The following is an excerpt from Shane Neman’s forthcoming book, “Nightlife Lessons: How I Conquered the Business of Partying with Tech and a Glimpse into Its Future,” on sale Aug. 8, 2023.
LESSON 2: EXCLUSIVITY DOESN’T PAY THE BILLS
“Not tonight, bro.” This was the line that the legendary NYC doorman Wass Stevens used for years to turn people away from exclusive clubs such as Veruka and Avenue. Eventually, it became such a well-known catchphrase that he turned it into a brand.
Exclusivity is a big thing in nightlife. Some of the most popular clubs in NYC history centered their business model on exclusivity: Bungalow 8, Socialista, Pangaea, PM, Lot 61, and Cain, just to name a few. The idea is to craft an experience that is meant only for the elite. If that succeeds, then celebrities, models, and other VIPs will flock to the club. Those people usually get comped, of course, but they’re followed by tons of wealthy wannabes who are willing to shell out big bucks to be part of the in-crowd.
Ultimately, though, exclusivity is a strategy that’s destined to fail. At first, it might seem awesome to be the coolest, most exclusive place in town, but as time goes by, the only way to make money is by growing and expanding your business. Exclusivity makes that difficult, if not impossible, because by definition it means turning down big crowds, walking away from big brands, and missing out on big opportunities. The moral of this story? You need more than trendiness to build a lasting brand.
Trendsetting (At First)
Most of the ultra-exclusive places that open up, even successfully, nevertheless wind up closing in short order. The reason? Their business model isn’t built with long-term gains in mind but instead is driven by ego. Most owners believe that their spot will last forever— that somehow, this time it’s going to be different. The usual recipe for these clubs is to open with a big PR campaign, spending a ton of money comping celebrities, press, socialites, and models, in order to create a big buzz. This is meant to help the fledgling club attract the attention of New York City trendsetters and gossip magazines. By the end of the first month, if all goes well, the buzz pays off, and crowds start to gather.
But the club owners must continue turning almost everyone away to maintain their reputation as “exclusive.” Aside from people too cool and too beautiful to charge, owners and promoters can only let in a few ultra-rich Wall Street types, guys who are willing to pay to play. The pay-to-play patrons are the ones owners are counting on, money-wise, because they purchase bottle-service tables. These guys sometimes drop tens of thousands of dollars in a single night, just to hang out with the (non-paying) celebrity crowd!
Within about six months, however, most of the celebrities and socialites are already becoming disenchanted with the club, flitting off to the next up-and-coming hotspot. At that point, the club typically transitions from VIP-only to a 50/50 mix of ordinary patrons and “cool crowd.” Within a year, formerly exclusive clubs often go totally mainstream, catering mostly to the bridge-and- tunnel crowd, and doing ethnic or urban nights with promoters who specialize in those niches.
A Losing Proposition
Interestingly, while losing VIP clientele might sound like a bad thing, in reality, that’s when clubs are poised to make the maximum amount of money. They’re still attracting large crowds, but now (almost) everyone is paying. It’s a much simpler and more lucrative situation than trying to attract a handful of wealthy patrons to go on massive spending sprees.
But here’s the catch. Most of the places considered ultra-hotspots are also quite small. This is a deliberate design choice, because if these venues were huge, it would be difficult to fill them up with VIPs. However, when your venue is small, and you can only let in so many people, then you can only charge so many patrons. Therefore, you can only make so much money. You’re capped.
By this point in the club’s lifecycle, the owner is usually swamped in debt, not paying rent, and desperate to bring in some kind of profit before the venue’s inevitable closure. And since these types of owners aren’t in it to build a sustainable business anyway, they do what comes naturally to small-minded, money-hungry people: they default, keep the money, and leave everyone else in the dust.
It was usually during the second, 50/50 phase that club owners and promoters would approach JoonBug for advertising, email blasts, photography, and other services. In the beginning, at the height of their popularity with the trendsetting crowd, they would snub us, saying we were too mainstream. But we always knew they’d change their tune once the buzz receded, paying us, and sometimes even pleading with us, to fill up their venues. It was a vicious, yet predictable, cycle.
Nightlife Lessons Learned
While you might want to start with exclusivity, it doesn’t pay the bills and won’t make you rich. It might feel awesome to be the coolest and most exclusive place in town, but ultimately, the only way to make money is to grow and expand. If you’re too exclusive, you have to turn down large crowds, big brands, and everything else that comes with making big money.
Look at some of the most successful nightlife entrepreneurs, such as Noah Tepperberg and Jason Strauss of TAO Group, Richie Akiva and Scott Sartiano of Butter Group, and Eugene Remm and Mark Birnbaum of Catch Hospitality Group. They went from having tough doors and places you couldn’t get into to building global brands out of their most successful venues.
It’s just a simple fact. You can’t build a business solely around a base of celebrity clients who are too cool to pay. Someone has to pay, or no one gets paid! But if you accept that you need to cater to a large number of ordinary patrons, you can build a sustainable business that not only survives but grows. And the bigger you get, the more money you’ll make, with less effort. The network effects of having tons of subscribers and a growing base of customers can’t be beat.
That’s how it works for hotspots, and that’s how it worked for JoonBug. The money is in the masses, and that’s who we focused on, moving forward. Promoters seeking fame, status, and getting laid could go on chasing their tails and their high-end clientele. We were better off serving the people who didn’t even know our names, but followed our brand instead, and paid us for the privilege.
In a similar vein, when I first started EZ Texting, we called it Club Texting. But shortly after that, I realized that I was pigeonholing the venture with that name. I didn’t want people thinking that it was a service exclusively for clubs. Yes, our first customers were people we already knew from the nightlife scene, but our service wasn’t just for them. So, I changed the name to expand our total addressable market. That helped me land many different kinds of customers and caused business to boom.
Now, as a venture capitalist, I often see the same elitism with startups. You have to know the right people to get into the right VCs to invest. Even if you’re smart and have a good idea for a startup, it’s still really hard to get in front of a successful VC firm if you don’t know someone who knows someone there. After all, these firms get thousands of submissions, so they put on automatic filters, and the first one is usually “who do they know that I know?”
Another thing that most VCs consider is whether or not someone has previously founded, and successfully exited, a venture. Successful multi-exit founders are a rare breed, coveted by VCs as part of an elite club.
However, I always try to give anyone who comes to me at least some of my time. I don’t look at the “pedigree” of the founder or try to figure out who they know that I know. The truth is that just because a person moves in certain circles or had success in the past doesn’t mean they’re going to be successful this time around. The chances of success may be higher, but they’re far from guaranteed. And there are a lot of lucrative opportunities out there that get overlooked, due to this restrictive mindset. Exclusivity doesn’t pay the bills!
