In his book, Good to Great:Â Why Some Companies Make the Leap . . . And Others Don’t, author Jim Collins said that all good to great companies had a deep understanding of their Hedgehog Concept which guided all their efforts.Â For Walgreens it was fanatical dedication to convenient locations that enabled them to achieve what Collins termed “one of the most sustained transformations in our study” of good to great companies.
For those of you who have read Good to Great (and I strongly recommend it for every club manager) you know that a company’s Hedgehog Concept is “a simple, crystalline concept that flows from deep understanding about the intersection of . . . three circles.”
1. “What you can be the best in the world at,”
2. “What drives your economic engine,” “the piercing insight into how to most effectively generate sustained and robust cash flow and profitability” â€“ “a single denominator that has the greatest impact on the company’s financial performance,” and
3. “What you are deeply passionate about.”
Since reading Good to Great seven years ago, I have sporadically turned my attention to trying to determine an appropriate Hedgehog Concept for private clubs and have finally come to a conclusion.
But first let me point out an obvious distinction that makes a club different from other companies â€“ that most clubs serve a geographically-limited market and therefore cannot be best in world at what they do, only best in their community or locale. Â Unless you’re Augusta National or the Ritz-Carlton clubs, your focus is local.Â You may also think you’re the best in the world, but unless you have a long waiting list to join and members who robustly and enthusiastically support your club with their patronage, you’re probably not.
I would also say that club managers should be deeply passionate about what they do or why are they managing a club?
This leaves #2 â€“ the “single denominator” that drives your economic engine.Â What single concept that when pursued with fanatical determination as the basis for all club decisions leads to transformational performance?
After much deliberation my candidate for the single denominator for club success is the level of member discretionary spending and the benchmark is Average Member Discretionary Spend per month and annually (computed by dividing non-dues revenue by the number of members*).Â Here is my reasoning:
1.Â Â To be viable a club must be profitable and even non-profit clubs must break even with sufficient set asides for replacement.
2.Â Â A club with robust member discretionary spending** is by a combination of facilities, programming, and service levels not only satisfying their members, but exceeding their expectations, as evidenced by members supporting their club, that is, frequenting the club and spending their money there.
3.Â Â As every club manager knows, having a full membership promotes financial health for the club.Â But what factors lead to strong membership numbers and a waiting list to join?Â Simply put, it’s the same factors that promote frequent use of the club â€“ the quality of facilities, compelling programming, and high levels of service.Â With these in place word of mouth reputation will do more to generate a strong membership than any amount of marketing effort.
By laser-like focusing on the Average Member Discretionary Spend benchmark and fanatically using member discretionary spending as the basis for business decisions, a club will be on the path to success, even greatness.Â However, recognizing that a club is made up of multiple businesses â€“ golf, food and beverage, tennis, aquatics, activities, and other revenue generators â€“ I would strongly recommend that the Hedgehog benchmark be tracked monthly and annually for all profit centers.Â This will focus attention of under-performing departments requiring attention and improvement.
In focusing on Average Member Discretionary Spend as the prime benchmark for both the club as a whole and each revenue-generating department, managers will have boiled down the club’s success factors to the single requirement for transformative performance â€“ the frequent, sustained patronage of the club by its membership.Â You must, however, be keenly aware of the impact of price increases on the average member spend.Â Don’t go patting yourself on the back for improvements in the average member discretionary spend when the increase is due to higher prices charged to members.Â One way to ensure the efficiency of your operation is to also track the percentage of net income to total non-dues revenues to see how much of what comes in the door translates to the bottom line.
Whether or not your club is on a good to great trajectory, tracking the Hedgehog benchmark will help you monitor your members’ spending habits.Â If in decline you know something is amiss.Â If robust and growing across all departments, you can be confident you’re on the right track.
* I would use month end count of membership for monthly computation and average number of memberships (sum of month end memberships for all months divided by 12) for the annual computation.
** The two revenue sources that are problematic for computing discretionary spending are dues and food minimums.
- Once a member joins the club, dues are a given regardless of level of patronage and support for the club.Â As a rule I would not include dues as part of member discretionary spending in computing the Hedgehog benchmark.
- Food and beverage minimums also present a problem in that they can be coercive.Â Regardless of whether members feel good about the food service, they have to spend a set amount per period or be dunned for their shortfall (unspent minimums).Â My solution to this issue is to include all food and beverage revenues regardless of whether it was truly discretionary spending by members or unspent minimums.Â But, and this is a big but, I would separately track the average unspent minimums per member per period as a reality check for the Hedgehog benchmark.
Thanks and have a great day!
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