Democratizing Hospitality: How We Can Make Independent Lifestyle Hotels Profitable, Efficient, and Accessible to More People - Rami Zeidan, Life House

Josiah: Why does travel and hospitality matter today?

Rami: I started the company from a combination of personal and professional experiences, but fundamentally, the personal experiences were a big passionate driving force. It's hard to start a company. And so when you need to do something hard and challenging, you need a really strong motivator. Personally, I grew up in Minnesota to Lebanese immigrant parents and didn't fit in, didn't feel like I really belonged. And really what I fundamentally saw, by the way, I had a really privileged life relative to a lot of people. So what I found is that people got out of Minnesota and traveled had a better sense of their belonging in the universe, as well as mine and other people's. And I think travel, especially this day and age, especially with the war going on, is about discovering your universal belonging and discovering where you fit in the universe and where everyone else fits. And when you understand that positioning and belonging, you feel safer. more comfortable taking risks, more comfortable interacting with new people. And that really brings your life a lot of meaning and value. I think that's the beauty of travel. Of course, there's business travel and all that good stuff, but fundamentally, that's what I'm really passionate about. And I think that's why it's valuable to the universe.

Josiah: Tell me a little bit about the role of hospitality and maybe hotels specifically in that broader ecosystem. What is the unique opportunity of a hotel to enable this belonging?

Rami: Well, hotels are complex. I think it's really easy sometimes to think about a hotel as the best guest experience, but at the end of the day, it's a piece of real estate. And within that real estate, you have to deliver a guest experience and make money on delivering that guest experience. Hotels are a complicated business to solve and especially to scale because of that real estate complication. Look, I'm a little biased because we focus on small, medium-sized, independent hotels. I think the role of hotels differs. In some hotels, you need to cater to a business traveler. In some hotels, you need to cater to an outdoor leisure traveler. Each hotel is a business with its own demographic of target customers and business goals. And I think that is what makes it challenging to scale. And so each hotel has a different role to play fundamentally. And I think where we're excited about the independent hotel space is because every hotel is different. We're less focused on how do we build a scalable, consistent hospitality experience, but how do we make operating a hotel, no matter what that experience is, really easy so that the people on the ground can deliver whatever that role should be. If it's an outdoor hotel, or if it's an outdoor-oriented activity hotel, or if it's a luxury hotel, or if it's a business hotel. And I think software enables you to kind of solve the mundane, repetitive, redundant stuff so that that unique stuff can stay intact. And, you know, I think we like to think about it as how do we make a hotel so easy to operate that it's like as easy to operate as an Airbnb? Meaning every host, you know, I think has their own little gadgets and welcome notes and little hospitality amenities. And like anybody can be an Airbnb host. How do we make a small independent hotels as easy to do the same? You have the same problem except you have, you know, 20 to 50 rooms instead of one.

Josiah: I love that. I want to come back to this piece here, but I just want to circle back to something you mentioned about hotels being fundamentally real estate. And for people like me who don't have exposure to the real estate investment world, you spent some time at Starwood Capital, among other firms. What do you feel people who don't work in real estate misunderstand about the real estate component of hotels?

