The Thrill of Losing Money by Investing in a Manhattan Restaurant
newyorker.com
newyorker.com
Anybody with a restaurant/cafe startup idea should have some kind of contingency plan to deal with the inevitable use of city hall to try and close you down.
I hope local behaviour is not a predictor of global behaviour. Otherwise mankind is not going to solve existential threats such as global warming. It reminds me of the tragedy of the commons.
> The solitary Ik, isolated in the ruins of an exploded culture, has built a new defense for himself. If you live in an unworkable society you can make up one of your own, and this is what the Iks have done. Each Ik has become a group, a one-man tribe on its own, a constituency.
> Now everything falls into place. This is why they do seem, after all, vaguely familiar to all of us. We’ve seen them before.
> This is precisely the way groups of one size or another, ranging from committees to nations, behave. It is, of course, this aspect of humanity that has lagged behind the rest of evolution, and this is why the Ik seems so primitive. In his absolute selfishness, his incapacity to give anything away, no matter what, he is a successful committee. When he stands at the door of his hut, shouting insults at his neighbors in a loud harangue, he is city addressing another city.
> Cities have all the Ik characteristics. They defecate on doorsteps, in rivers and lakes, their own or anyone else’s. They leave rubbish. They detest all neighboring cities, give nothing away. They even build institutions for deserting elders out of sight.
> Nations are the most Ik-like of all. No wonder the Iks seem familiar. For total greed, capacity, heartlessness, and irresponsibility there is nothing to match a nation. Nations, by law, are solitary, self-centered, withdrawn into themselves. There is no such thing as affection between nations, and certainly no nation ever loved another. They bawl insults from their doorsteps, defecate into whole oceans, snatch all the food, survive by detestation, take joy in the bad luck of others, celebrate the death of others, live for the death of others.
- http://biologywatcher.tumblr.com/post/119092283475/lewis-tho...
It is not unreasonable NOT to want these things in your neighborhood.
For that matter, are you a member of any local social network thingies? I've on NextDoor, whatever that is, for the last few weeks, and I'm surprised to discover that every local business I knew about (and several that I've only now become aware of) are defined primarily by the random, petty (to me) seeming complaints they generate from the neighborhood.
I wouldn't be too quick to jump to the conclusion that complaints like these are "enemy action".
And if everybody else has to follow those laws, why should your friend's place be any different? Why should a competing business have to bear the expense of installing a filtration system, then sit idly by while someone sets up shop next door and flouts that regulation?
This is where part of the criticism of cabs is unfair. Cabs aren't allowed to maximize their profits through the perfect price discrimination offered by dynamic pricing. Stuff like Pool and $1 fares are illegal for cab companies to do. So why shouldn't they complain when Uber competes with them without following regulations they have to follow?
Your complaint sounds like those people who get mad when someone rats them out for cheating in class.
The legal system is so complex that we are all always cheating.
People only call for strict enforcement of the rules when they don't like you. It is a wonderful thing to get the government to attack your enemies for you.
OP's examples were not obscure subsection g part 4 item iii-type stuff. They are basic things you'd think about if you were considering the impact of your business on the public.
The computer science version of this would be some poor guy confused about TCP/IP and I could link to the precise part of the RFC that answered his question, with a sarcastic, "Right, that's so complex". I'd be an asshole if I did that.
And, of course, it's perfectly possible for the laws to be wrong.
Also invite the cops in. If you give the impression that you're connected, these things go away. Plus, a few hundred bucks means your phone call gets picked up.
1. Have good food, that sells. Nothing else matters. No big up front investments. Have a killer product, which you make in your home kitchen if you have to. I thought Americans knew this, with their food trucks and shared kitchens.
I see this all the time. People thinking about how to name their company, how the logo looks, or in this case which forks to use. These things matter, but only in the long run, when you're able to sell your product successfully already.
Access to money and people like the author make this difficult, you aren't forced to survive.
A restaurant near me has started without a name, no interior decoration and a less than good but not too bad location. After six months they had a line out the door, every night. After a year they had a name. After two years they renovated, but just a little bit. Now it's 5 years later, it looks fancy, they have a logo and it's nicely renovated. But they started with the product.
