restaurant failure

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10.1177/0010880405275598 Why Restaurants Fail by H. G. PARSA, JOHN T. SELF, DAVID NJITE, and TIFFANY KING Past research on restaurant failures has focused mostly on quantitative factors and bankruptcy rates. This study explored restaurant ownership turnover rates using qualitative data, longitudinal data (1996- 1999), and data from Dun and Bradstreet reports. In contrast to frequently repeated statistics, a relatively modest 26.16 percent of independent restaurants failed during the first year of operation. Results from this study indicated marginal differences in restaurant failures between franchise chains (57.2 percent) and independent operators (61.4 percent). Restaurant density and ownership turnover were strongly corre- lated (.9919). A qualitative analysis indicated that effective management of family life cycle and quality- of-life issues is more important than previously believed in the growth and development of a restaurant. Keywords: restaurant failure; dinner-house opera- tion; entrepreneurship; restaurant bankruptcy I suffered from mission drift. When things didn’t work, I would try something else, and eventually there was no “con- cept” anymore. A failed restaurateur The restaurant industry and its analysts have long pondered the enigmatic question of why restaurants fail. Restaurant failures have been attributed to eco- nomic and social factors, to competition and legal restrictions, and even to government intervention. In the current complex environment of the restaurant business, we believe that it is imperative that prospec- tive and current owners understand why restaurants fail (see Sidebar 1). Most hospitality research has focused on the rela- tive financial performance of existing restaurants instead of examining the basic nature of restaurant fail- ures, and most of these studies considered only bank- ruptcy reports. 1 Most bankruptcy studies are limited in their scope, however, because many restaurant clo- sures result from change-of-ownership actions, rather than bankruptcies. These change-of-ownership trans- actions are treated as legal matters instead of actual bankruptcy procedures and may not be included in public records. Furthermore, because the focus of aca- demic research has remained primarily on bankruptcy studies, the qualitative aspects of business failures have received little attention. In writing this article, we hope to determine the underlying factors that determine the viability of a restaurant. Types of Restaurant Failures Restaurant failures can be studied from economic, marketing, and managerial perspectives. Of these three perspectives, we observe that restaurant failures have been studied primarily from the economic perspective. 2 304 Cornell Hotel and Restaurant Administration Quarterly AUGUST 2005 © 2005 CORNELL UNIVERSITY DOI: 10.1177/0010880405275598 Volume 46, Number 3 304-322

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Page 1: Restaurant Failure

10.1177/0010880405275598

Why Restaurants Failby H. G. PARSA, JOHN T. SELF, DAVID NJITE, and TIFFANY KING

Past research on restaurant failures has focusedmostly on quantitative factors and bankruptcy rates.This study explored restaurant ownership turnoverrates using qualitative data, longitudinal data (1996-1999), and data from Dun and Bradstreet reports. Incontrast to frequently repeated statistics, a relativelymodest 26.16 percent of independent restaurantsfailed during the first year of operation. Results fromthis study indicated marginal differences in restaurantfailures between franchise chains (57.2 percent) andindependent operators (61.4 percent). Restaurantdensity and ownership turnover were strongly corre-lated (.9919). A qualitative analysis indicated thateffective management of family life cycle and quality-of-life issues is more important than previouslybelieved in the growth and development of arestaurant.

Keywords: restaurant failure; dinner-house opera-tion; entrepreneurship; restaurantbankruptcy

I suffered from mission drift. When things didn’t work, Iwould try something else, and eventually there was no “con-cept” anymore.

—A failed restaurateur

The restaurant industry and its analysts have longpondered the enigmatic question of why restaurantsfail. Restaurant failures have been attributed to eco-

nomic and social factors, to competition and legalrestrictions, and even to government intervention. Inthe current complex environment of the restaurantbusiness, we believe that it is imperative that prospec-tive and current owners understand why restaurantsfail (see Sidebar 1).

Most hospitality research has focused on the rela-tive financial performance of existing restaurantsinstead of examining the basic nature of restaurant fail-ures, and most of these studies considered only bank-ruptcy reports.1 Most bankruptcy studies are limited intheir scope, however, because many restaurant clo-sures result from change-of-ownership actions, ratherthan bankruptcies. These change-of-ownership trans-actions are treated as legal matters instead of actualbankruptcy procedures and may not be included inpublic records. Furthermore, because the focus of aca-demic research has remained primarily on bankruptcystudies, the qualitative aspects of business failureshave received little attention. In writing this article, wehope to determine the underlying factors thatdetermine the viability of a restaurant.

Types of Restaurant FailuresRestaurant failures can be studied from economic,

marketing, and managerial perspectives. Of these threeperspectives, we observe that restaurant failures havebeen studied primarily from the economic perspective.2

304 Cornell Hotel and Restaurant Administration Quarterly AUGUST 2005

© 2005 CORNELL UNIVERSITYDOI: 10.1177/0010880405275598Volume 46, Number 3 304-322

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Economic perspective. This categoryincludes restaurants that failed for eco-nomic reasons such as decreased profitsfrom diminished revenues; depressedprofits resulting from poor controls; andvoluntary and involuntary bankruptcies,involving foreclosures, takeover by credi-tors, receiverships, or frozen assets fornonpayment of receipts.3

Marketing perspective. This categoryconsists of restaurants that cease to operateat a specified location for marketing rea-sons, such as a deliberate strategic choiceof repositioning, adapting to changingdemographics, accommodating the unre-alized demand for new services and prod-ucts, market consolidation to gain marketshare in selected regions, and realignmentof the product portfolio that requiresselected unit closures.4

Managerial perspective. This categoryconsists of restaurant failures that are theresult of managerial limitations andincompetence. Examples of this groupinclude loss of motivation by owners;management or owner burnout as a resultof stress arising from operational prob-lems; issues and concerns of humanresources; changes in the personal life ofthe manager or owner; changes in thestages of the manager or owner’s personallife cycle; and legal, technological, andenvironmental changes that demand oper-ational modifications.5

Definitions ofRestaurant Failure

Complicating the analysis, we couldfind no universal definition of restaurantfailure, despite the fact that the way a busi-ness’s failure is defined can greatly alterthe failure rate. Studies that use a narrowdefinition of failure, such as bankruptcy,necessarily have the lowest failure rates,

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WHY RESTAURANTS FAIL MANAGEMENT

The Myth of the Restaurant Failure Rate

In summer 2003, the NBC television network broadcast a pro-gram titled Restaurant: A Reality Show. Among other occur-rences on this show, an advertisement by American Expressclaimed, “90 percent of restaurants fail during the first year ofoperation.” To verify the possibility of 90 percent first-year fail-ure, we conducted several spreadsheet simulations. The sim-ulations were based on assumptions that roughly parallel thestudy in the accompanying article: fifteen hundred restau-rants in the market; new-business failures during the firstyear, 90 percent (the American Express figure); average indus-try turnover of 10 percent per year (similar to our study’s 1999finding); number of new restaurants opening per year, 15 per-cent; and average market growth rate, 3 to 4 percent per year(a national average as reported by the National RestaurantAssociation). In the second series of simulations, we replacedthe 90 percent first-year failure rate with a 30 percent rate,drawn from our study (see the accompanying exhibit).

