannot help it and I hope that the students of ISU get a
good foundation in ethical behavior. Reading the financial
papers constantly reveal exposures of cheating. Tax attor-
neys tend to be one step ahead of tax enforcement. This is
costly to society as the government not only loses tax rev-
enue, but the expenses of the process and the legal defense
are all tax deductible.
employees, and wrote manuals and procedures. Yet, on open-
ing day, there were way too many employees, none of them
were properly trained and it was absolute chaos. The food
was not good, the service lousy and costs out of sight. We
learned that we had not checked out applicants as thoroughly
as we thought.
We asked her to leave and hired a professional GM. He
was very knowledgeable, he understood costs and imme-
diately proceeded to cut payroll. He hired a new chef. We
did not like him all that much but the new GM persuaded
us that he was a brilliant administrator which was more im-
portant than being a culinary expert. We believed him. We
had hired the New GM somewhat precipitously and had not
checked out his references. When we did, we could not find

any derogatory information except that one former employ-
er said “he was bad news”. We asked him about it and he
assured us that he had a personal conflict with his former
boss and suggested we should not take that information seri-
ously. After about a month, he took a few days off and did
not return. We were told that he went out of town and fell
sick and was hospitalized. We got suspicious and found out
all kinds of things. He was a thief and had warrants out for
his arrest in several states. Looking further, we found that he
had ripped us off for about $25,000 some of it very primi-
tively by putting part of our daily deposit in his pocket. The
McLean County states attorney was not interested in pursu-
ing his case nor was the state which had an outstanding war-
rant for his arrest. Apparently, It does not pay to bother to
pick up a thief, put him on trial and then jail him. It may not
be the best way to spend tax-payers’ money. We have not
heard from him since and I would not be surprised if he con-
tinues to rip of businesses before he gets caught or beat up.,
The third GM was a very intelligent young assistant man-
ager whom we promoted. I always felt excited about giving
young people a chance to do really well. She tried but it just
did not work. She walked out after a couple of months un-
able to take the pressure.
The fourth GM was a former employee of mine who had
managed the Medici about twenty years ago, turned to horse
handicapping for a decade, and was excited about the op-
portunity to manage a high class place. He moved from Chi-
cago. His wife did not like being alone and he felt running
the Medici was more difficult than he had anticipated and
quit after a few weeks.
After being in business for more than a year we did not
have a competent manager. Our fifth GM is a local profes-
sional who had approached Bob Steinman for a job. His
name is Steffan Block and is our current GM. We like him
and he is doing a god job.
The conclusion? Initially, we were not vigilant in assess-
ing the performance of our first hire. We were too invested
in our initial selection. As owners, finding a replacement
GM is an involved process and there may be a tendency to
retain poor managers to avoid the arduous process of finding
a new one. Once she failed, we were making fast decisions
often based on imperfect information. We had to fill the job
and there was no time for a lengthy recruiting and vetting
process. It took us a year to hit pay-dirt. Finding a competent
manager is always difficult, even when not rushed to make
a fast decision.   Conclusion? It is hard to find a top-notch chef. We always
2. Economic downturn. The recession affected the
Medici in several ways. First I lost most of my stock invest-
ment. I had made money in the stock-market for years and
felt so confident that I operated on margin. I had success-
fully survived past recessions and felt confident that my bril-
liant stock selection would make it unlikely that I would lose
money. Well, I was wrong. I lost most of my stock portfolio,
and when I finally realized I was wrong, I had lost more than
a million dollars. This was my reserve money available to
invest in the Medici in Normal if things became bad.
The downturn affected us in other ways as well. Busi-
ness activity in general is down and the restaurant industry in
particular is hard hit. Further, a major real estate developer
cancelled plans for condo construction in Normal. We were
hoping that hundreds of expensive condos would come on
the market whose residents would become good customers.
Conclusion? In hindsight, it appears that we should have
thought of the possibility that the economy could turn sour.
