Transcript: Episode 193: Room for Trouble

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[00:00:00] Susan Barry: This is Top Floor episode 193. You can find the show notes at topfloorpodcast.com/episode/193. 

[00:00:14] Narrator: Welcome to Top Floor with Susan Barry. This weekly podcast ride up to the top floor features tangible tips and excellent stories from the experts and characters who elevate hospitality. And now your host and elevator operator, Susan Barry.

[00:00:32] Susan Barry: Welcome to the show. Scott Roby is a hospitality industry veteran with deep roots in California and an early passion for hotels sparked by childhood visits to Ritz Carlton's with his father. After earning a degree from the Cornell Hotel School, Scott worked in revenue management at Hilton, later gaining experience at KSL Resorts and Tarsadia Hotels. Scott went on to co-found Evolution Hospitality, where he helped grow the company significantly before transitioning into operations. Most recently, he became president of Pacifica Hotels where he is leading efforts to modernize hotel management with a focus on regional depth, owner operator alignment and sustainable practices. Today we are going to talk about all things hotel management, but before we jump in, we need to answer the call button.

Call button rings 

Today's question was submitted by Michelle. Michelle writes, “When will,” - you're gonna think this is such an aggressive question - “When will revenue management be fully automated? It seems like an area where AI and machine learning can really make a difference.” Scott, what do you think? Can revenue management ever be fully automated? 

[00:02:20] Scott Roby: I think it can be supported, but never fully automated. In my mind there are so many nuances in demand generation and different events that even though the chat bots and everything can crawl the internet, there's still going to be pieces of information that a human knows because they have their finger on the pulse of the market. And so for that reason, I think technology will continue to support revenue management better and in new and different ways, but I think you will still want the human touch to make sure we pick up on the nuances. 

[00:02:56] Susan Barry: Very interesting. I always think about the idea that at least with generative AI, at least with the type of AI that we have right now, it can only ever produce results by looking backward at what has happened before. And as we saw in Covid, if you have a demand impacting event that has never happened before, there's nothing to look at. There's no history to base it on, so it'll be interesting to see. I do think there's some opportunity for compression in terms of, you know, full-time people assigned to the number of hotels, et cetera, because most of that stuff is math. AI can do math, right? Can it? 

[00:03:37] Scott Roby: Hundred, hundred percent. We can do that part. But even as you think about, you know, unfortunately natural disasters, right? We recently had the fires in Los Angeles. We have a good amount of our portfolio in the South Bay and throughout Los Angeles, and you know that demand picked up immediately. There was no way to predict that. And the only way that we knew is we were looking out our windows saying this is serious.

[00:04:01] Susan Barry: Got it.

[00:04:02] Scott Roby: And so there's no way AI can pick that up. And other things that are more common, like, you know, the announcement of concert dates for Taylor Swift or you know, any other big touring acts, you know, those are moments in time that if we're watching it, we can be aware. I don't know that the chatbot is gonna pick up the day the tickets go on sale as much as it will pick up the date of the concert event. 

[00:04:27] Susan Barry: Hmm, interesting. Well, you fell in love with the hotel business as a kid. I think a lot of us did. What was it about hotels that hooked you so early?

[00:04:40] Scott Roby: Yeah, I think two main things. One is my dad traveled a lot, uh, for work, so he had all these points and miles and so we got to take some really amazing vacations and since I grew up in California, kind of the go-to place for a really nice vacation is to jump over the Pacific Ocean and get out to Hawaii. And so as you think about, you know, the spirit of aloha and you know, that kind of Hawaiian hospitality, I'm not sure it can be beat. And so as a kid growing up and going to these beautiful resorts with these amazingly happy people that they were focused on making sure our family had a great time. And just as that happened continuously, I was like, “Wow. This is a pretty cool job that these people have. They're so happy. They're out in a beautiful place and, you know, they're, they're making us laugh and, and have a good time.” So as I got older, you know, I started piecing together, you know, really they're helping build family memories, which I think is a pretty noble profession. And so it was that combined with getting to tag along with my dad, uh, going to some Ritz Carlton hotels and getting to tour them and witness their service mantras and all of those things, I just, I fell in love. Probably by seventh grade I knew what I wanted to do.

