High-stakes gamble leading to $9.5 billion success story in US

Todd Graves, the co-CEO and founder of US Raising Cane’s Chicken Fingers, took a significant gamble with a high-risk funding strategy that nearly jeopardized his dream of building a successful restaurant chain.

Today, as co-CEO and founder of Raising Cane’s, his net worth is estimated at $9.5 billion by Forbes, largely due to his over 90 per cent ownership in the company. However, the journey to this success was far from easy, Caliber.Az reports, citing foreign media.

He worked 90-hour weeks at an oil refinery and fished for salmon in Alaska to gather the capital needed to open the restaurant’s first location.   While expanding the chain, Graves took out loans from private investors with a 15 per cent interest rate.

He then leveraged this borrowed money at community banks, which treated the debt as equity, enabling him to secure even larger loans, he shared on the “How I Built This” podcast in 2022. It was a risky choice that almost cost him his business. When Hurricane Katrina struck in 2005, it forced 21 out of 28 of his stores in the Baton Rouge area to close, temporarily halting the revenue Graves needed to avoid defaulting on his loans.  

“I advise entrepreneurs, ‘Don’t do that,’ because my dream was nearly lost,” Graves recounted on the “Trading Secrets” podcast in May. “It was a foolish move.”   Fortunately, the business managed to survive due to its ability to reopen relatively quickly after the hurricane. This experience taught him the importance of balancing risk. Now, he ensures that his company maintains less than three dollars of debt for every dollar of equity, he shared on “Trading Secrets.”  

According to Bryan Bean, executive vice president of corporate banking at Pinnacle Financial Partners, Graves is fortunate that taking on such a heavy debt load initially did not negatively impact Raising Cane’s in the long term. 

“Many business owners who carry that level of debt may not survive the challenges,” Bean said. Cash flow leverage measures a company’s debt in relation to its EBITDA, which reflects the earnings from its operations before accounting for expenses like interest and taxes, explains Bean.   Maintaining this ratio below three times, as Graves does now, is considered the industry standard, according to Bean.

For smaller businesses, a leverage ratio of one to two times may be even more appropriate. A ratio exceeding three is seen as highly risky, he adds.   Individuals should also exercise caution: personal finance experts advise keeping one’s debt-to-income ratio below 36 per cent.  

Taking out loans can be advantageous for business growth. Charlie Munger, the former vice chairman of Berkshire Hathaway and Warren Buffett's business partner who passed away last year, once remarked that Berkshire Hathaway would be worth “twice what it is now” if it had utilized leverage. Graves' strategy of raising funds through debt, rather than bringing on numerous investors, is what allows him to retain nearly full ownership of Raising Cane’s today. 

The risk, as Bean explains, lies in a company's capacity to recover from financial losses. Unforeseen events like Hurricane Katrina can pose significant challenges for businesses with substantial debt. Transforming Raising Cane’s into a company that achieved $3.7 billion in net sales last year is no small feat.   “It’s truly impressive what he’s accomplished,” Bean remarks about Graves.

“He opted for a capital structure that was, by his own admission, riskier due to the high level of debt involved, particularly expensive debt. This increased the difficulty of his situation, leaving him with less margin for error.” Ultimately, Graves’ bold decision didn’t lead to the downfall of his company, and he is firm in his belief that he learned a valuable lesson from the near-miss, attributing it to his youth and inexperience: “I was in my 20s, and I made foolish choices,” he remarked.

By Naila Huseynova