Why Restaurants Fail (and How to Avoid it!)

The restaurant ownership game is just that — a game. It’s riddled with unspoken rules, tropes and a whole mess of ventures (stats suggesting everywhere from 60 to 90%) that go belly up before ever hitting their stride. Regardless, independent restaurant ownership in the United States is on a continual upswing because when done right it’s a satisfying business with great opportunities for growth. So while newbie restaurant owners can’t predict every possibility to befall them, they can safeguard against the nastier pitfalls and weather what else may come. Read our 5 point checklist for why restaurants fail and how seasoned and rookie restaurant owners can sidestep these common quandaries.

1. Incomplete and/or “Reactive” Accounting

Regardless of product, all businesses must make more money than they spend in order to survive.  Businesses, namely restaurants, fail when their owners spend all their time reacting to financial circumstances rather than planning for them. When unforeseen problems flare, they throw money at it in hopes it won’t reoccur. They’re constantly hit with unexpected costs and generally foster an incomplete view of their budget, dismissing “nickel and dime” details as irrelevant to the bottom line. These owners wind up in deep financial straits tragically early, (often before opening to the public!) and suggest that money problems “sneak up on them.”

How to Avoid it:

Successful restaurant owners cultivate a proactive and preventative view towards their budget. They aren’t afraid to run numbers for clarification and make conscious financial decisions from top to bottom, knowing that how much they spend on napkins, ketchup and bathroom soap will affect the whole bottom line like everything else. They know from the outset to budget for rent, utilities, and other recurring bills and don’t overspend before opening night. These owners itemize everything, from tangible goods to allocated labor costs and have funds reserved for unforeseen events. They’re not necessarily mathematicians either! They willingly integrate technology into their approach like kitchen display systems, which automate many kitchen calculations like ticket times and bottlenecks to free up time for calculating tangible expenses. Overall, they deem no cost-cutting measure too insignificant, and always consider the bottom line.

Summary for Success

•   Plan for recurring AND unforeseen expenses
•   Itemize everything — no expense is too insignificant to examine
•   Use technology to help with automation and calculations

 2. Not Knowing Your Niche

Restaurants literally depend on customers to support their business in order to stay open. First, they identify what their customers want, and then the business provides it for them. Simple enough, right? Still, restaurants fail when their owners try too hard to offer “something for everybody” without operating under an established vision. Sure, there’s benefit to being flexible and adaptable to suit a customer, but a restaurant needs an identity to stand out and survive. Sloppy owners labor under the myth that they’ll appear on more customer radars if they constantly modify their menu options. In reality, throwing figurative ideas against a wall in hopes of something sticky should’ve happened LONG before your restaurant opened and smart customers will eventually wise up and take their business somewhere else.

How to Avoid it:

Restaurants succeed when their owners enact a thorough vision beforehand and stick to it. They define a “niche” to work within, setting strong parameters to work, not as limitations but as guardrails for their identity. Successful restaurant owners know their vision before they open their doors, and use this identity to attract customers outright. They understand that no branding decision is made in a vacuum, that menu colors, decor, fonts and beyond all weigh on the brand. They put thought into how all these creative decisions lend to the overall whole and most importantly aren’t afraid to scale down their offering to fit the niche. They seek out thought leadership on the subject to stay updated, as well as design inspiration from other restaurants and rest assured knowing that when their creative vision is sound, all other decisions will flow.

Summary for Success

•   Identify your niche and work within it (parameters are guardrails, not fences)
•   Have a creative vision established before opening
•   Don’t be afraid to rebrand if necessary!

3. “Winging It.”

Each individual restaurant is a unique machine that requires its own set of hardware, software, and baseline user understanding in order to operate. One of the main reasons why restaurants fail is because their owners maintain a “we’ll cross that bridge when we get there” attitude towards individual processes. They hesitate to establish process and protocol, reasoning that it’s “too stodgy” or the circumstances are “too unpredictable” for them. While unbridled optimism will certainly benefit any business owner, those unwilling to firmly establish processes, even unsavory ones like employee conduct and termination policies, will likely be closing their doors early.

