It's tricky. I'm still working on it.
Any answer I give to this one is a work in progress: for now it is going to appear discreditable on grounds that I've been trying to do just that for the last five years or so and haven't quite scored any hits (insofar as finding a taker - or more specifically, a taker that I'd really want to sell such a venture to - on grounds that you have to start with just one or two 'independent, non-franchised' hotels; but 'independent' hotels are perceived as more risky than franchised hotels). I wish I could give you a better answer on how to do it, but if you're willing to accept an answer that better illustrates how do we intend to go about it, here goes.
First of all, ask yourself, why would anyone pick your brand, why would anyone prefer a hotel from your 'chain', and why would they remain so committed to it that they'll call you every time? And if you don't have not just one but several answers, maybe you shouldn't do it. There are many hotel chains and brands, but very few successful ones out there. If you don't have good answers to that question, your 'chain' will not grow very large or, without doing a lot of franchising, last very long. (But as I'll share with you as we continue, successful hotel franchising isn't a hotel management success or hotel brand success nowadays, it's a franchising success.)
We've developed two homegrown brands. (What makes us think we can do this?| - and we'll come back to the subject in this answer.)
- Salem Inn by Beechmont is a quaint, gimmick-free, mid-market brand with boutique elements (although chain hotels don't really qualify as boutique) - and an emphasis on authenticity around the boutique elements. While not all locations will be all-suites or extended stay, all of them will have suites, and nearly every room (not just the suites) will have a pricing structure that automatically rewards stays of three to four days or more. The complimentary breakfast will feature fresh-baked goodies, and it's just there: we don't put a cutesy 'brand' on the breakfast itself, we make it look natural, like something we just do (there's that authenticity thing again...). You get a full-size coffeemaker in your room, not one of those cheesy little 4-cup 'motel models' that no one can get to produce drinkable coffee, and we even leave you a couple of mugs (they'll have the logo printed on them, so if you , at least we get some advertising and promotional value out of the four-dollar-give-or-take loss). Each location will have a parklike setting with lots of trees and other greenery outdoors. ( | | *)
- Calico Inn by Beechmont is a new 'everything you need, nothing you don't' economy brand, with simple, but not too stark, adequate facilities; that we can promote as the cheapest decent hotel in town, something I found some years back to be a wide-open niche for economy-tier hotels and motels. (Every town needs a "good, sixty-five dollar, hotel".) It'll have the same pricing structure as the Salem Inns although, like Motel 6, it locks in a price point - something I may come to regret (we define 'the cheapest decent hotel in town' as the hotel with the lowest rack rate of any hotel in a given town having a TripAdvisor bubble score of 3.5 or more). Every location will be fenced, and while it's not going to run like a jail or a military camp, extra attention will be given to security (a common pet peeve of economy hotels). The rooms are a bit more bare bones (you still get cable and free wi-fi, within limits that won't let you do a lot of streaming) but if you commit to several nights, you also get the refrigerator, microwave and coffeemaker, the same as you would in a Salem Inn. There is no complimentary breakfast, but if you want to have breakfast (or dinner) in the lobby (where a place is provided for you to sit) or in your room, food is available from a bank of 'break room'-type vending machines; and of course, coffee is free. ( | *)
- (* - Both those sites are in mockup: the first time, years ago, that we put a hotel website in mockup for a hotel that did not yet exist, someone came along and found the site, didn't notice it was a mockup, and actually made a reservation for the then non-existent hotel - encouraging for the future success of the new hotel, but still an embarrassing learning experience. Nowadays when we make a website in mockup for a new hotel or brand, it's non-searchable - we hope - and password-protected. If you want to visit one of our two brand sites, think of a popular, catchy rock song from 1981 by the band Tommy Tutone, about a guy who tried calling a girl whose name and telephone number - which together make up the song's title - he'd found on some men's room wall graffiti. Her name is your username, her number is your password. That's the one we give out to casual visitors.)
