What Not to Do When Starting a Restaurant in 202017 min read
The prospect of opening a restaurant may trigger feelings of dread and elation. Worse, you’ve probably been told by well-meaning loved ones that most restaurants fail in the first year. As we’ll see, this isn’t the case—it’s a myth.
In fact, assuming you have a good business head on your shoulders, your odds actually aren’t that bad. But the fact remains, starting a restaurant is an endeavor fraught with risk. One wrong step can spell disaster.
In this post, you’ll learn about the most common mistakes folks make when opening a restaurant. While this isn’t a tutorial on how to open a restaurant, it is, in large part, a treatise on what not to do, especially the third section.
Assume that the points covered in section three have sunk many culinary operations.
Don’t make the same mistakes.
The Reality is Not So Grim
If your dream of opening a restaurant has been hampered by grim ‘statistics,’ we’ve got some news for you.
The conventional wisdom goes something like this:
Nine in every 10 new restaurants fail.
Or, maybe you’ve heard it put like this:
90% of restaurants fail within their first year.
Hold up. Take a breath. According to research from two big hitters in the economics field, this simply isn’t the case. Not by a long shot. The research, published in 2014, was conducted on BLS data that covered 98 percent of U.S. business. The conclusion?
Out of all single-establishment restaurants opened from 1992 to 2011, only 17 percent failed of them failed in the first year.
What’s more, the researchers found that the actual failure rate falls in line with many other service-oriented businesses. 21 percent of real estate agents, for instance, fail in the first year. 19 percent of landscapers fail in the first year, along with the same percent of automotive repair shops.
So fear not.
Starting Out: Where Most Restaurant Owners Go Wrong
So you want to own a restaurant. Great. Operating a restaurant is a noble and potentially rewarding enterprise. Restaurants are an important aspect of culture, after all, and they provide a much needed service to the public. But not so fast. Before you even think about opening an eatery, you should read through this section—probably more than once. You may even want to bookmark this post so you can refer back to it later, once you get the ball rolling.
In this section, we’ll cover specific strategies you can use to address customer pain points. If you address these pain points better than your competitors do, you stand a much higher chance of finding success.
Let’s get started.
There are more than 600,000 restaurants in the U.S., as of 2018.
That’s a lot of eateries.
Step one in the process of opening your own is to answer the question, What will make mine different?
In today’s marketplace, it’s no longer enough to simply be in business. Millennials are the name of the game, and millennials like to engage with brands they identify with. So as you read through this list, think of that word, brand. Brand matters more than ever. The goal isn’t just to own a profitable restaurant, the goal is to own a popular brand.
#1 They Don’t Know What They Are
With that in mind, what is your restaurant all about? Many restaurateurs, when thinking up a concept, will look at current trends, or fads. While looking at fads can give you ideas, you shouldn’t rely on such shallow research alone.
For instance, while veganism has gained in popularity in recent years, there are concerns that the diet is unsustainable for most people. Moreover, most people who try the diet give it up within a few months. So, while a restaurant based around a vegan menu could succeed, success is hardly guaranteed.
In a similar vein, the ketogenic diet, which advocates a high fat, low carb way of eating, does not seem to be as dangerous as health gurus insisted it was. But opening a restaurant with a menu centered around high fat items may be a gamble. After all, most of the population still fears the effects of dietary fat.
So what to do?
What does your gut tell you? What is your appetite for risk?
If you feel strongly that a particular gimmick, hook or concept will work for you, and you’re willing to take risk, then go for it. We’re not here to stomp on your dreams or poo-poo your ideas. But if you’re more risk adverse, then you should evaluate your ideas more critically.
These are the most common eatery types, to give you some ideas:
- Buffet. Though the buffet seems to have gained popularity only recently, it actually originated in 16th century France. In the buffet model, customers pay a flat fee to eat as much as they want in one visit. Typically, guests serve themselves.
- Casual. A sit-down restaurant that offers a laid back atmosphere. This can range from the mom-and-pop establishment that’s been in business 50 years to the franchise with 300 locations.
- Fast casual. Fast casual is defined as a quick-service establishment that is slightly more upscale than your typical fast food restaurant. You’ll still encounter disposable dishes and flatware, but the food—and food presentation—is a bit fancier.
- Fine Dining. A sit-down restaurant that offers patrons the finest in dinner options. There is a focus on quality in everything from presentation to the food itself.
- Cafe. A cafe does not offer table service. Beverages are served over a counter. Other items, such as pastries, muffins etc., may also be served. A bistro is a cafe that offers full meals.
- Food truck. A restaurant on wheels. A low overhead operation that moves from place to place, usually going to wherever customers congregate. Naturally, this type of eatery is most often found in metropolitan areas.
- Ethnic. These are your Mexican, Chinese, Indian, Italian, etc., restaurants. Typically, they are family owned and operated, and the kitchen is run by someone who hails from the relevant culture. Note, however, that this is not always the case. In fact, many ‘Chinese’ restaurants in the U.S. serve ‘Americanized Chinese food.’
Fun fact: Orange chicken was invented by Andy Kao in 1987. In the U.S., for Panda Express.
