Stake Your Claim

Starting a Hotel

If interviewing Chip Conley during his vacation in Lake Tahoe-on the California-Nevada border-is too much of a cliché of how your life could look, then call us pedestrian. "It's important to have time off. The first couple of years, I didn't get enough of that," says the hotelier, who started his hotel management company, Joie de Vivre Hospitality, with just one hotel and now operates 30 hospitality businesses in Northern California, 25 of which are hotels.

What was once a "no tell motel" became The Phoenix Hotel in 1987, when Conley was 26 and itching to create a haven for hip young travelers, artists and musicians on the road. Buying the space for $800,000-a bargain in hotel terms-Conley then spent about $200,000 on renovations. Four months later, The Phoenix Hotel was ready to show its new face to San Francisco. "We completely cosmetically renovated the hotel," says Conley, who raised the money from friends and family. "Every room in the hotel was dedicated to an original San Francisco artist."

Conley appealed to a youthful niche audience with amenities such as a massage treatment room, where musicians could work out their pre-performance jitters, and an "underground" San Francisco guidebook for every room. After achieving first-year sales of $600,000, Conley pressed on, opening his second and third hotels. By 1990, sales had reached $3 million; and between 1993 and 1997, Joie de Vivre grew from three to 13 hotels. Now it's a $75 million company with 1,000 employees.

That success is due, in part, to Conley's decision to buy an existing hotel. "It's usually too expensive to start from scratch and make it work," says Conley, 43. "It's better to cosmetically upgrade something that's already been there."

"Unless you're an established developer or a hotel company, building something from scratch is probably not the right way to do it," agrees Gregory Peck, a hotelier whose background includes investment banking, real estate investing, and hotel development and management. Peck, who put his hotel and real estate background to use in 2001 with the purchase and renovation of The Beverly Crescent hotel in Los Angeles (now called The Crescent), recommends acquiring a property for "less than replacement costs." According to Peck, "You're dealing with older buildings and the limitations imposed by these properties, but it's cheaper and a simpler process."

Not that starting a hotel is simple. "It's a daily, 24-hour-a-day responsibility," says Peck. Another hurdle: local zoning restrictions. "We didn't understand how long it would take to get the city to approve what we wanted to do," he says. "Read the fine print and the details. Sit down and talk to people who might know about what you're doing."

Finding a niche will set you apart from big chains-you'll cater to a market that's looking for something beyond run-of-the-mill. "Every one of our hotels has a different personality," says Conley. Every time he creates a hotel, he imagines a magazine and five words or phrases to describe that magazine-for instance, for The Phoenix Hotel, it was Rolling Stone and "funky, irreverent, young-at-heart, cool, adventurous."

"The most important thing is to create a positive memory for the guests," says Conley. "You need to think about how you can create a compelling and remarkable experience."

Playing the Odds
Whether it's a fitness center, a car rental business or a hotel you want to start, the odds are in your favor, given recent statistics. If you tailor your business to accommodate the current demographics, your chances of success are even greater.

Fitness Center: According to "Health and Fitness Clubs-U.S.," a January 2004 study by market research firm Mintel International Group Ltd.:

  • Total health and fitness club membership neared 38 million in 2003, or 18 percent of Americans 18 and older-an increase of 28 percent over the past five years.
  • Twenty percent said they were reluctant to join because they feared they would feel out of place. That bodes well for frills-free and niche clubs catering to this uneasy segment.

Car Rental Business: Looking for a specialty car rental niche? Check out J.D. Power and Associates' "APEAL" (automotive performance, execution and layout) study, an annual ranking on the makes and models of cars Americans love to drive:

  • In 2003, the Lexus LS 430 was the highest-rated premium luxury car; and the BMW Z4 was the top premium sports car (beating the Chevrolet Corvette and the Porsche 911, which tied).
  • According to a Travel Industry Association of America (TIA) study, "Auto Travel in the U.S., 2003 Edition": Seventy-nine percent of U.S. domestic trips are being taken by car, truck, camper/RV or rental car. The market has increased 11 percent since 1994.

Hotel: From the "Travelers' Use of the Internet: 2003 Edition," an annual study by the TIA:

  • Two-thirds of the 95.8 million travelers who are online used the Internet to make travel plans in 2003. Use of the Internet to book travel continues to rise.

Karen E. Spaeder is a freelance business writer in Southern California.

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Karen E. Spaeder is a freelance business writer in Southern California.

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This article was originally published in the July 2004 print edition of Entrepreneur with the headline: Stake Your Claim.

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