Conrad Hilton wasn’t born into money. In fact, after his father lost all of their money in The Panic of 1907, also known as the Bankers’ Panic, he had to start from the bottom. But it was there that he discovered his love of the hotel industry and he set about working towards his first hotel purchase – the 40-room Mobley Hotel in Texas in 1919. He was 32 years old. In 2010, his son Barron Hilton’s net worth was a mind boggling $2,5 billion.
I learnt that you don’t get anywhere by sitting comfortably in a chair.
The lesson: Conrad Hilton was a huge proponent of action, believing that successful people always keep moving, even after failure. He famously said “Success is never final; failure is never fatal.”
If you’re a prospective or even a new franchisee, it’s important to understand that you’re buying into an established brand and proven business model, but that alone won’t make your investment a success. The brand strength will serve you, but you are responsible for taking the necessary action, working hard and being hands on to leverage that brand recognition and get feet through your door.
Similarly, when researching a brand to invest in, dig deep and ask the franchisor what they’re doing to maintain their brand success. Are they merely riding the wave of brand recognition that’s been built over time, or are they actively building on it for present and future gains?
When you start planting acorns, the full-fledged oak may take years. As I grew in business I was beginning to learn what all gardeners must know – patience.
The lesson: Franchising is not a get-rich-quick scheme. In fact it can take years before you begin seeing a return on your investment. It’s important as a prospective franchisee to understand that investing in a franchise is a long-term investment, and what you put in is what you’re going to get out. This takes diligence, determination and patience.
If you’re looking at investing in a young franchise which doesn’t have a legacy of outlets to prove itself, ensure that your franchisor is experienced and has the necessary industry knowledge. It can be risky investing in a new brand and waiting ten years to see fruits.
The trick in packing a box is to pack a full box. This has nothing to do with crushing or crowding, only the intelligent use of what is available. The manner in which wasted space is unearthed and utilised can be the difference between a plus and a minus in an operation.
The lesson: Hilton’s first hotel was 40 rooms and he famously griped it had too much wasted space, converting the dining room to accommodate 20 more beds. As a prospective franchisee it’s important to research how the franchisor is utilising royalties and fees paid to it by franchisees to benefit the group, and to analyse whether the format of the business you’re investing in is as efficient as it can be.
For example, restaurants and cafés are adopting an increasingly clean and open store design, but is this at the expense of bums in seats? Does foot traffic warrant the square metres required and does turnover balance the higher rentals – especially in the retail space?
I have never once in my life asked anyone to follow me financially into an adventure when I was not willing to take the lead with my own money. There is a yoke of responsibility that attaches itself firmly the minute someone trusts you with their capital and this means work, work, and more work.
The lesson: There are over 700 franchised concepts in South Africa, and not all of them are affiliated with the Franchise Association of South Africa which requires its members to have fair and true franchise agreements and disclosure documents. It’s incredibly important to do careful research into a prospective concept to ensure they’re not fly-by-nighters who will disappear with your capital.
Talk to existing franchisees to measure their attitude towards their franchisors – are they happy with their investment? Does the franchisor measure up to their expectations? Was the investment worth the time and monetary cost.
Spend time getting to know your franchisor until you’re comfortable that they take your investment seriously and will protect your financial interests as much as their own.
Did you ever think what can happen to a plain bar of iron worth about $5? The same iron when made into horseshoes is worth $10,50. If made into needles, it’s worth $3 250, and if turned into balance springs for watches its value jumps to $250 000. The buyer is entitled to a bargain. The seller is entitled to a profit. So there’s a fine margin inbetween where the price is right.
The lesson: Part of what makes a franchise successful is its perceived value from the consumer to the franchisee to the franchisor. Examine a concept from all sides to see whether the price point for the product or service being offered is perceived as good value.
This will have a profound influence on the number of feet through your door and the ultimate success of your investment. Then, as a franchisee, determine whether the services and support you receive from your franchisor are sufficiently valuable to make the payment of royalties and other fees worthwhile.
Investigate the franchisor thoroughly to see how they’re able to create value for their franchisee network. Are they able to leverage economies of scale? Do they have centralised distribution? Do they take advantage of opportunities in their value chain that will benefit you?
What I began to do immediately was to buy first-mortgage bonds, sometimes as low as 20 cents on the dollar. I used this technique to acquire large hotels because, if I had enough bonds, when the time came to try for the purchase, my foot was already in the door.
Conrad Hilton was in his 40s when The Great Depression hit. He acquired the Sir Francis Drake Hotel, which had originally cost $4 100 000 to build, for a cash outlay of $275 000. “The nation was full of fine hotels, four-fifths of which had been lost by their original owners, had gone into receivership, or offer to buy, or wound up in the hands of people who knew nothing about hotels and regarded these properties as ‘depression White Elephants.’ They were there for the taking and at depression prices. All a man needed was a little capital and a lot of faith.
The lesson: A strong franchise concept that stands the test of time is one that’s quick on its feet and seizes opportunities, while being careful not to lean too much weight on a passing trend that could compromise the business’s core. Research your intended franchise to see how its responded in the past to opportunities and crises. How is the brand evolving to stay relevant and successful? And importantly, is the brand in a financial position to seize opportunities when they arise?
A HISTORY OF FIRSTS
1919 – Conrad Hilton buys his first hotel. Subsequently, he leads the industry with an innovative approach to products, amenities and service. Today, Hilton Hotels & Resorts is a global leader of hospitality.
1927 – Hilton opens its first hotel (the Waco Hilton) with cold running water and air-conditioning in the public rooms.
1945 – Conrad Hilton buys the world’s largest hotel, The Sevens Hotel with 1 544 rooms, for $111 million, making it the largest hotel acquisition in history.
1947 – The Roosevelt Hilton in New York City becomes the first hotel in the world to instal televisions in guest rooms.
1948 – Hilton becomes the first hotel company to introduce a multi-hotel reservations system, which is the beginning of the modern day reservation system.
1949 – Hilton acquires the management rights for the fabled Waldorf-Astoria in
1950 – Hilton creates its first special amenity for female travellers – a sewing kit and booklet with helpful names and telephone numbers.
1957 – Hilton offers its first direct-dial telephone service.
1965 – Hilton becomes the first upscale lodging company to develop the concept of a hotel franchise.
1973 – Hilton develops the first centralised reservation service using computer technology, a breakthrough in customer service.
1979 – Conrad Hilton dies of natural causes at the age of 91. He leaves his two sons $500 000 and his daughter $10 000. One son, Barron Hilton, as the hotel president, contests the will and receives four million shares.
2013 – In December, Hilton becomes a public company and raises an estimated $2,35 billion.
2014 – The Hilton Group sells the Waldorf-Astoria to a Chinese insurance company for $1,95 billion making it the most expensive hotel ever sold. The Hilton Group will run the hotel for a further 100 years.