[00:05:59] Susan Barry: That's amazing. What did you learn when you moved from a large corporate brand to the sort of more entrepreneurial family run hotel companies that you worked with? 

[00:06:11] Scott Roby: It was really an interesting stepping stone from Hilton to KSL and then to Tarsadia Hotels. And you know, with a big brand you have all these tools and systems and processes, amazing technology. And when I first got to my revenue management job at KSL Resource, I'm like, great, well what are the technologies? At the time - this was a long time ago - but the technologies at the time? And they're like, “Well, there might be an Excel spreadsheet on the hard drive of the computer.”

And so you realize, wow, we've gotta apply what we've learned in these big brands and how do the systems and tools help you do these jobs, but then how can you replicate that at a more manual level? Again, that was 25 years ago so a lot has changed in that time. But really the entrepreneurial spirit was I think what kept me going more entrepreneurial as I moved on in my career. And just the energy of you wake up every day and you're not sure what are we gonna be doing today? You know, which is exciting. 

[00:07:24] Susan Barry: Speaking of entrepreneurial, you were a co-founder of Evolution Hospitality. Talk a little bit about that company and what it taught you about building something from the ground up.

[00:07:36] Scott Roby: Yeah, I mean the beautiful thing about Evolution is we had a wonderful foundation that was set in our time at Tarsadia Hotels. And it was really rooted in this results and culture balance. And that's what I carry with me today and will always carry with me, is that you can have a company that has an incredible culture, cares deeply about its people, but also can get exceptional results. And as we were building evolution, we leaned into that, I think even more than the solid foundation we already had. And we said we need to be a differentiated offering in this very full landscape of hotel management companies. Employees have a lot of options to choose from, and so we wanna be the one that attracts the greatest, the best talent and retains that talent. And so we continue to evolve incredible programs that we're employee and team member focused that would attract and keep people. And that's, I think, what made evolution, what it was. 

[00:08:39] Susan Barry: Can you talk about one of those programs, like, you know, I feel like a lot of companies say our culture difference, but don't always nail it on the specifics. Like, what are, what did you offer?  

[00:08:53] Scott Roby: So one of the key offerings was, you know, we added early on a Chief Wellness Officer, Dr. Romie Mushtaq, and she had this wealth of knowledge, still has this wealth of knowledge and this balance of eastern and western medicine. She's a trained neurologist. She's into mindfulness and meditation, and partially with Evolution wrote this book, The Busy Brain Cure. But in her writing and her research with our team and many other teams that she consulted with, we got to come along on the journey. So we did things like mindfulness practice, the power of pause, where we would literally do breathing exercises or meditation when we started a meeting, or even a difficult one-on-one conversation. We would sit down with the person, say, let's just take a moment and just pause before we jump into this. And then there were tons of other programs that she brought to the table, like digital detox where for 30 days we would all agree that we're gonna put our phones down at nine o'clock at night and we're not gonna sit in bed with our partner on our phones. And just the stories that you heard that came out of that, of how people's relationships and lives were transformed by these little things. But that's just a couple of the things that we did with her. 

[00:10:16] Susan Barry: I mean, that's some real meat on the bones. That's a little bit more than just talking the talk. Well, like a lot of other people in our business you do not like the term “third party” when it comes to hotel management. Why and what should it be instead? 

[00:10:33] Scott Roby: I despise the word third party. It just creates so much. 

[00:10:36] Susan Barry: I know I had it written in your intro and I saw it and I was like, oh, I can't say that. I better take it out. 

[00:10:42] Scott Roby: It, it just creates such a, such a chasm between the owner and the operator. And this is an industry that by its nature is collaborative and peaceful and focused on, you know, taking the situation, making the best of it. So I think when we start to say, “Oh, third party,” we're just creating this separation that I don't believe is necessary. Really we look for relationships that when you take the two entities that they are greater than the sum of their parts. And so that is our hope in our relationship between us as the operator and the owner. As far as like, how would you name it? I just view it as a partnership, right? I mean, I'm sure there are other word options out there, but we're management partners at the end of the day, so the owner has decided to buy a piece of real estate. They've decided they don't want to be in the operations business. They go and they find a true partner that is gonna treat their asset as if they own it. And so to have this owner mentality as a manager, I think is super critical to that relationship. 

