Roll Out the Red Carpet
When you played Monopoly as a kid, did you buy the hotels? They seemed so complicated and expensive, but you knew if you had one, you could make a fortune anytime your little brother landed on your property.
Real hotels operate much the same way. They're a big investment with a costly build out and staffs whose populations rival those of small nations. But while operating a hotel is as big an undertaking as it seems, it's not ridiculous to imagine yourself as the franchisee of your own hotel, motel or inn.
Franchise Zone asked Mike Leven, founder and CEO of US Franchise Systems Inc.-franchisor of Best Inns & Suites, Hawthorn Suites and Microtel Inns & Suites-whether opportunities exist for "regular guys" in the hotel business.
Franchise Zone:Who is your typical franchisee?
Mike Leven: It's different for the different brands we have. The typical franchisees in our portfolio of hotels are single unit owner/operators. Of our 534 open hotels, we have approximately 350 to 400 owners.
How many of those are regular entrepreneurs who own and operate only one business?
Very few. In most cases, they may own only one of our properties but own other things as well, such as fast-food restaurants, general contracting businesses, homebuilder businesses or maybe some other motels.
Do misconceptions exist about owning a hotel? Do people think it's something an entrepreneur couldn't do?
I think most people believe hotels or motels are beyond their means, but entrepreneurs have a way of expanding in their own mind what they can do, which is what really drives entrepreneurship. There are people who don't think they can go to the hotel level financially, but not a lot.
Why do you think those misconceptions exist?
Because people who aren't entrepreneurs don't think like entrepreneurs. Entrepreneurs think they can climb a mountain blindfolded with one leg, and normal people, particularly corporate people, really are in the battle of surviving on the mountain, not climbing it.
Do you think a hotel isn't an ideal first business?
It generally isn't, because it's more expensive than just opening a maintenance service or some franchise like that. Generally people have gotten their feet wet in other businesses prior to coming to the hotel business.
What are some of the qualities your company looks for in its franchisees?
The most important qualities are integrity, a track record of honesty and the ability to be a good community citizen. Basically, someone who's a decent person.
What financial requirements does your company have?
We look for about $1 million or so of net worth, but, generally speaking, that can vary, because a number of these entrepreneurs bring partners with them who have the net worth.
You said a hotel is different from a lot of other businesses. How is it different?
It's not that much different-it's just more expensive. The building itself is more expensive. Opening a service for $30,000 or $40,000 is different from opening a hotel for $2 million. There's a lot more financing, taxes and accounting involved.
Do interested people get scared off because of the investment?
Some people do.
What should someone considering a hotel keep in mind when looking at this?
That it requires an awful lot of hard work, and there are significant risks in the early going until the hotel grows up and matures, but of all the franchises, a successful hotel is better than a successful anything else.
Why is that?
Because it throws off more cash and, if you can get it done and you're willing to take a bigger financial risk, it's a much more rewarding experience. The right hotel can feed a lot of families.
So it is possible for a regular guy to have a hotel?
Oh yeah. It takes a little more work, of course, because they have to go out and raise the money, but it's possible. Lots of people do it.
It Could Happen To You
This regular guy really did become a hotel franchisee.
From the time he was 15, William Begley knew he wanted to own a hotel. This focused entrepreneur worked for several companies, selling franchises and managing properties, to learn the ins and outs of the hotel industry. Last year, at 45, Begley opened a Microtel Inn & Suites franchise near Washington Dulles International Airport in Northern Virginia.
Franchise Zone spoke with Begley about opening a hotel when you're not a millionaire, real estate developer or serial entrepreneur. His story provides hope and advice for all the regular guys out there-even 15 year olds-who dream of owning a hotel.
Franchise Zone:How did you become interested in the hotel industry?
William Begley: I've wanted to own a hotel since July 3, 1970. I remember the date and where I was. I was in Wildwood Crest, New Jersey, which has the greatest beach in the world. I was visiting family staying at a beachfront hotel for the 4th of July weekend, and the entire day I kept thinking how exciting, enjoyable and profitable it must be [to own a hotel]. As a child, my parents always took my sister, brother and me to great hotels: the Chalfont-Haddon Hall in Atlantic City, the Fontainebleau Hotel in Miami Beach, the Waldorf Astoria in New York City. I loved to just be in hotels.
It was a 30-year dream, something I always wanted to do. In fact, it's really the only thing I've ever wanted to do. When it was time to go to college, I chose Florida International University in Miami, because they have a school of hotel/hospitality management.
