I see a big contradiction in society. On the one hand, many people (at least on the internet) say restaurants are one of the worst businesses to start. On the other hand, the majority of restaurant owners are first-time entrepreneurs.
So when people think of starting a business, they start with the worst of the bunch? Why?
Most people dine out regularly, so I guess they can’t resist the sweet, tingling feeling of imagining their own restaurant. The aura of successful restaurants is so strong that it feels like they’re the perfect showoff for a wannabe business owner.
But starting and running a successful restaurant, at least as a first time business owner, is like a ‘monkey’s paw’. You will have to face your biggest fears for your wish to come true.
In the last two years, I’ve seen many new restaurants fail next to mine at Salunkhe Vihar, Pune.
Opening a new restaurant may require you to deal with many problems, including a lack of enough capital, not correctly identifying the market, bad quality of food or service, poor customer feedback, irresponsible fiscal discipline, insufficient marketing, and slow adaptation to changes.
But if you think about all these issues again in a broad sense, aren’t they just some version of ‘being uninformed’?
Lack of awareness = Disaster waiting to happen
As I said in last week’s note, success is only temporary without a developed mind.
I believe most new restaurants fail because they are simply started by people who didn’t think everything through.
While this happens with all kinds of businesses, restaurants are a prime target for a mistake like this. Most people closely watch the restaurants they dine at and can talk to restaurant owners easily, so they believe it’s not a difficult endeavor.
In my opinion, restaurants are simple to run. There aren’t many moving parts. It’s a cash business with a fixed number of input and output variables. The real risk is in ‘not knowing’ what’s what.
If you take the time to understand the game and play it even average, victory is yours.
Generally, the type of people who open new restaurants aren’t savvy businesspeople. Or do savvy businesspeople look down upon restaurants as a business?
Either way, the result is that most new restaurants are started by people who don’t yet fully understand how they work, and that’s why they fail.
It’s a people business
In today’s ‘D2C’ and ‘SaaS’ eras, most entrepreneurs tend to forget the true essence of business—people.
Successful businesses were created by managing and satisfying the expectations of people, whom you meet in person.
A restaurant is one of the most extreme examples of people-businesses. Your people serve other people for one of the most fundamental needs—food. Plus, you can add a bit of good experience for the experience economy we live in nowadays.
But that’s it. It’s a people business; unless you’re good with people, don’t do it.
This picture is of the first order at my first restaurant.
Where is the real value in the restaurant business?
Here’s a thought experiment: If your customer pays you 100 rupees, can you break it down into all the individual elements your customer is paying for?
For example, let’s say I ordered coffee for 100 rupees. As a customer, in my view, how much am I paying for the ambiance, service, convenience, and the coffee itself? You can also factor in intangible elements like habits, social status, emotional connections, etc.
A customer generally pays for multiple elements, not just the coffee. Also, different customers attach different values to each element.
Our job as restaurant owners is to identify where the value lies and maximize it for the maximum number of people.
Opening a restaurant with a lavish interior when most customers only care about the food isn’t wise, nor is focusing too much on food quality and ignoring customer service.
Knowledge precedes awareness. Awareness precedes choices. Choices precede results.
The most challenging restaurant to run is your first one. But once you overcome the monkey’s paw, you’re automatically better than 90% of the competition. How cool is that?
