Learning Lessons from the Food Network’s “Restaurant Impossible”

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The premise of Food Network’s Restaurant Impossible show is that muscle-bound chef Robert Irvine is given two days and $10,000 to save a restaurant from going out of business. Some of these restaurants are literally within days of closing, and many are hundreds of thousands of dollars in debt. These owners are so desperate they invite the often-blustery Irvine to expose their mistakes to a national television audience.

Many of the mistakes made by new, and even experienced restaurant owners are the very same mistakes that prevent businesses of all sizes and kinds from achieving sustainable success. After all, restaurants are great microcosms for SMBs (small to medium-sized businesses) because they are usually privately-owned, operate in single locations, and employ staffs and systems to perform daily operations.

Here are four recurring themes on the show that provide valuable lessons for any business.

#1 – Dysfunction Starts at the Top

Thanks to clever editing and a snappy one-hour format, the poor management in most of these restaurants becomes immediately obvious to the viewer. There are owners who are present only for an hour or two every day, expecting the restaurant to run itself. Conversely, there are owners that practically live in their restaurants, and have become so insulated from reality that they no longer realize that the bad food/bad service/bad ambience is killing their business.

A distinct lack of leadership is a common thread. Numerous episodes feature individuals with no real experience who bought a restaurant, and subsequently struggle to define a purpose or vision for the business (other than simply surviving).

Many of the mistakes made by new, and even experienced restaurant owners are the very same mistakes that prevent businesses of all sizes and kinds from achieving sustainable success

Menus are often littered with dishes that the owner wants or likes, but not necessarily what the marketplace demands. Staffs are disorganized and fail to perform even the most basic functions of their jobs (such as cleaning, which sends the already testy Irvine into histrionics). It isn’t always because the staff is incompetent – it is because they are not given clear directives from owners and management as to what priorities and expectations are.

The leader in any organization must set the tone for that business. Does management articulate and share a common vision and goals for the business? Does the leader foster a culture of calculated risk-taking and innovation, or cling to the things that made them successful in the past? Are employees given clear expectations, and held accountable for performing their responsibilities? Is there an emphasis on constant evaluation and improvement?

In a small enterprise, all of these need to come from one place: the top.

#2 – Being a Good Cook Does Not Make You a Great Restaurant Owner (And Vice-Versa)

We are forced to play many roles in a SMB, but top-performing restaurateurs understand that the mere fact of owning a restaurant doesn’t make them a great cook. At the same time, being a fantastic chef does not always make one a savvy entrepreneur.

Several Restaurant Impossible shows feature husband/wife teams who mortgaged their homes or used their entire retirement savings to buy a restaurant because one of them “had a dream and is a good cook.” Almost universally, these restaurants begin losing money from day one, because, as they quickly learn, being a good cook is not the same as running a business.

When the direction of the company is determined by ownership (as opposed to expertise), business decisions regarding management, marketing, technology and long-term strategy are not always optimal. In the most effective organizations (and restaurants) the owners are willing and able to self-assess, and empower others to help create a thriving enterprise. They know that the key to success is doing what you are good at, and surrounding yourself with great people who are good at doing the rest.

#3 – If You Aren’t Measuring It, How Can You Manage It? (e.g., Analytics 101)

Like Chef Irvine, we are amazed at the number of failing restaurants on this show that still use paper tickets instead of automated POS (point of sale) software to manage their businesses. These are the same restaurant owners who, in the show’s opening on-camera interview, don’t know their food costs, their labor costs, or their profit margins on specific dishes. Prices are set arbitrarily, based on competitors or “intuition.” Business intelligence is anecdotal (“we seem to be slowest on Wednesday nights, but I’m not sure…”).

In one such restaurant, the owners tell Irvine how grateful they are for their catering business because it is the “only thing keeping our restaurant afloat.” Incredibly, an examination of this restaurant’s financials reveals that the catering business is actually costing the restaurant tens of thousands of dollars per year because the catering services are priced incorrectly.

In another restaurant, owners insist that they sell “lots of the beef wellington,” but, because they fail to track or understand business analytics, they don’t realize that only long-time customers buy the beef wellington, and that there aren’t enough long-time customers to sustain that business. Or worse, that the beef wellington costs more to make than the restaurant charges for it.

Sometimes, in the restaurant world, the group that has a $500 meal but holds a table (and consumes the attention of the staff) for three hours is less profitable than three $100 customers who quietly come and go during the same time period. The reverse can happen as well. Many business have one or two horror stories of low-revenue customers that require as much time servicing as our best, most-profitable customers.

The point is this: if you don’t track these costs, you may be attracting clients who cost YOU money at the end of the day, regardless of the revenue they bring your business. But you will never know it if your analytics are contained within a few disparate Microsoft Excel spreadsheets, anecdotal observations, or worse, nothing at all.

#4 – Clinging to the Past (Instead of Building for the Future) Is Not a ‘Recipe’ For Success

Not every failing restaurant featured on Restaurant Impossible is owned by people who are inexperienced or naïve. In fact, some of the most intractable owners on the show have years of experience, and have successfully owned one or more restaurants in the past.

Their most common line of thinking is this: “It used to work then, why isn’t it working now?”

One aspect of the show’s $10,000 “makeover” budget is that a professional designer comes in to “freshen up” or modernize each restaurant’s interior. Many experienced restaurant owners struggle with letting go of the clutter and dated décor, believing, incorrectly, that design standards of the 1980s will continue to attract younger or more affluent customers now. They stubbornly resist changing menus that haven’t been updated in years to reflect different trends in the food industry or in their own communities. In one episode, the owners refuse to consider altering the menu or décor because both are adored by their loyal, long-time customers. The problem is that, aside from the weekly visits by these loyal diners, the restaurant is a ghost town.

“It used to work then, why isn’t it working now?”

We in the investment industry are particularly guilty of this phenomenon. The 1980s and 1990s were a great time to be in this business. With a soaring economy and a stock market to match, it was a time of prosperity in which elegant and expensive offices were seen as harbingers of success and trustworthiness. Relationships with prospective clients were built on golf courses and in steak houses. It was almost impossible not to provide clients with healthy performance in their portfolios.

Although some industries have trends that go in and out of style over time, most successful businesses accept that what customers want to buy, when they want to buy, and how they want to buy, is constantly changing. As Bill Gates observed, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”

Ingredients for Success: A Checklist

Many of the restaurants that have heeded Chef Robert Irvine’s advice – and most importantly, continued to adopt his best practices going forward – have reported increases in sales and profitability after nearly going out of business. Here are some “ingredients” to use for your own future success:

• Define the goals of your business. Remember, making money is not a goal. It is a result.

• Build the culture of the business around the goals of the business.

• Ensure that every employee in your business – up to and including leadership at the top – has defined expectations and duties (defined meaning documented). Share this with everyone in your organization.

• Owners and principals need to be honest with themselves, focusing on what they are good at and letting others handle the rest.

• Management and ownership are two different beasts. It takes talented experts, regardless of their ownership interests, to run successful organizations.

• Make business decisions based on data, not intuition. Understand how much every customer and very transaction is costing you. Build your pricing models around your costs and the added value you provide. If you are building pricing models simply around what your competitors are doing, you are a commodity.

• Look towards the future, not the past. Emulate the leaders in your industry. Harness the powers of technology to increase the scope of your message and decrease costs.

• Understand the defining characteristics of not just today’s customers, but tomorrow’s. Start now to position yourself to those customers as someone who “gets it.”

• And lastly, if Robert Irvine ever visits your office, at the very least make sure everything is clean!

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