The oft-cited stat that 90 percent of restaurants fail in their first year is one of the big reasons I haven’t tried to open a little place of my own (that, and the oft-cited fact that most restaurants put their owners deep into debt). But according to hospitality management professor H. G. Parsa, who tried to track down the origins of the 90 percent figure back in 2005, it’s a load of bunk: The real failure rate is about 60 percent, the same as the nationwide, cross-industry average for new businesses. Parsa’s research made a huge splash in trade journals, but why won’t the myth die among the general public?
Because of the belief that restaurants are high-risk investments, he says, many banks won’t lend to restaurants at all. Typically, the ones that do require would-be restaurateurs to pay sky-high interest rates or put up significant collateral (say, a house) to mitigate the perceived risk. … Ironically, Parsa’s research identified lack of sufficient startup capital as one of the major elements that contribute to a restaurant’s failure—making the myth a self-fulfilling prophecy of sorts.
The media also keeps the dubious stat alive by quoting experts who parrot it and then not bothering to fact-check those experts (BusinessWeek counts itself among the guilty parties here).
Plus, the number just seems correct to many people, given all the spots that open and close each year, but that’s actually because opening a restaurant “has such low barriers to entry and exit,” the article explains.
Really? Low barriers? See ya—I’m off to start that café.