Questions businesses—and clubs—should never stop asking

A presentation conducted by RSM professionals at the Club Managers Association World Conference featured a list of questions first offered on Forbes.com. These are questions a business should never stop asking. If clubs desire to operate like businesses, it seems logical to conclude that these questions could be applied to the club environment. 

The original list of questions was:

1. What is our purpose for existing?
2. Who is our target customer?
3. Why does anyone need what we're selling?
4. If a need exists, is it enough to support a profitable business?
5. What are our competitors up to?
6. Can we reduce expenses without harming the product or brand?
7. Do we have the right leadership and structure?
8. Do we have the right employees?
9. How will we continue to drive revenue?
10. How are our employees holding up?

This article will take a deeper look at how to apply these questions to the private club arena.

1. What is our purpose for existing?

While this is a rather basic question, its answer provides the building block for every decision made at the foundation of a club and throughout its lifetime. A core component of why most businesses operate is to yield a profit for their owners or shareholders. Private clubs exist to allow individuals to socialize and enjoy common pursuits—be they sporting, dining or fellowship. Private clubs can memorialize their reason for existing with a carefully reasoned and actionable mission statement.

A mission statement defines the club's purpose and primary objectives. Its prime function is internal—to define the key measure or measures of success. Its primary audience is the leadership team and members. A mission statement should describe what the club does, with whom or for whom it does it, and, in broad terms, how it does it.

While sometimes difficult to distinguish from mission statements, vision statements also define purpose, but in terms of a club’s values rather than bottom-line measures. Values are guiding beliefs about how things should be done. Vision statements communicate both the purpose and values of an organization. For employees, it gives direction about how they are expected to behave and inspires them to give their best. Shared with members, a vision statement shapes an understanding about why they should belong to the club.

Recall that the list of ten questions is comprised of those that a business should never stop asking. When was the last time your club seriously addressed the question of why it exists? Is it probable that over the last five, 10, 15 or 20 years the reason may have shifted? If so, consider the impact of that shift on the club’s offerings in terms of amenities or membership types. When was the last time you reviewed the appropriateness of your mission or vision statement?

2. Who is our target customer?

It might appear obvious that if the time is taken to answer this first question fully, then the answer to the second one must be apparent. All too often, however, private clubs miss the mark when asked who their target customer is. With the increased economic pressures of the last few years, the immediate response to this question often describes the types of members that a club is hoping to attract. In doing so, clubs ignore a basic rule of marketing—regardless of the type of business or industry one is in, keep the current customer happy. Private clubs have already captured many target customers—current members. Constant catering to their needs and expectations should be given at least as much marketing attention, if not more, than trawling for new members. Consider whether the club knows its current members. With that comes an understanding of the amenities in which they are truly interested and knowledge about what keeps them engaged and returning to the club.

Clubs need to examine closely the effectiveness of their marketing department. Yes, department. In any business, marketing is a core function and often focused on ensuring customer loyalty. What best practices has your club’s marketing department borrowed from the corporate world? Marketing is a continuum deployed throughout all areas of operations to ensure a consistent focus on the customer/member and it requires the combined effort of every team member. For example, does the club’s golf professional realize his/her value to the mission is maximized when he/she is actually playing with members and interacting? If not, consider why.

Applying this thought process across all amenities and service offerings can often lead to a few surprises about how well or poorly the club knows its target customer.

3. Why does anyone need what we're selling?

The private club industry has done itself a disservice by proclaiming “we are in the dues business” for the last several years. That is simply untrue. Hotels are in the room night business because that is what they sell. Private clubs do not sell dues. They sell life experiences. Dues are only one method, albeit the most prevalent method, for patrons to pay for those experiences.

The focus on the dues dollar leads to a discussion about something every club definitely tries to sell—memberships. In response to the second question, clubs were urged to focus on keeping the members they have. While the same focus is needed when considering this question, the response here is expanded beyond the current membership. Consider how often questions are raised about why anyone buys a membership. Assuming a pool of individuals interested in the life experiences a club has to offer, why would anyone choose a particular club instead of a competing facility?

