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Rocco Bova's Profit-Sharing Hotel Business Model

• Jeff Borman and Matt Brown

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From New Delhi to the Yucatan Jungle, from the Indian Ocean to the Caribbean, Rocco Bova has crisscrossed the world, defining what luxury hotels are and can be. The My Humble House founder talks about building a profit-sharing hospitality company, creating change in a change-averse industry, working within nature, finding the right investors, and offbeat destinations in Italy and Mexico.

https://www.instagram.com/rocco.bova/

https://www.linkedin.com/company/my-humble-house/


Speaker 1:

Hi everybody. It's no Show starring me, matt Brown and Jeff Borman, from New Delhi to the Yucatan jungle, from the Indian Ocean to the Caribbean. Our guest today, rocco Bova, has crisscrossed the world defining what luxury hotels are and can be. The hospitality consultant, passionate hotelier and luxury tourism specialist, has been working in the industry for over 30 years Four Seasons, hilton, st Regis. He's worked for everybody. He is the founder of my Humble House, a hospitality management company which manages and owns real estate to build truly sustainable hospitality businesses, mainly focusing on hotels, residences and glampings. It is a profit-sharing hospitality company putting people first. Rocco once said that a traveler is someone who discovers, learns and lives the visited place down to its roots. Only then have you experienced the place. We couldn't agree more. Welcome, rocco, to no Show.

Speaker 2:

Wow, wow. Thank you so much, Matt and Jeff. It's been a hell of an introduction. I've got responsibilities now.

Speaker 3:

That's actually the only thing we do well Really good intros. After that, people really kind of tune out.

Speaker 2:

Well, I can only say that it's true what you said, all of it.

Speaker 3:

The part about tuning out early, we know.

Speaker 2:

There are no lies, basically. So, yes, it's all true 30 plus years of experience in 11 countries. I cannot say counting, because probably it's time to say stop. You know, after 25 years of traveling, we decided with my wife to throw the anchor and stick to Mexico. We've been living in Mexico now for about nine years. It's a lovely country with lovely people. In fact, it's probably the best place we have been so far, because that's what pushed us to really say, okay, we're going to stay here. And I was lucky to lead and open a resort which is called Chablé Yucatan, which happened to become one of the best in the world. And then, three years ago, three and a half years ago, I decided to start my own consultancy company and begin working on my humble house concept and deliver it, hopefully in the next two to three years, with the first master plan opening here in Mexico.

Speaker 3:

Rocco, what first caught my attention was the following description of my Humble House the world's first profit-sharing hospitality company, putting people first, making them not only employees but responsible for the success of the business. Matt, you mentioned that in the intro, rocco. How does that work?

Speaker 2:

Well, you see, I've worked in different parts of the world and different companies. They apply different rules in their business model and, after 30 years of learning, you try to get the best out of each company and then you put all together in a mixer, in a blender, and you make a nice cocktail. We all know what happened in the past five years. You know, during pandemic, a lot of companies say I'm so sorry, there is no more money, we have to let you go Correct. So a lot of companies and I'm talking about the big companies. First, they let go of thousands of people from one day to the next because there was no money. Now, how come these very same companies today still exist? Not many people can answer me this question, because it's politically incorrect. And the answer to the question is that there was money, of course. Otherwise this company today will not be flourishing again because everyone is now celebrating success, profit sharing, opening champagne, best occupancy rate, best growth rate, and so on and so forth. Five years ago there was no money and today there is money by managing. So this really pushed me to start working on my humble house as a business model, not just as a concept. You know, a hotel is a hotel. I'm not reinventing anything here. You know, a hotel is a hotel. We can have a different logo, a different name, a different color paint on the wall, but a hotel is a hotel. Nobody can change that. I have not seen anything innovation recently other than the co-living and co-working you know, and maybe Airbnb some 10, 15 years ago.

