So You Want to Open a Restaurant?

I was the keynote speaker four years ago at a small business seminar hosted by the City of Austin. Attending was an audience of 125 prospective restaurant owners.
About a third of those people opened ultimately either a food trailer or brick and mortar restaurant. And about 80% of those failed within the first three years (in line with the average numbers for new restaurants).

I recall asking one woman attendee why she wanted to open a restaurant. “Because I love to cook,” she gushed.

“Well I’ll tell you what,” I said. “Why don’t you come over to my house this weekend, I’ll invite some friends over. You cook dinner, delight my friends, and I’ll save you a million bucks.” She looked at me in horror, as if I had slapped her. But I guess I’ve seen so many sad stories over the years that I felt compelled to rain on her parade.

Still a quick glance at her business plan told me I was right in discouraging her. She planned on running the restaurant entirely from cash flow by the second quarter. That is a virtually impossible scenario. Like so many failed owners, she had a passion for creating brilliant dishes in her kitchen but when it came to the financial nuts and bolts of the business, she was clueless. And therein lie just a few of the problems that face so many new restaurants. Running a restaurant leaves you vulnerable in many areas: the weather (too hot or too much rain), fickle customers, labor issues (chefs, cooks, servers) rising food costs, capital costs, keeping up with social security taxes (often the undoing of many new restaurants) ability to realistically budget and manage cash flow, dealing with a seemingly endless number of vendors, city and health inspectors (now there are some horror stories), and for many new owners, a lack of understanding on how marketing and branding really work. Access to cash is another constant problem as there is inevitably some minor or major equipment crisis that crops us.

Yes it’s a tough go but still, if you really do your homework, have an innate talent for a hospitality-driven business and a lot of luck, success can be attained. Indeed where would all the foodies in Austin be if every new restaurant crashed and burned? So here are a few simple suggestions for would-be restaurant owners.

1. Make sure you really understand what you’re getting into.
2, Have a realistic business plan (have a professional take a look at it).
3. Identify a source for raising capital. Forget banks. Focus instead on relatives, friends, angel investors, and your own resources. Avoid the general partner/limited partner scenario. Too many limited partners will do you no good at all (and they all want to eat for free).
4. Choose a style of cuisine that will have broader appeal. Keep your price points reasonable.
5. Pick your location carefully. While not always critical (think Wink and The Salt Lick), don’t pick some area that will work against you.
6. Identify reliable resources for hiring and staffing.
7. Develop good vendor relationships. These are critical.
8. Be prepared to bring it, your very best, every day. Your customers expect it. The best restaurants rarely have “off” nights.
9. Make sure the front-of-the-house is well run. Avoid having a 16-yr-old high school girl answering your phone.

And give your managers the power to solve customer problems right on the spot. (Many people won’t complain when they have the problem. Instead, they’ll never return, tell all their friends, and cause you inestimable damage. So don’t let a customer leave if you even suspect there’s an issue.)

So if opening a restaurant is your goal, we foodies salute you. But please, be prudent and avoid the obvious pitfalls new restaurants face. Nothing would make me happier than to dine at your place five years down the road.