A recent industry survey suggested that being “well managed” was the most important factor to new members, above all of the amenity offerings. Successful clubs have long accepted that they need to maintain or add to their amenities in a way that keeps life experience offerings relevant. That acceptance, to a large degree, would make many such clubs indistinguishable to potential members. Not surprisingly then, prospective members have begun to measure and analyze how and where they spend lifestyle experience dollars in favor of places where they yield the greatest return like they would other investments. Clubs are realizing they need to have effective “investor relations management” to ensure that strategic financial communications reach those potential members. Financial statements have often become as important a marketing document as any of the colorful glossy brochures showcasing the golf course or the pool at sunset. Like for-profit businesses, clubs can take a proactive role in how financial information is presented to potential members. Every financial statement tells a story. The question becomes what the end to the story will be and whether the club has a good storyteller.

Frequently clubs do not even know if prospects routinely ask financial questions beyond the obvious costs of membership. This is because the requests for financial information can go to a number of people—membership personnel, general manager, chief operating officer, controller, treasurer or even the club president. Ensuring that the club has a tightly defined and adhered-to process for handling such “investor relation” inquiries can be the key to a prospect joining the club rather than a similar amenity-rich club across town.

We recently participated in the board retreat of a prestigious club in the Carolinas. The club had performed some excellent market research on competing communities, including joining fees and annual total costs of membership. While the joining fees for the club were second highest out of the ten or so nearby communities, the annual total cost of membership was the lowest. In fact, the payback period (i.e., how quickly a new member would break even by paying the higher joining fee at the club) was only 18 months. Therefore, a new member would enjoy significant cost savings from that point on. When our team pointed out the shorter payback period and asked if it was being marketed that way, the board realized they had been missing one of the major sources of value members found in the purchase process—affordability.

As these questions are already beginning to demonstrate, many of the issues faced by businesses every day are relevant and applicable to the private club industry.

4. If a need exists, is it enough to support a profitable business?

Driving profits is a concept that gained more traction in club board rooms over the years of the great recession amid concerns about declining memberships and revenue streams—most notably dues. However, assuming our club is a nonprofit, established for a common purpose of the members, then offering goods and service to make a profit conflicts directly with our purpose for existing. If we are making profits off our members, haven’t we in reality overcharged them for something during the year? Either dues were too high or the menu prices in the restaurant were too much—okay, the latter is probably not a good example!

The exception to this nonprofit concept in the case of the club world is created by the intensive capital demands of our industry. Much of what we deliver in terms of lifestyle experiences, relies on excellent facilities—be it the clubhouse, golf course or tennis courts—and maintaining, replacing and improving those facilities (not to jump ahead to question five!) requires considerable capital dollars. Most commercial businesses generate those capital dollars in one of three ways: they borrow, they issue equity instruments on the capital markets or they generate surpluses to retain for future capital investment. While clubs can borrow, some of the horror stories in the press about clubs being crippled with debt burdens have made some prospective members wary of joining a club with debt. Clubs certainly used to be able to issue “equity” or ownership interests to new members—or increase the capital investment of existing members with capital dues or assessments—with great success, but again, the recession quickly dried up the initiation fee channels at many clubs and weakened the receptiveness of the membership to more capital fees. In the absence of these other capital funding streams, then clubs do need to look to generate surpluses—that is, profits—from operations. Obviously, clear communication with the members on why we are generating operating surpluses is key and may even be an argument for reporting depreciation expense, or a portion of it, “above the line,” if in fact we are generating “profits” to pay for future capital projects.

