Professional Documents
Culture Documents
Should We Stay or Should We Go
Should We Stay or Should We Go
The
Case of the Adventure Inn
Lorraine L. Taylor, Fort Lewis College HBP# NA0666
Michael E. Valdez, Fort Lewis College
Keith D. Winchester, Fort Lewis College
After 18 months of owning the Adventure Inn with his wife Tammy, Nigel Peck hung
up the phone with his trusted friend, John Hazen, a motel broker with over 28 years
of experience who had helped him buy the property. On the phone that day in
September 2017, Hazen encouraged him to sell the motel. “Nigel, get out now,” he
was told. The community was anticipating the opening of several new hotels and the
significant increase in local room supply of more than 25% over the next two years
would certainly impact their business. The Adventure Inn was just beginning to gain
momentum and Hazen’s urgent suggestion to sell surprised Nigel.
The Adventure Inn was located in Durango, Colorado, a tourist destination known
for seasonal outdoor recreation and as a gateway community to Mesa Verde National
Park. Durango was also popular for lifestyle entrepreneurs who looked to own a
business in a location where they could also appreciate the amenities. Durango was an
active community with hiking, biking, rafting, and fishing during the summer and skiing
during the winter. Originally from Boulder, Colorado, another city known for its
plentiful outdoor recreation activities, Nigel was recently transplanted back to
Colorado from Kansas City, Missouri where he met Tammy. The Pecks were excited
to be back in Nigel’s home state and while they had been working around the clock
since they purchased the motel in March 2016, they finally had begun to reap the
benefits from all their work. Nigel knew there were a variety of factors to consider
that would determine the future success of the motel, and perhaps selling wasn’t the
only option, or even the best option. With Hazen’s call they were facing a fork in the
road sooner than they expected and it was up to them to determine their options for
how to move forward. Should they sell now, or stay the course, and perhaps even
eventually expand? Knowing they would soon be competing with so many new hotels
in the market, he and Tammy needed to consider which path forward would be best
for them.
TOURISM IN DURANGO
Approximately 18,500 people called Durango home, and they welcomed roughly a
million visitors each year. The Durango Area Tourism Office (DATO) managed an
annual budget of over $1 million, primarily generated through a 2% lodger’s tax
-----------------------------
Copyright 2021 by the Case Research Journal and by Lorraine L. Taylor, Michael E. Valdez and
Keith D. Winchester.
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collected and remitted by each lodging facility. DATO used that budget to promote
tourism to the area through identifying key target markets and sharing information
about the variety of attractions available through marketing promotions. Its slogan
was, “A Dozen Vacations in One Destination” with roughly 600,000 visitors a year to
Mesa Verde and then several hundred thousand each to Purgatory Resort and the
Durango & Silverton Narrow Gauge Railroad. One of DATO’s key challenges was to
bring in visitors throughout the year and combat seasonality with the late fall and late
spring typically plummeting in terms of number of visitors and hotel occupancy. The
economy was highly dependent on tourism and La Plata County estimated that 26%
of all employment was classified within the tourism industry in 2017, with an
unemployment rate of 3.5% during that year.1
DATO had toyed with the idea of increasing the lodger’s tax from 2% to 6% to
match the Colorado average.2 Nigel and Tammy knew that as a smaller property in
Durango with an extremely limited marketing budget, the Adventure Inn relied on
DATO to market the community and the chance for a lodger’s tax increase certainly
factored into their calculations for the Adventure Inn’s future success.
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to Nigel that the ten-year cycle would come to an end and there would be a period of
financial decline before another period of profitability.
NIGEL’S BACKGROUND
At age 57, Nigel had never planned to enter the motel industry. As a teenager, Nigel
dabbled in a variety of construction-related trades, gaining experience in wood shop,
home restoration and concrete, and had a strong knowledge base regarding tools and
materials. After high school, Nigel went to vocational school and worked with a crew
doing house foundations and concrete before he moved to Kansas City. He said that
after “working for a big real estate outfit restoring old historic homes for a few years,”
he applied for the Kansas City Utility and joined the janitorial staff, cleaning bathrooms
for 120 linemen. “You learn so much about how people treat other people,” Nigel
recalled about that position. He learned what occupying the bottom rung of the
company ladder meant, and regularly received poor treatment from most of the
linemen. He succeeded in his next bid for a job in the Distribution Control Center and
was promoted to manage the line operators running the electrical system. “Going from
cleaning the bathrooms to being the manager was the best learning curve I ever had in
my life,” Nigel recalled.
