Pop-Ups: Startups Meet Dining Out

What is a Pop-up?

A Pop-up store is one that has temporality built into the design. Places that are specifically not built to last. They have gotten much more popular over the past few years, especially within the retail sector. The trend of selling limited releases of a certain brand out of retail space rented for a short stretch of time is a great way to maximize revenue and minimize the operational expenses for businesses like Supreme that had a lot of hype and low inventory products. It started with hype beast-type companies and has since expanded into companies as far and wide as Crocs (their Diplo Collaboration Croc sold out in less than ten minutes and yes, I am still salty about it).

There has been a remarkable increase in pop-up establishments within the last year in industries outside of traditional retail. The biggest uptick has been in food. Food trucks have been a thing for a while but the pop-up restaurant is a newer concept and one that goes one step further from a traditional Brick and Mortar location. Food trucks at least have a permanent premise, even if it is mobile. They tend to be out and open 7 days a week on a regular schedule. A food pop-up is a temporary restaurant that doesn't necessarily have a permanent address and definitely doesn’t have regular hours. It "pops up" whenever the owner damn well pleases. Usually announced on social media or by website alert these places feed on a local presence and a strong social media following and usually plenty of hype.

A good Pop-up is a food truck for people that don’t have the money or the desire to cook out of a truck with enough demand to make money for the owners.

To highlight how prominent these are becoming, here is an article from Infatuation listing out the best burgers in LA and it has 4 pop-ups or former pop-ups on its list of 25 burgers.

The increase in popularity in Pop-ups brings up a valuable question: “Why Pop'-ups over a regular restaurant?”

Restaurants are terrible businesses

60% of restaurants fail within their first year. That is a terrible stat and it gets even worse when you compare it to the 21% of businesses with less than 500 people that fail within their first year. I may be an imaginary engineer but I know that 3 times the failure rate of the overall small business sector is definitely a bad sign for the restaurant world.

Digging into what it takes to start a restaurant, it begins to make sense why so many of them fail.

To open a restaurant it costs a lot to even get to opening night. Before doors open, space needs to be found, rented, and decorated. Kitchen equipment, dishware, and glassware must be purchased and delivered to the location. A menu must be decided upon and a full staff must be hired. For it to have any chance of success some sort of marketing budget is going to have to be spent on spreading the word of the new location opening.

By the time a new restaurant serves its first customer, investors and owners have already sunk a large chunk of money into a business that has an unpredictable cash flow and notoriously low margins. In one paragraph even the most oblivious diner can clearly see why so many of these businesses fail as compared to other small businesses.

A high failure rate and huge startup costs signal a huge opportunity to do things differently to get a much better outcome. This is where the Pop-up restaurant comes into play.

Enter the Pop-up

The Pop-up restaurant has learned from the failures of so many restaurants before it and adapted its business model to that of an early-stage technology startup.

Let me explain.

I have never built a successful startup but Paul Graham has so you can trust his word if not mine. When he talks about building a technology startup (as he does in his piece, "How to start a startup", he talks about a core set of principles that are fundamental to starting a successful company. His core principles are found in his opening paragraph:

You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible. Most startups that fail do it because they fail at one of these. A startup that does all three will probably succeed.

It sounds simple, right? Let's go one by one and analyze how Pop-ups are taking these principles and putting them into practice.

#1 Start with good people

It should go without saying but I'll say it anyway: it would be extremely difficult to start even a small neighborhood Pop-up restaurant on your own. If you think you can handle that, I wish you good luck and would love to see how your hairline looks after one day of serving customers. So let’s say that you need at minimum one other person to start your restaurant with. Compare that to the ten to twenty people you would need if you started a traditional brick and mortar joint and you see that a Pop-up makes the process of finding enough good people to start drastically easier. Simple enough. It may not be easy to find someone of high integrity who you like enough to spend hours a day within a stressful environment but the task is a simple one and it’s made much easier by only needing to find one of those people versus finding a whole team.

#2 Make something customers actually want

There are restaurants that market themselves as "experiences" but those are beyond the scope of this piece. For this piece, the "something that customers actually want" means the food that you serve as a restaurant owner.

