While visiting Savannah, Georgia I had the pleasure of meeting Carl Biathrow at the Savannah Entrepreneurial Center. Carl, a long-time entrepreneur and business coach, advises local business owners and aspiring entrepreneurs. One of Savannah’s leading industries is, of course, tourism.
Savannah natives and transplants alike flex their small business muscles by leveraging their tourist traffic to start a business of their own. Tours, restaurants, hotels, and more fill downtown Savannah, one of the largest and most beautifully developed historical districts in the country. Having recently migrated from Wilmington, North Carolina, another east coast tourist town, I was eager to visit with Carl and better understand the tourism business ecosystem in Savannah.
As a business owner providing marketing services to Wilmington tourism businesses, I was no stranger to the seasonality purge: tourism businesses that make a great launch but die in the off-season.
Seasonality is one of many concerns you must anticipate as you consider whether or not to start a tourism business. The good news is that if you are as prepared as possible and willing to move forward with a student mentality, you will achieve the secret to tourism business success: staying open one more year. One day you will wake up and find that you have been operating ten years and that your profits are healthier than you ever could have imagined.
1. Carefully Select Your Industry and Location Before You Start a Tourism Business
Both in Wilmington and Savannah fine dining is everywhere. If you’re an entrepreneur seeking to open a new restaurant in either of these markets, you will need to think about how well you can compete against the scores of existing exquisite dining experiences already flooding the market.
Sometimes the issue to consider is not so much the what of your business idea as the where, and making a slight adjustment in your target location can be a powerfully strategic move. For example, venturing east of Savannah to Tybee Island, you may find a less saturated market with better opportunities for establishing your own unique expression in fine dining. The goal is to staying in the same general area to capitalize on tourism traffic but to identify a location where your submarket is not already saturated with competitors.
Generally speaking, tourism exists where there is something unique to do (attractions and shopping), something great to eat (food and beverage), and somewhere amazing to stay (hospitality).
Start a Tourism Business in Attractions
What is your attraction? Is it of interest to a large sector of the population? Can you present it in a powerful way?
Typically, people with unique talents or possessions are great candidates for launching their attraction. Seaman Jonathan Claughton used his nautical skills to create Savannah Riverboat Cruises. Dr. Dorothy Kingery, professor of history and sociology, resides in and curates the legendary Mercer House made famous by the best-selling novel Midnight in the Garden of Good and Evil.
If your cup of tea is less sophisticated and more generic fun – mini golf, arcades, etc. – you might consider partnering with a team of entrepreneurs who can contribute startup capital and expertise. More fantastical tourist attractions like the Escape Hunt international franchise can train you and assist you with marketing.
Retail requires an ability to multitask in all manner of small business challenges plus managing inventory.
If you have retail experience or feel at home managing, purchasing, and marketing inventory, a retail startup is a great option for you.
“Choosing a product for your retail store to sell may very well be the most difficult decision you will need to make when starting a retail business. The choices are limitless and the task may be overwhelming at first. Not only should there be a demand for your products, but it must be profitable and something you enjoy selling.” – Shari Walters from thebalance.com
If your expertise lies more in rendering services, you may find the retail industry to be far more “out of your zone” than you expected. When rendering services, your unique ability draws a crowd. In retail, you have to be sensitive and more flexible to the ever-changing preferences of shoppers.
However, if you are fascinated with specific types of products or even developing your own line of products, a retail startup can be your best bet to start a tourism business.
Start a Tourism Business in Food and Beverage.
If you start a restaurant from scratch, you must have experience in culinary arts, hospitality, and/or catering. If you have no restaurant management experience but are hell-bent on starting your own, you should shop for a franchise option so that a nationwide brand provides you back-end support.
Possessing restaurant management experience means that you know how frightening launching a restaurant can be. Securing competent staff and special licenses, real estate/lease costs, inventory, and immaculate customer service are all vital concerns. Micro-managers should not be restaurant owners. You must have the ability to nurture an environment where your staff/managers bond together during high-stress moments.
“A hard reality is that many restaurants fail during their first year, frequently due to a lack of planning. But that doesn’t mean your food-service business has to be an extremely complex operation. In fact, the more streamlined you can make it, the better your chances for success. Paul Mangiamele, president and CEO of Bennigan’s, says, ‘Although we all love it, this business is very difficult. It’s a wonderful business, a great business, a satisfying business. It’s a lucrative business. But there are a thousand moving parts, and you need to be knowledgeable of all of them.'” – Entrepreneur.com
In many tourist towns, breweries and micro-breweries are highly popular and lucrative. Savannah has no downtown open container laws, making it a real hotspot for brewery connoisseurs and entrepreneurs.
Start a Tourism Business in Hospitality
You don’t have to invest in a huge skyrise hotel or casino to launch a hospitality business in tourism.
Bed and breakfasts, vacation homes, and hostels are all highly sought after forms of lodging for tourists.
If you have experience in housekeeping, event planning, and real estate management, you might be a great candidate for launching a tourism business in hospitality.
First, you will need (typically) a larger sum of money to get started, unless you already own real estate properly zoned and renovated for guest housing. The Small Business Administration (SBA) is ideal for startups that involve real estate deals, provided that the owners have good credit and enough cash to make a down payment.
