 No one talks about this in the cloud kitchen space, yet it is super scary because your business can easily be taken away from you. Today, we're gonna be talking about the four shocking reasons of what you should look out for when starting your cloud kitchen. And I'm gonna share with you a personal story that has happened to one of my subscribers so then that way you can avoid it at all costs. So make sure you guys keep watching until the end. Hello friends, my name is Wilson, your friend in helping you build a thriving small business and a profitable food business. Are you starting a cloud kitchen business? If you are, let me know in the comment section below. Cloud kitchen has been all the rave in the recent years. We're talking about big companies jumping onto this trend like Applebee's, Walmart, Starbucks, McDonald's, all these big brands are jumping on. And I've talked about a ton about this business model. We talked about the pros and cons. We talked about the different business models. We talked about how do you set it up? But all of this is not just all rainbows and sunshine. Anything that has a low barrier to enter with a lot less labor required and heavy in operations is actually very difficult to get, right? And a lot of people fail. But before I dive into the four shocking reasons of why cloud kitchen operations fail and the shocking scary story that you must avoid, please go ahead and smash like button because it's gonna help the YouTube algorithm to show it to more cloud kitchen operators so that everyone can avoid the mistakes that my subscriber has made. Smash and the like button will really show this video to more people. And as a way to thank you, here is a picture of a kitten just to brighten up your day. The first reason why cloud kitchens fail is because owners, new time owners, they fail to leverage the characteristics of a cloud kitchen. They only create one brand out of the kitchen. The beauty about cloud kitchen is that you're not bound to one concept because not like a restaurant where you're creating the whole atmosphere environment just to serve one clientele and one cuisine, with a cloud kitchen concept, you can actually operate and sell multiple different brands out of this one location. So if you put all your eggs into one basket and if it does not work, then chances are, you're most likely gonna go out of business. Rubble Foods, one of the largest internet food restaurants out there, they actually started as a kebab restaurant called Fazuz and now they're only one out of eight different restaurant concepts. A Chinese concept called Mandarin Oak, a pizza brand called Oven Story and a brand called Baro's, which sells slow cooked rice dishes. So what do they do? They use geographic data and software to analyze what is in high demand in different areas and then they create brands to actually launch to the market. They're selling what the market is demanding and that's the reason why they're super successful. Now, if you do not have access to these softwares, what can you do? There's a simple way for you to hack the system. What do you do? Open up your third party delivery app, look for the most highly reviewed restaurants and then look at their most popular item. Then you're gonna find the most in demand product within that area and that is the item you should be looking for to create a new brand out of. Create this item using a new brand with your own twists. The second reason why a lot of first time cloud kitchen operators fail is that they sign on a long lease. Now, typical restaurant leases we're talking about three to five years and in Asia where competition is even more furious, those are one year leases. But the beauty about cloud kitchen is that you can sign on small and short-term leases without much obligations. Anything longer than six months, you run the risk of heading into sunk cost fallacy, which means individual commit the sunk cost fallacy when they continue a behavior or an endeavor as a result of previously invested resources such as time, money, and effort. So what does this mean? That means that you've already invested a ton of money into it, $20,000, $30,000 into the pot and now it is so hard for you to let this go of the sunk cost, you already invested into it. You know what, let's do it for another two months. Let's do it for another three months, another five, six months. That's the reason why a lot of people head into personal bankruptcy because they're stuck in this sunk cost fallacy. You should always revisit your business every three to six months to see whether your product is in demand or not, whether you need to pivot, whether you need to call quits. If you're doing well, if your product is really, really in demand, then you can easily renew. But if not, it is time to review to see if you should either pivot or just close up shop completely. You do not wanna fall into the fallacy of what my subscriber has followed, the scary story which I'll share with you in just a second. And that's the reason why I highly recommend you guys to look for cloud kitchens and operation space that gives you the flexibility in the least terms. The third reason why the majority of the cloud kitchen operators out there fail is because they're terrible with their numbers. You must understand your numbers, especially if you are operating out of a cloud kitchen because the 20 to 30% new commission fee from these third-party delivery apps like UberEat Store Dash, they can easily kill your business if you're not careful with your cost of goods sold and your labor. But what won't kill you is smashing the like button so then that way it helps with a YouTube algorithm. So then that way we can show it to more people to avoid this big pitfall. Now part of understanding your cost does take some trial and error. Knowing your cost of goods solds which includes your packaging, which includes all your cost of goods solds and your production and prep time would allow you