10 things you need to know before you try to start a restaurant

Over the years I have spent a tremendous amount of time with people that own restaurants or want to. I have learned a lot from all of these people despite myself. Below are some of the universal truths that have endured over the years.

It’s going to cost a lot more than you think

You have the perfect concept, a great team surrounding you, you make the best [fill in the blank] ever, you have even found the perfect location, against all odds. How are you going to bring it all together? I promise you your war chest is going to need to be bigger than you think. Have you had an EXPERIENCED architect and general contractor look at the space? Is it a first-generation space (shell space or a change of use to a restaurant use)? Is it second-generation space that was previously a restaurant? This makes a massive difference. If someone already put in the base building infrastructure prior to you being able to take it over, you can save tens of thousands of dollars. Even if you can only save the hood system, the walk in cooler and the HVAC system, you will be WAY ahead of the game.

Everyone thinks that the beautiful chandelier or conversation starter piece of artwork is where the restaurateur spent their big money. In fact, the big ticket items are things that the customer will never see. Notice that its nice and cool inside even though there is a functional (hot) kitchen and a couple hundred people inside. There could be a hundred thousand dollars in HVAC and 800 amps of electrical capacity making that happen. They could also have a hundred thousand dollars wrapped up in fire systems and hood systems. Is the space Americans with Disabilities Act (ADA) compliant, especially any stairways and bathrooms? I have seen restaurateurs held up for weeks while the city deliberates on their ADA compliance.

Location is everything , unless it’s not

Is your concept so different, so good that people will risk life and limb to find you? Is your concept so revolutionary that you will be turning people away while increasing prices to dampen demand like the early days of Chipotle and Five Guys? If so, feel free to go off the beaten path and make diners seek you out. If you want a slow burn to establish 1,000 rabid fans and grow slowly in a cult style, then go into an emerging neighborhood on the other side of the tracks and take advantage of below market rent and let your concept marinate. For the other 99 percent, location is everything. Do you want to appeal the masses in an anchored center in a wealthy suburb on a prime end cap? Do you want to chase corporate expense accounts on a main thoroughfare in a downtown urban center? What hours are important to you? Are you a 70/30 lunch-driven business? Better check those daytime population numbers. Is more than 20 percent of your gross sales driven by alcohol? Better make sure there is a nighttime crowd that can easily access your space.


Your amazing chef is going to quit

Oh my God you found him/her. Well guess what: they are already looking for another job because of reasons you have never thought of. Better yet, if they do stay with you through opening, their food cost can come at the expense of their art, which means you are going broke with every beautiful plate that comes out of the kitchen. Having the perfect chef is great, but they are only one piece of the puzzle. You need an awesome back of the house kitchen manager (this may or not be your chef depending on their corporate background and training), a great front of house manager to keep your servers and hosts accountable and engaged, a killer accounting arm to track expenses, and a ringleader to keep everyone rowing in the same direction.


Operators are everything

This is a continuation of the above point. Without a solid operations pro or a set of concrete directional templates (typically part of a franchise system) you will probably fail. This does not mean you do not have passion or a will to succeed, you just don’t have the tools. You would not get behind the wheel of an 800 horsepower race car just because you watched the Indy 500 or take an NFL snap at quarterback because you watched the Super Bowl. Why would you think that you can run a kitchen/expo line, hostess stand, a dozen servers on a Saturday night while tickets pile up in the window? You need someone that has worked their way up in a restaurant from the dish pit to the manager’s office. If you have a real passion for BBQ, start a small catering operation or other small venture with very few moving parts while you still earn an income from your day job. Find out if you will still hang in there when your passion becomes your full time job.

 

Which one of your partners is the operator?

Careful here because if you don’t know it could be you… And if that doesn’t sound like a good situation based on the above point, your team needs to find someone that fits the mold and figure out how to incent that person to stick around at least through the opening process. The inventory and point of sale system set up are enough to make a sane person drool in their oatmeal.

Get it in writing

I have seen more partnerships fizzle because of this seemingly simple point. Trust but verify is an old saying but the bottom line is that if someone is going to live up to a bar room bargain, even if it is your best friend or a family member, then he/she will be willing to put it in writing. Partnership documents are an absolutely essential step in setting up a restaurant business. Who will handle the operations, books, construction, design, inventory, etc. What if there is an exit event? Do you want one store or 100? Bank debt, private equity, friends and family funding? Is there a buyout provision if someone moves, gets a felony or a divorce? A good corporate attorney will have form docs for a lot of this stuff and can walk you through the common issues to look out for.