I think it's a good idea to do everything in reverse, especially when we are worried how we are perceived. We see finished, well working things and think we need to emulate everything they are doing, including the expensive business cards, when it's really the other way around. Product first, being forced to survive, the details come later. Makes for a much more relaxing atmosphere as well, with much less meetings that go nowhere.
I guess this is a long way of saying "make sure you have good food, that sells, and make sure you can actually sell it (at a profit)".
I have zero experience in the food industry. But I tell you two things from observation:
1. First, learn where the profit is made. For many restaurants the profits are made with alcohol, not with the food.
2. I have seen restaurants with the most delicious and affordable food bite the dust. It is my impression that in places like NYC you are more in the real estate business than in the food business. Your landlord raises the rent and you are out.
I respect people that run successful restaurants. I think the difficulty is often highly underestimated.
Booze is the easiest thing to make money on. The only labour involved is opening the bottle and pouring. My parents were always happy to keep the place open if there was a table of drinkers at the end of the evening.
Buy into a brand that is cool. Not an actual brand like coca-cola, but a cuisine type like Thai or Vietnamese. Those are way more in fashion at the moment than Chinese (bad rep for unhealthiness), but you can make them with the same staff.
Decor and ambience matter more than anything. Being in a fine restaurant is as much about being seen in the right place as eating good food. It's like art; most people can't tell the difference between mediocre and great. But a gallery in Chelsea sends a different signal to one in Shoreditch.
Finally, running a restaurant is indeed difficult. You're competing with people's own cooking, ready-made meals, and every other eatery in the area. Sure, there's three meals a day to sell to each person, but there's also a constant influx of people wanting to give it a go.
People like food, they want to eat it, and chances are high you're making food that's generally recognizable as such and part of a general culinary category and price range. There are acceptable standards for service, wait times, cleanliness, and so on, that you can meet or exceed to provide a certain level of experience.
From what I understand, and being around the business, restaurants almost invariably sink or swim based on how good a real estate deal they've been able to get, and their ability to have a stable staff and be relentless about controlling costs, things like spoilage, advance planning, etc.
Software based startups are all about growth. You fuck around as you describe and when you nail the product it grows like crazy at a very low marginal cost.
Restaurant economics essentially look nothing like that. They aren't about growth, they are about margins, and since they have to be highly price competitive, that means fundamentally the business is about managing expenses.
And does IP protection happens in that business ? How ?
I guess I'm wondering:
The comment at the root of the thread suggests restaurant aspirants can address the risks of opening a new place by adopting the "MVP" ethos of startups.
Some discussion ensues suggesting that's unlikely to be the case.
Someone suggests that diners are likely to accept "MVP" restaurants, without the dominant expenses (notably: commercial real estate, staff expenses), if the dishes are original enough.
I'm wondering, outside of food trucks, does that ever happen?
EDIT: I remembered one of them was featured in the NY Times this week, that makes it very to explain :) They started without a store front, selling bread to co-ops and food markets. It became a cult favorite, then it became a staple at local restaurants and coffee shops. They partnered with a excellent coffee shop, Public Espresso, to do a food truck, and launched this beautiful restaurant, in a light commercial corner in a heavily residential district. http://www.nytimes.com/2016/09/18/travel/breadhive-buffalo-r...
This sounds like it was written by someone who doesn't like food. What I've seen in NYC, over and over again, is that of course you don't want the worst location (or financing terms), and you don't want to shoot yourself in the foot with incompetent operational management or an ever-churning staff. However, those are simply the prerequisites; they're necessary, but not sufficient for success.
If you want to thrive, you absolutely have to have a kick-ass product† (that you also happen to wholeheartedly believe in). If your menu just isn't inspiring (or it's too expensive or otherwise not right for the neighborhood / night-time crowd) -- it doesn't matter what your staff turnover is or much forethought you put into the operations. Inevitably you will fail.
But if your menu is truly awesome, people will make a beeline to your little hole-in-the-wall, wherever it is, and jostle for a spot at your narrow formica sitting counter and a chance to wolf down your product, nevermind the styrofoam bowls, plastic sporks and tissue-thin napkins.
Case in point: http://xianfoods.com
† By product I mean the combination of "menu offering, ambience, staff and cultural vibe." The interplay between these can be quite subtle, and it's tricky to get them right (which is why it's really to believe in what you're doing, and have taste in all things, not just food). The point I'm trying to make is that from what I've observed, it's definitely not primarily a matter of managing your margins and not getting screwed by your lease.