In an attempt to stand out from the competition, you may be tempted to stray from these tried and true concepts. You can spend a long time reinventing the wheel, and that might work out well for you. But you can also build a successful restaurant around one of the above restaurant types. Ultimately, how much effort you put into coming up with a unique concept comes down to your risk tolerance.
At the lowest end of the risk tolerance scale, opening a fast food or fast casual franchise is probably your best bet. At the high end of that scale, you could experiment with combining the restaurant types above or coming up with a totally unique concept.
#2 They Ignore Their Competition
When starting your own restaurant, you’ll need to do more than scope out your local competition. Indeed, your success depends on going far deeper than that. Doubtless, most restaurant owners cite tough competition as one of their main frustrations.
But they tend to address competition by competing only on the price level. This is not always the best option. In fact, rarely is it the best option.
Become a Spy
Most consumers aren’t sure what they’re eating for their next meal. They tend to decide on the fly, especially when they’re on the move. Often, when they decide to eat out, they’re not sure what type of restaurant they want to go to.
What does this mean for you?
It means you have to be ready and willing to go the extra mile to catch people’s attention. This is why, when thinking about starting your own restaurant, you can’t be squeamish about spying on your competition.
You have to be willing to get a bit dirty here.
The most important thing to do, once you know which town or city you want to operate in, is to go onto Yelp. Specifically, look up Yelp reviews for your would-be competitors, and then make a list of the things their customers complain about.
Can you find common themes? What are the pain points of customers in your local area?
Here’s the secret:
If you can address those pain points better than your competitors do, you’ll succeed.
Know Your Customers
You need to build buyer personas. A buyer persona is a fictional dossier, or report, on your ideal customer. What does your typical customer do for a living? Where do they work? What do you they do in their spare time? Why do they come to your restaurant?
Here is an example for you to check out once you’ve finished reading this guide.
Ideally, you should create at least three buyer personas.
Once you’ve been open for a while, you can ask your employees to describe your regulars. This will help you refine your existing personas. But for now, you’ll have to put the work in to imagine who would come to your restaurant and why, based on your concept and potential location.
Once you have a few personas, think of their potential pain points. Why are they coming to your establishment?
For instance, If you’re a casual eatery operating beside a truck stop, you’ll need to train your staff differently than if you’re planning a family restaurant in a different location. For one thing, truckers talk to each other, which could be either a blessing or curse depending on whether or not you offer stellar service. For another, your staff may need to be trained on steps to take should the occasional fight or brawl break out.
But if you’re planning a casual restaurant catering to families, you’ll have different needs. You’ll need highchairs, changing tables in your restrooms, family-sized meals and ample specials. The greasy spoon beside the truck stop, on the other hand, can probably get away with a thinner menu and simple, but functional, restrooms.
What does this have to do with your competitors?
Again, if you address your customer’s pain points better than your competitors do, you’ll succeed.
Map It Out
Once you have a few customer personas built up and an idea of where you want to open your restaurant, go to Google Maps and look at your local competition. Think in terms of access. What types of transport do your ideal customers use? If you’re opening a fine dining restaurant, they may well have their own cars. But if you’re opening a fast casual restaurant near a university, they may be using public transport.
Ask yourself, How will my ideal customers get to my restaurant?
Again, this comes down to addressing pain points. If you know that most of your customers own cars, consider offering valet service. If most of your customers are using public transportation, ask yourself what you can do to make their day just a little bit better—as long as it won’t cost you an arm and a leg.
For instance, let’s say that you operate a fast casual eatery in a cold climate. For whatever reason, many of your customers reach you via public transportation, or maybe you’re just located near a bus stop. You could look at the bus schedule and then lower your hot beverage prices at times when the bus arrives. A modern POS can help you do this and more.
Once you come up with a way to address a customer pain point, don’t be shy about it. In the above example, you would want to let your customers know that hot drinks are cheaper during those hours of the day, and you would ask them to tell their friends.
# 3 They Put No Effort into Retaining Staff
Your staff has a tremendous influence on your success. They interact with customers, which means they have a direct impact on your overall reputation and can affect things like word of mouth advertising.
When first hiring staff, look for a mix of personality and experience. You want people who can perform under pressure while maintaining a positive, chipper attitude. The only thing that will earn you negative reviews faster than lousy food is snippy staff.
Remember that restaurant turnover rate is always high. It usually hovers around 70 percent, in fact. This has a few implications:
- Experienced restaurant staff are accustomed to restaurant hopping
- Attempting to build loyalty can be frustrating because staff leave so often
However, you shouldn’t let the second point discourage you. Nothing is going to keep that college-bound eighteen year old from leaving. But if you work on building employee loyalty on the macro scale, you’ll enjoy a lower turnover rate overall. There are a few tried and true ways to achieve this.
Give your Staff a Voice
If this is all you ever do, you’ll enjoy a lower turnover rate. Hold frequent meetings and give your employees a voice. Let them vent their frustrations. Assure them that you take their concerns seriously. Then, take action. Pick one of their grievances and solve it, or come as close to solving it as you can.
This works wonders in improving employee morale.
