Professional Documents
Culture Documents
Why Restaurants Fail
Why Restaurants Fail
net/publication/237835565
CITATIONS READS
416 18,771
4 authors, including:
All content following this page was uploaded by H. G. Parsa on 06 October 2014.
10.1177/0010880405275598
Past research on restaurant failures has focused nomic and social factors, to competition and legal
mostly on quantitative factors and bankruptcy rates. restrictions, and even to government intervention. In
This study explored restaurant ownership turnover the current complex environment of the restaurant
rates using qualitative data, longitudinal data (1996- business, we believe that it is imperative that prospec-
1999), and data from Dun and Bradstreet reports. In tive and current owners understand why restaurants
contrast to frequently repeated statistics, a relatively fail (see Sidebar 1).
modest 26.16 percent of independent restaurants
Most hospitality research has focused on the rela-
failed during the first year of operation. Results from
this study indicated marginal differences in restaurant
tive financial performance of existing restaurants
failures between franchise chains (57.2 percent) and instead of examining the basic nature of restaurant fail-
independent operators (61.4 percent). Restaurant ures, and most of these studies considered only bank-
density and ownership turnover were strongly corre- ruptcy reports.1 Most bankruptcy studies are limited in
lated (.9919). A qualitative analysis indicated that their scope, however, because many restaurant clo-
effective management of family life cycle and quality- sures result from change-of-ownership actions, rather
of-life issues is more important than previously than bankruptcies. These change-of-ownership trans-
believed in the growth and development of a actions are treated as legal matters instead of actual
restaurant. bankruptcy procedures and may not be included in
public records. Furthermore, because the focus of aca-
Keywords: restaurant failure; dinner-house opera- demic research has remained primarily on bankruptcy
tion; entrepreneurship; restaurant studies, the qualitative aspects of business failures
bankruptcy have received little attention. In writing this article, we
hope to determine the underlying factors that
I suffered from mission drift. When things didn’t work, I determine the viability of a restaurant.
would try something else, and eventually there was no “con-
cept” anymore.
—A failed restaurateur
Types of Restaurant Failures
Restaurant failures can be studied from economic,
The restaurant industry and its analysts have long marketing, and managerial perspectives. Of these three
pondered the enigmatic question of why restaurants perspectives, we observe that restaurant failures have
fail. Restaurant failures have been attributed to eco- been studied primarily from the economic perspective.2
immediate situations, operators of new taurant row,” an operation could find itself
restaurants are often unable to manage in a cluster of restaurants within which it
rapid growth or changes, lack experience cannot compete effectively. In that regard,
in adapting to environmental turbulence, a restaurant’s inability to differentiate
and usually show inadequate planning.12 itself from its competition can be fatal.
An additional failure factor for independ- The restaurant’s reaction to competitive
ent restaurateurs is the ability of chain res- pressures from excess density depends in
taurants, with their economies of scale, to part on the nature of its ownership.
outspend the independents to gain greater
market share. External Factors
28
affect a segment of the industry broadly, and overreacting to problems. West and
rather than hit any single brand, for exam- Olsen determined five strategic factors
ple, when a seafood shortage causes prob- used to determine the grand strategy of a
lems for all seafood restaurants or high firm. The management or owner’s strate-
prices for beef hurt hamburger and steak- gic positioning has a strong influence on a
house segments. Consequently, the rate of business’s success.29 In agreement, Lee
restaurant ownership turnover may differ stated, “The most important criterion for
across different restaurant segments. success . . . is management. Managers . . .
direct the marketing, oversee product
Internal Factors quality and standardization, and decide
when and how to adapt.”30
Management capabilities are of pri-
mary concern in preventing restaurant Studying Failure
failure. Haswell and Holmes reported We investigated restaurant failure using
“managerial inadequacy, incompetence, qualitative and quantitative methods in
inefficiency, and inexperience to be a two independent steps. Step I consists of
consistent theme [in] explaining small- findings from quantitative assessment of
business failures.”23 Poor management can restaurant failures using longitudinal
be connected to “poor financial condi- data from 1996 to 1999; step II reveals
tions, inadequate accounting records, lim- findings from qualitative investigation of
ited access to necessary information, and managerial perceptions and views of
lack of good managerial advice.”24 Other restaurateurs.