Nearly everyone in the restaurant business cooks good food. Many however can't figure out how to do it profitably.
There are always edge cases. If your food is incredibly good then people will beat a path to your door sure. But in a city of 24,000 restaurants the exceptions, the hundred or two out of the way culinary sensations tend to prove my general rule not undermine it. And even most of those don't make it to a seventh profitable year.
You'll more likely want one of the tens of hole in the wall spots around xianfoods that have no website, no name, not even a Yelp or a Google map indicator. Things that serve steamed buns out on the street or shops that are little more that hallways to order food and leave.
How'd they get to where they are now? Because they get food, they get what what people really want, and they found a culinary niche that until that point had been widely ignored.
That's how they made their "brand".
The places that last own the building or have a long lease.
My point is that (along with all the other boxes one should tick in starting a restaurant in a cutthroat market like NYC) -- and in particular if your goal is to run a business that's actually thriving, and not just marginally surviving -- it's not sufficient.
This. One of my online contacts was the general manager of the world famous Armadillo World Headquarters in Austin, and that ended in 1983 because they lost their lease.
That's not exactly a restaurant, but it's close enough IMO for comparison.
That depends. Minnesota passed a new law in 2015 called the Cottage Food law that allows certain types of food (primarily baked and canned goods) to be made in a home kitchen and sold to the public. See http://www.mda.state.mn.us/licensing/licensetypes/cottagefoo... for details.
I think this is pretty great. Regulation has its place, but there's a lot of value in allowing people to easily make an income too.
Restaurants have horrendously low margins[0] - from 1% - 5%, so even if you're selling hundreds of plates of pasta/burger/lobster it's quite possible that your restaurant is making a loss.
[0]: https://www.sageworks.com/pdf/Data_Release_06102014.pdf
Edit: (remembering article from years ago) A few, very few restaurants have been successful based on low-prices through economies of scale these are a very exceptional group I believe.
2. Compliance, permitting, inspections and so on make your idea of a restaurant MVP literally impossible in Manhattan and the state of New York.
Even if I had the money, I don't think I would open a resturant, other than a pizza place, or a burrito place with a long lease. I heard the failure rate of resturants in New York City is 95%. Those odds might be wrong, but I wouldn't want to try to beat them.
I worked in three restaurants. I was a cook at two. I'm aging myself, they are called chefs now. I was making roux based soups, and bread, so I guess I was a chef? All the resturants I worked in failed, and I always felt like a cook.
If I ever owned a resturant, I would try to minimize risk.
I'm not a foodie anymore, so it would probally be a pizza/burrito place. My food costs would have to be low. And yes--the food would need to be good, and plentiful. I would want to have customers take the leftovers home, and remember why they ate at my resturant.
It would be located where young people interact/spend money. Example--near a university.
It would have a long lease, or a lease tied to profitability. The business would be a corporation for bankruptcy purposes.
Their would be no wait staff. (People can pick up their own food). Then again, I have seen a pretty face bring in masses. First dilemma!
I would definetly want a liquor licence. My place would only need a beer/wine license. Next dilemma! I gave seen little dives do great because they have a full liquor licence.
I would fire all my help every six months. Yes--gasp! Harsh, but I have read two of the better books on resturant managent, and both say this in a round about way. I don't belive everything I read, but this one rang true. There's a lot of theft in the business. A bad attitude by a server/manager can empty a place slowly. I would be upfront in the interview though. I'm not sure how I would verbalize the fact they they will get fired in nine months from now though. I might keep the right people? Then again, at the places I worked in, the nicest/wardest working person was usually embezzling money. I will say that I was accused in high school of embezzling money fron a resturant, and honestly, I wasen't. I just wanted to do a good job. After all I just said--I couldn't just fire good employees after a period of time. Then again, I will probally never open up a place. Third dilemma!
I would Never load my resturant up with cheap labor. I will walk out of any resturant that loads up their resturant with cheap help.
I'll get a lot of flack for this next one, but if I opened up a resturant/bar, I would load it up with pretty women. I am still shocked how much young guys spend in order to impress a pretty women. The demographics of the men were from 20's to late 30's--no wonder? I was one of those guys. "Oh Ari--the tips I gave you."
