Step 37 - Why Restaurants Fail
This lesson lets us understand why businesses fail and how we can set our business up for success by controlling the three of the classic areas of production, land, labor and capital.
Often businesses fail, historically speaking on above average rate at restaurants, and often times we wonder and try to understand, why they failed. Was there too much competition? Was the price not right? Was the quality bad? But by looking and our poor-friends/rich-friends linear segmented patterns we can break failure down to the three classic factors of production:
- Land (Network)
- Labour (Skill)
- Capital (Cash)
Land In the modern world, land is outdated and we mean connections by it. Those positional advantages are meant by the quote “it is not what you know but who you know”, that is regarded as land.
Social people have a tremendous amount of network, and if we lack of connections, we have to improve on this matter, because one of the things that makes us win at war, is knowing the terrain (Lao Tzu). In a competitive world of 7 billion people we have to use any positional advantage, so that the competition has to run uphill to compete with us.
And that advantage is necessary, if we don’t want to build on weakness, because will have a hard time standing up and thriving, in a competitive world of 7 billion people. It is not about taking advantage, but more of having an objectively advantage. We can’t build on weakness.
If we lack here, we need to pick up a book on “How to win friends and influence people”, learn persuasion techniques and improve on this.
Labour Labour is our skill and the skill of the team around us.
We need to work on our personal skill. The more you learn, the more you earn. To get what you we, we have to deserve what we want, the world is not yet a crazy enough place to reward a bunch of undeserving people. The easiest way to deserve it, is because of the amount of skill that we bring to the table. So we need to have a tremendous amount of skill. Going streight to the top, with the Law of 10%, so pick your mentors carefully. And with the Law of 95%, that states, that we have to be among the 95%, 96%, 97%, 98%, 99% and 100% of our industry.
Capital Capital means Cash. Free cash that we have available to invest. It takes money to make money, this is certainly true. But there are always exceptions, because many people have started from nothing. And there are also people who have raised a ton of money through private/public investment, bonds, credit card, franchise fees, licencing fees, consulting, the list goes on. But the simplest one is being a good steward with the money we have right now. Joe Salaton lived 7 years with his wife in his parents attic, so he could save enough money to build a farm and his dreams. In 20 years he spent only $500 on cars.
At some level people get what they deserve, and the people who have been good with the money have the probability on their side. Therefore balance consumption and savings.
So why do restaurants fail? Generally it is as simple as not having these three components. Either by missing out on one or more of these classic factors of land, labor and capital.
This lesson, among with the other lessons of the 67 Steps, are here to increase our understanding of why things fail, so that we don’t wonder what happen, but watch what happen, to be able to make things happen. is to give you an understanding, of why things fail. Ask every business which failed, how well they were connected? What their labor was and their capital?
By isolating patterns through our rich-friends/poor-friends methodology we will be able to put patterns into perspective and piece things together so that we will come to a place where we have knowledge and understanding, where we can make good decisions and where we can even start a restaurant and not have to worry about failing.
These three classical areas of production can also be applied to every other area of the good life.
In health, where we try to change our body, we can see land as whom we are connected with. Labor is what health, diet and excercise knowledge we have in our brain by reading books and capital is the amount of cash we are able to spend on health, since gyms, healthy food and personal trainers are expensive.
In love we need land to make more friends, it takes labor to be empathic, respected and likeable and it takes money to make gifts and buy plane tickets to go visit them.
So these three classic factors are applicable to every area of the good life.
Imagine yourself trying to compete with Warren Buffet in building and investment company. Sit down and compare youself on these three areas of production with Warren Buffet and find out if you beat him anywhere: Do you know more people? Do you know more about investment? Do you have more capital?
Even if a person has every competitive advantage compared to you, as long as you pick a niche where he is not and does not want to be involved in, like for example the internet, our competitive disadvantages do not matter.
Think about the difficult times in our life, might they be right now, the source of the difficult has always been either a lack in those three areas of production or we were competing with people who had much more momentum in these areas.
Therefore we need to get out and encompass those three areas of production and pick a niche at something specific, where we have a competitive and comparative advantage. It is not just being good at land, labor and capital. It is being good in comparisment to the others opportunities that customers have to do business.
Be good. Find your advantage. And you will be in your optimal state, which will make you happier. Knowing and implementing what we learn here, will be giving us a head and shoulders advantage.