The Magic of Thinking Backwards (and restaurants)

June 2, 2015

I was watching a Gordon Ramsey show.
Not the yelling, be as rude as possible, loud, shock-value US version. But rather a much toned-down UK version.

In the series, he would visit a terrible restaurant and help the owners turn it around.

Something he said to one of the suffering owners really struck a cord. Everything on her menu had expensive ingredients and took too long to make. He asked her why that is. She didn’t have a good answer except that’s what she wanted to serve.

Except the prices were too high. The food took too long to cook. And no one was coming in. She was about to go out of business.

She needed to toss her entire menu and start over.

He recommended she start with cheap ingredients that could be put together fast and with good margins. Something like pasta.

And he mentioned that the general rule of restaurant pricing is 3x. If something costs you $3 to make, you charge $9. This will likely cover all your expenses (rent, staff, etc).

Table turnovers also matter.
In this one restaurant book, the author mentioned how he knew if a place would go out of business just by looking at them. A lot of restaurants did not have enough tables to make the money it needed per day to cover rent and other expenses.

This kind of blew my mind.
I had never heard it explained like this before.
These two guys were thinking backwards.

Most people start restaurants because they like to eat or cook food. And it sounds cool to start their own place. When setting up a menu, they think of all the items that would be nice to serve. They find a location, maybe close to their home. Hire family & friends. And so on.

Instead, we need to start backwards.
How much money do you need to make to stay in business.
What price range per meal would you like to serve?
$5 // $5-13 // $15+ // $30+
Is it self service or a white table with expensive staff & tipping?
All these things matter in choosing your location, menu, and # of seats.

Wild.

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“In solving a problem of this sort, the grand thing is to be able to reason backwards. Most people, if you describe a train of events to them, will tell you what the result would be. They can put those events together in their minds, and argue from them that something will come to pass. There are few people, however, who, if you told them a result, would be able to evolve from their own inner consciousness what the steps were which led up to that result. This power is what I mean when I talk of reasoning backwards, or analytically.” – Sherlock Holmes

“Think forwards and backwards — invert, always invert” – Charlie Munger
(here is a thinking puzzle he gave his kids)

Restaurant Success By The Numbers – book i was talkin about
Quick guide on pricing restaurant menu items
Facebook and the St. Petersburg Paradox – good article on thinking backwards, how much fb would need to earn in order to justify high-priced ipo