9 out of 10 restaurants fail within the first year…
We’ve all heard it before, the truth is, that the claim simply isn’t true. This is one of those facts that float around that people spout out without verifying the data. In reality, only small number of restaurant businesses fail within the first year. Restaurants are actually in the middle of the pack, and there are many other businesses that actually have a higher failure rate that you wouldn’t expect. You ready for this list?
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In fact, “only about 17% of restaurants failed in the first year—lower than the average first year failure rate of 19% for all other service-providing businesses. In the Western US, restaurants and other service-providing businesses have median lifetimes of roughly 4.5 and 4.25 years, respectively." (Stark, 2018) Now, does this mean you should run out an open a restaurant?
Why you still shouldn’t open a restaurant
“I’m going to make a bunch of money.” No, no you won’t. If your primary objective is to make money, there are many industries out there that make more money than a restaurant. According to industry data from Sageworks, the 5-year rolling average in net profitability of full-service restaurants is 3.1%. In the world of business, that is a truly abysmal number. That isn’t to say that you shouldn’t open a restaurant, but money should be far from the number 1 reason in your list of pro’s and con’s.
“All my friends love my food.” Love rustling up some hors d’oeuvres for your friends? Great! Does that mean you can successfully operate a restaurant? Absolutely not. Comparing home cooking to a professional restaurant kitchen is equivalent to comparing a neurosurgeon and orthopedic surgeon, while both technically surgeons, you’d really only want one of them poking around your head. The skill set required of a restaurateur is no different than any other profession, and is no different than any other white collar profession (yes, they are white collar, it takes an immense amount of training and experience to be truly successful).
“I’ve retired and I am looking for something to do.” Pick up sword swallowing, it will likely be less detrimental to your body. This is the last thing on earth you should do. Working in professional kitchens, most chef’s body’s are broken by the age of 40. Knee, hernia and hip surgeries are abundant and there will never be a day where your body doesn’t hurt.
“It will be fun” No. No it F—-ing won’t. Sure, there will be good days, but they will rarely outweigh the some of the crushing defeats you will face.. Drug and alcohol dependence, constant anxiety, unreliable staff, depression and suicide are all very real. The late Anthony Bourdain’s “Kitchen Confidential” is a perfect reflection of some of the realities of the industry.
Why you should open a restaurant
If you’re still reading this you’re likely looking for a different reason as to why you’d like to open a restaurant. If it’s not money or any of the reasons above, its likely one of the reasons below. If you open a restaurant, make sure it’s for the right reasons. However, it’s guaranteed that you need to have experience in the industry unless you want to end up on “Kitchen Nightmares.”
Experience: You’ve spent the last 5-10 years of your life working under some great chefs or restaurateurs and you’ve spent a few years running a kitchen or front of house. You have some of the tools in your toolkit to run a successful business. Unless you are in the unlikely situation where you have worked in both front and back of house, you’ll likely want to find a partner that will compliment your skill set.
Building a community hub: We all know that restaurant, whether it is the local greasy spoon, burger joint or BBQ place. These places have a place in the local community’s heart, and regardless of the economic conditions on a national scale, these businesses still manage to thrive.
Accolades and recognition: Stone Barn at Blue Hill, The French Laundry, Alinea. These are all titans of the restaurant industry. While your sights may not been as high as these mecca’s, regional prominence might still be a goal, and that is great. Michelin stars may not be an objective, but a James Beard award might be.
A supplement to an existing business: Some businesses need an amenity to differentiate themselves from the competition. Whether it be a ski slope or a hotel, a restaurant is an important additional to the business in order to get guests to stay longer.
Multiple locations: While one business may only generate 3.1% net income, 3 or 4 $1.5M restaurants generate enough money for sustainability. Becoming a restaurateur, is a challenging but rewarding career which often includes many of the benefits above. A staggering amount of experience is required, but it can be worth it.
How to open a restaurant successfully
Get a partner: Find a partner who complements your skill set, and your values. If they want to create a fast casual place, and you’re looking to build a sophisticated upscale restaurant, you don’t have the same goals. It’s important that you both build a road-map, and see where your paths converge and peel off, and then ask yourself if the relationship can be sustainable.
Have a lot of Capital: The suggestion from the stark study is that if you are going to start a restaurant, make sure you have reserves. Unexpected shifts in the economy, changes in the cost of goods, increased labor cost and increases in interest rates all create unique challenges to restaurants. Larger restaurant startups (21 or more employees) are 75% more successful than than smaller startups.
Hire an advisor: You can’t (and shouldn’t) do it alone; sometimes you can’t, or don’t want to hire expensive talent. There are consulting chefs, matre’ds, service, IT and accounting consultants out there that specialize in your type of business. It’s important and worth while to have these folks from the get go to avoid costly mistakes.