Investment Decision for Metta Rest Spa in Vancouver, Canada

Task

Dan and Deanna Strickland were vacationing in Brazil when they received a call from their daughter, Natasha Strickland, one of the owners of Metta Rest Spa (Metta), a flotation spa in Vancouver, British Columbia, Canada. The Stricklands had already invested almost CA$1.2 million in Natasha’s business when it opened in September 2014, and Natasha was in need of another $60,000 to keep the business afloat. The Stricklands sat down to review Metta’s 2015 financial statements, but they also wondered what other information they should be asking Natasha for (see Exhibit 1). They needed to decide whether to invest more money in the business or not by early 2016.

Flotation therapy (“floating”) was invented by U.S. neuroscientist John Lilly in the 1950s. Floating was based on a scientific approach to relaxation called restrictive environmental stimulation technique (REST), a sensory-deprivation practice that allowed someone to float weightlessly in a tank or pod with no sound or light. Floating had been proven to relieve countless aches and pains, increase concentration, improve memory, and eliminate fears and phobias. Customers usually floated for 60 to 90 minutes, showering both before and after entering the float pod or tank. To allow customers to float, 800 pounds of Epsom salt was added to each tank of body temperature water. Between customers, water was filtered three times and more salt was added if the concentration dropped.

Floating was popular with the general public in the 1970s; however, growth was halted in the 1980s due to uneducated fears about how the AIDS virus was transmitted. Floating became popular once again in the early 2000s, and in 2012, Float On (a six-tank facility located in Portland, Oregon) began to host an annual float industry conference for float centre owners, researchers, prospective owners, and equipment manufacturers. A state of the float industry survey conducted at the annual industry conference in 2016 collected information from 170 current float centre owners and 247 prospective float centre owner/operators. 

Almost anyone was able to float. There were four main reasons that customers floated: to relieve stress and anxiety; to manage pain; to generate creativity and ideas; and to improve athletic performance.

Anyone who felt burned out or overwhelmed could benefit from 60- to 90-minute flotation therapy sessions, where light and noise were eliminated. Many avid floaters described entering a deep state of relaxation or actual sleep. Flotation therapy left customers feeling relaxed and rejuvenated.

Industry Background

Knee pain, back pain, neck pain, and pregnancy-related pain could all be managed effectively with flotation therapy. The weightlessness took stress off muscles, joints, and bones, providing relief from even serious chronic pain conditions such as arthritis and fibromyalgia.

When other senses were limited, those that remained could be sharpened. With no sensory information to process, the brain was free to focus on one specific problem or to wander and explore new ideas that may otherwise not have been accessible. Some corporations send employees to flotation therapy sessions followed by creative brainstorming sessions. Students have experienced improved memory and improved test scores by floating.

Professional athletes Stephen Curry, a National Basketball Association (NBA) all-star, and J. J. Watt, a National Football League (NFL) linebacker, had advocated for flotation therapy as a way to improve athletic performance. The physical benefits included pain relief, better sleep, and healing induced by the Epsom salt. The mental benefits were focus, positive visualization, and stress relief.

Metta was founded by three partners—Natasha Strickland, Kimberly Paulson, and Charlie Paulson—all of whom had been “utterly transformed” by the practice of floating, and who had a common interest in owning and operating a float centre. Metta claimed to be Vancouver’s most luxurious float spa, offering state-of-the-art relaxation treatments.

Metta had flotation tanks in seven private rooms, each with its own shower facilities. Each room had a towel, face cloth, bath mat, neck support, earplugs, barrier cream (for any cuts), shower gel, shampoo, and conditioner. Metta’s pods were filtered after each guest float, and sanitized between guests. Women’s and men’s change rooms were available, where clients could change into robes and slippers (provided by Metta) and lock up valuables. The change rooms were stocked with toiletry items such as lotions, cotton swabs, and hair dryers. Metta also had an infrared sauna, a reading lounge, and a yoga and meditation studio. It provided a large selection of books and tea for post-flotation relaxation; guests were not hurried out of the spa. Metta bordered two established neighbourhoods in Vancouver: Kitsilano and West Point Grey, and attracted both men and women aged 18 to 65.

Neither of the Paulsons, a married couple, were Canadian citizens, but both had work visas that allowed them to work in Canada for six months. At the time that Natasha asked for a new round of financing from the Stricklands, the Paulsons were living in the United States, and neither was contributing to Metta’s daily operations. The intention of the partnership had been for Charlie to work the front counter and handle staffing, and for Kimberly to be in charge of marketing and of developing relationships with groups of interested customers, such as students, new mothers, and corporations. Since they had contributed neither the work that was promised nor any financial contribution to the start-up, Natasha intended to take over everything and handle the operations and financing on her own. Natasha was a yoga teacher, and she continued to teach at studios in Vancouver while managing Metta.

Between 2013 and 2014, 13 float spas had opened in the Vancouver–Lower Mainland area. Metta’s strongest competition came from Float House, a franchise float studio located only a few kilometres from Metta on a road with very busy car and foot traffic. Float House had access to considerable marketing resources through its franchise arrangement. Float House had five locations in British Columbia and one in Edmonton, Alberta. Float House had a different pricing structure and a different tank supplier than Metta, and it had only three tanks at its Fourth Avenue location (see Exhibits 6 and 7). Float House’s pods were not drained and sanitized between guests; water underwent a triple-sanitization and filtering process instead.

Should Dan and Deanna Strickland invest another $60,000 in Metta Rest Spa? The Stricklands were less concerned about investing their funds at a high return than they were with supporting their daughter’s dream to own and operate a flotation therapy business; however, they also wanted to protect the money they had already invested. Was it time to give up? What additional information should the Stricklands ask for to help them make this decision?

Source: “Pricing and Memberships,” Float House, accessed February 28, 2017, www.floathouse.ca/pricing-and-memberships.

1. Discuss the Metta Rest Spa performance in 2015. Perform industry, consumer, competitor, and corporate capabilities analyses to support your discussion. (750 words)

2. As a consultant you were contacted by the parent in order to advise whether to increase their investment or not.  They asked for the following additional information: Cost Classification & BEP, Capacity, Unit Sales, Seasonality, Membership Sales, Staffing Schedule and Wages, Floats per Day and Hour, Marketing Break Down. (800 words)

3. Discuss whether the parent should invest more. (100 words)