Isn't the resturant business lovely? It's too bad we have so many resturant positions available in America. It's a horrid job on so many levels. I feel bad for everyone, especially the owner because so many of them go out of business, and so many went in with the right attitude.
A lot of dilemmas? That's why it seems like every successful business owner I knew had a successful/helpful father. A father that can take on financial risk, and wanted to help his kids. I sometimes think success in America is comming from a enabling family that can take on risk?
To be precise, the people in the kitchen are: the chef, zero or more sous-chefs, zero or more specialists (gard-manger, pastry...), zero or more cooks, an expediter and the dishwasher(s). In a very large restaurant, each specialist may have cooks working under them.
There's only one unadorned "chef".
This hits home. There are plenty of bars that have absolutely atrocious service but still get repeat patrons because the bartenders are smoking hot. Sex sells.
Coincidentally, his restaurant was financed by his dad.
And it depend son what sort of restaurant. It'd pretty clear that, for example, Mexican food places tend to be more interested in selling (higher margin) Margaritas than enchiladas.
Montreal has/had much better restaurants, but it seems that was much about immigrants wanting to have their own place in the New World. I was there between 2002 and 2003 and the best places seem to have vanished.
It's always dangerous to compete with people who are less mature than you because they are okay with losing the important things in life in order to beat you, so you'll be forced to either go down to their level or lose to them. It's like playing chicken against someone who has suicidal tendencies.
It's an intrinsic good to own a restaurant. You get satisfaction from simply owning a restaurant, no matter if you make or lose money.
It feels good to treat your friends, and get preferential treatment at your own place. Making money sometimes is secondary.
It's sort of like programming for the games industry. A lot of people just want to be in the games industry, cause it's "cool". That's why they accept long hours and poor pay.
The ROI for a scrap metal yard or a sewage plant will always be higher than the ROI for a comparably priced restaurant.
- Andrew Yang, the principal investor of a successful restaurant [...] who comes from a restaurant family
or
- Gary Sernovitz is a writer and a managing director of a private-equity firm
http://www.bloomberg.com/news/articles/2016-09-14/america-lo...
In their case, it was certainly because of the overpowering yet enticing smell of fresh grilled spicy lamb kebobs wafting across the block that drew the "I wouldn't eat meat off the street in a million years" nabobs ;)
So if you're planning on opening a restaurant, be sure to get your liquor license. You'll depend on it.
You considered that right
yes, a high end place can easily raise prices and make more money. plenty of them do exactly that.
low end places are squeezed both on supply and demand side, and can not easily do this, or the owners are simply afraid.
if you raise your prices by 6% but business drops by 10% because your customers are price sensitive, and the same month you are hit by an unexpected cost, then what?
Really? It seems like you kind of can, these days.
I wonder also whether restaurants are the kind of investment that only works if you can have a portfolio of them.
"Start with a large fortune".
“To want to own a restaurant can be a strange and terrible affliction. What causes such a destructive urge in so many otherwise sensible people? Why would anyone who has worked hard, saved money, often been successful in other fields, want to pump their hard-earned cash down a hole that statistically, at least, will almost surely prove dry? Why venture into an industry with enormous fixed expenses (rent, electricity, gas, water, linen, maintenance, insurance, license fees, trash removal, etc.), with a notoriously transient and unstable workforce, and highly perishable inventory of assets? The chances of ever seeing a return on your investment are about one in five. ...
“The easy answer, of course, is ego. The classic example is the retired dentist who was always told he threw a great dinner party. 'You should open a restaurant,' his friends tell him. And our dentist believes them. He wants to get in the business — not to make money, not really, but to swan about the dining room signing dinner checks like Rick in Casablanca.”
That's the key take-away (haha). I liken it to poker. If you're at a table with an idiot, you'll get his money. If you're at a table with a bunch of them, they'll get yours.
if the food isnt working, change it, if the location isnt working, drive somewhere else
you could approach the restaurant game like you are a/b testing a sign up page until you got it right, then nail down a location etc.
disclaimer: I have never worked in the food industry
But the bigger issue is that's it's glamorous to own a restaurant. You can take your friends there and brag about owning it.
Taking your friends to your poutine truck just doesn't impress them.
Maybe there shouldn't be?
If that location is working, it's probably already occupied and you will get physically attacked [1]
[1] http://www.nydailynews.com/new-york/food-vendor-slashes-riva...
