Thanks to Wall Street, There May Be Too Many Restaurants
nytimes.com
nytimes.com
Yes, there will always be stories of businesspeople failing to grow businesses, and losing their savings doing so. And the story of investors over-extending into a market is as old as time. One would think that the flow of cheap money from Wall Street to Main Street would be celebrated. But, leave it to the NYT to never pass up an opportunity to vilify Wall Street.
Of course, if private investors on Wall Street invested in regional mom-and-pop health-conscious juice bars and eateries and lost their shirts, the headline in the New York Times would be "Wall Street gambles Americans' hard earned retirement savings on uncertain business models."
...while endorsing big Wall Street allies like Charles Schumer.
https://www.nytimes.com/2016/10/29/opinion/endorsements-in-n...
You must be very young or very naive. People are ruined by failed businesses all the time. The thing you're missing is that the people continuing the churn of business creation are not the same ones who were ruined by it.
If you seriously think there is no human cost when businesses fail you're simply delusional.
Theoretically, if you fail at business, you are allowed to try again and again until you succeed. The consequence of repeated failure isn't so harsh that it's a once in a life-time shot.
This is why people gamble with VC money.
There's a human cost, but your life isn't over because your business fails.
I used to wonder how investors could throw themselves out of 10th floor windows after finding their shares had become worthless, whereas other folks who never owned any stock feel great.
The delusion is attaching your sense of self-worth to your balance sheet.
Also for future reference, your post is a rude ad-hominem attack defending a straw-man argument. If you have something to contribute, please don't mask it with hostility.
It very well might be, because losing your business can mean losing everything you have, including your home and your ability to pay for food. For many small business owners their business represents everything they have.
>I used to wonder how investors could throw themselves out of 10th floor windows after finding their shares had become worthless, whereas other folks who never owned any stock feel great.
Because it's not about having or not having stock, it's that those people found they had nothing left, while someone who never owned stock still has their job and their home. Imagine waking up tomorrow and learning that over night you lost all of your money and assets and you might see why this could break someone.
I'm guessing you're someone who's never had to face the real possibility of homelessness or going without food because you can't afford it, and on top of that knowing there's no clear way out of that situation.
You've completely missed the point: people who have never owned a home or even had a real job still wake up every day and experience the joy of life. It's about not basing your happiness on things that can be taken from you.
> I'm guessing you're someone who's never had to face the real possibility of homelessness or going without food because you can't afford it, and on top of that knowing there's no clear way out of that situation.
Again you persist with ad-hominem attacks. You have absolutely no idea who I am or what I've been through, so please don't speculate idly.
And I'd say capitalism works because people often risk more than they can really afford to lose and make decisions that the numbers don't support. Bezos starting Amazon is a popular example of a business that no one would have predicted to be the success it is.
In retrospect, however, I'd say Bezos could have started with a hot dog stand and he'd still have built it into a powerhouse based purely on his unique blend of talents and determination.
Highly unlikely to have the same amount of success that Amazon has had. Not to undermine what Bezos has done. But lets' not go too far. An ecommerce website is definitely something much easier to expand and make money from that the Food and Beverage industry. Without the cashflow and expanding market create by Amazon.com it would have been incredibly hard to expand into the different markets that Amazon ultimately ended up doing.
Sure some lose - and get crushed by the wheel of fate... but others win.
Where else do you think the McDonald's and Outbacks come from?
Remove the chance of getting ruined.. and you remove the chance of getting made and the reasons for risking it all.
Here's a great movie that I loved on the subject:
I'm not sure if this has something to do with the building codes in suburbia that require a sprawling parking lots for every restaurant. In South Korea, for instance, there are mom and pop restaurants in every city that serve fresh, delicious food (chain restaurants do exist, but are not as common).
Americans drive themselves around a lot, both for work and for other reasons. When you're looking for something particular or easy, it helps to find a chain location you've had consistent success at.
My theory is that something like Yelp (but with less work to use) would help disrupt this quite a bit. Perhaps Yelp has already helped a bit. I know I've gone to some local places I wouldn't have otherwise because they've had good ratings.
After all, most people like fried foods and meat and things that are, strictly speaking, unhealthy. But historically they've been rarer. Meat is still kind of a luxury in rural China, for example.
And yes, buildings codes require sprawling parkings lots for every restaurant. The people are going to drive there anyway. The codes are meant to require that businesses invest adequate resources in parking so that they don't negatively impact other businesses, street parking, neighborhoods, etc. I don't particularly like it (in fact, I think they should be required to have sidewalks in every row of cars so you don't have to worry about getting run over walking through one), but there you are.
People say "location location location!" and sure it's important, but I bet we can all think of some local "must-eat-at" restaurant that's in bumfuck nowhere and yet still always has a line round the block.