I've been in the business for enough years that I've seen the ups and downs of the economy; I've seen what works and what doesn't. I was involved in the original [The Residence Inn Co.] and that became Residence Inn by Marriott, and I watched the growth of that chain. You could build it for the right price and sell it for the right price, and as a result, they were very profitable hotels. I was also involved with the franchise division of Sheraton back in the '80s, and I got to know an awful lot of owner/operators of Sheraton franchises. Over the years, I saw the best and worst of the hospitality business.
When Mike Leven started the company in 1995, I was the vice president of operations for a hotel company in Washington, DC, which owned nine Holiday Inn franchises. I knew Mike Leven as the president of Holiday Inn, and when he started U.S. Franchise Systems and bought the Microtel brand, I just knew I had to go work for him.
I left a 25-year career of running hotels and, in 1995, started selling Microtel franchises in the Mid-Atlantic region, because that was the opportunity available to me at U.S. Franchise Systems at the time. I wanted to understand the product-how it worked and why it worked, what were the good and the bad things about the brand.
Why didn't you just buy a hotel instead of working as a U.S. Franchise Systems employee?
I'm a great believer in understanding the product, particularly with a hotel, which is a huge investment. You need to understand what you're getting involved with. Even though I knew the hotel business inside and out, I still wanted to understand the Microtel product, the limited service, limited amenity product that Microtel is and why it works as well as it does, and how it competes against the more full-service limited product as well as the full-service hotels. I wanted to know what niche it fit into.
Another driving force was I wanted to be a part of the [system's] growth. Mike Leven is an industry icon, and I wanted to know him on a first-name basis and to work with him to create U.S. Franchise Systems. I was the ninth man hired by the company.
How long was it before you did get your hotel?
I bought the franchise the second year I was there and worked for U.S. Franchise Systems for another three years before the hotel actually opened. During that time, I was developing the property and building it.
Were you apprehensive about the investment, start-up, things like that?
There was never a fear I could make the hotel successful. The question was, am I doing this in the right marketplace? Am I building the right product for the market? That was probably my only [concern].
How did you choose the location?
Business was good here. Northern Virginia is a growth area. You could liken it to the Silicon Valley in the '80s. AOL Time Warner has its headquarters here, and we're next to a major, world-class, international airport; we're 25 miles from the capital of the United States; we're on a major corridor, the I-95 corridor, which goes from Maine to Florida. There are a lot of things that make the Dulles/Northern Virginia area very, very attractive. With all the Internet-based companies here, I identified this as an area that had great potential.
What kind of experience should a person have if they want to buy a hotel?
You need an understanding of the lodging business-what makes a hotel work. This is not a business in which someone can just say, "Oh, I'm going to go be in the hotel business." That person will go underwater real fast. You have to understand hospitality, that the guest is always right, and that, at the end of the day, you still have to make a profit.
It's such a people business that probably the most important thing for someone who wants to own and operate a hotel is that he or she is a people person-someone who really wants to host guests at the hotel. I have a philosophy that U.S. Franchise Systems or Microtel sends customers to me and I turn them into guests. When people come through my front door, they're a customer; when they leave my reception desk to go to the room, they're a guest. In this business, you have to create a warm and inviting environment, a place where people want to be.
You also need to understand how to make the business profitable. You work very long hours. When you open a hotel, you never lock the door again-a hotel stays open from the opening day until it's torn down.
Did you have partners? How did you go about actually buying the hotel?
I have two partners. We acquired the land, took the prototype from Microtel, created the drawings, brought a contractor in and built, furnished and then opened the hotel. We took a raw piece of land on a street corner and turned it into a hotel. My partners are real estate people; I'm the hotel person in the group.
Are they still involved in the operation of the hotel?
They're not involved in the operation; they're strictly [silent] partners. I run the hotel.
For someone who has the experience of managing a hotel but doesn't have the money to buy one, would you suggest he or she go out and find investing partners?
Absolutely. There are a lot of different ways to gain ownership and equity in a deal. You need to bring to the table what your partners don't have or can't do. In my case, my partners knew how to develop land and build buildings, but they didn't know how to run hotels.
The key to the real estate business is to increase the value of the land, and you do that by improving it with buildings that generate revenues. If you have the ability and the desire, people who own real estate always want to increase its value, and what you then bring to the table is the ability to create a hotel on that site.
Say you're in the restaurant business, see a great parcel and want to put a McDonald's there. You could go and find the land [owners] and say, "I've been in the fast-food business for 20 years-why don't we create a fast-food restaurant on that site?" It's the same thing as a hotel or a shopping center or a car dealership. Again, you always have to identify what the needs of your potential partners are. You have to add value to the partnership, which in many cases could be your expertise.
Is it possible for a regular guy who isn't a millionaire, who doesn't own a bunch of other businesses, to have a hotel?
Absolutely. This is America, and in America, anything is possible.