In this article I’ll explain why many restaurants fail while others succeed and list the most common mistakes to avoid when you open a restaurant.
We’ve all heard and frequently seen the dreadful aftermath of failed restaurants. Research by Ohio University has revealed that 60% of new restaurateurs don’t make it past the first year. But seldom heeding the advice of others whose experience has taught them the true facts, many people go ahead and dive into the business anyway.
Many love to cook and have some great ideas about food they’d not only like to share but make some money at the same time. As an added impetus, they see so many chefs move up from restaurateurs to becoming TV celebrities.
The thought of having a television show can be alluring. And seeing their name on a line of pots and pans, knives and perhaps dishware, towels and an entire bevy of other ancillary items that may go into a modern kitchen could sounds just as good. With each sale, they get a cut of the action.
Unfortunately, these would-be restaurateurs lose sight of the real work and investment involved while these romantic ideas float around in their heads. They see themselves in spotless white uniforms wearing a tall white toque as they stroll among the tables like rock stars. People rise and shake their hands and extol the wonders of the repast they’ve just enjoyed.
Customers love to know the owner, especially if he or she is the chef and they get the opportunity to shake hands during their visit. This sort of adulation does happen, but not overnight. All the famous and renowned chefs will have spent many years learning their trade.
As they say with music, you have to practice the scales before you can create your own music.
Cooks too must learn an unending list of basics before they can hope to begin to offer the creative wonders that can make them another TV star or simply a world-class chef such as Paul Bocuse or Charles Finance.
A real kitchen is not the picture you see on magazine covers. A kitchen is an operating room. Ask any cook after a long hard day spent dashing about between cooktops, ovens, and refrigerators while trying to keep up with orders and you can learn a lot.
Probably the most important aspect to think about when considering a new restaurant is for the future restaurateur to ask if he/she is really passionate and enthusiastic about this. At the same time, a person has to be pragmatic.
Everything will be riding on a realistic approach, the money invested, hopes and dreams, and a lot of very hard work.
Obviously, if the restaurant business were so easy, we wouldn’t be hearing about this 60% restaurant failure rate.
But even all the hard work and dedication aren’t enough when we consider so many of the common but completely avoidable mistakes that restaurateurs make every day. Most of these come from one common source: Lack of planning.
Someone once said, “Those who fail to plan, plan to fail.” Lot of truth in that little adage.
Although this relates to any sort of business, our focus here is the restaurant business. Proper planning can help the entrepreneur avoid many common mistakes as well as reduce the amount of capital investment required to make a go of the operation.
Some wonder that franchises are so popular. They think, ‘why should I give a part of my profits to some Big Brother who also has rules I have to go by? Well, franchise companies invest most of their income in research, planning, and marketing.
They leave nothing to chance.
Each franchise begins with all this expertise behind them, making their chances of success as great as possible.
This easily explains why franchises are generally more successful than small independent restaurants. However, this should not discourage anyone or make a person think an entrepreneur can only be successful by getting involved with a national chain. What any entrepreneur needs is the right approach.
This includes analysis, research, and of course, planning.
10 Reasons Why Restaurants Fail
Here we’ll consider ten of the most common reasons why small restaurants fail.
1. An unproductive concept or total lack of one.
Not having an idea of what we call USP (unique selling proposition), or perhaps not having any concept at all is one of the biggest mistakes an inexperienced restaurateur can make. You want to be unique. If you want a taco stand (these days popularly called “Taquerías” (Little taco factories), you’ll find one on every corner, perhaps two. Not everywhere perhaps, but in some parts of the US.
If a person thinks he/she has a great concept for a taquería, sit down and think about it. What would make it different from all the other taco joints to be found on every street corner, not to mention the moveable taco buses?
Good food is essential, of course, but lots of other places offer good food.
Why would people pass up one or perhaps even several taco cafés to come to dine at this new place?
- Lots of other places offer good service, often with cute sèñoritas in colorful national costumes to serve their customers
- Most places serve beer and perhaps wine.
- Most have a sort of salad bar featuring all sorts of salsa, peppers, diced onions and so on.
- Most places allow diners to have free refills on soft drinks.
- Most of them have colorful pictures on the walls and in the kitchen, adding more color cooks cheerfully chat away in Spanish.
- Many have imported native furniture.
Where do all these common features leave the new entrepreneur? The new entrepreneur should take plenty of time to think about these things and this applies to pizza parlors, Asian restaurants, Italian restaurants and so on.
2. Choosing a bad location
Real estate sales persons always stress the three most important aspects of real estate: location, location, and location.
A restaurant in a bad location can make it, but this is a rare occasion. Sometimes the restaurant opened long ago when the location was better. Now, while the location is no longer so good, the restaurant’s reputation keeps it profitable.