internal factors affecting failure rates of
restaurants include poor product, internal Step I: Quantitative
relationships, financial volatility, organi- Investigation—A Success-
zational culture, internal and external Filled Industry
marketing, and the physical structure and Step I of our study involved the analysis
organization of the business. Managers’ of restaurant ownership turnover data
“inability to manage rapid growth and from 1996 through 1999. The data were
change” can lead to business failure, con- collected with the help of the health
cluded Hambrick and Crozier.25 Sharlit department of Columbus, Ohio, a major
wrote, “The root causes of many business metropolitan area in the Midwestern
problems and failures lie in the executives’ United States.
own personality traits,”26 while Sull com- Most of the earlier studies assessing res-
mented that managers may suffer from taurant failure have used either telephone-
“active inertia.”27 directory business listings or bankruptcy
Makridakis believes that corporations data. To overcome the incomplete nature
fail due to “organizational arteriosclero- of data from bankruptcy filings and tele-
sis,” overutilization or underutilization of phone directories, our study used data on
new technology, poor judgment in risk 2,439 operating-license permits from the
taking, overextending resources and capa- Columbus health department. (We
bilities, being overly optimistic, ignoring removed from the data set the licenses for
or underestimating competition, being other food-service facilities, such as
preoccupied with the short term, believing daycare centers, hospitals, and grocery
in quick fixes, relying on barriers to entry, stores, to achieve our total N of 2,439.)
Exhibit 1:
Restaurant Ownership Turnover (ROT) in the Test Market, 1996-1999
Year Year Year In
One Two Three Business Total
Number of independent
restaurants failed 408 699 910 573 1,483
ROT percentage 27.51 19.62 14.23 38.64 100
Cumulative percentage 27.51 47.13 61.36
Not only must every restaurateur renew rates declined for each year, with the high-
the health permit annually, but any change est failure rate noted during the first year
in the restaurant’s legal ownership (26.16 percent) followed by the second
requires a new permit. (19.23 percent) and the third year (14.35
The health department ascribes to each percent) (see Exhibits 1 and 2). Likewise,
restaurant location a specific identifica- the highest restaurant ownership turnover
tion number. This ID is a permanent num- occurred during the first year. These
ber that does not change with a change in results are consistent with several other
ownership. Similarly, each restaurant studies.31 In his 2004 study of 24,000 res-
owner has a specific identification num- taurants in the Los Angeles area, for
ber. A comparison of the ownership and instance, John Self reported a first-year
location ID numbers reveals any change in failure rate of 24.3 percent and a three-
restaurant ownership, as well as providing year cumulative rate of 50.9 percent for
information regarding multiple locations 1999 through 2002. 32
operated by the same owner. The three-year cumulative restaurant-
failure rate for franchised chains was
Diminishing Failure Levels 57.22 percent, while it was 61.36 percent
for independent restaurants (Exhibit 3).
Restaurant ownership turnover rate was This difference is statistically significant
calculated for one-, two- and three-year (p < .05). The failure rate is slightly higher
periods from 1996 through 1999. Failure for independent restaurants (4.14 percent-
Exhibit 2:
Restaurant Business Failures per Year, 1996-1999
30.00% 26.16%
25.00% 19.23%
20.00% 14.35%
15.00%
10.00%
5.00%
0.00%
Year 1 Year 2 Year 3
Years
Exhibit 3:
Cumulative Percentage of Restaurant Business Failures, 1996-1999
59.74%
60.00%
50.00% 45.39%
40.00%
26.16%
30.00%
20.00%
10.00%
0.00%
Year 1 Year 2 Year 3
Years
age points) than for chains. Again these franchise restaurants had a minimum of
results are consistent with earlier studies. three units. Thus, one of the major differ-
The descriptive statistics indicated that ences between franchised and independ-
most independent restaurateurs owned ent restaurants was the size of ownership
two or fewer units, and by definition, all measured in number of units. The
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 of
Density Percentage Failures in Percentage
ZIP Code by ZIP Codea Density Three Years Failure
obtained higher restaurant ownership eries, coffee shops, and pizza restaurants.
