Friday, September 10, 2010

Are Restaurants A Difficult Business?

Serial entrepreneur, Internet millionaire, and restauranteur Bo Peabody's 2004 book Lucky Or Smart? says no. The reason restaurants seem like a difficult business is because many people jump into it without comparing their food to anybody else's food, their financials to anybody else's financials, or their marketing to anybody else's marketing. In short, they go into business simply on the assumption that they know how to make food and eat it, and that's enough for a business - discounting the issues of cash flow, supply chain management, salesmanship, ambience, and hygiene, among many others, that a restaurant's success requires. They fail not because the restaurant business is difficult, but because it tempts so many people who approach it in unbusinesslike ways.

I know people in Los Angeles who say the same thing about acting.

Meanwhile, there's a conference wrapping up in Utah, and it's clearly been a very interesting one:



(the PDF)

Excerpts:

Recent research calls into question the generally accepted conclusion that people believe themselves to be better than average. This paper reviews the new theories that have been proposed to explain the fact that better-than-average effects are isolated to common behaviors and abilities, and that people believe themselves to be below average with respect to rare behaviors and uncommon abilities...

...

Will there be more firms founded in “easy” industries, resulting in heavier competition and higher rates of failure? Evidence does suggest that industries with which most people are familiar, such as restaurants, bars, and clothing retail, see persistent high rates of founding and failure (U.S. Small Business Administration, 2003). It is also the case that the presence of numerous examples of successful incumbents tends to increase the rate at which new firms are founded, despite the fact that these inspiring examples of success also represent potent competitors (Carroll & Hannan, 1989; Sorensen & Sorenson, 2003). When explaining their entry decisions, entrepreneurs tend to talk more about their own strengths and weaknesses than those of the competition (Moore, Oesch, & Zietsma, in press).


The sociological research supports Peabody's point of view (as does the success of his restaurants).