Despite his professional success, Nigel’s personal life experienced flux. He
divorced his first wife and lost nearly all of his financial assets. He met Tammy Carlile
in November 2006, whom he later married. “When I met Tammy, I had everything I
owned in the back seat of a car I owed money on,” Nigel shared. Together they left
Kansas City and moved to Colorado Springs, Colorado in 2007 in pursuit of another
control operator job for a utility company. Things were fine for a period until Nigel’s
youngest son crashed his motorcycle in 2012, and after caring for him around the clock
during his recovery, Nigel explained that he was in a “very very depleted state,” and
experienced a mini-stroke on the job. He was then reassigned to the Asset
Management department where his health concerns were less of a risk. After taking a
$65,000 pay cut, Nigel recalls being moved to a “teeny cubicle and hating life.” In 2013,
Nigel looked to start a new chapter.
TAMMY’S BACKGROUND
Tammy worked for 25 years in Kansas City’s medical field. Her various roles included
administration positions in cancer research, family clinics, lab work, and she eventually
was promoted to Resource Manager over a staff of 22 people in a Pediatric Intensive
Care Unit. Her success was attributed to her meticulous attention to detail as well as
her empathy for the patients, their families, and her staff. Despite describing herself
as a “major introvert,” Tammy played a key role in communication, and often acted as
the intermediary for the doctors and facilitated communication that gave patients the
whole picture about their diagnosis and treatment plan. Being a patient advocate was
a natural fit for Tammy because she said with pride that, “I go for the underdogs, I
always have. I don’t like people to be trampled on.” The encouragement and
compassion she showed to patients and their families was a critical piece of their
support system when they needed it the most.
She nurtured the patients and staff, but Tammy also gained confidence in her
decision-making skills and honed her business sense. She identified areas to increase
the cost effectiveness of treatments in her department. For example, her financial
sense helped justify the purchase of an MRI machine because over time, she had
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noticed both the inconvenience to patients and also the cumulative expense when they
outsourced MRI procedures. The investment in the specialized equipment made a
substantial improvement in the unit’s financial performance in the long-term. Tammy
shared that this skill applied both in the medical field and also later in the motel
industry.
Similar to Nigel, Tammy experienced professional success and personal struggles
– she too was divorced. Tammy was single for ten years before meeting Nigel in 2006,
“Because I wasn’t willing to settle for less than what I wanted” she affirmed. They
were immediately comfortable with one another and Tammy recalled that, “It was like
meeting your best friend that first day. And it has been like that since. We’ve always
been each other’s encourager, supporter, and helper.” She was the one who
encouraged Nigel to move back to Colorado so they could start fresh. Nigel concurred,
“What you need to know in this story is that Tammy is a bigger risk taker than I am,
by a fair bit.” After the move, she was surprised that her 25 years of work experience
didn’t help her find a job she preferred. But even at age 55, she was always the optimist
and Tammy trusted the process and believed a new path would open for them.
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TRANSITIONS: THE PROPERTY
The banks’ skepticism was justified. Nigel and Tammy scraped and strained to
purchase the Knight’s Inn at a time when, according to JD Powers,4 it was America’s
worst performing economy hotel brand. “It had a very bad reputation. In many ways
it was like having a ‘Do Not Stay Here’ sign hanging out front,” Nigel recalled. Its
parent company, Wyndham Hotels, typically forced new Knight’s Inn franchisees into
a 3-year contract. However, the Pecks knew they did not want to be saddled with the
brand’s reputation and the 18% royalties so they negotiated an escape clause from the
franchise agreement after 1 year so they could build their own brand.
There were significant expenses associated with rebranding for things like a new
website, signage and software. Neither Tammy nor Nigel had branding experience or
knowledge about how to design a logo or build a website. Nigel’s estimates were in
the range of $55,000-$65,000 for transitioning to the Adventure Inn brand, including
financial losses near $30,000 in the month after they dropped the Knight’s Inn flag
because Wyndham Hotels still received a portion of their revenue from advanced
bookings. The Adventure Inn brand was in place in March 2017, just one year after
they had purchased the property.
“It was a dive. It was a dirty, crappy, horrible place,” Nigel recalled. The
renovations ranged from lightbulbs and linens in need of replacement, to bigger issues
like bad wiring, plumbing problems, no window seals (causing high utility costs), and
broken equipment. “There was a phenomenal amount of deep cleaning we had to do,”
Nigel stated, so they made a list and prioritized deep cleaning projects, replaced
furniture and appliances, and maintained enough rooms in inventory while they
worked on the others.