turnover rate (61.4 percent) among the Cafeterias and seafood restaurants had the
independent restaurants as compared to lowest cumulative ownership turnover rate
the franchises (57.2 percent) indicated for the three-year period (see Exhibit 5).
that small firms had higher ownership
turnover rates than did the large firms. Implications
The density of restaurants was mea-
sured using U.S. Postal Service ZIP code We see the following implications from
data. ZIP codes in the metropolitan area this portion of our study:
were ranked according to restaurant con-
1. Contrary to the oft-repeated myth that 90
centration per ZIP code, which closely percent of restaurants fail in their first year,
reflects population density. The data were we note a failure rate closer to 26 percent—
then compared with the restaurant owner- and the cumulative failure rate never
exceeded 60 percent in the three years we
ship turnover rate in the corresponding studied.
ZIP codes. Results indicated that the res- 2. Failure rates were notably higher for small,
taurant failure rate is highest in the ZIP independent operations than they were for
relatively large, franchised restaurants.
code areas where restaurant concentration Thus, we suggest that the financial commu-
is also the highest (see Exhibit 4). nity make itself aware that the restaurant
In addition, the restaurant ownership industry comprises different segments with
turnover rate was also calculated across varying levels of failure rates and, thus, dif-
ferent levels of risk.
various segments of the restaurant indus- 3. In that regard, the banking community
try by the type of food served. For the could consider lower interest rates for all
three years of our study, Mexican restau- restaurants and particularly for those ven-
tures that are statistically more likely to suc-
rants reported the highest three-year ceed. Purported high business failures have
cumulative ownership turnover rate (86.8 often resulted in high interest rates for res-
percent), followed by sub shops and bak- taurateurs. In addition to gaining more
Exhibit 5:
Cumulative Restaurant Ownership Turnover Percentage by Restaurant Segment,
1996-1999
Restaurant Segment Cumulative Three-Year Turnover Percentage
Mexican 86.81
Subs and bakeries 76.69
Coffee and snacks 70.00
Pizza 61.25
Chicken 57.88
Casual dining 53.13
Asian 51.43
Family dining 45.00
Steak 42.86
Buffets and cafeterias 38.46
Italian 35.29
Burgers 33.70
Seafood 33.33
favorable terms from the banking commu- financial burden on the local community,
nity, restaurateurs should also be able to unlike failures in many other industries.
gain better rates when borrowing from the Thus, city or town planners may want to
federal agencies such as the Small Business consider these positive aspects while evalu-
Administration and state and local eco- ating local grants, tax rebates, and zoning
nomic agencies. Moreover, although restau- restrictions.
rants (i.e., eating and drinking places)
topped the list of failed businesses in the
1996 records from Dun and Bradstreet
Step II: Qualitative
Bankruptcy Reports, several other busi- Investigation
nesses were much higher when one consid- It became increasingly difficult to balance
ers the loss per failed unit, as shown in the demands of operating the business with
Exhibit 6. the needs of the family. I decided it was best
to move on.
—Don Braddy, Fort Collins, Colorado33
This study may also help spread a more
positive image of the restaurant industry
We supplemented our quantitative
in the financial community, thus encour-
analysis with qualitative study to allow us
aging more capital investments in restau-
to analyze relationships between events
rants and casting the restaurant industry in
and external factors more effectively than
a more positive light compared to other
quantitative procedures (see the illustra-
retail endeavors.
tion in Sidebar 2).34 Qualitative data were
obtained by interviewing twenty success-
4. Given that an overconcentration of restau-
rants may lead to more failures, city plan- ful full-service restaurant operators who
ners should undertake identification of an had been in business for at least five years
optimum point for restaurant saturation. and twenty failed restaurant operators
5. These findings clearly demonstrate that
even though restaurant failures may be high who once ran a full-service restaurant and
in pure numbers, they do not leave much are no longer in business. Five years of
Exhibit 6:
Ranking of Top Twelve Retail Businesses by Number of Business Failures and Total Financial Liabilities
Total Number of Total Industry Liability per
Industry Name Failures (1996) Rank Liability (1996) Rank Failed Unit Rank
age the family life cycle and the business ality traits, relationships with customers
cycle. In contrast, most of the failed res- and staff, and dedication to providing a
taurateurs attributed their failure partly to quality product.