Rami: Yeah, where do I start? No, many things. So with any real estate, it's a static piece of real estate and it can't move. And I think we all know as travelers, location matters. Uber and ride-sharing has helped and Zoom and all that stuff has helped location be less relevant, but it's relevant. The second thing is you have to really think about, OK, how do I think about ROI of guest experience versus just how do I Everyone has good ideas about guest experience. So many amazing guest experiences exist in the world. The question is, how do you scale that? And when you have a piece of real estate that has a hundred rooms, and then you have another one that's 40 rooms, and one is in a prime location with business travelers, and one is in a weird location that doesn't have flights to it and has a completely different target demographic, it's hard to scale that stuff. And I think so many folks are so focused on what is the consumer brand that I can create? I have this great idea for this consumer brand. It's like that's not really a problem that exists. What exists is when I travel to California, yes, there's something about it that is like, OK, where can I have a reliable experience with Wi-Fi and a pool and a gym and all that? Sure. The marketplaces have made that easy to discover. And so for me, I think the problem is you have to solve for how do I make money and scale it. And you can't fit a square peg into a round hole. So at the end of the day, investing in real estate has to have an ROI. So it's like, hey, I want to why is the room size this way or the bathroom there? It's like to shift a bathroom is so expensive. It makes no sense. Or why tubs? I'd rather have stand-up showers. And like the question is, what will a customer pay for? And so it's really thinking about the real estate ROI and the guest experience simultaneously. I think that's why soft brands have grown really well is because they do a good job of saying, hey, we can help you as a hotel owner make money because we can channel all of our brand demand there, but we're not going to make you and force you to renovate your property.

Josiah: It makes sense. You touched on something else, the operational component. And I would just love your take on what you see as potential misconceptions or people underappreciating hotel operations. I spent a lot of time in companies that were serving operations, and am curious, what have you seen or learned about hotel operations as it relates to creating a successful business and successful real estate investing?

Rami: Yeah. I mean, I think at the end of the day, we get hired as an operator or our software gets bought because people and our hotel owners usually want to make more money. So I think the primary goal for our hotel owners is how do I make more money and spend less time involved in all the chaos. So, I mean, it's complex in the sense that you have to think about, okay, how do I deliver a guest experience and minimize costs? And usually those things are opposing ideas. The more you minimize costs, the worse the guest experience usually is. And in small, medium-sized hotels, you just can't afford staff. And so you only have so much revenue. You only have so many rooms where you can generate revenue. So you just can't afford a lot of staff. And I think that's where things get complicated because large hotels, you just throw bodies at problems. There's so much money in the top line. You can say, oh, housekeepers, housekeeping supervisor. a front office manager, and you kind of layer on human capital. In small hotels, you have a very challenging problem of, okay, how do I schedule labor perfect, like housekeepers, for example? If you have 20% occupancy three days a week, and then you're 100% on the weekends, and you need three housekeepers on the weekends, and every housekeeper needs to work 40 hours a week, resource planning is a really big challenge. And solving that equation is challenging operationally. The second component, and probably the most complex problem that you know from your experience is revenue management. I mean, revenue management, prices change all the time, sure, but you also have to be on all the channels. OTAs aren't just like be on the OTAs, you have to be optimized in the OTAs. Now there's meta-search marketing. You have to tie meta-search marketing to your pricing and marketing strategy on other channels. Like that's a complicated thing. You can't afford a marketing team and a pricing team and you shouldn't. And technology can be a great asset to streamline and automate those things.

Josiah: I feel like there's so much we could talk about on that piece, but just to set a little bit more of the stage, you shared on another podcast how if you weren't doing this, you'd be in product. And people who maybe don't have exposure to the technology world, product is really interesting. At the recent investment conference, there was the CEO of Deutsche Hospitality saying, when times are good, we have to invest in product. And so wherever our listeners are listening to this episode in the economic cycle, I'm very interested to hear your perspective on what is product design or what does it mean to focus on product and to excel in that in hospitality.

Rami: When I talk about product, I kind of take a more technology company definition. And fundamentally the role of product is to define your users' problems and business problems and chart a path and roadmap to solve those things. And I think like, if you think about Silicon Valley, so many winning companies have come out of Silicon Valley with no domain expertise. I mean, Airbnb, those folks didn't have any hospitality experience. And if you look at even Steve Hafner and Kayak, before Kayak was at Orbitz, but I think fundamentally Uber wasn't like taxi drivers. Product people are really good at being radical about defining a problem and using first principles to solve that problem. I hate to use the example of Elon Musk, but why is Elon Musk becoming the best car entrepreneur, space astronomy entrepreneur, payments entrepreneur? It's because if you're really good at products, you really can understand your user and you become the domain expert. And so I think for us, product people and why I go into product from here on out is you can become a domain expert really fast. Like that's your number one job as a product manager is figure out how to be the expert of your product and then build a business plan to like win at that and deliver customer satisfaction and make money.

