Editor’s note: This article was first published in October 2013. The TV show’s “53 businesses” in progress, the 17 restaurants and 800-plus businesses advised, and the roughly 90% success rate are 2013 figures.
Jon Taffer owned as many as 17 restaurants before becoming a consultant who has advised and helped more than 800 businesses over his career. Taffer specialised in the hospitality business (bars, nightclubs, pubs…), so he tries to talk about the most frequent mistakes he has witnessed. The mistakes he has seen among hospitality owners apply to any kind of small business.
At the moment Taffer has his own TV show, in which he is trying to turn around 53 businesses in the sector. The real show is in his success rate, which is said to be around 90%. According to Taffer, succeeding isn’t hard. You just have to avoid a few of the mistakes that lead to failure. So what are the mistakes that make entrepreneurs fail, according to Taffer?
From cockroaches in the liquor bottles, unpaid workers, sky-high levels of debt and owners who are literally drunk, to following every single one of the 10 commandments for guaranteed business failure to the letter, there are also mistakes that are much simpler and, at the same time, far more serious.
1. Going into business for the wrong reasons
“Restaurants and bars aren’t children, they’re businesses,” says Taffer. He says that many entrepreneurs open bars, first, because they see other people opening this kind of place. Second, because they count on succeeding simply because they have lots of friends. And third, which is even worse, because they like the idea of “working while partying”. In other words, they open a bar to drink and hang out with their friends.
See also: Google’s head of HR explains the only two ways to keep your best employees
Taffer says it would be far cheaper to rent a basement and invite your friends over, and he reminds us that a successful business can’t rely on friends alone; it needs the potential to attract new customers.
(Read: 10 reasons small businesses fail early on)
2. Not understanding three essential elements of marketing
Small business owners focus solely on selling, but they should focus on three specific marketing initiatives. New-customer programmes, visit frequency and spend per customer are what make the business, and as a rule you also need to get the word out about your business locally.
- Frequency programmes are based on special promotions designed to persuade existing customers to come back more often. You achieve this with in-store displays, strategic partnerships with other shops, mass emails (without falling into spam) and social media. (Read: Small business mistakes on social media)
- The spend-per-customer programme aims to increase the amount of money a customer spends every time they do business with you, that is, every time they walk into your place. That means training your staff to upsell and to make special offers.
If your business can’t manage this, you have nothing that sets you apart from the rest. In fact, according to Taffer, you aren’t really marketing anything. (Read: 9 marketing strategies for small businesses on almost no budget).
To make any business much more profitable, there are a few simple steps to follow if we want to sell more: more customers, more sales per customer and bigger sales per customer.
3. Not taking responsibility for failure
Taffer says that making excuses for a business that isn’t working is usually the common denominator among entrepreneurs. Owners blame the recession, the government, a new competitor, and so on.
“Business owners have someone new to blame for their failure every morning. In 99.9% of small business failures, the owner alone is to blame. They fail because of themselves. In fact, they are their own worst enemy. The moment you take responsibility for the bad state of the business, everything starts to change for the better.”
4. Owning a bar doesn’t exempt you from understanding maths
Whether you own a small corner bar or McDonald’s, you have to run the numbers in your business.
Taffer says that in the restaurant business, managing costs is a science and has to be done down to the last detail. To have a profitable business, you need to know exactly how much a set plate really costs and what the real profit is on a Coca-Cola.
Sometimes, if you ask certain owners how much profit they make on a soft drink when they sell it to a customer, the answer is something like:
“If it costs me €0.35 and I sell it for €1.35, the profit is €1.”
The reality is that once you add to that Coca-Cola the cost of the person serving it, the ice, electricity, water, rent and even the detergent used to wash the glass afterwards, the profit margin on a soft drink is much lower than that euro.
For example, in a restaurant he always works on the basis that the cost of food should never exceed 30% of food sales. He also has other formulas for drinks and even for labour costs, which shouldn’t exceed 32% of total revenue.
According to Taffer, a single miscalculation in some of the numbers and you would seriously damage your chances of making a profit.
Before opening the business, you need to be very clear about what sales you need each day, each week and each month for it to be worth opening your small business every day, so that you can make marketing-based decisions when the time comes, or close the business if you see you aren’t getting close to the target.
(Read: Conclusion: the most profitable businesses are clothing, food and technology)
5. Lacking experience or the help you need
Taffer says that restaurants have a high failure rate. In fact, only 1 in 12 newcomers succeed in the United States. You need experience in the sector, and this is advice he gives to business owners in every industry.
When it comes to restaurants, he recommends not starting one until you have a solid financial cushion or, failing that, financial backing from banks or private investors, because occasional cash-flow problems in a restaurant can do irreversible damage to the business.
Above all, as so many other business owners would tell us, we need something that sets us apart, and we certainly need to let people know about it.
The truth is that there are very good restaurants and pubs that don’t advertise properly and fail when they could actually have succeeded if people had known about them. Marketing and maths are essential subjects in any kind of business.
Further reading
Featured image: Nielsoncaetanosalmeron, CC BY 4.0, via Wikimedia Commons.
