#172: Marriott – Creating the Future of Hotels

The Empire Builders Podcast

J.W. Marriott had a gift for seeing what the public needed and made sure to give it to them. Marriott is the epitome of Entrepreneur to Empire.

Dave Young:

Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, it’s us, but we’re highlighting ads we’ve written and produced for our clients. Here’s one of those.

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Dave Young:

Welcome to The Empire Builders Podcast. I’m Dave Young, sitting here with Stephen Semple, and we’re talking about people that built empires. Empires, sir. Not just a little business, an empire. As usual, Stephen whispered the topic into my ear just as we were counting down to start recording. And the word is Marriott. I guess that’s a name, the Marriott, I don’t know if it was one guy or a family. I know that it ended up being a bunch of Marriott’s involved, but the Marriott hotel chain.

Stephen Semple:

The Marriott Hotel chain. Marriott Corporation.

Dave Young:

I’ll tell you what I know about them. And this is weird. A Mormon family?

Stephen Semple:

Yes.

Dave Young:

And most of the brothers that were involved, maybe in the beginning, but anyway, they were all members of the same college fraternity that I was in.

Stephen Semple:

Is that right?

Dave Young:

I didn’t know them, but that was the talk about them, “They’re these BYU Sigma Chi’s from Utah.”

Stephen Semple:

And John Willard Marriott and his wife Alice, very devout Mormons and part of the origin of the Marriott chain actually starts with them doing a mission in New England.

Dave Young:

Cool. Anxious to hear the story.

Stephen Semple:

It started in March 5th, 1927 by John Willard Marriott, which is part of the reason why one of the Marriott’s is the JW.

Dave Young:

Sure. This goes back way farther than I knew. I think by the time I was aware of them, this was the eighties. Wow. Big history.

Stephen Semple:

And today they have over 9,000 properties. There’s a whole pile of different badges under it.

Dave Young:

Brands.

Stephen Semple:

And million and a half rooms, 400,000 employees. They do like 23 billion in revenue. And look, everyone knows the name Marriott.

Dave Young:

I think it qualifies as an empire.

Stephen Semple:

I think it does. And it starts with JW traveling to D.C, Washington, D.C after doing a mission in New England. And he experiences this really hot, humid summer, and he thinks to himself, “This city needs more places to buy cool drinks.” He returns home to Utah. He finishes his degree at the University of Utah and returns to Washington where he buys an A&W franchise in Columbia Heights.

Dave Young:

Good idea. He should have invented air conditioning. I think we’ve talked about.

Stephen Semple:

That would’ve been a better idea.

Dave Young:

I always have to slide in some little weird bit of trivia that I know, but back in the days before air conditioning, the British Foreign Service actually paid people tropical pay when they were stationed in Washington, D.C.

Stephen Semple:

Wow, because it is so ugly in the summertime.

Dave Young:

It was dank and humid. Basically it’s a city built on a swamp.

Stephen Semple:

It pretty much is.

Dave Young:

He buys an A&W franchise in?

Stephen Semple:

Columbia Heights. It’s a suburb of D.C. It’s great in the summer. Business is great in summer. Really slow in the winter. Because at the time, A&W did not sell food. They started off, first of all, it’s just root beer. Now he gets permission to sell food, but does it under a different name called Hot Shop.

Dave Young:

Hot Shop. Shop or Shot?

Stephen Semple:

Shop. Hot Shop. It’s pretty popular to the point where he buys a vacant lot next door, he removes the curb and he offers the first drive-in service on the East Coast. And by 1932 they have seven locations. And by 1953, for the first 20 years of the company’s history, it was not Marriott, it was Hot Shop.

Dave Young:

And it was a fast food place?

Stephen Semple:

It was one of the things they had, but it started off as a fast food place.

Dave Young:

As A&W Root Beer and then they decided to change.

Stephen Semple:

Added on this restaurant.

Dave Young:

This is backwards, Stephen.

Stephen Semple:

It gets even more backwards.

Dave Young:

We talk to companies all the time about they have… Maybe it’s just their family name and it’s some weird name. And often people take the opposite tack. They decide, “Let’s change it to something like Hot Shop, because nobody knows what Marriott means.” But the cool thing about a name is then you can start making it mean something. Continue, sir.