family demands (e.g., divorce, ill health, The critical factors cited by failed res-
retirement). Family sacrifice was men- taurateurs as contributing to their restau-
tioned by both successful and failed own- rants’failure were owner-manager charac-
ers, but the successful owners were either teristics, including attitudes, expectations,
good at balancing their family and work control, knowledge, skills, and ambition.
lives or they were not married. On the Other top factors include the already men-
other hand, five of the failed owners said tioned demand of labor and time; poor
that they closed when they were no longer food-quality controls or low perceived
willing to make those family sacrifices. value; being undercapitalized or having
This outcome is consistent with the results poor financial management; and the qual-
reported by Ghiselli, La Lopa, and Bai in ity of employees and service, including
their study on quality of life issues with the amount of turnover. Having an ill-
restaurant managers.38 defined concept was also listed as a large
Most successful owners attributed their contributor to restaurant failure.
success to their marketing savvy (espe- Interestingly, successful restaurant
cially relationship marketing), whereas owners all had a well-defined concept that
the failed owners often blamed their fail- not only provided a food product but also
ure on competitors’ intensive marketing included an operating philosophy, which
activities. Thus, it is clear that knowledge encompassed business operations as well
of marketing functions is essential for suc- as employee and customer relations.
cessful operation of restaurants. Failed restaurant owners, when asked
Successful owners had a passion for about their concept, discussed only their
business and high energy levels, whereas food product. They would state that their
the failed restaurateurs lacked the high concept was “vegetarian food,” or “Alas-
energy levels necessary to motivate them- kan seafood.” They all offered high-quality
selves and their employees—symptom- foods, but that did not make them success-
atic of the “burnout” stage of one’s career. ful. Although food quality was discussed
At some point during the interview, each as being critical to restaurant success, it is
of the failed restaurant owners mentioned obvious from the interviews that food
the burden of the immense time commit- quality does not guarantee success; the
ment required for a restaurant. concept must be defined beyond the type
Critical factors contributing to a restau- of food served.
rant’s success were food quality and the We found no example in our sample of
characteristics of the owner-manager, a restaurant closing due to external forces.
including knowledge, drive, skills, deter- In contrast to earlier research, we do not
mination, and passion. Another critical conclude that external forces necessarily
factor discussed was the staff, including predict success or failure. It appears that
employees’ training, personality, and external factors may not automatically
diversity. Capital and financial manage- lead to failure if they are properly man-
ment were important, as were location and aged. One could argue that external forces
a well-defined concept. These factors generally affect all restaurants similarly,
mostly stem from the owner’s own person- somewhat like the weather in a given geo-
graphic area. It is the individual’s prepara- 2. The organizational life cycle depends on the
family life cycle. Most owners mentioned
tion or lack thereof that makes the differ- how their family situation drove their deci-
ence in the severity of the impact. sion to grow, change, or leave the business:
Similarly, it is the restaurateur’s responsi- “Family and spousal support is essential for
the success of a restaurant.” Family support
bility to prepare for impending external goes beyond that of the owner. It means rec-
“weather” conditions. ognizing that your employees have families
This study also called into question the also. On New Year’s Eve 1999, when most
commonly held belief that restaurant via- restaurants stayed open past midnight tak-
ing advantage of the millennium celebra-
bility is determined by the amount of capi- tions, one restaurateur whom we inter-
tal investment. Although sufficient financ- viewed closed the doors at 5:00 p.m. so that
ing was cited as critical to restaurant the employees could go home and spend
time with their families.
success by most of the participants inter- 3. It is no surprise to find that location is
viewed, some of the most successful res- important to restaurant success, but only
taurant owners started their operations one (failed) owner mentioned location as
being a contributor to his restaurant’s fail-
with less than $100,000 in capital. This ure. This particular restaurant was located
indicates that ongoing financial manage- upstairs on a busy street near a hospital.
ment may be a better predictor of restau- There was no parking nearby, and so cus-
rant viability than capital investment. To tomers had to walk from the hospital.
Though the restaurant was initially success-
underscore these findings, the internal ful, it attracted only walk-in customers.
environment was determined to be the That example notwithstanding, the consen-
most critical factor contributing to restau- sus was that a poor location can be over-
come by a great product and operation, but a
rant viability, with the owner’s character- good location cannot overcome bad product
istics and goals serving as the guiding or operation.
force. 4. Growth requires extensive prior planning.