Provide Adequate Training
Too many new restaurant owners put staff training into the hands of a trusted employee or family member, and then walk away. Check in personally with new staff to make sure they feel like they’re being adequately trained. Frustration in the early days of employment adds up fast. If your staff feels like they’re being asked to do things they’re not ready for, they may leave.
Create an Employee Loyalty Program
The next step is to actually reward your employees for loyalty. One way to do this is to offer an employee of the month program. You can offer:
- A monetary reward
- Gift cards or certificates
You can also partner with local businesses to offer things like:
- Hotel stays
- Free oil changes
- A day at the spa
If you go the latter route, and you know that you’ll be buying something from a local business at least once per month, consider asking that business for a discount to keep your costs low. Moreover, you can often work out a barter arrangement to bring your costs down even more.
If all else fails, throw money at the problem. Often, when an employee leaves, it’s because they got a higher paying offer somewhere else. You need to stay competitive in order to keep the best talent. Part of being competitive is providing raises. Hold regular performance reviews and offer raises where merited.
Common Restaurant Management Mistakes
If you make any of the following mistakes, your restaurant will probably fail. In this section, we pull back the curtain on poor restaurant management. Take a good look at it on paper to ensure you never see it in reality.
#1 You Ignore Your Data
If you’re thinking of starting a business, your goal after one year—or five years, or fifty years—can’t be, ‘to be a success.’ Wanting to be successful is not enough.
Consider the following scenario.
You find yourself lost at sea. You want to find land ASAP so you can get some fresh water to drink.
Your goal in this scenario can’t be to ‘be successful.’ That’s not a goal. That’s not concrete.
In the above scenario, examples of concrete goals would be:
- Find out which direction the current is flowing in
- Look for tools that you can paddle with
- Find something to block the sun so you can slow water loss
- Look for a tool, such as a satellite phone or flashlight, with which you can summon help.
Similarly, you need to have concrete goals when starting and running a restaurant.
Success is not a goal.
Success is subjective. It means different things to different people. True goals, however, are objective markers of achievement.
The following are concrete examples:
- All customers are seated within five minutes of entering the establishment.
- Servers must give a dessert recommendation to each table.
- Add a new menu item each month to keep the kitchen staff energized
- Post at least one photo of a menu item to your business Instagram account each week
It’s these small but concrete goals that, together, will make you a success.
The only way to go after concrete goals is by combing through your data. In fact, you should constantly analyze this data. Utilizing a modern point-of-sale system will make this a lot easier. But whatever tool you use, make sure you know how to run reports. Then do so on a regular basis—and actually read them.
Your restaurant reports and analytics are your friends, not your enemies.
Many restaurant owners procrastinate on combing through this data, to their detriment. Yes, data can be boring. Yes, data can be intimidating. But paying attention to your data can save you thousands of dollars, and it may even be the difference between making it past year one…or failing.
Frequently and thoroughly analyzing your data helps you spot small problems before they get bigger. These aren’t just numbers, they’re the lifeblood of your business. Look for a point of sale system that offers robust reporting with several data visualization options. Data visualization, such as charts and graphics, can make going through the numbers easier.
#2 You Have No Social Media Strategy
As mentioned, brand is important. Today’s consumers care about who they do business with. The good news is that it’s easier to get started with social media than you think. And if you engage in social media consistently, you can regularly attract new customers. Paired with your—doubtless—strong customer service and amazing food, you can turn those first timers into repeat customers.
See our recent post on social media marketing to learn how to make money from sites like Pinterest, Instagram and Facebook.
#3 Your Website Looks like Something out of 1998
Going back to the concept of brand, and to the theme of catering to millennials, you should conduct an audit of your website. If you don’t have one yet, all the better. Think of your restaurant’s website as its digital front door. We could dedicate an entire post to this, but this is the most important thing to know: you must build a mobile-friendly website.
Modern consumers like to look a restaurant up before they dine out, and they do so on the move. In fact, they might look you up as they pull into your parking lot. If they don’t like what they see, they might leave. You can no longer rely on consumers to be lazy and go into your establishment simply because it’s there.
Modern consumers are choosy.
While you don’t have direct control over what people say about you on Yelp, you can make sure that you set the right tone with your website.
Assume that most of your guests are looking at your website on a mobile device, either a phone or a tablet. That means that your website must look good at both desktop and mobile resolutions. If you’re working with a designer, make sure to stipulate that the website must be mobile friendly. They’ll know what that means, and what it entails.
If your website isn’t mobile friendly, it will display poorly on a mobile device, or not at all. This will make your restaurant look extremely dated, and you will lose business.
#4 Your POS System Is Out of Date
Today’s POS systems have amazing features that can make your life much, much easier. An irony: if you’re avoiding a POS upgrade because of the cost, you’re probably costing yourself money. A modern point of sale system will streamline your internal operations, ease communication between wait staff and the kitchen, allow your staff to upsell, allow you to run invaluable reports, and much more.
This will, in turn:
- Increase revenue
- Increase repeat business
- Help you serve more tables per hour
- Increase customer satisfaction
When you invest in a modern POS system, you have nothing to lose and everything to gain.
We hope you’ve found this concise guide helpful. If you have, consider giving us a share.