Conceptually, a good manager could assign probability fac-
tors to developments such as a recession. If I had known
that there is a 10% chance of a recession, I doubt whether it
would have changed my decision making.
3. Infrastructure changes in Uptown. We found out re-
cently that the Town of Normal is planning to redo the water
supply and sewage connection on North Street involving a
need to close down the street for five months. During con-
struction, the Medici is invisible from cars and access for
guests is limited to a four foot wide side walk. We knew some
sewage work was planned, but we did not know whether the
work would be in the alley or on North Avenue and we did
not dream that it could take five months to complete.
Conclusion? Again, an element of arrogance creeps in.
We thought that we are so good that any changes in the in-
frastructure would not matter.
4. Poor selection of chefs. It is difficult to hire a good
chef. It is hard to find one, hard to assess his capabilities and
difficult to find individuals who have good culinary skills
and are good kitchen managers as well. As I write this, I am
embarrassed to admit that I have been unable to find a rea-
sonable chef for a year. We hired and fired six chefs in rather
fast succession. Fortunately we have a sous-chef who has
been loyal to the Medici and is doing his best. But the job is
too much for him. It takes two chefs, a sous-chef and a chief
chef and we have not found one. We are looking now. Hav-
ing a weak kitchen has been a problem. Beyond chefs there
are cooks and we have had problems on that score as well.
Further, we had one rather skilled cook who ripped off sur-
prisingly large quantities of food. So our kitchen operation
has been quite problematic and the quality of food inconsis-
tent. A high turnover of cooks made a bad situation worse.
felt we hired the most qualified from the applicant pool.
When we found our final choice, Josh Huddleton, there was
no doubt in our minds that we had found a winner. It just
takes time to find a top performer. It takes perseverance and
we displayed it.
It is interesting to follow what happened to managers and
chefs we let go. If they embarked on a successful careers and
got jobs at higher rates of pay, it would indicate that we had

made a bad choice. None of our discarded employees has
been offered and retained a better jobs. We did right by firing
them yet made poor initial hiring choices. A more charitable
way of looking at our experience is to conclude that good
chefs (and GMs) rarely look for work.
5. Poor Service. Most of our applicants for servers had
no prior experience,. We had to train them. Now we train
them for four shifts before the can handle customers on their
own. But when we started out training was bad resulting in
poor service. We are very happy with the quality of appli-
cants who tend to be sensible ISU students. It was our fault
that we did not provide sufficient training.
Conclusion? I do not think that we did anything basically
wrong and the quality of our service has been improving
gradually. Our assistants, who do the training, could have
done a better job, but they too were new to the business. I
think we are doing fine now, in particular with the new GM.
6. Getting a tarnished reputation. Our food is prepared
fresh from high quality ingredients. But we had kitchen prob-
lems, together with a high turn-over of kitchen help. This
resulted in inconsistency and often slow service. Although
almost all guests like the beauty of the restaurant, our service
and food was not consistent and some guests did not return.
Now we are doing a bit better and we feel that most of our
guests receive good food and service, but in the interim, we
lost business. It takes some time for disappointed customers
to give a restaurant a second chance.
Conclusion? When engaging poor management, it is not
surprising that the customer satisfaction is poor. Frankly,
I am surprised that we have so many returning customers
which may be a sign that they like something other than the
best food. I think we are overcoming this problem, so it will
take time until we will enjoy a stellar reputation.
7. Failure to attract University students to patronize
the bar. There are several bars in the area which do a lot of
business with ISU students. The Medici is not one of them.
We might be too expensive or we may appear too expensive.
For whatever reason we do not get much action of the drink-
ing crowd. We have a little action on Wednesday evenings
when a group calling themselves the “Midnight Warriors”
meet and drink at discounted beer prices. But in general our
bar business is very disappointing. We had assumed being
so close to the ISU campus, we would have a better follow-
ing. Now, the kids are walking by the Medici to Pub II or
elsewhere. There is a dribbling of students taking a date to
the Medici for special occasions but it is much less than we
had anticipated.
