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Training can help increase the odds of success for a fledgling business

Rochester Business Journal
November 15, 2013


When I say that at RIT we teach the science of entrepreneurship, people often ask what I mean. Many people start businesses because they have a novel idea or a great skill. For example, consider a business that is known to have a high failure rate-a restaurant.
 
Two people, Mary and Paul, live in different cities and are great cooks. Mary is a very, very good cook, but Paul's skill at cooking is inspired by the gods. Friends tell them, "You should open a restaurant." And so they do.
 
Over time, Mary's restaurant thrives, and Paul's fails. What is the difference?
 
Paul was in the restaurant business because he loved to cook, and cook he did. Mary was not as good a cook as Paul, but she understood that her restaurant was a business and was able to run it as a business. What does that mean?
 
Using the restaurant business as an example will give you an idea of the complexity that is involved.
 
Once you decide to go into business, you need legal help to decide how to structure your business. Depending on the nature of the business and your personal circumstances, one structure may be better than another. Often, it is not a simplistic decision-"I'll be an LLC" or "I'll be an S corp."
 
In the restaurant business, you need to decide what kind of restaurant you want-one in which customers move in and out quickly, like a McDonald's, for instance? Or one in which people linger, drink fine wine and gaze into each other's eyes? The type of restaurant is important and determines the design, decor and ambiance that support it. Choosing the wrong color palette and furniture can have an adverse effect on the business and its potential.
 
More than that, the restaurateur must know how to choose the menu, how to buy, what to buy, how to manage vendors and how to introduce new menu items and specials. The goals are the right menu for the type of restaurant, elimination of waste, and consistency of dishes served to customers.
 
One cannot operate out of a shoebox. One must file taxes, but filing does not mean you have to pay; that depends on the bottom line. You will need to set up your accounting system and may need to consult an accounting professional, who can advise you how to set up your business to maximize your returns and minimize your taxes when you have to pay them. Your accountant will help you choose your tax year configuration; January-December may not be best.
 
Further, you need to know if your relationships with vendors are productive: Are your costs in line, and do they make sense? Do you know your sales and average customer count by day? Do you concentrate on increasing the average sale, or on increasing traffic, which is harder than increasing the average sale? Knowing this information is important to your marketing efforts.
 
In today's market, you need some expertise in social media. People need to know you exist, and they are looking on their mobile phones to find out. Once they are on your premises, your goal is to encourage them to buy as much as possible.
 
Restaurateurs also need to know how to manage cash and how to manage their employees, whether they are family or new hires. You need to train your people to reflect you and the culture you want. Great service should be the goal. If people feel good when they are in your place of business, they are more likely to come back-and to come back often.
 
If an owner has family members working in the business, they should be subject to the same controls as others and should set the example for others. That means they do not treat the cash register as their own personal piggybank. Research shows that most shortage is from employees, and unfortunately family members are not exempt from that concern. Keep in mind that business is business and personal is personal; separating the two will save you headache and heartache.
 
Business owners also need to know how to determine the correct price to charge for their goods and services. I have seen restaurants that could have been successful go out of business because they charged more than the market could bear for their meals. This created a vicious circle: Few customers frequented the restaurant, so it increased prices to cover the shortfall. Restaurants do better to charge the right price so customers will make it a more regular place at which to have a meal. Having more people eating at one's establishment causes more people to come the second time because it is busy. Ideally, the demand will exceed the ability of the restaurant to satisfy, so that it becomes the place to which people want to go, creating a virtuous circle.
 
You also need to manage your customers and their expectations. Once you set the bar high for great customer service, you need to make that the floor for future interactions with your customers.
 
One of the most memorable pieces of advice I heard was from Magic Johnson, who understood what many businesses do not. He said: "It's not about me and what I want. It's not about me and what I like. It's about the customer and what the customer wants and what the customer likes."
 
If all businesses understood that, they would be much more successful.
 
I have only hinted at a small number of things that confront a business owner, in this case someone selling business-to-consumer. Each business has its own complexities, but the person who knows-intuitively or through training-how to navigate the complexities will be successful. Training is not a panacea, but it will help businesses to avoid the common mistakes the untrained and unintuitive make and to incorporate the best practices that we know, thus reducing the business owner's risk and increasing chances for success.

dt ogilvie is dean of the Saunders College of Business at Rochester Institute of Technology.

11/15/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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