February 27, 2013

If you live in Southern Oregon, you may have read about the death of the Old Farmhouse restaurant chain. It’s a sad story when any local business closes, especially one that had five locations and 40 employees. Local owner Greg Cordova admits it was a classic case of growing too fast on a shoestring budget with limited cash flow. Cordova also believed that if you got bigger and had more restaurants, you would increase cash flow.

Most small businesses do fail because they are under capitalized, so they are totally focused on cash flow, not profit. But I think there is another lesson here. Creating a successful small business may take skills you can’t learn by managing a bigger business.

Cordova was a district manager for Shari’s restaurants, a highly successful chain, so he certainly knew the restaurant business. But what he didn’t know was how to create resources. As I state in my book, many talented executives of successful larger firms launch small businesses confident that they have the knowledge to succeed.

But the truth is, if you are a big company manager you may only know how to direct resources, not create them. You solve business problems by applying company resources, i.e. money and people. When you are a small business owner you often don’t have ANY resource except for yourself. You can’t call on your comptroller, marketing director or HR manager for help. In most cases, it’s you. Period.

That’s why it is critical that you educate yourself before starting a business. Reading business and marketing books (my book is a good place to start), taking an accounting class, and getting counseling at local business development centers are examples of some critical steps in making sure you, as the prime resource for your business, will be prepared.

One comment

  1. It amazes me that anyone would want to enter the restaurant business as a local owner here. I think people get cullinary stars in their eyes and clearly, yes, lose sight of the bottom line until it is too late. How many times have we seen this happen? Many dozens in my years here. Long term survivors are few and far between. You must have something truly special where food and atmosphere are concerned and this often involves a certain personality as an anchor. Danny Lafonde of Deli Down comes to mind. His operation succeeded for decades, but as soon as he left, Poof! Multiple ownership failures/changes.

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