Conclusion? I don’t know what to say. It is just a difficult
proposition to attract a new group of clientele. We intend
to become more inventive and generous in offering free bar
food. We will keep on trying. Our new bar manager may
help, but it is a tough proposition.
8. The community does not know about the Medici.
We have spent very little money to advertise the Medici. In
Chicago we do not advertise at all, because we are so well
known that there is no point in spending money for advertis-
ing. We are generous in giving free pizzas for good causes
and we invite kindergarten kids to make their own pizzas at
the Medici. It is my instinct that I do not want to advertise
until our food and service reaches an acceptable degree of
perfection. We are not there yet, although we are getting bet-
ter.
Conclusion? We have not been doing much advertising
and have low recognition in the community. Frankly, I did
not want to do much advertising as long as we felt that our
food is not as good as it should be. The best advert sing is
great food and service, and I hope to provide it to our mar-
ket.
9. Our bakery is not doing well. We felt certain that the
bakery would be a smashing success because we are con-
vinced that we have the best bread and croissants in town.
There is no other bakery in the area providing the same high
quality of products as the Medici. The mayor was very ex-
cited about having a bakery in Normal. But he is just a sin-
gle dude not eating much bread. I thought that supermarkets
would be happy to sell our bread. This is not the case. Our
bread is fresh and supermarket bread is baked off-premise
and contain preservatives to make it last longer. This is what
customers expect and this is what they get. In Chicago, in
contrast, there are a lot of good bakeries and a more sophis-
ticated public is expecting good bread. So we totally struck
out on selling bread wholesale. In Chicago, we are on a
busy street where thousands of students and staff walk by
the Medici Bakery. In Normal, we have almost no walk-in
traffic and the sales in the bakery are disastrously low. We
are close to closing it down as our sales do not justify the
expense. Foot traffic has decreased further with the street
torn up until August. One reason we keep the bakery open is
that we have to make bread and desserts in the bakery for the
restaurant. So the bakery which provides about $1,000,000
in sales in Chicago sells $50,000 in Normal. It is a real prob-
lem and a huge money looser. In summary, we totally mis-
judged the opportunities for a bakery in Normal. We think it
will get better over time, but it will take a lot to bring it to a
break-even point. It will take years to change the bakery into
a profitable business. While I am confident that the fortunes
of the restaurant will turn around, I have no such confidence
that the bakery will as well.
Conclusion? As I am writing this, I am happy to state that
the Medici Bakery in Chicago sold $5000 last Saturday. We
may never reach such a level in Normal, but it will get bet-
ter. We have to provide the same excellence of product in
Normal as we do in Chicago and it may not pay to do that for

some time. I don’t have any pat schemes, yet I feel confident
that our local customers will learn to appreciate our quality.
But in general, I freely admit that I totally miscalculated the
appeal of a bakery in Normal. I felt so confident that I com-
missioned a beautiful wrought-iron sign for which we aid
$8.000.
10. Conceptual discussion among owners. The Medici
in Chicago was intended to be the model for the Medici in
Normal. Since we had spent so much money (about $7 mil-
lion) and since it was so beautiful, it we felt that we should
aim at a higher-class restaurant operation which would be
more profitable. We raised some prices. But since we were
not always able to deliver outstanding food, there was some
resistance to higher prices.
We never defined what our market is or whether we want-
ed to be like the Medici in Chicago or different. We faced
so many problems serving competent food and providing
reasonable service, that any discussion of a vision did not
appear relevant. What does it matter if our line cook has a
hard time cooking a hamburger medium rare? To make mat-
ters worse, we had a turnover in kitchen staff which hurt
consistency. Further we have not been able to develop signa-
ture dishes which are designed to produce reliable favorites
which brings customers back to enjoy their chosen dishes.
Currently, the partners engage in testy discussion on wheth-
er the patio should have a separate menu. Being the senior
stockholder, I am putting down my foot on that one. There
will be a separate menu, we will be selling fondue and it will
be fabulous. Utilizing our upstairs kitchen will make service
fast and efficient.