One of the failed restaurateurs expanded his
unit’s operations until the restaurant
Implications for Restaurant Owners became unmanageable.
5. Although they were not mentioned specifi-
Regardless of the size or organization cally as contributing to failure, family pres-
of a restaurant operation, the following sures and sacrifices, as well as the sacrifices
made by family members for the owners to
implications seem clear from our inter- have their restaurants, were often men-
views. We have summarized the many tioned by both failed and successful owners.
forces that bear on restaurant success or The successful owners were single,
divorced, or good at balancing their family
failure in the model in Exhibit 7, and we and work lives. The failed owners were no
discuss those factors in Sidebar 3. longer willing to make those family sacri-
fices. To reiterate our point above, the
1. A well-defined business concept is essential immense time commitment required was
to success. Successful owners could mentioned by all of the failed restaurant
describe their concept during our inter- owners. One of the failed owners felt the
views, whereas failed owners could only guilt of being unable to be with her children
describe the food and could not expand their while they were growing up. So she sold the
description of concept beyond food produc- operation.
tion: “I suffered from mission drift. When 6. Although a clear concept is essential, hav-
things didn’t work, I would try something ing a well-defined strategy was not found to
else, and eventually there was no ‘concept’ be critical to a restaurant’s success. Some of
anymore.” “A restaurant can close if it loses the restaurant owners who had been extraor-
its focus and if it tries to be too many things dinarily successful were “going with the
to too many people by offering more than it flow,” while some owners failed despite
can successfully implement.” well-defined strategies. The lesson in this
Elements of Success:
Elements of Failure:
1. Lack of documented strategy; only informal or oral communication of mission and vision; lack of
organizational culture fostering success characteristics.
2. Inability or unwillingness to establish and formalize operational standards; seat-of-the-pants
management.
3. Frequent critical incidents; managing operations by “putting out fires” appears to be a common
practice.
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 a
deterrent for potential criminal elements and bar fights, but unfortunately it was also a deterrent for
customers, who were afraid of police scrutiny and potential DUI tickets. The club was closed within
eighteen 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 building
for a fine-dining restaurant. With no knowledge of restaurant operations, they opened the restaurant
with zero marketing budget as they relied primarily on free publicity and word of mouth. In less than
one year, the restaurant was closed, with more than $5 million in debt. The owners tried to salvage the
business 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 renovation
because the owners did not communicate to their clientele their reason for closing or their timetable
for 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 for
poor sanitary practices. Though the sanitary conditions subsequently improved—as reported by the
same television station—the damage was done and the restaurant was closed. It later reopened as a
successful 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. Owners
thought 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 an
extreme example, a child with a long-term illness prevented an owner from devoting necessary time to
the restaurant, which soon closed.
16. Lack of operational performance evaluation systems. In one instance, new owners did not know how
to 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 direction
after just one year of operation.
18. Tardy establishment of vision and mission statements of the business; failure to integrate vision and
mission 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.
finding is that restaurateurs must not be so some failed owners could demographically
rigid in their strategy that they fail to see pinpoint the target market that they had
opportunities as they appear. As an exam- missed.
ple, one of the successful restaurateurs con- 9. Likewise, marketing strategy did not seem
tinued to adjust his operations as the neigh- to be critical to a restaurant’s success. The
borhood evolved, and his place became a owners whom we interviewed rarely used
popular hangout for college students. He advertising or promotions. One owner men-
gradually changed the menu to add value tioned marketing as a critical factor but went
offerings and to remove the expensive items on to discuss the target-market awareness, at
that his new customers could not or would the same time stating specifically that
not order. Thus, the restaurant, which began advertising is not necessary. On the other
as a small, family-style restaurant, became a hand, public relations, community involve-
large, value-centered, full-service, coffee- ment, and customer relations were all con-
shop-style restaurant for college students. sidered important to their business opera-
7. Awareness of specific competitors did not tions. The successful owners, when asked
seem to be critical to restaurant success. about marketing, all discussed these types
Most of the owners defined their competi- of relationships in the community over
tion as any dining establishment; one even advertising or promotions. In fact, the most
went so far as to define the competition for successful owners all stated a strong belief
dining dollars as “any entertainment during in not advertising and not using promotions.