Stephen Semple:

And it’s interesting when you talk about these things, like I was reading this morning, The Monday Morning Memo, mondaymorningmem.com, which is written by our partner, Roy Williams, and I was reading this quote by Peter Thiel from PayPal. If people aren’t reading The Monday Morning Memo, they really should. It’s amazing. But this quote really jumped out at me, especially for our podcast. “Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. Next, Mark Zuckerberg won’t create a social network. If you’re copying these guys, you aren’t learning from them. Indeed, the single most powerful pattern I’ve noticed is that successful people find value in unexpected places. And they do this by thinking about business from first principles instead of formula.”

Isn’t that an incredible quote from Peter Thiel? I want you to think about that as we now look at what JW does next, because JW is super observant and he’s walking around and he discovers that there’s this restaurant near the airport that people are going to order food to take on planes. And he also notices that passenger air travel in the last few years of the 1930s increased like 7000%, just this explosive growth. And he decides, “Why don’t I start making box lunches for passengers on planes?” It’s 1937 and he starts offering it, and three airlines pick it up right away. We haven’t even gotten to the hotel change yet. He had a restaurant doing takeout food and he noticed, “Man, airplanes need this. I should do a catering service for airlines.”

Dave Young:

You know how twisted my brain works, all I’m thinking is the airlines are going, “That’s all we need on a plane that can’t fly up above the storms. We’re going to sell a lot of barf bags.”

Stephen Semple:

No kidding.

Dave Young:

I’m sorry.

Stephen Semple:

Even before they get into hotels, they become one of the largest airline catering services in the world and still are today.

Dave Young:

That’s crazy.

Stephen Semple:

Still are today. And we don’t think about them as in that business. JW brings in his son, Bill, to grow the restaurant and catering service and business is good, but Bill and J are always looking for new ideas and new opportunities, and they’re building this one factory, food factory to support the catering business. And it’s near the intersection of a road in the airport and they start to think about doing more than just feeding people, “Let’s build a hotel because road travel is also increasing.” They decide to build a hotel. Now, they didn’t just build a little hotel. What they opened was one of the largest hotels in the world at the time, at 375 rooms. It’s a two-story building, and it’s more like what we would call a motel today. In January 16th, 1957, it opens in Arlington, Virginia, but the hotel’s struggling because guess what they didn’t have? Any hotel experience. But again, patterns, patterns.

Here’s what they notice. They notice there’s a new type of traveler visiting the hotel. What they notice is these people are carrying business gear and they went, “Wait a minute, there’s the business traveler. What if we made it a destination and a base for business traveling?” It’s the 1950s and no one’s catering to the business traveler, really. Hilton is, but outside of that, no one else. They put more money into the hotel, they build meeting rooms and a convention center. Convention centers had not been part of hotels up to this point. And the whole idea was, “Let’s make life easier for the business traveler.” They found a pain point and created a solution.

Dave Young:

Brilliant.

Stephen Semple:

And immediately become profitable. They opened their second hotel in Arlington, Virginia. In 1960, they go to Dallas and Philadelphia. The catering is also growing. By 1965, they’ve got four properties, father retires, Bill takes over and to grow, what Bill decides to do is acquire businesses to fund the building of the hotels, buy businesses that have got good cash flow. Seems like a great idea. He goes and he buys theme parks, cruise lines, travel agents. But here’s the problem. Sales slow immediately because travel agents stopped booking because they now see Marriott as a competitor. Financial problems hit. Bill needs to sell the hotels, but he creates a really unique solution. He sells the hotels, but keeps the name and the management contracts and the profits are now based upon management, not sales. Brand new business model for the hotel industry, which the entire hotel industry now operates off of.

Dave Young:

Based on management, not sales.

Stephen Semple:

Almost every hotel you go in today is not owned by Marriott. It’s owned by a bunch of investors. Marriott runs it with a management contract. You go into a Hilton, they’re that way. Almost all hotels today are operated that way where the hotel is not owned by the chain.

Dave Young:

Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

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Dave Young:

Let’s pick up our story of where we left off. And trust me, you haven’t missed a thing.

Stephen Semple:

The chain has a management contract for running it.

Dave Young:

It’s a real estate game for the people that build the hotels, find the land, build the hotels, and then you decide what flavor of hotel it’s going to be, probably at the same time as you’re building it or before you land the management agreement with them.

