Optimizing Results through Lean Spa Development
“Lean Startup isn't about being cheap [but is about] being less wasteful and still doing things that are big.”
“The lean startup has been applied to a wide variety of businesses and industries: manufacturing, clean tech, restaurants, and even laundry.”
“Instead of looking at cumulative totals or gross numbers such as total revenue and total number of customers, one looks at the performance of each group of customers that comes into contact with the product independently.”
“Using the Lean Startup approach, companies can create order not chaos by providing tools to test a vision continuously."
We predict that the lean startup methodology will increasingly attract the attention of the spa industry in 2015 as businesses strive to increase revenue, decrease risk and work smarter rather than harder.
The lean startup approach is based on Eric Ries’s best-selling book The Lean Startup: How Constant Innovation Creates Radically Successful Businesses. This approach is about learning what your customers really want, testing your vision continuously, adapting, and adjusting before it’s too late, irrespective of your industry. It is as relevant to multinational tech companies as it is to a therapist working out of her home, as what all these businesses have in common is a mission to discover a successful path to a sustainable business “under conditions of extreme uncertainty”.
In this article, we use a spa industry case study to highlight five ways you can adapt the lean startup methodology to boost your spa business. We’ve deliberately chosen an example of an established business using what can be labelled ‘lean’ techniques to establish paths to growth. We want to show that lean startup techniques are relevant to spa businesses at all stages, not just at their founding.
The case study: an international spa chain that expanded into Asia
This spa chain favoured the European spa model and leveraged the continental heritage of its brand. Expanding into Asia, it planned to link continental sophistication with local heritage and wellness traditions. As part of the concept, they had one approved European product house partner.
In terms of layout, their spas had a separate ‘luxury' area for manicure and pedicure and a deep relaxation room, as well as a hydrothermal area, including a hammam room.
Main problems
Although the European-inspired concept was successful elsewhere, the spa chain ran into some problems in Asia.
1. There was tough competition from local beauty salons that provided cheap manicures and pedicures that were performed very well. As a result, the spas hardly sold any manicures or pedicures as they couldn’t compete with their quality or price. Also, in our experience, spa therapists are good at performing massages, and in some cases also facials. However, they generally perform manicures very poorly. This meant the spas had various square metres of spa that were not generating any money.
2. No-one really used the deep relaxation room. Also, in China, especially Macau, these spaces were not
very popular among the Chinese gamers. They much preferred to be in the casinos! Hence the deep relaxation area was another area that was underutilised.
3. Guests didn’t like the hammams at all – the idea of being on a hard marble table being ‘bathed’ by an Asian therapist was not very appealing. Furthermore, the fact that therapists didn’t like performing this treatment also affected the experience guests received. The hammams were also poorly built because in Asia they were not used to these types of facilities.
So, how could the lean startup approach help this international spa chain to optimise their business?
1. Give customers rather than investors what they want
The spa operators had built spas in Asia based on their previous knowledge of what works in the industry and what their investors would support. However, their customers in Asia were not buying into the concept in sufficient numbers. They had not been given exactly what they wanted: they didn’t like the hammams, they didn’t really want manicures and pedicures that were more expensive than local competition and often not as good; and they didn’t want to spend time in relaxations rooms when they could be playing at a casino!
Giving customers what they want is ultimately the best way to please investors, because you’ll maximise your chances of delivering on your financial projections. As Ries says, “Remember, if we’re building something that nobody wants, it doesn’t much matter if we’re doing it on time and budget.”
The situation needed to be improved by finding out what customers in Asia actually wanted. I led the team that was tasked with finding paths to growth for the business and our first step was to find out what customers actually wanted.
2. Observe real customer behaviour rather than asking hypothetical questions
However, asking your spa customers what they want – whether this is a new miracle anti-ageing treatment or an expensive new health café area – is not very useful because they rarely know. This chimes with Henry Ford’s famous quotation: “If I had asked people what they wanted, they would have said faster horses.”
Instead, at the spas in Asia it was much more valuable to observe how customers (and therapists) behaved, as well as what they said to members of staff unprompted. Our observations were that:
1. The hammams were often out of order, or empty, and customers, as well as therapists, didn’t like the treatment. This observation was confirmed by customer feedback.
2. The luxury nail lounge was underutilised because local competition made the spa pedicures and manicures seem expensive, and they weren’t offering a better quality of service.
3. Some customers valued the European product house partner and showed off if they were a member of their shops and VIP membership. However, European customers were slightly less impressed. This is probably because some brands are positioned differently in Europe and Asia.
