If we’ve heard one story about someone wanting to start a restaurant, we’ve heard a dozen. The idea of opening and operating a restaurant most likely stems from a bad experience where someone feels they can do a better job than what they encountered. It could be that there is a belief they’re a good cook, or they have children who suggested mom and dad open a restaurant. In any case, the horror stories are more common than tales of success.
Here’s why, and the reasons apply to more than restaurants.
More than once we’ve heard about the person who wants to take over an existing restaurant that failed and closed. We even heard of one restaurant owner who closed a franchise operation and claimed they would reopen at the same location as a “different” restaurant. Could location have been a factor? Or could hiring a majority of the same employees drive a stake into the new operation?
There have been fast food franchises that have torn down one building and relocated to the other side of the street, simply because the old location was not accessible to customers who wanted to avoid turning left into the restaurant. Location is key.
When it comes to any business, it pays to do some diligence and investigate issues such as traffic flow, residential population, ease of access, and other establishments nearby that are capable of or already bringing potential customers to the location. If you can do that yourself, great; if not, consider a professionally conducted competitive market analysis or feasibility study. Realize that the cost of acquiring that information could help you avoid moving forward on a project that is destined to fail … and spending much more money in the process.
Besides location, you have to consider your management team, target market segments, value proposition, revenue streams, various cost factors, and key resources, among others. All of these are part of developing a business model.
To go back to restaurants, for example, far too often the owner chooses to employ managers to run the operation in their stead. Unless those managers have a vested interest in the endeavor, they could ruin the business by the way they manage the employees, treat the consumers, and handle inventory and other financial matters. Ever hear stories of managers embezzling funds?
Have you identified the various market segments likely to patronize your business or use your products? What are their buying habits? Do you have a value proposition that resonates with them and is relevant to their needs and wants? Do you know how to reach them with effective advertising that provides a return on your marketing investment? What makes your business different from the other ones that provide the same product or service? It’s one of the first question certain consumers will ask.
Now ask yourself: How much money can I realistically expect to make from this business? On this step, it is critical that you are brutally honest with yourself. Leave your emotional attachment to the idea or suggestion out of the decision making process!
As part of this evaluation, ask yourself the long range question: Why am I doing this?
We are here to help you take the time to think through that question.