Josiah: Can you walk us through that process of getting to know your customer, your guest, you know, whatever you want to call the person that you're looking to serve? Because it seems that identifying the problem to solve requires a really deep understanding of not just this marketing archetype, but really how somebody wants to interact with a business such that you can create a successful business off of not only their being a person who has an acute need that you can solve, but there's enough of those people you can build a good business around.

Rami: Yeah, let's use a basic example. Let's see. So a lot of times customers are good. The first step is usually talk to customers and hear their pain points. Customers are good at telling you what their pain points are. And usually they'll jump the shark and start to tell you, well, I want this as my solution. That's a good starting point. It's like, understand your customer's pain points, but you got to ask the five whys constantly. Oh, like, for example, well, I want a new website. My website's ugly. It's like, okay, well, like, what's the impact of that? And you kind of drill down. Well, I feel it's like, okay, well, is there any evidence that backs up why you think this website is a big problem? At the end of the day, like building a company is like the difference between success and failure is prioritization. And so really good product people can map out, okay, like the whole roadmap of I want to deliver all these things, but like, It's about building the right stepping stones to get there and prioritizing before you run out of money. And so the experience and the process of going through that is like, if you start by research, and we have a saying internally that's like, research is what differentiates the artist from the dilettante. dilettante being like a poser or somebody who like pretends to be an expert, but isn't really understand the root cause or the substance behind it. And so, yeah, I think we try to be, I don't want to say the word radical, but really radical about defining our user problems and our customer problems. And like, I'll use another example. If you think about automation, like high level, low resolution, automation helps you reduce cost structure. if you, let's say I automate 10 hours of a housekeeper's time. Well, that actually doesn't do anything for automating my costs, because I still need a housekeeper for 40 hours. And so I need to figure out how do I automate 100% of the housekeeper, not 10% of them, because there's no such thing as a 90% human being. And so if you think about that, well, you're like, okay, I only have one a housekeeper, I can't possibly automate the cleaning of a physical space. So like, let's not prioritize housekeeping efficiency. Let's focus on other things that we can automate. And so that's where we've kind of landed on, okay, full automation is valuable. Partial automation is useless. I don't want to say useless, but not… Basically, let's say I automate… A lot of technology companies in the hotel space, let's say, that are like, make something slightly more efficient. It's like, if you create a great product that makes something slightly more efficient, let's say, check in slightly faster. And you sell that, what you've done to the underlying business problem, which is the hotel P&L is you've added a cost because the new software and you haven't automated any costs. And so what ends up happening is you've decreased the profitability of the hotel. So like diving deep and really doing that ROI analysis of like, what am I actually removing from the P&L and the business and driving and business value. That's like the really, you know, strategic product thinking that I'm talking about.

Josiah: When you're talking about P&L and the business value suggests that there's more than one customer, which adds a lot of complexity. I feel like a lot of the technology products, especially in consumer tech, you essentially have one archetype that you're looking to solve. Uber had drivers and riders, but walk us through kind of the different stakeholders that you were thinking about, because at a minimum, it sounds like there's the guests and owners.

