If I could go back to my days as a club manager and change my orientation for new board members, there would be a signed commitment asking them to resist the temptation to imprint their own business experience and knowledge on the club. Club Benchmarking’s industry veterans hear too many stories about board members who believe their own successful careers in the for-profit business world taught them everything they will ever need to know about running a club. That perspective is misguided and counterproductive. I know that personally because it is a learning curve that I had to overcome when I got my first job as a manager in a private club.
I was raised in the upper Midwest where manufacturing and agriculture are the primary economic drivers. My first lessons about business came from my father, a plant manager for a manufacturing company, whose responsibilities included keeping a tight rein on costs and labor. My college classes in business and operations management confirmed dad was well-versed when it came to the key success factors in manufacturing but when I stepped into the world of private club management, I recognized the private club business model is very different than what I experienced in my previous working career.
To understand the challenges presented when a well-intentioned board member attempts to apply the model of another type of business (sometimes their own) to a club, consider the industrial spectrum. The industrial spectrum ranges from simple commodities to products that are highly differentiated. Businesses leaning towards the commodities end focus on customers who view their products as the same and base their purchase decisions mostly on price. For a commodity business, cutting costs and controlling labor are key because they are the major levers impacting the financial outcome. In a private club setting, cutting costs and restricting labor has the opposite effect. Even though it is counterintuitive to what we are taught in business school, those choices will eventually degrade the quality of the product (the member experience) making it less desirable for current and prospective members.
Businesses toward the highly differentiated end of the spectrum, like private clubs, focus their products on customers that perceive the product as being different for reasons other than price. Take watches or cars for example: You can pay $10,000 for a Rolex or $45 for a Timex.. Is it logical to think those products are interchangeable and the consumer decision is based on price? Of course not. Similarly, you can buy a Toyota Camry for $30,000, but some people see more value in a $125,000 Maserati. Ultimately perceived value, not price, is the deciding factor, just as it is when prospective members are shopping for a club.
Clearly, private clubs are not a commodity business selling a ubiquitous product. Applying a business model like manufacturing, a restaurant or a bank, is a recipe for frustration, wasted time and poor results. Clubs are high-fixed-cost businesses in which the operating expenses reflect the scale of a club’s footprint and the breadth and quality of the member experience, and that—the member experience—should be the board’s primary focus. If you ever find yourself in a boardroom where the conversation turns to “cutting costs and keeping a tight rein on labor,” I encourage you to share this simple lesson on the club business model. You might even drive the point home by asking the group whether their vision for the club is to be a Timex or a Rolex. Successful clubs understand that they are competing on value, not on price. The boards of those clubs embrace the private club business model and focus their energy on creating and funding a compelling member experience that sets them apart in their market.
Tom Olson is Club Benchmarking’s executive director, Upper Midwest. He can be reached at 320-493-1892 or [email protected].