Comparing those two calculations over a twenty-year period,we concluded that if 90 percent of restaurants actually failedduring their first year of operation, we would see fewer restau-rants at the end of each year, a finding that is contrary to theobserved reality in the restaurant industry. In addition, when90 percent failure was inserted in the equation, simulationsindicated that, in twenty years, the market would shrink from1,500 units to 254 units, or a loss of 84 percent of the existingrestaurants. Taking that simulation to its inevitable conclu-sion, no restaurants would remain in about ninety-four years.These results are practically impossible under normal condi-tions and run contrary to the National Restaurant Associa-tion’s observed 3 to 4 percent growth rate (www.restaurant.org).

On the other hand, the 30 percent failure rate resulted in themarket’s growing by 219 percent, to 3,287 units, a more realis-tic number. We conclude, therefore, that the reported 90 per-cent restaurant failure rate is a myth. These results arestrongly supported by the outcomes of economic data simula-tions reported by the Sydney and many other academicresearch studies showing that restaurant failure during thefirst year of operations is about 30.0 percent. Indeed, whenAmerican Express was asked for its data, it stated in writingthat it could not provide data supporting the 90 percent failureassertion it made.—H.G.P. and J.T.S.

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while studies that use a broad definition,such as change of ownership, show thehighest failure rates. The definition cho-sen is usually dictated by the data that theresearcher has available, with each defini-tion subject to its own inherent advantagesand disadvantages.

Because no reports are required when abusiness closes, gathering such datainvolves subjective approaches. Anadvantage of bankruptcy as the definitionof failure, for instance, is the relative easeof obtaining data. The disadvantage ofbankruptcy data, however, is its narrownature. Restaurants that close for any otherreason would simply not be included—even for a financial reason, such as failingto achieve a reasonable income for itsowners or investors.6 On the other end ofthe spectrum, the change-of-ownershipdefinition or “turnover rate” includes all

types of business closures. Consequently,turnover rates are much higher than bank-ruptcy failure rates, regardless of whetherthe turnover was due to the owner’s retire-ment or due to a change of ownership,such as when a sole proprietorship adds apartner.

Organizational Life CycleAs with all business organizations, res-

taurants follow certain stages in a lifecycle.7 At any point along these life-cyclestages, a business can suffer setbacks cata-strophic enough to lead to failure.Throughout the life cycle, the first stagesare the most vulnerable, which is why thehighest proportion of businesses that closeare relatively new.8 This “liability of new-ness” has linked organizational adoles-cence to increased organizational mortal-ity rates.9 One reason for early failure isthat new businesses typically have limitedresources that would allow them to beflexible or adapt to changing conditions.10

Following that logic, it is believed thatthe longer a company is in business, theless likely it is to fail. Prior research hasfound that as each year of survival goes by,the failure rate is likely to go down, and bythe fourth, fifth, and sixth years, only amodest, but steady, number fail each year.After seven years, the propensity for fail-ure drops dramatically.11

Competitive Environment

The environment in which the restau-rant operates helps to determine its suc-cess or failure. Some attributes of the com-petitive environment that can influence arestaurant’s failure are the business’sphysical location, its speed of growth, andhow it differentiates itself from other res-taurants in the market. In addition to theproblem of having less cash to handle

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MANAGEMENT WHY RESTAURANTS FAIL

Comparison of First Year Restaurant Failures:Myth (90%) Vs Reality (30%)

Num

3500

3000

ber

2500

2000

1500ofUnits

1000

500

01 2 3 4 5 6 7 8 9 1011121314151617181920

Number of Years30% First Year Restaurant Failure Rate90% First Year Restaurant Failure Rate

SIDEBAR 1 EXHIBITRestaurant Failure Simulation: 90 Percent versus 30 Percent

Note: The figure shows the number of restaurants in a hypothetical market under the assumption that 90 per-cent fail in the first year (bottom line) or that 30 percent fail in the first year (top line). Other assumptionsreflect national averages and findings of the accompanying study, as follows: average annual industry turn-over, 10 percent per year; number of new restaurants opening, 15 percent per year; and average marketgrowth rate, 3 to 4 percent per year.

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immediate situations, operators of newrestaurants are often unable to managerapid growth or changes, lack experiencein adapting to environmental turbulence,and usually show inadequate planning.12

An additional failure factor for independ-ent restaurateurs is the ability of chain res-taurants, with their economies of scale, tooutspend the independents to gain greatermarket share.

Firm Size

In addition to the age of the firm,research has found a correlation betweensize and survival. In this regard, the largerfirms are more likely to remain in businessthan small operations.13 Richardson statedthat “both suppliers and bankers are preju-diced against smaller firms. They tend totake longer to act against a slow-paying . . .large enterprise than they do against asmaller firm, because they equate bignesswith safety and security.”14 That said,small firms tend to be positioned forgrowth, but if that growth occurs too rap-idly, a restaurant’s propensity to fail actu-ally increases because of the ensuingfinancial stresses.15 These financialstresses include a high cost of goods sold,debt, and relatively small profit margins.16

Blue, Cheatham, and Rushing discussedhow, at each stage of expansion, there isincreased financial risk for a small opera-tion, which increases the likelihood offailure.17

Restaurant Density

A restaurant’s location in its market andits ability to differentiate itself from itscompetition also help determine whetherit will survive.18 While a restaurant canbenefit from close proximity to competi-tion and restaurants are often located inclusters to attract more traffic, as in a “res-

taurant row,” an operation could find itselfin a cluster of restaurants within which itcannot compete effectively. In that regard,a restaurant’s inability to differentiateitself from its competition can be fatal.The restaurant’s reaction to competitivepressures from excess density depends inpart on the nature of its ownership.

External Factors

External environments can change rap-idly and companies may not be able tochange accordingly.19 Knowing the natureof one’s market is of primary importanceto success. Many restaurants fail each yearfrom an inability to understand, adapt to,or anticipate market trends, especiallygiven that some market trends are moredifficult to foresee than others. Forinstance, many restaurateurs must havebeen shocked by the wild popularity of theAtkins-inspired low-carbohydrate diet,followed almost as suddenly by its appar-ent abandonment by many customers. Toprovide the products desired as marketpreferences shift, operations must trustand have working relationships with theirsuppliers. Because the resources neces-sary for business survival come from theexternal environment, this relationship isimportant in explaining restaurant failure.O’Neill and Duker found that government-related policies affect business failures.20

Along that line, Edmunds pointed to theheavy burden of taxation and regulation ascontributing to increased business-failurerates.21

Jogaratnam, Tse, and Olsen suggestedthat successful independent restaurantowners must develop strategies thatenable them to continuously adapt to thechanging environment and find ways to“link with, respond to, integrate with, orexploit environmental opportunities.”22

Typically, external environmental factors

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affect a segment of the industry broadly,rather than hit any single brand, for exam-ple, when a seafood shortage causes prob-lems for all seafood restaurants or highprices for beef hurt hamburger and steak-house segments. Consequently, the rate ofrestaurant ownership turnover may differacross different restaurant segments.