[00:11:51] Susan Barry: To that end, I know that you are spending time sort of rethinking the way that you structure hotel management agreements. Can you talk about that a little bit? 

[00:12:02] Scott Roby: A lot of it is based on what were the points of friction that I was answering as a senior vice president of operations at Evolution under the abridge umbrella? And so what were the points of dissatisfaction that owners had? And as I think about that, the first one that comes to mind in this post COVID world is that our fee-based tends to be as a percent of gross operating revenue. And you know, we all know revenues have been growing very slowly recently. Meanwhile, expenses have been growing 8-9%, and that's just not a great mix. So in that world, the management company is making some small incremental increase in their management fee each year. The owner is actually losing money each year because the cost of operating the business.

Plus on top of that variable rate interest has really created this chasm where the owners look at the manager saying, you guys are pretty happy, and we're really struggling. And so for us to think about how can we realign the base management fee to be more focused on gross operating profit, either as part of it, or is it in the entirety and just say, we are side by side and we are thinking about the business the way that you are. So that's one. I think all of these fees that most of the management companies charge, it's just this menu of base management fee and accounting fee, human resources, revenue management, marketing, technology, on and on and on. And it puts the relationship in peril because the owner wants to know what each individual fee is giving and why doesn't the base management fee cover any of that? 

[00:13:50] Susan Barry: I wanna know that too. Why doesn't it? 

[00:13:52] Scott Roby: It's a great question, and I think it's just been for internal accounting purposes, so the management companies can determine, Hey, is this department break even or profitable? I don't know that we need to bother the owner with that math, so I would rather see a higher percentage base management fee and get rid of all of these ancillary fees. So those are a couple of things we'd love to do sliver equity investments. So we show we are truly side by side and it might be pennies to the owner, but to the principles of a management company who are putting in $25,000 or $50,000 into a deal, that is a big deal. And they can truly say, I'm gonna treat this asset as if it's my own, because I have some skin in the game. So I think there's a variety of things that we can do to bring to. The two groups closer together and I seek to do that as we continue to think about the future of Pacifica Hotels.

[00:14:50] Susan Barry: Another point on the sort of menu of fees is I feel like it opens the operator up to so much more scrutiny on their, sort of, ability. So for example, a 3% top line marketing fee. And a lot of management companies aren't good at marketing, so should management companies get out of some of those businesses? Should they get out of the technology business or the marketing business or, you know what I mean? 

[00:15:24] Scott Roby: Yeah. I mean, look, my response to that is we should phone up on those weaknesses to the extent that they are weaknesses. I do think that yes, there are some management companies that probably have no business running marketing. But I think there are some that are incredible at it. And it becomes a point of differentiation. And with our independent portfolio that we have, it's one of our strengths. So we would never sit here and say, oh, we're gonna get out of the marketing game because we think it's a point of differentiation that not everybody has. But yeah, I can't think of one area where it's like, oh gosh, hotel management companies overall are terrible at this and we, we should outsource X, Y, or Z. 

[00:16:10] Susan Barry: I should have done a little bit better of a segue there, but I know that the Savannah Bananas are an inspiration to you, and they most certainly are to me. I'm a slightly obsessed with that whole organization. Can you talk about who they are and why they inspire you? 

[00:16:26] Scott Roby: Yeah, so the Savannah Bananas, were a minor league baseball team that probably had a couple of hundred people paying $5 a ticket to go and see them. And it was like any other minor league team, good family fun, but really nothing special. And Jesse Cole, uh, who had bought the Savannah Bananas said, we need to think about life differently and we need to think about this business differently if we wanted to go anywhere. And I was just reading the other day a little bit more about his story. I mean, I think that they had mortgaged their home, moved into the stadium, I mean, it's a very dramatic, incredible story.

[00:17:02] Susan Barry: Moved into the stadium? Holy mackerel.  

