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During hard times, many of us unintentionally sabotage our own restaurants.

Are You Holding Your Restaurant Back?

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It's not an easy question to ask, but it could save your business.
By Peter LeSar March 2019 Expert Insights

Have you been in the following situation?

Revenue has flattened. You have tried to get growth back on track, but something has changed and what worked before isn’t doing its job anymore.

How did you react?

Some do get their mojo back by thinking differently (more on this at the end).

But, when in a hard spot, many of us unintentionally sabotage our own restaurants in three ways that you might be doing yourself right now.  

Our story begins in a field of psychology known as “behavioral economics.”

WHAT ARE BEHAVIORAL ECONOMICS?

You might think, “I want to succeed … I would never hold back my own business.”

But, when it comes to decisions that impact our own financial outcomes, Dan Ariely, a pioneer in behavioral economics and author of Predictably Irrational: The Hidden Forces That Shape Our Decisions, disagrees with you:

“… we are fallible, easily confused, not that smart, and often irrational. We are more like Homer Simpson than Superman.”

To see if you respond more like Homer or Superman when in a growth slump, let’s review, “The 3 Ways You Might Be Holding Back Your Restaurant Right Now.”

1. LOSS AVERSION

Have you ever had the feeling that you no longer work to beat your rivals, but rather just to NOT fall back?

If so, join the crowd.

As Anthony Bourdain said: “If anything is good for pounding humility into you permanently, it's the restaurant business.”

You see, when in tight situations, restaurant owners can feel so uncertain as to how to grow again that they hunker down in defensive postures to protect limited resources. Perhaps this is you.

This psychological bias is known as “loss aversion,” and it describes our tendency as humans to fear loss up to twice as much as we enjoy gain.

Conclusion: We might prefer continuing in a marginal business (even though prolonged weakness increases the probability of failure) over making really tough decisions that could help us to regain traction.  If this is you, take daily baby steps toward a longer-term, better-for-your net income project until it is a reality.

2. THE OVERCONFIDENCE EFFECT

In the face of a slowing restaurant business, would you be confident that you have the capability and judgement to turn it around?

Assuming your answer is “yes,” would it surprise you to hear that many failed restaurateurs probably believed the same until almost the end?

According to Professor Don Moore of Berkley’s Haas School of Business, our overconfidence can create an “illusion of control [that] leads us to persist where our efforts are useless.”

He provides this example:

“Corporations seek to influence consumer perceptions of their products through advertising. However, there is precious little evidence that advertising actually works.”

This example also applies to many overconfident restaurant owners who, in the face of worsening results, continue to rely on “growth” strategies that are, in reality, no longer doing their job.

Conclusion: If you are confident of your abilities and past practices to build growth, but your restaurant has flattened anyway, build your cash reserves as much as possible. Use some of those funds to A/B test strategies against each other and look for empirical evidence of those that most add to net income (not just revenue). Set aside the rest of the funds … it will take longer than you think to rebuild.

3. TEMPORAL DISCOUNTING

Drum roll please …t he number one bias hurting restaurant owners today:

  • “I want results now!”
  • What does that mean?

In behavioral economics terms, this is called “temporal discounting;” it’s a bias found in many restaurants’ huge reliance on social media posting to build their business.

While few restaurant owners build their net incomes through use of social media, the instant gratification of “likes,” “comments,” “shares,” and occasional revenue blips fulfills our very human bias for immediate results.

Unfortunately, this use of time and resources can actually hold you back from working on projects that contribute more to net income over the longer term.

Conclusion: Visualization works. If spending too much time and resources on “instant gratification” tactics, visualize yourself losing the home, education for your kids, the vacation or whatever else motivates you the most if you don’t reallocate resources to more income-generative, longer-term projects.  

If facing a tightening situation, use this article to check if it's actually you holding your restaurant back. To break the gravity imposed by the saturated restaurant market, open your mind to new ways of thinking: Behavioral economics can help.

Peter LeSar is the founder of Restaurant Growth on Demand, a training program for restaurants trying to recapture above-market growth.  He is also the founder of the Facebook group The DNA of Restaurant Growth, where 1,500+ restaurant owners share growth tactics and support each other through Q&A on a daily basis.  Peter believes that to build unconventional financial results in our industry, you must think and execute in unconventional ways.