ittoilmatar / Shutterstock.com
Back in the 1990s, I had the privilege of working with Kemmons Wilson, the man who founded the Holiday Inn Hotel-Motel Chain. In addition to selling him tanning equipment for the spa & fitness areas of several select locations, my wife and I also owned a gift/snack shop in the lobby of one of his hotels in Memphis, Tennessee.
As I was working in the shop one Saturday morning, Wilson sauntered in for a cup of coffee. This provided me with the golden opportunity to chat with the business legend and gain some personal insights into his formula for success.
While Kemmons Wilson may not be as well-known as Warren Buffet or Donald Trump, his life represents the epitome of the classic American rags-to-riches story. Armed with less than a dollar to his name, a head full of common sense and the vision and courage to recognize opportunity – even in the midst of the Great Depression – he humbly started his first enterprise: selling homemade popcorn in front of movie theaters. He salted away every penny and parlayed his savings and powerful work ethic to build one of the world’s most successful hotel chains and real estate empires. His family later sold the Holiday Inn Corporation for several billion dollars and today they are among the wealthiest families in America.
I asked Wilson about the story behind the opening of his first motel, and the motivation to establish and grow the business.
It started back in the early 1950s. Wilson, who was already doing well financially by this time, had taken his family on a leisurely vacation driving through the southeastern United States. Along the way, they would spend their nights at the mom-and-pop motels that dotted the countryside.
Wilson quickly became frustrated by what he found at those lodging establishments. Service was often unprofessional and amenities varied dramatically from location to location. Some motels had old, uncomfortable beds and outdated furnishings, while others had lazy employees behind the counters.
Upon his return home, Wilson decided that he was going to open his own motel – one that was clean and comfortable and staffed with professional people. It would feature brand new beds and furnishings, as well as the latest amenities including TVs and telephones!
The first Holiday Inn opened in Memphis, TN in 1952 and was an immediate success. However, before he laid the first cinder block, Wilson crunched the numbers to calculate how many rooms he could afford to build, and how many he would then have to rent each night to break even.
Once he established the point of break-even, Wilson could then calculate profitability based on the actual percentage of rooms rented each night. (Now, that should sound very familiar!)
The first Holiday Inn cost more than $300,000 to build – a fortune back in 1952 – and I couldn’t help asking Wilson where he got the money to open the motel. He answered in a rather matter-of-fact tone, “I could have paid cash, but why would I do so when I could borrow the money from the bank? And if I was successful, I could then leverage my remaining cash to open more motels.”
He calculated that the revenue from renting just two additional rooms per night (above his break-even point) would cover the monthly interest on the loan payment.
“If you purchase something using your own funds, you still have to factor in the ‘lost use cost’ of your money. So, if you’re smart, you should always calculate a monthly payment plan to pay yourself back,” he wisely stated. “However, if interest rates and loan terms are reasonable, it always makes better sense to borrow money and maintain a strong cash position,” he added.
Wilson’s sage advice still holds true today, and should be applied to your business model and financial circumstances.
If you are considering adding tanning, spa or wellness equipment to your business, you should calculate your financial options and choose the most economically-friendly path that will allow you to add the best equipment while still preserving your cash.
For example, let’s say you’re debating whether to purchase a used tanning or wellness system for $5,000 versus a new system for $10,000. A new, $10,000 system financed for 60 months at 8% interest would have a monthly payment of $202. The used, $5,000 unit would have a payment of $101 per month (under the same rate and term).
You then need to ask yourself, “would owning the new system allow me to attract more customers and sell just two or three more memberships or a few more bottles of lotion each month to cover the additional $101 payment?”
Another consideration is the fact that the new unit would have brand new lamps and acrylics and would be supported by a factory warranty. However, if you find a high-quality used unit that also has new lamps and acrylics, you may be better off purchasing that unit and saving the $1,200 per year in payments.
Regardless of whether you choose new or used equipment, financing your purchase may provide you with the leverage you need for future expansion, while preserving your cash position.
At the end of our conversation, Wilson made one of the most profound statements in the history of our industry when he playfully stated, “You know the tanning industry and the hotel industry have a lot in common – it’s all about putting butts in beds!”
Sadly, Wilson passed away in 2003 after a long, happy and successful life. I will always remember and appreciate his friendship and the great advice he shared with me.
There are several fine companies that specialize in financing tanning, spa, wellness and fitness equipment. If you would like more information on contacting these lenders, write to firstname.lastname@example.org.
About the Author:
Jerry Deveney is Director of Business Development for IST Magazine. With more than 30 years of hands-on experience working with tanning salons, beauty salons, health clubs and spas, he has helped thousands of people own and operate successful businesses. His extensive market research became the foundation for thousands of business plans and inspired his book, Sun Business.
Copyright 2016 ist Magazine