Internal Factors

Management capabilities are of pri-mary concern in preventing restaurantfailure. Haswell and Holmes reported“managerial inadequacy, incompetence,inefficiency, and inexperience to be aconsistent theme [in] explaining small-business failures.”23 Poor management canbe connected to “poor financial condi-tions, inadequate accounting records, lim-ited access to necessary information, andlack of good managerial advice.”24 Otherinternal factors affecting failure rates ofrestaurants include poor product, internalrelationships, financial volatility, organi-zational culture, internal and externalmarketing, and the physical structure andorganization of the business. Managers’“inability to manage rapid growth andchange” can lead to business failure, con-cluded Hambrick and Crozier.25 Sharlitwrote, “The root causes of many businessproblems and failures lie in the executives’own personality traits,”26 while Sull com-mented that managers may suffer from“active inertia.”27

Makridakis believes that corporationsfail due to “organizational arteriosclero-sis,” overutilization or underutilization ofnew technology, poor judgment in risktaking, overextending resources and capa-bilities, being overly optimistic, ignoringor underestimating competition, beingpreoccupied with the short term, believingin quick fixes, relying on barriers to entry,

and overreacting to problems.28 West andOlsen determined five strategic factorsused to determine the grand strategy of afirm. The management or owner’s strate-gic positioning has a strong influence on abusiness’s success.29 In agreement, Leestated, “The most important criterion forsuccess . . . is management. Managers . . .direct the marketing, oversee productquality and standardization, and decidewhen and how to adapt.”30

Studying FailureWe investigated restaurant failure using

qualitative and quantitative methods intwo independent steps. Step I consists offindings from quantitative assessment ofrestaurant failures using longitudinaldata from 1996 to 1999; step II revealsfindings from qualitative investigation ofmanagerial perceptions and views ofrestaurateurs.

Step I: QuantitativeInvestigation—A Success-Filled Industry

Step I of our study involved the analysisof restaurant ownership turnover datafrom 1996 through 1999. The data werecollected with the help of the healthdepartment of Columbus, Ohio, a majormetropolitan area in the MidwesternUnited States.

Most of the earlier studies assessing res-taurant failure have used either telephone-directory business listings or bankruptcydata. To overcome the incomplete natureof data from bankruptcy filings and tele-phone directories, our study used data on2,439 operating-license permits from theColumbus health department. (Weremoved from the data set the licenses forother food-service facilities, such asdaycare centers, hospitals, and grocerystores, to achieve our total N of 2,439.)

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Not only must every restaurateur renewthe health permit annually, but any changein the restaurant’s legal ownershiprequires a new permit.

The health department ascribes to eachrestaurant location a specific identifica-tion number. This ID is a permanent num-ber that does not change with a change inownership. Similarly, each restaurantowner has a specific identification num-ber. A comparison of the ownership andlocation ID numbers reveals any change inrestaurant ownership, as well as providinginformation regarding multiple locationsoperated by the same owner.

Diminishing Failure Levels

Restaurant ownership turnover rate wascalculated for one-, two- and three-yearperiods from 1996 through 1999. Failure

rates declined for each year, with the high-est failure rate noted during the first year(26.16 percent) followed by the second(19.23 percent) and the third year (14.35percent) (see Exhibits 1 and 2). Likewise,the highest restaurant ownership turnoveroccurred during the first year. Theseresults are consistent with several otherstudies.31 In his 2004 study of 24,000 res-taurants in the Los Angeles area, forinstance, John Self reported a first-yearfailure rate of 24.3 percent and a three-year cumulative rate of 50.9 percent for1999 through 2002.32

The three-year cumulative restaurant-failure rate for franchised chains was57.22 percent, while it was 61.36 percentfor independent restaurants (Exhibit 3).This difference is statistically significant(p < .05). The failure rate is slightly higherfor independent restaurants (4.14 percent-

AUGUST 2005 Cornell Hotel and Restaurant Administration Quarterly 309

WHY RESTAURANTS FAIL MANAGEMENT

Exhibit 1:Restaurant Ownership Turnover (ROT) in the Test Market, 1996-1999

Year Year Year InOne Two Three Business Total

Total ROT 638 1,107 1,457 982 2,439ROT percentage per year 26.16 19.23 14.35 40.26 100Cumulative percentage 26.16 45.39 59.74

Number of independentrestaurants failed 408 699 910 573 1,483ROT percentage 27.51 19.62 14.23 38.64 100Cumulative percentage 27.51 47.13 61.36

Number of chain restaurantsfailed 230 408 547 409 956ROT percentage 24.06 18.62 14.54 42.78 100Cumulative percentage 24.06 42.68 57.22

Ratio of independent to chainrestaurants 1.77 1.71 2.22 1.40 1.55

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age points) than for chains. Again theseresults are consistent with earlier studies.

The descriptive statistics indicated thatmost independent restaurateurs ownedtwo or fewer units, and by definition, all

franchise restaurants had a minimum ofthree units. Thus, one of the major differ-ences between franchised and independ-ent restaurants was the size of ownershipmeasured in number of units. The

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26.16%

19.23%14.35%

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%

Year 1 Year 2 Year 3

Years

Exhibit 2:Restaurant Business Failures per Year, 1996-1999

59.74%

26.16%

45.39%

0.00%10.00%20.00%30.00%40.00%50.00%60.00%

Year 1 Year 2 Year 3Years

Exhibit 3:Cumulative Percentage of Restaurant Business Failures, 1996-1999

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obtained higher restaurant ownershipturnover rate (61.4 percent) among theindependent restaurants as compared tothe franchises (57.2 percent) indicatedthat small firms had higher ownershipturnover rates than did the large firms.

The density of restaurants was mea-sured using U.S. Postal Service ZIP codedata. ZIP codes in the metropolitan areawere ranked according to restaurant con-centration per ZIP code, which closelyreflects population density. The data werethen compared with the restaurant owner-ship turnover rate in the correspondingZIP codes. Results indicated that the res-taurant failure rate is highest in the ZIPcode areas where restaurant concentrationis also the highest (see Exhibit 4).

In addition, the restaurant ownershipturnover rate was also calculated acrossvarious segments of the restaurant indus-try by the type of food served. For thethree years of our study, Mexican restau-rants reported the highest three-yearcumulative ownership turnover rate (86.8percent), followed by sub shops and bak-

eries, coffee shops, and pizza restaurants.Cafeterias and seafood restaurants had thelowest cumulative ownership turnover ratefor the three-year period (see Exhibit 5).

