Guide Guy - Interview with Tim Zagat

There are many book publishers out there who’ve been kicking themselves for years—the publishers who were pitched and subsequently turned down the Zagat Guide 25 years ago. After growing their casual survey into a multi-million-dollar business, Zagat Survey founders Tim and Nina Zagat are now pretty happy they were rejected.

The former lawyers began surveying ordinary restaurant patrons and publishing the results as a hobby. But when the hobby became profitable, the couple left law behind and haven’t looked back. They began to self-publish the little maroon guide books in 1979 with 200 friends and acquaintances in New York and have grown the business to more than 350,000 survey participants around the world. Today, Zagat Survey reviews restaurants, hotels, spas, shopping, golf courses, and more, in 100 countries around the world. They also produce custom guides and a website, as well as iPhone and PDA applications. They recently debuted ZagatPresents.com, a new program through which restaurants and other establishments can extend offers and invitations to events such as tastings, lectures, and preopening restaurant previews.

Tim, also one of the co-founders of NYC Restaurant Week and the Vintage Dinner Series, spoke with NY Report managing editor Daria Meoli about stumbling upon a brilliant marketing idea, building his business as a tax write off, and why his plan to sell the business fell through.

Daria Meoli: How did you start the Zagat Survey?

Tim Zagat: It started as a hobby. My wife and I lived in Paris and had become very involved in food and wine. When we came back to New York, we were members of a group that dignified itself with the title The Downtown Wine Tasting Association; but really we were just 20 friends who liked to eat and drink a lot, and it was cheaper to do it collectively. At one of these dinners, a friend complained about a critic from a newspaper that is too powerful to be mentioned here. This friend was outspoken when he was sober, but he was probably on his tenth glass of wine. I, having had my tenth glass and having done political surveying in my past, said, “Why don’t we do a restaurant survey of our friends?” We surveyed 200 friends and friends-of-friends in the first year. The guide came out in the fall of 1979. The survey was popular and we grew through word of mouth. In two years, we were up to 1,000 survey participants rating 300 restaurants.

Everybody that participated got a copy and asked for 10 more copies on average. It started to get pretty expensive. We had reached the stage where we had to get outside data processing involved. So, my practical other half, Nina, said, “Why don’t we start selling this and try to make back some of the money that we are spending? And at the same time, this could be a tax deduction.”

The first year that we charged for it, we broke even. We only broke even because the people who participated in the survey came back and bought an average of six more copies. We had fallen into a brilliant marketing scheme that we could have never dreamed up. If you get people involved in producing the product, they end up buying the product. Here’s an example of how it worked: let’s say a restaurant is crowded and noisy and 100 people surveyed say it’s crowded and noisy. Our job was to synopsize what they said, so the guide would say the restaurant was crowded and noisy. All of those 100 people thought we quoted them. It’s just like if you get interviewed in a newspaper or a magazine, you immediately go out and buy ten copies.

In our fourth year, New York magazine did a story on us. They called us “food spooks.” The essence of the article was that there are thousands of anonymous diners eating out and reviewing restaurants all over town. After the article was published, our sales went from 40,000 copies a year to 75,000 copies a month.

Suddenly, we were making half a million dollars a month from our “hobby business.” Now, Nina and I had another tax problem because we had nobody to share the money with. We had to come up with a way to minimize our taxes, and Nina said, “Let’s do the survey in several other cities, and we’ll spend some money developing the survey.” We took the survey to Los Angeles, San Francisco, Chicago, and Washington. The next year, we were the number one restaurant guide in all five cities; so, we had the same tax problem again. We then decided to do hotels and continue growing.

DM: You owned 100% of your company until 2000. Why did you decide to take on investors?

TZ: In 1999, we set up a website, and in 2000, during the dot com bubble, several companies came to us and wanted to give us money to improve the site. Our investors were General Atlantic, Kleiner Perkins Caufield & Byers, Allen & Company, and three individuals: Nathan Myhrvold, former chief technology officer at Microsoft; Nancy Peretsman at Allen & Company; and Nick Negroponte, founder of the Massachusetts Institute of Technology’s Media Lab and founder of The One Laptop Per Child association.