It became increasingly difficult to ignore the fact that eighty percent of all small businesses fail within first five years. Indeed, a set of different problems may be developed within first years of existence, which is why the issue received a considerable attention in the field of management. Hence, various definitions for failure were suggested and management solutions were adopted. However, each problem is unique and thus requires a particular approach for its resolution depending upon certain business environment, which a small company currently acquires. The following paper dwells upon the essence of the small business failure and practical advice on the solution regarding Santa Fe Mexican Restaurant.
Santa Fe Restaurant epitomizes the small restaurant that was involuntary closed due to bankruptcy. In fact, the business failed to survive the first two years of operation, as the revenue did not exceed the costs and resources spent. The company engaged fewer than twenty employees into conducting the business. As for the ownership, it belonged to entrepreneurs originated from Mexico and, eventually, this conditioned the choice of the cuisine served. It was fair to say that it was an authentic restaurant with the unique service rendered. Nevertheless, the restaurant management suffered from some serious limitations in terms of strategic planning, finance and managing the employees. Therefore, a careful consideration should be given to the external and internal factors that affected the business performance significantly.
It is increasingly apparent that the restaurant industry is constantly changing, which is why it is necessary to be aware of some dynamics of its development. Considering the time, when Santa Fe Restaurant was launched, the company had a competitive advantage in the industry. Namely, the Mexican restaurant was the only one of its kind in the area and claimed to be particularly remarkable for its unique selling point. With respect to the fact that the previous decades had seen a rapid increase in the demand for Mexican style of cooking, the small company was challenged to compete harder in order to achieve desired financial results. Needless to say, the restaurant had numerous key-competitors at the market. To be more precise, such large Mexican chain restaurant as Taco Bell was built near Santa Fe Restaurant. Subsequently, the small company failed to exist.
Furthermore, it is critical to touch upon the target audience as a key instrument in achieving success. Santa Fe Restaurant was located near the local school, so that the students could dine there during the break. Hence, it is hard to deny that the company fitted the need of the audience. In addition to that, the restaurant occupied the place with the high human traffic. Thus, it was a visible and accessible place, which was frequently visited.
In essence, the success of small business heavily depends upon the right choice of direction towards the thriving performance. In other words, an efficient mission/vision statement plays an important role in the maintenance of income stability. With regard to Santa Fe Restaurant, the mission was focused upon significant business achievements of the company. It is worth admitting that the mission covered several aspects and suggested particular strategies to prosper. As for the vision statement, it was rather broad in nature, as the generic phrases were employed. The vision was written in the future tense and spoke of the importance of becoming the neatest place to try Mexican cuisine.
Reasons for Failure
It is reported that in most cases small businesses fail due to poor strategic management. In the research on small business, Moya K. Mason (2014) mentions that it is essential to recognize potential threats and eliminate them in time. Hence, it is important to touch upon the risks to which Santa Fe Restaurant was exposed to due to poor strategic management. The problem of location is viewed as one of the major issues that contributed to the business failure (Audretsch, Grilo, & Thurik, 2007, p. 19). Initially, the location of the small company was virtually well-planned. However, it was pivotal to provide a study concerning market and customer data. The idea of studying the business environment was dismissed as the one that is not worth being considered. Consequently, the opening of the new Taco Bell restaurant led to the lack of uniqueness. Moreover, the new company was considered a cheaper alternative to Santa Fe Restaurant. It is obvious that the target audience of the area, namely, the students, opted to dine at Taco Bell, as the food was less expensive, and the service was faster. Thus, the reduction in the number of customers led to the aggravation of financial problems.
Robert D. Hastings (2011) states that spending a great amount of money and time to design a web-site but failing to create powerful mission and vision is another reason why the restaurants became unable to pay debts (p. 107). The company’s mission was unexpectedly poor due to the lack of knowledge in the field of strategic management. To speak about the mission statement in a more specific way, it is important to note that it defines the owner’s need only. Robert D. Hastings emphasizes that the main task of a vision statement is to determine a particular strategic tool for the company to use accomplishing its major goal. Failing to create a strong vision means not having a clear idea of the company’s future (Hastings, 2011, p. 108). Considering the vision statement of Santa Fe Restaurant, some drawbacks may be found in its functions. It did not specify how the company was going to become the neatest place to try Mexican cuisine. In addition, the vision was not altered in the course of time, though the minor changes in terms of restaurants discrimination needed to be shown. The fact that the vision statement was written in the future tense also has a negative impact upon the business promotion, as it presupposed that the present was entirely different.
