On my first day of business school, they put all the brand-new MBA students in an area and taught us the very first lesson they needed us to learn. It was known as”Porter’s Five Forces, or the reason you should never go into the restaurant industry”.

Porter’s five forces is a method of evaluating competition in a market. We used the restaurant business for instance.

Competitive rivalry – Are there other companies doing the same thing you are? For restaurants? YES

The threat of new entrants – How hard is it to begin a business in this industry? For restaurants maybe not all that hard. $50,000 or not for a hole-in-the-wall pizza combined. Less for a sandwich shop

A danger of replacements – Could people not buy your product and purchase something else instead? For restaurants? Sure! They can cook in your home

Bargaining power of suppliers – Can your suppliers squeeze you by raising costs? For restaurants? There are not very many providers of food to restaurants. You CAN store but you might have limited options

Bargaining power of customers – Are your customers sensitive to changes in cost? For restaurants? YES!

Competitive rivalry – Are there other companies doing the same thing you are? For restaurants? YES

It is hard to succeed at the restaurant industry. The deck is stacked high . Lots of new restaurants fail to”catch on” and neglect in less than a year. For the ones that do find a following, gains are fairly low.

Most”mom and pop” restaurants which survive provide a living wage to the owners, but to do so the owners (and frequently their immediate family) work long hours, occasionally 80+ hours weekly.

They are often not”paid” — they simply receive the gains that flow from the company after all costs are paid.

Yeah, it is a living, but not a good one.

Thanks to Brandon for his input and proofreading this article.