Is YOUR Inn a Teenager or an Old Geezer?
Is YOUR Inn a Teenager or an Old Geezer?
by Scott Bushnell
Like any retail product introduced and marketed by acorporation, an inn has a life cycle which, if not managed closely, could die an unfortunate, premature death…without life insurance. As tragic as this sounds, it is, in reality, the death of someone’s brainchild and dreams.
THE LIFE CYCLE: From conception of the dream for an aspiring innkeeper, an inn, whether nurtured from birth as a start-up venture, or adopting somebody else’s existing inn, goes through the same stages of the life cycle requiring planning and management at each stage. The marketing plan, for example, for a new-born, start-up business requires much heavier advertising expenditures in order to become known in the community and surrounding marketing neighborhoods. As occupancy slowly creeps up, the resulting revenues do not even reach the breakeven point of covering the fixed, variable, and controllable costs until several years after birth. The graphic below shows the revenue stream of a start up inn which did not reach viability until year 4 of the venture.
This graph also shows a well managed inn whose growth over the first ten years of its life cycle has been quite consistently positive with growing contribution toward the debt service (year 5) and real profitability (with some contribution to owner’s draw!) in year 6 and beyond. In these teenage years of fast growth and emerging profitability, (typically year 4-7) the marketing plan is evolving, too, to one which sustains this growth focused on those measurably proven techniques attracting return business (much cheaper to KEEP existing guests than to attract NEW ones). Unlike their human counterparts, a teenaged inn brings joy and satisfaction to the innkeeper parents, as financial goals seem to be within reach and there is ready cash for capital expenditures to support the growth of the inn and for such luxuries as interim innkeepers (ahhh!…a vacation!) or support staff to give the hard-working parents some relaxation time.
This is also the time when prudent innkeepers stick their heads up above the water like a periscope to see where the submarine is heading.
THE WARNING SIGNS OF FAILING HEALTH: The graphic below shows an inn whose growth has slowed and annual revenues have even started to decrease. Hopefully, the owners will recognize that revenues are beginning to flatten BEFORE they start decreasing so that corrective actions can be taken.
It is easy in the teenage years of prosperity and growth to let the inn go onto autopilot hoping for continued success. But, like a young adult who heads off on a course of independence and self-reliance, there is the need for renewed energy and commitment for the inn-owner as well. Without continuous physical improvements, evolving marketing strategies, honed customer satisfaction techniques, and energetic, engaged innkeepers, the inn can soon head into old age with decreasing revenues. A mature inn can actually maintain level growth for years and years, maybe even decades, before they start to see the financial health starting to suffer. But with an evolving marketplace, with changing standards and travel interests, your inn WILL eventually move into declining financial health unless you make some remedial decisions.
Here are the potential alternatives for such a diagnosis:
Do Nothing or Next to Nothing: Taking an aspirin for a broken leg is not enough. The Inn’s revenues will slowly decline at first, but as costs rise, less money is spent on the physical health of the inn, and, as it tires into desperation, it is sold as a distressed property or closes.
Reinvention: This can be an exciting time of rejuvenation…like a Fountain of Youth! Twenty years ago, private baths were unique…now shared baths are repulsive. Ten years ago whirlpools, king beds, and fireplaces were fun…now they are expected. The modern leisure traveler is looking for experiences that are new (two person power showers), exciting (hot air balloon rides), relaxing (complete spa services in room), and romantic (secluded, candlelight dining). And they want to experience it ALL at your inn.
This is a major commitment on the part of the innkeepers both financially, and in terms of commitment and energy. But true renewal on the life cycle back to the years of teenage growth can be real and rewarding.
Selling: If the owners feel the energy has been sapped over long years of hard work, it is often difficult to muster the strength to undertake a reinvention commitment. It may be time to sell to adoptive parents whose energy, ideas, and commitment will take the inn to new levels of success and prosperity.
But don’t wait too long. Buyers are looking for profitable growth AND opportunity for reinvention and continued success. They may not want to undertake the immense task of resuscitating a struggling old geezer of an inn. While your inn is still in the fast growth stage, THAT is the time to assess life goals and, if so decided, plan and start your 5 year plan for exiting the business.
(Copyright, Scott Bushnell, 2006 All Rights Reserved)