Three classic disaster stories:
https://news.ycombinator.com/item?id=15658437 https://news.ycombinator.com/item?id=15439346 and
https://news.ycombinator.com/item?id=12521045From the last:
>And while I am not dumb enough to have imagined I’d make much money as a passive, partial investor in a New York City restaurant, I was dumb enough to think that I could probably earn my money back-ish, while at the same time helping some decent young men fulfill their dream. (Also, it seemed more fun than investing in a municipal-bond mutual fund, which cannot, thanks to the killjoys at the S.E.C., give investors free beers.) But of the many failures of logic and foresight of that investment, which I made in 2010, the one that stings the most is not realizing that so few restaurants in New York make money precisely because too many restaurants in New York have investors like me.
>That business, more or less, stinks. New York restaurants are at the intersection of the low-margin world of food businesses like grocery stores (low margin because so many compete in the all-out war to sell food) and taste-predicting nobody-knows-anything businesses like Hollywood. I spoke to one of the two owners of the restaurant, who wished to remain anonymous in case he decided to keep his hand in the restaurant business. He provided me with the Manhattan math, from the seven-year profit-and-loss statement. If you as a customer generated a hundred-dollar tab, about thirty-seven dollars went to the staff (plus the twenty or so dollars you tipped); twenty-nine dollars went to buying the food and beverages that became your meal; fifteen dollars went to the landlord; six dollars went for supplies (such as new forks) and maintenance (hello, plumber); five dollars went to bank fees, insurance, and workers’ comp; five dollars went to other costs (utilities, permits); and just under three dollars (two dollars and eighty cents, to be exact) was left over for operating income. For the record, that is less than was paid in credit-card fees.
[...]
>Yet I’ve come to conclude that the restaurants New York needs are doomed, financially, to fail. That’s because amateur capital backed by magical thinking and a desire for fun distorts the economics for everyone. 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. If restaurants had to be good business ideas, and attract sophisticated investors who mercilessly demanded a profit, there would be fewer restaurants. They would be less cool. The food would be less good.