My daughter was asking for weeks to go to the bounce house. The Bounce house is a place called Defy Apex. It’s an old big box retailer building that’s been repurposed to house a large trampoline park in Apex North Carolina. Hundreds, if not thousands of screaming kids can jump into foam pits, swing on ropes and of course jump on numerous trampolines. They host multiple birthday parties every day. There are popular songs playing and the whole place is lit with flashing DJ lights. It’s a serious adrenaline rush targeting the preteen aged kids who still enjoy when they can run, jump, and scream. I had heard it had changed names, and after a quick search online, I realized the place was bought out by Sky Zone, a nationwide chain of trampoline parks. I always get worried when there is a buyout because the ideas of the new management typically are more negative than positive. I hoped that against the odds, nothing had changed but of course it had. The price for two kids and the required pair of special socks went from about $45 to about $70. The discount coupon card option was gone, and if you wanted a deal, you had to sign up for a monthly subscription. A subscription you could, in theory, cancel at any time, but most people don’t. As I hate most subscriptions with a passion, I begrudgingly paid the extra price and went to go find a seat while thinking “The MBA’s are in charge”.
There were other things I noticed. One of the moving head lights was burnt out. A place that used to have couches for adults now had tables for kids’ birthday parties. The concessions section was larger and had every flashy overpriced sugar bomb that’s guaranteed to get kids to ask their parents “Dad can I have $5?” The place was clearly on the “squeeze as much out as possible while putting as little in as possible” financial game plan. It reminded me of Royal Caribbean.
As many of my readers and listeners know, I’m a fan of cruising to the point where I have owned a part-time cruise focused travel agency for about a decade. My first cruise was on Royal Caribbean and I’ve watched the company closely over the last twenty years or so. It’s been very interesting to watch. The company got started a few years before I was born. In 1968, three Norwegian shipping magnates founded it. Their first ship, the 1,900-passenger Song of Norway, started sailing in 1970. I asked an A.I. bot to describe the company’s early years. Side Note: I’m an Information Technology instructor at a college and although I don’t ever use A.I. for my writing, I am testing its use in various scenarios. The A.I. generated response I got back was: Royal Caribbean quickly became known for its innovative design and service, and it soon became one of the most popular cruise lines in the world.
As is the case with most things generated with A.I. that of course is only half the story. What happened is that in the 1980’s new management entered the picture. To paraphrase a wall street talking head whose name escapes me as I write this: “The founders put the MBA’s in charge.” When I started sailing, Royal Caribbean offered a five star experience at a three star price. Today, that’s all changed, the company is offering what is mostly a three star experience for a five star price. This happened through a thousand cuts and I could go on for ages about changes like eliminating the evening turndown service, removing chocolate from the pillows and the explosion in extra cost venues which come at the expense of the formerly included ones. That’s not the point of this article. The big point to be made is that it’s the same basic playbook as Sky Zone. Invest big in infrastructure to attract clients, and then have a high price of entry and nickel and dime after you’ve gotten the outside entry fee. Offering value is not part of the equation. The only goal is to continually increase revenue across every metric that’s tracked. Great for investors, but it sucks for consumers.
Unfortunately there are a few things at play here with both Royal Caribbean and Sky Zone that destroy the value proposition they started with. The first one is the loss of the founders. I feel like value is only what happens when the founders are involved or in rare instances, when there is a huge competitive need to offer it. Why is this? It’s usually because founders have a vision. Their vision isn’t maximizing revenue. It’s to create a thing, and to make that thing better than any other thing that came before. Yes, they need to make a living, and they want to make a good living, but if you build something to serve a need, your focus will forever be intertwined with that need. Don’t believe me? Look at Apple under Steve Jobs, then under the MBA intermediary CEO’s and then again under Jobs? Yes, that’s an extreme example, but it’s a perfect example.
On a more micro example, think about the light that is out in the trampoline park. I’m sure the original owners would care about that light because it looks bad. They would fix it more quickly.
Another is market consolidation. Both of these companies, among many many others in our economy, consolidated their industries. This is our fault as we have developed a culture and a political system built on Friedman’s theory of the primacy of Shareholder value. Consequently our system makes consolidating so easy that private equity interests have made it the biggest business trend in the last twenty five years. Less competition means you can get away with more profit taking and there is much less pressure to offer value. The whole point of most consolidation is to do less and make more. Market consolidation is very much an “MBA” thing. It makes great business sense even if the customers suffer.
I don’t know if there are actually people in charge of both companies with Masters in Business Administration degrees or who understand they are implementing Friedman’s Doctrine, but I do know that whoever is in charge is following that playbook. It’s a playbook that’s bad for customers and often for employees as well. As I sit here and think about it, when the MBA’s are in charge, it’s really a benefit to a small population (shareholders) at the expense of a large population (customers, communities, and employees). It is a major reason for the ever widening wealth gap in the United States.
I don’t know the solution. Obviously we can’t say “Off with their heads!” and put the government in charge of the whole economy. That’s called communism and that is proven not to work. You need free markets and you need business oriented people to do business oriented things. Also, massive organizations can do things on a scale that smaller organizations never can. That being said, I know we’ve gone too far with letting business interests take precedence over virtually everything in our culture. All of this high minded philosophizing is a great thought exercise, but not the point of this article.
The big point is that eventually, for every successful business, the MBA’s get put in charge. When they do, the odds are that things are going to get worse for the consumer, i.e. every single one of us. So what do we do? Sadly, we can’t do much. It’s unrealistic to borrow a ton of money and go open a bounce house to increase competition and keep the local monopoly for bounce houses in check. Maybe someone will do it, but I don’t have the bandwidth. Ultimately we have to think laterally, i.e. come up with something completely different. In my case, I need to find something other than a bounce house that gets my daughter really excited. For myself, I can come up with a vacation option that has what I liked most about cruising when I first started doing it. It’ll most likely have to be something completely different.
The one thing I do know is that I will make a change when I start to see a loss of value like I see at Sky Zone and Royal Caribbean. When I do change I’ll always try and find the option owned by the local entrepreneur. I’m sure I’ll get more value, and I’m even more sure that if it’s local, it won’t be run by someone with an MBA.
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