For most, however, a bad location is almost an invitation to fail.
A recent example that might be mentioned is an abandoned former restaurant sitting back in a low spot well behind a large chain pancake house.
Recently, some hopeful entrepreneurs opened it up divided into two different restaurants. One was a Vietnamese restaurant while the other was supposed to make the visitor feel as if this were an English pub.
That alone sounds like a bad combination. The location sounds like another and to finish things off, the sign near the busy avenue — actually two signs, each so small that people in passing vehicles couldn’t possibly read them clearly to stop to read them, but beneath that, in very large clear letters was the address. Maybe they were expecting snail mail or something.
Bottom line here is that even a so-so restaurant has a much better chance of succeeding if it’s located in the right location.
3. Obviously, the better the location with a high traffic flow is going to cost more in rent
It’s important for the entrepreneur to be realistic about high and unsustainable rent costs. Depending on unearned profits is always a mistake, and many businesses, including restaurants, fail to show any sort of profit for months, if ever.
It’s extremely important for the entrepreneur to forecast the costs properly. There will be those times when any business is not productive.
4. Inability to manage financial resources properly
One of the biggest problems facing the new entrepreneur is a lack of enough capital to enable him/her to hold out for the long run. Sometimes a restaurant fails just as it’s about ready to begin turning a profit. All for a lack of funds. It’s important to plan ahead for unproductive periods.
5. Poor management
Perhaps this should have been higher on the list. People make up any business and it takes people to make a successful business. One of the most vital steps in opening a restaurant is training for the staff. Even though some of them may come in with experience, they have to learn to do things the entrepreneur’s way. After all, it’s the money and the reputation of the entrepreneur, not theirs, that’s on the line.
At the same time, it’s important to lead in a kindly way, not to bully. Employee problems should never be discussed within the hearing of other employees.
6. Inability to manage financial resources
Too often inexperienced restaurateurs believe they can easily learn how to manage their cash. That’s only partly true. But the entrepreneur has to learn to control portion sizes, inventory, spoilage, waste and a number of other considerations that can quickly lead to problems.
Overzealous salespeople too can prove to be costly in trying to sell the new owner merchandise that isn’t really necessary and only adds to expenses.
7. Immoderate spending on construction and/or renovation
Only too often, first-time restaurateurs begin spending money like water and taking on too much debt in their desire to make their dream restaurant a reality.
The bigger the debt, the greater the chances of being unsuccessful.
It’s important to stay in the real world and manage capital wisely.
When considering any improvement, such as new carpeting, for example, it may be wise to stop and ask:
- Is this going to bring in more customers?
- This carpet may be worn in a few places, but can’t it wait another year to two?
- Is a new paint job right now going to increase business?
- Do people come here to admire the paint or to eat?
8. Lack of value for dollar spent
Wherever they go, customers look for value. If they feel they aren’t getting good value for their money, they’re very unlikely to return.
Many first time restaurateurs set their prices too high, Thereby cutting themselves out of their market. It’s good to do some comparison shopping to see what others are charging for essentially the same product.
Restaurateurs should imagine themselves in the customer’s shoes and ask the question: would they eat at this new restaurant considering the menu prices?
9. Poor food and/or service
It should be obvious that great food and service are essential for any restaurateur to hope to build success in any restaurant. Far too many however fail to offer adequate dishes and service. This creates a negative impact on the entire dining experience of any restaurant.
This is the most basic part of any restaurant. Great food and great service.
10. Poor business insight
It may be a hard fact to accept, but not everyone is cut out to run any sort of business. If we were all born to be entrepreneurs, there’d be no room for customers!
Some people, simply because they hate working for someone else and having to follow orders, decide to become their own bosses. This may sound great, but only too often, a goodly number of these, not having to be on the job at a certain time “or else” decide to sleep in.
Since they’re the boss now, they feel they don’t have to do much but help themselves to a little cash from the drawer, perhaps leaving an IOU while they go out and enjoy a free day, confident in the thought that as a business person they can do as they please. Big shock coming.
Every person should sit down and make an honest realistic evaluation of him or herself. Before even getting started it’s important that a future restaurateur to simply has to do this, while confident in the ability to stick it out through thick and thin and do it right.
These are the ten most common mistakes that first timers make and they all come from lack of proper planning.
Before doing anything else, the important thing for the entrepreneur to do is to set up a business plan. Actually the better the plan is, the more detailed and realistic all neatly arranged in a folder, the better the chances of a lender being willing to consider opening his or her purse, at least to a certain extent.
If you have questions or doubts or simply wish to tell about any personal experiences, please don’t hesitate to use the comment box below.