the dinner hours.” Competition was viewed In that regard, one owner stated, “If you
by most of the owners to be a tool for self- have to give something away then you
measurement but not necessarily something shouldn’t be in business.”
to use to develop strategic defenses. 10. The owner’s skills and knowledge are criti-
8. Having a defined target market was not criti- cal factors. “One should not rely on others,
cal to success. Not only was a defined target but should be knowledgeable in all areas of
market not mentioned by any of the owners the business.”
as a critical factor, but it was not obvious
from the interviews that successful owners
could define their target market. We found
Conclusions
successful owners who could not determine Combining our quantitative (longitudi-
a demographic or psychographic segment nal) and qualitative data, we present (in
that they appeal to, and, more to the point,
Exhibit 7:
Impact of Various Factors on Restaurant Viability
Exhibit 7) a model for future research. Our in response to changes in external factors.
study indicates that the restaurant failure Finally, while formal marketing and
rate is affected more by internal factors advertising seem not to be important to the
than by external factors, although both success of an independent restaurateur,
apply. Such attributes as restaurant den- the restaurant must pay attention to com-
sity, firm size, and managerial characteris- munity and customer relations so that it is
tics are important to success. In particular, perceived to be a part of its community.
the manager’s ability to balance family Further research should focus on those
matters with the development of the orga- factors that have been found to be the most
nization is critical. Along with that balance, critical to restaurant survival. Although it
it is important for the owner-manager to is comforting to work with numbers and to
have the requisite skills to run a restaurant. look at external forces and failure rates, it
While the restaurateur should plan care- is more important to get to the core inter-
fully in growing the business, she or he nal issues underlying restaurant viability.
should be ready at any time to alter plans Future research on successful ownership
characteristics and managerial factors can 5. Dun and Bradstreet Reports, Business Fail-
ure Record (New York: Dun and Bradstreet,
be useful to aspiring restaurant owners. 1996); Zheng Gu, “Analyzing Bankruptcy
Also, the complex roles of family and in the Restaurant Industry: A Multiple
organizational life cycles in restaurant Discriminant Model,” International Jour-
nal of Hospitality Management 21, no. 1
viability warrant further investigation. (2002): 25-42; Zheng Gu and L. Gao, “A
Multivariate Model for Predicting Business
Failures of Hospitality Firms,” Tourism and
Endnotes Hospitality Research: The Surrey Quarterly
Review 2, no. 1 (2000): 37-50; and Michael
Porter, Competitive Strategy: Techniques
1. Francis Kwansa and M. Cho, “Bankruptcy
for Analyzing Industries and Competitors
Cost and Capital Structure: The Signifi-
(New York: Free Press, 1980).
cance of Indirect Cost,” International Jour-
6. John Watson and Jim Everett, “Do Small
nal of Hospitality Management 14, no. 3
Businesses Have High Failure Rates?”
(1995): 339-50.
Journal of Small Business Management 34
2. Zheng Gu, “Analyzing Bankruptcy in the
(October 1996): 45-63.
R e st a u r a n t I n d u st r y : A Mu l t i p l e
7. Dodge and Robbins, “An Empirical Investi-
Discriminant Model,” International Jour-
gation of the Organizational Life Cycle
nal of Hospitality Management 21, no. 1
Model”; Christopher Hart, Greg Casserly,
(2002): 25-42; Zheng Gu and L. Gao, “A
and Mark Lawless, “The Product Life
Multivariate Model for Predicting Business
Cycle: How Useful?” Cornell Hotel and
Failures of Hospitality Firms,” Tourism and
Restaurant Administration Quarterly 25, no.
Hospitality Research: The Surrey Quarterly
3 (November 1984): 58-63; and T. Levitt,
Review 2, no. 1 (2000): 37-50; Francis
“Exploit the Product Life Cycle,” Harvard
Kwansa and H. G. Parsa, “Business Failure
Business Review, November-December
Analysis: An Events Approach” (Council
1981.
on Hotel, Restaurant and Institutional Edu-
8. A. L. Stinchcombe, “Social Structure and
cation annual conference proceedings,
Organizations,” in Handbook of Organiza-
1990, Las Vegas, NV); and S. Morse, “An
tions (Chicago: Rand McNally, March
Examination of Restaurant Failure Rates in
1965), 142-93.
the United States,” (Association of Hospi-
9. Josef Bruderl and Rudolf Schussler, “Orga-
tality Financial Educators’ Conference,
nizational Mortality: The Liabilities of
New York, 1999).
