Developing a restaurant is one of the most demanding pathways in entrepreneurship. The foodservice industry requires three critical ingredients that make success a far steeper climb than in most other sectors. These are capital (and lots of it), assets (physical space, kitchen equipment, build-out, supplies) and people (from line cooks to servers to cleaning staff).
Some industries might be asset-intensive but those assets, in turn, reduce your reliance upon people (think of advanced manufacturing plants, for example, where the higher investment in equipment may lower manpower requirements). Other markets involve a lot of capital but less demanding management of assets and personnel (such as real estate investment, where the capital investment itself holds the risk, while day-to-day operations are less critical to the investor’s return).
If you’ve decided to embark upon this journey, there are a number of powerful strategies you should consider and act upon at the outset to ensure success. Five of these essential strategies are as follows:
1. You’re going to need capital. A lot of capital.
The first mistake you want to avoid is underestimating your capital requirements. This is an area in which you absolutely must not skimp. This begins with the planning of your restaurant space: kitchen, dining areas and service areas.
You don’t need top-of-the-line equipment for everything, but anticipate your costs to exceed any conservative estimates by 30-50% and possibly more. Today, it’s not uncommon for a small mid-to-upscale restaurant to require $1.5M to $2.0M of investment before the doors even open.
2. It’s still about location, location, location.
It’s sobering to think about the funds necessary to safely enter this business, and one thing you should consider is taking on multiple investors as partners in the venture to reduce your personal exposure and diversify the investment risk. This issue of the startup costs also demonstrates the importance of choosing your space wisely. Remember that location has a number of factors wrapped up in it:
- Location visibility and accessibility to your customers.
- On-site parking or nearby bus or rail transit (in an urban area).
- Nature and traffic flow of nearby or adjacent businesses.
- Size of the dining space and your ability to turn over tables and generate income.
- Configuration and efficiency of the kitchen and service areas.
- Zoning and planning requirements for factors such as a bar, outdoor patio, private event space, valet parking, signage, etc.
The key here is that you should never jump on a location just because it’s become available. For example, a space that already housed a restaurant may be available because location or landlord issues could have driven the previous business out. Of course, every space in your market should be reasonably considered — just keep in mind that healthy skepticism is warranted for such a major investment. No space will be perfect, but the space you choose will need to check off most if not all of your key requirements.
3. Your vision must match the market’s needs and wants.
A restaurant is, of course, an artistic and creative enterprise – especially if it is independent and not a franchise concept. And markets generally respond positively to the new entrant who brings excitement, energy and creativity to the table. At the same time, it takes an enormous (and expensive) effort to introduce a new or unproven concept to an existing market, and there may be other concepts that are more desired or in-demand.
The key here is that you must deliver what customers want, especially if your restaurant will primarily serve local customers (as opposed to establishments located in tourist areas). This requires a few aptitudes. The first is surveying and listening to market feedback before solidifying your concept, and the second is maintaining a highly flexible approach to your business model even after you’ve opened.
For example, after a Japanese restaurant opened (offering both hibachi tables and sushi bar selections), the owners discovered that there was a latent desire in the local market for an establishment that would allow outdoor cigar smoking. The restaurant, luckily, had the correct zoning approvals and was able to rapidly increase revenues from a new market segment (and one that also tends to keep open bar tabs going), while not negatively impacting their core dining audience.
4. Don’t skimp on training and mentoring, even with high turnover.
With the insanely high levels of turnover endemic to the foodservice industry, it seems almost fruitless to invest in training and employee development. In fact, the opposite is the case. After all, remember that high turnover isn’t just about unreliable or lazy people — a high percentage of those employed in the foodservice industry are also students or carry multiple jobs, and often have to make changes just to survive. Not every employee departure should be taken personally (in fact, almost none should be).
The point is that well-trained employees not only serve customers better; they also tell other people about openings at your business and encourage high-quality people to apply. High turnover doesn’t mean employee quality is less important; it means employee quality is more important. Consider providing customer service training; workplace safety training; ServSafe training; and other options that will allow your employees to have more future work opportunities and become more confident in their work for you.
It’s also essential to provide mentoring to all front-line service staff, so that the quality of the customer experience is consistent. There’s nothing more disturbing to customers than a restaurant whose service quality is excellent on one shift and terrible on another. This can’t be about individual personalities; it has to be about your overall culture.
5. Simple but well executed is better than sophisticated with mediocre execution.
When it comes to the menu, simple is the key. If location, location, location is one mantra, then simple, simple, simple is most definitely the other.
You need a simple menu for a few essential reasons:
First, your menu should have a clear focus (both in terms of the type of cuisine and the seasons). A smaller and simpler menu makes it easier to achieve this focus in ways that customers can understand and appreciate.
Second, your menu needs to support more fresh ingredients, not fewer. Since fresh ingredients are expensive, more perishable and require more cooking labor, it’s essential to keep a narrow list of fresh items on deck so that you don’t have high spoilage or food losses.
Third, your menu must be deliverable across all chefs, cooks and shifts. It doesn’t matter who is in the kitchen or when, you need to ensure that each person on the team can confidently and competently cook each menu item. Customers want consistency along with quality, so it does no good to have outstanding delivery at dinner and then mediocre delivery at lunch.
Fourth, your menu must be logistically manageable. Consider how you can leverage fewer, higher quality ingredients to make more menu items. For example, fresh chicken can be used in dinner entrees but also in lunchtime soup-and-sandwich specials. Don’t let your freezer get filled with hundreds of pre-cooked and prepared foods waiting for a microwave when for the same investment you could have much fewer and fresher items being made into high-quality meals.
Fifth, you are not in this business to lose money. You’re in this business to make money, and potentially, in the future, to expand (in many cases) to multiple locations. Managing your food costs and containing complexity in your food logistics is essential to achieving these goals across the board.
6. The buck stops at business skills and the quality of the back office.
You’re in business to create a customer experience, and the customer’s needs must always be considered first and foremost.
However, your ability to meet or exceed the customer’s needs while simultaneously crafting a profitable and reliable revenue stream all comes down to your business skills, and the nature of your back office operation. You need to plan for building maintenance, equipment maintenance, cooking supplies, staffing and so much more.
Keeping your books organized and adhering to your operating budgets is the responsibility of arguably the most important people in your operation: the general manager, the bookkeeper and the payroll clerk. Make sure these people are educated, informed and empowered to make smart business decisions and help protect the longevity and profitability of your restaurant business.
Recognizing these six keys will empower you to develop and execute a strategy that meets multiple essential up-front requirements:
- Delivering something the market needs and wants.
- Ensuring that capital investment meets realistic requirements.
- Investing in a location and concept that is likely to succeed.
- Creating a team, both in the front of the house and the back of the house, that will be prepared to create powerful customer experiences and protect the core of the business that makes the magic possible.
To explore some of these questions and strategies further, sit down with your CPA today to discuss financing, cost planning, capital investment and more as you prepare to bring your restaurant vision to reality.