6 Tips for Running Your Business: Lessons From 2 Failed Restaurateurs

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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Why do restaurants often struggle to succeed? Why are they the first businesses to fold, and often in the shortest amount of time? I believe the answer to these questions goes beyond the adage of “location, location, location”.

Too many people open restaurants or eateries on the heels of a great dinner party where somebody said “people would pay money for that”. They enter the business with little more than cash and a love of food and drink. And they exit the business with much less than they started with.

Is it possible that one of the reasons the restaurant business is so hard to succeed in, is because some new restaurant owners lack business sense? Possibly. In examining this angle, I learned six very important lessons about how to run a business – any business – by virtue of observing two slack restaurant owners in action.

Here are the six lessons:

1. Don’t Stop With What you Know

Simply knowing what makes for good food and good drinks does not guarantee success. Just knowing your trade does not make you a tycoon. Marketing, administration, accounting, and a decent knowledge of the applicable law is crucial.

Our first case study is a local Italian restaurant that I ate at regularly. The food was incredible, the prices were decent, and the owner regularly came out of the kitchen to enjoy a chat with me and my companions towards the end of the evening. He regaled us with passionate stories of learning to cook his Italian menu in Italy, and regularly treated us to beautiful side dishes that reflected his latest culinary creation. He was truly a talented and masterful chef.

You probably know what’s coming next. Although he was a passionate and talented chef, that’s all he was. He had enough time to chat with us, because we were often his only customers for the night. Within four months of realizing his dream of opening a restaurant, he closed down and declared bankruptcy.

What our chef lacked was the ability to see that simply cooking good food (no matter how good it was) would not get people in the door. People had to know about the place first. If I didn’t live down the street, I probably wouldn’t have found the place either.

It helps to know enough to understand what you don’t know. What you know – you do. What you don’t know – you get help with.

2. Delegate to the Experts

Our talented Italian chef – let’s call him Mario – refused to get help. He categorically insisted that he couldn’t afford a lawyer, accountant, or even a decent server. He literally tried to do everything himself. I’m not even sure he slept.

Once you have figured out what you aren’t proficient at (or what you choose not to be proficient at), then it is time to delegate. Hire the right people, to employ their own areas of expertise in your business. It is an investment, and a crucial expenditure.

Think of it this way too – the more people you hire or outsource to, the more people will know about your business. Although it is a very grassroots approach, word of mouth remains one of the best marketing tactics. The more people who have their fingers in the pie, the more buzz your business will create.

But…

3. Don’t Hire Your Friends

Hiring friends can be fine – if they are the right candidates for the job. But they can also be the demise of the business if you aren’t careful.

Mario had a sister, fresh off the boat from Italy. Although Mario initially tried to handle both cooking and serving, he realized quickly that he had to delegate the front-of-house responsibilities. Unfortunately, between the sister’s complete inability to communicate in English, and her less than cordial table-side manner, she was responsible for many a table walking out on the bill.

When this happened, she would disappear into the kitchen, and we would hear her and Mario having an all-out argument at high decibels. Any other tables remaining in the restaurant usually made a speedy exit at this time.

Being family, at least Mario and his sister tried to communicate through their problems. When you hire friends though, lines become more blurred, and constructive communication often goes by the wayside. Mario’s sister should never have been waiting tables, and Mario fell down (despite his best intentions) by hiring somebody to help them as opposed to hiring somebody who could help the business.

Sometimes it can’t be avoided, if for example your friend really is the best candidate for the job. If you do hire your friends, be sure that other employees don’t see evidence of the friendship in the way you treat your friend in comparison to other staff, and be prepared to wear different hats at work and after work.

4. Beware of Promoting from Within

On to the next restaurant in our case study: it is a popular burger joint by day, and a happening bar by night. The location is good, the food is okay, and the customer base is well-established. Our business hero – who we’ll call Brad — stepped in as part-owner last year, and the place has struggled ever since.

One of the reasons the place has struggled is because of Brad’s strict rules against hiring outside bartenders. In his mind, bartending is an easy “glory” job, and one that all servers aspire to. And so he figured that to improve staff morale and provide incentives to perform, he would only promote servers to bartending positions instead of hiring qualified bartenders from outside.

Although it seemed like a potentially viable way to improve server morale, the business suffered inexplicably for it. The well-performing servers floundered as bartenders. They had very little knowledge of mixology, could not pour drinks fast enough to keep up with the chaotic nighttime demand, and they didn’t understand the rhythm required to keep both the servers and the customers sitting around the bar happy. Instead, they were thrown into the fire to learn the ropes, and many ended up quitting and serving somewhere else, rather than ask Brad for their server jobs back and appear ungrateful.

Everybody knows that a busy bar requires a busy (and competent) bartender. The night crowd slowly migrated to another bar down the street that could keep up with the demand.

Beware of the pitfalls of hiring from within:

1. The promoted employee may not be the best candidate for the job.
2. If you are promoting employees to management positions, keep an eye out for the potential fall-out that occurs when they are required to delegate to former colleagues who don’t yet respect their authority.
3. What you may see as a glory job and a rewarding promotion may not be viewed as such by your employees.

5. Give It a Week Before You Make a Big Decision

Bartenders aside, Brad had even bigger problems. When all businesses in the area slowed down due to the recession, Brad did his best to take it in stride. But one night, for some reason, everybody decided to eat at his place. The restaurant and bar was packed, with people waiting for tables. Not expecting this busy night, the restaurant was understaffed and struggling to meet the constant stream of orders. Things went from bad to worse when a massive downpour forced all the patio guests inside, with nowhere to sit and meals getting cold. The night was capped off nicely when the head chef walked out.

In the aftermath of this one-night disaster, Brad decided – that night – to double the number of servers on shift at any time. In the ensuing weeks, the restaurant shelled out way more in hourly wages than they had previously, servers were often told to go home half-way through their shift, and each server’s share of the pooled tips was considerably diluted. A month later, Brad’s three best servers quit.

Brad’s snap decisions ended up costing him way more than he paid that one night when everything went wrong.

6. Be Predictable, Even Boring

I initially enjoyed eating at Brad’s restaurant. But after ordering the salmon three times, and getting three entirely different dishes, I became frustrated. I loved the salmon the first time I had it – lightly crusted, and served with a curry sauce, green veggies, and mashed potatoes. The next time, the sides were completely different, and the sauce was too spicy. The time after that, the sauce wasn’t even curried and the sides were different again.

One of the defining elements of the success of McDonald’s (and the whole franchise concept) is in the predictability of their menu. Regardless of whether you are in Los Angeles or New York, you will get the same Quarter Pounder, right down to the size and shape of the patty and the exact order the toppings are applied. People like knowing what to expect, and repeat business comes as a function of the customer wanting the same (or a similar) experience to what they had the first time. If they wanted something different, they would go somewhere else.

It’s a Business, Not a Playground

These business principles apply to much more than just restaurants. By being consistent, hiring the right people (and not just the ones you like), being strategic and not reactive, delegating to the right people, promoting the right people, and not trying to be a one-person show, you too can run your business more like a business, and less like a playground.