[00:17:03] Scott Roby: Yeah. There's a picture out on the internet of like a couple mattresses, I think in like a concrete room. And you're like, wow. Which makes the story even better. Um, but he just set out to say, let's change the paradigm, let's look at this completely differently. And so he said, what are the points of friction for baseball fans, for minor league baseball fans or all baseball fans? And so he said, well, the game is too long and it's too boring, right? So we're going to shorten it. We're gonna stop it at two hours and we're gonna have entertainment all throughout the game, on the field, off the field. Like the whole thing is gonna be a sensory overload and we're just gonna have a great time. And so he starts doing things like that. He says, what are the other issues or challenges that our customers have? Well, they don't like ticketing fees. We're gonna create our own ticketing platform and we're gonna remove fees. They don't like long lines or the high cost of food and beverage at baseball games. We're gonna do an all-inclusive package, and you just walk up, you grab your hot dogs, some popcorn and a soda, and you go back to your seat. And so he just thought about it differently and completely reframed it. And now it's like, one of my proudest moments, I'm a father of five, I've, you know, landed Taylor Swift tickets for my teenage daughters.

I've done a lot of great things in my life that I'm proud of. And one of the greatest things is I scored Savannah Banana baseball tickets for their tour coming to Anaheim here in Southern California. So I'm so ecstatic to go and see this in real life, but I have just been a huge fan of how he looks at business differently, how he motivates his team, and they just talk about fans first. Everything is fans first. Two words, super simple. Doesn't have to be complicated. And so if we can have something like that in the hotel management industry where we're thinking about it differently, and we're owner focused, team member focused, guest focused, I think there's a lot of fun to be had. 

[00:19:12] Susan Barry: What do you think are some points of friction in hotels that haven't been solved yet?

[00:19:18] Scott Roby: I mean, for me, it goes back to that owner operator relationship. I think those are the points of friction that I'm most focused on because I just, I've seen how it can denigrate a relationship, and that's frustrating because we have such great industry with great people. We shouldn't be in lawsuits and we shouldn't be fighting each other at the budget table. It should be, “Hey, how can we make this hotel better?” And I have tons of examples of partners that I've had where we have literally hand in hand made a hotel much better because we were collaborative and it was a positive relationship. So as far as points of friction on the guest journey, I still don't know that our booking path is the simplest, cleanest, easiest way for a customer to start their vacation journey with a hotel. And so that part to me is a little frustrating. We should be easier to do business with, um, starting at the booking process. So from the guest journey, I spend a lot of time thinking about, when will the technology come along that makes it simpler? 

[00:20:29] Susan Barry: We like to make sure that our listeners come away from each and every episode of top floor with practical, specific things to try, either in their businesses, their hotels, or in their personal lives. For hotel owners who are evaluating a new operator, a new management company, what are the green flags they should look for? 

[00:20:53] Scott Roby: I think first and foremost, you wanna do business with people that you admire and so I would start with just assessing the team and the team's fit for the type of hotel or the way that you run your business. So there are some owners that are just very bottom line focused and their drivers, and you know, we might not be for them. We're gonna be very team member focused. We're gonna be talking a lot about investing in our team members, spending money on our team. Spending money on the guest experience. And there might be some owners that just say, that's not really what we're into. We're into the bottom line and you know, we want somebody that's just a driver and is gonna get every last penny to the, to the GOP or NOI line. So I'd say assess the team, number one. And then everybody probably has a pretty good presentation at the pitch table. So I think it's digging into that a little bit deeper and asking questions about the technology, how teams use the technology and really peel that back because I think that there's a lot out there that sounds really good in the first couple sentences, but if you really push, you start to find out that. Yes, we have the technology, maybe we don't leverage it fully. I think that that exists out there and so to really ask those plus one questions. 

[00:22:19] Susan Barry: What do you think is an underrated tactic or idea that really makes a difference in improving the owner and operator relationship? 

[00:22:29] Scott Roby: It seems so simple. It seems so simple, but transparent communication. I mean, I think that there are a lot of times that people are like, “Ugh, how am I gonna spin this? When is the right time to tell them? This is bad news. People don't like bad news.” I think sometimes you've gotta run to the challenge and you've gotta just call the own, pick up the phone, not email, pick up the phone, call the owner and say, Hey, I've got something I need to talk to you about.

[00:23:02] Susan Barry: What is something that you've changed your mind about in the last few years when it comes to managing hotels? 

[00:23:09] Scott Roby: That is a great question. I mean, I'll start with, about five years ago I switched from revenue management to operations. And so I thought I had a —

[00:23:23] Susan Barry: Terrible timing friend!

