When the Business Model is the People
When my partner and I founded FAR & WIDE Travel Corp. in 1997, our first step was to find and acquire a diversity of tour operators around the globe, two each in Italy and Greece, a smattering in Asia, and so on - 21 in all, so far. In doing so, one aspect of that endeavor struck us as surprising.
Going in, my partner and I assumed that owners of such companies were in their fifties and sixties and ready to cash out and retire. Turns out, however, that many were in their forties and even thirties, with retirement being the last thing on their minds. They wanted to continue to build the businesses they had founded, albeit in a different way. Now, they would be building their businesses under the FAR&WIDE Travel umbrella.
This describes the business model for the company we envisioned back in the mid 1990s, when we were both in merchant banking and consulting, with me having spent the 1980s in the airline industry. What we set out to do was take a huge $23 billion fragmented industry - the business of packaging tours - and bring one segment of it together, the $10 billion value-added segment. We are, in fact, travel people who happen to be using consolidation to create our company, some say doing for travel what Office Depot did for stationery and office supplies, what Toy 'R Us did for children's playthings and what Wal-Mart, the granddaddy of them all, did for what used to be called the "five-and-ten."
A Combination Not a Mix
So, I guess you can call us consolidators - a name we don't particularly like -- but with a difference - and a big one. Instead of putting local companies out of business to make way for an enormous entity that will provide the service cheaper and more efficiently, we are all about empowering the people already in the business - those who know it best because they've built it and are living it, day in and day out. We want them to do the job for and with us.
What's more, we are consolidators with a focus. In creating a combination, we are not only keeping the "them" but also making sure that the "them" and the "we" work together, while each retaining our identity. In no way do we want an inextricable mix of the two.
Which gets back to those tour-operator owners in their thirties and forties and, yes, some in their fifties. Above all else, we need them. For at the very heart of our business model is taking people who've been entrepreneurs and launching that particular brand of energy to create a company that, in fact, will be bigger, better, faster and more efficient.
In the tour operating business, which is an enormous $23 billion industry, we're wedged into the segment known as the "value-added" provider, a $10 billion subset of the whole. The larger arm is the mass marketers, packaging tours to predictable destinations such as Las Vegas and Disney World and relying on volume in what is essentially a lower margin business.
In the value-added segment, by contrast, what matters is providing the "experience" for a disparate and discriminating consumer: the well-heeled senior in search of the right escorted motor coach tour; the twenty-something looking for an "adventure" - Botswana, anyone? - and most critically, the Baby Boomer, who comprises the bulk of our market, in a perpetual search for what is simultaneously customized and independent.
Getting It Right
In this market, getting it right is what it is all about, and that is where the people come in. This is a service business - it's pure people. In buying a local tour operator, all we acquire physically is a handful of computers and desks. What really matters is that the people there are committed to turning those basics into what we dub in our mission statement as "a lifetime of enriching travel experiences to destinations throughout the world" for our customers.
Some of our tours take years to put together. Likewise, the packages can't just be marketed through the usual network of travel agencies. The approach to selling needs to be as diverse as the customers we serve and the places around the world to which we send them.
And so, it was comforting that the companies we actually acquired over the past five years came with owners who not only wanted to be bought, but also were committed to helping all parties win. Next on the agenda came our own approach to dealing with such a fortuitous circumstance.
Just as our model is unique in the business of consolidating, our method needed to break from the prevailing wisdom - and it did. Instead of buying companies rapidly in a bid to build our own company fast enough to go public quickly, we downplayed the quest for the IPO and instead focused on the search for the right independent operator.
Having canvassed some 400 businesses to buy the 21 we now own, we did our share of kicking the tires and walking away when the situation wasn't right. In fact, we've spent as much as a year talking to the owners to make sure, before making an offer, that our interests were precisely aligned.
Holding Hands, Building Value
Once on board, the owners became people who we, of necessity, needed to continue to massage. At one level we did so through the proper level of compensation. Our benefits, such as travel discounts and a comprehensive health plan, were for the most part better than what owners and their staffs had previously enjoyed.
Compensation for the owners came in the form of a cash payout, usually the biggest part of the package, plus a performance-based bonus to be earned over three years. Since the people would still have control over their individual profit-and-loss statements, we were building in a factor that would be sure to match their goals with ours. Finally, of course, they received stock in FAR&WIDE Travel.
Compensation aside, what matters when it comes to building FAR&WIDE , the company, and eventually, FAR&WIDE, the brand, is forging relationships with these entrepreneurial owners that are solid enough to endure the inevitable valleys that occur in any business. That has been a priority, starting with our top managers visiting newly acquired companies to host a welcoming party or dinner and speak with principals individually. Thereafter, while day-to-day interactions are minimal, we know that we must continue to hold the reins - and we do.
Tactics include the Friday morning conference call for the heads of our business units, the mid-year review for each, and the four-day annual retreat during the summer for unit leaders and their spouses. We also mix people from different units on task forces and feature profiles from staff at different companies.
You get the picture - which is not to say it works flawlessly all of the time. In four of the 21 businesses we acquired, we eventually decided to replace the owners - even though they had wanted to remain. Not all companies we approach want to come with us. Some don't think they can adjust to being "owned," others want more money, and still others don't believe in our model.
Power to the People
But we believe in our model, and no small wonder why. In the past five years, we've built FAR&WIDE's revenue to close to $400 million, nearly four percent of our industry's $10 billion value-added segment - but nonetheless enough to make us the biggest player in this arena. We've attracted considerable financing - $45 million in institutional equity alone, in addition to the subordinated and senior debt commitments, a far cry from the earlier days of $1.2 million from angel investors and $1 million from my partner and myself - that will help us reach our goal of being the leader by a wide margin and, eventually, surpassing $1 billion in annual revenue on our way to as much as $2 billion within five more years or so, if the markets and the fates cooperate a little.
Even more important than the financial barometer is the measure that ultimately defines our model: the people. Our business model hinges upon bringing on people who are entrepreneurial and want to achieve a goal larger than building their own businesses.
We have measured up in that critical category as well. Otherwise, why would people we expected to retire want to stay with us? Our model recognizes and rewards those who have built their own companies into leading tour operators in their areas.