8 Tips on Expanding Your Hotel Management Company into the Global Market
Euan McGlashan Global Co-founder & Chief Executive Officer, Valor Hospitality Partners
Entering the global hospitality market is not for the fainthearted! I know firsthand because, as a co-founder of Valor, our company did it in just a few short years following our inception. That's why I'm offering eight tips that I hope you will find useful and, certainly, not too obvious. Although it may seem that way at first read, I'd encourage you to digest and think deeply about the journey that expanding globally takes you on. It's never easy and, although this piece is centered around tips, much of what I share is practical advice that requires patience, focus, capital and a total commitment to building your resources. Expansion can never happen quickly enough and, as you will read, it's a bumpy ride with plenty of education along the way. We certainly learned many valuable lessons and there were many times we seriously considered simply staying and investing on one or two continents. That said – the journey has been incredibly rewarding and the relationships we have built along the way have become lifelong. Give our continued growth, I certainly can't give away our intellectual capital – nor our secret recipe for success – at Valor, but as your friend in hospitality, I offer up some good fodder to follow!
1. You Need to Have Market Knowledge To give context, Valor Hospitality Partners began by ensuring alignment with our private equity partners who either had a desire to enter international markets or who in fact, had already set up a base of operations in a foreign country. From there, we focused clearly on sourcing opportunities generally through on-market, brokered deals, and we underwrote and presented the most compelling of these projects for our clients. It is critical to have market knowledge, and being a Scot who worked in the United Kingdom prior to living on two different continents (Africa and North America USA), focusing on the UK and Africa was a natural starting point. Additionally, two of our Valor Global Partners were based in Cape Town. Respectively, my fellow Founding Partner and our Chief Finance Officer also knew the UK and Ireland intimately. Deals and deal sizes can vary, yet we were fortunate that our first big portfolio acquisition and move into the UK brought 11 hotels and the management company platform which we purchased. We then set about rebuilding that team. As Valor has continually gained momentum and built meaningful capital relationships, our global expansion was inevitable. In fact, in spite of the adverse impact of COVID-19 on our industry, we've recently added new developments and operating assets to our global portfolio in the United States, South East Asia and the Middle East. Understand your capital partners desire to embark overseas and then begin deep dive research. It doesn't have to begin with a portfolio and can be single assets. Just know you need local knowledge and expertise.
2. The Core Values of Your Leadership Team Must be in Alignment Valor is formally Valor Hospitality Partners for a reason. We choose our local leadership team very carefully and then partner with them to build out the region. I cannot overstress enough the need to make a serious financial commitment with a realistic timetable for success. To date, we've invested hundreds of thousands of Dollars, Pounds, Rands, Baht and Dirhams to ensure our platforms are set. The senior leadership team must have vast industry and market experience and be 100% aligned with your company culture, vision, value system and growth plans.
3. Be Knowledgeable about Major Hotel Brands The global hospitality space is crowded; however, we have generally found that the majority of overseas operators are, in fact, locally-focused with very limited global experience. We have found owners to be receptive to our local teams in their respective regions, based on the fact that we bring market know-how along with a huge global resource share, knowledge and a skill set not possessed by our competitors in the hospitality management space; our strategic intellect and thinking is born from powerful information and idea sharing. In a franchise scenario (which is largely where we operate), having deep-rooted relationships and knowledge of the major brands adds massive credence to your abilities and desirability to an owner embarking on a franchise. In emerging global markets, we have found that many local operators have previously only operated independent properties or local brands. Valor has filled a niche where there is a lack of needed experience to execute branded hotel operations effectively.
4. Don't Rush. Build Genuine Rapport. Before entering a new territory, hotel management companies should dedicate a significant amount of time to research a region's unique culture. For example, based on our experience with new business in Asia, we've learned that it can take up to a year, or longer, to gain the trust of potential clients. In contrast, the US and UK tend to be far more focused on jumping immediately into deal dynamics and moving rapidly to close on a transaction. Africa and the Middle East seem to be somewhere in-between: often talking about deal points happens quickly, while the actual signing can take months of negotiation. Building relationships and holding multiple meetings prior to agreeing in principle on a deal is commonplace. You can't rush! What do emerging markets all have in common? They cost you time, money and tie up valuable resource so be sure they are markets you want to be in, and you have the inner fortitude to stay the course!
5. Choose Leadership Wisely How much money will it cost you? A lot. However, you need a senior leader who can source deals, is a supremely effective communicator and salesperson that can tell your brand story and stress your unique competitive advantages and value add. This person also needs to understand cash flow and the importance of keeping costs low while aiming high. To expand your company, you will also need someone who can head operations, finance, sales and administrative support. You will need an office address and preferably more than a P.O Box so you can hold meetings. Travel & entertainment are unavoidable, and technology, collateral and long hours are a prerequisite. Again. Choose these leaders carefully.
6. Don't be Desperate Never deter your company's success by settling for bad deals –because you're desperate to do a deal. As we all know, there are plenty of terrible owners out there looking to make a fast return and for everyone they deal with to cut their fees. These deals and relationships almost always end badly. Kicking off your foray into a new market with poor owners and product is a sure-fire way to kill your credibility and, unfortunately, there is massive truth in 'guilt by association'. Here are my two rules: Rule 1: Tread carefully at first and learn who you should and should not be aligning with! If a deal looks bad, it likely is bad. If a deal looks good, it could still be bad (and many times it is)! Rule 2: Read rule 1 again.
7. Know When to Leave Don't overstay your welcome and know when to pull the plug. There are many hurdles to overcome and being realistic about your prospects will keep you from throwing good money after bad. Sometimes it is just not meant to be, especially if the risk, effort and significant capital is not worth the reward. Period.
8. The future of Global Post-COVID Ugh. COVID. The big 21st Century game changer. Who knows how long it will take us to recover as an industry but there are some likely scenarios relative to global hospitality markets. Hotel owners, now more than ever, will look to the international brands to help bring them back to life; especially in emerging markets where local indigenous brands and independents all fight for market share. They will need to capture global travelers and rewards members not previously accessible via their own internal sales & marketing efforts. At Valor we have wonderful and deep-rooted relationships with the global brands and our hearts break for them too. We have all been adversely affected. However – as they also grapple with this time and place we find ourselves; they are shedding capital weight and this in turn means less resource to service new and existing clients. Franchise and having trusted, specialized and experienced franchise operators in the market becomes more critical than ever! The only way is up! If you do have the appetite and capital to establish yourself in other parts of the world despite the uncertainty, what we do know is that the only way is up! Hotels will always bounce back and there are still thousands of owners out there who will need help, especially in these darkest of days, post recovery. It's a gutsy play but fortune favors the brave. Good luck!