How to Grow your Restaurant Business?
Food & Beverage operators who’ve successfully set-up their first restaurant or kiosk, often find it hard to figure out how they should grow. Whether to choose the franchise route, go in for a joint venture, or simply grow organically, is often confusing.
Let’s look at an informed approach by which these questions can be answered decisively, but first things first.
Why do you want to grow?
Flattered by a prospective investor, a restaurateur with a successful outlet once began his expansion journey by giving up a controlling share of 51% to his new partner. They agreed it was realistic to roll out 3 new outlets in their first year, but within a few months found that they couldn’t agree on the locations. The reason – the restaurateur was driven more by his love for the brand, while the investor simply had a cold, hard financial perspective. Regardless of who was right, the restaurateur found himself regretting the partnership. Essentially he had not thought through the extent to which brand reach and financial return motivated him to grow in the first place. Furthermore, he hadn’t discussed specifics of what was right for the business with his future partner before signing him up.
Asking yourself what is right for you and for your business is a good place to start.
Where are you now?
The owner of an eatery had created what appeared to be an interesting business model. The production process of the outlet mirrored that of McDonald’s. A pancake for instance was made by placing a mould on the griddle with a prescribed volume of batter poured into it. This was followed by a predetermined cooking temperature and prescribed time on either side of the pancake, till it was done to perfection. Everything was great, except that the outlet was losing money.
Its target audience found the product expensive in relation to better quality options and more economically available ones nearby. On pointing this out to him, he responded that in order for the brand to be “scalable”, he saw wisdom in procuring high standard raw materials, even if they were at a higher cost and meant absorbing losses temporarily. I maintained that since we would get no discount or cost benefit for scaling up, at least from this vendor, we should procure it from elsewhere or manufacture it ourselves. He disagreed, and eventually was forced to shut down his business.
The point here is that all existing restaurants have flaws. Planning their scale up without:
- Differentiating between the acceptable flaws & the potentially fatal ones and
- Doing something about the flaws that matter, before actually growing the business can be disastrous.
Correct the key mistakes in your existing outlet before thinking about growth.
What attitudes might help during growth?
I once raced 100cc motorcycles for a company called sports-craft in Mumbai. The intriguing bunch of experts that I raced with comprised of automobile engineers and mechanics who understood their vehicles well. Their sole agenda was to move their vehicles from point A to point B in the shortest possible time with the risk and potential damage duly considered. This is very much like our own agenda of moving businesses from where they are currently at to where we would like them to be, as quickly as possible. In that sense, you are in fact racing with time.
Amongst other things, an attitude of racing means:
- Stripping your vehicle of its lights, engine guard and even fuel, to the bare minimum required. In our context, your vehicle is your business format like a QSR, Fine Dine, Kiosk etc. with an in-house or an outsourced central kitchen, which must be kept lean.
- In an uphill climb (read your business growth challenge), keep less air-pressure than prescribed in your front tyre/s and more than prescribed in your back tyre/s. This will help the front tyre grip the road and the back one bounce well enough to take the bends in the road. I liken this in the business context to staying well connected with consumer demand and being flexible to turn in the direction of consumer preferences.
- When confronted with an unavoidable obstacle in your path, hit it head on with a firm grip on your handle bars. It is most likely that after a bit of a wobble, your vehicle will straighten up and stabilize. If not, take the fall and ride the skid as you would in your business.
To race, you require a vehicle, a track, and of course a driver.
If your business format represents the type of vehicle in the race, let’s see what your driver and track symbolise.
Your drivers are inevitably the market demand and your own desire to serve your audiences and profit from them.
The track is the infrastructure, including government policy, licensing, real estate, manpower etc. If you find these things challenging, rather than simply complain about them, see what you can do to help bring about improvements. Invest effort in supporting the transformation of these problems via trade bodies, federations and associations that represent the sector. They can influence change in the long run, and therefore supporting them will help overcome these issues and give you a voice in the direction of change. This process however will be slow. Recognising that and focussing on areas over which we have greater control in our business, will serve us well.
Prepare yourself for growth with a racer’s attitude and focus on what is important.
What aspects should you focus on?
- Break the priority barrier: When I ask a restaurateur how they spend their time each day, I typically get a check-list of what looks like an operations manager’s task sheet. I remind them that they would do better by focussing their efforts towards working on the business rather than in it. As an example, my own first business was Sun Catering, a meal service. Soon after its start-up when things got busy, I found myself unable to afford a professional manager to oversee the day to day operations and believed that I was the best person to represent my business, since I understood it best. I marketed it myself, cooked when I threw out a thieving chef, and prided myself at being a one man army. When I fell ill however, the business floundered, and I realised that I had failed to build a system that worked in my absence. I was the system, and if something went wrong with me, it directly impacted the business. I should have realised that it was time to risk the second round of money (the first being my punting on the start-up itself) by spending on good people and manning the business in a way that it worked at least on maintenance mode without me. Doing this helps an entrepreneur stay free to do what he should do at this stage of his business... tweak for problems, chart the path for growth and lead his team to success.
- Assess the Time, Expertise & Money you have and what your business needs: Ask yourself whether or not you have these things that are pivotal for business growth and if so, to what extent. Do you have other commitments? Is your present time away from the business, spoken for? Is the time that you have, enough to grow the business or will you need to bring in an outsider? In terms of expertise, are you equipped or do you need help. One approach of a self-taught entrepreneur is to leap off the mountain and build his wings as he progresses through his journey. Can the business afford this learning curve at this stage? Do you have the money for growth or do you need an investor? Will he only invest money, or time and expertise too? Even if you have the money, is it worth risking your own or is it better to share your risk with someone else who has skin in the game.
Introspection on these questions will help you decide whether or not you need an outsider in your business and if so, in which areas. It will tell you whether you should retain or relinquish a controlling share in your business, whether the person you bring in should be an employee, consultant or partner, how junior or senior the person should be etc.
These are the thought precedents to your decision on whether you should grow organically, through the franchise route or via a joint venture. Your needs guided by a mentor, will help you arrive at this decision.
- Think like an investor: As with any investment like stocks or real estate where you evaluate the risk to return ratio, a restaurateur must wear his investor hat to evaluate his investment in growth. Even if you conclude that you will not be bringing in an investor, remember that you are staking your reputation and that of your brand which you have worked hard to build.
Critically evaluate your own business on the basic areas that an investor will look at:
- The market potential of your concept: How strong is your value proposition in terms of scale and frequency of demand?
- Your financials: On the premise that your first outlet has been profitable for a while, what is the likelihood that your brand will be profitable in other locations as well and to what extent?
- Your team competence: Do you and your team have the capability to take the brand to the next level?
- Your business model: Its scalability and plan for income, marketing, risk mitigation and exit.
- Your brand differentiation: USP such as patented recipes, process etc. that will allow you to keep going when standing up against competition.
Keep a balance between wearing your restaurateur hat and your investor hat. Don’t get caught up in either one.
- Look within for motivators
- Keep a racer’s attitude
- Be aware of your drivers, vehicle/s and track
- Correct your mistakes before planning a scale up
- Choose your associates and decide how you will work with them
- Plan well and know that despite your planning, things can go wrong and they will
- Beyond a point stop planning and take the plunge into the race for growth