Why the difficulty getting launched? There's an ethical issue involved. Most of my potential clients or investors are able, if even that, to invest in a single hotel, and I'm obliged to look to their best interest no matter what, given what they have to work with. Unless, fully aware and understanding of the upside and downside involved, you still have a desire to launch an entire hotel chain, and have deep enough pockets to do so, (or even if you could come in for only one hotel, but I had enough clients to do five or six others of that same brand) I'm going to want to minimize the risk for you, and that's going to involve recommending the more traditional franchised-hotel route. A well-planned, well-managed independent hotel - and every hotel 'chain' has to start as just one hotel - shouldn't lose money, but cannot in accordance with established, universally agreed-upon, conventional wisdom be guaranteed to perform nearly as well. And if I can't do it right, I'm not going to do it. But I digress.
There are certain things that we're not going to do. One of those, of course - and the one that has been the mainstay for hotel brand growth for the last fifty to sixty years - is franchising. My twelve-year-old niece could run a 'successful' hotel 'chain' by selling franchises, setting up an 800 number that not that many people call, setting up a website that not that many people visit, setting up GDS and online travel agency links to her central reservations system so the franchisees will think they're getting something for their fee and royalty payments, and letting the individual franchised locations be run to crap by the franchisees, if she were a bit more unscrupulous than she is and needed the money; but that's not what we're in business to do.
We're not going to put a lot of work into developing a brand, then license it to someone who's going to run it in a manner that barely 'complies' with a set of rules and beyond that, runs his hotel any old way, and with our name on it at that.
- If I myself don't want to put a hotel in Macon, Georgia (and believe me, I don't, given the current state of that market and the projected ability of a hotel there to support other, similarly-branded hotels in places we would like to build), why would I think that you are indeed willing to
- make the same investment (both upfront and ongoing re-investment over the years as will be needed),
- run it in accordance with the same or better good judgment as I would,
- occasionally pass on short-term revenue or profitability to the same extent and in the same areas that I would, in the interest of the longer term, greater good of the hotel;
- pay me eight percent plus in royalties and fees, and manage your hotel exactly as I would for the next twenty years?
- As I noted - for just one of several hundred possible examples - we want each Salem Inn location to have a parklike setting with lots of trees and other greenery outdoors: if I have to make a rule telling you how many trees to plant in order to achieve this, I'm not so sure I want you managing a Salem Inn - even with the rule (as well as a much more exhaustive set of other rules, regulations and brand standards than I care to take time to make up). How do I know that you won't just technically 'obey the rule', and not notice or care if there's way too much open leftover space that has nothing growing on it?
- And even if you were willing, why would I think you'd succeed? I'm not even confident that we could succeed there - in any event, I can think of a couple hundred better places to build or buy a hotel.
Next to the landlord-tenant relationship (which should have gone out with feudalism and the 'master-serf' relationship), franchising is the ultimate 'lose-lose' proposition. The franchisee is, in most cases, never happy with what he gets in return for his fees and royalties that he has to pay, but he has to pay them. And if the franchisor is happy with what he gets in return for licensing his brand, it's only because he's asking nothing more of the franchisee than to pay the fees and royalties; usually on an antiquated, broken-down old hotel brand.
What causes hotel brands to fail is that either
- they (or the business or marketing model on which they were based) were flawed to begin with and never had all that good a chance to find a niche and succeed. Remember the old Family Inns? You don't? (The old pop song "Third Rate Romance" by the Amazing Rhythm Aces in 1975 and Sammy Kershaw in 1994 referenced them, as the motel where the couple in the song went to consummate the pickup - but that memory, and two or three worn-out locations around Gatlinburg, is all that's left of the hotel chain). How about Clubhouse Inns - the original ones, based in Overland Park, Kansas? Or speaking of 'club hotels', , perhaps? (They actually spelled the brand name with a lower-case 'c', and they folded it into Doubletree when Hilton bought them out.) Shoney's Inns? (All gone. Someone bought the name and marks hoping to sell franchises for it, but even Shoney's Restaurants - the one thing Shoney's did well - are vanishing.)
