When was the last time something in your business didn’t work out? It’s hard not to take it personally – which is only natural after pouring time, money and, let’s face it, part of your soul, into a project or company. Nevertheless, failures are inevitable so it’s our task as leaders to prevent, control and fix failures in our organisations – and use those that happen as constructively as possible.
In our roles as operators and non-executive directors we have certainly dealt with our own share of wrong decisions, but we have also been lucky enough to have worked with numerous business leaders helping them analyse their strategic options, recognise gaps in their plans, considering growth opportunities and at times, getting them back on track after something has taken a wrong turn.
Bringing an outsider into the heart of a business can bring objectivity, experience and specialist knowledge, as they are not embroiled in the daily operation or tied up with internal politics. It’s also worth remembering that you only know what you know (and don’t know what we don’t know), so getting a fresh perspective will often bring new thinking and challenge to the status quo. And when a business or project is in trouble, this may be the bitter medicine that is exactly needed for getting the “patient” sorted.
Most businesses in our sector grow organically, leveraging opportunities that present themselves along the way. Only rarely do leadership teams in our sector develop and pursue strategic growth plans; and the actions taken by even large and successful companies seem often to build on gut feel. We are certainly not advocating going overboard with strategy planning; but we do believe that a little more fact based analysis, a little more structured decision making and a little more experimentation will go a long way.
Fact based analysis: In our client work we nearly always find that we need some early analysis up front, either through surveys, interviews or scrutiny of existing data. And we have yet to experience a situation where one or more key assumptions weren’t seriously challenged or disputed this way – with new ideas springing up in their stead. “Our brand isn’t known in our community, so our main thrust should be growing our local media presence.” In fact, most people in the target audience knew of the restaurant, but just didn’t find the offering relevant and compelling – changing the focus completely. Or: “Our pricing should be lowered across the board to better compete with x and Y” whereas comparable prices were fine, but the menu and food offers weren’t communicated properly, leading to it being perceived to be more expensive.
Structured decision making: We simply love models that can help decision makers get a better overview of the situation, the options or the trade-offs in decisions. And we invest a lot of thinking into finding ways that can help us frame a problem most constructively – or ensure that a solution also takes all relevant factors into account. What has been a striking revelation is both how seldom even “classic” business decision models are utilised in the hospitality industry; but also how much those models (often developed by Americans for large corporations) need tweaking to be really effective in a restaurant setting.
For instance, we have found that a rigorous assessment of what “generic” options a restaurant has for driving revenue (we believe there are just four: More new customers, more repeat business, higher average spend or better capacity utilisation) will challenge and a discussion and force a team to think through where there is most bang for the buck instead of only reaching out for new customers, which is often the sexiest, but also most difficult, task.
Constructive experimentation: Finally, far too few businesses in our sector actively seek to test key decisions and assumptions on a limited scale before jumping into a full fledged investment. The book “Lean Startup” introduced the concept of “minimal viable product” (MVP) to technology startups a few years ago, thereby effectively eliminating previous insistence on detailed business plans and long term financial guessing. Instead, it argued, a startup should devise limited and cost effective experiments that allow it to test the core elements in its business, and keep tweaking them until it gets proper market traction. We need to do the same: everything from menus to communication to business concepts can be tested through experiments, improving the hit rate tremendously once rolled out. We work with one client on a limited, yet real life, click-and-collect experiment which – when tested and perfected – can serve as template for other units across the client’s markets. Deliberately not set up within an existing store to avoid confusion and loss of focus, but established from scratch and run like a proper experiment.
Business failures are as inevitable as they can be personally painful. The only bullet proof strategy for avoiding failures is by doing nothing (though that won’t last long, of course). But in our experience you can come a long way through structured decision making based on fact based analysis – and tested through managed experimentation.
Michael Ingemann is the Chairman & Partner of THINK Hospitality Group, who are food and beverage innovators & strategists, working with multi-site brands, investors and developers across the world as consultants and venture partners.
First published in Propel Quarterly.