What makes a restaurant fail: A cautionary tale

Financial Express 11.06.2012
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So much is written about what makes a successful restaurant that we forget to focus on what doesn't.

A few years ago a prominent American financial services company ran an advertisement claiming that 90% of restaurants fail in the first year. The actual number is not so high but the point remains: running a successful restaurant is not easy. So much is written about what makes a successful restaurant that we forget to focus on what doesn't.

Restaurant managers can fail in a million ways but the most important thing that can go wrong is that they fail to fully develop a compelling value proposition for their guests. Know whom you want and whom you do not: you cannot be all things to all people. A second major cause of failure is "cut and paste." No two locations are the same, no two managers are the same and no two clients are the same. A third common cause of failure is interior designers. This is a critically important part of any restaurant and getting the interior ambience wrong is deadly.

This brings me to a cautionary tale. Assume for a moment I’m a typical wealthy businessman. I can be from anywhere in the world. I have plenty of money and I decide I want to make more money while also having some fun. Going out regularly with friends, I see that the restaurant we frequent is always full.

I ask my staff to visit the restaurant. "It’s great," they say, "but you can do better." I agree. The cutlery is local, I notice on my eighth trip to the restaurant. And the chairs should be imported from Italy, right? I’d do it right, I promise myself. Getting customers won’t be a problem, after all, since I know lots of people and go to three parties every night. I pick a great location and a famous interior designer whose portfolio looks impressive. I shortlist three companies to manage the restaurant. Though I’m rich, since I’m spending so much on design, I cut out the expensive management company. I can find a manager and chef on my own. I offer them a thousand dollars more than they get now, and decide to run the restaurant myself. I open the restaurant with a page three party. Everybody loves it! The drinks are divine, they say. And they love the canapés, not to mention the main courses.

After a fortnight of parties, I realise that at some point I have to make some money, so I start charging. Suddenly, things change. The same “friends” that praised the food start to criticise everything. What was “elegant” is now “overdone.” I’m losing money, so I also lose my temper and shout at the chef. He leaves. I hire another one. The food is better, I decide, but I’m still not making money. I decide the problem must be staff training. I take this up with the manager, who offers so many excuses: it's too hot; it's raining a lot; traffic is bad; its too cold so no one is going out.

I listen to this for a year before closing the restaurant. What a turn of events! Ladies and gentlemen, this is a hypothetical story but versions of it happen all the time, all around the world. I hope these few thoughts on the business can help you avoid the pain of assuming that the restaurant business is something anyone can do well just because we all love to eat out. The most important thing in restaurants, as in any entrepreneurial venture, is you and your people. I hope you enjoy your next meal out!

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