You’ve had a successful career, and you’re wondering what to do next. Too young and energetic to retire and not ready to jump back into the corporate world, you begin to wonder if your life-long passion for cooking can be turned into a business. Do you know enough to risk your time, your energy and your hard-earned money? Here’s how to mitigate much of the risk and start on the path to success.
The Lean Start Up was created by Eric Reis as a way to significantly increase a start-up’s chance of success. He based it, at least in part, on Steve Blank’s Customer Development Model.
The basic premise is simple. Before you spend any money on your venture, you must know who the target customer is and what he or she wants. If you wish to open a breakfast restaurant:
- You need customers who eat breakfast out who are underserved and don’t have enough good places to go.
- If you can find an unfilled need in the breakfast market, you can compete.
- If you’d simply like to open a restaurant but don’t know what kind, you have more options:
- You can target a group of potential customers (for example, people 65 plus) and do research to determine their needs.
- You can pick a type of cuisine (for example, Italian) and discover which customer group prefers this type of food and then see if there’s room for another Italian restaurant.
- You can search for unfilled needs, no matter the food or the demographic, and create a plan based on that.
Once you decide, the process is the same. You must validate your decision through research, continuing until you definitively know your customer base and what you can do for them.
Notice that up to now, you have spent no money. That’s what Lean Start-Up and Customer Discovery/Validation is all about.
If you haven’t done so already, now it’s time to build your team. Nobody knows everything, and the more brains you bring in, the more likely you are to succeed. If you’re the chef, you will need people to help with:
- Marketing – Customer Discovery/Validation, Business Location, Visibility
- Legal – Contracts, Zoning, Permits, Negotiations, Food/Beverage Laws
- Finance – Business/Financial Plans, Capital Raising, Negotiations, More
Next, you must test and validate your product. Create tasting sessions and invite members of your customer base to try your dishes in exchange for honest, constructive criticism and/or rent a table at a local Farmers’ Market for a month or two. Repeat this until you have solid menu items that your customers love. You are building a supportive customer base that will be there for you when you open.
With validated customers and products, it’s time to build a financial plan. You can find a good template online that is optimized for restaurants. Invest the time and effort necessary to predict your start-up costs, monthly revenues, cost of goods sold and fixed costs for a period of five years.
Another very important template lets you outline your cash flow over the first five years. Be certain to build in costs of inventory restocking as well as periodic asset purchasing. Finally, use all this information to create a pro forma balance sheet for the same five-year period. These documents will be critical for your personal use as well as for acquiring funding, if necessary.
It’s important to know in advance what it takes to make a successful and profitable restaurant. Most food-related businesses use 30% as a target for food cost. If your food cost is much more than this, you are either paying too much or wasting too much. If your food cost is much less, the quality of the food is likely to suffer.
- Use a point of sale (POS) system. A well-designed POS can track many data points. You will soon know which tables are the most profitable, which servers, which items, which nights, which hours of the day, and so on. This information is invaluable for making changes on-the-fly to improve your business.
- Never stop testing and validating. Over time your target customer base may change as will their tastes in food and their tolerance for the same menu. Success is a moving target.
Don’t forget to monitor and track cash flow. The cash flow worksheet you used to build your business plan will show, on a daily or weekly basis, where you are. Nothing will kill you faster than running out of cash, and there is no excuse for not being informed.
If figuring out the financials is a scary prospect, there are companies with years of experience helping build and optimize businesses of all kinds. You can engage them for as little or as long as you need. Nperspective CFO & Strategic Services is one such company. We are skilled at business planning, capital acquisition, financial modeling and everything in-between.
Here are some online resources I used while building my own food venture.
https://www.stanford.edu/search/?cx=003265255082301896483%3Asq5n7qoyfh8&cof=FORID%3A9&ie=UTF-8&q=the+four+steps+to+the+epiphany&sa=Search (especially Chapter 2)