Why do you want to start a Restaurant?

Posted by fshsfhsfh on Tuesday, October 11, 2011

Why do you want to start a Restaurant? The “Why” question is really critical as all the next steps you will need to take and the decisions you will need to make, will be driven by the “Why”?

The “Why”?

What could possibly be some of the reasons you want to start a restaurant business?

  1. I am tired of sitting in front a computer all day along – I want to do something different. The restaurant business seems easy enough and attractive.
  2. I want to be an entrepreneur and create the next big brand/company.
  3. The food business in India is expected to grow significantly over the next several years and I want to ride the wave.
  4. It could be a “Recession Proof” business – as the food is a basic need and will never lose money
  5. It seems to be a very profitable business – most people I talk to tell me that I can recover my investment in 3 years (That turns out to be a 33% annual return on the investment – fascinating)
  6. I have a passion/strong interest in this business and want to be seen as a restauranteur.
  7. Other Reasons you may have

Reactions to the “Whys” 1 & 2.

  • I am tired of sitting in front a computer all day along – I want to do something different. The restaurant business seems easy enough and attractive.

The best way to convince yourself that sitting in front a computer all day along is absolutely worth the effort and the best possible option for you (Return on investment for the amount of work you will put in and the sacrifices you will make), then I would encourage you to quit your job and start a restaurant. You will find yourself running back to the same cubicle you came from, sooner than you can imagine, and this time, you will use Araldite or something even stronger to hold on to your job.

  • I want to be an entrepreneur and create the next big brand/company
I find the phrase “I want to be an entrepreneur” very confusing. If you have access to a lot (a few Crores of easy-to-get money – by this, I mean money that you can use to fuel your dreams) – could be your savings, could be from a rich father/father-in-law/wife etc. Essentially this will be money you can use at your will, without having to really tell anyone what you plan to do with the money. Now if your reason is to be an entrepreneur and try to create the next big/brand company, a restaurant business should feature in your evaluation.

If you are want to be a true blue entrepreneur (bootstrapping approach), then I believe there are better opportunities available – ones that are more Venture Capital friendly. With external investment your chances of building a large brand and a business is tremendously accelerated. Professional investors, who invest in start-ups, generally pick businesses where the founders already have some experience in the same business area. Plus they like IP (Intellectual Property) creating businesses, where scaling requires much lesser investment compared to the revenues/profits that can be generated.

I believe that the restaurant business fundamentally is NOT a Angel Fund/Venture Capital friendly business. Why?

Like I mentioned earlier, Angels Investors and VCs seem to like businesses that can create a product/solution/offering using the initial money they invest, that can then be scaled at a rate that is positively disproportional to any additional capital investment. For a restaurant business, even if your first unit is very successful, to grow, you would need a lot of capital again and again. If "x" is the investment for the first unit, to grow revenues by 100 times, you would need an investment of 100x (probably more if you need more money towards marketing/branding). VCs like businesses where if they invest “x” initially to create a product, then to grow revenues by 100x, they would probably need to invest 10x/20x, primarily towards sales, marketing and customer support. Having said this, there are quite a few restaurant businesses in India which have received VC funding so far. Plus with the market expected to grow significantly in the next few years, VCs may start getting more interested.

Reactions to reasons 3 to 7 to follow soon.

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