Sized down, but not out

A little focus will go a long way right now

(Photo by Roy Rochlin/Getty Images)

It’s been a grim few weeks for financial markets in the US. Experts are split over whether we’re headed for a full-fledged, bona-fide recession or just a period of not-great economic times — but in the short term, things are looking far, far less amazing (again, financial markets-wise) than they were coming out of the pandemic. 

This downturn has found its way into restaurant technology companies, which not too long ago promised they could save the beleaguered restaurant industry amid a once-in-a-century pandemic. So… how’s that working out?

At some point between March 2020 and now, restaurant tech’s focus turned from helping restaurants get through the most difficult set of challenges in modern history to scaling a business large enough to turn a profit and work, at scale. When life went online, companies found their product-market fit. Big companies got bigger, smaller companies got acquired. At times, it felt like the only way forward for a small restaurant was to partner with one of the new behemoths to stay afloat. Tech had captured the attention of consumers in love with convenience.

Turns out, that was a very specific — and fleeting — moment in time.

Venture capital is hurting independent restaurants, the redux

When I finally shared this thesis, which had been bouncing around in my head for months, I got a fair amount of pushback, as expected. But I think this has held up, even as some VC-funded companies are forced to downsize amid changing economic conditions.

As I wrote in April: 

There’s a reason that modern, scale-focused restaurants have positioned themselves as tech companies for years. The sort of growth that tech companies can manage is extremely attractive to the type of investor that can afford to pour millions into the business to support its growth before later sitting back and enjoying outsized returns. It’s a different mindset from running a high-touch, community-driven business; instead, companies are incentivized to move fast and break things — even accidentally. 

The independent restaurant business can look terrible on paper. Margins are thin, returns on investment are low, hours are long, conditions, especially now, years into a pandemic that is not going away, are grueling. So it follows that the tech industry, focused on new solutions to existing problems, is excited to dig into perceived inefficiencies and “fix” them. 

A month later, in May, I wrote somewhat excitedly that this unfortunate downturn might have some silver linings for the convergence of restaurants and technology — including a focus on responsible growth for the biggest companies that still work to turn a profit. Now that responsible growth, product-market fit, and, eventually, profitability are more attractive to the backers with the cash, restaurant tech companies’ interests might be more aligned with the industry they’re working to serve. 

What is success, then?