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Face-to-face with USFS

Walking into Mike Leven's office is like walking into the Golf Hall of Fame. Plaques and photographs from various tournaments cover almost every inch of the wall, and it is clearly obvious this man loves the game. What's also obvious is that whatever Mike Leven sets out to do, he does it well and with vigor and optimism. Whether it's golf or his 40 years with the hotel industry, when Mike Leven begins a venture, he does it with a passion.

His youngest venture is U.S. Franchise Systems, the company he founded when, at 59, most people might have been contemplating retirement. Not Mike Leven. He was convinced U.S. Franchise Systems - which consists of Hawthorn Suites, Microtel and Best Inns - could offer customers something they couldn't get elsewhere: consistency "The most successful chains have always been the chains where the customer knew what to expect," says Leven. "I thought Microtel was a throwback to that concept." And so began U.S. Franchise Systems, with 14 employees and 22 hotels.

Today, the public company has more than 150 employees, more than $5 million in cash (debt free) and 412 hotels. In the truest form of Mike Leven, he has given back to an industry that's been good to him; in 1989, he helped found the Asian American Hotel Owners Association, an organization designed to eliminate discrimination. In 1999, he continued his quest to better the industry with the creation of ihoa (independent hotel owners association), an organization designed to offer independent hotel owners the resources they need to stay connected.

Recently I had a chance to sit down with Mike Leven to talk about his long tenure in the hospitality industry, his hopes for U.S. Franchise Systems and his future - both personally and professionally.

NREI: What has 1999/2000 been like for you, both personally and professionally?

Leven: This has been an ambivalent year for me. I won a lot of awards - The Pioneer Award, the Georgia Hospitality Award. The recognition has been great, from a personal standpoint of 40 years in the business. But the disappointment has been that our company did not achieve its financial results that we expected. Although we did come very close to achieving our number of hotels, we didn't get to our financial numbers.

I think we were overoptimistic and overzealous about what we thougth we could create in a very short period of time. Although others see a company that started with nothing and has more than 400 hotels and another 120 under construction as sort of a miracle in a little over four years, we're not really happy about it. We think we should have been at 550 to 600 [opened] hotels by now.

The competition has heated up to a point where, I can honestly tell you, I have never seen anything quite like it. Everyone is franchising, and everyone is competing for our people. That continues to go on, and it makes life much more difficult than what we anticipated. This business is getting much, much tougher. 1999 was the beginning of that kind of cycle. I think 2000 and 2001 are going to be some very difficult years.

NREI: In terms of competition, it seems like hotel companies are not only losing employees to other hotel companies, they're losing employees to other industries. Any thoughts on that?

Leven: We're losing our employees not necessarily to other industries, but to allied spots within the industry. For example, we lost two employees today who went to a real estate venture. It all comes down to money. People are looking around and seeing individuals making great wealth in Internet companies and companies, and they don't want to be left out. So any time they see an opportunity that can give them what they think is a pathway to the end of the rainbow - that pot of gold - they're gone.

We have a lot of young people in this business, so young people especially are going to say, 'Gee whiz. Let me take a shot.' We recently hired a senior vice president of operations here who is an older person - in his 50s. He wanted to get back into this. He's been outside on his own for the past 10 years. That's an unusual occurrence because most of the time it's going the other way: people looking at individual entrepreneurial opportunities to get their piece of the action.

It's been tough not only for us, but for others, and outside of the hospitality industry as well. I just read today that a law firm in New York is raising all of its salaries because its losing all of its employees to Silicon Valley.

NREI: In light of these tough personnel times, what is your company doing to recruit employees and keep them there?

Leven: We are public, so we have an option program. We also have the 401(k) program, but you can't possibly compete with the go-go type opportunities. You can compete emotionally because people want to feel secure, they want to feel like they are part of something. But if people really want to make bigger bucks, you're limited in terms of what this business can provide. We think we pay fairly here, but unfortunately you have people who will be contacted by, for example, someone in Silicon Valley who says, 'I want you to move to California and work for I can only pay you what you're getting today, but I can give you 50,000 options,' where someday that employee might be able to make millions of dollars. Well, that employee is going to come into my office and say, 'I'm leaving.' What can I say other than goodbye? What can I do? There's no way I can compete with that.