to set the right margins and to set the right prices. So then that way you can have enough buffer in order for you to account for the 20, 30% commission. Knowing how much your labor cost is so then that way you can account for the output that they create. So then that way you can account for how many people you need during rush hours and how many people you need for your prep times allows you to stagger shift. So then that way you're not gonna have this influx of labor costs that is hanging over your head. And at the same time, knowing how to cross train your staff and your labor. So then that way they can help you out with either finance, operation, marketing to really grow your business and to minimize your cost. The lack of clarity in your numbers is like you driving in the dark at night. You're bound to head into trouble. So make sure you guys know your numbers. The fourth reason why cloud kitchen operators fail is because they rely too heavily on third party apps like Uber Eats, DoorDash, Grubhub and the likes. If and when these apps decide to pay you a little bit later or a few months later you might easily go out of business because of the lack of cash flow. And at the same time you have no customer information and data that you can actually serve to later on or you can bring it to another platform. You have none of those. You are at the mercy of the third party apps. Imagine for a second guys, imagine these third party apps a few years down the road. They create the same exact same brand offering the exact same food that you're doing. Now when people search for Bob's Pizza you're nowhere to be found because now they have Uber's Pizza right on top of yours. That's a very scary scenario. Case in point guys, look at Amazon. Amazon created Amazon basics because they saw how popular some of the different brands are selling on their platform. They were seeing their sales analytics. They were seeing everything that is happening and as a result they realized that hey, you know what? I could sell the same thing. Now I can push you down. So when people are searching for supplements, when people are searching for iPhone cables I can push them down and I can have my own brand above theirs. And that's the reason why they have pushed a lot of people out of business. The businesses that were not careful, the people that did not have the insight that these big giants could easily pull the rug from out under them. This is exactly what could happen to you my friends. If you're making some amazing wings, Wilson's wings and all of a sudden Uber eats they can create Uber's wings and push me onto the very bottom. And now my restaurant, I don't have any anymore. I would not be selling any wings because I'm relying on these third party apps to sell my wings purely. For me to combat this, I need to be able to create my brand outside of these cloud kitchens. I need to own my customers. I need to have my customers on Instagram, on my email list, them knowing my brand for what it is and having the ability to order directly from me from Wilson's wings. And this is exactly what has happened to one of my subscribers called Delusion. He actually reached out to me to tell me to share this story so that that way other people can see this, learn from it and to avoid from it at all costs. He was running a really busy concept and all of a sudden, the third party app, they decided to stop his business to stop everything he was doing because, well, they didn't have enough drivers. And he was losing thousands of dollars people were not able to order from him all because of the difficulties that the third party apps were having. And as a result of that, he was losing a ton of money through his business. And at the same time, another big, big flaw is that whenever customers cancel or the delivery driver cancels, no one else eats the costs except for the brand owner because third party apps, they don't care. Customers, they don't care. Drivers don't care. They put all the costs back onto the cloud kitchen operators. Just imagine for a second, guys, that you have not figured out your numbers. You have not have enough margins baked into the price that you're selling to account for these cancellations, to account for these crazy happenings that are caused by either customers or the third party apps. You can easily be losing money every month that you're selling. And that's the reason why I highly recommend you guys to take back control and not rely on strictly these third party apps. I would recommend you guys to set up your own delivery system, to set up your own website so then that way you can take orders from other areas of your business. Use Square Online because they allow you to set your own pricing on delivery. They allow you to take orders online. All of this for free. Now, as a disclaimer, they're not the sponsor of this video. I'm just recommending them because they're that great. If you guys wanna check it out, definitely check it out in the link below. Square Online is a platform that I personally use and this is something that I'm recommending it to you. They do not have monthly fees and that's the reason why they are so great. Truth is friends, from all the talks that I have with restaurant owners and cloud kitchen operators, we all feel that these third party apps, they don't care about you at all. And I care about you. And which is the reason why I created this video to share with you the pitfalls that you should avoid. Ways to maneuver around them. Ways so then that way, other people that are aspiring to create their own concept, they can create something successful. And if you care about me as well, as much as I care about you, can you please make sure you smash the like button so then that way it helps with the YouTube algorithm to show it to even more people. Really hope that you guys enjoyed this video. If you guys do, make sure you guys smash the like button. Otherwise, I'll see you guys in the next video.