Want to open your own Restaurant? Some good news

I came across some interesting tweets in my timeline about one successful restaurant trying to raise capital for their new venture. They ended up listing on Kick-starter after been turned down by their bank. When I thought more about this, I stumbled upon that age old theory, if you're thinking about opening your own restaurant, chances are that you are going to fail. We've all heard that statement, '90% of all restaurants fail within the first year of business', and we just take for granted that its true, we never think to dig deeper or check the source.

Well thanks to an associate professor of Hospitality Management in Ohio, who decided to find out exactly how this information was deduced, it turns out that this is actually a myth and unfortunately it is the banks themselves feeding into this myth. We can now reveal that this statement had actually been used in an ad for American Express and on trying to investigate further, American Express themselves couldn't trace the original source leaving the professor without any concrete evidence of the 90% failure rate.

In fact what he did find was when he tried to replicate similar numbers through his own research, not only could he not come to the same conclusion, it was in fact nearly impossible. Other similar studies that had been conducted were consistent with his own findings conducted with over 3 years of data. What they found was 60% of restaurants close or change ownership within the first year. 

While 60% may seem high, when you look into the reasons behind this, it reveals some interesting insights. Instead of the usual assumption that the 'business' of running a restaurant is too high in risk, they found of the 60% that do fail, a significant portion of these were due to situations outside of restaurant control. One of the key problems were the banks buying into the 90% failure myth and reasoning not to lend to restaurants. If they do lend, it is often at extortionately high rates and unfortunately, some restaurants fail in the first year because they can't secure that start up capital. The banks have in fact set a self fulfilling prophecy of failure.

Take banks out of the equation and what the professor discovered when checking for reasons behind failures, was actually more circumstantial. Issues of family demands, ill health and retirement all contributed to closures. Divorce and time spent away from the family unit lead to lifestyle changes and even if the business was profitable this made no difference, they still closed! Only a small number of restaurants actually closed due to profitability.

So if you're thinking about opening your own restaurant or cafe, arm yourself with this valuable knowledge, it is incredibly hard work but at least you know that's its not the doom and gloom that its been made out to be.

More info: The restaurant failure myth