5. What are our competitors up to?

For many years clubs failed to really admit they were in a competitive environment and in a battle with other clubs to retain their own members and recruit new members. Understandable neighborly jealousy may have been the reason for Club B to renovate its golf course as soon as it heard Club A had undertaken a renovation of its own. Today however, the reality of market economics has well and truly sunk in. Clubs know that they cannot afford to be left behind in terms of their amenity offerings. They are in fierce competition with clubs down the street and, in some cases when dealing with amenity migrants, clubs across the state or region. Whatever sector of the market we are serving, we have to ensure we are offering the best lifestyle experiences in that that sector—or at least no one is offering a better one.

This question would also seem to require a discussion on benchmarks and benchmarking.

The encyclopedia tells us: “Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost. In the process of benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compare the results and processes of those studied (the "targets") to one's own results and processes. In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful.”

The club industry has a long established history of trying to establish benchmarks. Food and beverage subsidies, dues rates, even the price and size of a pour of scotch have been tracked, averaged and reported on. But if one considers how little club metrics have moved over time—when factoring out obvious inflationary trends on cost of sales and payroll—has all this benchmarking really led to improved processes and results? Part of the challenge of benchmarks in the private club industry is that, as the old saying goes, no two clubs are alike. By definition then, it must be incredibly difficult to find a club that has a membership that wants lifestyle offerings exactly like your membership wants. How does one measure the quality of the food, the golf course, the fitness center in an analytical manner? Club boards can become obsessed over measuring the minutiae in financial data when in reality, the first question to be asked is, do our members like it the way it is? If so, then sure, is there a more efficient way to deliver what the members want (within the parameters established by question six below).

Probably a more useful term than benchmarking for clubs might be trending—which considers how metrics move over a time period. Regardless of our quality levels, we would expect our costs to trend in the same fashion as all other clubs over time—unless we made a major decision regarding a critical success factor that in effect changed our quality levels. Observing how our results have moved over time and plotting our changes against those of the industry is probably a more useful tool than a one-time snapshot of the cost of providing a certain service or amenity.

It could be argued that that benchmarking is really only useful when setting the club’s annual budget. Assuming the budget is aligned with the mission and strategic plan of the club, then comparisons to other clubs at the start of the year, for any obvious outliers in our forecasted number, would be very useful. But once we have drawn that line in the sand and agreed on our budget for the year—effectively a numerical depiction of our strategic plan—the only benchmark that matters is our performance to budget. If we are to compare ourselves to other clubs after that point, we had better be able to compare our strategic plan to theirs, if we intend to have a meaningful discussion, rather than creating a rod to beat management with.

6. Can you reduce expenses without harming the product or brand?

There is a rumor in the club industry that some clubs actually LOSE money in their restaurant operation! It seems hard to fathom that after all the years of trying to run our clubs like businesses, this can still be allowed to happen…

Of course we jest, but the restaurant operation probably highlights best the challenges of dealing with this question in the club environment. For generations, literally, new board members have demanded to know why the club dining operation loses money and demanded that it stop. And similarly, generations of general managers have politely explained they would be happy to cut costs in the dining room. Where would the ambitious new board member like to start—by reducing the quality of the food offered, the size of the pour of his favorite whiskey or by eliminating the long-term staff members that call the board member by name, bring him his favorite whiskey and his wife’s favorite pinot, without having to be asked? Alternatively, the general manager could offer to open the doors of the dining operation beyond the membership so that tables can be turned, waiting times created and a much more Outback/chain restaurant and clearly profitable ambiance can be created. All very tough business decisions, each of which could certainly trim expenses from the budget… while also slashing expectations of excellence from the member experience.

The fact is that clubs have had to make some decisions that undoubtedly did harm the product or brand— that is, the members’ lifestyle experience. Given our competitive marketplace, clubs should evaluate whether survival steps that may have been taken in the last few years are now barriers to being able to answer question number two…”why does anyone need what we are selling?”

Clearly our list of questions is intertwined some are inextricably linked to others. We must consider them en masse, not only on their own.

