December, 2008

Recent occurrences within the hospitality industry and the nation have resulted in a market with extremely different characteristics than those of just a few years ago. Consolidation, globalization, and business failures continue to reduce the number of industry participants; lending and building excesses have been widespread; and the ability to acquire, finance or sell hinges upon international capital market events. To review R. A. Rauch’s perspective on industry events, visit our press section.

There are over 440 hotels in San Diego County, representing over 54,000 rooms and suites. Chains and institutions own most of the larger hotels, but small business operators own many. Whether one gets excited about taking an asset and converting it into a more successful venture or developing “ground-up,” it takes an entrepreneurial spirit as well as a willingness to take financial risk to be successful in this game. After all, hotel performance has ups and downs and the capital markets virtually walk away from the hotel market when times are tough.

This year, at each lodging conference, analysts talk about the Commoditization of the industry due to the transparency of rates, difficulty in obtaining terrorism insurance, the potential for war and the inability to determine where the top or bottom of this cycle is. Generally, the conversations have turned rather pessimistic for the short term. Hence, is it a good time to get in the game? My typically contrarian answer is yes. San Diego’s lodging industry is resilient and growing, and with the proper ingredients, success is very possible.
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According to Yoram “Jerry” Wind, professor of marketing at the University of Pennsylvania’s Wharton School and founding director of Wharton’s SEI Center for Advanced Studies in Management, “wealth is created during periods of uncertainty. Making money depends on identifying opportunities in a turbulent marketplace.” Wind proposes three essential characteristics of organizations that flourish in times of turmoil:

1. Disciplined opportunism. Think of the world right now as one magnificent fire sale. “There are huge tactical opportunities to buy cheap assets,” Wind says. “You can buy technology or talent for very little money and build assets that will create the great companies of the future. But you need to have discipline about this,” he continues. It’s one thing to snap up a failing technology outfit for half of its book value. It’s another to land an asset that truly plays to your company’s strategic strengths.

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We are active and continually involved in the tourism and hospitality industry - the fastest growing industry in the world. This involvement has provided an in-depth knowledge of the market and its rapidly changing conditions. The result is a tangible understanding of complex issues stemming from over-built markets, shifts in the market positioning of effected properties and the difficulty in finding new sources of capital.

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Robert A. Rauch, CHA teaches a course on Venture and Entrepreneurship in the Hospitality Industry each semester. His course requires 40 students to submit comprehensive business plans for review. Read More About Education on Entrepreneurship