Newness and Adolescence,” Administrative
3. Edward Altman, “Financial Ratios, Dis-
Science Quarterly 35 (1990): 530-47.
criminate Analysis and the Prediction of
10. Elaine Romanelli, “Environments and
Corporate Bankruptcy,” Journal of Finance
Strategies of Organization Start-Up: Effects
23, no. 4 (1968): 589-607; William Beaver,
on Early Survival,” Administrative Science
“Financial Ratios as Predictors of Failure,”
Quarterly 34 (1989): 369-87.
in Empirical Research in Accounting:
11. L. Richardson, “The Mechanics of Failure,”
Selected Studies (Chicago: University of
Asian Business, November 1991, p. 85.
Chicago Press, 1968); and Ronald Clute and
12. S. Venkataraman, Andrew Van de Ven,
George Garman, “The Effect of U.S. Eco-
Jeanne Buckeye, and Roger Hudson, “Start-
nomic Policies on the Rate of Small
ing Up in a Turbulent Environment: A Pro-
Business Failure,” American Journal of
cess Model of Failure Among Firms with
Small Business Management 5 (Summer
High Customer Dependence,” Journal of
1980): 6-12.
Business Venturing 5 (1990): 277-95.
4. Robert Dodge and John Robbins, “An
13. Timothy Bates and Alfred Nucci, “An Anal-
Empirical Investigation of the Organiza-
ysis of Small Business Size and Rate of Dis-
tional Life Cycle Model for Small Business
continuance,” Journal of Small Business
Development and Survival,” Journal of
Management, October 1989, pp. 1-7.
Small Business Management, January 1992;
14. Richardson, “The Mechanics of Failure,”
Robert Justis and Richard Judd, Franchis-
85.
ing (Cincinnati, OH: South-Western Pub-
15. Calvin Boardman, Jon Bartley, and Richard
lishing, 1989); and Mahmood Khan,
Ratliff, “Small Business Growth Character-
Restaurant Franchising (New York: Van
istics,” American Journal of Small Business
Nostrand, 1990).
5 (Winter 1981): 33-42.
16. Luann Gaskill, Howard Van Auken, and tion Quarterly 28, no. 3 (November 1987):
Ronald Manning, “A Factor Analytic Study 33-37.
of the Perceived Causes of Small Business 31. Cline Research Group, “Restaurant Failure
Failure,” Journal of Small Business Man- Rate Study,” in Restaurant Owner (Dallas
agement, October 1993, pp. 18-31. Restaurant Association, 2002), www.
17. T. Blue, Carole Cheatham, and B. Rushing, restaurantowner.com; Wilke English, Jo
“Decision Thresholds and the Developmen- Willems, D. Purdy, and J. Stanworth, “Year
tal Stages in the Expanding Business,” Jour- 10 of the El Paso Restaurant Attrition Study:
nal of Business and Entrepreneurship 1 ‘News Flash: Tenure Does Correlate with
(March 1989): 20-28. Investment!’ ” International Society of
18. P. Kottler, J. Bowen, and J. Makens, Market- Franchising 17 (February 2000); Michael
ing for Hospitality & Tourism (Upper Sad- Hannan and John Freeman, Organizational
dle River, NJ: Prentice Hall, 1996), 255-56. Ecology (Cambridge, MA: Harvard Univer-
19. Andrew Zacharakis, Dale Meyer, and Julio sity Press, 1989), 341-35; S. Morse, “An
DeCastro, “Differing Perceptions of New Examination of Restaurant Failure Rates in
Venture Failure: A Matched Exploratory the United States” (Association of Hospital-
Study of Venture Capitalists and Entrepre- ity Financial Educators’Conference, 1999);
neurs,” Journal of Small Business Manage- and C. Muller and R. Woods, “The Real
ment, July 1999, pp. 1-14. Failure Rate of Restaurants,” FIU Hospital-
20. Hugh O’Neill and Jacob Duker, “Survival ity Review 2 (1991): 60-65.
and Failure in Small Business,” Journal of 32. John T. Self, “An Analysis of Restaurant
Small Business Management 24 (January Failure Rates: A Longitudinal Study”
1986): 30-37. (CHRIE Conference Poster Presentation,
21. Stahrl Edmunds, “Differing Perceptions of Philadelphia, 2004).
Small Business Problems,” American Jour- 33. Quoted in www.coloradoan.com (accessed
nal of Small Business 3 (April 1979): 1-14. September 24, 2004).
