Ending the Restaurant Failure Myth

For many years restaurants have gotten a bad rap when it comes to perceived risk.  Business experts and people in general are prone to citing “The High Failure Rate” of restaurants as a reason not to invest in or start restaurants.  Most of us are so use to hearing such talk we simply accept it as truth.  If we were to ask those who claim that restaurants have a higher failure rate than other small businesses to provide a references for their claim, they couldn’t.  There aren’t any credible research studies to support this myth.

I recently published an article outlining how anyone can dramatically improve their odds of success at starting a restaurant business.   The same day that the article was published a reader left a great comment, which not surprisingly mentioned the high failure rate of restaurants.   For the benefit of aspiring restaurateurs, restaurant investors, and the restaurant industry, it’s time to set the record straight.

There is no meaningful difference in the failure rate of restaurant start-ups and small business start-ups in general.  According to the Small Business Administration about 44 percent of small businesses are still operating after four years.  Similarly, according to a 2007 study conducted at Ohio State University, 41 percent of restaurants were still operating three years after launch.

As someone who has owned and operated a restaurant in a major city, the enjoyment and social aspects of being a restaurant owner fall just below rock star, local celebrity, and city mayor.  A popular restaurant allows the owner to be at the center of community events.  More importantly, if restaurant owners avoids the trap of trying to “Do-it-All” themselves, they can also enjoy a well balanced lifestyle.

The classic nightmare restaurant ownership scenario of long frantic days is the same for any entrepreneur,  who does not graduates from working in his business to working on his business.  Moreover, if restaurants were failing at the staggering 90% rate that some quote, it is unlikely that the restaurant industry would have been growing at double digit rates prior to the current recession.  So, the next time someone tells you how risky the restaurant business is, politely ask them for their reference source.  If they cite any new or interesting facts please email me the link too.

Is now the right time to start your dream business?

The super successful investor Warren Buffet is fond of saying, “When others are buying, I am usually scared and when others are scared, I am usually buying”

The question of timing the launch of one’s business during a recession has been top-of-mind for me because several of my clients are boldly moving forward with projects.   For example, I am working with a very successful operator in Florida, who has taken the opportunity to purchase a site that was completely unaffordable two years ago.  He will be launching his second restaurant by the end of this year.

I am also helping a nationally known Chef in the Carolinas with his business plan and negotiations on a location that would cost four times as much in a normal economy.  So, as I work with clients who are making bold moves, the question arises “Is this the right time to jump in?”.

For most of us the answer is no, not yet.  My clients, who are taking advantage of the market downturn, all have the financial strength to endure the worst case scenario.  For everyone else, I recommend using this time to prepare yourself.  I mean deciding on the right concept, developing a solid business plan, connecting with potential investors, and selecting a professional support team.

I think it would be a big mistake to idly let valuable time past by without taking steps to move forward on your dream business now.  Those who plan now will be in the best position to succeed as the economy begins to show real signs of recovery.   I heard it said that luck is the place where preparation intersects with opportunity.   (Also see:  Recent this Forbes article)