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Why Not to Open a Bar or Restaurant
I know it seems like career suicide for the first blog post I write for my hospitality consulting firm to be trying to convince people not to go into the hospitality business. I am not saying you should not, but I have had many mentors tell me through the years that if you can see yourself doing something else then do it, because this is a hard business. The failure rate is high – about 60% according to Modern Restaurant Management. (Some well-meaning family member might tell you they heard the failure rate is 90% here is a Forbes article that disagrees.) That is not meant to be scary, honestly; the fail rate for the average start-ups tends to be is just about as high. The scarier thing is that each year after year one, the chance of failing goes up, and it is not until you make it through your third anniversary that you can take a breath and feel more secure in the longevity of your business.
Why should you open a bar or restaurant? First and foremost because you have a passion for and experience in the hospitality industry. Second, you love business. The restaurant business models have not changed much since the first cave person cooked Woolly Mammoth over a fire and had someone else serve it while a cave comedian made awkward jokes from atop a nearby stone. This is to say bars and restaurants are first and foremost businesses they need things like revenue and profits to exist. Seems logical, but you would be surprised at the number of people who open a place without thinking this through. Recently, there have been many leaps forward in technology, such as inventory systems, handheld POS systems, online delivery services, etc. Which helps speed up service, control costs, and make ordering easier. But we have yet to reinvent the actual underlying wheel much, Third, you hate sleep.
Reasons that people often open a bar and maybe should not (I have heard some version of these throughout my career):
“When I come in on Friday night it is packed – you guys must be making tons of money!” That is because you are not here on Monday night when there are only three guests, but our rent is still the same.
“I love going to bars/It seems so easy when I sit here/I love throwing parties!” There is other variation of this like, “I want a place to hang out with my friends.” I even had a guy who was in the middle of a midlife crisis who wanted to build a bar where “an older guy can come in with his 25-year-old girlfriend and have a good time.” It all comes down to this seems easy and I like hanging out and drinking. And it should seem that way. We are selling an experience; we are selling a good time. If you have ever been to a party where the host seems constantly stressed out and frustrated, you know that it is not fun. Hospitality establishments are the same; if the guests feel like we are stressed out then they are not getting the experience we are supposed to be providing.
One of the biggest barriers is that the up-front cost to open a place is massive, as build-outs can cost any where between $110 a square foot if you are just taking over a previous space to well over $250 a square foot for a vanilla space, and that is average; if you want to build a luxury space it can take you well in the multi-millions of just build-out costs. This means that you might be able to get a place for as low as $50K, but you will generally need to plan for a minimum of $150K (doable but scary) reaching easily into the eight-figures (scarier and scarier.)
Hospitality businesses are also extremely high fixed-cost businesses (I will go into building a budget and fixed vs variable vs overhead costs in later posts). Fixed-costs are the ones that you have little to no control over no matter how busy or slow the place is. The higher these are for a business, the harder it is to scale back when things like, say, a pandemic-induced economic crash happens. These are the costs that weigh heavily on your profit margins. In the restaurant business, these can average around 60% of your operating expenses. Here is a great blog post (by a different smart human not written or endorsed by me) that breaks a lot of the costs down.
Inventory management is another tough area that causes long term failure rates in the hospitality industry. This is because you have two sorts of inventories: food which is highly perishable so needs to be constantly turned over, and beverage which is highly non-perishable so does not need to be turned over as quickly. With food, you need to watch ordering so you are not throwing out too much; with beverage, you need to watch ordering so you are not sitting on too much extra product that you are not moving known as “resting” inventory, which is just money tied up that you cannot access until it is sold. On top of that, the more resting inventory you have the higher the likelihood of theft. I am not saying employees are not to be trusted and managers are not good people with the business’s best interest in mind, or any of that. I am simply saying that I consider myself a person of high ethical standards and even I have whetted my whistle with the boss’s hooch from time to time at the end of a long shift.
This brings up the ever more important issue, as it is becoming more and more prominent in the national conversation: Quality of Life. Restaurants and Bars are a leisure industry which means when others have leisure time we are working. Personally, I have not been out with friends on a Friday night since 2010 because I am usually closing the bar and then getting ready to do a double and another open for brunch over the weekend.
Have I scared you off yet? Clearly not if you are still reading.
So, what do you do if you want to open your own place but have minimal experience in “The Industry?” My first advice is to find someone with loads of industry experience, someone you trust, and someone who has a similar style and taste to you, and partner with them. Lots of great bartenders, Sommeliers, managers, chefs etc. want to open their own spot but generally cannot because they do not have the access to startup capital. Short of that, find an exceptionally good and trustworthy manager and incentivize them to be even more trustworthy. Read books, go on YouTube, and watch videos from successful restaurant and bar owners, listen to podcasts, basically educate yourself. The more you know the easier it is to keep an eye on all the moving parts.
I would not recommend hiring a consultant if you want to open a place but have minimal experience as a substitute for making sure you are surrounded by experience. I know this will sound strange coming from a guy who makes his living from consulting. A consultant can take an opening from mediocre to excellent but will not (and should not) stick around to run your business.
This is all to say that a bar and restaurant is a 24/7 business with moving parts all over the place. It is a human-driven business and thus, all the failings and issues of dealing with and managing humans are on full display. It is also one of the only businesses that is a production factory, a sales floor, a delivery system, and end user consumed all in the same space. Hospitality is a great business full of amazing passionate people, is a lot of fun to work in, my hope for anyone going into the business simply goes in with their eyes and hearts open. Like any venture success is far from guaranteed but as my high school chemistry teacher used to say, “success is 90% luck and 10% work and the harder you work the luckier you will be.”