3. Test hypothesis – even if they are industry best practice
Guided by user research, we had some great ideas about how to solve some of the spas’ problems and find
validated paths to growth. However, we didn’t want to make the mistake of rolling out these ideas on a grand scale. This would be very risky and potentially waste considerable time and money.
Instead, we opted to try ideas out at a smaller scale, aiming more for what Ries calls a minimum viable product (MVP), where the impact of this MVP is measurable.
The advantage of MVPs is that although they can be rough round the edges, they can also be specifically tested on 'early adopters' – people who are more forgiving of mistakes and eager to give feedback. We had loyal spa customers who were happy to test out our ideas.
One of our first ideas, developed into a MVP, was to adapt the treatment protocols of the hammam treatment to our guests and therapists liking. Guests had liked aspects of the treatment, but not the immersion experience. So, we wondered if it would work for therapists to perform the black soap scrub and the rhassoul wrap on the treatment bed in a treatment room instead of the hammam. The guest could then shower themselves to take off the excess product in the privacy and comfort of a treatment room.
The advantage of this MVP was that it was quick, cheap and fairly easy to implement.
It quickly became apparent through customer and staff feedback, as well as in booking numbers, that this MVP was a success. However, we were also given feedback that a massage might make the treatment even more attractive. We offered this at a slightly later stage, and this proved a popular addition to the new treatment protocols.
We were now in a position to roll out this idea, because it had been tested with actual customers and staff and was – measurably – a success. However, if our idea hadn’t worked out we could easily have pivoted and tried something else. This is the value of the lean startup approach, which suggests a quick navigation of the build-measure-learn product cycle.
4. Innovate, while reducing the cost of failure
One of the lessons we learned on this project was that innovation can actually reduce the cost of failure. We’d developed a completely new type of treatment – effectively a dry hammam plus massage! – but there was very little risk in rolling it out after we’d validated the idea.
Although it can be good spa business practice to concentrate on increasing efficiency by driving down costs, large hotel chains and spas that solely adopt this approach may struggle in the current business climate and run into problems in new markets, as we saw.
Steve Blank says in the Harvard Review: “Almost every large company understands that it also needs to deal with ever-increasing external threats by continually innovating.”
We’d also learnt that a number of small-scale innovations could provide measurable results. These included the translation of key phrases from Chinese to English by the product house partner so that the Chinese therapists could learn how to better personalise treatments for their guests and recommend the right product.
We also learnt that the consistent use of young, blond models rather than middle eastern models, no matter how attractive, led to increased custom. In Asia, the blond physical type was viewed as more appealing.
5. Measure what matters – and avoid vanity metrics
Considering that the nail and pedicure aspect of the spas in Asia was not generating enough revenue, it
would have been easy to conclude that it was a failure – and that the space should be used for something else.
However, just looking at top line figures doesn’t always give you a good picture of whether a product is definitely failing (or succeeding).
The lean startup approach suggests looking instead at ‘actionable’ metrics that draw strongly on cohort analysis:
“Instead of looking at cumulative totals or gross numbers such as total revenue and total number of customers, one looks at the performance of each group of customers that comes into contact with the product independently.”
We noticed that although Asian customers were not really interested in pedicures and manicures, European ex-pat customers were still a potential growth market, if we emphasised the clean and hygienic conditions of the spas. We changed the marketing angle accordingly, and made sure that only the best pedicurists and manicurists offered these treatments. We also offered preferential pricing and value-added promotion (this is a good way to grow your 'test’ group). As a result, we saw an increase in uptake from European customers.
In terms of measuring the performance of the spas, we also looked carefully at the drop-through or flow through rate, which is a KPI that is increasingly being used in the hotel industry.
It was no use for us to be generating an extra x% of revenue through our business optimisation strategy, if this extra revenue has not made the business grow in terms of profits.
The drop-through or flow-through analysis measures the difference, or variance, between profitability and revenue. There are many ways this can be done, but the way we measure the rate is to compare your current year’s figures with those of last year’s instead of only measuring yourself against your budget. This gives you a real picture of how your business is growing.
For more insights into how to accurately measure the performance of your spa, download our free guide: The Essential Spa KPI Kit.
Conclusion
The lean startup approach is a valuable way for spa businesses of all sizes to identify paths to growth. By emphasising the importance of finding out what customers actually want, as well as by proving this through MVPs, it reduces the risk of failure while offering all the advantages of innovation. However, it’s probably fair to say that the lean startup approach is hardly revolutionary. Many of us on the business side of the spa industry have been using some of the ‘lean startup techniques’ for years without identifying them as such! That said, learning to apply this approach in a more strategic manner promises considerable returns for spa businesses, whether they are starting-up, expanding or stagnating.
