10 Reasons Why Restaurants Fail (And How to Prevent Each One)

When you launch your restaurant concept, you plan to be in it for the long haul. You really can’t go into it any other way. But with an estimated 60% of independently operated restaurants failing in their first year (and 80% to 90% fail in the first three to five years of operation), this is an important topic to focus on.  

So why so many failed restaurants? In this week’s show, we focus on 10 reasons we see all the time.

REASON #1: Location!

There’s no denying that location is important. If you choose an area that is not easily accessible, not visible from the road, or that has insufficient parking, you’re going to be facing an uphill battle just to get people in the door.

The Solution? Complete market research and a thorough competitive analysis so that you know exactly who your target market is and where to find them. Then, partner with a local commercial real estate agent who can offer guidance on the ideal areas to launch your concept.

REASON #2: Lack of leadership!

As the owner-operator, you simply can’t do it all on your own. That’s why you need a reliable team of like-minded and capable managers and leaders who understand your vision and have your back.

The Solution?  Leadership starts with you so make sure you are setting a proper example. From there, you need to align your leadership team as soon as possible. If you have internal candidates who show promise or possess several of the desirable yet hard-to-teach soft skills, work on mentoring them and further developing their talents. You can also seek external managerial candidates who are experienced in restaurant operations.

REASON #3. Poor customer experience!

You can’t impress a customer just once. Your success relies on providing a remarkable customer experience each and every time. If food quality is hit or miss or the staff isn’t consistently bringing their A-game, you not only can lose customers, but the resulting word-of-mouth causes further damage.

The Solution?  While perfection isn’t necessary, encourage your team to focus on making progress and continuously improving on all aspects of the customer’s experience — from the food to the restaurant’s cleanliness to their own attitudes. And when a mistake is made, make sure they know to always apologize and ask how to make the situation better.

REASON #4. No mission, vision or purpose!

Without a mission, vision or purpose guiding your way, you can quickly end up being a boat lost at sea. Oftentimes, this leads to restaurateurs trying to be everything to everyone, because they haven’t drilled down to their core values and motivations yet.

The Solution?  Develop mission, vision, and purpose statements that are customized to your overall goals. These statements should closely tie into your intended culture as well. Next month, I will be doing a show that will provide a step-by-step process so you can create your own.

REASON #5: Insufficient cash reserves!

Like any other business venture, the investment amount required to launch a restaurant varies. Even though there are some great examples of bootstrapping a concept for very little, you’ll more than likely need to have significant cash reserves. Otherwise, you run the risk of depleting your budget early on and being left with little to no funds to keep operations going long-term.

The Solution? Ask your financial planner to help you determine an appropriate level of cash reserves. These critical funds are instrumental in smoothing over slow sales periods, investing in equipment or purchasing additional inventory or hiring staff in preparation for a busy season or projected growth. If you are falling short on cash, seek out an affordable lending option that offers flexible terms and quick access to working capital.

Check out this week’s show to find out the next 5 reasons restaurants fail!