It is a well known idea that restaurant businesses are notorious for starting up and failing within the first few years of business. Eye-popping statistics are thrown out like, “90% of all restaurant start ups fail within the first three years.” Researchers from Ohio State University, interested in the validity of this type of statistic, studied 2,500 restaurants in the Columbus area and found that only 25% of restaurants turned over ownership in the first year and 60% turned over after 3 years. This rate is still high, though not nearly as high as some anecdotes or even lenders would suggest. Of this 60%, many restaurants have not failed, they have simply been sold by their owners even though they are making money.
So what is the reason for the 60% rate of ownership change? H.G. Parsa, the professor at Ohio State University that headed up the study, concluded that most restaurants failed because of owners’ willingness to put sufficient attention on the business itself. Life often gets in the way, i.e. divorce, illness, children, etc. Those that have worked in the restaurant business know the hours are brutal and sacrifices of personal and family life are necessary to make a restaurant or bar successful. This can be very draining on an owner and many find that after a couple years they are no longer willing to give up family and personal time for the business. They may either choose to sell the business or simply devote less time into it and watch the business start to degrade.
This time and attention to the business can be the contributing factor to many of the more obvious restaurant failure reasons: Poor customer service, inconsistent quality, poor money management, insufficient marketing and lack of investment in quality people. These are all manageable issues. Quality restaurant employees are hard to find and while many staff are good people, they simply will not be as dedicated as the owner. That is a reality that owners need to be aware of. Owners need to be willing to sacrifice much of their time and energy for the business, create a well thought out business plan and execute the plan and adapt throughout the life of the business. The restaurant business can be rewarding and profitable but need to have the right kind of owners.