Successful business partnerships define our organizations and are a key factor in our overall success and profitability.
by RICHARD TAKACH, JR.
The ability to form successful partnerships, similar to how we build an internal team of executives and staff, is an essential function and distinguishing skill of all hotel executives.Some relationships are, by their nature, short-lived. Others can last a lifetime. The business relationships and partnerships that we create in our organizations, in many ways, define who we are, how we deliver to our customers and to the promise behind our brand. They’re a direct indicator of our overall success and profitability.
Are we on common ground?
Partnerships begin with knowing ourselves. We have to know what we need and are looking for in a partner; we have to know what works best for us. What are the specific skills, experience, resources or assets that we require, and what are we willing to “pay” for them? We must know what we expect from a partner in terms of returns on investment and/or performance and how these will be measured.
It is best to meet prospective partners in person to better gauge compatibility and other intangibles that can make or break any relationship. Next comes the courtship period. For any partnership this is akin to a marriage, right down to the vows we call contracts. This prenuptial period is the time to get to know your potential partner better and ask any questions about the prospective relationship. It is also helpful (and a good sign) when our potential partner has questions that they ask of us. We invite such scrutiny.
All of these preliminaries make for smoother, less stressful negotiations when it’s time for a formal agreement. Moreover, they help build a reserve of understanding and commitment to shared success for the future.
Any partnership will have its ups and downs, but the greater the reserve of common values, interests, goals and sense of fair play we have stored up for a rainy day, the better. When we hit that inevitable first rut in the road to success, it’s good to know we have a relationship reserve from which to draw – to patch that road and make it even smoother and stronger. The reverse is also true. Without such a reserve, the partnership will crumble.
Selecting investors and financial partners
For the purposes here, we’ll consider two levels or categories of partnerships in which any hotel entity engages. We’ll want to know what to look for and how to go about selecting investors and other financial partners.
As you know, investing is about more than money or making money. It is the strategic application of assets in pursuit of defined goals. Every investor will have a distinct style with respect to timing, risk acceptance or aversion, and expected return. Some investors are quiet partners. Others are more active, and vocal, in monitoring their investment and their expectations for its performance.
Our core task is to establish the criteria that best fit our own needs as hospitality operators and investors. We find that the best partnerships fulfill many of the following criteria.
Cultivating understanding of long-term investments
For starters, whether we are considering high net worth individuals or institutional equity investors, we should share a common set of investing and business values with our investment partners. It would be advantageous for them to have basic knowledge of the hospitality industry and a reasonable understanding of the opportunities it represents in relation to other sectors of commercial real estate and investments in general.
Furthermore, these investors should be financially capable and interested in long-term investments, especially considering the nature of the maturation cycle involved for the hospitality industry. This applies whether we are talking about new construction, a property that may undergo extensive remodeling, reflagging, operational makeover and remarketing, or a simpler acquisition. This means that, whether for new construction, existing product or both, investors should understand that each has a distinct financing model, operational challenges, lifecycle and likely return on investment.
Finally, the best investment partners will understand the value of third-party management in today’s industry, be coachable and teachable, and conduct business in a positive, ethical manner. Also, from our perspective, potential partners that have a track record of litigation and controversy are not the best candidates. More on these last two issues later.
In spending time together, it is valuable to explore the prospective partner’s understanding of their own investment criteria and what they look for in a partner. We also like to ask about investment decisions that went extremely well – what happened and why, as well as ones that didn’t go as well.
In today’s era, calls to former partners are supplemented by Internet research to include scope of assets, overall deal appetite, trading frequency and any legal issues, especially a pattern of litigation as the plaintiff.
Suppliers, vendors and other strategic partners
A second tier of business partnerships for hotel organizations includes a wide group of entities upon which operations depend. At the most strategic level, we might consider third-party management companies and major franchise affiliations. Beyond those partnerships, we have suppliers and vendors that might include maintenance and construction entities, linen and soft goods suppliers, travel agents or marketing companies.
The previous discussion on establishing relationships and what to look for in a business partner applies here. Yes, we are seeking the best products and pricing in a supplier or vendor relationship, but other factors come into play, just as they do with an investment partner. How well can we communicate with this potential business partner? Do they understand the hospitality industry? Do they have new programs, systems or ideas that can enhance our operations, reputation and profitability? Are they focused on creating better overall values for our properties?
In today’s world, there are many astute suppliers, who welcome scrutiny, are open to suggestions and who conduct themselves in a positive way. The best partners will also take the initiative in adding value to the business equation. Examples might include a construction entity that has researched the habits, needs and expectations of different categories of travelers; or a supply company that has identified and developed hospitality-specific products and services.
Certainly, some vendor partnerships will be subject to performance metrics and/or financial incentives that introduce factors akin to working with our investor partners.
Core principles to lasting partnerships
At the end of the day, selecting the best partnerships is no different from how one works with team members. The imperatives are to be consistent, to be open and honest, and to treat everyone equally. We want our mission statement to apply to all those “invested” in our success, which includes our financial partners, our suppliers, our team and our guests. The pillars of this approach are unity, communication and commitment.
Business involves both ethics and attitude, and it is no different when it comes to selecting business partnerships. Therefore, conducting oneself in an ethical manner, and demanding the same from our team members and business partners, is simply the right thing to do. It is the essential ingredient for success.
Strong business partners also know how to celebrate successes, no matter how small. When we do make mistakes, we correct the issues, make sure they don’t happen again and put them behind us. There are no accounts to settle at a later date. We have each other’s backs and we work together as a partnership.
Last, each party to the partnership must be profitable. Sometimes, this can mean turning away from a deal. Working hard without a reward can be as self-defeating and exhausting as constant litigation. ■
Richard Takach is president and CEO of Vesta Hospitality and has more than 30 years of experience in the hotel industry. Takach has served on Hilton Hotels’ Advisory Council and was previously chairman of the Owner’s Association for IHG, where he now serves chairman of the Asia Pacific Region. Takach also serves on the board of directors for AH&LA. To learn more, visit www.vestahospitality.com. PUBLISHED WITH PERMISSION FROM RICHARD TAKACH AND HOTELEXECUTIVE.COM.
Essential qualities of any business partnership
What to look for when evaluating potential investment relationships:
- A common set of values and compatible investing style
- Interest in a long-term relationship
- Basic knowledge of the hospitality industry, its traditional returns and investment cycle
- Interest in long-term investments, whether in new construction, existing product or both
- Ability to move quickly when an opportunity arises
- The understanding of the value of third-party management
- Their ability to be coachable and teachable
- Tendency to do business in a positive way
- Steer away from those who are “litigation-happy”
Supplier or vendor partnerships
Considerations for selecting the right supplier/vendor partner:
- Common business values
- Ethical business practices
- Commitment to open and honest communication
- Understanding of hospitality industry
- Hospitality-specific programs and systems
- Focus on creating greater value for properties