* You might not be able to make much money on liquor sales.
* There's a price point for food truck food ($10-$15 for the whole meal) and it's much lower than that of a fine dining restaurant.
* Even with an off-site kitchen, your menu is probably limited --- that's why two of the food truck people I've met in Chicago opened restaurants after a year --- and also possibly why their trucks went idle (in one case, parked behind the restaurant) once the restaurant opened.
Lots of restaurants are just fronts for money laundering.
I've heard this before, but I've never been able to find any corroboration.
How does it work? Half your palettes of milk never get delivered?
Best way to learn about money laundering (ML) is to study anti-money laundering (AML), since most laundering outfits aren't going to write a book about how they do what they do.
Most interesting thing about ML is that in cooking the books, they've got to keep very good records of what's been done, otherwise they've got no idea what's going on; which is counter intuitive, since you would think they would not keep records.
"New restaurants, with too-easy access to financing from people like me, invest too much in design, tableware, food, and service, driving up every customer’s expectations of every restaurant in a cyclone of unprofitability.
Landlords, with enough dreamers to fill their spaces, can command nightmare rents."
24,000 restaurants is not demand, it's supply. This is the Mr. Market fallacy.
Seeing that a certain level of supply remains stable over time tells you a great deal about the amount of demand present.
Of course it does. Much like looking at the skyline allows you to make some basic assumptions about aggregate demand for office space in Manhattan versus Kearney, Nebraska.
* he says he invested "a car", so $10-40k?
(ignore this post)
Now if you think think some of your industry's regulations are unreasonable, that's a whole other discussion. But it seems like what you are complaining about here is that your business has to follow rules/law/regulations.
My brother just opened a coffee roaster and cafe in suburban Chicago. It's just him, my sister in law, and a couple friends, none of them with any hospitality experience. There were a lot of regulations, and they had to go several rounds with the city during their build-out. But they got through it.
The weird thing about the comment upthread is that they were "forced to install" a filtration system. How did that get past inspection? The dumb little coffee shop --- no food, no cooking smells --- had to have one just to open up.
So far as you know. The problem is that it's entirely possible that there's some little-known codicil of some code which they are in violation of, the rectification of which could at the outside cost as much as they've already invested.
(The neighborhood complaints, less so.)
Am I just "lucky", and this is a commonplace problem with other people's companies?
Or perhaps it is simply because 2,500 regulations including distance signs can be from the curb because one person tripped over a sign while not watching and then sued the city leads to a ridiculously over-litigated atmosphere.
Here is my original response that was flagged:
Well, the reason why I came to the conclusion that you don't value obeying the law is because of your example about the hassle it would be if someone kept notifying the authorities about you violating Section such and such. It's a hassle because someone is forcing you to obey the law. The implication is that when no one reports you, then it's fine for you to conveniently violate that law because you think it's a bad law. If that is the wrong implication, then please correct me.
I meant my rhetorical question about obeying the law to be in the context of your example. But I should have been more clear about that. A better revised question is "so you don't think you should have to obey laws you disagree with?" Our opinion of a law does not have any bearing on our responsibility to obey it. If we think a law is stupid, we can try to get it changed, but until then, we obey it. That's how rule of law works.
I have no doubt that your industry is ridiculously over-litigated. But I'd rather all businesses obey all the laws (and work to change the stupid ones) than decide for themselves which ones they'd like to obey and which they get to violate with impunity.
http://philosophy.lander.edu/oriental/charity.html
"Charity" in this sense isn't primarily ethical. It just makes for more interesting discussions and fewer digressive snits.
We detached this subthread from https://news.ycombinator.com/item?id=12522540 and marked it off-topic.
But I disagree that the subthread is off topic and resulted in digressive snits. The topic of the thread from the start is about regulations, lame regulations and response to them. I think my posts stuck to the topic. I felt we were having thoughtful discourse on an important topic, although I didn't appreciate the sarcasm on icelander's part, but given my uncharitable first post, perhaps it was deserved.
So for example, rayiner's comment is also about whether following the law is right.
> And if everybody else has to follow those laws, why should your friend's place be any different?
average NY check = $48.56 according to Zagat[0], so you can back that out the above number to 132 diners per night.
[0]: https://www.zagat.com/b/new-york-city/48.56-what-can-you-get...