Why do restaurants fail? 4 mistakes an owner should avoid

We could write an entire book on why restaurants fail. In fact, it’s been done many times. Not only that, but they’re also several TV shows dedicated to the topic of restaurant failure, where an industry pro like Gordon Ramsey comes in and tells the owners everything they’re doing wrong.

If you ask what percentage of restaurants fail, you can Google restaurant success rates and find many scary statistics, such as 60% of restaurants fail within their first year and 80% close within five years. Numbers like those can make you shelve your dream of owning a restaurant permanently.

The truth is, a restaurant is no more of a risky investment than any small business. Albeit, running a restaurant might be more work than other businesses. However, if you do your due diligence, there’s no reason you can’t have a successful restaurant to call your own.

There are dozens of reasons restaurants fail, but most restaurants that fail made at least one, if not all, of the following mistakes.

Sad cook sitting at table

1. The owner has no industry experience

For whatever reason, many people think it’s easy to open and run a restaurant. It’s common for individuals to switch careers late in life to try and follow their dream of owning a restaurant. The problem is, none of these people ever worked a day in a restaurant. Most chefs don’t think they can quit and become accountants without proper training and education, so why do people think it can work the other way around?

Your absolute best chance of opening a successful restaurant is to get a job in one today. Ideally, it should be a successful restaurant. Start from the bottom as a prep cook or server. Work your way up to chef or general manager. Learn everything there is to know about the front of the house and back of the house. Do this for at least five years. If your love for restaurants is still there, you’ll have an above-average, if not excellent, understanding of how restaurants run and have a considerable advantage over those who don’t take this route.

For many who want to open their own restaurant, this is a hard pill to swallow. It’s not fancy or glamorous, and it definitely takes a huge investment of time. However, it’s the only way to truly learn a restaurant and genuinely know if this hard knocks industry is for you.

There is one way a restaurant owner can avoid having to work at a restaurant before opening one. They have to hire an excellent management team, then step back and let them do everything. This does happen sometimes, but it’s very costly. Not only do you have to hire the usual management team, but you also should hire restaurant and business consultants to help with the restaurant business plan.

2. Poor/inexperienced management

A restaurant owner can’t do everything to keep their business running, and if they try to, it will surely fail. They need a team of experienced and dependable leaders to help maintain both FOH and BOH operations.

Restaurants are notorious for high turnover rates and not being able to retain quality staff members. However, a team of great managers that can relate to both the employees and the customers will keep employees and attract new, great ones. Even if you experience high turnover, excellent management will train them quickly and correctly, not allowing any changes to the restaurant’s consistency and quality.

When hiring a management team, experience is crucial, but it’s just as essential to verify references. Red flags when hiring restaurant managers are as follows:

  • Excessive amount of restaurant hopping (two or more in a year)
  • Large gaps in employment
  • Noticeable decline in the quality of restaurants worked at over time
  • Unwillingness to provide references

3. No market research

Just as with any small business, a restaurant requires a business plan. When writing that business plan, you need to conduct extensive marketing research to ensure that your restaurant concept will work. Things like foot and automobile traffic, socioeconomic demographics, competing restaurants in the area, available parking, area crime rates, and many other factors will tell you investors if your restaurant can be successful.

Restaurant owner frustrated with failure

4. Stubbornness

Suppose you worked in a restaurant or two. In that case, you probably know that most, if not all, restaurant owners are incredibly stubborn. It’s because all owners have a specific image of their perfect restaurant in their heads and won’t let it go, no matter how much it’s not working.

Stubbornness and fear of change go hand in hand. Whether you own a restaurant or any business, if something isn’t working, you must correct it for it to succeed. However, change is scary because there’s no guarantee that it’ll work. But in life, there are no guarantees. Just because one aspect of a restaurant doesn’t work, doesn’t mean the whole thing is doomed.

Being open to criticism and being willing to change is vital for a restaurant’s success. As an owner, listen to your customers and your employees to grasp what is and what isn’t working. If you must, you can hire skilled restaurant consultants who can help turn around even the most dismal restaurant.

Final thoughts

There’s no getting around it: restaurants can be a hard nut to crack. But there are thousands of restaurant owners who are enjoying success. The most successful restaurant owners take the time to learn the industry, hire excellent management, do their market research, and are open to change.

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