Speaker 2:

So I decided to work on this concept because obviously I was of the idea. I am of the idea that, yes, a company can be sustainable financially sustainable all the time if resources and I'm talking about profit here is well-managed and well-operated. And so thus came the profit-sharing path, as well as a 10% of the net profit actually be preserved into a piggy bank that cannot be touched by anybody, so that my handballers cannot say there is no money. The more profit we make, the more money will be in the piggy bank. And when there is a situation, the more money will be in the piggy bank. And when there is a situation, we can break the piggy bank and then use this money for whatever time it can be used maybe three months, six months, a year, I don't know. But at least there is something, there is a little pillow. So if we fall. At least we know it's not gonna be so painful.

Speaker 3:

Structurally it sounds like an FF&E reserve right. Where you're taking part of your profits every year and saying you know, in year five we're going to have to do a big renovation. We can't afford that all out of our operating budget in year five. So, years one through five, we're going to set a little aside every year so that when we have to do that, it's there for us. Are you using that same concept, then, only for profit sharing for employees?

Speaker 2:

No, Well, let's talk about what happens in real business in hospitality. So there are three ways on how employees can steal from a business, literally steal. They steal in time, so they're not efficient. They don't really work the eight hours or nine hours that we actually pay. They maybe work three, four, five and the rest of the three hours they actually do nothing or do other things which are not relevant to their workplace. So we lose time by employing people a certain amount of hours every day but they don't perform the full hours shift that they should work.

Speaker 2:

The second is stealing cash. We we know that where there is cash handling there is an opportunity to steal, and here in Mexico they call it robo hormiga. So the hand stealing A little bit today, a little bit tomorrow, but imagine $1 today, $1 tomorrow, over a year it's going to be $365. But I worked in places where some employee were caught actually stealing up to a hundred thousand dollars or you know, on credit card fraud. The third and the last thing people steal is actually in things, amenities, a little beer from the from the fridge, when people you know even I'm talking about equipment from the fridge, when people you know even I'm talking about equipment from the maintenance warehouse, you know, light bulbs or even tools.

Speaker 2:

So these things happen because the employee don't care. It's not their money, it's not their company, so why should I care? So why should I care? Now, if we make people responsible for that, the more is preserved and is kept in the company, the better the result will be for everybody. So everyone will be watchful over other people that don't do that and they will eventually push them out of the business slowly, slowly. I don't want to put anyone in jail for that. I don't want to, you know, accuse people of being criminals, you know, because they're stealing. But I want to make sure that the majority of people that are honest, they have integrity and they work eight hours a day, they push away these people that they don't. Simple as that.

Speaker 3:

So if you're recruiting employees, management, your prospectus as management is extremely light. And in part I'm filling in the blanks here. You didn't say this, but because employees are more incented to work well, you probably need less management. But the idea that you will compensate the employee more, what does that come out of? My assumption is that the top line of my humble house is not outperforming the top line of a neighboring hotel of the same size. So if they're performing at the same level, same revenues on the top, but employees are getting more of a financial interest, what's not happening in the middle? Where do you find that extra bump for them?

Speaker 2:

You know, it's the efficiency. You know again, why should I employ 300 people, for example, for a 500-room hotel, when I can employ 250 instead of 300? Because I increase efficiency. Number one. Number two when a team work together and truly have a teamwork, that they help each other, that they watch for each other, you actually need less management. You just mentioned that you don't need as much supervision, so you can cut already some middle line managers or supervisors. So imagine this on the payroll how much of this is going to save 2% here, 1% there, 3% here, another 5% there. People become more aggressive in sales. Part of my handball is also training people now to upsell. Actually, we will train people on how to manage a business. We want our employee to become an entrepreneur, Because the only way to become an entrepreneur is to actually learn how to be an entrepreneur. You don't become an entrepreneur because you have an idea and maybe you have some money.

Speaker 3:

You have to know how to manage an entrepreneur. You don't become an entrepreneur because you have an idea and maybe you have some money. You have to know how to manage a business.

