A hotel CEO once commented that “There is only one boss. The Guest, and they can fire everybody in the company from the chairman on down, simply by spending their money somewhere else”.

The Hospitality business is forever at the mercy of its customers’ opinions, pockets and ever-changing trends and desires. Asset owners and operators have to maintain a consistent guest experience while suffering from reliance on market cycles, and a capital intensive, economically fragile business model, while navigating the complexity of operator contracts, enduring the reliance on high fixed costs with thin net margins and broad oversupply.

From my own experience, I would say that anyone who does not ask themselves at least occasionally “Why am I in this business?” is showing a certain lack of awareness as to the environment in which they are operating. While the world has been severely affected by Covid-19, few industries have been laid as bare as Hospitality and the brittle foundations that many business models have been built upon.

The pandemic is forcing all of us to lifeboat existing assets and rethink our core strategies going forward. This is a time of reckoning for the industry from which there will no doubt be significant casualties.

Despite being in the eye of the storm, I am optimistic. I have always been of the belief that extreme adversity brings about cyclical if not generational changes. The inherent need to make businesses viable, more efficient, sustainable and ultimately profitable, will bring out a wave of rationalisation, creativity, innovation and much needed investment recalibration. This window of opportunity will make it possible for both prudent investors and adventurous operators to push their way into this crowded space and, once, there, to stand out in it.

Hotels that were well run and financially sound before the pandemic and the economic fall-out from it will hopefully survive. It is the over-leveraged, ill-conceived, poorly operated and uninspired that, to be frank, face a cull, and not before time. So those seeking to enter the industry would be well advised to learn from the best.

There is almost certain to be an over-hang of commercial property on the market as the crisis deepens. This will generate new opportunities to buy at reduced capital values and to re-purpose such properties as, among other things, hotels. The “staycation” is here to stay. People are increasingly discovering the delights on their own doorstep rather than queue for hours at airports, wearing masks and enduring the anxiety and risks associated with air travel. The notion of a hotel as our home away from home will become even more pronounced in the future.

Technological developments in hospitality are finally becoming transformational. The adoption and implementation of a modern tech stack is essential in creating deep efficiencies in the operating model while advances in AI are improving the guest experience. Businesses are already innovating to provide a touchless journey, to reduce physical contact as much as possible to avoid infection in a post-coronavirus world, while in turn reducing staffing costs.

I believe that hotels will need to strive to over-deliver on the expectation vs value proposition for the customer. This requires a re-focus of their core principles, their business model and their culture which will set them apart from the pack – a reassessment of what the hotel experience actually means at every level.

I have long been an investor at the high end of this industry, but for me, today the most enticing investment prospects lie in re-imagining the world of the budget hotel, those establishments charging less than £100 a room. Gone are the days when a budget hotel should mean dull, uninspiring rooms and an anaemic experience (if that is the right word) that does not vary from one boring box building to another. Customers today expect quality and thoughtfulness across every aspect of their stay, from the room design, the comfort of the beds and the strength of the showers to name a few.

The art here is for operators to use all the tools at their disposal and find the right balance point among cost, benefit and experience. Yes, experience – the holy grail of Hospitality. The competitive landscape and lack of disposable income in the near term means that “old mediocre” is no longer good enough.

Those hotel owners who hone their craft and listen to their customers carefully to create something special should do very well indeed in this new climate.

Read more:
The chance to change: why Covid-19 gives budget hotels a chance to re-think and to shine

It was a 19th Century Prussian general who stated that few military plans can survive their first contact with reality. Those of us on the receiving end of presentations from new businesses seeking investment will know exactly what he meant.

I have never seen a business plan in which the enterprise in question lost money. If only all such proposals survived contact with reality, British companies would dominate the global landscape and the UK economy would have little to fear. But of course, they don’t survive such contact and neither, often, do the businesses in question.

There is a deadly serious point here, which is that the quality of those behind new business proposals – which has always been of the highest importance – will be absolutely critical in the post-coronavirus landscape. However, sifting out the best people and their projects can be tricky, not least because those who present well may, inadvertently or not, be disguising serious weaknesses in both the plan and, more importantly, in their own characters. There is nothing wrong with fluency and confidence in presenting to potential investors – quite the opposite. But it must flow from two springs: a sound business proposition and a passion to put it into practice.

Of course, “passion” has become an overused, almost worn-out, word, not least among politicians declaring their “passion” for this or that football club, in order to demonstrate their ordinariness. But it is worth rescuing in this context, because skill in presentation and the passion needed to make a business work represent two different types of effort. If the second is lacking, then all you will be left with is the first; a dazzling slide deck and a fancy flip-chart. Such slick pitch merchants resemble nothing so much as a pupil who equates possession of ring binders, box files and neatly arranged fibre-tip pens with actually having completed their school work.

So, how to sort the wheat from the chaff? My approach is simple: relentless and rigorous questioning of the people concerned. Tough questioning? Yes, sometimes, but, more to the point, detailed questioning. I dig down into the nitty-gritty to see if the person concerned has deep, immersive knowledge of the minute detail. When I ask something and am told: “Let me find out about that and get back to you,” my automatic reaction is to think: “They should be living this stuff.” I always worry when, on asking a question, I seem to be the smart guy. That should be the role of the person I am questioning, with me as the outsider asking fairly dumb questions.

This is not some idle diversion, the venture-capital version of a pub quiz. It is the acid test of the commitment of the person or team, of the likelihood that they will give their all to make the project a success. This is what I mean by passion. Am I looking at a team that I can imagine burning the midnight oil day after day? Or does it seem more likely that work stations will be deserted after 6pm and phones ringing in an empty office?

No investor can have knowledge of all the different businesses that are seeking funds. But what they can do is gauge the response when questioning those behind the project in question. Do they have a firm grasp of all the issues involved, or are they merely good at putting together a plausible pitch? It is a case of, as the great novelist DH Lawrence put it, trusting the tale rather than the teller.

In the post-coronavirus world, we need to be sure to back the doers, not the talkers.

Read more:
Backing the doers not the talkers – the key to start-up success post-coronavirus