Houston - Moon Tower - Various exotic sausages in house-made pretzel rolls. Amazing, and stuck deep in the old warehouse district. https://goo.gl/maps/2oussCLAe242
Vegas - Cornish Pasty Co - Incredible and authentic cornish pastys by a restauranteer with a sharp tongue but great taste. Not exactly in the middle of nowhere but well off the strip https://goo.gl/maps/UMx8vuov8m32
etc
"The cafe has 192 locations nationwide, including in Miami, Los Angeles, San Francisco, San Diego, Chicago, Houston, San Antonio, Dallas, Austin, Philadelphia, Pittsburgh, Atlanta, Denver, Salt Lake City, Phoenix, Tucson, El Paso, Baltimore, Washington, D.C., Tampa Bay and Buffalo metropolitan areas, as well as in Northern California, Mississippi, New Jersey, Virginia, Savannah, East Texas, the Rio Grande Valley areas, and a location in Carmel"
https://en.wikipedia.org/wiki/Corner_Bakery_Cafe
Likewise, Panera has lots of salads and half sandwiches available and 2,000 locations.
Maybe they're "crap" to you? But most people don't eat as well as that, on average, quality-wise.
If all that's not fresh and healthy enough, it's not hard to pick up an (unsauced) grilled chicken breast at a BBQ place and some fresh veggies at the grocery store.
I mean, maybe you have especially refined taste, but all those places aren't unpalatable to the median person.
Before I moved to New York, I used to eat at Panera all the time. I wouldn't say it's bad, but... honestly, I would never eat at one in NYC, because there's basically always going to be a better and healthier restaurant nearby. (Incidentally, there are very few Panera Bread locations in NYC, and they're almost all clustered along Lexington IRT stops.)
Nobody said anything about "Manhattan below 96th". But it's definitely true that, outside NYC (and especially outside the NYC metro area), the options for good-quality, healthy food are pretty rare.
I very intentionally said "New York", not "Manhattan. I would take the options in Jamaica, Queens over Columbus, Ohio any day.
Manhattan has a weekday lunch time population of about 4 million (about 6500 per idealized square city block) and a dinner time population about half that. And many of those people are quite rich. That leaves a lot of room for obscure niches to be profitably served. In most places business owners don't have the luxury of being able to target so narrowly.
Though I've never try to run a restaurant either solo or as a franchise, so this is clearly all speculation.
This article is a good overview of who franchises appeal to (and why): https://www.bostonglobe.com/magazine/2014/09/17/the-secret-w...
This class of trade is impressive because you need to have several million dollars of liquid wealth to get started. There's a whole other class of franchises which are basically built to bilk the aspiring middle class and charge $30-100K for nebulous advice and marked-up equipment but provide almost no national brand appeal or product development. E.g. almost every frozen yogurt franchise that has sprung up in the last 5-10 years.
A well run franchisor who are fair to their franchisees and legitimately care about their franchisees success is a great deal for the person who wants to run a business (and the profits that come with that!) but, for lack of a better term, doesn't want to think too hard about it.
In exchange for a small fee the logistics, marketing, food development, training materials, etc., etc., etc. are outsourced to a large company who has a track record of success, customer loyalty, and brand recognition. Sure, if you get pride building all that yourself from the ground up it would be a bad deal for you, but some people simply don't want to do all that.
Of course, part of being a well run franchisor is properly vetting its franchisees as well as doing quality control on its franchisees.
http://www.washingtonpost.com/wp-dyn/content/article/2007/12...
A person who wants to actually operate a restaurant would probably be best served by managing a franchised or chain restaurant, to gain food service management experience, then going it alone from a single small, low-rent location or food truck. Bootstrap that up to multiple locations. Then shut it all down before you go bankrupt, because you're trying to run a food service business, like an insane person.
A restaurant has thin enough margins as it is, and the franchise usually takes more out of that than it gives back.
I can't imagine why anyone would invest in an actual restaurant, rather than a real estate management and restaurant supply business, like McDonald's. The economics just seem nightmarish. You almost need to work out a Producers-like scheme where you can make more money if the restaurant fails.
Nothing could be further from the truth for a franchise of a name brand QSR. Joe Operator with his first McDonald's store is busting his hump for 60 hours a week.
And the idea that a franchisee has significant involvement for branding is just as out of touch.
If actual franchising is not that--and it isn't--no one should realistically be buying franchises. No one should own-operate just one McDonald's restaurant. If you're going to bust your hump for 60 hours a week, do it as Worthless Brand Burgershack, and put all the benefit of your extra work into your own pocket instead of faceless shareholders.
But when you can own ten restaurants, then yes, franchising McDonald's is a great idea.
If you have ever seen Coming to America, the "McDowell's" restaurant is a hyperbole take on how to do it. Run your place exactly like McDonald's, but don't use any of the land, brands, patents, or trademarks.
I can't agree that starting your own "Burgershack" is a good idea; the mortality rate for restaurants is just too high.
And most franchisees can't afford to dive in and purchase 10 restaurants. The upfront capitol contribution is too high, and most franchisors don't like to see failure (it hurts their brand) so they want to make sure you can walk before you run.
-They're cool. Who doesn't want to own one? I'd love to own a bar if I thought I could make money in the game. -They're visible. Everyone eats at restaurants, and in fact, a lot of people sit around in restaurants talking about what sort of business to start. -They have good perks. Free beer anyone? -They're familiar. I mean, things turn out pretty good when I BBQ, right? -They're (relatively) cheap to get into. If the minimum is $100k instead of $1M, you'll have more competition.
When it comes to small business, look for the opposite of all of those. The more obscure, boring and downright unappealing the better.