It’s been said that the failure rate of restaurant is higher than any other business you can open. A recent study said that only 5% of restaurants will still be in business in 5 years. It seems so wrong. With people dining out more than at any other time in history, why aren’t more restaurants succeeding?
1. You gotta know the territory
In the classic musical The Music Man, the movie opens to a train scene with several traveling salesmen talking about what it takes to succeed in sales. The recurring theme of the piece was, to succeed; you have to know the territory. Unfortunately, too many people jump into the restaurant business without a clue what the territory is like.
It’s truly amazing the number of people that jump into the restaurant business as their first business venture. With their only restaurant experience being that they have eaten in a lot of different restaurants, they mortgage the house and open a new restaurant. They have no idea what they’re getting themselves into.
Restaurant management can be very complex, especially for small restaurants where the owner does it all. Even in larger restaurants with adequate professional staff, the owner still needs a certain level of knowledge in order to make sure everyone is doing what they are supposed to be doing. From food prep to presentation, to customer service, to finances and bookkeeping, the owner needs to have a pretty wide range of skills to make sure it all works the way it’s supposed to.
There’s also the little issue of understanding the market you’re operating in. Without doing any real market research, they plunge right in, leasing the wrong location in the wrong neighborhood, then are surprised that it doesn’t all work out for them.
Successful restaurant owners spend a large amount of time and energy researching the location before they even think about securing a lease. Have you noticed that you very rarely see a McDonalds going out of business? They have made an art of location selection.
In such a dynamic business with so many people who have tried and failed, it’s critical to have a good handle on the ins and outs of restaurant management before you get into the restaurant business.
2. Great Recipes Aren’t a Recipe for Success
One common theme, especially in small restaurants that have failed, is that they thought good food would be enough to draw in the business. The family told mom she was such a great cook, and she should open a restaurant. So she gathers her recipes, sets up shop, and then is devastated that the customers don’t flock in to try her food.
I’m not discounting the importance of good food, but it’s not enough. There are restaurants where I don’t care for the food, but they have been around for years. Likewise, there are restaurants that I like, that others don’t care for. Good recipes are largely a matter of taste. Your kids love your food because they’ve grown up eating it. It’s what they’re used to.
There’s a lot more to running a successful restaurant than just the food. Strong restaurant management skill are crucial. The landscape is littered with restaurants that have failed because all they had to build on was a hand full of recipes.
3. Bad Advertising Choices
Our local weekly newspaper runs a half page ad every week featuring local restaurants. If your willing to pay, you’ll be included along with the rest of them. The problem with this is, unless you are offering a coupon or some sort of enticement, your ad becomes just another small bit of clutter in the midst of a couple of dozen other restaurants. You end up spending money for an ad that probably won’t be noticed.
Marketing your restaurant is critical to it’s success. However, there is more to good advertising than just giving your money to an advertising sales person. Bad choices are a waste of money, and wasting money will ultimately lead to your restaurants failure.
Each restaurant is different as far as what is the best way to market your restaurant successfully. Is it better to buy a discount ad and hope that you will get noticed among all of the other discount advertisers, or is it better to pay more and have your ad placed in a more noticeable location away from all of the other restaurants? Some restaurants opt for radio or television spots. The problem with that is that you have to buy repeating spots in order to adequately reach your target market. One way that does work if the radio station allows it, is to buy some advertising spots, then send a meal to the on air personality. Chances are you’ll get some extra mentions without having to pay for more spots.
They key is to carefully examine what you are trying to accomplish for your restaurant, then think through whether the advertising method you’re considering will give you the kind of results you want.
4. Lack of Cash Flow Leads to Failure
One of the biggest causes of restaurant failure, or at the very least causing a big delay in restaurant success, is not having enough money to get through your startup. With out adequate funding, your dream of success turns into a nightmare of failure.
You may have a good concept, a solid plan for making your restaurant work, and enough restaurant management skills to pull it off. You open your restaurant, and begin the process of building your business. Then before you get to the point that you’re making a profit, the money runs out. So you start cutting corners to try and increase profits, but your regular customers start to get unhappy about the decreased quality. When your regular customers stop returning, you have to cut costs even more. It keeps spiraling downward until your dream is a shambles. It’s a recipe for restaurant failure that is played out time and again.
When you write your business plan, be careful of overly optimistic growth projections. Success takes time. Most restaurants grow their business slowly. Make sure you have enough money to survive until the profits for your restaurant start coming in.
5. It’s Hard Work
Some restaurants close just because the owner got tired. In many smaller restaurants, the owner becomes the “do-all” person. They are the restaurant manager, executive chef, dining room manager, and CFO. They’re one of the first one there in the morning, and the last one to leave at night. Before your restaurant becomes successful enough to hire people to help you in these different functions, it takes a lot of your time and attention. This isn’t a 40-hour a week job.
If you don’t know what you’re getting into, it’s easy to get burned out. This leads to failure to pay attention to the details that keep your restaurant from being successful.
There are some things you can do to successfully combat restaurant owners burnout, like opening only 6 days a week instead of 7. Even with that, it’s still a lot of hard work, and failure to recognize the signs of burnout will lead to the failure of your restaurant. To be truly successful at restaurant management, you need to pay attention to successful personal management. Take the time to exercise. Learn and practice stress relief techniques. Find ways to give attention to your family. Ultimately, success is about much more than dollars on the bottom line.
Restaurant Success or Failure is in the Details
The question is, can you be successful where so many others have tried and failed? Knowing the traps and pitfalls is an important piece, but knowing how to successfully avoid those traps is even more important. Learn what it takes to succeed in the restaurant industry, pay attention to the details during the planning stages, and the odds of being successful will be in your favor.