Rami: Yes, even there and you have like midweek travelers, weekend travelers, and you kind of have to cater to all potential travelers and guests, as well as obviously the owners. To us, hotels are B2B2C businesses. And so we get hired by hotel owners. And our job for them is to make them more money and give them more time back. And so that's where we're like radically focused on how do we solve their problems. And sometimes that's what we can increase the guest experience. But with independent hotels where the guest experience differs from every hotel, that's hard. It's really hard to have a consistent guest experience at certain places. And technology can help in some of those things. So for example, on all of our websites, you can modify your reservation after booking autonomously as a guest. That's a software solution that helps the guest experience. You can check in on your phone or an iPad on property. And that's a consistent kind of theme that you can have across the experiences. But we've done very little of that. And I like to think about it as like a proxy for this. It's like the airline industry. Like you flew here from San Francisco. Airlines are interesting because it's not a fragmented industry. There's like 10 airlines and it's terrible. And the technology, when you walk in, there's like weird software and hardware. It's like the first thing you would do is like anybody with a brain could fix the consumer problems there. And you wonder like, why hasn't anyone fixed that? Well, because these companies are all bankrupt already. And the question is ROI again. And so I think it's very easy from an outsider perspective to say, oh, I would do things differently. I could come up with a good idea. The question is how do you come up with a good idea and make money? And so, yes, it's complicated. Hotels are complicated to solve. And I think that's why you see companies that are not asset light sprout or sprouted in the last 10 years, whether it be WeWork or some of the short-term rental companies. They're like, I don't really care about the real estate problem. Let me just focus on consumers and I'll just sign leases. And like, oh, now like the markets turned or I signed a bad lease, my company's exploded. And so I think it's really important to understand both consumers and understand the B2B2C problem.

Josiah: I wondered to illustrate this, if we could walk through the process as you're conceptualizing and launching your most recent brand. I think some of our listeners may be familiar with your properties that have been open a few years now. My understanding is that you've more recently gone through a different brand concept and you're in the process of that. Could we kind of like walk through how you thought about that to illustrate?

Rami: I think we're, normal brands are like really consumer focused. We're not a consumer focused brand. And so the reason we created consumer brands is because our hotel owners were like, hey, I have this hotel. It needs a four star, three star lifestyle brand. And I'm a real estate investor. I don't have any business getting involved in that. And so we had so much demand for, hey, turn my dilapidated hotel into something interesting. And we said, okay, well, let's do that at scale and create a brand for it as opposed to just doing one-offs. But we're not looking to be the next Marriott or get bought by Accor or something like that. And so the problem that we're trying to solve with these brands is, again, ROI to our customers. Our customers want to spend some money on re-renovating a hotel and to generate an ROI on that. And so I learned from my time at Cedel, who's like a great independent hotel developer, how to develop a hotel in an ROI positive way. And again, it starts with like, what's the problem and how do you respond to the real estate? So I worked for a guy named Andrew Zobler and Matt Livian, and they always started with like, okay, understand the constraints of the building. And they were really focused on historic buildings. Like, okay, what can we change? What makes sense to change? Like, okay, the plumbing stacks are here, so we can't move bathrooms. We shouldn't move bathrooms. And like, let's respond to the history of the building and the HVAC systems and all that so we can spend as little money as possible to deliver a cool independent hotel. And that's where they came up with the Nomad Hotel in the Nomad neighborhood. And that was a timeless hotel until COVID. But long story short, yeah, we've created brands to solve our real estate owner problems, not to solve consumer problems.

Josiah: Before we get into this, I'm excited by this because there are some good brands out there. But I think there's also I just get the feeling as a traveler, there's some brands or implementations where it kind of feels like, OK, there's a new flag up and somebody painted some stuff. And it doesn't feel like there was necessarily on a guest perspective, material change that's going to improve such that I would want to pay more such that the owners are able to make more money off of that. So I'm curious, I think, you know, going back to first principles, going back to solving real problems for both owners and guests, what did you see as kind of big levers to pull to create this new concept that is going to deliver real meaningful change?

