Want to scale a restaurant business? Listen to your heart.

By Nandu Awatramani

I’m in a small music shop in New Orleans, learning from the owner how to create rhythmic beats using snippets from famous songs. DJs use these beats to join two soundtracks together, so you keep dancing.

As I’m listening, I begin to think about the talent that came together to create these timeless classics. I can’t help but see the parallels to running a restaurant well. It takes artful collaboration to produce a great song, and it takes a well-coordinated team to run a successful restaurant business.

Unfortunately, most restaurants don’t have one. Go in one night, and the experience is fabulous; on another, it’s the complete opposite. You wonder, What happened to all the servers I used to know? How come everyone is so unfriendly? Why does the food taste different?

The majority of restaurants can’t focus on providing a consistently enjoyable customer experience because they have such high turnover. Turnover has plagued the restaurant industry for a while but it’s only getting worse. In 2018, turnover in the restaurant and accommodations sector hit 74.9%, up from 72.5% in 2017, according to the U.S. Bureau of Labor Statistics.

So why is turnover getting higher? Some blame it on slow wage growth, competition for talent from higher-paying industries or a new generation of ungrateful job hoppers.

I did too—until I realized what was really wrong: I was treating my employees as a commodity.

That’s not a pleasant thing to admit, but it’s true. And I believe it’s the case for many restaurant owners. We don’t prioritize being employee-centric over being customer-centric.

Unmanageable turnover

I didn’t realize it at first, of course. When I started my first restaurant in India in 2002, I was passionate about the idea of making Italian food accessible to the masses in my country. At the time, it was available in high-end restaurants, and I knew that because of the similar ingredients to Indian cuisine that it had the potential to catch on quickly, at the right price point.

And it did. At its peak, my chain, Food Factory™, had more than 16 locations. But by 2009, I had a terrible employee turnover problem that I couldn’t ignore any longer: 65% of my employees were leaving me every year. I had to scale back to eight restaurants because the problem became so unmanageable.

We were constantly working in a state of emergency, as a result. The stress and anxiety were getting to be too much. I started neglecting myself, eating at odd hours and chain-smoking. My relationships took a back seat. All I did was work and stress out about my company.

Facing the brutal facts

Finally, after a particularly bad day, I decided to sort things out. I called an HR consultant and asked her to come in and observe my business, with the hope she could pinpoint what I was doing wrong. 

After three days visiting my restaurants, she came back to me. 

 “Nandu,” she said, “your employees will stay longer with you if they, one, can see opportunities to grow in their career, two, feel valued and, three, get paid more.”

I felt helpless. I was already doing my best. 

“Paid more?!” I found myself ranting in frustration. “I’m already paying my team much more than I can afford. My profit margins are razor-thin.”

But despite my own words, I knew I had to listen to her. 

I went back to my profit and loss statement and started running the numbers. What would it cost me to pay the team a little more than the industry average? And what would the impact be on the bottom line? 

It wasn’t pretty. Thirty-percent of my profits would vaporize. 

I decided to go ahead with the pay raises anyway. I’d already tried everything else I could think of. I’d studied other industries to see what they were doing. I’d attended conferences and seminars and met with CEOs who had successfully stopped turnover in their own companies. None of it had worked for me. I had no choice but to listen to the HR consultant. 

So later that week, I made an announcement. We’d be giving everyone a pay raise, and, if the company’s finances could sustain it, we would raise salaries again soon.  

When we had our weekly restaurant managers’ huddle a few weeks later, the managers were visibly happier. They’d told me for months about the complaints they were getting from employees about their paychecks. Now they finally could concentrate on the business

The missing piece of the puzzle

Their happiness wasn’t just about the money. The HR consultant had said we should offer our team more opportunities for career growth but at the time, we didn’t have many open positions. We decided if we couldn’t help every employees grow professionally, we would help them develop personally instead. My training manager started coaching team members on managing their personal budget, instead of continuing our formal corporate training program, which even we found boring. We went on to create training in areas such as meditation and negotiating better. We held the training during the workday, so it didn’t cut into their time off. 

About 45 days after our original audit, our HR consultant came in and re-interviewed our employees. As she read through the results of her survey, one statistic stood out: 90% of our team said they had no intentions of leaving the company. That compared to 35% when she originally queried them. 

Was it the higher pay? Was it our training program? I believe it was a combination of both. The changes we made were so successful in helping us retain our team that I reworked the employee incentive plan to give everyone a chance to earn even more.

The incentives weren’t only about achieving sales targets but covered several other intangible and tangible attributes of our business that directly went to improving our customers’ experience, as measured by their customer feedback score. The combination of paying team members more, helping them develop personally and incentivizing them ultimately improved employee retention. Team members began to show signs of taking ownership and initiative in achieving their targets, which helped the company earn more.

92% retention

In less than three years, we improved our employee retention from 35% to 92%, three times better than the industry average. We also increased our profits by 212% and revenues by 296%.

Suddenly, employees from big restaurant brands were lining up to work for me. They had heard that working in my company meant being treated with respect.

Unfortunately, by the time I made all of these positive changes to my business, it was too late for me personally. I had a heart attack and—initially misdiagnosed because I was under 40 years old—lost 33% of my heart’s capacity. Sometimes when we operate in a crisis mode, it’s as though the adrenaline protects us but when we relax, the after-effects of the stress show themselves. 

So here I am three years after the heart attack, living in New York City. I’m back in the game and am grateful to have the opportunity to coach and share with restaurant owners what I’ve learned about how to retain employees and scale restaurants profitably using the many invaluable habits, disciplines and techniques I learned from Verne Harnish, owner of Gazelles, who has helped many companies around the globe grow and scale exponentially. 

I know some restaurant owners will feel the same way I did when my HR consultant gave her initial diagnosis of my business and reject my prescription. But I hope that, just as I eventually did, they will see that the only way to grow their business successfully and sustainably is to treat their employees as individuals and not as costs on the profit and loss sheet. Investing in my team in ways that were once unimaginable to me was the best decision I ever made. 

Nandu Awatramani is the founder of F&B Business School , where he coaches and advises restaurant owners and management teams on breakthrough ways to organize their business, increase revenue, and improve employee retention so they can expand their business successfully in today’s tough market. Follow him on fandbbusinessschool.com.