Archive for the ‘Investors’ Category
You Get the Investors You Deserve
Thursday, June 17th, 2010[Originally posted June 15, 2010 on the Huffington Post]
That’s paraphrasing a wisdom Warren Buffett once uttered (by the way, Warren Buffett’s lunch auction sold for a record $2.63 million last weekend in the annual charity fundraiser for Glide Memorial Church in San Francisco; this is the highest winning bid in this 11th annual event so maybe the economy is coming back!) Bill George, former CEO for Medtronic when that medical instruments company experienced the largest capitalization growth of any New York Stock Exchange company in the 90s, takes this headline one step further, “Do your shareholders choose you or do you choose them? Sophisticated CEO’s choose their investors by defining their particular business approach and strategy and assuring their investors are aligned with that program.”
This was a bell-ringing week for me … literally. A week ago, I got the honor of standing at the podium of the New York Stock Exchange to open trading on Monday morning for the world’s most well-known marketplace. On that very day, the Wall Street Journal reported that I’d sold a majority share in my company to a company owned by an heir to the founders of Hyatt. After 23 years, I was no longer the sole shareholder of my company, nor necessarily in control of my company’s destiny. How did that feel? While there’s a series of mixed emotions — just like the word “surrender” has multiple meanings, both positive and negative — I have to say that I feel like a proud father who’s married his daughter off to just the right guy. Sad at the passing of an era, but satisfied that this is exactly what’s supposed to be happening and I couldn’t choose a better partner for my offspring.
There are three kinds of investors: those focused on winning the game of “Survivor,” those focused on building relationships as their means of success, and those focused on creating a legacy who put their money where their heart is. Think of a pyramid with three levels. At the base of the pyramid – the widest point on the triangle — is the vast majority of investors, those that see investing as one constant set of transactions. These investors tend to focus on optimizing the most amount of return on their money in the shortest period of time. It is the fundamental principle behind return on investment (ROI) or internal rate of return (IRR) calculations and it is part of the basic language almost all investors use to determine whether they’ve survived in their investment practice. But, there are some investors who take a little longer view of their relationship with the company they invest in. If the “survival-driven” investor is focused on obtaining as much “milk” as quickly as possible, the relationship investor in the middle of the pyramid is more focused on the “cow” because it’s the cow that creates the milk. Happy cows make more milk. Warren Buffett says most investors forget that it’s the relationship with the cow that creates the success of maximum milk, or “moolah,” and he applies this long-term perspective to the businesses he invests in.
But, then there are those few, unique investors at the peak of the pyramid for whom investing creates pride of ownership. For them, investing could even be an exercise in self-actualization. Yes, they may be interested in return on investment and relationships may be fundamental to whom they invest with, but these “legacy” investors seek to change the world by the means of how they invest. The best advice I could ever give an entrepreneur is to create a purpose that’s so compelling and has benefit to the world beyond enriching yourself and see what kind of investors pop up in your life as a result of manifesting this kind of dream.
Over the past couple of years, I’ve met with dozens of investors who’ve done their due diligence on our company. The process isn’t a whole lot different than a beauty pageant with judges measuring your body parts and asking you open-ended questions. Some judges saw us purely as a vehicle for maximizing return. They were looking for “36-24-36.” Others saw that our history of creating loyal relationships with our employees and customers drove long-term results for the hotels we manage. I guess they were looking for “Ms. Congeniality.” But, in the end, literally out of the blue, the ultimate suitor who won the contest to own a majority share of this company is someone who profoundly understands that our name — Joie de Vivre — is also our mission, creating joy of life, and this investor realizes how truly powerful that purpose is to a company in a service industry like hospitality. This investor was looking for beauty beyond our stats or our ability to smile well. They gave us the crown because they could see the halo that comes from creating a purpose that’s meant to make a better world beyond the sloganeering that often comes with those words. I feel incredibly lucky to have found a primary investor who wears this pair of glasses when they make their investments.
A Flock of Seagulls & A Pack of Wolves
Thursday, June 7th, 2007I’m sitting on the plane on my way home from one of my favorite places in the world, New York City. Nearly 25 years ago, I was a young, blond 22-year old living at 86th and Riverside working at Morgan Stanley for the summer. I felt like a country bumpkin who was fascinated by the grandiosity of both the vertical and horizontal visuals. This is where my summer-long landlord told me, “Bucko, there’s thousands of millionaires in Manhattan who’ve made their fortune in exactly the same fashion. They focused on a six square block area, got to know all the real estate values within that area, and spent the rest of their life buying and selling their way into wealth.” Now, it was hard to take this landlord, Stanley, all that seriously as he typically wore a torn white tee-shirt that was three sizes too small and usually had some remnants of breakfast in his needed-to-be-trimmed mustache. But, this wisdom stays with me to today and may be part of the reason I’ve always focused Joie de Vivre on small geographic areas – initially, just San Francisco for our first 12 years, then the Bay Area, and most recently, the whole state of California.