Rami: Yeah, and you're talking about the three star brand in particular. I think if you think about the lifestyle hotel segment, there's this old adage that like lifestyle means food and beverage. And I think you could argue very cleanly that Airbnb is lifestyle travel and there's no food and beverage or public spaces or really community as much as they like to articulate the importance of community. And so, you know, in the modern era, you have access to the locale and the market, and you don't necessarily need an in-house lifestyle. And what really, at the end of the day, the problem we were trying to solve was like, So many people want to travel and stay in a more interesting, contextually designed space, but not everyone can afford Soho House, Hoxton, Ace, whatever. And when you buy a piece of real estate that has all the public spaces, the only way you can make money on that real estate is by being hyper-elevated. And so we saw an opportunity to say, okay, take motels and design them like lifestyle, don't have public spaces, If you cut out a ton of operating costs and enable people to have a mostly mobile and human-less hospitality experience, you can invest a little bit more into the design and the aesthetic and stay in a really reliable, contextual, affordable hotel and a fraction of the price of the same room in a full-service hotel.

Josiah: So I love this because I like contrary intakes in hospitality, and I think it goes back to knowing your customer, right? And there are as many customer types as there are people, right? So there's a lot of different variation here. A lot of people will say that hospitality needs to be very human. It's all about human interaction. I think there's truth to that, and I do love that. But Going back to the beginning of our conversation, we talked about travel being really important for belonging and for getting to know yourself, getting to know the world. And so I'm excited by the opportunity to make travel and hospitality available to more people because it's not just folks that can afford to pay really expensive prices. Right. And it sounds like you're unlocking an experience that maybe previously, before automation, before technology was only available to people with money. Now more people can access this kind of stuff.

Rami: Yeah, I think that's fundamentally what we're trying to do. I think there are a lot of small independent hoteliers that are struggling to compete. Revenue management is ever more complicated and hoteliers that bought a hotel and built it 10 years ago are getting fatigued with managing all that. On top of that, COVID and, excuse me, rising wage costs have made it even harder to generate profit. That's actually one of the reasons we partnered with Kayak a few years ago was like a lot of independent, independent hotels roughly make up 65% of the global hotel market and maybe 45% of the North American market. And people want the consumer, you know, literature out there is people want a more authentic independent hotel experience versus a flagged. experience, but it's challenging to trust that product on a digital marketplace where you don't know what you're going to get. And yes, the TripAdvisor effect has enabled people to better trust those things with guest reviews and photos, et cetera, but still not quite enough. And so what we're trying to do is basically put independent hotels in a level playing field where a consumer doesn't have to say, oh, but like, Is, you know, the Josiah Hotel a good place? Like, should I trust these reviews? And so what you end up getting with independent hotels is a high repeat guest ratio, but a challenge to acquire the first customer. And so what we're trying to do is better merchandise hotels, make them leaner so that hotels can invest more in marketing and hotel owners can stay in business longer. You know, a lot of hotels had to shut down in COVID and didn't reopen, especially in New York City. And so we're thinking we're trying to help those folks stay in business and make more money and not have them say my only option is to hire Marriott or something like that and pay them a 15% franchise fee.

Josiah: What does the world look like when independent hotels are more empowered? It sounds like there could be more options not only for guests. It sounds like for owners or developers. I guess like just the world, is it fair to say that this might enable like a broader diversity of concepts because you have less of these limiting gating factors?

Rami: Yeah. I mean, I think like fundamentally on the leisure travel side, people want that contextual relevance and the challenge is that trust factor. And so ultimately we want people to be able to have a unique, cool, locally rooted experience that is also reliable and if you're able to just plug in a software and it makes you reliable or hire us as an operator that kind of solves that problem for you, that's a huge value to the hotelier. And so yes, at scale you don't need, because it's really hard to scale a physical brand. I mean, Marriott's been around since the 1920s. What you have to do is think about, and you have to go buy real estate. I mean, Oyo's impressive what they've done. That works in certain geographies. I think what the future looks like is any successful hotel that runs on our software can be a reliable independent hotel to stay at. We don't necessarily want to have our brand front and center of all that. The hotel should have that brand, but a hotel that's powered by our software is essentially something that we think about as being really reliable, solving the reliability problem.