Implications

We see the following implications fromthis portion of our study:

1. Contrary to the oft-repeated myth that 90percent of restaurants fail in their first year,we note a failure rate closer to 26 percent—and the cumulative failure rate neverexceeded 60 percent in the three years westudied.

2. Failure rates were notably higher for small,independent operations than they were forrelatively large, franchised restaurants.Thus, we suggest that the financial commu-nity make itself aware that the restaurantindustry comprises different segments withvarying levels of failure rates and, thus, dif-ferent levels of risk.

3. In that regard, the banking communitycould consider lower interest rates for allrestaurants and particularly for those ven-tures that are statistically more likely to suc-ceed. Purported high business failures haveoften resulted in high interest rates for res-taurateurs. In addition to gaining more

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Exhibit 4:Top Ten U.S. Postal ZIP Codes in the Test Market by Restaurant Density and Res-taurant Ownership Turnover (ROT), 1996-1999

Restaurant Number ofDensity Percentage Failures in Percentage

ZIP Code by ZIP Codea Density Three Years Failure

43215 315 22.69 193 23.0343229 241 17.36 146 17.4243201 181 13.04 103 12.2943232 108 7.78 63 7.5243235 111 7.99 59 7.0443228 87 6.27 57 6.8043204 87 6.27 56 6.6843214 85 6.12 54 6.4443207 98 7.06 54 6.4443219 75 5.40 53 6.32

a. Total number of restaurants per ZIP code.

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favorable terms from the banking commu-nity, restaurateurs should also be able togain better rates when borrowing from thefederal agencies such as the Small BusinessAdministration and state and local eco-nomic agencies. Moreover, although restau-rants (i.e., eating and drinking places)topped the list of failed businesses in the1996 records from Dun and BradstreetBankruptcy Reports, several other busi-nesses were much higher when one consid-ers the loss per failed unit, as shown inExhibit 6.

This study may also help spread a morepositive image of the restaurant industryin the financial community, thus encour-aging more capital investments in restau-rants and casting the restaurant industry ina more positive light compared to otherretail endeavors.

4. Given that an overconcentration of restau-rants may lead to more failures, city plan-ners should undertake identification of anoptimum point for restaurant saturation.

5. These findings clearly demonstrate thateven though restaurant failures may be highin pure numbers, they do not leave much

financial burden on the local community,unlike failures in many other industries.Thus, city or town planners may want toconsider these positive aspects while evalu-ating local grants, tax rebates, and zoningrestrictions.

Step II: QualitativeInvestigation

It became increasingly difficult to balancethe demands of operating the business withthe needs of the family. I decided it was bestto move on.

—Don Braddy, Fort Collins, Colorado33

We supplemented our quantitativeanalysis with qualitative study to allow usto analyze relationships between eventsand external factors more effectively thanquantitative procedures (see the illustra-tion in Sidebar 2).34 Qualitative data wereobtained by interviewing twenty success-ful full-service restaurant operators whohad been in business for at least five yearsand twenty failed restaurant operatorswho once ran a full-service restaurant andare no longer in business. Five years of

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Exhibit 5:Cumulative Restaurant Ownership Turnover Percentage by Restaurant Segment,1996-1999

Restaurant Segment Cumulative Three-Year Turnover Percentage

Mexican 86.81Subs and bakeries 76.69Coffee and snacks 70.00Pizza 61.25Chicken 57.88Casual dining 53.13Asian 51.43Family dining 45.00Steak 42.86Buffets and cafeterias 38.46Italian 35.29Burgers 33.70Seafood 33.33

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continuous operations was suggested bythe local restaurant association as a mea-sure of success in the restaurant business.Restaurant owners whom we interviewedwere screened to be independent opera-tors (not franchisees). This is a conve-nience sample, composed using contactsand local business people. While this isnot a random sample, the purpose of ourinterviews was to elicit and explain diffi-cult to assess ideas and phenomena associ-ated with restaurant success and failure.35

A tested questionnaire was used for all theinterviews. The obtained qualitative datawere reviewed and coded by twoindependent researchers.

The qualitative study proceeded in twophases. First, as part of master’s project, agraduate student interviewed five success-ful and five failed restaurant owners. Inthis phase, interview participants werelimited to those from full-service restau-rants in the casual- and fine-dining seg-ment to reduce group variation. It isbelieved that different factors may affectdifferent segments of the restaurant busi-nesses; therefore, for the purposes of thisinitial study, it was important to look atonly one segment of the restaurant indus-try. Based on the experiences from the ini-tial interviews, the instrument was modi-fied slightly to decrease the length of thequestionnaire.

Subsequently, we interviewed fifteenmore currently operating restaurateursand fifteen more restaurateurs who are nolonger in the restaurant business. Theinterviewees who no longer own restau-rants were restaurant managers who areworking for other companies after closingtheir restaurant businesses and ex-restau-rateurs who are no longer in the food-ser-vice business. Selected students from anundergraduate hospitality marketing classtook part in this data collection during Jan-

uary, February, and March 2004, typicallya slow time for restaurants. Each researchteam, consisting of two students, inter-viewed one successful owner and onefailed owner in interviews that lasted fromsixty to ninety minutes. As one studentasked questions, the other student tookinterview notes. Most of the successful-operator interviews took place in the res-taurants. In the case of failed restaurants,some of the interviews were conducted bytelephone, as the owners had moved out ofstate.

We surveyed independent restaurantowners because their success or failurerests more directly on their own decisionmaking (as compared to franchise owners)and because of independent restaurants’relatively high failure rates.36 Franchise-restaurant failure may have causes that arespecific to the franchise system and may

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It Is the Milkshake, Stupid!

Cameron Mitchell is a multiunit, multiconcept restaurant oper-ator. One day Mitchell took his family to a full-service restau-rant to treat his son on his birthday. When the birthday boyasked for a chocolate shake, the waiter replied that the restau-rant could not make milkshakes. As an experienced operatorand a graduate of the Culinary Institute of America, Mitchellbecame furious. “Do you have milk? Do you have chocolate icecream? Do you have a blender?,” he asked. “Well, you canmake a chocolate milkshake.” The server went back to thekitchen and talked to the manager, but the answer was thesame: no milkshake. About a week later, one of the people whohad heard Mitchell tell this story told him that the exact samething had happened to him—at one of Mitchell’s own restau-rants. Since then, Mitchell has made sure that every newemployee gets a milkshake and hears that story on his or herfirst day of training. “We want our people to have the attitude,‘The answer is yes. What’s the question?”’ he says.

Source: Barnet D. Wolf, “Cameron: Now, Most Likely to Succeed,” Columbus Dispatch,October 26, 2003; and www.cameronmitchell.com.

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not be in the control of the local operator.The questionnaire that the students usedconsisted of various topics, includingoperations, leadership, and marketing.The investigation also included explora-tion of quality-of-life issues and theirimpact on the restaurateurs’ businessdecisions.

