You know the feeling you get when you realize you’re in an out-of-control situation? Quadruple that anxiety when it happens in a business venture.
This is the story about how a super successful business mogul literally “blew it” on his first restaurant investment.
Here’s the background:
“Scott” was an experienced and highly successful real estate developer who for 10 years had built his business by purchasing and flipping commercial real estate. He literally made millions following this formula over and over again.
One day, Scott came across a parcel of land and decided to keep the property and open a small restaurant franchise, instead of flipping the parcel as he usually did.
But Scott had no prior franchise or restaurant experience. So he thought, “I’m a smart business man. I know what it takes to be successful. I’ll hire a manager and stay out of the day-to-day operations.”
Seven months later, Scott was on his third manager, and was losing $35,000 a month. That’s when he contacted me for franchise consulting help!
Within 15 minutes of visiting his location, it was obvious to me that this venture was horribly misguided. Scott had chosen a franchise that had…
1. No support – While this restaurant concept had a successful pilot store, the Franchisor was not in a position to support new business units, like Scott’s. They had no onsite support to insure a good launch.
2. Poor training documentation
3. Bad labor allocation- kitchen labor associated with prep and line demands made it impossible to execute the menu without excessive staff.
4. Food cost ratio that did not support acceptable margins
Honestly, in my 25 years of restaurant development experience, I had never seen such a poor candidate for franchising as this restaurant–let alone selling it to someone who had no restaurant experience and no plans to be the owner/operator! Sadly, Scott was doomed from the start; he just never knew it.
My immediate recommendation to Scott was to cut his losses and close or sell the location–ASAP. But he was reluctant to call it a failure, as he had never failed before. Scott held out hope for a miracle and decided to hang on for a couple more months.
Ultimately, the second time he called me for help, it was to unwind the business and close the operation. Scott estimated his losses were over $1 million.
As you evaluate options to own your own business, here are key takeaways from Scotts’s very expensive lesson:
1. Don’t try to be something you’re not. Scott was never a “restaurant guy.” He had zero experience evaluating franchise concepts. As he told me later, “Pete, I was a sitting duck for this concept because I’m wealthy, successful and enthusiastic–and I was totally in the dark about what to expect. I should’ve called you first, not after I blew it.”
2. Your ego has no business in business. Scotts’s restaurant skills were so poor that when things started to go bad he could not solve the issues, even though he had been accustomed to solving big business problems in the past. When his ego kicked in, it added even more zeros to the final tally of his losses.
3. Understand your core competencies and stay true to them. (Note: You are probably the worst person to identify your own core competencies when it comes to a new business start-up.) Everybody is good at something but very few are good at everything. Work with a business consultant from the beginning to assess your skills and match them to the correct franchise partner.
“To assess your skills against a variety of business concepts, do this ” contact me for a free consultation