Those things are happening, and you have to be realistic that until that furor gets back to normal for particular companies in the hotel business that are not highpaying companies, that kind of thing is going to continue to happen.

NREI: In addition to recruiting and retention, many experts in the hotel industry would say that the limited-service segment of the hotel industry is at its worst right now. What is your opinion?

Leven: I don't think it's in trouble. I think in many areas, it's overbuilt, and as a consequence, occupancies are going to suffer and rates are going to suffer, and so profitability is going to deteriorate. But it's still a very profitable business. It's kind of like if you and I owned a limited-service hotel and we walked away with a couple hundred thousand dollars one year in profit and the following year we only make $125,000 to $150,000 - we'd be disappointed. But we'd still be profitable.

There will be some [limited-service hotels] that won't make it. Very overbuilt conditions, but this business has always been predatory in a sense that when there's old product, new product comes in and eats up the old product, which eventually goes out of business. That's going to continue. I don't see this as anywhere near a 1980s disaster. I think it is a decrease in profitability, but still profitable.

NREI: You mentioned some overbuilt areas. Are there any particular locations that U.S. Franchise Systems is staying away from because you know that to be true?

Leven: Not for us. We really don't stay away from those areas, because the banks - the lenders - will stay away from them. There's a natural selection process. Our individual franchisees will not get financing if an area is dramatically overbuilt. Now, sometimes a person will go in there and do it with all of their own cash, but it's very rare.

NREI: I noticed your bulletin board in the lobby that keeps a running tab on all of the hotels you've opened. In a 1996 article, you said that by 2000 you had hoped to open 1,000 properties. Are you near your goal, and if not, why?

Leven: We've only made 60% of our goal, and I thought by this time we'd have about 500 Microtels opened and the remaining 500 would be under construction. I think that's really a function of the competitiveness of the market. There are just so many products out there, and when you're starting a new brand, it's just going to take twice as long, so instead of five years it will probably take 10.

NREI: Is that now your goal - by 2005 to have 1,000?

Leven: We're opening Microtels at a rate of 60 a year, so five years from now, if we just opened them at that rate, we'd have about 500 Microtels open. That would not be what I call success. I think we have to do better. I think we have to open Microtels at a rate of 100 a year. I don't think that's going to happen in the next couple of years. At Holiday Inn, it took 10 years to get to 1,000 Holiday Inn Expresses. I thought [U.S. Franchise] could do it faster, but apparently we're not going to be able to.

NREI: What are your personal and professional goals for the next five years?

Leven: I tie both goals together. Recently I started my 40th year in the business. At one time I thought I wanted to do 50; I'm not really sure about that anymore. I think that you have to know when to not go into the ring for the last time. There are a lot of young people and a lot of great intelligence coming into this business. I think there's going to come a time where it will be better for the company - this one or another one - for me to go on with the rest of my life and do some of the things I'd like to do outside of the business. I would think that at this point, and in the next five years, I'll be a lot closer to that time.

Personally, I'd like to do more outside work than I do. I do a lot, but I'd like to do more. And, I'd like to do a lot less inside work. I'd like to become more of an ambassador and more of a spokesperson of the industry with my time than being a practical, day-to-day runner of the business. I think we're at least three years away from that. I think the next three years will be very hard years. I think at this point it would be difficult for me to turn over the day-to-day operation of the business. Although, I've turned over some, this baby [U.S. Franchise Systems] isn't out of high school yet. At that point, I think I will start to gradually withdrawal myself from the day-to-day operations.

NREI: Is opening U.S. Franchise Systems and running your own company everything you thought it would be?

Leven: That's a tougher question. I think we're only about 60% where I thought we'd be in terms of opened properties. I think culturally we're on our way to being the kind of environment that I want for our franchisees and franchisors. But we're not there yet.

Humanly, I've been disappointed in the business because I thought I could create something that was - naively - a Utopian environment where people cared about each other. What I've found is that people are people and the same kind of difficulties that people have with people in any other company exist here. I'd have to say that overall, after four and a half years of doing this, it hasn't hit me yet that this is very different from doing anything else I've done. That's been disappointing because I thought it was going to be so different, and it really hasn't been. Maybe I just wanted too much.

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