Whenever I go back to NYC, I’m flooded with nostalgic memories from that summer and from the three dozen or so trips I’ve taken there since I lived there. I remember the first time I walked into Ian Schrager’s Paramount Hotel in a just-starting-to-improve Times Square area in the later 80s. I’d just opened my first boutique hotel, The Phoenix (just about 3-4 years after I was living in NYC…hard to believe), and I wanted to come and see what all the hoopla was about. Ian was quickly becoming the entrepreneur most identified with the new boutique hotel trend and the Paramount was his most ambitious project yet with its pill-box sized rooms with the enormous headboards with replicas of art masterpieces printed on them. It almost seems quaint and kitsch given how far boutique hotel design has come since then.
So, here I am at a hotel conference at the Marriott Marquis almost across the street from the Paramount. So, of course, I needed to do one of my investor meetings over at the Paramount just for nostalgia’s sake. Ian no longer owns the Paramount. In fact, Ian no longer operates Morgans Hotel company, the public company that kept Ian’s empire going once he stepped down to do his own thing. Morgans has sold the Paramount, supposedly to the Hard Rock Hotel folks but they are just operating it as is for now. The strangest thing about my 90 minutes in the Paramount was the time warp that this fading boutique hotel exudes. It’s twenty years later and, guess what, the average guest in the still sort-of-cool lobby is about twenty years older than who stayed here back in its heyday. There were a few grandparents hanging out in the lobby…it felt a little like a seniors bus tour had just pulled up. There were clearly some retired German tourists with vouchers. And, I’ll be damned but all they played was great 80’s hits including one of my favorites by the Flock of Seagulls. I guess this is what happens to a boutique hotel that is put out to pasture. A little sad given that probably 100 new boutique hotels have opened in Manhattan since the Paramount opened its doors, but for those of you who have a thing for 80’s music or for people in their 80s, it’s a great little habitat.
I do my cross country trip to this boutique hotel Mecca every early June for this NYU Hotel Investment Conference where I hang out with 2,000 folks who live, breathe, and sleep the hospitality Business. There’s a reason I capitalized the B but not the h. It’s sad but this annual invest-a-thon is stocked like a field with wolves when prey is on the loose. There are no workshops on “How to Kill Your Guests With Kindness” but there are quite a few on “How to Make a Killing in Hotel Investing.” I’m once again nostalgic for that day when people entered this industry because they were people-pleasers enamored with the idea of taking care of guests far away from home. Those people still exist, but they don’t tend to come to these conferences.
Fortunately, I was able to make my way through this pack of wolves using a technique I write about in PEAK. Basically, I believe there are three kinds of investors: transactional investors, relationship investors, and legacy investors. The transactional investors are in the survival mode at the bottom of the hierarchy of needs pyramid. They are purely focused on the metrics of return on investment. There’s nothing wrong with that, but if you’re an entrepreneur like me, that means you need to be careful with these folks as they may have a very short-term philosophy of investing. Up one level of the pyramid is the relationship investor who smartly realizes that the scarce commodity in the long-run isn’t necessarily the deal that makes you a fortune but it’s the relationship with an entrepreneur or company. So, with relationship investors, once you sell a business (or in my case a hotel), the relationship doesn’t end as the investor and the entrepreneur look for the next thing to do together. There are a lot of sheep in wolves’ clothing at this conference….those fellas that will take you out for a drink, smoke a cigar with you, pat you on the back and share a laugh….they’re you’re best friend as they’re trying to convince you they should be your investor, but some of them revert back to the wolf (or the bottom of this Investor Pyramid…just focusing on the transaction) once you’ve gotten in bed together. Thought it was a marriage, came to realize it was a one night stand….an entrepreneur can get jaded if that happens enough. Sounds a little like Sex in the City, doesn’t it?!
Then, there are the legacy investors…the white knights of the conference. As is true in the rest of our lives, white knights are scarce. Legacy investors may be focused on the return on investment and on creating a long-term relationship, but they’re also focused on the long-term benefit that is created by this investment. They are self-actualizing investors because they are able to see what their investment does to make a better world – whether it’s improving a community, creating a socially responsible product, or betting on an entrepreneur who is going to change an industry. White knights were clearly in short supply this year. But, at least it meant I was spending my days hanging out with the wolves.
For those of you who want to learn more about these three kinds of investors, check out chapters 10-12 in my upcoming book PEAK which is available in September but can be pre-ordered now on Amazon.