[00:23:26] Scott Roby: Yeah. Not, not ideal. Not ideal. I mean, I guess there wasn't much to revenue manage, so, you know, but it, it was a absolute amazing training journey and to have to learn — I got to learn a little bit before COVID, but then obviously through COVID, you know, to understand what we had to do during that period of time. So I thought I understood the broad business sitting in revenue management and obviously thinking a lot about commercial strategy and partnering with sales and marketing, and understanding the dynamics between high occupancy and low rate or high rate and low occupancy and all of these things. I thought I really, really got it, and it wasn't until I got into operations that I truly understood all the nuances of it is a balance. It is a balance scorecard, and it's a balance between taking care of your team members, they're gonna take care of your guests, and the guests are gonna take care of the revenue. And then we've gotta use our platform and our processes and our technologies to make sure that as much of that revenue gets to the bottom. So I don't know that it's something that I changed, but man, it opened up my world and I couldn't recommend it more for people that are in specific disciplines, to mix it up throughout their career journey and to really think about what do you know and what do you not know, and lean into the opportunities to go chase what you don't know.

[00:24:57] Susan Barry: If you had to go sit in the revenue management seat again, do you think you would approach pricing decisions differently or just maybe with more compassion? 

[00:25:08] Scott Roby: Definitely more compassion, and I do think I would look at the mix of business differently and what's bringing high commissions in and how do we start to get more direct business — which obviously we did focus on, but now I understand the P&L better. And just the labor management and what a big part labor plays obviously in the profitability of the hotel, and so to really start to micromanage the balance between driving occupancy and driving rate and knowing that, oh, okay, I can fill the hotel but it puts a lot of strain on the operation. It adds a lot of expense and labor, and so I think that I would absolutely do things differently.

[00:25:48] Susan Barry: Well, we have reached the fortune telling portion of the show, so you have to predict the future and we will grade you on your performance down the road. What is a prediction you have about the future of hotel brands? 

[00:26:03] Scott Roby: So hotel brands I think are going to continue to look for new and interesting up and coming brands. So, you know, there've been a lot of stories about graduate hotels and auto camp and trail borne and all of these kind of niche companies that have been acquired or created partnerships with the big brands. I think we're gonna see that continue to just expand where the brands meet their customers, right? Because we all know the customers are at different levels and they're traveling differently these days. There are more options for how guests travel, and I think the brands are very intelligently saying, we wanna hit anytime they're leaving their home and going and staying somewhere else, unless they're at grandma's house. And who knows, maybe, you know —

[00:26:57] Susan Barry: Earn points from grandma!

[00:26:58] Scott Roby: Earn points for staying at grandma's house. Like I wouldn't put it past the brands to figure out how to monetize that. But short of that, I think that that is gonna be, you know, where we see the brands continue to go because, you know, we just, we can't continue to build hotels or transition hotels from independent to brands as fast as we have in the last decade or two. And so they're looking for opportunities to continue to grow. 

[00:27:22] Susan Barry: If you could wave a magic wand and change one thing about the owner operator relationship and hospitality, what would it be? Maybe that's what you already said, lawsuits. 

[00:27:35] Scott Roby: Yeah. I mean well, in real time, like I had a conversation with a potential owner the other day and they said it's important to us that we have, you know, termination basically for convenience. I said, that's a really, that's a really interesting thing, and it's scary. Of course for the operator. 

[00:27:56] Susan Barry: Will you explain what that means? 

[00:27:57] Scott Roby: Yeah, so basically, usually you sign a contract, you get a five year term or a 10 year term. Sometimes there are performance clauses in there. Hey, if you don't get a certain RevPAR index for two years running, or you don't hit a certain GOP threshold for two years running, or both, we'll be able to terminate you. In his case, termination for convenience is literally I walk in, he doesn't like that I'm wearing a black shirt and he can say, you know what? This has been great, but we're gonna go a different direction. So, and I'm doing this in real time, but I had been thinking about it as I thought about this new world of management companies and what I hope to bring to the table with Pacifica is, man, that is a put your money where your mouth is moment. And if you go back to the Savannah Bananas and you pick up the phone and you call Jesse Cole and say, “Jesse, what would you do in this situation?” I imagine that Jesse would say yes.

[00:28:57] Susan Barry: I think you're right. I had such a visceral reaction when you first started talking about this, but you're absolutely right. Like put up or shut up, right? 

