#169: Hilton – Unlucky???

The Empire Builders Podcast

Conrad Hilton, despite being unlucky, created what we now know to be the hotel experience. Always improving customer experience.

Dave Young:

Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.

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Dave Young:

Welcome back To the Empire Builders podcast. Dave Young here with Stephen Semple, and we’re telling the stories of empires, people that started with a little idea that ended up being huge. And as we got started here, Stephen whispered in my ear that we’re going to talk about Hilton.

Stephen Semple:

Yeah.

Dave Young:

And we’re not talking about Conrad’s granddaughter Paris Hilton who made a big name what in the ’90s?

Stephen Semple:

I was wondering if you were going to go there.

Dave Young:

She’s like chapter three of this story, I think.

Stephen Semple:

We don’t have time for that story.

Dave Young:

For her to have that lifestyle, grandpa’s got to make a lot of money.

Stephen Semple:

Yeah. Well, Conrad Hilton, I mean, Hilton is huge.

Dave Young:

Yeah.

Stephen Semple:

They now have over a million rooms. They have like 7,500 locations in 124 countries. But the interesting thing is Conrad Hilton really invented how we look at hotels today.

Dave Young:

Okay.

Stephen Semple:

He really is the founder of that idea. And as we go through this story, one of the things that really captivated me about this story, a lot of times when we’re covering these things, yes, people have an observation, and yes, they’re brilliant. But there’s always this bit of element of luck. There’s a little bit of this catching lightning in a bottle. Conrad Hilton was terribly unlucky and it’s amazing the things that he had to overcome.

Dave Young:

Oh wow.

Stephen Semple:

This guy did not have luck on his side. So I want you to keep that in mind as we go through this story, which makes me admire him more actually.

Dave Young:

Sure. And as I think about what that brand means to me, before I know the story. I don’t think in my youth I had a whole lot of experience staying at a Hilton hotel, but there were certain hotel brands that meant something, that people understood.

Stephen Semple:

Yeah.

Dave Young:

If you knew if you were staying at a Holiday Inn on an interstate highway, if it had the word Holidome on it, you’re in for a nice swim and a good time in an air-conditioned big space.

Stephen Semple:

Yes.

Dave Young:

And if you had the money and you were traveling for business or something, you knew that the Hilton brand-

Stephen Semple:

Yes.

Dave Young:

Would be a consistently better experience than most one-off hotels. Most. But there was always, every downtown always had one grand hotel.

Stephen Semple:

Yes.

Dave Young:

But then if they had a Hilton too, you’d say, “Oh, well the Hilton, right?” Because the other ones have their quirks.

Stephen Semple:

Yeah. And I think-

Dave Young:

The Hilton was always going to be a traveler, a business traveler’s hotel.

Stephen Semple:

I travel a fair bit and I like staying in Hiltons, but I think before we go into the story, I think there’s one mistake though that the, and hopefully somebody from Hilton listens to this and calls us and we can help them clean this up for them. They have one mistake that I think they’ve all done because they all now have all sorts of different brands. Hilton’s got like 24 different labels or whatever. Here’s the thing that they need to do. They need to look at each one of them and make them stand for something. I’ve stayed in enough Hiltons, in the different Hilton ones, I can actually tell you what the difference between a Garden Inn and a Hilton Inn, but that has come from years of travel.

Yeah.

What they need to say is, “If you’re looking for this? Garden Inn. If you’re looking for this? Hilton.”

Dave Young:

Yeah.

Stephen Semple:

And all Hiltons have this, and they need to actually create those standards and tell the customer what it is. So a customer can sit there and go, “Oh yeah, I’m getting in late at night. So having a restaurant actually in the hotel is important to me.” A good restaurant in the hotel is important to me. Marriott’s doing it. They’re all doing that. They’re all making that mistake.

Dave Young:

I stayed in one of the new Hilton brands, I don’t even remember the name of it because it wasn’t a very memorable name, but it might even have had the numeral two in it, but-

Stephen Semple:

Home2.

Dave Young:

Home2 maybe, yeah. And it was a pretty cool concept because they did, they had packaged foods and place you could buy some a drink late at night.

Stephen Semple:

Right. But on their website.

Dave Young:

I stayed in one for jury duty.

Stephen Semple:

Right. Well, imagine how cool it would be if you went on the website and there was a little summary of each one.

Dave Young:

Yeah.