Nigel used his previous experience as a builder and his skills from the time he
worked in utilities to determine what the next most important thing was to get done,
“I’m doing exactly what I’ve done my whole utility career. It comes down to your
ability to prioritize.” Nigel trained his team in construction skills so they kept most of
the work internal without the need for to pay for contractors. The work they put in
had quick results with their customers. “Between March 28th and that August, we went
from number 26 on Trip Advisor to number 2 in Durango,” Nigel boasted.
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such personal relationships with the Pecks. “Actually, they call me Mama Bear,”
Tammy said of her staff. Tammy explained that, “What I teach my staff is the heart
and the soul. So, they believe they can do this.” Nigel and Tammy knew the team
would feel the direct effects of their decision if they decided to sell.
FINANCIAL PERFORMANCE
The previous owner of the Knight’s Inn had failed to make a profit in five of six years
before Nigel and Tammy took on the motel. Despite rebranding and remodeling
expenses, the Pecks saw a profit of over $60,000 during their first 9 months as owners
in 2016 due to what they felt were the increased efficiency of staff and utilities, and
improved service and reputation (See Exhibit 1). The profit in 2017 declined due to
substantial remodeling expenses (See Exhibit 2), but was projected to be near $200,000
in 2018 when many of the major projects would be completed and no major
construction was planned.
Compared to the metrics like Average Daily Rate (ADR), Revenue Per Available
Room (RevPar), and Occupancy within the Durango Industry, the Adventure Inn
improved its performance and competitiveness in the market after leaving the Knight’s
Inn franchise (See Exhibit 3).
When they considered the option to sell the motel, they knew comparable
properties (i.e., age and style with exterior doors that are typical of older motels) on the
market in Durango (See Exhibit 4) were in need of substantial renovations, therefore
giving the Adventure Inn an advantage for potential buyers who were looking to
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purchase a turnkey business. The Pecks had calculated the value of the property using
two metrics. The first was to use a multiplier computed for the local industry to gain
a rough estimate for the purpose of valuation.7 Hotels in southwest Colorado were
using a multiplier of 3.5 times the annual revenue which would value the Adventure
Inn at $1.67 million. A second metric commonly used in the region to value properties
was based on a more accurate and sophisticated estimate of the cap rate considering
the net operating income and current market value. The Pecks estimated the valuation
at $2.25 million based on the cap rate formula.
FUTURE PATHS
Nigel respected Hazen as his coach and as an industry expert and seriously considered
his advice. There were certainly good reasons to sell. The next year would be a true
test of the strength of the brand that the Pecks had built. New hotel rooms that would
increase the overall supply by more than 25%, and Nigel and Tammy expected an
increase in competitiveness. “I can see the excavators are poised and ready to go,”
Nigel said about the construction of the new hotels. They knew that if they chose to
sell, that it was typically a slow process and it often took at least a half a year to close a
deal. However, Hazen estimated that if they put the Adventure Inn on the market
immediately, that within six months, the Pecks could have an offer between $2.0 to
$2.5 million that would be more than enough to cover their personal investment ($1.4
million). After choosing to invest much of their earnings back into the property and
only paying themselves a combined annual salary of $18,000, the potential profit from
the equity they had built was tempting. However, if the Pecks waited too long to make
the decision to sell, prospective buyers could be turned away by the increased
competition by new hotels opening in town and perceive that the Adventure Inn lost
value.
After they had each worked 18 hour days for 18 months, Nigel and Tammy felt
very proud of the success they had generated in such a short time but they knew it
wasn’t sustainable to continue working at that pace. One option would be to hire a
general manager to take over much of the operational tasks and decisions. This would
support Tammy’s goals to take more time off and have a chance to get out and enjoy
nature. While she loved the family she had created, the introvert in her didn’t
necessarily love that she lived where she worked and could never really get away to
take a break. “I’m so tired of being cooped up in that little area. I mean it’s workable,
but it’s not optimal,” Tammy said. Leveraging the assets of the property to purchase
a home in town was certainly something they had considered. “We don’t want anything
big, but just a private spot when you’re not on 24/7 and have a chance to breathe,”
Tammy shared. However, they knew they would have to pay a manager more than the
salary they had been paying themselves while putting the remaining profit back into
the business, so financial factors must be considered.