- that they over time - usually through the power and magic of franchising - let their properties and the rooms within them get old, lowered their standards whenever they had to in order to sell new franchises and keep the fees rolling in on the old ones, took shortcuts, and went out of integrity. Ramada Inn, for example, is nothing like what it was back in its 1960's heyday, nor is Comfort Inn anything like it was in its 1980's prime. The typical family who pulled into a Days Inn back when it was in its 1970's prime would, if they pulled into many Days Inn locations now, quickly turn around (maybe locking their doors in the process), leave the parking lot without even getting out of the car, and maybe make a note to call the health department or building inspector if they're planning to be in town longer than overnight. Fail. Quality Inn was once Choice Hotels' flagship brand - and for years, 'Quality Inns International's' only brand (they changed the name to Choice Hotels in the mid-80's, as Comfort Inn became a success and they were developing other brands). Look at them now: even the better Quality Inns have a TripAdvisor bubble score of 3.0, give or take. Fail.
There is not an Econo Lodge in Winston-Salem, N. C., and there won't be for the foreseeable future: that brand, also owned by Choice, is not viable there. You have four Quality Inns in the area (and a fifth one, a former Holiday Inn Express in the adjacent suburb of Clemmons, being converted to one), all offering rooms at an advance purchase rate of $59.49 or less. Any guest who pays less than sixty bucks a night for a hotel room is inviting an unpleasant encounter with housekeeping, maintenance or security problems; and if you own a hotel, you can't rent your rooms for less than sixty bucks and keep up your property properly, never mind recover your investment from new construction, or even the cost of remodeling necessary for a conversion to any new brand worth having. Why would Winston-Salem need an economy-tier Econo Lodge? You've already got all those Quality Inns renting rooms for as little money as a guest would expect to pay at one - and that's even before we go there about 1) how any guest familiar with Econo Lodge would expect to pay less money at an 'economy' Econo Lodge than he would at a 'mid-market' Quality Inn, and 2) how Econo Lodge is a brand that has spent the last 25 years or so letting its own standards slip. Fail. (Now, a good Econo Lodge - one of those that prevailed in the '70's before Choice bought them out and began franchising them, but one with a more up-to-date building design - could kick butt, if Choice Hotels didn't own the brand. Maybe over the next year or two I can get one of thosebuilt here and show you just how so.)
Then . . .. . . in betweenPictured below is the Days Inn just outside Raleigh-Durham [N. C.] International Airport.The good news: when I worked for another nearby Days Inn back in the late 1980's in Durham, N. C., this Days Inn was brand new - ours wasn't shabby - and it was one of the nicer, newer, better Days Inns you'd find anywhere.The bad news: nearly thirty years later, it still is one of the nicer, newer, better Days Inns you'll find anywhere.. . . and now:. . . and Days Inn is just a single example of the phenomenon. (Nor is it even the worst. It's just representative.)
But these old brands don't exist because they're viable. They don't exist because people are loyal to Days Inn, or prefer Ramada, or call the Quality Inn or Econo Lodge 800 number when planning a trip. They're anything but successful. If these 'chains' weren't franchised, by franchise organizations marketing to a captive audience, they would have either cleaned up their act and kept their hotels current, or faded into history by now. They exist because mortgage lenders require that hotels on which they lend money be franchised, and because the franchise organizations continue to make money on the fees and royalties. Nonetheless . . .
- most franchises don't really help the hotel, they do a shabby job of referring business to the franchised hotels, their fees are high enough to more wipe out the revenue that they do refer to the hotel; and you'll note, among the Class B and (except for Red Roof Inns) the economy brands, even the major organizations don't even to try to enforce brand standards anymore. They don't want the people who own the hotel to flunk the quality insurance inspections, they want them to stay in the system and continue paying fees and royalties. Don't believe me? Look at the average TripAdvisor review for a Quality Inn, or a Days Inn.
- it has come to be that the main driver for hotel guest referrals nowadays isn't a national franchise organization with an 800 number and a website, it is online travel agencies (Expedia, , , etc.). It's official as of this past year: what is the one website that refers more guests to more hotels than any other? It isn't a 'chain' website, and it's not even an OTA. It's TripAdvisor.
- Eventually, commercial lenders in the USA are going to wise up, note that the franchise does not help the individual hotel nor can it be counted upon to preserve the value of the hotel, and come up with other standards and required metrics (TripAdvisor bubble scores, perhaps?) to insure the success - or at least, the stability - of an individual hotel.