7. Do we have the right leadership and structure?

We have been asking this question a lot recently and wondering why it seems to have been so rarely discussed over the last few years when the industry has been experiencing so many changes? While our operating practices and performance have been scrutinized to the nth degree, have we applied the same level of analytical precision to our board room practices and committees? While volunteer leadership is a core component of any vibrant club, is our leadership structure reviewed and evaluated the way a corporate entity’s would be? How often have we looked at how we identify leaders for our board? Are our best people shying away from serving because the election process is no more than a popularity contest? Evolving best practices would certainly suggest that an effective nominating committee, who can offer a slate of candidates equal to the number of open slots on the board, is a more effective way of ensuring the people best equipped to guide our club, like a business, end up doing so.

And what of committees? A necessary part of any club, or a focus group that has gotten out of control? When we think back to that famous quote from Michael Douglas in Wall Street regarding greed, what is often forgotten is an earlier part of the speech “Teldar Paper has 33 different vice-presidents. Now, I have spent the last two months analyzing what all these guys do, and I still can’t figure it out. One thing I do know is that our paper company lost $110 million last year, and I’ll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents.” How often have we seen valued and highly respected club employees left exasperated at the volume of work created by committees? We have seen more and more clubs take a hard look recently at the cost of their governance infrastructure and while numbers don’t always tell the whole story, they can help us ask probing questions. One club with under 700 members recently quantified the staff time dealing with committees at more than $70,000. While before, the nature and extent of committees would have been accepted as business as usual, this club is trying to figure out if the members getting at least $70,000 worth of benefit from the work of its committees.

8. Do we have the right employees?

While this question may seem a familiar one that clubs have focused intently on in the last few years, we wonder if clubs have really been applying businesslike practices in evaluating their employees. Have we been evaluating employees on the right criteria? Have we even told them what the criteria are? A balanced scorecard approach to management of our business would tell us what things we should be measuring in order to deliver on our strategic plan: our key performance indicators (KPIs). If we haven’t identified those measurements, then how can we evaluate our people effectively?

In Chartered Global Management Accountant Magazine, David Parmenter identified seven characteristics of a winning KPI. Does your club have KPIs that:

1. Are nonfinancial measures, therefore they can’t be expressed in dollars, yen, pounds or euros
2. Are, in many cases, frequently measured 24/7, daily, or weekly
3. Are acted on by the CEO and senior management team
4. Clearly indicate what action is required by staff, so that staff can understand the measures and know what to fix
5. Are measures that tie responsibility down to a team, allowing the CEO, for example, to call a team leader, who can take the necessary action
6. Have a significant impact on the organization, affecting more than one balanced scorecard perspective
7. Encourage appropriate action, having been tested to ensure they have a positive impact on performance and that their downside is minimal

If not, how do you know if you have the right employees?

9. How will we continue to drive revenue?

A portion of our white paper “Private clubs: To be or not to be a business,” best discusses this question:

Given that most private clubs are nonprofit organizations, their economic model is by definition rather different than a typical business model. As with all nonprofits, clubs exist because a group of people came together with a mission—to socialize, golf, play tennis, etc. Nonprofits, thus club economics, begin with the determination of this mission aligned to the wishes of members. Once that mission has been defined, costs can be outlined and a budget built to accomplish this mission. This thought warrants emphasis. Budgets are built from the bottom with costs, not from the top with revenue. Once the cost of achieving the mission (e.g., to have the best golf course, tennis program or dining facility in the area), members need to decide the desired method of financing—dues or user fees. The goal for nonprofit clubs cannot be to drive revenue unless the club changes its mission by adding more services or increasing the quality of existing services. Those changes would, in turn, increase costs, which would then require more revenue from the members.

