“He who knows others is wise. He who knows himself is enlightened” (Lao Tze – Chinese philosopher)
How well do you really know your business
Making money is better than losing money: it is obvious. But turning in a profit without a clear and full understanding of how it was generated is really not ideal. One should not regard that profit as “sustainable” as it can quickly dissipates as soon as the competitive landscape changes.
Do you know your business well? It could seem a lame question: but think again.
It is not just about knowing the operations well; it is about having full visibility and control of the entire productive process, top to bottom.
Example: so many businesses that thrived during the pandemic ran into troubles and eventually shut down once the emergency was over. Why is that?
Because most of them failed to recognize the transient nature of that specific business environment: they prospered without really understanding why.
Like any other business, making money on a sustainable basis is the restaurant’s ultimate purpose: a profitable operation is the owner’s financial reward and, generally, the very reason the business was started.
However, while it is crucial to address the issues of an unprofitable business, assessing the factors behind a successful one is equally vital, at least for two reasons.
First: you must be able to monetize your competitive advantage to the full extent possible.
Second: you must be able to quickly identify any change in the competitive landscape with the potential to undermine your advantage and promptly act on it.
DEFEND YOUR PROFIT MARGINS
Look at it this way: business is a day-to-day struggle, just like a boxing match. Overly dramatic? Not quite sure, but we let you decide…
In any case, if a restaurant is running at healthy profit margins, the wisest thing to do is protect them from competition and other market forces. Otherwise, sooner or later, they will be eroded: it is a fact.
A simple example
This is not just theory. If a well-managed restaurant is operating in a very busy location, experiencing great traffic and posting high profit margin, the next thing that will happen, sooner or later, is that another restaurant will open in the same area.
DO YOU HAVE A COMPETITIVE ADVANTAGE?
Why is a restaurant performing well? Is it because the food quality is above average? Is it because the menu prices are lower than the competition? Is it because it is the only restaurant in that location? Is it because of the efficiency of the overall operations?
All of these factors can be described as competitive advantage: some are under direct control (menu prices, etc.), some others are not (location); some are there to stay (efficient management), some can be gone in no time (another restaurant in the same location).
What's the game plan?
In the end, any useful analysis has to lead to actions. Why is a restaurant thriving? Why is a restaurant struggling? These are the ultimate questions to answer, which entails having full control (or at lest, full visibility) of all the variables affecting the operations.
Therefore, here comes the action plan:
> good profit margin > identify drivers > DEFEND;
> poor profit margin > identify drivers > CHANGE.
This is where analysis makes all the difference: you must have clear knowledge of the process and be able to identify the drivers,