We decided to interview the owners andformer owners so that we could obtaindetails about the beginning of the opera-tion, including choice of location, conceptdevelopment, and culture, which manag-ers might not know. We also hoped to findfactors in owners’ family life cycles, theirpersonal value systems, and their percep-tions of the industry and the environmentthat determined their business decisionsand, ultimately, their survival or failure.By comparing the views of current opera-tors with those of failed operators, wehoped to establish the factors contributingto restaurant failure and success.37

Concept over Strategy

Perhaps the key finding was that a suc-cessful restaurant requires focus on a clearconcept that drives all activities. In thisfinding, concept is distinct from strategy.A remarkable outcome of the interviews isthat we found few differences in having awell-defined strategy between successfuland failed restaurant owners but consider-able differences in clarity of concept. Infact, some of the most successful manag-ers did not have a well-defined strategy(they “adapted and changed along the wayas needed”)—and some of the failed res-taurateurs had elaborate strategic plans.Beyond muddled concepts, failureseemed to stem in large part from aninability or unwillingness to give the busi-ness sufficient attention, whether due to alack of time, passion, or knowledge. Suc-cessful restaurateurs attributed their suc-cess to their ability to concurrently man-

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Exhibit 6:Ranking of Top Twelve Retail Businesses by Number of Business Failures and Total Financial Liabilities

Total Number of Total Industry Liability perIndustry Name Failures (1996) Rank Liability (1996) Rank Failed Unit Rank

Eating and drinking places 3,901 1 $550,268,532 3 $141,058 11Furniture and home furnishings 1,437 2 $1,464,289,154 1 $1,018,990 1Food stores 1,210 3 $415,586,659 4 $343,460 7Apparel and accessory stores 1,194 4 $1,197,880,414 2 $1,003,250 2Other retail stores 1,164 5 $120,880,116 10 $103,849 12Automotive dealers andservice stations 1,061 6 $172,979,289 7 $163,034 10

Nonstore retailers 604 7 $130,446,603 9 $215,971 8Gift, novelty, and souvenir shops 547 8 $91,898,049 12 $168,004 9Building materials andgarden supplies 541 9 $311,799,779 5 $576,340 4

Sporting goods and bicycle shops 433 10 $162,116,636 8 $374,403 6Jewelry stores 193 11 $110,197,501 11 $570,972 5General merchandise stores 190 12 $189,509,276 6 $997,417 3Total retail trade 13,476 $5,060,452,369 $375,516

Source: Dun and Bradstreet Bankruptcy Reports. See http://www.dnb.com/us/.

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age the family life cycle and the businesscycle. In contrast, most of the failed res-taurateurs attributed their failure partly tofamily demands (e.g., divorce, ill health,retirement). Family sacrifice was men-tioned by both successful and failed own-ers, but the successful owners were eithergood at balancing their family and worklives or they were not married. On theother hand, five of the failed owners saidthat they closed when they were no longerwilling to make those family sacrifices.This outcome is consistent with the resultsreported by Ghiselli, La Lopa, and Bai intheir study on quality of life issues withrestaurant managers.38

Most successful owners attributed theirsuccess to their marketing savvy (espe-cially relationship marketing), whereasthe failed owners often blamed their fail-ure on competitors’ intensive marketingactivities. Thus, it is clear that knowledgeof marketing functions is essential for suc-cessful operation of restaurants.

Successful owners had a passion forbusiness and high energy levels, whereasthe failed restaurateurs lacked the highenergy levels necessary to motivate them-selves and their employees—symptom-atic of the “burnout” stage of one’s career.At some point during the interview, eachof the failed restaurant owners mentionedthe burden of the immense time commit-ment required for a restaurant.

Critical factors contributing to a restau-rant’s success were food quality and thecharacteristics of the owner-manager,including knowledge, drive, skills, deter-mination, and passion. Another criticalfactor discussed was the staff, includingemployees’ training, personality, anddiversity. Capital and financial manage-ment were important, as were location anda well-defined concept. These factorsmostly stem from the owner’s own person-

ality traits, relationships with customersand staff, and dedication to providing aquality product.

The critical factors cited by failed res-taurateurs as contributing to their restau-rants’failure were owner-manager charac-teristics, including attitudes, expectations,control, knowledge, skills, and ambition.Other top factors include the already men-tioned demand of labor and time; poorfood-quality controls or low perceivedvalue; being undercapitalized or havingpoor financial management; and the qual-ity of employees and service, includingthe amount of turnover. Having an ill-defined concept was also listed as a largecontributor to restaurant failure.

Interestingly, successful restaurantowners all had a well-defined concept thatnot only provided a food product but alsoincluded an operating philosophy, whichencompassed business operations as wellas employee and customer relations.Failed restaurant owners, when askedabout their concept, discussed only theirfood product. They would state that theirconcept was “vegetarian food,” or “Alas-kan seafood.” They all offered high-qualityfoods, but that did not make them success-ful. Although food quality was discussedas being critical to restaurant success, it isobvious from the interviews that foodquality does not guarantee success; theconcept must be defined beyond the typeof food served.

We found no example in our sample ofa restaurant closing due to external forces.In contrast to earlier research, we do notconclude that external forces necessarilypredict success or failure. It appears thatexternal factors may not automaticallylead to failure if they are properly man-aged. One could argue that external forcesgenerally affect all restaurants similarly,somewhat like the weather in a given geo-

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graphic area. It is the individual’s prepara-tion or lack thereof that makes the differ-ence in the severity of the impact.Similarly, it is the restaurateur’s responsi-bility to prepare for impending external“weather” conditions.

This study also called into question thecommonly held belief that restaurant via-bility is determined by the amount of capi-tal investment. Although sufficient financ-ing was cited as critical to restaurantsuccess by most of the participants inter-viewed, some of the most successful res-taurant owners started their operationswith less than $100,000 in capital. Thisindicates that ongoing financial manage-ment may be a better predictor of restau-rant viability than capital investment. Tounderscore these findings, the internalenvironment was determined to be themost critical factor contributing to restau-rant viability, with the owner’s character-istics and goals serving as the guidingforce.

Implications for Restaurant Owners

Regardless of the size or organizationof a restaurant operation, the followingimplications seem clear from our inter-views. We have summarized the manyforces that bear on restaurant success orfailure in the model in Exhibit 7, and wediscuss those factors in Sidebar 3.

1. A well-defined business concept is essentialto success. Successful owners coulddescribe their concept during our inter-views, whereas failed owners could onlydescribe the food and could not expand theirdescription of concept beyond food produc-tion: “I suffered from mission drift. Whenthings didn’t work, I would try somethingelse, and eventually there was no ‘concept’anymore.” “A restaurant can close if it losesits focus and if it tries to be too many thingsto too many people by offering more than itcan successfully implement.”