To find out if the food you are making is enjoyed by your customers, and this may seem oversimplified but bear with me, you need to have people eat your food and ask them if they like it. Yes, it is basic, but if you think about the (oversimplified) route to opening a restaurant described earlier in this piece, you'll notice that up until the doors opening, you have not had any direct customer feedback on the food that you are cooking. None. You are setting piles of money on fire before even figuring out if people want to eat what you are serving.

By opening a Pop-up you are able to get real customer feedback on the food you serve as early as day 1. By nature, Pop-ups enable direct chef-to-customer interactions that are difficult when there are walls between the kitchen and the dining room. This means that the chef can look each customer in the eye as they take their first bite. That little piece of feedback is invaluable. The ability to speak directly to the person eating your food, while they are eating your food, is far better than getting yelp reviews days after someone leaves your restaurant. You will hear what they liked, what they didn't like, what they want more of, and what they could do without while it’s fresh in their mouth and in their mind. And, as an early-stage restaurant, you can change if you want to. You don’t have investors who have an opinion about what your food should be. You don’t have anyone except you and maybe a couple of people on your team with whom to make decisions.

As a caveat, your pop-up has to serve people who are not your family and not your friends, which is something that Paul G also calls out in his essay. You need to be serving customers who have no reason to lie to you about how well you’re doing to make sure you have an honest impression of the quality of your product.

Through this early iterative feedback, you'll be able to tell if people like what you're serving and whether they would vote with their wallets and come back to eat your food again.

#3 Spend as little money as possible

The Pop-up is the sword that cuts the gordian knot when it comes to Step Three of starting a successful startup. Spending as little money as possible means skipping out on spending money on a physical location, line chefs, wait staff, fancy decorations, cutlery, plates, marketing, etc... as long as possible. Pop-ups grow with the size of the business. When you start out, you buy materials to cook for the day and machinery to enable that, but that’s it. Most likely you don't have enough space for an industrial kitchen setup in your house anyway, so you get away with the smaller stuff. You hack it all together and try to make food that keeps people coming back and as you grow, you can start to spend money on bigger equipment and staff. But in the short term, you don't spend on real estate, you don't spend on hiring, you don't spend on fancy dishware (serve on paper plates to start), etc... You get the point. A pop-up spends as little money as possible at each stage and only when the demand is justified, do you take the next step (food truck, brick, and mortar, whatever).

There is obviously a ton of startup advice out there but if you can take the YC Co-Founders word for it, a much better route to founding a successful restaurant goes through the Pop-up world.

Where do Pop-ups fit in a post-COVID world?

Pop-ups were huge during the pandemic when restaurants couldn't sit people inside. Now that the world is opening up again, it’s worth discussing how these tiny pop-ups will do while competing against the behemoth of the existing brick and mortar industry. Eater talked to some Pop-up owners and now that indoor seating is open again, pop-up revenues are down as much as 20-30% from their peak.

The question now becomes, what happens to pop-ups as they seek to compete with established restaurants that provide a full experience?

I think of them as distinct areas of emphasis and I truly believe there is space for both in the new dining out landscape of the post-COVID world. There are going to be Pop-ups that die off as people are able to get similar quality food in addition to the social experience of dining out with their friends and family. However, there is always going to be an element of hype to finding "The next best burger" or "The next top fried chicken sandwich."😉

The bottom line of it all is that with the proliferation of technology startup business philosophy penetrating into other industries, I would expect more would-be restauranteurs to work their way up to a brick-and-mortar as opposed to shooting for the moon right out of the gate.

Restaurant Pop-ups deliver the hype that limited Supreme drops first created and while they won't be the default, they will be prevalent. As a business model, it makes too much sense to not start your restaurant small, getting customer feedback right out of the gate with good people while you spend as little money as possible. I think both models coexist in this new world and I’m not alone in thinking that. Pop-ups represent a real possibility in the world of food, opening the doors to those without access to capital but who have a great recipe and a willingness to get their hands dirty serving people right away.

I’m happy to be a lover of the pop-up dining experience and I hope to be able to provide that experience to as many of you readers as will have me.