Conclusion? Discussions about concept and mission tend
to deteriorate into a lot of hot air. The bottom line is consis-
tent high quality food and service. No matter what market
we address, the bottom line is the quality of our offerings.
Summary
The sum of all these problems prevented the Medici to
be as successful as we had anticipated. Still, there are many
people who like our offerings. Our hamburger and pizzas in
particular are always well prepared and price competitive.
But we did not achieve the level of perfection to compete in
a competitive market.
Do I fault my decision making? Surprisingly not much.
When I hired chefs, I chose the best available. In general I
felt that I made the best decision suggested by controllable
variables. I tried to be rational. When making menu chang-
es, I felt that the menu selections agreed upon were reason-
able. In dealing with employees, I pushed them as much as
I could. Some should have been fired sooner, but that made
little difference. I made many small decisions, for example
I had to decide whether to make chocolate croissants. They
sell well in Chicago but not in Normal. If I do not make them
in Normal we cannot introduce them in that market. If I do
make them, we have to incur costs for something which may
be tossed out at the end of the day. It is judgment call of no
major consequence although many such decisions may add
up and thus may make a difference at the end. Sometimes, I
don’t know what is the right decision.
Another big decision I made was to make the place ex-
traordinarily beautiful which added to the cost. But analyz-
ing the additional cost we concluded that the incremental de-
sign expenditure was not more than about 15%. Are guests
willing to pay more if they like the space? I presume a little
more but, of course, I know of no study determining wheth-
er it pays to own a better designed restaurant. However, the
place is bigger than it needed to be and since the restaurant is
under utilized, so we may have been better off with a smaller
restaurant. No matter how irrational it may appear now, I
do not regret either decision. I do regret, however, having
opened a bakery which added at least half a million to the
total cost, an unfortunate sum considering that I lose prob-
ably $10,000 a month in the bakery.
I guess the main fault was to open a restaurant in Normal
in the first place. But I did and it did appear reasonable given
the situation at the time. My wife, Kathy, did not want me to
do it and my brother Paul thought I was crazy to take the risk
because there was no rationale to enter on a new venture.
Now my wife fears to become a poor widow. I do not think
she will. Bob, Paul, and I are convinced that we will succeed.
We may not make as much money as fast as we had hoped
and we there were periods when things looked bad and we
all lost sleep, but given events which can be anticipated with
some certainty, the trend is good.
If we were a corporation seeking investors, I would be
tempted to buy shares. Let me know if you are interested. I
have to warn you, on a recent balance sheet I put down a fat
0 (this means that the aggregate market value of my invest-
ment less bank loans is worth nothing) on my assessment of
the value of my investment in Normal. It is a very conserva-
tive evaluation but some may consider it high.
The total investment as it stands now is $7 million and our
local banker is getting cold feet. The banker is blaming pres-
sure from his board of directors and from various auditors.
Fortunately, I still have enough resources that I can meet all
obligations (real and contingent) although I sense that with-
out my reserves, our lenders would blow the whistle. Selling
out now would be a disaster for us and a great opportunity
for somebody smarter to enter the business cheaply. That is
not going to happen.

 5. Plans for the Future
The losses incurred by the Medici in Normal have been
sizable and given the wealth of stockholders, unsustainable.
It is easy to lose a lot of money fast in an unprofitable res-
taurant and as the principle owner, I had to generate cash
to sustain the operation. It is very important to pay bills on
time in particular as new restaurants are known to have a
high failure rate. It we fall behind in meeting our obliga-
tions, suppliers will no longer give us credit. Typically they
will insist on COD deliveries that would further curtail cash
flow. Since I had lost a lot of my money in the stock market,
I had to find sources of funds to support the Medici in Nor-
mal. I put more effort to make the Chicago Medici profit-
able. We had increased prices in 2008 and as the commodity
prices dropped our cost of goods sold went down. Also, in
the University of Chicago neighborhood, the recession did
not affect our sales, as the university community is relatively
wealthy. As a matter of fact our sales increased. So there was
a more positive cash flow from the Medici in Chicago.