There are lots of hotel 'chains' out there. Few are successful. Hampton Inn is maybe worth having. Holiday Inn is worth having. So are Marriott brands, if you can get one. Best Western is worth having - but only because their membership fees are low. I'd like to put some Red Lion Inns and Suites in or around major cities on the East Coast (but they haven't had any new construction in years, only conversions, hotels being changed over from another brand.) I wish the Ibis brand in Europe could be had in the U.S.A. LaQuinta is a maybe. Red Roof Inn would be doable, if you could keep your building costs down, and if they don't keep getting any more unfocused. Red Roof and Super 8 are about the only economy chains that still has some life left in them; and it seems to me that Red Roof is trying to amenity-creep its way into the mid-market segment, with their more recent 'Red Roof Inn +Plus' brand leading the way.
Just about all the other large hotel 'chains' are successful franchise operations, but generally failures as hotel brands. You buy the franchise and affiliate with them at all only because your mortgage lender requires you to have a franchise, and you're stuck - you need a 'cheap date'.
Marriott franchises their brands, but their franchise relationships go much deeper than you normally see with Choice, Wyndham, and other franchise brands, even Hilton and Holiday Inn. To become a 'Marriott developer', you have to already own three other franchised properties. (It's not specifically required that one or more of them be a Hampton Inn, but that's the type of property they like to see that you can run successfully.) Marriott is going to check these out very thoroughly. They go over your operating procedures, they'll go over your financials, they look at your previous inspection and quality assurance scores, they even talk to your hourly employees and want to see that the line help is happy and contented with their jobs, that your company culture is generally positive and in line with what they like to see.
Once you're accepted as a Marriott developer, it's a very close 'partnership' (indeed, nearly all of what you do as one, you're going to do their way), but the guy I spoke with, from a company that had recently been accepted as a Marriott developer and had opened its first Marriott-branded property and had a couple more planned, tells me that they are very supportive and helpful, and will spare nothing if you encounter problems to help you fix them.
Effectively, it's a one-sided management agreement: you're the management company, you're doing all the work (and doing it their way, at that), you're making the big investment, you're the one providing all the required capital and inventories . . . but you're not collecting management fees, you're a franchisee and you're paying them fees and royalties for the privilege of doing it.
The model we intend to follow involves just plain, simple, straight hotel management agreements that will include brand licensing. If you want to develop one of our brands, and sign us to a twenty-year management agreement, you will pay us in royalties for use of our brand's name and marks . . . (doing my best Michael Corleone, here . . .), nothing. We'll bring the brand, and as long as we're managing your hotel, we'll content ourselves with the management fees you pay us. If we part ways, we take the name, marks, signage and our operating and management systems with us when we go. If the hotel can no longer be run in accordance with our current brand standards, we'll ask you to reflag it - but that will cost you. Most franchise agreements have you paying eight percent of your total revenue, at least, in royalties - in addition to management fees. Our total management fees rarely get as high as eight percent - and when they do get higher, it's only because your hotel is very profitable, so you shouldn't mind sharing. After all, we, not you, do all the work. You're actually saving money on the deal, and leaving management to hotel managers while leaving yourself free to do what you do best.
How fast can we expand doing this?
Not very. It takes time. Years and years, in fact.
This would be true even if we had an unlimited number of takers, potential client-owners lined up at the door to acquire and build hotels, fit them up and place them under our management; and even if we had unlimited funds. Some things - no matter how much capital you have at your disposal - money just can't buy.
Every time I hire a night auditor, it is only because I see him or her as a potential manager - at my company,- and even so, I wouldn't count on fifty percent growth per year to be, consistently, sustainable. We're going to lose a few along the way. Some will not work out as night auditors. Some will work out fine as night clerks or even auditors, but show themselves to have limited or no organizational or management capability - I made a mistake hiring this person in terms of guesstimating his or her potential to become a hotel manager. (Even Jesus Christ had an 8.3% failure rate in managing human resources and making staffing decisions: He couldn't choose twelve guys to provide leadership for His church, take His message into the world and carry on His work after He was gone without getting a Judas Iscariot in the bunch; and I can only wish my own failure rate could be as low as - or even close to - 8.3%.) Some will work out great, but we will not be able to get them to relocate to where we need them, when we need them. Some can be brought up to speed in six months, others will take closer to three years. We can compensate here and there with people we pick up from other hotel companies who have management experience, but not all of those will be usable, long term - if they're even suitable as they come in the door (I still require night audit experience).
