From dream to doors open: How to start a hotel business

So, you want to start a hotel business? Tip one: first get a good psychiatrist! OK, we’re joking, but in this article we’ll be touching on some of the reality checks needed to assess how the dream of starting a hotel business can translate into a successful operation. There are very many moving parts to any hotel business, and a key ingredient is time - because even the most modest hotel will take significant time to get up and running.

This is a long road you’ll be starting on, but there are many entrepreneurs and visionaries who have established great businesses in the hospitality sector. Take for example the ‘ordinary guys’ who in 2007 rented out air mattresses in a San Francisco apartment to conference attendees. Today that business is the world-spanning Airbnb which has disrupted and redefined the entire hospitality market.

Most hoteliers have a passion for their profession, which is backed by experience in the market, and these qualities will help sustain the would-be owner who may have been dreaming of their own operation for many years. So first, comes ‘the big idea’ - the theme and approach of your hotel - and checking out if it will work by studying the market:

The big idea tested by market research

What do you want to offer the world and what needs will you fulfil that aren’t currently being met? To discover this you need to do the market research to know the demographic you will appeal to, the sector that you will operate in, and of course location, location, location. A city centre hotel or airport hotel are clearly in different markets to a hiking venue in the mountains. There are also quite clear demarcations between grades of hotel. Luxury, budget, boutique, or convenience all offer different levels to guests, and just as there is never one type of guest, neither can a hotel be ‘all things to all people’. 

The idea or concept is essential in taking the first steps towards starting a hotel business. You have to be very clear about what will distinguish your hotel from all the rest. Examine the competition in as microscopic detail as possible in the immediate area by starting a ‘compset’ where you compile the pros and cons of all competitor businesses - everything from facilities offered, pricing, size of the hotel, special offers, location, and service levels. The compset will change over time as competitors adjust their offering and as your own business comes nearer to being realised. You will also need to use the reality check of the Strengths, Weaknesses, Opportunities, and Threats, or SWOT Analysis method to check out how well your hotel will stack up in the market. Both compsets and SWOT analyses are dynamic activities that need to be regularly refreshed and revaluated. You are planning on entering an ever-changing market, so be prepared to flex with your big idea.

Accessing the market

Few hoteliers think of starting a hotel business completely blind. They will already have their big idea and theme, whether it’s a mountain chateau or a trend-conscious city break venue. But where to go from there? There are three main lines to investigate:

• Buy in: Look for an existing hotel business which has a demonstrable track record, but - for whatever reason - needs refreshing. Perhaps it’s out of step with the times or is in need of significant upgrades. Privately-owned businesses may be especially open to a buy-in, or an outright buyout, that allows you as the new owner to bring your ideas and theme to fruition in a relatively short timescale. You’ll most likely be ‘tweaking’ an existing format, rather than starting from the ground up.

• Join an existing organisation: Becoming a franchisee or partner to an existing organisation has clear benefits in that you immediately have access to a large knowledge and experience base. The brand values and reputation of the organisation are already formed, and your operation will benefit from these by being perceived by guests as part of a chain that they can trust. The disadvantages of this approach are that you will have to adopt another organisation’s values, and have less control over some aspects of your business, including profitability.
  
  
• Go it alone: For the smaller, and most likely ‘boutique’ owners, this is the most attractive option, because it relates to creating a ‘dream hotel’ rather than a pure business proposition. Dream hotels can be the standouts, the places that truly express the values of the entrepreneurs and hoteliers who start them. Years of experience and skill are poured into ‘the big idea’ and theme, and when they come good, they are exceptional. Going it alone often centres on a single location - a venue which is unusual or has particular charm. It might be a historic country house, a repurposed industrial space, or an ‘edgy’ modern building, but the novelty of the place as a hotel makes it attractive for both owner and guests alike. Going it alone offers the greatest potential satisfaction, and almost certainly the most intense effort. 

Raising the cash

There are many methods of raising money when starting a hotel business, and few new hoteliers will be able to fund this entirely from their own resources. Even a small Airbnb-type business may require a bank loan to make the necessary alterations to the fabric of the building, and cover the first months of trading. Bank loans or mortgages aside, for smaller operations the Friends and Family route is tried and tested. Borrow from those who know and respect you, and who are willing to make their loans in the knowledge that they may not receive a return for some time. But never ask for more than you believe your F and F supporters can comfortably give you. Raise support for your business rather than simply your dream.

Angel Investors are the next thing. These are usually individuals who have experience in the sector, and have previously committed funds to successfully supporting ventures. They expect a return, but are also engaged by the ‘journey’ of starting a new initiative. The tendency is that once they have committed financial support, they are probably not heavily involved in the day to day business of running a project.

Venture Capitalists deal with bigger budgets and larger projects, and will expect to have oversight of every aspect, from start, through the build phase, and on to operation. VCs will look at every project from an overall business perspective, and many will be well-versed in the hospitality sector. Clearly, working with a company that has deep knowledge of your market can be a great advantage.

