There are far more than 10 reasons for a restaurants failure. However, let’s focus on the 10 startup restaurant mistakes that are the most common. Having the right Business Plan is the most effective way to avoid the 10 traps.
1. “Failing to plan is planning to fail”. Steven Covey further states in his bestselling book, The 7 Secrets of Highly Successful People, “if you don’t know where you are going, you are unlikely to get anywhere”.
2. Undercapitalization. This can be the result of poor planning or unexpected cost. A good rule of thumb is to be capitalized with at least 20% more than your projected startup cost a cash reserve equal to one year’s rent.
3. Owner/manager experience. So many times a new independent restaurant startup owner will assume that because they have been successful in corporate management or other types of business ownership that the same management principle will apply. The restaurant business is unique into itself. An inexperienced restaurant entrepreneur will likely not be aware of what they don’t know. Unfortunately, this lack of knowledge can lead to irreversible mistakes.
4. Hiring of a GM whose restaurant management experience is not commiserate with your restaurant concept. For example, management experience in a fast food or fast casual restaurant does not necessarily qualify that person to effectively manage a fine dining restaurant. A potential GM who has experience with franchise style operating systems will normally be a good prospect.
5. Hiring management and staff without checking former work references. Obviously, an applicant can put whatever they want on an application. The valid work history of an applicant is vitally important to making a good hire. As with any business, the success or failure of the business will be directly related to the company’s employees.
6. A concept that does not fit the demographic profile of the restaurants concept. A restaurant that is successful in one set of demographics may not work in a different set of demographics.
7. Lack of effective marketing. Many times a restaurant may successfully open with a big splash of advertising. After a few months of success, management may then drastically cut their advertising budget in the belief that they have now established a solid client base. A restaurants consumer market is an ever changing entity. People are moving in or out and new competition may be opening. A good rule of thumb is to allocate 2% to 4% of your annual gross sales to advertising.
8. Focusing on doing things right, rather than doing the right things. An owner/manager who is a great cook and spends all his/her time cooking and does not focus on other important aspects of the restaurant will typically fail.
9. Lack of commitment by ownership. A restaurant will not automatically run itself. It takes enlightened leadership and commitment to excellence by ownership to succeed.
10. Delegation but not abdication. Owner/Management that delegates but does not follow up is abdicating its responsibility for success.
Contact Us for help correctly building your restaurant business to avoid common pitfalls such as these.