Even so, when we need someone, we need someone; and if we don't have someone, it's hard decision time . . . do we lower our standards, or do we redouble our efforts in the search, keep looking for a way to make it all work out without lowering our standards or compromising?
We're not going to lower our standards. That's how hotel brands go out of integrity: that's how they evolve into something less than what the people who originally developed the brand promised that hotels of that brand would be. Let's look again, maybe we missed someone. Or maybe we could move someone, then move this or that person to that person's former accountability. As a last resort, we might offer an incentive, a bribe of sorts: increased base salary, a one-time cash bonus, choice of later assignment after two or three years, extra advancement consideration. This isn't the military: in the military, if you get orders to report to a new duty station thousands of miles away, it's just that, orders, and off you go; in the military, you follow orders or else, and you knew when you signed up that it's part of the deal. In civilian life, you can't make someone, even someone in a management position, uproot their life and family, and relocate.
Before we get into the last part of our story, let me digress one more time, and share with you, since a lot of people have never heard of it. Formulated by Hewlett-Packard co-founder David Packard, it reads thus: "No company can consistently grow revenues faster than its ability to get enough of the right people to implement that growth and still become a great company . . . If a company consistently grows revenue faster than its ability to get enough of the right people to implement that growth, it will not simply stagnate; it will fall."
The guy was a wizard, a latter-day prophet (okay, his days, in the fifties, were not so 'latter'; and his timeless advice is now a forgotten oldie, of which a lot of people were never aware to begin with; which is probably why a lot of people have never heard of Packard's Law - but look at the consequences you see over and again of people who expand startups too fast having forgotten it...). If you expand faster than you can get the right kind of people to put in charge at your added locations without lowering your standards, your 'chain' will crash and burn. The dimtwits at your new locations will screw up so dismally, they'll lose more money than your good locations will make, and take down your entire company when it all comes crashing down and drags you into bankruptcy.
That said . . . A few years back, I was asked to review a business plan for a proposed chain of hotels. There's only so much that I can tell you, since I signed off on a confidentiality agreement at their insistence; but I signed off anyway, faxed it back, got the 30-odd page document, read through it, and immediately thought, this idea is so unworkable that no one in his right mind would even want to hear it out, never mind steal it. It proposed a nationwide chain of hotels, all to be funded by a single investment entity, all to be built at once - all over the country at once, at that - but with no provision whatsoever for either franchising the hotels, building them in stages rather than all at once, or getting people recruited or trained to run them, to manage and staff them. Packard's Law 'meat on a hook'.
I e-mailed them back and told them: what you need to do is to limit your geographical coverage to a single region, then expand region by region as you're ready. Or locate the first ones in towns that share common demand generators, but still, you need some limits on your geographical coverage. Until you have, or are committed to, six to twelve locations within a tight geographical region (you might get one or two outlying locations that are some distance from your others to work, if those can refer business to and from your others), each of which work together with the others, you're not ready. Choose locations within those geographical regions that can support each other: a 'chain' of only two hotels that can refer customers to one another works better as a chain, than a nationwide chain of hotels that cannot.
I must have been too blunt and irritated them, because I never heard back from them, but in trying to fix their planning mess, I'd come up with the Construction and Acquisition Program concept that is now part of the plan for expanding Beechmont brands when the time comes.
For example (and it's just one of several CAPs we have in mind, and not the most potentially lucrative at that), a hotel 'chain', or group of hotels within a chain, that included such apparently random locations such as
- Dumfries, Virginia
- Jacksonville, North Carolina
- Arlington, Virginia
- Beaufort, South Carolina
- Albany, Georgia
- Jacksonville, Florida
- Millington, Tennessee
- Pensacola, Florida; and
- Havelock, North Carolina
might look a little strange to a lot of hotel executives, and even investors.
But to an ex-Marine or to a Marine family, that particular combination of locations would instantly make perfect sense.
