buying a dive resort

Question
Hi Mike,
As I have already seen many posts from you on this subject, I'll try to be as specific as I can. I am currently a PADI DM and find my self in the position where I could buy a dive resort in the Philippines. Although this sounds tempting at first, I am also facing some concerns:
1/Although an experienced manager is currently running the place and would be prepared to stay on, I feel it might be wise to first continue training myself and gain experience in the area. I feel it might be risky to be dependent on a manager;
2/foreigners are apparently not allowed to own land, thus they have setup an entity with "silent" Filipino shareholders where they have a 49% interest. This structure seems a bit risky to me as I cant control the other shareholders;
3/I found out that they run another (more upscale) resort in the same area. I am worried that they might take their customers along.
4/Competition appears to be quite fierce in the area as their are loads of dive shools and resorts. Would there be enough room to differentiate your own product?
5/I find it hard to find out about market and business statistics on diving that would help to gain some more insight into the market. Do you maybe have any leads for this?

Thanks in advance for your help. I would appreciate any advice  you could offer on this.

Best, Leonard

Answer
Hi Leonard,

After reading your question, I spent some time reading dive trip reports from people who had made trips to various resorts in the Philippines.  Since I haven't had the pleasure of diving there myself, I had to rely on these reports.

From what I have read, there is a very active dive community in the Philippines and competition is fierce.  I could not find a single report of a dissatisfied diver so the service appears to be top-notch.  Such a highly positive response is very unusual.  That's great if you're a customer but it makes breaking into this market a risky proposition if you're an entrepreneur.  These reports were written by divers without the knowledge of the resort.

I think your concerns are completely justified and I think you're wise to be a bit skeptical.

I'll take your items one at a time:

1)  Having a competent manager is critical and, as you stated, there are no guarantees that he'll remain.  Without him, the operation is headed for failure.  Learning the business is certainly necessary but you could be in real trouble during the transition if your manager decides to leave or to hit you up for a salary increase knowing that you are over a barrel.

2)  I've run into the problem of foreign owned property before in Grand Cayman so it doesn't surprise me.  Personally, I don't think I'd put money into an investment that I cannot control.  As you said, owning 49% doesn't leave you in control.  Too risky for me.

3)  Your concern about customer migration is valid.  From what I've read, the dive community is pretty tight-knit and I'm sure the local powers-that-be have some control over which businesses survive and which to not.  While it's true that trip bookings cannot be controlled locally, the activities of your staff could be subject to their whims.  As you know, poor staff performance will spell the end of any customer-oriented business.  While this attitude may seem severe, it's happened before.

4)  This goes back to the beginning of my answer and I completely agree with your concerns.  I don't think you'll be able to separate yourself from the pack in this case.  You can only try to uphold the current level of service and let marketing do the rest.  This is a case of relying on shrewd marketing to separate yourself from the crowd.  Of course you'll have to back it up with exceptional service and we've already addressed the possible pitfalls there.

5)  Since I haven't been to the Philippines, I can't really give you any leads.  My information is second hand (from reports).  From the reports I've read, I would conclude that the market is strong so the potential for a successful dive business is certainly there.

In conclusion, I think you're absolutely right to be concerned and cautious.  I'd plan a trip to your resort but not tell the resort you're contemplating purchasing it.  Just go as a diver and check out their services as well as those of the competition.  To do this will take at least a week and possibly multiple trips.  That's money well spent considering the investment you are contemplating.  You may be able to find out about the experiences of some of the divers who've been there through various internet forums. That's also a good place to get some opinions about your particular resort as well as the competition.  You need to filter these opinions since it's impossible to please everyone and, if you're upset, what better way to "get even" than to hammer somebody in an anonymous forum?  The truth is there, you just may have to sift through things a bit to find it.

The bottom line, Leonard, is to continue to investigate and don't make any hasty decisions.  If it appears to be too good to be true, it probably is...you know that.  My gut feeling is that there's more to this than meets the eye...or the resort wouldn't be up for sale.

Thanks for writing and I wish you the best in your decision.

Mike Giles
Mike's Dive Center
mikescuba.com