Introduction.
Contrary to the belief that at least 50% of hotel businesses fail during their first year of operation, and 95% within five years, latest evidence reveal that at least seven out of ten hotel entrepreneurs do not survive in their first year of operation, and only 51% survive the first five years (CANINA, and CARVELL, 2007). The reasons behind hotel failures range from financial, management, and personal traits. The business requires commitments, excellent customer services, and producing quality demanded by customers. It also requires adjustments in tastes and preferences to match the continuous diversification and changes in demand structures in the market (GOLD, 2006). Failure to understand these concepts leads to business failure. Among the factors that contribute to hotel business failure, at early stages, are discussed below:
Most hoteliers are chefs or people with hobbies or passions in cooking. They start the businesses to develop their talents, and perform tasks they are interested about. The entrepreneurs lack business skills but consider their skills in cooking sufficient to run the business (CARDONE, 2011). There lacks business motives or a definite referential goal of the business as the owners view it as a hobby. They adapt the utilitarian concept/theory of profit maximization, and overlook the means of achieving the intended goals. The challenge arises when the business owners are faced with financial, management, or leadership strategies that must be implemented for the success of the business.
An example of a hotel started for a wrong reason is the NYLA (New York and Louisiana) hotel owned by Britney Spears. After her public meltdown, and becoming a mother the artists decided to expand on her career by venturing into the hotel industry. The hotel experienced high employee turnover, violated health codes, and gained a negative public image that not even the introduction of Cajun flower flavor could remedy. Hotel Nyla closed after six months. From this illustration, the entrepreneur started the business with wrong intentions of building bac her career. According to GOLD (2006), once a business is started for wrong reasons the probability of lack of proper supervision and management, leadership styles, competitiveness, and employee turnover remains high (FIELDS, 2007). The effects are business closure or offering it for sale.
Business planning.
Starting a hotel industry requires setting up frameworks and policies to deal with changes in demand, political involvement, finances, natural risks, and other limiting factors that may be unforeseen while starting the business. It requires a contingency plan to cater for these risks by providing solutions for dealing with such risks without interfering with business operations (ENGLISH et al, 2010). Many new entrants in the hospitality industry do not plan for these risks as they focus on profit maximization and fast business growth.
The hotel industry depends on convenience as a criterion factor in customer selection, and changes in patterns of traffic. As for these reasons, urban and regional planning are of crucial necessity while starting the business. As the plans are structured and implemented so are the traffic patterns expected to change (HARFORD, 2012). When this happens, the hotel business becomes at the mercy of the ever changing customer traffic pattern.
Lack of structural and traffic planning led to the closure of a new KFC branch opened in Louisville when a new highway was built along the city. Colonel Sanders the founder of the business, tough not new in the business, had not foreseen this structural change while establishing this branch. The consequences were massive business losses.
In addition, the business plans of most new hoteliers lack a consideration on the effects of fixed costs to the levels of profits. Some owners may decide to locate their businesses in high rental areas for image creation. This leads to unrealized fixed costs of rent that impact on the level of profits. During the initial start off months, the business may lack the ability to cater for these costs. Business owners need to plan for fixed costs and location of their businesses so that they do not end up renting prestigious space in the name of customer attraction yet they cannot afford the price of the space (GOLD, 2006).
Hotel layout, design, and location.
Success or failure of a hotel partly depends on its architectural design and physical layout. Design failures contribute to inefficiencies of operation, loss of competitive edge, and financial loss (ENGLISH et al, 2010). For example, a hotel designed in a way that separates most of its critical functions such as customer service desk, eating space, rooms, and communication network, discourages customers who may need such services at a time.
Architectural limitations result to failure of business, and are contributors of hotel failures in urban settings. Lack of storage space an inadequate production area is universal complaints from new entrants to the industry (MILES, 2011). It becomes a challenge when businesses boom in the first few months’ then lack space to accommodate the clients. This creates a negative image that may cost the business customers (HAVALDAR, and HAVALDAR, 2010). In addition, if the production area cannot fit for service provision, then the hotel may be headed for closure in search of other locations that may not be having as many customers.
An example is a popular hotel in Orlando, Florida, near the convention centre that was forced to forego some of its services as its design and facilities were not in proportion to its size.as a result of delays for customer space, some customers shifted to other nearby hotels. This may also happen to a new business where a shift of customers may lead to reduced sales that may impact on the businesses growth prospects.
Changing and diversifying cultural factors (failure to track customer preferences).
