Some Thoughts About Why Hospitality Businesses Fail

In my travels with Hoosier Hospitality Consulting I get to meet a lot of people with a very wide variety of backgrounds.  I've met young people who have a dream of starting their own hospitality business, but have no experience in hospitality industry.  Then there are those who are great cooks whose friends tell them, "You should open up your own restaurant". And of course there are  those with years of experience as a server, or a bartender, or a cook and a desire to strike out and do their own thing and not what some owner, manager, or chef tells them to do.  All of these combined contacts have made me realize some common reasons that restaurants, and businesses in general, fail.  These are my top five.

#5 - Underestimating the difficulty of establishing a new business. Regardless of the type of business you want to create (a bakery, a restaurant, a mobile truck, a catering operation, a motel, etc.) it is a business.  You have to know what you know, and what you don't know.  You have to ultimately know a fair amount about accounting, taxes, licenses, building codes, food safety, marketing, promotion, service, human resources, training staff, managing costs, and much more that has absolutely nothing to do with how good your food tastes. And when you don't know, you need to know someone who does.

#4 -No practical experience. There are those who are book smart, and those who are street smart.  Running a business has a lot to do with being street smart. There are a lot of things that you can read online, or learn in school that ultimately don't filter down to the day to day realities of running a business.  I fly on airplanes, but I wouldn't try to fly one.  Just because someone is an awesome cook at home doesn't mean that they know how to be a restauranteur. Before using your money to open a new business, why not let someone else use their money to hire you.  You'll surely learn about what to do and what not to do...on their dime.

#3 - The business doesn't have"that thing" that makes it special.  Think about what restaurants you like to go to, or what hotels you use, or what stores you shop at. Why do you patronize them?  What is important to you?  Those are the questions that you have to learn about your prospective guests and customers.  You are going to have to have something that makes you different and special; something that makes your customers try your place and then continue to choose you over others that offer the same type of product.  Lots of folks go to a new restaurant once. What is "that thing" that makes them come back?

#2 - They don't understand how to market their business. Do you give out coupons?  Run a newspaper or magazine ad?  Do you have a frequent customer program?  Do people really care about what you Tweet?  What about SEO? Which of your marketing tools are effective, and how effective are they? There are so many different ways to market your business that WON'T work, it's scary. You have to do your research and be skeptical of every Account Representative that claims to have the magic bullet that will make your business profits soar. (See #5)

#1 - They don't have the money. Let's face it, money makes the world go around.  However much money you have available, or have planned to spend, it always seems to take more.  Think about it, how many times do you hear "The project came in under budget and ahead of schedule".  Anytime someone starts a business the odds are very good that it will take longer to get the doors open than was planned...and that means MORE MONEY.  To be safe a new business will need 2-3 years of operating funds available in some form or fashion before opening.  There are so many variables to starting a business that it's impossible to plan ahead for every little circumstance.  A lot of new businesses fail not because they didn't do things right in #2 through #5 above, but because they just ran out of money a little too early and had to quit before success was realized.