How to Avoid it:

Successful restaurant owners understand that every single aspect of the business necessitates a procedure to follow. This ranges from kitchen and staffing procedures to recipes, training protocols, setup and takedown procedures, employee conduct expectations and more. So while we can’t possibly list every process a restaurant owner will encounter, we will repeat that one can’t be too granular here. The strategy is to create such evergreen systems that any other employee could theoretically perform the duties of another at a moment’s notice. Successful restaurant owners regularly review these procedures with staff to ensure everyone’s on the same figurative page and keep their training regimen sharp. They safeguard their employees from chokepoints and unplanned snafus and develop systems for smoke breaks, employee meals, on-the-job alcohol consumption and all the in-betweens to eliminate awkward misunderstandings down the line. Furthermore, since employees understand the intent behind these systems, they feel empowered to comply. Finally, technology like recipe viewer technology can store custom quality standards and procedural data, helping create automation and synergy throughout the kitchen process,  helping successful restaurants run like a…well-oiled machine.

Summary for Success

•   Develop a protocol for every front of house procedure (and document it!)
•   Develop a protocol for every back of house procedure (and document it!)
•   Develop a protocol for every other procedure in the restaurant (and document it!)

4. Lackadaisical Marketing

All restaurants should market. New ones have no excuse not to! To which exact degree and whether the marketing is done in-house or by an agency is up to specific circumstances but in a web-connected world, restaurants fail when their owners don’t market. These owners typically insist that marketing is not their job or that with all the immediate demands of the business they cannot budget any time towards it. They rely on outdated methodologies that “worked in the past” and view marketing efforts as a hoop to jump through, rather than a crucial component for growth. 

How to Avoid it

Restaurants succeed when their owners make marketing a priority. These owners know that in the modern landscape, they can’t afford NOT to market to stand out. They have a polished website (a simple drag n’ drop template will do!) that features basic contact info and menu and know that this is the first step in “owning” one’s restaurant SEO when they’re googled. Their restaurants have a social media presence on Facebook (at the very least)  and value the access this page gives customers to directly engage them. They’re familiar with the world of online ratings, and use proactive incentives to influence positive reviews via promotions. Ultimately, successful restaurant owners see marketing as an integrated business process, knowing it’s one of the primary lead generators customers to find them.

Summary for Success

•   Have a website/web presence to own SEO
•   Have social media pages (Facebook at least, Twitter and Instagram if customers are there)
•   Use Internet and social media to spread information and promotions

5. Small Picture Mentality

Let’s be honest: many factors can contribute to a restaurant’s success or failure and some are truly outside the realm of control. Smart business owners know they can’t completely eliminate risk, but can develop a routine to protect against the unexpected. Restaurants fail when their owners refuse to see the big picture. They use hot-button metrics and immediate feedback to measure their success and feel exhausted from constantly running to put out fires in a process that’s entirely out of their hands. Small setbacks become catastrophic meltdown moments from being so vigorously focused on the here and now, and constantly miss opportunities in the overarching narrative

How to Avoid it

Successful restaurant owners know that while the small picture metrics are important, the big picture vision will actually determine their fate. They know that small wins begat big gains in the future and that in terms of the intangible, growth can’t always be measured on paper and try to see their restaurant from as many angles as possible understanding that they may have blinders and biases in certain areas. They seek to understand the various processes through staff and customer’s eyes and understand that momentary flubs in the small picture can still be corrected to align with the big picture. They assert that each and every decision they make in the small term takes the business either closer or further away from the big-picture vision and aren’t satisfied until each thread is traced back to the same, unifying point.

Summary for Success

•   Understand the small picture metrics, but don’t hinge everything on them
•   Seek to understand from all angles (staff and customer)
•   Make changes in the small term to affect the big term

Conclusion

We like to think of each point on this checklist as a small hinge that swings a big door. While restaurant ownership is a multifaceted venture, it needn’t feel like a randomized crapshoot. A consistent approach, an eye for the big picture and a strong marketing plan will help anyone stay in the black. Subscribe to the blog for more interesting restaurant content!

---

About the Author

Dylan Chadwick is a Content Marketing Specialist at QSR Automations. He graduated from Brigham Young University with an English degree and journalism focus and loves heavy metal. In his spare time, he enjoys berating those who only listen to Ozzy-era Black Sabbath.