The Bigger the Bureaucracy, the Smaller the Customer

00:00:10
Speaker 1: And we continue with Our American Stories. And up next, Mike Levin, who was the president and chief operating officer of Las Vegas Stands and an all-around hotel superstar, one of the great hotel years of all time. More important, a personal friend and a wise man. And wisdom, my goodness, in short supply these days, and he transfers his wisdom through story. A Jewish guy who loves storytelling like almost nobody else. Take it away, Mike, what I learned.

00:00:42
Speaker 2: About the franchise business really at the start of the days and has really made an amazing impact on me. But you have to understand that my culture of customer orientation was really exacerbated by the franchise business because what happens in franchising is, you put people in business for themselves, but not by themselves. And the interesting thing about it is, it multiplies the entrepreneurial spirit of a free, capitalistic type of system. But because many smaller people, small people in terms of financial capability, don’t have the funds to be able to be in business for themselves at a larger scale, what franchising does is allow them to do that because the franchisor provides them the ability to finance their growth, so they’re playing off the name of the big franchisor while being in business for themselves. So it really fits America perfectly. Now it’s international, but it was basically American. It’s basically, if you look at the franchise model in Asia, at the fanto amount of Europe, and it usually was a large company buying somebody’s brand, but in America it was small people, individual people doing it. So you had doctors and accountants and lawyers and small people buying franchises, and even individuals buying Subway franchises where they’re really making the sub sandwiches themselves. It puts them in for themselves, but not by themselves. So the whole concept is very American in its nature. But the reality is, when I first got into the franchise business and when I learned from my Americana days in the franchise business, where I wasn’t treated very well by the franchisor, that there was a lot of angst, a lot of aggravation going on. And that when I got to Days Inn, what I learned that if you can treat the franchisee as your customer, they would just grow their businesses for you, and so don’t, you don’t have to use your capital to grow their businesses. They use their capital and their energy to grow, and you take the money off the top, which has very high margin of profitability for you because the incremental nature of an extra franchise doesn’t require that much cost. But you have to be honest and forthright with the money you’re taking in from marketing and things like that. So it really was an absolutely perfect situation for me because it met all of my instincts in terms of the customer relationship. And consequently, when I got to Days Inn, I learned that not only could you sell lots of franchises, but the ability to keep your franchisee happily built in enormous growth opportunities for you because they just wanted more. And if you treated them well, if you built relationships with key franchisees, then they grew your business for you. You didn’t have to grow it. All you had to do was to do it right from the franchisor perspective. And there are many abuses in franchising because franchisors get greedy and they start ordering people. They build bureaucracies and they order franchises to do things that they can’t afford. They put financial stress on them without thinking about them. And when I finally had my own company, I did a franchise agreement that actually represented those values to its nth degree. Where I had clauses like you couldn’t do a renovation or add an extra costs without two-thirds a vote of the franchise community. You couldn’t do encroachment that I gave them area protections with every franchise I sold, so you couldn’t encroach on their capability. So I built a franchise agreement that everybody agreed was the best in the business. From the customer perspective, the end user is the customer of the franchisee. They are your customer, the franchisee. The franchisee is going to help make you successful by being successful themselves, and you have to reciprocate by helping them to be successful. So Days Inn opened up my eyes to a whole different world of franchising. What happens when you start a business? You spend a tremendous amount of time making sure your customers are happy because if they’re not happy, you’re out of business. As the business grows and you build more corporate overhead and bureaucracies, everybody wants to be managed the business, and so they forget sometimes who the customers, and you who started the business with your first customer. You’re very close. When you have fifty customers, you’re very close. When you have five hundred customers, you don’t know the last four hundred. Who does know them? Your corporate bureaucrats know them. It’s no different than the U.S. government. When the U.S. government was small and seventeen eighty-two or whatever it was, everybody knew. Everybody knew who their congressman was. Everybody knew who everybody was. Now you’ve got, you know, three thousand people in the FDA. You’ve got, you know, this kind of—they don’t know who’s their customers. When the FDA says, “Well, I think you should close the schools,” who are their customers? Their customers are not the drug companies. Their customers, their end users, the United State age citizen. Are they thinking about them? Well, they think they are. But some bureaucrats making the decision that’s going to make a decision may not be right for their customers. So, at the end of the day, I think the best example you might be able to find a government and bureaucracy in general is: the bigger your bureaucracy, the further away you’re going to get from the customer, and so they don’t understand. You know. I had a situation on Holiday Inn where the marketing director was a guy named May Lewis at the time, wanted to clean up the company because we had some old and tired hotels. And anytime somebody would fail an exam, he’d want to throw them out so he could get a new hotel built. Well, the reality is that people who were building new hotels were the same people that he was throwing out, of course, if you look at it that way. So we had a situation where we had a hotel at O’Hare Airport, and they were having trouble with their quality levels because it was getting older and they couldn’t get any money, didn’t have any money. So the marketing guy said, “Well, we should throw them out.” It was half-a-million-dollar royalty a year plus a customer who had many other Holiday Inns. And they called me because they heard he was going to get thrown out, and I said, “Well, why can’t you get this fixed up?” He said, “We can’t get the money.” I need six months to finance it. I said, “Okay, I’ll give you another six months.” Then the six months came; he didn’t have it yet. He said, “I need another thirty days.” The marketing guy was knocking on my door to knock him out. I said, “Let’s wait.” Thirty days. Later, they had the money. They rehab the hotel. Hotel then paid a half-a-million-dollar royalty plus for the rest of the term, and it helped them. So after that, you know, they were in the system. And so that’s, that’s what you have to think about. And so, but the further away you are, the ease of it is that you forget the customers. And you see it all the time in every business. I had a situation here where my insurance was being held by a company in Atlanta—my home insurance for here in Atlanta, for Florida and Atlanta. And I don’t hear from the guy. Every year the flights goes up. And finally, I got an advertisement for insurance here from a competitive insurance broker. So I called up and I said, “Can you give me a quote?” I said, “Yeah, yeah.” I said, I said, “When he come over?” He said, “Well, when do you need me?” I said, “Well, are you available Sunday morning?” Because, “Oh, yeah,” guy shows up in my office Sunday morning. Makes me proposal better than the one in Atlanta that I never heard from. Same quality of insurance, same everything. He got the business. You know, even look, we have bureaucracy here in the Saint Andrews Club in Florida. You know, this morning I get a note. I own a condominium in Atlanta, and I get a note from the board that they’re cutting down trees. They got permission from Atlanta to cut down trees. I also get a note from an—say, “Why are you doing that?” Why did you tell us in advance? Who’s the customer? Who’s the board’s customer and the condominium? The owner, the other owners. Why wouldn’t you communicate and say, “By the way, we’re talking about cutting und do you have any opinion?” No?

00:09:17
Speaker 1: And you’ve been listening to Mike Levin tell the story of “Well of Life.” And you can go to Our American Stories and click Mike Levin and get so much wisdom through storytelling. By the way, this American invention, franchising: twenty percent of all American businesses are franchises. And this cuts from hotels to cleaning services, oil changes, restaurants, gyms, plumbing, extermination, car repairs. And from this system, franchising has created tremendous wealth fromid his job opportunities and a tremendous tax base. The story of so much. A wise man, Mike Levin, all here on Our American Stories.