One minor, long-term goal for this blog is to build a series of examples of how one follow’s one’s passion and it goes horribly wrong. I call these “passion traps” for short, because it’s easy to blindly follow your passion only to get suckered into a financial and career-hobbling booby trap. More to the point, one such example is where a person pursues a career in one’s passion, usually starting up a business venture, only for that venture to fail horribly and the person’s finances and standard of living to take a huge hit in the process. That isn’t to say that following one’s passion is always a bad idea per se, but if it’s done in the wrong way, and not done while recognizing the limitations of reality, then it can lead to disaster, for both you, and possibly even your family. Read on.
Most of us at one time have entertained the idea – and fortunately, just entertained the idea and nothing more beyond that! – of starting up/owning a restaurant. We like the idea of using it as a venue to entertain friends, to create a local landmark for fun dining, etc. What none of us realize is the insane hours it requires to run, the complex operations, the constant, intense staffing headaches (which alone would drive most of us insane), the thin profit margins on food, not to mention constantly needing eyes in the back of your head to make sure staff members don’t rob you blind, or that your bartender doesn’t serve booze to an underage girl just to curry favor with her later. And that’s the just the short list!
Before we proceed, let us give Mr. Maxwell lots of credit for sharing with the world his cautionary tale. If any of us failed in such an endeavor, most of us would not want to talk about it, let alone chronicle this ill-fated journey in such human detail. It took guts from him to spill his, well, guts, and in such a well-written manner, no less. With that in mind…
Robert Maxwell is an outstanding, indeed, sobering case study of all that can go wrong in owning and operating a restaurant. A self-described foodie from Toronto, he thought that his love of food made him qualified to own and run a restaurant. Anybody with a little common sense and life experience knows that this alone is a facepalm-inducing. But it only gets worse. He soon immersed himself in [Michelin chef] Marco Pierre YouTube videos, bought some fancy knives, and sought solace in cooking fancy dishes for his wife and daughters after coming home from what he thought was a “boring day job”.
Let alone the fact that most of us have “boring day jobs”, but many of those “boring” day jobs allow for us the ability to provide a roof over the heads and food on the table for our families. But I digress…
So, Mr. Maxwell first starts acting out on his passion by owning a food truck, thinking that “thrice-cooked English chips” was enough upon which to build a business. “I slogged through each step of thrice-cooked English chips, my fingers cramping so severely from peeling 100 potatoes that I almost called 911”. Almost called 911 from peeling potatoes? As Butthead would say, “Huh-huh-huh-huh-huh: you wuss!” But seriously, learn to automate, pal.
Other nuggets and doozies from Maxwell’s account of insanity:
- “It was an adrenalin rush like no other. I lost money, but I didn’t care”
That’s a major problem, considering that you go into business to make money (so, again, you can PROVIDE FOR YOUR FAMILY), not to get off on adrenalin rushes (SMH).
- “Eighty percent of first-time restaurateurs fail. I knew this.”
And yet, he still did it. Remember “Einstein’s definition of insanity”? That is, doing the same thing over and over again, thinking one will get a different result the next time. This is a textbook example. You knew the failure rate was high, that the risk was massive and that you’d put you and your family in financial peril, and yet you did it anyway. Too much passion, not enough recognition of reality.
And that failure rate listed above? It’s true. According to a 2005 study from The Ohio State University, 60 percent of restaurants close or change ownership within their first year, and 80 percent fail within five years.
- I looked into a few angel investor groups, but it turned out that they didn’t ‘do’ restaurants.
No surprise there. That’s one thing we all learned in business school. No serious investor will invest in restaurants. The reasons are quite simple. The failure rate, again, is very high, and the equipment tends to be very specialized (turns out the kitchen equipment can only be used for that specific purpose: in kitchens). Who in their right mind would invest in such a high-risk, low-hedge, questionable-return venture? Hands? Another reason for restaurant failure rate is that there is always a saturated market, meaning that there is an excessive supply in relation to relative demand. It’s basic economics.
But it only gets worse.
- “I realized [the restaurant location] was far from the downtown foodie scene.
Again, another red flag. One of the biggest reasons for restaurant failure, aside from supply outweighing market demand, is BAD LOCATION.
