{468x60.media}
Mr. Turner

Executive Leadership

Vision to Success: An Entrepreneur's Story

By W. Don Turner, Board Chair, California Lodging Industry Association

CLIA, The California Lodging Industry Association, is made up of many such entrepreneurs. Men and women that have started with a dream, something small, and turned it into a strong, independent, growing and thriving example of the "Great American Success Story"

Over the next few articles I will chronicle this process drawing from some of my own experiences as well as some of the stories and experiences that have been shared with me by great people that I have encountered in the Industry.

Before embarking on the purchasing or the building of a hotel with any chance of having it be successful, the architect of this dream must embark on a well-charted course that incorporates experience, expertise, the knowledge of others as well as sound business plan.

Expertise is acquired through experience. Many entrepreneurial hoteliers that are admired and respected by this author are people that have started in small family businesses or worked their way up through the ranks, learning the industry through their experiences as an employee. They begin their careers as owners after having had the invaluable benefit of learning the business from the ground up, having managed the front desk, changed the beds, supervised the maintenance, and worked with the community to build the image necessary to insure the hotel's success and position in the community.

It has been said about many great people in our industry and throughout the business world that it is not how smart you are or how much you know, but that the key to one's success is how you choose your counsel. The knowledge acquired by others is an indispensable tool. Each successful person that you encounter in our industry has information to share. That is why associating one self with an organization like CLIA can be such a vital asset. The opportunity to discuss your plans and the challenges that you are facing with a team of experienced, talented professionals can be indispensable.

The exercise of developing an effective business plan is crucial to the process of buying or building a hotel. A business plan, in effect, becomes the blue print for the project. It forces the entrepreneur to go through every aspect of the project step-by-step examining all of its phases and allowing for each contingency that may arise. A good business plan addresses acquisition costs, pre-opening costs, general and administrative costs as well as operational budgets and costs. In addition, it incorporates studies on staffing requirements, product analysis, market analysis and a strategic marketing plan under which the property will be presented to the community. It will have schedules for use of funds, capital requirements and repayment of borrowed funds.

Most enter the world of hotel ownership by way of purchasing their initial property with a hope and a promise, supported by experience and a sound business plan as well as capital that is saved, begged, borrowed and leveraged in any reasonable way possible.

Times have changed dramatically in the past few decades. The capital necessary to buy or build a property has increased exponentially with those times. At the same time, traditional lenders have refined their lending criteria and developed a significantly stiffer set of standards by which they make their loan decisions. In this first article it would seem appropriate to examine some of those means of capital acquisition.

Often times the capital demands of a new project will require the infusion of capital from a non-conventional source like a limited partner. This process is one that needs to be considered very carefully. Partners are wonderful allies when you are taking their money, but can be huge considerations when you are operating your business in challenging times, expanding your business or, in the end, selling it. All aspects of this relationship must be addressed and documented in minute detail. Matters like buying out or buying down the partner, providing him with a return on his investment and his involvement in your operation are essential concerns.

Regardless of whether your venture is a solo venture or one that includes investors and partners, conventional financing, no doubt, are an integral part of your capital acquisition process. In decades past, it was often possible to go to a local banker and borrow the capital necessary to open a hotel or a restaurant by simply explaining your intentions to that banker and sharing a creative concept. There is a story of a young man going to his first banker looking for money to open his first restaurant and having the banker's only criticism being that the young man was wearing a pair of desert boots with his suit. (They were his only shoes at the time.) We got the loan and in its first year of business the restaurant earned gross revenues in excess of $500,000. The year was 1969 and the total capital investment including land and building was under $40,000.

Bankers today are much more sophisticated and expect the people to whom they lend money to be as sophisticated as they are. They are required to protect loan portfolios from the event of every possible contingency. That means that the properties that they lend on must have value well in excess of the levels at which they lend. Borrowers are expected to guarantee the loans that they apply for with equity in other assets and to support their loan applications with very detailed business plans, operating projections, use of capital information and operating resumes strong enough to convince the lenders that their project will be successful.

Many lenders these days will require a borrower to "flag" their property, by becoming a member of a franchise association. Bringing in the successful expertise and governing body of a franchise association that has a strong track record in the industry can go a long way towards making a lender feel more comfortable with their loan. The process of qualifying for a franchise requires the prospective operator to perform appropriate due diligence sufficient to reduce the chances of failure. Furthermore, the franchisor, in many cases, will provide operating systems, direction and ongoing supervision once the property is open to insure both the franchisee and the franchisor's long term success.

In addition to conventional financing through the local bank, the government has established programs to assist the entrepreneur with his first project as well as future projects. These programs are offered by the Small Business Administration, SAFE BIDCO (in California) and a number of programs directed toward assisting special groups including minorities and others in the acquisition of funds.