The business plan

Getting the big idea formulated is the important first step, but following on closely from that is the shaping of the business plan. Just as defining a compset and SWOT analysis will never be a once-and-for-all exercise, so is creating a business plan. There must be an overall business strategy, but also tactics to deal with unexpected changes that will occur along the way. These may include building or zoning regulations that demand uncosted alterations, or even the venue that you started with becoming unavailable… and so on. It’s safe to say that no major project is ever without some hiccups.

The key is to have as cast-iron a business plan as possible. It should be realistic and not based on wishful thinking. If you’re going for the FandF route then your business plan can be relatively simple, but at the other end of the scale professional investors or partners require extremely detailed costings and projections for every aspect of your project. The more complete your business plan is, the easier it will be to raise the funds needed, and the more satisfied your supporters and investors will be over time. Your business plan provides the lasting foundations for future success and at the minimum should include the following:

• The concept and theme of the hotel and any special features which will contribute to its success. 
• The brand values of the hotel and where it will sit in the market. 
• The hotel location and type of building, the number of rooms and projected rates, plus any special facilities.
• The credibility and experience of the owners.
• The demographic to be targeted, along with an industry overview showing trends and challenges in the short, medium and long term.
• The key messaging to the target demographic, and what channels of communication will be used.
• A robust compset which examines all competitors in the area, showing their service levels, pricing, number of rooms, and facilities.
• A SWOT analysis which is clear and realistic..
• Detailed design concepts, room plans and architectural renderings of the hotel, all of which must be congruent with the brand values.
• An operational plan showing how the hotel will be managed, with key personnel identified and clear parameters for staff hiring and training.
• Marketing and sales strategies delineated for each phase of the hotel’s development, from start-up through established phases. 
• The creation of a website with the capacity for guests to make direct bookings. 
• Partnering with other organisations and third parties, such as Online Travel Agents.
• A technology roadmap which leverages all of the power available through contemporary hotel property management systems.

Expense Forecasts will anticipate all operational costs such as utilities, marketing, maintenance, and staffing.

Break-even Analyses will show the expected timeline to reach break-even point, based on different worst-case and best-case scenarios. 

Profit and Loss Projections should cover up to five years, and of course Funding Requirements will detail the necessary financing, loans, and repayment structure over given timescales.

Naturally, for every point in this non-exclusive list, another ten points arise. Of all the points, your financial plan must be the most refined and comprehensive. Potential backers may forgive you for not yet having the hotel logo finalised, but they certainly expect the numbers to add up! Each facet of the business plan must show the essential information of how the hotel will operate and how it will be differentiated in the marketplace.

Making technology foundational

One key differentiator available to modern hoteliers is the leveraging of digital technology. So far in this article we have covered points which have essentially changed little over many years. The big difference in this century is how digital technology can be leveraged, giving unprecedented power to hotels of all sizes. 

Now even the smallest hotel or guest house can access the same sophisticated and automated technologies that were only available to the largest chains only thirty years ago. In fact, modern hotel technologies offer a vast improvement on such ‘legacy’ systems. We know this because we are SabeeApp, and for more than ten years we have been suppliers of Property Management System exclusively for the hospitality industry worldwide. A seamlessly operating PMS and a complete suite of related solutions provide advantages previously not accessible to start-ups, but which are now a must-have for any new hotel business. The technology roadmap is an essential inclusion for the start-up planning of any hotel venture. It’s not a later add-on, but is foundational to building a new hotel business.

The dream becomes reality

By the time you reach the launch day of your new hotel it’s likely that several years will have gone by, and you may feel that it’s time to sit back, relax, and enjoy the fruits of all your labours. Not so! In fact the real work is only just beginning, because now you must dedicate your team to promoting and marketing your hotel and reaching out to your target demographic with exciting offers and great deals. Your shiny website must be working overtime, fed with constant news and fresh ideas. Your website will be the primary customer-facing window to the world, so it can’t be left standing still. Keep new images and well-crafted copy flowing to interest and engage potential guests. Grow your social media presence and curate all the conversations you have with customers, using these to spread the word about your hotel. ‘Conversations’ are key because the successful hotelier will always be in a dialogue with guests.

The ultimate goal of all hoteliers is to have satisfied guests who are content with the journey they have been on, will return again to your hotel for more, and will recommend your hotel to others.

We applaud anyone who has the courage and persistence to start a new hotel business, and we are glad that we’ve been there for so many modern hoteliers with our systems. We’d like you to recognise the vital ingredient for success that automated systems provide for all hotels, but especially start-ups, and invite you to contact us to begin mapping out the technology from the very start of your hotel business. Why? Because technology is now one of the most important differentiators in the hotel market, providing efficiency, cost effectiveness, and radically enhancing the guest journey. If you’re dreaming today of starting your hotel business, contact us for a free no obligation chat about how our technologies will provide the rock solid foundations for your new venture.
Dream big and we’ll be with you all the way!