2. The organizational life cycle depends on thefamily life cycle. Most owners mentionedhow their family situation drove their deci-sion to grow, change, or leave the business:“Family and spousal support is essential forthe success of a restaurant.” Family supportgoes beyond that of the owner. It means rec-ognizing that your employees have familiesalso. On New Year’s Eve 1999, when mostrestaurants stayed open past midnight tak-ing advantage of the millennium celebra-tions, one restaurateur whom we inter-viewed closed the doors at 5:00 p.m. so thatthe employees could go home and spendtime with their families.

3. It is no surprise to find that location isimportant to restaurant success, but onlyone (failed) owner mentioned location asbeing a contributor to his restaurant’s fail-ure. This particular restaurant was locatedupstairs on a busy street near a hospital.There was no parking nearby, and so cus-tomers had to walk from the hospital.Though the restaurant was initially success-ful, it attracted only walk-in customers.That example notwithstanding, the consen-sus was that a poor location can be over-come by a great product and operation, but agood location cannot overcome bad productor operation.

4. Growth requires extensive prior planning.One of the failed restaurateurs expanded hisunit’s operations until the restaurantbecame unmanageable.

5. Although they were not mentioned specifi-cally as contributing to failure, family pres-sures and sacrifices, as well as the sacrificesmade by family members for the owners tohave their restaurants, were often men-tioned by both failed and successful owners.The successful owners were single,divorced, or good at balancing their familyand work lives. The failed owners were nolonger willing to make those family sacri-fices. To reiterate our point above, theimmense time commitment required wasmentioned by all of the failed restaurantowners. One of the failed owners felt theguilt of being unable to be with her childrenwhile they were growing up. So she sold theoperation.

6. Although a clear concept is essential, hav-ing a well-defined strategy was not found tobe critical to a restaurant’s success. Some ofthe restaurant owners who had been extraor-dinarily successful were “going with theflow,” while some owners failed despitewell-defined strategies. The lesson in this

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Elements of Restaurant Success and Failure

Elements of Success:

1. Have a distinctive concept that has been well researched.2. Ensure that all decisions make long-term economic sense.3. Adapt desirable technologies, especially for record keeping and tracking customers.4. Educate managers through continuing education at trade shows and workshops. An environment that

fosters professional growth has better productivity.5. Effectively and regularly communicate values and objectives to employees. In one instance, new own-

ers credited communication of their values and objectives to their employees as a major element in thesuccessful repositioning of their restaurant to better meet the needs of the growing neighborhood busi-nesses by adding lunch to their dinner-only concept.

6. Maintain a clear vision, mission, and operation strategies, but be willing to amend strategies as the sit-uation changes.

7. Create a cost-conscious culture, which includes stringent record keeping.8. Focus on one concentrated theme and develop it well.9. Be willing to make a substantial time commitment both to the restaurant and to family. One successful

owner refused to expand his business into lunch periods because he believed that his full-service din-ner house was demanding enough from his family.

10. Create and build a positive organization culture through consistent management.11. Maintain managerial flexibility.12. Choose the location carefully, although having a good location seems to be more a moderating vari-

able than a mediating (causal) variable in restaurant viability.

Elements of Failure:

1. Lack of documented strategy; only informal or oral communication of mission and vision; lack oforganizational culture fostering success characteristics.

2. Inability or unwillingness to establish and formalize operational standards; seat-of-the-pantsmanagement.

3. Frequent critical incidents; managing operations by “putting out fires” appears to be a commonpractice.

4. Focusing on one aspect of the business at the expense of the others.5. Poor choice of location.6. Lack of match between restaurant concept and location. A night club failed, for instance, because it

opened across the street from a police station. The owners thought that the police station would be adeterrent for potential criminal elements and bar fights, but unfortunately it was also a deterrent forcustomers, who were afraid of police scrutiny and potential DUI tickets. The club was closed withineighteen months.

7. Lack of sufficient start-up capital or operational capital.8. Lack of business experience or knowledge of restaurant operations. The owners of a successful night

club expanded their business by investing more than $1.5 million in renovating an old bank buildingfor a fine-dining restaurant. With no knowledge of restaurant operations, they opened the restaurantwith zero marketing budget as they relied primarily on free publicity and word of mouth. In less thanone year, the restaurant was closed, with more than $5 million in debt. The owners tried to salvage thebusiness by converting it into a night club, but with no success.

9. Poor communication with consumers. One restaurant failed to take off after a major renovationbecause the owners did not communicate to their clientele their reason for closing or their timetablefor reopening. Their customers were long gone by the time they reopened.

10. Negative consumer perception of value; price and product must match.11. Inability to maintain operational standards, leading to too many service gaps. Poor sanitary standards

are almost guaranteed to kill a restaurant. One operation was exposed by a local television station forpoor sanitary practices. Though the sanitary conditions subsequently improved—as reported by the

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finding is that restaurateurs must not be sorigid in their strategy that they fail to seeopportunities as they appear. As an exam-ple, one of the successful restaurateurs con-tinued to adjust his operations as the neigh-borhood evolved, and his place became apopular hangout for college students. Hegradually changed the menu to add valueofferings and to remove the expensive itemsthat his new customers could not or wouldnot order. Thus, the restaurant, which beganas a small, family-style restaurant, became alarge, value-centered, full-service, coffee-shop-style restaurant for college students.

7. Awareness of specific competitors did notseem to be critical to restaurant success.Most of the owners defined their competi-tion as any dining establishment; one evenwent so far as to define the competition fordining dollars as “any entertainment duringthe dinner hours.” Competition was viewedby most of the owners to be a tool for self-measurement but not necessarily somethingto use to develop strategic defenses.

8. Having a defined target market was not criti-cal to success. Not only was a defined targetmarket not mentioned by any of the ownersas a critical factor, but it was not obviousfrom the interviews that successful ownerscould define their target market. We foundsuccessful owners who could not determinea demographic or psychographic segmentthat they appeal to, and, more to the point,

some failed owners could demographicallypinpoint the target market that they hadmissed.

9. Likewise, marketing strategy did not seemto be critical to a restaurant’s success. Theowners whom we interviewed rarely usedadvertising or promotions. One owner men-tioned marketing as a critical factor but wenton to discuss the target-market awareness, atthe same time stating specifically thatadvertising is not necessary. On the otherhand, public relations, community involve-ment, and customer relations were all con-sidered important to their business opera-tions. The successful owners, when askedabout marketing, all discussed these typesof relationships in the community overadvertising or promotions. In fact, the mostsuccessful owners all stated a strong beliefin not advertising and not using promotions.In that regard, one owner stated, “If youhave to give something away then youshouldn’t be in business.”

10. The owner’s skills and knowledge are criti-cal factors. “One should not rely on others,but should be knowledgeable in all areas ofthe business.”

ConclusionsCombining our quantitative (longitudi-

nal) and qualitative data, we present (in

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same television station—the damage was done and the restaurant was closed. It later reopened as asuccessful full-service restaurant.