Another method to increase revenue at clubs exists that does not involve changing the amount or quality of services—to increase the number of people willing to pay for those services. This can be the result of an enlarged membership or the opening of the doors to nonmembers (i.e., a semi-private club). Notwithstanding potential tax, legal and privacy issues around nonmember use of the facilities, the primary concern to emerge from the latter modification would be the reaction of current members who will wonder why they joined a private club and paid an initiation fee and monthly dues when a nonmember has access to the same amenities. While this is a precarious path for clubs to consider, it is one that has become an economic necessity for many. Concepts, such as yield management, have crept into the club world. Borrowed largely from the hotel and airline industries, yield management addresses filling capacity by setting prices that will attract increased market interest at any given time. A number of clubs have worked this into their golf management philosophy in an attempt to determine the number of rounds courses can handle and what the general public will pay. Companies, such as Boxgroove, have emerged as facilitators in this market space and it has been common practice for management companies at public golf facilities for years. Nonetheless, private clubs must be prepared to respond to the concerns of members when nonmembers start to appear in the locker room.

As witnessed recently, many for-profit businesses react to a tumultuous financial climate with drastic price reductions intended to attract increasingly scarce disposable income dollars. While many companies will not express much concern when customers who typically shop at low-end outlets are suddenly able to frequent and purchase from high-end retailers, private clubs must consider long-term effects of such occurrences. Clubs have wrestled with the idea of lowering initiation fees, and even dues, in recent years. Desperate to retain dues dollars and members, many resorted to removing financial barriers that were historically a primary mechanism to protect the mission of the club and preserving standards. Lowering admittance standards, and thus provoking members to question whether the club mission is still the one into which they bought, is a very real concern for clubs today. It can certainly seem a Catch-22 scenario. Decrease entrance barriers (economic or other) to maintain revenue because of the resignation of some long-term members and run the risk of alienating many more members. Maintain standards at a level that requires long-term members to pay more individually to offset the rising cost of exclusivity with a diminishing member base and be prepared for onslaught of complaints. If ever there was a time for open and honest economic communication with members, now is the time.

10. How are your employees holding up?

We recently completed an operational review for a club client. While often such projects deliver results suggesting operating changes and efficiency enhancements, our final report in this case focused on a very different issue: morale. Consider these findings:

• Morale amongst senior staff not conducive to meeting member lifestyle expectations
• Numbers management appears to be focus of general manager at the expense of membership experiences
• Board and committee messaging does not appear to be strengthening brand identity at club level or motivating club managers
• Staffing cuts appear to be at level where membership experience is adversely affected
• Strategic direction of board is not known to club staff
• Elimination of training programs adversely affecting staff progression and morale
• Lack of capital investment in facilities and equipment not conducive to membership sales targets being achieved

What became clear is that the employees were being asked to sell a lifestyle without guidance. How useful is your strategic plan if your employees do not feel empowered, valued or rewarded? Jack Welch, former CEO of General Electric, believed that human resource managers have the most important job in America and that CEOs should value their HR managers as much as their chief financial officers. How many club leaders would support this viewpoint and provide appropriate funding to support it? Perhaps we should realign our ten questions to help focus on the importance of our last discussion point:

1. What is our purpose for existing if your employees are demoralized?
2. Who is our target customer if our employees aren’t clear on their futures?
3. Why does anyone need what we're selling if our employees aren’t empowered to deliver it?
4. How can we have a profitable business if our employees aren’t motivated?
5. What are our competitors up to lure away our best and unappreciated employees?
6. Can you reduce payroll expenses without harming the product or brand if payroll makes up more than 50 percent of our costs?
7. Do we have the right leadership and structure so our employees are inspired to perform?
8. Do we know we have the right employees if we can’t measure for them what’s important?
9. How will we continue to drive revenue if our employees are not engaged?
10. How are your employees holding up? A question that we should certainly never stop asking if we are running our club like a business.

We passionately believe that clubs need to run like businesses and we hope that this article has provided some guidance and food for thought on what that really means in today’s ever changing and challenging environment.