Chapter 9 - Four Seasons: The Story of a Business Philosophy
Today’s Chapter is based on the autobiography of Isadore Sharp, Founder of Four Seasons called “Four Seasons: The Story of a Business Philosophy”.
Buy it on Amazon here:
https://www.amazon.com/Four-Seasons-Story-Business-Philosophy/dp/1591845645
Here’s what I have learned from the book:
Finding your Niche
“I find it quite useful to think of a free market economy as sort of the equivalent of an ecosystem. Just as animals flourish in niches, people who specializes in some narrow niche can do very well.”
— Charlie Munger
This idea in business of finding a niche is based on a concept formulated in biology. In biology, a niche refers to the role a particular species plays in its environment. This includes things like what it eats, where it lives, what eats it, and how it reproduces. Every species has its own unique niche that helps it survive and thrive in its ecosystem.
“Increasing specialization is often mandated when the stakes — the standards of performance in competition — are high.”
— Geerat Vermeij
Similarly, specialized businesses can thrive by catering to a smaller niche market. Once they own the niche, they can be incredibly hard to dislodge. As a matter of fact, there is very little incentive for other businesses to invest in a developing a competing product due to the size of the market.
In the case of Four Seasons, Isadore Sharp was able to create one of the largest hotel chain in history despite competing with various existing giants in the industry such as Holiday Inn and Marriott by specializing. As such, he decided to fully focus on midsize hotels of exceptional quality to offer a differentiated product compared to the rest of the industry.
“But my mind was made up. “We will no longer be all things to all people,” I said. “We will specialize. We will offer only midsize hotels of exceptional quality, hotels that wherever located will be recognized as the best.” I resolved to sell any hotel that didn’t meet our new standards.”
— Isadore Sharp
“Holiday Inn had created an empire on U.S. highways, first through standardized rooms, then by becoming “the host with the most,” the first to offer free cribs, dog kennels, soft drinks, and ice machines. Marriott had found a profitable niche in suburban complexes, between the new roadside motels and the older downtown hotels. I believed we could do as well, maybe better. All we had to do was stand out from the clutter, be distinctive.”
— Isadore Sharp
“We have chosen to specialize within the hospitality industry by offering only experiences of exceptional quality. Our objective is to be recognized as the company that manages the finest hotels, resorts, and residence clubs wherever they are located. We create properties of enduring value using superior design and finishes, and we support them with a deeply instilled ethic of personal service. Doing so allows Four Seasons to satisfy the needs and tastes of our discriminating customers and to maintain our position as the world’s premier hospitality company.”
— Isadore Sharp
Exceptional Service
“Quality in a service or product is not what you put in it. It is what the customer gets out of it”
— Peter Drucker
Straight from the start, Sharp knew that his company’s unique value proposition would be its outstanding services. And to do so, he had to think in the perspective of what the customers want:
“In building our first hotel, I had been concentrating on customers: What would our customers want most? I had little hotel experience but enough to know what most people wanted: a quiet room, a good night’s sleep, and an invigorating morning shower.”
— Isadore Sharp
As such, Sharp built Four Seasons with the intention of providing the best hotel amenities to provide beauty and comfort. And more importantly, he understood that the presentation of the amenities was the key to its popularity.
“We initiated many more ideas to enhance customer appreciation. We introduced fitness centers and no-smoking floors. We anticipated trends in food with low-fat, low-salt haute cuisine. We put shampoo, hair dryers, makeup mirrors, and bathrobes in rooms for guests who prefer to travel light. Each room was slightly larger than our competitors’ regular rooms, with quieter plumbing, a better showerhead, and a bed with a comfortable custom-made mattress. We offered all this, plus an abundance of carefully chosen details, from the right pillow to the softest toilet tissue to bouquets of fresh flowers daily.”
— Isadore Sharp
“But an amenity’s popularity, we soon found, can depend on its presentation. When we first offered complimentary overnight shoeshines, we put the bags for the shoes on the toilet tank. We realized they weren’t being used much, which could mean they either weren’t wanted or our guests were not aware of them. So we told housekeepers, during evening turndown service, to reposition the bags at the foot of the bed. That one small change boosted usage by more than 50 percent.”
— Isadore Sharp
Furthermore, Sharp was not afraid of spending more in the goal of meeting the customers’ expectations by providing exceptional services, even if it meant cutting his profits short in the short-term. He believed that profit should not be a guide for a business decision but merely a confirmation of its result.
