Restaurant related web startups

Here's something to think about for those of you who offer online / web related services to the restaurant industry.

What, if anything, did you misjudge about working with restaurant owners and managers? How did it affect your business? What did you do to fix it? Any "insider" tips or experiences that you would like to share?

(The text below was adapted from my blog post at http://dinesxm.blogspot.com)

Imagine the following conversation, taking place sometime in the summer of 2007:

Angel investor: "So, you want to build a reservation engine for restaurants in your vacation destination area?"

Me: "Ehm, yes... I think that visitors like to plan parts of their vacation ahead of time. Returning timeshare owners, for example, often go out to dinner with groups of friends they've met on previous visits. A lot of couples look forward to romantic dinners on the beach. Even people who live here year round go out for dinner a lot, they celebrate birthdays, holidays and family events. And then there's Valentine's, Regatta Week, Harmony Nights, you name it!"

Angel investor: "Ok, maybe... But, how will you make money?"

Me: "Well, the way it would work is that we'd ask restaurant owners to pay us a small fee for taking the reservation. There are a few hundred restaurants in this location. The website could grow fast and become really useful if we can offer the service at a low per-unit cost. We'd need to be able to achieve some volume, but here: just take a look at this spreadsheet! It's a conservative estimate, with 30% market penetration and an average of 1 booking per participating restaurant a day."

Angel investor (smiling): "I see. And that's just at one location... Did you think about offering the service elsewhere?"

Me (excited): "Duh, absolutely! We already registered the domain names for a dozen other places in the region. Once the site takes off, it will be easy to show restaurant owners in other nearby places how they can benefit too..."

Angel investor: "Hold on one sec."

The investor taps away at his keyboard for a few seconds and heads off to pick up a printout... As he returns, he hands me a sheet of paper and continues:

Angel investor: "The idea sounds nice, but something worries me. Have you seen this Business Week article on restaurant failure rates? American Express said that nine out of 10 restaurants fail in the first year. This university guy Parsa at Ohio State thinks it's less - but still... How will you get paid if restaurants go bust before you can get them to make good on your invoices? (laughs) You'll probably spend most of your time updating the website and keeping track of all the closings anyway. Forget about collecting - there's not enough time in a day! It's a no-go, sorry!"

Me (speechless): "No, wait..."


Unfortunately, such a conversation never took place. Even though we did a lot of research before starting our company and I actually did read the article during our start-up phase, the consequences of a high restaurant closure rate on our ability to do business were not as clear to me then as they are now...

So what's your story? Share it :)