Several years ago, Stratton Mountain commissioned a study that recommended he raise the price of a Stratton lift ticket. Stratton knew that by doing so it would be losing a number of weekend ski clubs, but Stratton also realized that losing the buses would result in a better experience for the rest of Stratton’s guests – and better revenue per skier visit. Stratton implemented the plan, and has been far more successful as a result. And it was all in the data.
You’re a ski area operator or owner looking to re-open or up-fit an area to industry standards in the 21st century. But you have market competition as well as a lack of infrastructure and capital. What’s your game plan? Here’s a quick, blinding glimpse of the obvious of next steps and best practices to make your area competitive in the cold weather recreation and resort market.
Conduct a Market Survey. Determine the addressable market size as well as what, if anything, the market demands of and expects at the area. If you build it/install it/expand it/improve it, will skier and riders come? What are their likes and dislikes about your competition? If you were to successfully draw away 10% of the skier visits from each of your competitors, would that increase in revenue warrant the required capital improvement costs? There are well-qualified people with industry experience who perform market studies and surveys (I am happy to recommend a few). Engage one to see if you truly have the market for what you are trying to sell. If you don’t, can you create and provide what the market says it wants and be profitable while doing it?
Create a Capital Plan. Once the market informs you of what it wants, determine what physical assets are necessary to create that desired environment. Price them out, phase them according to some reasonable schedule that lets the market know you are serious about meeting their needs. Do this while not over-committing your available capital. Watch your financial results over the following seasons to make sure your plan is matching expectations.
Write your Business Plan. Any investor [OR LENDER] will want to see your financial projections. If the area is in operation, prepare a five to seven year history of income/expense/skier visits/capital improvements. Detail out a three to five year pro-forma based upon improvements to revenue and expense anticipated by the implementation of the capital plan. Back up your projections with market research and reasonable assumptions of market share growth.
Be prepared for the investor or lender you are approaching. Either a lender or an investor will demand equity from the owner to be put in the capital plan. Historical investments in capital, asset value, and real estate value do not count. Investors and bankers want to see at least 20% of any project in owner cash. Projections must be realistic. Lenders and investors want to see a reasonable return on investment, ability to pay and an exit strategy that is realistic.
Create your team and decide who is running the show. I’ve worked closely with many owners. In my experience, there is a high correlation between effective management and a healthy bottom line. In an industry where making snow at the wrong time can cost you $50,000, competent management is critical to success. Choosing the right team is a huge challenge. Everyone wants to run a ski area; not everyone is qualified or has the true passion to do so. Experience is valuable, but not necessarily a guarantee of superior service being provided to the guests, employees, community, and investors. Choose wisely those who are meant to carry out the plans and then let them do so, while providing adequate supervision, support, encouragement and control.
There is no doubt that cold weather recreation providers are individual, with cultures and personalities all their own. Peak, Boyne, KSL, Powdr, Vail, and Intrawest are all running multiple resorts successfully. I still believe that each area deserves its own opportunity to present itself as its on site team perceives it. The corporatization of cold weather resorts does not improve each area that comes under corporate governance. Each is different, allowing that difference to support the guests, employees and community that each area serves.
So, you’ve proven your market exists, understand the capital plan necessary to attract those in the market you are focused upon, you have a business plan, a team, and a positive identity that will lead to brand recognition for your area. Now what?
It’s time to create a package meant to convince an investor, a lender, or both, that you have what it takes to thrive in your market place. Engage an investment banker with experience in finding debt and equity for cold weather resorts. Give me a shout if you’re interested, because that’s what I do.
Mirus Resort Capital advises business owners, investors, and management teams on the acquisition, sale, valuation and recapitalization of cold weather resorts, day ski areas, golf resorts, and equipment suppliers to the resort industry. Contact Mike Krongel @ (617) 816 7544 or Krongel@merger.com