[00:29:07] Scott Roby: So there's a part of me that's like super intrigued and you know. Little gutsy for him to ask that question, but I'm actually thinking about it. And I'm like, wow, could we be the management company that says, you know what?

We're gonna put our money where our mouth is, we are gonna perform. And in the case that we don't perform, maybe we're not the right fit for that hotel. Because what you don't want, and maybe we don't need to have it be termination for convenience. But what you don't want is to be in a relationship with somebody that you're stuck - 

[00:29:42] Susan Barry: That you hate!

[00:29:45] Scott Roby: That you hate, you know? And so it's just, it's something that I'm chewing on. I too had a bit of a visceral reaction. But pretty quickly was like, Scott, remind yourself you are trying to create something different. You want this owner operator mentality, partnership company. We want it to be like a collective almost between the owners and the operator and so why not? 

[00:30:13] Susan Barry: Okay folks, before we take Scott to the insane asylum, I mean before we tell Scott goodbye, we are going to head down to the loading dock where all of the best stories get told.

Elevator voice announces, “Going down.”

[00:30:30] Susan Barry: Scott, what is the story you would only tell on the loading dock? 

[00:30:34] Scott Roby: So I was testing out some stories with my daughter Brynn last night around the kitchen counter and trying to see what was most shocking to her 'cause obviously there have been a, a bunch in my 25 year career. But I think the one that I landed on is actually a team member story. So we were managing a big box hotel, and had hired a director of sales recently and like many management hires, you let 'em live in the hotel for a period of time. And so, you know, we were starting to see a few things like in the job performance pretty early on we're like, there just seems like there's something off. And like we couldn't quite put our finger on it. Had a thorough hiring process, got references, you know, the whole nine yards. We're just, we're getting into this relationship in the first few weeks and we're like, gosh, like can't figure out what's going on with this guy. And, we were, I think we were nationwide at the time, so people are flying in and out. Somebody flies into that city and lands and gets in an Uber to go home in that case. And the Uber driver starts talking about this amazing party that's gonna happen. I don't even know how they got on this topic, but this Uber driver's like, “man, you've gotta, you've gotta go, this thing's gonna be wild.” It's like alcohol and drugs and sex and all of these things. And the person is kind of like, what are you talking about? Where, where is this party? And they named the name of our hotel. 

And so this was a leader in the company, so they're like, what, what's the details? Like, what would I need to know when I get to the hotel? Do I just go to the front desk and ask where this party is? No, no, no, no. You go to room, you know, 823 and you knock on the door and, and they'll let you in and just tell 'em John sent you. So obviously person moves quickly, calls the regional, calls the general manager, here's the information that I have, you know, see something, say something. And they bust the director of sales who has been hosting parties. 

[00:32:57] Susan Barry: Stop it! In their room, in their like first 30 days of working there.

[00:33:02] Scott Roby: Yes. Yes.

[00:33:03] Susan Barry: What in the world? So they had to have been making a lot of money, right?

[00:33:06] Scott Roby: I, I mean, I don't even know how those parties work. Uh, you know. Do you bring your own or is it paid? I have no idea. But, so we obviously fire the person, but we had to gut the room. 

[00:33:18] Susan Barry: Nuh-uh!

[00:33:18] Scott Roby: It was so trashed. Oh, it was like a rock band had been in there. 

[00:33:22] Susan Barry: Oh no.  

[00:33:24] Scott Roby: And that's the kind of thing that only happens in hotels. 

[00:33:27] Susan Barry: A hundred percent true. Scott Roby, thank you so much for being here. I know that our listeners learned a ton about operating hotels and thinking differently about it, and I really appreciate you riding with us to the top floor.

[00:33:43] Scott Roby: Thanks Susan so much for having me on. I appreciate it. 

[00:33:47] Susan Barry: Thanks for listening. You can find the show notes at topfloorpodcast.com/episode/193. Jonathan Albano is our editor, producer, and all around genius. He even wrote and performed our theme song with vocals by Cameron Albano. You can subscribe to Top Floor on Apple Podcasts, Spotify, or wherever you like to listen, and your rating or review will go a long way in helping us give you more of what you like.

[00:34:22] Narrator: Thanks for listening to the Top Floor Podcast at www.topfloorpodcast.com. Have a hospitality marketing question? Reach us at 850-404-9630 to be featured in a future episode.