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The Perception That Most Restaurants Fail

by LJ Phillips • 2020-03-14

The restaurant business is not for the faint of heart. Whether an entrepreneur is trying to open a bar, restaurant or a food and beverage truck, it requires hard work. Conventional wisdom tells most restaurant entrepreneurs that 90 percent of all establishments fail in the first year. Public perception certainly doesn't help future restaurant owners.

The first response restaurant owners probably encountered when they told people they're opening a restaurant is "they always fail." The problem with the public's perception is they're probably not looking at the big picture. The truth is that the food and beverage industry is a major part of the economy, and it has been for decades. If most successful restaurant owners based their decision to open or not because people believe "they always fail," there wouldn't be many restaurants in the U.S.

The problem with traditional thinking is people don't take into account that restaurants fail for a variety of reasons. First of all, not all restaurants fail, some just close. Restaurants close all the time due to personal reasons, lease expirations or the owners decided to do something else. For those reasons, the data showing most restaurants closing in the first year is skewed.

The reputation of restaurants failing could have plenty to do with the success rate of smaller startup establishments. For example, there are far more restaurant startups with 20 or fewer employees that fail than those with 21 or more employees. Additionally, the failure rates of restaurants have dipped over time.

Successful food and beverage entrepreneurs know how to exploit the so-called "failure rate" of new restaurants. Since opening a new restaurant leaves a bad taste in the mouths of most entrepreneurs, savvy restauranteurs see this as an opportunity to grab a share of an untouched market. This is not to say the food and beverage industry goes unnoticed, but it does present an opportunity to enter a location where other entrepreneurs avoided because of the so-called "high failure rates" of restaurants.

Whether or not it is a good business decision to open a restaurant does not have a universal answer. What is known is that the success or failure of any business depends upon a company's ability to differentiate themselves from their competition. Most restauranteurs know that their success hinges on their ability to communicate to customers what it is their offering. Essentially, they found a niche.

A niche may include a distinct menu with unique flavors and farm-to-table ingredients. Successful restauranteurs may visit their local farmers market daily to pick fresh produce. However, they also know how to communicate to their customer base that they pick fresh produce daily. Restauranteurs also know how to work smart, not hard. All this means is they know not to open a "classic" burger joint in a town filled with "classic" burger joints.

A good business decision does not depend upon the perceived success rate in a particular industry. Sound business decisions include an entrepreneurs' vision, focus and ability to recognize an underserved market. If conventional wisdom drove the ideas and innovation of most restauranteurs, there would be little to say about the quality of restaurants in the U.S.

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