3 Reasons Why Most Restaurants Fail

The restaurant industry is infamous for its number of closures and failed ventures. While some reasons, like natural disasters, are beyond an owner’s control, it would be safe to say that the other 99 percent is due to poor planning and poor management. 

The lure of being a restaurant owner is very much the dream of many. It looks easy, right? Serve good food, drinks, a dash of service, and presto — success! Not so fast. There are a lot of serious variables to consider before you open the doors, like real estate, brand positioning, and understanding the current market. 

If you get your arms around all that and do open, then congratulations, you now own a business in a fickle market that uses perishable products. For those that learn the true nature of the beast called the restaurant industry, it can be a very rewarding business venture. But the truth is, most will get stuck in one of the three following sand traps that will close a restaurant faster than you can say “abracadabra!”

Some of these are are like falling into deep water. You don't drown by falling in, you drown by staying there:

1. Bad Hires

The restaurant business is really a people business. Restaurants that think they just sell food and drinks are missing the big picture. You sell memories. You just happen to use food, drink and hospitality as the vehicle. 

Next to protecting the brand and preaching the culture of your business, the most important task an owner has is to be ultra critical of the people they let interact with their guests. The three form the foundation of your restaurant. The brand is the heart. The culture is the blood. Your team is the air. Some owners do not understand how important hiring is to their restaurant's success. Sure, you can live by not getting enough air, but how will the quality of your life be? I doubt you could run the Boston marathon.

Adapt the attitude to be more selective of who you allow to be on your team. Be slow to hire and quick to fire! 

You say that it’s tough to find good people? Maybe you need to create a culture that attracts the top talent?

You can’t not fire someone just because it will leave you “short staffed,” especially when they bring the rest of the team down and keep getting complaints from your guests. If this is the case, then you are running a charity and not a business. When you are scared to act because of what a staff member may do, you do not control your business. Not being 100 percent in control of your business is a death sentence for your restaurant. 


2. Bad Mindset

It can be said that most businesses are 20 percent mechanics or skill and 80 percent psychological. That 80 percent is your mindset. The good news is you are in control of your mindset. The bad news is that most don't control their mindset and live in reaction mode.

Ego, pride and denial are the leading afflictions that cause restaurants to close. The way to break this downward spiral is to ask yourself better questions. Did you start your restaurant to make a profit and contribute to your local economy? Or, did you start your restaurant so you could play host and have the admiration of friends and walk the dining room like the Great Gatsby at a party? If you choose the Gatsby scene, then congratulations… you have a very expensive hobby. Hobbies rarely make money. 

Changing your mindset is not an easy task, but it can be done. Remember that culture flows down, not up, and culture always starts with you. If you have been in the business for some time, you just might be burned out. Your relationship with your restaurant might have become strained. It's not too late to rekindle the passion you had and give yourself a checkup from the neck up:

Step 1. Make a list of all the things you love about your restaurant. Look over that list and pick three things that really stand out. Hold those three things in your head.

Step 2. Think back to how you felt when your restaurant was new. Put yourself in that time and hear what you heard, feel again how you felt. Now, close your eyes and do it again. Think about the excitement of opening, the pride you had, the joy of taking a dream and making it real. 

Do these two steps everyday for a month without skipping a day. 

Now get fired up about your restaurant! Check out other restaurants, read books or blog posts that stimulate your creative side. When you opened your restaurant, it was all the fun stuff, then it became a boring business to you. You lost interest. It still can be fun and exciting, you just need to change the way you look at it. Fall back in love with your restaurant. 

3. Bad Branding

It’s difficult to survive if you have a bad brand. The restaurant industry can be brutal to concepts that have a weak brand identity. It’s survival of the fittest. 

The problem most restaurants fall into is they had a good brand and they diluted it. You have to understand that all businesses have a cycle. When you start out, you’re the hot new restaurant in town and people flock to check you out. Then another new place opens, and another, and another. Now your “hot” new restaurant is not so hot anymore. 

Smart restaurant owners understand this market adjustment and stay the course by refining their food and service and keep training and improving. They use the natural ebb and flow of business cycles to work on their business. When at the bottom of the cycle, they are working on new menu items, training and improving. When their business hits the top of the cycle and things are busy, they execute far better than the average restaurant because they used the slower business period to sharpen their team and product.

The not-so-smart restaurant owners see a downward turn of business as a sign of the end and they do the one thing that is the equivalent to being in quicksand — they start to dilute the brand. They cut back on training and start buying cheaper ingredients. They start adding new items to the menu in a desperate move to drive sales. Sure, it might boost sales temporarily. 

However, the worst thing that happens is that by diluting the brand, your guests get confused about who you are. When your guests get confused, they turn to a brand that does not confuse them. Great brands have a brand promise and when you change things on them too much, you’ve broken that promise.

If you find yourself in one or more of these traps, then get help to save your restaurant. The last thing you want to do is to do nothing. Denial can immobilize people from taking action. There is a great Zen saying that goes, “To take no action is an action.” 

Remember that your restaurant is a living thing that you shape by your thoughts and your actions. Hope is not a business strategy. In the end, your restaurant is a reflection of you.