We call them financial lemmings — those people who ring us for a free introductory consultation and then tell us they have a couple of million to invest and want to buy a hospitality business, but who have no experience whatsoever in the industry. We’ve had a procession of them over the last few years; they come, referred from a variety of sources, full of naiveté and misplaced optimism and seek professional advice but often seem quite reluctant to listen.
We usually start out by asking them why they want to enter the industry and what they want to get out of it. The answers can range from the astute to the totally bizarre.
Some people do their homework
The thorough ones have done their homework and have usually talked to a range of industry professionals before they come to us for specific assistance. We like dealing with them, but sadly, this group is a small minority — they can be realistic, objective and often quite disciplined in their approach and their behaviour. In the past they become some of our best long term clients and have delivered the satisfaction of a solid win/win relationship.
The greater majority come with quite unrealistic expectations — stuff like: ‘I want to buy a restaurant because they make a lot of money’. When questioned on their specific expectation for financial return, I get answers like: ‘Oh — I’ve been told they make around 30% profit, my mate Lorenzo owns one and he’s making a fortune,’ or ‘I want something small and intimate, around fifty seats would be nice, not fine dining, but, you know, white table cloths, good table settings and some really nice decor. We’ll get a bunch of good staff to run it and we’ll pop in now and then to see how things are going.’
I’m not kidding, it can get pretty weird at times. I find myself sitting there struggling to remain composed and stifling the desire to shake them like a terrier and yell: ‘GET REAL!’ Those who know me will tell you that tact is not one of my strong points and I have to struggle to remind myself to be as diplomatic as possible, but still deliver a strong message aimed at trying to get them to invest in something else.
I’ve come to understand that a lot of these people are running away from their previous occupation, and not necessarily running towards the hospitality industry. They often tell me how unfulfilled they feel in their current occupation and how that can’t wait to get into something stimulating and different. The common factor is that they see this industry as easy, glamorous, hedonistic and highly profitable.
The media has a lot to answer for
There’s often a pattern leading up to this — these people are often serious devotees of the cooking programs on TV and subscribers to all the glossy food and lifestyle magazines. They see the industry through rose coloured glasses and aspire to the rock star status they believe comes to those who put out a decent product. Their dreams often become emotional life jackets that sustain them in mundane jobs for years until they feel they’re ready to make the big break. By then they’re sometimes so emotionally driven they’re beyond redemption.
The problem for me is that these people come to us proposing to gamble with their entire life savings — risking everything chasing castles in the sky. What would you do if you had a person proposing financial suicide sitting opposite you expectantly waiting for you to congratulate them on their entrepreneurial spirit? I’ve never really worked out a good way to handle it.
Logic would suggest that I should just tell them the truth and leave it up to them — which is pretty much what I do — but this seldom seems to convince them or head them off, and I’d love to find a more effective way of dealing with them.
Warnings are commonly ignored
Despite my warnings they often go ahead and buy, or open a business that is doomed to failure right from the start. With monotonous regularity they seem to get ‘conned’ into paying large amounts for dud locations or unsustainable businesses, and I watch with disquiet as they battle for a period of time until the inevitable ‘for lease’ or ‘under new management’ sign goes up. In the worst cases, they lose their homes as a consequence of offering them as security against their borrowing.
I’ve always believed in a free market, but I’m starting to think there is an argument for some kind of licensing or regulatory system for hospitality operators that requires them to undergo certain training before they get the official go ahead to proceed. At least they could be officially ‘warned’ at the time and presented with the facts in a formal environment that I think would prove more persuasive than the unheeded warnings that people like myself are able to provide. Another suggestion is for the banks to insist that they have their plans reviewed by an industry professional before a loan is approved.
It’s in the interest of the whole industry to deter the unskilled operators from setting up shop; while they are open for business they dilute the available market for everyone. I also think the media should recognise their role in painting the industry with rose coloured glasses and present a more accurate, balanced picture to the public — but I suppose that’s being naive on my part — failure is not good news and is probably not good entertainment.