This is a topic that BananaMan loves to talk about! First, I am passionate about the business of hostelling, as a self-professed “numbers guy,” and I like to see those numbers grow and grow. Second, helping you build a profitable hostel business is what BananaMan lives for.
The first thing you need to do is write a business plan. I don’t care whether you are buying an existing hostel from another operator, buying a building to convert into a hostel or building a new hostel from the ground up. In every case, you need to write a business plan. And, I don’t care if you are funding the business yourself or if you need to attract investors. Even if no one else ever reads your business plan, you still should write it.
So now you are motivated to write a business plan. But what does a business plan look like, or more specifically, what should a hostel business plan include? In order to answer that question, I spoke with Scott, who is one of our co-founders with lots of business experience. Here is what he told me:
“Every business needs a plan. As an entrepreneur, I’ve written many over the years, and as an investor, I’ve literally read thousands of them. Although there is a formula to follow, every business plan is unique. If you are looking to raise capital from investors, you will likely craft your business plan into a PowerPoint presentation sales pitch with ten to fifteen slides. If you are writing a plan mostly for yourself and your staff, you may want to write most of it out in prose, and then summarize certain parts into lists, Gantt charts, and graphical slides for your staff to reference.
“In any case, there are many topics to cover. Personally, I tend to organize my thoughts into Powerpoint slides, so I’ll give you a sample of slide titles I would consider for a hostel business plan:
Investment Thesis – I like to start with a summary of key points of the business plan from the perspective of a financial, non-operating investor.
Management Team – No business is successful without a great founder and motivated team.
Mission Statement – This may seem like a silly exercise, but it’s not.
Hostel Description – Provide as much detail as you can about your hostel, from location, size, layout, types of rooms, pricing, common areas, services, operating policies, etc. How will you differentiate your hostel within your local market?
Market Feasibility/Opportunity/Competition – Have you studied your local market to understand supply versus demand of beds in your area? You should learn as much as you can about tourist traffic patterns and seasonality. You need to put together a competitive analysis of other lodging options in your area, including hotels, motels, bed & breakfasts, and even Airbnb. How much inventory is already available? How frequently are accommodations sold out? What does competitive pricing look like? You really can’t do too much homework here.
Channel Strategy – Where will your customers come from? Will you work with OTAs, other hostels in nearby towns and other local businesses for referrals? Will you take bookings directly through your website, through email and a toll-free number?
Promotions – How will you attract customers? What is your plan for pre-launch, launch and ongoing promotions? Do you have a social media strategy? How will you handle search engine optimization and search engine marketing ? Will you partner with other local businesses to co-market to your target customers? Are there print and online media you should consider advertising in, like travel guides and local newspapers. Any discussion of promotions should focus on how you will reach different customer segments, which you must define for yourself.
Financial Analysis – You must run the numbers. This can be intimidating for many entrepreneurs, but it doesn’t need to be. If you need help with this step, find it. If you don’t understand it, learn it. No entrepreneur can be successful without understanding his or her financials.
“The more work you do in planning, the more likely you are to be successful. Of course, there will be a lot of decisions to make on-the-fly, and you can’t forecast and plan everything in advance. There will always be choices that require trial-and-error, and market conditions can change unexpectedly. However, I think Ben Franklin put it best when he said,
‘By failing to prepare, you are preparing to fail.’
Well, I thought Scott laid out a pretty clear roadmap for developing a hostel business plan, but this is only a starting point. I will try to dive into more detail over my next several blog posts. And, as always, any comments or feedback is welcomed.