Stephen Semple:

“This is the experience you’re going to get at this place.” And then you could sit there and go, “Oh, that’s the one. That’s the one that will fit me for this trip.” Because even some trips, it’s different. But anyway, we digress. Let’s go back to the beginning of the Hilton story.

Dave Young:

Tell us about Conrad.

Stephen Semple:

Yeah, so May 31st, 1919 is when Conrad started the Hilton in Cisco. And today, again, 7,500 locations. So Conrad Hilton was in the state legislature in New Mexico.

Dave Young:

Okay.

Stephen Semple:

His father passes away and he inherits five grand. And he hears about this bank failure in Texas. And he decides, “I could probably buy that cheap and turn it around.”

Dave Young:

A bank?

Stephen Semple:

So he travels to Texas. Yes. I don’t know what bank it was. But he travels to Texas and in the process of negotiating buying of this bank, the price goes up, goes up way beyond the $5,000. So he doesn’t buy it. But when he’s in Texas, here’s what he notices. In Texas in 1919, and Texas is booming due to oil at that time. There’s workers flocking to the field. And he stays at this hotel, The Mobley Hotel, and it’s 40 overcrowded rooms, and it’s terrible. Full of people, it’s dirty, no clean linens. And Conrad looks around and he notices that workers are all staying mostly in places like this. They’re boarding houses or they’re inns and they’re selling the beds for eight hours and there’s no amenities. They are basically flop houses.

Dave Young:

Yeah, you’re hot bunking with people.

Stephen Semple:

Yeah. And that’s what’s going on. And he looks at it and he says, “Huh, there’s an idea here. Maybe this is the future.” So he approaches the owner of The Mobley Hotel and he buys the hotel for $3000. But he has no idea about the hotel business. And he has to reinvest in it and reimagine it and he decides to create standard. So he wants it to be good-looking and clean. So that’s his idea.

Dave Young:

Okay.

Stephen Semple:

“Let’s make it good-looking and clean.”

Dave Young:

I mean, that today seems like a pretty low bar.

Stephen Semple:

Was a low, right.

Dave Young:

But back then.

Stephen Semple:

But back then, no one was doing that.

Dave Young:

But that’s crazy.

Stephen Semple:

But here’s the other thing. It was unprofitable at first because most of the travelers were laborers and they didn’t have a lot of money to spend. So it wasn’t like he could raise the price to cover it. So he’s struggling a little bit. It’s not making money. But what he notices, again, observations, customer behavior, eliminating friction. When we talk about eliminating friction is making things easier for the customer. What does he notice?

Dave Young:

Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

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Dave Young:

Let’s pick up our story where we left off, and trust me, you haven’t missed a thing.

Stephen Semple:

What does he notice? People who are staying in the hotel are constantly asking, “Where can I get? Where can I get tobacco? Where can I buy a newspaper?” So what does he add to the hotel? Tobacco shop, newsstand, and a novelty store.

Dave Young:

Okay.

Stephen Semple:

He’s the first, absolute first, to do that in a hotel,

Dave Young:

To be a bit of a merchant in your own hotel lobby.

Stephen Semple:

The reason why this merchandising works, it was actually helping the customer.

Dave Young:

Yeah.

Stephen Semple:

Customer didn’t have to say, “Where do I buy tobacco?” “Tobacco’s right there.” “Where can I get today’s newspaper?” “Right here.”

Dave Young:

And they weren’t just behind the front desk. He actually built, they were little shops inside the hotel.

Stephen Semple:

Little shops inside the hotel. And he was the first to do that in a hotel. Absolute first, 1924, he’s now making money. The sales from those shops was enough to turn the business from unprofitable to profitable.

Dave Young:

Wow. All right. That’s pretty cool.

Stephen Semple:

That is cool. So Conrad decides to expand, but instead of renovating, because he wants to be able to do a better job of putting these shops in, he decides he should build from scratch. And what he wants to do is build a hotel a year.

Dave Young:

Just one a year.

Stephen Semple:

One a year. So he starts borrowing and building. And in addition, he wanted to add other amenities such as a dining room. So now I can also feed you. And running water in the room.

Dave Young:

Wait, what?

Stephen Semple:

Right. Well, the part we forget about, the part we forget about is in the 1920s in the United States, most people didn’t have running water in their homes.

Dave Young:

Yeah.

Stephen Semple:

Most people were still using the privy out back, and most hotels were use the privy out back.

Dave Young:

Or down the hall.

Stephen Semple:

Or down the hall.