Many of these funding programs are designed with the entrepreneur in mind. Although they require an operating history on the principal as well as an operating history on the property, if it is an acquisition, these programs allow for some significant of flexibility in the operating plan. They provide for the proposed project to deviate from its past operating history in both concept and projections. This provides the developer of the project to truly insert his own vision of what the property will be in the future and build his business plan around that vision. Most of these programs provide guarantees to the banks backing the project allowing the lending business to stay in the community. Bankers feel far more secure with the loans that they make to local business people when they have a federal or state guarantee supporting the loan. These ventures build the local economy by way of providing employment, developing a tax basis and increasing the value of their property and the community as a whole.

In my next articles I will talk about finding the right location, acquiring the property, upgrading the property and turning it from a sow's ear to a charming boutique property that is the rage of the community. (And your banker's favorite story).

Don Turner has founded or co-founded restaurant companies in both Northern and Southern California, owns and operates Jorad & Company, a Napa based consulting firm that specializes in operational and financial consulting for businesses offers accounting services and has long term successes in both start up and turnaround endeavors. He owns the Golden Bear Inn in Berkeley, California and is the current Chair for CLIA, the California Lodging Industry Association. He is a past director of the California Restaurant Association and serves on a number of private boards. Mr. Turner can be contacted at 916-925-2915 or joraddon@sbcglobal.net Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.

Receive our daily newsletter with the latest breaking news and hotel management best practices.
Hotel Business Review on Facebook
RESOURCE CENTER - SEARCH ARCHIVES
General Search:

OCTOBER: Revenue Management: Technology and Big Data

Gary Isenberg

Hotel room night inventory is the hotel industry’s most precious commodity. Hotel revenue management has evolved into a complex and fragmented process. Today’s onsite revenue manager is influenced greatly by four competing forces, each armed with their own set of revenue goals and objectives -- as if there are virtually four individual revenue managers, each with its own distinct interests. So many divergent purposes oftentimes leading to conflicts that, if left unchecked, can significantly damper hotel revenues and profits. READ MORE

Jon Higbie

For years, hotels have housed their Revenue Management systems on their premises. This was possible because data sets were huge but manageable, and required large but not overwhelming amounts of computing power. However, these on-premise systems are a thing of the past. In the era of Big Data, the cost of building and maintaining an extensive computing infrastructure is incredibly expensive. The solution – cloud computing. The cloud allows hotels to create innovative Revenue Management applications that deliver revenue uplift and customized guest experiences. Without the cloud, hotels risk remaining handcuffed to their current Revenue Management solutions – and falling behind competitors. READ MORE

Jenna Smith

You do not have to be a hospitality professional to recognize the influx and impact of new technologies in the hotel industry. Guests are becoming familiar with using virtual room keys on their smartphones to check in, and online resources like review sites and online travel agencies (OTAs) continue to shape the way consumers make decisions and book rooms. Behind the scenes, sales and marketing professionals are using new tools to communicate with guests, enhance operational efficiencies, and improve service by addressing guests’ needs and solving problems quickly and with a minimum of disruption. READ MORE

Yatish Nathraj

Technology is becoming an ever more growing part of the hospitality industry and it has helped us increase efficiency for guest check-inn, simplified the night audit process and now has the opportunity to increase our revenue production. These systems need hands on calibration to ensure they are optimized for your operations. As a manager you need to understand how these systems work and what kind of return on investment your business is getting. Although some of these systems maybe mistaken as a “set it and forget it” product, these highly sophisticated tools need local expert like you and your team to analysis the data it gives you and input new data requirements. READ MORE

Coming Up In The November Online Hotel Business Review




{300x250.media}
Feature Focus
Architecture & Design: Authentic, Interactive and Immersive
If there is one dominant trend in the field of hotel architecture and design, it’s that travelers are demanding authentic, immersive and interactive experiences. This is especially true for Millennials but Baby Boomers are seeking out meaningful experiences as well. As a result, the development of immersive travel experiences - winery resorts, culinary resorts, resorts geared toward specific sports enthusiasts - will continue to expand. Another kind of immersive experience is an urban resort – one that provides all the elements you'd expect in a luxury resort, but urbanized. The urban resort hotel is designed as a staging area where the city itself provides all the amenities, and the hotel functions as a kind of sophisticated concierge service. Another trend is a re-thinking of the hotel lobby, which has evolved into an active social hub with flexible spaces for work and play, featuring cafe?s, bars, libraries, computer stations, game rooms, and more. The goal is to make this area as interactive as possible and to bring people together, making the space less of a traditional hotel lobby and more of a contemporary gathering place. This emphasis on the lobby has also had an associated effect on the size of hotel rooms – they are getting smaller. Since most activities are designed to take place in the lobby, there is less time spent in rooms which justifies their smaller design. Finally, the wellness and ecology movements are also having a major impact on design. The industry is actively adopting standards so that new structures are not only environmentally sustainable, but also promote optimum health and well- being for the travelers who will inhabit them. These are a few of the current trends in the fields of hotel architecture and design that will be examined in the November issue of the Hotel Business Review.