By Dean Small – Founder, Managing Partner
Opening a new restaurant is not as simple as finding a great location and hiring a talented Chef or seasoned General Manager. It requires thoughtful planning, a clear understanding of the market, and your target market’s needs, wants, and expectations. People new to the restaurant business often believe they can do a better job at running a restaurant than others because of their past business skills or passion for food and love for great hospitality and service.
Without a well-thought-out business development strategy and road map for financial success, we find that new restaurateurs often find themselves in a world of financial trouble and upside down. Often, they didn’t define their brand clearly or put a financial model together to determine if this business is sustainable and will deliver the profits they need to cover operating expenses, debt and pay off investors with a reasonable profit at the end of the year. One of the goals of opening a restaurant is to make money- this is not a hobby it’s a demanding job that has risk, exposure, liability and requires a significant financial commitment and long hours. We cannot undervalue the importance of putting a realistic financial model together to determine what is needed for a sustainable business.
Let’s explore the four biggest mistakes that new restaurant operators make when opening a new restaurant.
- Failure to thoroughly understand the competitive landscape
- Failure to define their brand positioning, business development strategy, and company culture – this includes writing a concept brief that articulates the unique attributes of the restaurant, including the menu and service model
- Not building out a detailed financial model, so they understand what type of investment will be required to make the business successful
- Hiring inexperienced managers and chefs that do not have the expertise to lead effectively, control costs, and drive sales
Mistake # 1
Knowing your direct and indirect competition is paramount to success. It is crucial to thoroughly understand the direct and indirect competition. And if you don’t, you are doing yourself a disservice. If you hope to outmaneuver the competition and take market share, you need to know why customers are going to a competitor’s location. Learn what they do well and figure out ways to do it better.
Mistake # 2
A brand is not a logo, graphic, or name! A brand is a promise that you make to your internal customers (your team) and external customers, your paying guests. Your brand is your DNA, and everything you do from creating your name, designing the interior, creating the menu, service style, and hospitality strategy must support your brand positioning. You are like a ship without a rudder when your brand is not clearly defined. It makes it impossible to communicate your message and creates internal confusion because everyone sees things differently and from their perspective.
Mistake # 3
Most new restaurateurs look at construction and equipment costs for budgeting purposes; however, they don’t realize that there are numerous additional costs that need to be factored in, such as pre-opening expenses, inventory, freight and installation of equipment, deposits, china/glassware, food inventory, technology and dozens of other line-item costs. When building out a financial model, you do not want to guess and come up short and not have adequate funds to open and operate the restaurant. We have seen many restaurants fail because they get upside down even before opening the restaurant and unexpected debt kills them, and they go out of business.
Mistake # 4
There is nothing worse than a bad hire! Hiring friends, family members, or people you know who have some experience is a recipe for disaster. Before hiring a Chef or General Manager, you should have clearly defined job descriptions, set expectations, and have them show you their capabilities. Restaurants frequently fail because the General Manager is nothing more than a key holder and does not have the experience running a restaurant, setting budgets, managing operating expenses, setting standards, training the team, and controlling quality. A Chef must possess qualifications beyond cooking to qualify for the position. They need to know menu development, write accurate recipes, food costing, inventory control, labor budgeting, food safety, and kitchen management.
Opening a new restaurant can be exciting, personally rewarding, and a profitable experience if you can avoid these four common mistakes. If you have any questions or need help exploring the feasibility of a new concept please give the Synergy Team a call.