This blog is motivated by an article that I read written by Sal Khan of Khan Academy. The summary of that article is that our brain and our capacity to learn grows when we struggle with a problem or a subject. Interestingly, when we encourage kids to struggle through problems, they get better at learning rather than praising them for things they already find easy. Subconsciously, this is one of the main reasons that I really want to help entrepreneurs and startup founders, the bigger motivation is that I believe all of us can learn to be business owners, investors or entrepreneurs. It is a skill and can be learnt. I also believe that the odds of failure of startups should never stop someone from trying to create value, solve a problem and increase public good and wealth. Entrepreneurship and Startups are difficult, so when a team struggles through the challenges and creates a sustainable business it is a huge leap in learning.
I had an interesting conversation with a CEO of a major bank, we were talking about a large hotel project that me and my partners are investors in. He told me that any hotel in Iceland always goes bankrupt 3 times before it starts making money and he was not the first one who I have heard this from. I always get extremely curious, when people make blanket statements like that. It is a conjecture, it is not a fact. Even it was a fact in the past does not mean it will be fact into the future or it cannot be changed. I ask myself ok, if every hotel in Iceland has to go through bankruptcy 3 times why does anyone keep building and/or run hotels? Can this skill i.e to run a hotel in Iceland profitably be learnt? What does it take?
I have written about this problem before, when I gave a talk to the Hotel Association of Iceland. I personally understand why hotels don’t do well in Iceland, #1 there is lack of experience in developing hotels in Iceland. A hotel is not just a building and concrete but everyone treats it like that. A Hotel is a service business. #2 sequence of tasks to capitalize, market, develop and build a hotel is misaligned. Hospitality and tourism in Iceland is doing really well if one takes the number of people visiting Iceland as a metric. However, I always hear sob stories from Investors, Bankers and Real Estate developers that Hotels are bad business in Iceland. I beg to differ. Hotels can be really great business in Iceland if you know what you are doing.
I actually challenged the group that I spoke to stating that I can improve their Hotel’s EBITA by 15% without looking at anything that they are doing in the hotel. It is not arrogance or hubris, I have just seen better management and operation of hotels and IMHO, Icelandic hotel operators are not doing such a great job. My partners in India have been developing, investing and running hotels for quite sometime and I never hear them complain about how it is bad business. It is a tough business but tell me which business is not tough. I believe any team can learn to run a good business. It all starts with an open mind to learn new ideas, business skills and to apply it to day to day operations. I have also seen poor capital planning and over leverage of debt in developing hotels. Once you get into the never ending circle of debt, it is game over, especially in the Hotel Development business. Under capitalization is the #1 reason for hotels to go bust.