MEP is the unseen black hole that will suck your dreams into a vortex of broke

I touched on this earlier on first vs. second generation stores. Mechanical/electrical/plumbing costs will kill you if you do not budget properly. Everyone thinks that a beautiful chandelier or original artwork is the big expense—nah, its the MEP that is the expensive backbone of the restaurant. Danny Meyer refers to a restaurant as a manufacturing plant housed in the most expensive real estate in the world and it is so true. The kitchen turns raw materials into a sellable product distributed in an also expensive showroom we call a dining room. Like a manufacturing plant, the infrastructure is critical and will not function if not built correctly. Find a contractor that has RESTAURANT SPECIFIC experience. He/she should have good contacts in the architecture and engineering world that will give you a clear understanding of what this stuff will cost you.

 

Pollution control units are our expensive urban future

No one likes walking down the sidewalk Downtown and getting hit in the face with kitchen exhaust from the corner Thai restaurant or burger joint. Sometimes during a rush you can literally feel the grease hit you when you walk past. In order to combat that, there is something called a PCU or “Scrubber”. It is basically a multi-staged filtering system that is the size and weight of an average car. Hard to place (because of size/weight), expensive to maintain and service, and somewhat temperamental, they are becoming commonplace in urban settings, especially in redevelopments and rehabs. If a developer in a new project knows what they are doing and has the spatial ability, you can get around using a PCU by running stainless steel, fire-wrapped ductwork up and away from the street and any balconies/retractable windows onto a rooftop or into an alley. This is a question you absolutely need to get answered up front in the lease process because a PCU will double your ventilation cost.

 

If you don’t understand demographics you don’t understand your customer

This seems so simple to me because I look at this information so much that I can almost tell you what demos of an area will look like without doing the research. But I often speak with people that have never considered the question of, “What is my trade area (how far will people come to your establishment to spend money)? How many people are in this trade area and how much money do they make? What is your day part split? If you are opening a lunch spot, then you should understand daytime population. If you are opening an alcohol-centric concept that needs late night business, then you probably shouldn’t open in a family-focused suburb. Do your research or, better yet,  hire an expert.

How your first store can drastically affect your rollout strategy for the next decade

Only major metro areas can support more than a handful of concepts. Thus every store you open needs to be a well located winner. Beware of tweener locations that can cannibalize two viable trade areas. You could be left with an okay store because you jumped at an opportunity instead of being patient. Look at a map with a demographic overlay and an explanation of who lives there, with the traffic patterns and shopping destinations laid out. Do not be afraid to use the high-level research that Whole Foods and Target have already done to understand the buying power of a particular market.

Do you want to be cool or do you want to be rich?

A very experienced and high-level real estate expert asked me this a while back, and it has stuck in my vernacular. We all want to open a store on that hip gentrifying area where the cool kids drink craft cocktails on the weekends and dress in something a little too out there for our tastes. Is that where your target market hangs out, though? If it does, would they be there on a Wednesday night? If your plan is to open a small, niche place that caters to tastemakers, then “The next big area” can work, but if you want a concept with broad appeal and large volumes, you need to make sure there are plenty of people that can get to you easily and feel comfortable doing so. Don’t get caught up in shiny object syndrome or try to get too cute when selecting real estate. Just because that one place caught lightning in a bottle and is packed 24/7 doesn’t mean that there is enough business to go around.

Don’t try to be everything to everybody

This might be my personal favorite. Pick something you know you can execute and hammer it every day! If you grew up in Italy and make the best pasta in the city, get known for that and little else. In a world of over stimulation, people crave specialization and expertise. No one wants to go somewhere watered down when they have a hundred choices. Should I have a burger, Chinese food, pizza, or the grouper? Really? Even if you still know how to make great pasta, you risk taking shortcuts because you have lost focus on your core. You can always open a second location or expand your menu once you have gained the trust of your clientele.

By | 2018-03-27T16:05:48+00:00 March 27th, 2018|Adam's Blog|Comments Off on 10 things you need to know before you try to start a restaurant