“Not all my senior people agreed with all these decisions on quality. “Why don’t you use vinyl instead of leather?” they asked. “Polyester instead of silk? Most people can’t tell the difference.” “A lot of the people we hope will become customers can,” I told them. “They’re wealthy. Discerning. They know quality. And quality to them is value.” Well, they thought I was either wasting money or didn’t care about profit.“
— Isadore Sharp
“To ensure that we satisfied the rich and powerful, we hired more employees than usual. The average hotel has one employee per guest, sometimes fewer. But to serve the patrons of The Pierre, which included both travelers and residents, we needed three times as many, more than at any other hotel we had managed before or have managed since.”
— Isadore Sharp
“They did not include air conditioning in their plans. “You won’t need it,” they told me. “Once or twice a year in summer, maybe.” “We must have air conditioning,” I said. “The North American traveler expects it.” It was a costly upgrade, but in my view, absolutely necessary. Meeting customers’ expectations was my first rule for success.”
— Isadore Sharp
Surprisingly, this idea of providing value by meeting customer’s expectations came to Isadore Sharp through hamburgers. Similarly to Tim Monaghan of Domino’s Pizza, he was inspired by Ray Kroc’s McDonald’s:
“To compete, we’d all have to feel about service the way Ray Krok, head of McDonald’s worldwide, felt about hamburgers. Explaining why his company led competitors around the world, Krok had said, “We take the hamburger more seriously than they do.””
— Isadore Sharp
“I turned to McDonald’s for some lessons in service. Through quick, pleasant servings of French fries and hamburgers, always made to specifications, thus always meeting expectations, McDonald’s had become the world’s biggest success in the fast-food business. They didn’t just sell hamburgers; they sold value.”
— Isadore Sharp
“The next day, I told our senior headquarters people, “I want you to come with me to McDonald’s and see how they train people for service.” So they came, looked, and listened, then laughed and joked about it. As one of them said, “Look, they’re selling hamburgers and we’re selling filet mignon. How can you even compare it?” “I know what we’re selling,” I said. “I’m talking about how we sell it. Quality doesn’t necessarily mean luxury. It means giving customers what they expect, meeting customers’ expectations every time. That’s performance, value.””
— Isadore Sharp
The Golden Rule
“Do unto others as you would have them do unto you”
— The Golden Rule
As the company’s competitive edge was its exceptional services, Isadore Sharp quickly understood that the success of Four Seasons would rely on the successes of his employees, especially those on the frontline.
“Four Seasons is the sum of its people—many, many good people.” — Isadore Sharp
Sharp believed in the Golden Rule which states that one should treat others as they would like to be treated. He believed that treating employees well was the key to providing exceptional customer service, and therefore, he made it a priority for senior managers at Four Seasons to ensure that their employees were well-treated.
“At a meeting of all general managers, I told them, “Our customer-front line relationship is crucial. Customers seldom see or talk to you. They interact almost solely with our front line, three to seven junior employees. If that contact disappoints the customers we want as lifetime patrons, they become ex-patrons. But when our employees remember them, greet them, know what they want and provide it quickly, they create a loyal customer whose referrals and long-term repeat business can often run well into six figures. That’s a cycle of success, dependent entirely on junior employees. “That’s going to be your managerial challenge: reaching our goal of being the best, down to the bottom of our pyramid—motivating our lowest-paid people to act on their own, to see themselves, not as routine functionaries, but as company facilitators creating our customer base.”
— Isadore Sharp
“Our competitive edge is service,” we told our new managers, “service delivered by frontline employees we expect you to develop.” This was a process, beginning with a goal. It was not one of the usual goals of management: increased sales, market share, profit, or growth, not even a goal of service quality. Our goal was to add continuously to the value customers put on our service, nothing else. “That means,” I emphasized in talking to our managers, “that your success depends upon the success of your employees. So your number-one priority can’t be what you as managers want. Your priority has to be, as far as possible, an environment and a structure that gives your employees what they want. “Your role, then, will be a leader, not a boss. Your job will be to bring out the best in all individuals and weld them into a winning team.”
— Isadore Sharp
However, this idea was certainly not the norm at the time, especially not in the hotel industry. As such, it was quite challenging for Sharpe to sell this winning strategy of service even internally:
“Conceiving a winning strategy of service had been relatively easy. Selling it internally—getting it across to all the hotel managers and supervisors, design staff, purchasing people, and engineers—was proving exceedingly difficult. We needed to get it down to the front line: clerks, bellstaff, bartenders, waiters, cooks, housekeepers, and dishwashers, the lowest-paid and in most companies the least-motivated people, but the ones who would make or break a five-star service reputation.”
— Isadore Sharp
As a matter of fact, as employees represented the largest share of expenses, it was difficult for managers to see them as what they truly are, an incredible asset to the company.