New hoteliers may not have the capability that results from experience to track or identify customer demand changes. Cultural changes resulting from globalization or immigration that lead to development of new behavior impacts on feeding habits. Hoteliers also lack a normative aspect to change the existing cultures thereby creating cultural impediments and lack of flexibility. Demographic factors such as changes in population, income levels, and status of consumers also impact on their consumption trends (ENGLISH et al, 2010).
A comparison of effects of cultural and demographic factors impact on the industry is on the steady decline of sales in donut shops, hot dog restaurants, and budget steak houses. Most Americans have diversified their eating habits from these products to other products defined by cultural impacts and demographic features. For example, hot dogs were highly replaced by hamburgers in the 1950’s while in 1980’s hamburgers were replaced by pizza. As these cultural changes take effect new hoteliers specializing in hot dogs or hamburgers suffered significant losses, and most of them closed.
Capital and finances.
Many first time entrepreneurs fail to consider costs related to business operation and expansion. The prime focus remains on the amount of cash outlay that the business requires. Any profit received during the first months of operation is used by the owners as their salaries. They do not wait for the business to break even either as a result of lack of business skills or eagerness to start earning from the business.
Amongst the most cited factors contributing to hotel failures is lack of sufficed capital. Most entrepreneurs in this industry enter with low capital as a result of low entry and exit barriers. Consequently, they lack sufficient plans for business survival before break even or payback period (FIELDS, 2007). Consequently, they lack resources to advertise and market their products so as to gain competitiveness, and increase their sales so as to add on the investment.
Poor management and entrepreneur incompetence.
Most restaurateurs star this business for personal actualization motives or making their dreams a reality. Some are motivated by the industry’s low entry and exit barriers compared to other industries like manufacturing, experience in the industry, opportunity to purchase entities at cheap prices, confidence of performance, and proper match between the entrepreneur’s skills and business opportunity.
Unfortunately, they possess the necessary technical and operation skills but lack competence required in the hotel industry. Most of them consider their skills as sufficient, and do nor refer on management theories that enhance organizational management. They lack the proper acumen for accounting, finance, marketing, legal framework, and human resource skills required for business operation (ENGLISH et al, 2010). They do not have the ability to transform their entrepreneurial skills to professional hotel managers, which results in early business failures.
The management principles of planning, organizing, staffing, control, directing, coordination, and budgeting are crucial while starting and running a new business (CARDONE, 2011). As a result of the sensitivity of the products that hotels deal with, management skills play a vital role in determining the existence of the hotel for a long time in the market. The management of McDonald eateries provides an excellent example of the role managers and leaders play in the running of hotel industry.
The managers of McDonald facilitate for planning of production depending on the time of the year, and customer expectations. Their new branches are loaded with non-perishable goods or goods that can withstand sometime without going bad so that it serves as a customer attraction before the intended mass is reached, and cooking perishable foods begin. Without such control and planning elements of management, new hotels produce quality foods that go bad before customers identify their location or whet they have on offer. They end up incurring losses from unsold foods, labor, and other related costs of hotel production.
Hotel name and branding.
An analysis conducted by CANINA, and CARVELL (2007) reveals that a typical hotel name comprises of five vowels and eight consonants. The name that an entrepreneur chooses for a hotel impacts on the hotels success and failure. Just like in any other business the name attached identifies its brand and reputation (ENGLISH et al, 2010). Starbucks, for example, is identified with fish and other white meat besides other foods.
A restaurant name should be descriptive, easy to pronounce and comprehend, and descriptive of the available or specialized food types. A hotel with a descriptive and brief name is more likely to succeed than a restaurant with a non-descriptive and long name. For example Kentucky Fried Chicken had to initialize its name to KFC to avoid the emphasis on the frying element of food that many customers consider unhealthy. The reason behind the failure of Nicky-O Hotel, the first Hilton hotel chain business venture, was attached to its name. The project was auctioned after one year since Hilton could not live up to her family name, and as thus run bankrupt.
Conclusion.
Starting a hotel business, and keeping it profitable is a challenging task that requires motivation and proper planning. hotels started with proper management and set up policies manage to prosper though their life cycles, and come out of the initial; stages of growth, which are critical as they measure and assess the long run success of the business. Discipline is of crucial concern for starters so that focus on the primary objective is not interfered or altered. An understanding of culture, political environment, social responsibility, and economic structure also plays a part in success of new hotel businesses. New entrants, therefore, should ensure adherence to the law, and have the ability to effect changes as driven by customer demands.
BIBLIOGRAPHY.
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