Dave Young:

Right at the end of the hall.

Stephen Semple:

Yeah. So he decides to add dining room, add running water. 1925 is the first hotel to have his name, the Dallas Hilton.

Dave Young:

Okay.

Stephen Semple:

First one to hold the Hilton name. He opens four more across Texas. And he puts air conditioning in one of them. And look, air conditioning doesn’t become common for 40 years. For many guests it’s their first experience with air conditioning. But after eight years, he has seven hotels, and he opens his flagship hotel, 19 story, 300 room, El Paso, the one with the air conditioning. Costs him $2 million to build, and he opens that flagship store 19 days before the crash of 1929.

Dave Young:

Oh, wow. This was in El Paso?

Stephen Semple:

El Paso.

Dave Young:

Okay.

Stephen Semple:

So when we talk about bad luck.

Dave Young:

Yeah. 19 days.

Stephen Semple:

You just opened a $2 million hotel that you’ve borrowed money to build, huge, 300 rooms, 19 days before the crash.

Dave Young:

Okay.

Stephen Semple:

So what happens during the Great Depression, what happens to travel? It disappears.

Dave Young:

Sure.

Stephen Semple:

So he has to cut costs everywhere. He encloses entire floors. He sells furniture. He does everything he can to save money and raise cash. By 1933, he’s closed all the hotels but one, the El Paso.

Dave Young:

Oh man.

Stephen Semple:

Right. The 300 room one he built. He moves himself and the family into the hotel to save money. That’s where they’re living. And he’s on the edge of losing everything. But 1940 comes and he’s weathered the Depression and he kept the El Paso alive. When the US enters the war, one of the things he notices is at first people are fleeing Los Angeles because hey think it’s going to be invaded, but he also notices the Army’s moving lots of people to-

Dave Young:

California.

Stephen Semple:

California because of the war effort. And so he decides he’s going to relocate to the West Coast. He feels LA is a great target. So he gets wind of Arnold Kuckabee, who has a hotel called The Townhouse that he wants to get rid of quickly. So Conrad in 1942 buys The Townhouse Hotel. And three years later, LA is booming. And he goes on a buying spree because he’s now recovered. He buys two hotels in New York City, one being The Roosevelt, which becomes the first hotel in the world to have TVs in the guest room.

Dave Young:

Oh man. Okay.

Stephen Semple:

So again, constantly improving the experience. We talk about improving the experience, but he constantly did it, right?

Dave Young:

Yeah.

Stephen Semple:

Newsstands in the hotel, restaurants in the hotel, running water in the hotel, air conditioning in the hotel, TVs in the room.

Dave Young:

Yeah. Wow. Okay.

Stephen Semple:

So business is booming because we’re now into the 1950s, and there’s a boom in passenger travel due the jet engine. And he breaks his two sons into the business, Conrad and Barron. And Conrad’s the older brother who he’s grooming, but Barron’s the ambitious one, and Barron’s the one who actually ends up doing some things in the future. But Hilton is now the largest chain in the United States. And they decide to start expanding outside of the US. First place? Puerto Rico.

Dave Young:

Okay.

Stephen Semple:

Puerto Rico is where they go first and then Cuba. So he opens the Havana Hilton, huge hotel, 630 rooms. Less than three months later, guess what happened?

Dave Young:

No.

Stephen Semple:

Right. Castro takes over. Cuba collapses. Like when I said this guy had back luck?

Dave Young:

That is bad timing.

Stephen Semple:

19 days before the crash, less than two months before Castro. But Hilton still managed to survive this. They are survivors, right?

Dave Young:

Yeah.

Stephen Semple:

So by 1964, they have 65 properties. Debt is really high. Expansion outside the United States is not working as well as they want. Barron Hilton wants to make his mark on the business. Barron brokers a deal. And here’s the deal he brokered in 1966. Unload all the foreign hotels, sells them all to TWA, the airline.

Dave Young:

To TWA? Okay.

Stephen Semple:

The airline. Now, if you’ve got to remember, at the time in the mid ’60s, TWA was owned by Howard Hughes and was the most successful airline of the time. They were huge. And if you’re ever in New York City, if you’re ever flying through JFK, stay at the TWA Hotel. It’s cool, man. They’ve renovated.

Dave Young:

I saw a couple of your social media posts on that. Yeah, it looked great.

Stephen Semple:

It is worth the trip. But so, because what TWA wants to become is a one-stop shop for travel. That was what their vision was. So TWA buys these hotels. And the hotels will be owned by TWA, but they’ll keep the Hilton name.