Expanding was another option and Nigel had been keeping a close eye on the
market to watch which properties went up for sale and would change hands. He didn’t
feel rushed to make a purchase but wanted to be ready if the right opportunity came
along where he could use the skills of his team to resurrect a failing property and turn
it into a second location for the Adventure Inn. Nigel explained a long-term goal that
he’d had in mind before he got the call from Hazen, “My goal is to position as such
that the hotel is doing so well and looks profitable enough that we can borrow against
it, or develop such a cash surplus that we can just buy a second property outright.”
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Another option they had considered was selling the property and rebuilding the
business in a new location. While the Adventure Inn boasted drastic property
improvements from the Knight’s Inn, certain inherent flaws couldn’t be fixed with
fresh paint and new shower heads. For example, the room size was small. Even some
guests who raved about the property’s customer service would express displeasure
about the size of the rooms. Another concern was the Adventure Inn’s location on
the 35th block of the north side of Durango (See Exhibit 5). While technically
positioned on the main tourist thoroughfare, it was still 25 blocks from the heart of
the shopping and restaurant district. The inconvenient location always posed a concern
to visitors who lacked their own vehicle and placed them at the mercy of sporadic city
transportation schedules.
Other factors were out of their control and clouded the decision process. For
example, as a destination dependent on outdoor recreation, tourism in Durango moved
at the whim of weather patterns and climate change was a threat that loomed over all
tourism businesses in the region.
Nigel and Tammy were confident that the Adventure Inn was set up for success.
Tammy reflected, “We feel very accomplished at this point. We’ve done better than
we thought we would, and what everybody else thought we would too.” But was it the
right time to sell? This was not simply a business decision. For Nigel and Tammy, it
was personal. Tammy was worried they would they miss the opportunity to build the
Adventure Inn to its full potential. “A very close second thought for both Nigel and I
was about the team we have built here and we have made a promise to these people.
This decision is not just about us anymore,” Tammy shared. They were not motivated
by the possibility of a financial windfall if there would be negative impacts on their
team.
But selling the property now could afford him the chance to start a new chapter.
Nigel had no desire to retire, but he questioned if his passion was in management or
entrepreneurship.8 “I don’t have any aspirations of become a majorly wealthy person.
I do have aspirations of being happy. That’s my motivation.” Nigel asserted. Would
the day-to-day operation at a motel start boring him when his skills may be better suited
for reinvesting the earnings into a new venture? Nigel had to consider Tammy’s
happiness too. As partners, they needed to choose their future path together. They
had always planned to sell the property eventually, but was this the right time (e.g.,
would they be maximizing their return on investment), or should they choose another
option (e.g., delay selling) that would better support their goals?
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Exhibit 1 - Motel Financial Performance
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Exhibit 3 - Comparison of 2016 Metrics*11
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Exhibit 5 - Map of the North Main District13
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NOTES
1Region 9. (2017). Economic Snapshot 2017. Economic Development District of
SW Colorado. Retrieved from:
https://www.scan.org/uploads/Region_9_Final_complete_document.pdf
2 Shinn, M. (2017). Lodgers tax increase could boost Durango’s marketing efforts.
Durango Herald. Retrieved from: https://durangoherald.com/articles/196477-lodgers-
tax-increase-could-boost-durangos-marketing-efforts
3 Choi, J. G., Olsen, M. D., Kwansa, F. A., & Tse, E. C. Y. (1999). Forecasting
industry turning points: the US hotel industry cycle model. International Journal of
Hospitality Management, 18(2), 159-170.
4 J.D. Power. (2017). North American Hotel Guest Satisfaction Study. Retrieved
from: http://www.jdpower.com/ratings/study/North-America-Hotel-Guest-
Satisfaction-Study/2572ENG/Economy/2672
5Adventure Inn Durango. (2017). Trip Advisor. Retrieved from:
https://www.tripadvisor.com/Hotel_Review-g33397-d226058-Reviews-
Adventure_Inn_Durango-Durango_Colorado.html
6 12 Easy (and Secret) Southwestern Escapes. (2017). Outside Magazine. Retrieved
from: https://www.outsideonline.com/2264676/red-rock-secrets
7Gasparini, G. (2011). Understanding Hotel Valuation Techniques. IE: Business
School.
https://tourism.blogs.ie.edu/files/2011/10/IE_Hotel_Valuation_Techniques_Octo
ber_2011.pdf
8Lumpkin, G. T., & Dess, G. G. (1996). Clarifying the entrepreneurial orientation
construct and linking it to performance. Academy of Management Review, 21, 135-172.
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