12. For ethnic restaurants, loss of authenticity; for all restaurants, loss of conceptual integrity.13. Becoming everything to everyone; failure of differentiation or distinctiveness.14. Underestimating the competition. A contemporary restaurant located near an established restaurant

adjacent to a golf club failed when it could not draw the golfers from their traditional haunts. Ownersthought that their new restaurant would have no problem attracting the golfers.

15. Lack of owner commitment due to family demands, such as illness or emotional problems. In anextreme example, a child with a long-term illness prevented an owner from devoting necessary time tothe restaurant, which soon closed.

16. Lack of operational performance evaluation systems. In one instance, new owners did not know howto calculate food cost and relied on employees to maintain proper inventory controls.

17. Frequent changes in management and diverse views of the mission, vision, and objectives. In an exam-ple that is common in partnerships, the owners of a failed restaurant could not agree on its directionafter just one year of operation.

18. Tardy establishment of vision and mission statements of the business; failure to integrate vision andmission into the operation; lack of commitment in management or employee ranks.

19. Failure to maintain management flexibility and innovation.20. Noncontrollable, external factors, such as fires, changing demographic trends, legislation, economy,

and social and cultural changes.21. Entrepreneurial incompetence; inability to operate as or recruit professional managers.

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Exhibit 7) a model for future research. Ourstudy indicates that the restaurant failurerate is affected more by internal factorsthan by external factors, although bothapply. Such attributes as restaurant den-sity, firm size, and managerial characteris-tics are important to success. In particular,the manager’s ability to balance familymatters with the development of the orga-nization is critical. Along with that balance,it is important for the owner-manager tohave the requisite skills to run a restaurant.While the restaurateur should plan care-fully in growing the business, she or heshould be ready at any time to alter plans

in response to changes in external factors.Finally, while formal marketing andadvertising seem not to be important to thesuccess of an independent restaurateur,the restaurant must pay attention to com-munity and customer relations so that it isperceived to be a part of its community.

Further research should focus on thosefactors that have been found to be the mostcritical to restaurant survival. Although itis comforting to work with numbers and tolook at external forces and failure rates, itis more important to get to the core inter-nal issues underlying restaurant viability.Future research on successful ownership

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RESTAURANT VIABILITY

Family Life Cycle Youth/Early Childhood Marriage/ Family Maturity Empty Nest Retirement

External Environment

General

Legal & Political Economic Demographic Technological Social & Cultural

Specific

Competitive Forces Suppliers Customers Regulatory Agencies

Internal Environment

Operational Factors Strategy Product Management Financial Marketing Type of Ownership Culture Personal Factors

Leadership Demographics Personal / Family

Goals Organizational Life Cycle Introductory Stage Growth Stage Maturity Stage

Decline / Reemergence

Exhibit 7:Impact of Various Factors on Restaurant Viability

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characteristics and managerial factors canbe useful to aspiring restaurant owners.Also, the complex roles of family andorganizational life cycles in restaurantviability warrant further investigation.

Endnotes

1. Francis Kwansa and M. Cho, “BankruptcyCost and Capital Structure: The Signifi-cance of Indirect Cost,” International Jour-nal of Hospitality Management 14, no. 3(1995): 339-50.

2. Zheng Gu, “Analyzing Bankruptcy in theRestaurant Industry: A Mult ipleDiscriminant Model,” International Jour-nal of Hospitality Management 21, no. 1(2002): 25-42; Zheng Gu and L. Gao, “AMultivariate Model for Predicting BusinessFailures of Hospitality Firms,” Tourism andHospitality Research: The Surrey QuarterlyReview 2, no. 1 (2000): 37-50; FrancisKwansa and H. G. Parsa, “Business FailureAnalysis: An Events Approach” (Councilon Hotel, Restaurant and Institutional Edu-cation annual conference proceedings,1990, Las Vegas, NV); and S. Morse, “AnExamination of Restaurant Failure Rates inthe United States,” (Association of Hospi-tality Financial Educators’ Conference,New York, 1999).

3. Edward Altman, “Financial Ratios, Dis-criminate Analysis and the Prediction ofCorporate Bankruptcy,” Journal of Finance23, no. 4 (1968): 589-607; William Beaver,“Financial Ratios as Predictors of Failure,”in Empirical Research in Accounting:Selected Studies (Chicago: University ofChicago Press, 1968); and Ronald Clute andGeorge Garman, “The Effect of U.S. Eco-nomic Policies on the Rate of SmallBusiness Failure,” American Journal ofSmall Business Management 5 (Summer1980): 6-12.

4. Robert Dodge and John Robbins, “AnEmpirical Investigation of the Organiza-tional Life Cycle Model for Small BusinessDevelopment and Survival,” Journal ofSmall Business Management, January 1992;Robert Justis and Richard Judd, Franchis-ing (Cincinnati, OH: South-Western Pub-lishing, 1989); and Mahmood Khan,Restaurant Franchising (New York: VanNostrand, 1990).

5. Dun and Bradstreet Reports, Business Fail-ure Record (New York: Dun and Bradstreet,1996); Zheng Gu, “Analyzing Bankruptcyin the Restaurant Industry: A MultipleDiscriminant Model,” International Jour-nal of Hospitality Management 21, no. 1(2002): 25-42; Zheng Gu and L. Gao, “AMultivariate Model for Predicting BusinessFailures of Hospitality Firms,” Tourism andHospitality Research: The Surrey QuarterlyReview 2, no. 1 (2000): 37-50; and MichaelPorter, Competitive Strategy: Techniquesfor Analyzing Industries and Competitors(New York: Free Press, 1980).

6. John Watson and Jim Everett, “Do SmallBusinesses Have High Failure Rates?”Journal of Small Business Management 34(October 1996): 45-63.

7. Dodge and Robbins, “An Empirical Investi-gation of the Organizational Life CycleModel”; Christopher Hart, Greg Casserly,and Mark Lawless, “The Product LifeCycle: How Useful?” Cornell Hotel andRestaurant Administration Quarterly 25, no.3 (November 1984): 58-63; and T. Levitt,“Exploit the Product Life Cycle,” HarvardBusiness Review, November-December1981.

8. A. L. Stinchcombe, “Social Structure andOrganizations,” in Handbook of Organiza-tions (Chicago: Rand McNally, March1965), 142-93.

9. Josef Bruderl and Rudolf Schussler, “Orga-nizational Mortality: The Liabilities ofNewness and Adolescence,” AdministrativeScience Quarterly 35 (1990): 530-47.

10. Elaine Romanelli, “Environments andStrategies of Organization Start-Up: Effectson Early Survival,” Administrative ScienceQuarterly 34 (1989): 369-87.

11. L. Richardson, “The Mechanics of Failure,”Asian Business, November 1991, p. 85.

12. S. Venkataraman, Andrew Van de Ven,Jeanne Buckeye, and Roger Hudson, “Start-ing Up in a Turbulent Environment: A Pro-cess Model of Failure Among Firms withHigh Customer Dependence,” Journal ofBusiness Venturing 5 (1990): 277-95.