Dave Young:

Okay.

Stephen Semple:

So huge deal, sells them, has all these stocks, everybody’s all celebrating. Barron becomes president of the Hilton. And then guess what happens over the next 18 months?

Dave Young:

I’m trying to think, what’s the time period?

Stephen Semple:

’66.

Dave Young:

I don’t know.

Stephen Semple:

Over the next 18 months, TWA stock collapses.

Dave Young:

Oh.

Stephen Semple:

Falls in half. Unlucky thing number three. So they now got this whole issue that was what was supposed to help them with their debt loads. And now they’re stuck with this stock that’s not doing well. So they need to turn the tide. So Barron decides to look for locations with potential that have fallen out of favor. So it’s the late ’60s, early 1970s. What is a place that has kind of fallen out of favor? He goes to Vegas, baby.

Dave Young:

Yeah, yeah.

Stephen Semple:

Goes to Vegas. And in 1970, he buys The International Hotel and the Flamingo.

Dave Young:

Okay.

Stephen Semple:

International has an interesting asset. They have four years remaining on the contract with Elvis.

Dave Young:

Okay.

Stephen Semple:

So Hilton becomes the first public company in charge of a casino. He reinvents the casino hotel. They were doing the entertainment thing, but he leans into the entertainment, he leans into adding the amenities, making the pools amazing and these big bars. They build the largest hotel in the world there. And he adds things like progressive slot machine. So the whole idea is where the payout gets bigger and bigger and bigger, which creates huge word of mouth and publicity. Replaces security, personal security officers with video cameras, does all of this, does all of this stuff to reinvent the hotel experience.

Dave Young:

The whole experience, yeah.

Stephen Semple:

And these two hotels go on to make as much money as the rest of the hotels combined.

Dave Young:

Wow.

Stephen Semple:

Yeah. Yeah. So the part that I loved about Hilton under Conrad Hilton and under Barron is this whole idea of just continually improving the customer experience.

Dave Young:

And counting on that.

Stephen Semple:

And counting on it. Yes;.

Dave Young:

And it brings them through these three big crises.

Stephen Semple:

Yes.

Dave Young:

He doesn’t stop innovating for the customer.

Stephen Semple:

No, no.

Dave Young:

I think that’s a huge lesson.

Stephen Semple:

Yes. Yes. And look, it seems obvious. “Oh, put a TV in a hotel room.” Wasn’t obvious. They were the first to do it. Others could have done it. “Oh, let’s put air conditioning in a hotel.” First to do it. Others could have done it. “Oh, let’s put a restaurant in a hotel.” These things seem so obvious, but it’s always obvious after it’s done.

Dave Young:

Yeah.

Stephen Semple:

And so the question I think listeners should be asking themselves is, what are things that they can do today for their customers that make the experience better? That removes that friction? And operationally it’s going to be a challenge. It’d be really easy for Conrad Hilton to say, “Well, I’m not going to put a restaurant in a hotel. I know nothing about restaurants. We’re not in the restaurant business. We’re in the hotel business.”

Dave Young:

But we can find people that know restaurants.

Stephen Semple:

But how often do we hear that from customers where they go, “Yeah. Yeah. But.” Now, granted, he started with easy things like a newsstand. But it was the whole this would not only make the customer experience better, but it also turned his idea from unprofitable into profitable.

Dave Young:

And you think about how many of those ideas just became the minimum expectation that we have now for any hotel.

Stephen Semple:

Yes.

Dave Young:

And then he did it first. We expect to be able to get a cup of coffee in the hotel. We expect to find a newspaper. I don’t know that’s the big deal anymore.

Stephen Semple:

But, yes. Yeah. But it is today the things that he did that were the first, is now the minimum, now the minimum bar. And man unlucky, but they overcame all of it.

Dave Young:

Yeah.

Stephen Semple:

So admire, like Conrad Hilton, man, there’s a survivor, eh?

Dave Young:

And all that income, all that wealth building allowed us to watch the saga of Paris Hilton whenever that happened.

Stephen Semple:

There is that. There’s always an extra silver lining to every cloud.

Dave Young:

She’d have been nothing without these guys. She’d just have been just another girl in Hollywood. So yeah, thank you for bringing us that.

Stephen Semple:

All right. Thanks, David.

Dave Young:

Thank you. Appreciate the story of Hilton.

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