According to the study by Robert D. Hastings (2011), an inadequate financial control may also contribute to the small business failure. The knowledge of financial management is important at all levels in the maintenance of financial assets (p. 65). Santa Fe Restaurant did not manage to budget company growth and to control daily operations with the cash. Inaccurate cash flow analysis led to financial neglect. The company had no more cash left and thus it could not stay abreast of the competitors.
Besides, the human resources manager failed to provide the well-being of the staff. Sapru (2013) claims that the manger is to identify and satisfy the employees’ needs for them to work efficiently and willingly (p. 112). Poor performance of Santa Fe Restaurant may be attributed to the lack of motivation that affected individuals’ behavior at work. Above-mentioned problems with accounting and planning mostly occurred owing to incapacity to determine the interests of the staff members. Apparently, the employees’ needs were not satisfied, which is why the situation within the economic environment was no longer tolerable.
Analysis of the Failure
Robert D. Hastings (2011) states that managing the risk to which a company is exposed to is a strategic decision that may help prevent the small business failure. The threats differ substantially depending upon the market and products (Hastings, 2011, p. 99). Regarding Santa Fe Restaurant risks, it is necessary to admit that the nearby location of the competitors had a negative impact upon the company. The restaurant should have foreseen that the location near the school was not preferable, as the target audience was predominately students, who could hardly afford dining at the authentic establishment. Nevertheless, the company could have overcome its financial problems changing the target audience and promoting the unique selling point. It was no longer enough to offer Mexican cuisine, as neighboring Taco Bell acquired the same advantage. It was critical to obtain some privilege that would have made the restaurant stand out among its key competitors. The company could have benefitted stressing on the uniqueness and authenticity of its services. In that case, it is recommendable to provide strong emotional connection with a customer, so that a memorable experience of visiting the restaurant was ensured. Hence, the company needed a drastic change in the selling point. Santa Fe Restaurant should have offered friendly environment of Mexican home or romantic atmosphere in Latin American style.
Furthermore, the fact that the mission and vision statements were badly composed was a contributing factor to the inadequate policy of the company. Financial prosperity of the owner was not a sound reason to set up the business. In fact, the mission statement had nothing to do with the value to the potential customers. Ideally, the mission should have explained why a customer would benefit from visiting the establishment (Minniti, 2007, p. 89). Moreover, the mission should not be presented in more than two sentences. Otherwise, it produces an effect of redundancy, which prevents from clear understanding of what a company does on a day-to day basis in favor of the society. With respect to the vision statement, the owner should have defined the exact purpose of the company’s existence and a particular view of the company’s future. In other words, it was increasingly important to generate the vision that would have provided a direction and inspiration for the restaurant staff. Therefore, a new vision should give a substantial idea of the final outcome. For instance, it may speak of the customers’ satisfaction achieved by integrity, teamwork and commitment to the quality of the service. Thus, a clear focus is provided by the key words: integrity, teamwork and commitment to the quality of the service.
Apart from the mission and vision statement, poor accounting precipitated the escalation of the company’s at the market. The balance sheet, supply list and income statement should have been taking into account to control the operations with the cash. The owner of the restaurant had to practice financial record-keeping or to hire an educated expert in the field of accounting. Additionally, the search for additional investments may have been suggested. In that case, it was necessary to possess good negotiation skills to attract the investors, who would have helped the company to survive a crisis (Audretsch, Grilo, & Thurik, 2007, p. 34).
Managing human resources is an aspect that was not properly considered. The employees are to be motivated by the reward for their sufficient work. The human resources manager or the owner himself should have identified employees’ concerns and interests to improve working environment significantly. It is desirable to provide the opportunities for the workers to get recognition or personal growth. Regarding Mexican and American staff of the restaurant, it is to be said that the feedback is a useful mechanism in dealing with the representatives of different countries.
All in all, starting a small business involves certain risk of a complete failure. However, the failure rate may be significantly reduced by realizing major reasons and employing particular business strategies to avoid or fix the problem. Thus, the evidence of Santa Fe Restaurant failure suggests that the lack of planning, financial neglect and dysfunctional human resources management resulted in financial crisis and bankruptcy. Consequently, the solutions were found to the issues to eliminate threats.