13. Timothy Bates and Alfred Nucci, “An Anal-ysis of Small Business Size and Rate of Dis-continuance,” Journal of Small BusinessManagement, October 1989, pp. 1-7.

14. Richardson, “The Mechanics of Failure,”85.

15. Calvin Boardman, Jon Bartley, and RichardRatliff, “Small Business Growth Character-istics,” American Journal of Small Business5 (Winter 1981): 33-42.

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16. Luann Gaskill, Howard Van Auken, andRonald Manning, “A Factor Analytic Studyof the Perceived Causes of Small BusinessFailure,” Journal of Small Business Man-agement, October 1993, pp. 18-31.

17. T. Blue, Carole Cheatham, and B. Rushing,“Decision Thresholds and the Developmen-tal Stages in the Expanding Business,” Jour-nal of Business and Entrepreneurship 1(March 1989): 20-28.

18. P. Kottler, J. Bowen, and J. Makens, Market-ing for Hospitality & Tourism (Upper Sad-dle River, NJ: Prentice Hall, 1996), 255-56.

19. Andrew Zacharakis, Dale Meyer, and JulioDeCastro, “Differing Perceptions of NewVenture Failure: A Matched ExploratoryStudy of Venture Capitalists and Entrepre-neurs,” Journal of Small Business Manage-ment, July 1999, pp. 1-14.

20. Hugh O’Neill and Jacob Duker, “Survivaland Failure in Small Business,” Journal ofSmall Business Management 24 (January1986): 30-37.

21. Stahrl Edmunds, “Differing Perceptions ofSmall Business Problems,” American Jour-nal of Small Business 3 (April 1979): 1-14.

22. Giri Jogaratnam, Eliza Tse, and MichaelOlsen, “Strategic Posture, EnvironmentalMunificence, and Performance: An Empiri-cal Study of Independent Restaurants,”Journal of Hospitality & Tourism Research23, no. 2 (May 1999): 118-38.

23. Stephen Haswell and Scott Holmes, “Esti-mating the Small Business Failure Rate: AReappraisal,” Journal of Small BusinessManagement 27 (July 1989): 68-74.

24. Gaskill, Van Auken, and Manning, “A Fac-tor Analytic Study of the Perceived Causesof Small Business Failure,” 18-31.

25. Donald Hambrick and Lynn Crozier,“Stumblers and Stars in the Management ofRapid Growth,” Journal of Business Ventur-ing 1, no. 1 (1985): 31-45.

26. I. Sharlit, “Six Early Warning Signs of Busi-ness Failure,” Executive Psychology, March1990, pp. 26-30.

27. Donald Sull, “Why Good Companies GoBad!” Harvard Business Review, July-August 1999, pp. 42-52.

28. Spyros Makridakis, “What We Can LearnFrom Corporate Failure?” Long RangePlanning 24 (August 1991): 115-26.

29. Joseph West and Michael Olsen, “GrandStrategy: Making Your Restaurant a Win-ner,” Cornell Hotel and Restaurant Admin-istration Quarterly 31, no. 2 (August 1990):72-77.

30. D. R. Lee, “Factors of Restaurant Success:Why Some Succeed Where Others Fail,”Cornell Hotel and Restaurant Administra-

tion Quarterly 28, no. 3 (November 1987):33-37.

31. Cline Research Group, “Restaurant FailureRate Study,” in Restaurant Owner (DallasRestaurant Association, 2002), www.restaurantowner.com; Wilke English, JoWillems, D. Purdy, and J. Stanworth, “Year10 of the El Paso Restaurant Attrition Study:‘News Flash: Tenure Does Correlate withInvestment!’ ” International Society ofFranchising 17 (February 2000); MichaelHannan and John Freeman, OrganizationalEcology (Cambridge, MA: Harvard Univer-sity Press, 1989), 341-35; S. Morse, “AnExamination of Restaurant Failure Rates inthe United States” (Association of Hospital-ity Financial Educators’Conference, 1999);and C. Muller and R. Woods, “The RealFailure Rate of Restaurants,” FIU Hospital-ity Review 2 (1991): 60-65.

32. John T. Self, “An Analysis of RestaurantFailure Rates: A Longitudinal Study”(CHRIE Conference Poster Presentation,Philadelphia, 2004).

33. Quoted in www.coloradoan.com (accessedSeptember 24, 2004).

34. For a discussion of issues in qualitativeresearch, see Donald Ary, Introduction toResearch in Education (New York: Har-court Brace College, 1996); Gai lMcCutcheon, “On the Interpretation ofClassroom Observations,” EducationalResearcher 10 (1981): 5-10; John Creswell,Research Design: Qualitative and Quanti-tative Approaches (Thousand Oaks, CA:Sage, 1994); Kate Walsh, “QualitativeResearch: Advancing the Science and Prac-tice of Hospitality,” Cornell Hotel and Res-taurant Administration Quarterly 44, no. 2(May 2003): 66-74; and Robert J. KwortnikJr., “Clarifying ‘Fuzzy’ Hospitality Man-agement Problems with Depth Interviewsand Qualitative Analysis,” Cornell Hoteland Restaurant Administration Quarterly44, no. 2 (May 2003): 117-29.

35. Walsh, “Qualitative Research,” 66-74.36. M. Whittemore, A. Sherman, and R. Hotch,

Financing Your Franchise (New York:McGraw-Hill, 1993), 3; R. Justis andR. Judd, Franchising (Cincinnati, OH:Southwestern, 1989) , 670; and S.Swerdlow, “Foodservice Franchising,” inVNR’s Encyclopedia of Hospitality andResearch, ed. M. A. Khan, M. D. Olsen, andT. Var (New York: Van Nostrand andReinhold, 1993), 254.

37. P. Slattery and Michael Olsen, “HospitalityOrganizations and Their Environments,”International Journal of Hospitality Man-agement 3, no. 3 (1984): 55-61.

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38. Richard Ghiselli, Joseph La Lopa, and BillyBai, “Job Satisfaction, Life Satisfaction &Turnover Intent of Food Service Managers,”Cornell Hotel and Restaurant Administra-

tion Quarterly 42, no. 2 (April 2001): 28-37;and Self, “An Analysis of Restaurant Fail-ure Rates.”

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H. G. Parsa, Ph.D., is an associate professorat The Ohio State University ([email protected]). John T. Self, Ph.D., is an instructorat the Collins School of Hospitality Manage-ment at California State Polytechnic Univer-sity, Pomona ([email protected]).David Njite, MS, is a doctoral student andTiffany King is a graduate of The Ohio StateUniversity. The authors would like to thankBob Harrington for helpful comments on ear-lier drafts; Eun-Jung Kim for her assistance indata analysis; the Columbus Health Depart-ment, Columbus, Ohio, for generously shar-ing the health-permits data; and Mary Kuhnerfor editorial assistance.