22. Giri Jogaratnam, Eliza Tse, and Michael 34. For a discussion of issues in qualitative
Olsen, “Strategic Posture, Environmental research, see Donald Ary, Introduction to
Munificence, and Performance: An Empiri- Research in Education (New York: Har-
cal Study of Independent Restaurants,” c o u r t Br a c e C o l l eg e , 1 9 9 6 ) ; Ga i l
Journal of Hospitality & Tourism Research McCutcheon, “On the Interpretation of
23, no. 2 (May 1999): 118-38. Classroom Observations,” Educational
23. Stephen Haswell and Scott Holmes, “Esti- Researcher 10 (1981): 5-10; John Creswell,
mating the Small Business Failure Rate: A Research Design: Qualitative and Quanti-
Reappraisal,” Journal of Small Business tative Approaches (Thousand Oaks, CA:
Management 27 (July 1989): 68-74. Sage, 1994); Kate Walsh, “Qualitative
24. Gaskill, Van Auken, and Manning, “A Fac- Research: Advancing the Science and Prac-
tor Analytic Study of the Perceived Causes tice of Hospitality,” Cornell Hotel and Res-
of Small Business Failure,” 18-31. taurant Administration Quarterly 44, no. 2
25. Donald Hambrick and Lynn Crozier, (May 2003): 66-74; and Robert J. Kwortnik
“Stumblers and Stars in the Management of Jr., “Clarifying ‘Fuzzy’ Hospitality Man-
Rapid Growth,” Journal of Business Ventur- agement Problems with Depth Interviews
ing 1, no. 1 (1985): 31-45. and Qualitative Analysis,” Cornell Hotel
26. I. Sharlit, “Six Early Warning Signs of Busi- and Restaurant Administration Quarterly
ness Failure,” Executive Psychology, March 44, no. 2 (May 2003): 117-29.
1990, pp. 26-30. 35. Walsh, “Qualitative Research,” 66-74.
27. Donald Sull, “Why Good Companies Go 36. M. Whittemore, A. Sherman, and R. Hotch,
Bad!” Harvard Business Review, July- Financing Your Franchise (New York:
August 1999, pp. 42-52. McGraw-Hill, 1993), 3; R. Justis and
28. Spyros Makridakis, “What We Can Learn R. Judd, Franchising (Cincinnati, OH:
From Corporate Failure?” Long Range So u t h w e st e r n , 1 9 8 9 ) , 6 7 0 ; a n d S.
Planning 24 (August 1991): 115-26. Swerdlow, “Foodservice Franchising,” in
29. Joseph West and Michael Olsen, “Grand VNR’s Encyclopedia of Hospitality and
Strategy: Making Your Restaurant a Win- Research, ed. M. A. Khan, M. D. Olsen, and
ner,” Cornell Hotel and Restaurant Admin- T. Var (New York: Van Nostrand and
istration Quarterly 31, no. 2 (August 1990): Reinhold, 1993), 254.
72-77. 37. P. Slattery and Michael Olsen, “Hospitality
30. D. R. Lee, “Factors of Restaurant Success: Organizations and Their Environments,”
Why Some Succeed Where Others Fail,” International Journal of Hospitality Man-
Cornell Hotel and Restaurant Administra- agement 3, no. 3 (1984): 55-61.
38. Richard Ghiselli, Joseph La Lopa, and Billy tion Quarterly 42, no. 2 (April 2001): 28-37;
Bai, “Job Satisfaction, Life Satisfaction & and Self, “An Analysis of Restaurant Fail-
Turnover Intent of Food Service Managers,” ure Rates.”
Cornell Hotel and Restaurant Administra-