Further, I decreased my expenditure. I eliminated chari-
table contributions and reduced personal expenditures. My
next step will be to liquidate assets. My investment in Nor-
mal is relatively massive and giving up on the venture is
not an option. I did personally guarantee sizable bank loans
and abandoning the Medici in Normal would have disastrous
consequences. In addition, my conviction that the Medici in
Normal will become a thriving business remains unabated.
My wife has expressed fears that she will become a destitute
widow. She has been entertaining hopes that we would at
some time have the money, time and leisure to travel. In-
stead she knows that I am fighting to establish the Medici
in Normal and she is afraid that if something happens to me
that she will have a big problem on her hands. I keep telling
her not to worry.
Our plans to improve the operation are: (1) As the new
GM has the opportunity to complete his planned improve-
ments, our food and service will get better (2) we have im-
proved the quality of servers by replacing weak servers with
a better trained staff (3) we have hired a new chef which
should greatly increase the quality of our dishes (4) the patio
is about to open increasing our popularity (5) our banquet
activity is on an upswing and we have booked a fair amount
of events which tend to be the more profitable sector of our
business (5) we hope to attract more bar business by promot-
ing beers and wine sales (6) with the opening of the con-
vention center we hope to attract events to the restaurant,
such as banquets and catering (7) we will attempt to make
our presence better known by distributing literature to resi-
dences in our area. Many locals do not know that the Medici
exists (8) we plan to develop pick-up, catering, and delivery
business (9) we will continue to cut costs by running an ef-
ficient operation. (10) We will continue to inform folks that
the Medici Bakery has the best and healthiest bread in the
area, and (11) we are negotiating with the SBA for a more
favorable loan.
Though our first year of operation has been disastrous, we
are confident that we can improve the Medici to become not
only the most beautiful restaurant in the area, but also offer
the best food and service. We are committed to excel and we
are convinced that we will become the most outstanding res-
taurant in the Normal-Bloomington area. We now feel that
with improved staff we are on the way to profitability. We
are hopeful that probable foreseeable developments point to
success. We have reason to be optimistic.
I hope that my Medici experience served to demonstrate
that even the best plans could fail. It pays to have good plan
and also plan for contingencies if things go wrong. There are
many variables at play and it is the skill of a good manager
to make sensible decisions at any point in time. Good man-
agement is an art, it is hard work, it takes lots of cooperation
from employees and management, and it takes vigilance and
patience. Yet, events demonstrate that even sensible plans
can fail in a big way.
If I had made a presentation five years ago on my plan,
would you have thought that I was taking a huge gamble?
I think that my confidence would have convinced you that
Hans obviously knows what he is doing and there was no
reason to think otherwise. Well, in the long run, that will be
true.
Finally, if you have not been at the Medici, please come
and check us out. One area where we totally struck out is to
attract more student business. The ownership would enter-
tain a proposal to help us develop that part of the business.
I hope listening to the story of my near failure will il-
luminate the risks of stating a business, no matter how well
planned. Writing this report was interesting for me as well
because it caused me to reflect on the problems we faced.
Running a business often does not give you leisure to step
back to see and then reflect on the overall picture. My taking
the time writing this is a sign that there is light at the end of
the tunnel.
In reflecting the development of the Medici in Normal in-
vestment, it strikes me as strange now that it took a long time
before I realized the seriousness of the situation. While my
more conservative son Paul has been screaming for a long
time that we are going under, I was working on the Stroga-
noff recipe to make it a signature dish (it is). Paul could not
understand that I did not show more concern over our very
high payroll costs. Gradually, it became clear to all of us that
we had turned the corner. A big step was to find a competent
and committed GM (Steffan Block) and more recently the
addition of chef (Josh Huddleton), to our staff. We all feel
that all the ingredients for success are in place. We will lose
money for a few months, but then the sailing should be clear.
We will become the best restaurant in the state!