Stephen Semple:

And that’s almost how all hotels are done today. And that was an idea that was created by Bill Marriott because he was suddenly looking at these financial problems. He goes, “I want to sell these things, but I still want to build the name.” But also what it speaks to is there a power in brand? Yes, there’s a power in brand.

Dave Young:

And the reward programs and all that. Which chain do you get points through? Which is your favorite to max out on travel points and all of that.

Stephen Semple:

But what I love is the whole history of Marriott was really through the second, here’s a problem, sales are terrible in the winter time. How many times we get customers coming to us of air conditioning and go, “We need to sell more air conditioners in the winter. I need to figure out how to sell more cold drinks in the winter.” No, what you’re going to do is offer hot food. Great. We’re now doing this hot food thing. Next observation, “Boy, I am near this restaurant and there’s all these people doing takeout to the airlines. Maybe I could do catering to the airlines.” Boom, next business. Then opens a hotel. That was probably a bad idea, but observed, “Boy, there’s these business travelers that are not being catered to. What if I had meeting rooms and a convention?” That success happens. All through these series of looking at their customers, eliminating friction and giving them the unfilled thing that they wanted.

Dave Young:

That they maybe didn’t even know they wanted.

Stephen Semple:

And that’s going to be the next thing. If you asked airlines at the time, “Do you want a catering service?” They may have said no. And the business traveler wouldn’t have necessarily said, “I want meeting rooms.”

Dave Young:

That’s exactly what I was talking about. People don’t know what they want. You have to figure out something that you think they probably §want and offer them that and see if that is in fact what they want. Because they’re not going to think of it. They’re not going to think of, “I wish I had a box of food that I could carry with me on an airplane.”

Stephen Semple:

Yes.

Dave Young:

Usually not the thought process. It’s, “I don’t have time to eat. I guess I won’t eat.”

Stephen Semple:

Quote, I just found it here, “It’s really hard to design products by focus group. A lot of times people don’t know what they want until you show it to them.”

Dave Young:

Exactly that.

Stephen Semple:

But as soon as you show it to them, they’re like, “Oh my God, that’s amazing. I want that.”

Dave Young:

I want that. Please take my money.

Stephen Semple:

Where I really admired Marriott is, and they didn’t do it once, this observational thing of looking at their customers and seeing the unfilled need of their customer is what they did on a continual basis. And man, that is commendable. And then when presented with a financial problem and challenge, they found a unique solution that created a whole brand new business model. Whole brand new model.

Dave Young:

Here’s where I go with this. I wonder what that family would’ve done if Washington D.C hadn’t have been so darn hot in the summer that they wanted to buy an A&W franchise. I have the feeling that they were entrepreneurial enough and risk-taking enough that we’d still know the Marriott name today under some other business.

Stephen Semple:

I’m going to agree with you. If you look at it in this story, they did it three times. Three times they did the whole observational, I see this thing and filled the opportunity. Sometimes I do wonder about that. Was somebody just lucky? Was it a one-trick pony? Would they ever do it again? But with Marriott it’s like, “This was not once. This was 1, 2, 3.” I have to believe if it wasn’t that it was going to be something different.

Dave Young:

I agree. I think there’s a certain mindset, I wouldn’t call it DNA, but a certain mindset that leads you to always be looking for these types of opportunities and ways to change and give people what they want. And in part, it arrives from looking at what you want. Oh my gosh, what do I wish I could have right now a box of food to get on this plane that I’m getting on in five minutes?

Stephen Semple:

Yes.

Dave Young:

Because I don don’t have time to sit and eat or a place to have a meeting when I get to St. Louis.

Stephen Semple:

Why do I have to travel somewhere else to meet? Why can’t I just meet in the hotel? I’ve got seven salespeople coming in this one area, wouldn’t it be great to all meet at that hotel?

Dave Young:

Looking for those things leads to innovation in business. I love it.

Stephen Semple:

Absolutely. Cool. I thought the Marriott story, especially when you see someone where it’s not that one trick pony where they’ve done it over and over again. Dave, I completely agree with you. If it wasn’t going to be hotels, it was going to be something else, but they were going to be successful.

Dave Young:

Thanks for bringing us the Marriott story, Stephen.

Stephen Semple:

Thank you David.

Dave Young:

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