- The location was not only remote from good restaurant locations, it was also a building in severe disrepair, and infested with rats. “I wanted it so badly that I convinced myself it was the perfect fixer-upper!” [cringe] “We had started with $60,000; after six weeks, we were down to $3,000, and there was still so much to do.”
Is this guy fixing up a house or a money pit?
- Regarding the two people who showed up to interview to be line cooks: “One was a Chinese exchange student who spoke almost no English; the other was a tattoo-covered trans woman who dressed like a vampire.”
Remember the massive staffing headaches I mentioned earlier? Presenting ‘Exhibit A’.
- “Six weeks after I had signed the lease, my bank balance had withered to just $6 and I had yet to pay a single bill. I owed Jamie (the chef) two weeks’ pay. We had no food at home, and our mortgage payment was due.”
- Between my pension money and cash the people lent me, I was $80,000 deep, with no profit in sight: for every dollar I made, I was spending three.”
Basic business economics dictate that you need to charge prices that will at least cover costs. Yet if the market will not bear that price, then perhaps one should re-think going into that business in the first place. “But, but, my passion….!!” No.
It keeps getting worse:
- “We (meaning, his family) were living like paupers, putting $4 of gas in the car at a time, mining for loose change among the couch cushions, and living off Kraft Dinner. Then the final insult: with a cart full of groceries and two cranky kids in tow, Dorothy’s (his wife) credit card was declined at the local [chain grocery store].”
Correct me if I’m wrong, but Mr. Maxwell’s family was not “living like paupers” when he still had that “boring day job”, now, were they?
- At one point, business actually picks up after a good review. Light at the end of the tunnel? Not so fast: just as things get good, Mr. Maxwell gets the bright idea to pause operations (i.e., temporarily close the place) for a week to take a vacation. “It was a novice mistake. I didn’t have the savings to warrant closing. Cutting off cash flow devastated our account within a week.”
“It was a novice mistake.” No, it was worse. It was a rookie unforced error. Any small business owner will tell you that when you’re struggling to get the business going, even when you get your first taste of success, there’s no such thing as vacation. Taking one at that critical time is tantamount to committing suicide.
Let’s fast-forward to the end, shall we, when he eventually burns through $170,000 by the time he finally has to call it quits.
- Maxwell took money out of his pension and sold his house as part of burning through the aforementioned $170K, and thus came to this tragic pass: “I will likely never own a home again. I borrowed tens of thousands of dollars from friends and family that I must somehow pay back. I promised Dorothy (again, his wife) riches and instead gave her poverty, but she stuck with me through everything.”
Put aside the fact that Dorothy is a patient saint: how many times do I need to go back to how easily all this could have been avoided by sticking to one’s “boring job”?
Ironically, Mr. Maxwell eventually found a far-less riskier way of indulging in this foodie passion: “I regained my love of cooking and started a YouTube channel – a low-cost, low-risk outlet for my passion that Dorothy can live with. I am going to try to make good on my debts, and I will spend a lifetime making it up to my wife.”
What a shame it took this guy $170K to come to the realization of a YouTube channel being a far less risky way of channeling his passion. Best of all, he would not have had to quit his “boring job” and thus he could have kept his family in their house had he just gone this safer route.
Better off putting $170K into T-bills, possibly even T-bonds.
This is never to say that following a passion shall inevitably lead to ruin each time. But do just a little market research before you do anything, and don’t think that you can overcome anything and everything with just a little extra enthusiasm. Reality and market/economic forces simply do not care about that.
We can all learn from failure. It usually teaches us more things than would success. Competent observers have even offered their advice that we may all learn from this cautionary story.
Best to follow Mike Rowe’s advice to chase opportunity, and bring your passion along with you. If you still have other passions for which you need an outlet, the YouTube channel is a sensible route, and you won’t burn through almost $200K that you likely will never pay back and compromise your family’s life in the process. Let us use this horror story, er, case study, as a teaching tool whereby we continue to learn and grow together.
Sources:
https://www.businessinsider.com/why-restaurants-fail-so-often-2014-2
https://www.thebalancesmb.com/ten-reasons-restaurants-fail-2888628