Second, be sure that your real estate of choice adheres to proper zoning laws in your city/county. Your building will also need to be “up to code” according to your city/county.
Third, if you hire staff make sure that they are trustworthy and have a proper customer service mentality. Guests need to feel safe and comfortable at all costs.
Last, be sure that guests know what is expected of them so that you are protected from petty lawsuits or the discomfort of other guests. Consult attorneys who can assist you in drawing up contracts that protect you and the business.
2. Know What Licenses are Required and What Ratings are Generally Consulted
To start a tourism business, it is vital that you are legal and that you can be found in the places where your customers are looking when planning their trip.
Most businesses are required to obtain a license from the city/county where they operate. Some businesses are required to have liability insurance in specified amounts and secure additional permits/licenses. In particular, businesses that are federally regulated – alcohol, transportation, some outdoor activities, etc. – require federal permits.
Talk to a small business attorney, your local register of deeds, and a trusted insurance agent to help you navigate your industry requirements. Don’t get too annoyed at the professional startup costs. It will save you from disaster later on.
For information about permits and licenses, the Small Business Administration offers entrepreneurs exhaustive guidance.
Social Media and Travel Sites
When you plan to vacation in a particular city, where do you go to find what’s available for lodging, food, and attractions? Most likely, you head to Priceline, Trip Advisor, Google Maps, and other similar sites.
These sites exist for more than providing a list of options, though. As a consumer, you are looking for reviews, wanting to know what customer experience you are likely to find.
“Unless you’ve been hiding under a rock, you probably already know that what your guests say can make or break your business. Consumer and guest reviews posted online, in particular, heavily influence customer behavior and – consequently – your sales performance.” – Migs Bassig from Review Hackers
Review lists of top review sites for tourism business. Get listed on online directories so that you will show up in FourSquare, Google Maps, etc. If you feel overwhelmed with the prospect of managing your directory listings, considering investing in a Yext account.
Be sure to account for the cost of maintaining these listings, as most of them are not free. Getting listed is not an option; it is a must. Be sure to budget wisely.
Incentivize customers with discounts for “checking in” on social media sites. Encourage happy customers to review you online. If you or one of your business partners has strong writing skills, use your company website to launch blogs that assist vacationers with travel tips and industry “secrets” that make them savvier shoppers/diners and keep them coming back to your site.
3. Secure a Funding Source that has Recurring Funding Potential
Most tourist locations are seasonal to an extreme. When business is good, it may be so good that you nearly go out of business just trying to keep up with demand. When business is bad, you fear you may become homeless.
Set Aside Surplus for Off Season
If you or a business partner is keeping the books, be sure you keep those books pristine at all costs. Know your numbers. Just because you have money in the bank doesn’t mean that your business is making money. Sadly, most business owners can’t tell you if they are making or losing money. Knowing your numbers will automatically put you in a higher “bracket” of business owner.
When you stay on top of your books, you will quickly see which are your most profitable months. Begin budgeting a portion of those good months’ profits for the off season. Anticipate the off season when it comes to personal and business spending.
Explore Funding Solutions Such as Revolving Credit
If you are launching your business with a nest egg of your own cash and your business involves real estate, an SBA loan should be your first choice. Be sure to anticipate a 3-9 month funding process and “hidden” costs such as origination fees, closing costs, and fees for services.
Your best funding option, however, will come in the form of revolving lines of credit. If you have a great relationship with your bank, ask for an unsecured line of credit. Don’t be too quick to put your home or possessions up as collateral: if your business fails, you lose your possessions. Instead, explore your unsecured options first.
For great revolving credit, you need a credit score of 680 or higher. Remove any collections, and get all unsecured, revolving debt below 50% of the credit limit (e.g. a $10,000 credit card should maintain a balance no higher than $4,500 when applying for unsecured credit).
If you require $10,000-$30,000 in revolving credit to give you financial wiggle room during the off season, talk to your bank and a couple other local banks to get approved for 2-3 unsecured credit lines. Credit card offers with 0% APR on purchases or balance transfers are great options.
Credit card financing is quickly turning into one of the most popular forms of funding a business. Credit cards are flexible and usually come with great introductory rates (allowing you to milk 0% interest rates during the most critical first months in business). Most entrepreneurs have also figured out how to negotiate with the issuing banks over time until they hold 2-3 credit cards with $30,000-$40,000 on each with interest rates as low as 7%.
For more information on securing revolving credit for your tourism business, talk to a specialist who can offer a free consultation to help you understand your options.
Invest in Other Revenue Sources Which Offset Low Season
Just because your tourism business doesn’t make profits year-round doesn’t mean that you can’t make money year-round in other ways.
“Passive income” is the key here. Your business will take a lot of your time, and you don’t want to accidentally double your workload. Maybe your restaurant can double as a conference rental space, your retail store can sell inventory online, you can leverage a HELOC to own a rental or vacation property, etc.
4. Plan for the Long Haul
Fall in the love with the process of slow growth. Don’t get impatient.
Most businesses require a ramp up (time between launch and profitability) of 3-5 years. To start a tourism business means that each year is like half a year in your ramp-up timeline. If you plan on leanness for 5-8 years, you will not only survive, but you will weed out your competition simply by lasting.
And the longer you last, the farther your word-of-mouth referrals will spread to other tourists. Before you know it, a major reason why tourists choose your city is because you are there.