A hotel located in each of those cities would be located just outside a Marine base (or a Navy base where a lot of Marines are assigned); and the 'chain' would quickly be well-known to east coast Marines and their families (we'd hit San Diego, Oceanside, Barstow, Twentynine Palms and Yuma later as we become larger and are ready to expand that far away - or even sooner, if we use a shortcut that I suggested to these people and am about to share with you here), and be quite capable of referring quite a few guests to each of the other hotels from each of the other towns.
Even if those nine locations were the only locations I had - even if they were the only ones I could have - I could still make them work well together as a chain.
If you or one of your investors feel the need to build an additional cluster of properties some distance - thousands of miles - from your geographical base, I suggested to the promoters of this megachain (who, apparently, really did think that they could get a group of investors to put up enough money to build and launch hotels throughout the country in a few years), find a management company that already has hotels in that region, and contract with them for the management of them. (Using the above example of locating hotels outside every Marine base in the country, we could run the east coast locations from our Winston-Salem headquarters, and contract with another, California-based, management company to run the properties in California and Arizona. They'd have to comply with our brand standards. They'd have to do things our way. They'd have to stay within a budget that we approve. But it could be done. We'd only have to fly someone out every three months or so.) You cannot set up an organization that large, that fast, to manage those remote locations yourself, and do it well. It just isn't possible. Even at a fifty percent annual growth rate. If, several years down the road, you've built an organization so large and spread out that you have a division office in that part of the country, then you can revisit the matter.
Meanwhile, though, if your early-on expansion is going to be a thousand miles away, get some help that's located a thousand miles away.
Even if it's going to be in the neighboring state - a day trip away, even - if your own organization doesn't have the people to handle it, get help from another organization that does. If you have more locations than one organization can handle, farm out the management of some of your locations to another management company: if you have more locations than your own and that management company can handle, get a third. No matter where they are, you can't let a location - especially not a group of them - spin out of control.
I'm aware that even the people I like and admire most will tell you that among their biggest criticisms of me is that I can drive them nuts with TLDR material, but if there's only one takeaway you get from this, it's that building a chain operation is a little more involved than empire building, no matter how deep your pockets are.
(I can't imagine anyone having deep enough pockets to build a large, national hotel chain from scratch. It took Hilton some twenty years to become a 'coast-to-coast' chain, and even then there were a lot of places where they didn't have a presence for another thirty years to come. It took Marriott some twenty years, but about ten years into the game, they developed a business model that better facilitated it. Even though they did it through franchising - the quick, easy and dirty way - it still took Holiday Inn the better part of twenty years.)
A hotel is not just a building. It's a sensitive organism, a delicate machine. One of mine could burn to the ground, and (of course after getting everyone, started with the guests, evacuated safely) I could take that hotel's staff, put it in a different hotel, and that staff could run that hotel as well as they did the one before (hopefully, this time, without letting another bad fire get started and burn out of control).
That, you can't buy with money - you have to build it.
The same goes for your customer base - you can't buy that, you have to build it. But without a building designed and fit up and furnished for use as a hotel, the staff is just a collection of twenty people, give or take, who need a job; and the customer base is just another fifty or so people who show up on a given night and need to find a place to spend the night.
Without the building, the staff is useless; without the staff, the building is useless. The same goes for the customer base.
I'd rather have a small regional chain that works well than a national chain that doesn't. For that matter, I'd rather have just one hotel that works well than a half dozen that do not - or even a worldwide 'chain' of them that does not.
And if you can't run one hotel well, you can't run 300 more just like it well. Or even two more just like it.
Are you starting to get it about how easy it is to form a hotel 'chain'? What, I don't make it sound so easy? Good.
Choice Hotels (which is a NYSE company that actually pays dividends on their stock, which is something very few public companies do anymore: that's what a cash cow that Choice Hotels is now . . . and that's all it is now . . . ) and Wyndham Worldwide are not the original owners of the brands that they franchise.
The people like Cecil B. Day, Kemmons Wilson, Marion Isbell, and Vernon Myers would have never put their money, hard work, vision and heart into building the hotel brands that each of theirs once were, then turned around and let them become, or remain, what they now are.
Originally appeared on Quora