Counterintuitive business growth tips

Today, a post that is a little different and comes from my past experience building and investing in businesses.

It is to give two counterintuitive tips for planning to grow a business. These relate specifically to Restaurants but are also applicable at some level to investing in any business or business leader.

I am often inspired by conversations, and this reminder came from a conversation last week with a friend who is a new restaurant/bar/venue owner and his own new MD, who is an experienced F&B operator.

The first gave the rational answers to the following questions, the second, from his experience, knew that the counterintuitive ones were the ones that would create successful investment and operational success.

Tip 1: Find out if they’ve failed before

If you are looking to invest in a Restaurant, ask the person looking for the investment if they’ve failed before.

A multiple choice question for you on that. Which potential investee would you be more likely to put your money behind?:

1. Someone who has run at least one restaurant before and never failed, always run profitably and, if they exited, did so at a profit too.
2. Someone who failed running their first restaurant. They may even have gone bankrupt.

To many, the obvious answer is 1). However, in my experience, I’d always go for 2).

Why? Simply because the investee who has failed is more likely to have learned from their experience. They will have really thought carefully about even trying a second time and they will have covered a lot more of the bases around both opportunity and risk. In addition, as a leader, they are likely to be more humble and open to new ideas from others.

Tip 2: Do you know the right number of outlets to plan for when you expand?

Imagine you are building out from one successful independent restaurant to additional outlets. Before you go beyond the first outlet, what should your business plan consider in terms of how many outlets you will expand to?

You have one outlet right now, so how many additional outlets should you be planning for at this stage in your expansion plans?:

• 1
• 2
• 3

If you answered 1 (go from 1 to 2 outlets total), you have given the most common answer and, seemingly, the most logical.

However, the answer from experience is again counterintuitive.

The tip is to build a business plan to add 3 outlets (to go to a total of 4) before you expand from 1 to the next one.

If you simply expand from one owner-operated restaurant to another, the chances are you will plan to open a second outlet only. Further, you will open it within no more than 15 minutes distance from the original outlet. You will do this as you figure you can save money and make more profit by using you and the one or two other key staff to run between both places. You’ll think “I can run two as easily as I run one”.

Positive thinking, but also generally unrealistic. Restaurant owner-operators running two outlets often burn out, as they are run ragged running two outlets. They also don’t have sufficient revenue to budget for management to run only two outlets, so they see no way out of this “hamster wheel”.

This is where the tip comes in.

Before opening a second outlet (and sure, open new outlets one at a time if capital requirements mandate that), build a business plan for a total of at least 3 or 4 outlets, not just a total of 2.

Why? As at those levels you will need to hire management and the revenue across all the outlets will allow for this. At a total of 3 outlets, you may actually not be making more profit than at one, as you have to then cover this management cost. However, at 4 outlets you will both make more profit and also have more free time as the owner and not the solo operator.

Also, if you have that business plan in place, when you are being run ragged on the hamster wheel opening and running two outlets, you can also be anchored and grounded by the business plan, knowing that once you prove your business model for two outlets you can then activate the part of that business plan (eg raising funding) to go to 3 then 4.