“The books may show that employees represent the largest share of expense. They don’t show that they also earn the largest share of revenue. Or that long-term service employees are storehouses of customer knowledge, role models for new hires, and advisers for systems improvement—all in all, our best source of added value. If employees are really doing their job, they’re not a cost, they’re an asset, our primary asset.””
— Isadore Sharp
“Our greatest asset, and the key to our success, is our people. We believe that each of us needs a sense of dignity, pride, and satisfaction in what we do. Because satisfying our guests depends on the united efforts of many, we are most effective when we work together cooperatively, respecting each other’s contributions and importance.”
— Isadore Sharp
By treating his employees well, Sharp was able to build a reputation for Four Seasons which created a positive feedback loop that allowed the company to get first choice of fresh graduates in the food service and hospitality industry:
“Our average employee turnover was less than two thirds that of comparable companies. And each year, we were getting first choice of some six hundred graduates from food service and hospitality schools, of whom we could hire only twenty.”
— Isadore Sharp
Control Without Compromise
“While our competitors are dropping standards, we will raise ours,” I said. “And we’ll hold firm on pricing.” The directive I gave to all our GMs was summed up in one phrase: “Control without compromise.”
— Isadore Sharp
Considering that Four Seasons’ reputation and brand name were built on the excellence of its customer services, it was important for Isadore Sharp for the company to maintain its standards even during cyclical downturn.
In fact, while it took him years to built Four Seasons’ reputation, this could all be lost in a second if he compromised on the quality of his hotel services during recessions. As Warren Buffett once said, “It takes 20 years to build a reputation and five minutes to ruin it.” As such, while competitors were cutting costs and layering off staffs, Four Seasons did not follow suit:
“I listened to all their comments, but getting into a price war was a no-win situation. Layoffs might drop costs for a time, but revenue would fall even more and take much longer to come back. True, luxury was no longer in vogue for middle managers and executives, but for most corporate leaders, the people who made up the bulk of our customers, reliable time-saving service was not a luxury but a necessity. And with travel more fatiguing and work more demanding, it was needed now more than ever. Rather than cut back on service by laying people off, senior managers took a pay freeze and asked their employees to vote on flex hours: working four days a week instead of five. Employees in almost every hotel voted nearly unanimously for it, so all of them would keep their jobs. They knew through the company grapevine that managers’ salaries had been frozen and, knowing what other companies were doing, they felt our decisions were more than fair. And sharing a common purpose created a camaraderie that made trying times not only pleasurable but also profitable, for as most of our rivals dipped into red ink, we remained in the black by delivering the quality service that our fledgling marketing division had begun promoting.”
— Isadore Sharp
By doing so, Four Seasons became a perfect example of an antifragile company. This term was coined by Nassim Taleb who explained it as follow:
“Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure , risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”
— Nassim Taleb
As a matter of fact, Sharp took a cyclical downturn as an opportunity to invest aggressively. For example, they liked to renovate and refurbish their busiest hotels during recessions as the cost of material and labor were the lowest and room occupancies were down. Similarly, recessions allowed Four Seasons to purchase premium locations to expand which were previously deemed too costly or even unattainable. And finally, with competitors cutting cost on their marketing budgets, it was a perfect storm for Four Seasons to gain market shares by increasing their own consumer advertising.
“World leadership demanded that we maintain world-class quality, and recession is generally a period when material and labor prices are lowest and room occupancies are down. So we renovated and refurbished at such normally busy properties as the Inn on the Park in London and The Pierre in New York at a time when revenue would be little affected and customers least inconvenienced. That meant we were spending when others were retrenching. We had followed that strategy in 1981-82, and the rebound from that recession had given us nine years of steady growth. I thought the odds were in our favor to score the same way again.”
— Isadore Sharp
“Recession was also a good time to prospect selectively for new developments. Land prices were down. Sellers outnumbered buyers. We now had an opportunity to look for premium locations that might soon be very costly or unattainable. Until now, we’d been more or less playing it safe, testing our capabilities. Now we knew that if we needed to, we could open five hotels in a year, so we would now be actively seeking the finest locations for global growth.”
— Isadore Sharp
“It’s tempting during recession to cut back on consumer advertising. At the start of each of the last three recessions, the growth of spending on such advertising had slowed by an average of 27 percent. But consumer studies of those recessions had showed that companies that didn’t cut their ads had, in the recovery, captured the most market share. So we didn’t cut our ad budget. In fact, we raised it modestly to gain brand recognition, which continued advertising sustains. As studies show, it’s much easier to sustain momentum than restart it.”
— Isadore Sharp
Beyond the Book
Read "A Definition of Antifragile and its Implications" by Farnam Street
Listen to "#184 The Autobiography of The Founder of Four Seasons" by Founders Podcast