Speaker 2:

Would the average wage then of my humble house employee be better than the very same job at a hotel next door. It may not be better in terms of wages, but it will be better in terms of after what you get in terms of benefit and profit sharing and other things. So you know, in terms of wages, there is a maximum you can play with. You don't want to start paying people more just to get the best talent. It doesn't work like that, for example, in Los Cabos. I mean, it's very, very competitive. Whoever pays you $50 more, you just leave. People don't care. But people don't start considering, instead of giving more money and talking together between company and hotel association and so on and so forth, what else can we do? Instead of paying people more money, we should start to be more creative and actually appreciate the team members in other ways rather than just paying more money.

Speaker 2:

Money is very important and don't get me wrong, if we pay peanuts, we get monkeys. We all know that. But also, on the other side of the medal, it's not what is going to work for the long term paying more money. For example, in China 20 years ago, the average Chinese person would earn $30 a month. A month. There were very, very low wages those days. Today the market is so competitive that the only way to attract talent is actually to pay more. Now it's almost more expensive to build or to fabricate things in China than it can be in Mexico, because the wages have gone so up. Cost of manufacturing may be less because machine use and mechanization or automatization and the logistic is obviously more efficient, but the cost of wages is actually not cheaper than it could be in Africa, for example, in India or even in Mexico.

Speaker 3:

If we can stick with the financial model here, but to the investor side. So if the top line of a MHH is the same as a hotel next door to it, and is the profit from my Humble House expected to be the same as a hotel next door?

Speaker 2:

So the hotel next door? It depends how it's managed. At the end of the day, like every business, it depends how you manage it. It's not a brand that's going to bring you better profitability. Brands normally even the big names, the big five they only promise you a better occupancy and a better average rate. They don't promise you GOP Never, because this all depends on costs and expenses and how these costs and expenses are managed. But they promise you, or they commit to, a better occupancy and a better average rate.

Speaker 2:

Now, my humble house is not different than that, but different from other companies. Part of my humble house, which is a component of a master plan, is actually having a higher ratio of branded residences and a lower ratio of hotel components. So that's where really the return on investment can be much faster, because we are talking about here almost a 70-30%. So 70% branded residences and 30% hotel. That's where really we all know that this business model is a no-brainer. It works. It's now very much in demand. A lot of companies are entering the branded residences market and this is a no-brainer. This has been done for 40 years. It's been working very well so far. Middle, high-class and very high-net-worth individual is actually growing around the world and to have capital in a bank or to have capital in real estate, we all know is the way to go. So I think that this is a strategy that doesn't need to be a genius. You don't want to do it.

Speaker 3:

You mentioned that an investor gets a negotiated rent of the real estate plus a profit share and therefore getting an expected ROI and the appreciation of land and property. Of course, the operating profit or a portion of those are all very normal components of a hotel investment model. What is the IRR and the timeline for an investor to recoup the investment, as you are pitching this to investors?

Speaker 2:

no-transcript. Now, in the worst case scenario, I'm looking at a 70% return on the investment within three years. In the worst case scenario, in the best case, it can be the 95% I just mentioned, can be the 95% I just mentioned and with the operation and everything else, you start, basically start getting net profit immediately after that, do you?

Speaker 2:

have investors lined up yet, believe it or not. I'm talking to a number of people in Mexico and there is a lot of interest. There is a lot of interest from a company, particularly that they just opened their first hotel with residences about three no, four years ago, just in the middle of the pandemic. There is a lot of wealth in Mexico and also international wealth coming into Mexico and wanted to invest in Mexico.

Speaker 3:

You describe your investors with a couple of words that really stand out because it's unique. I've never seen this in an investor description Disruptive, angel investor, family office, but socially responsible. Another sentence is true socially responsible Not usually the words that you hear when you're out asking for cash. So it's kind of an interesting approach that you put that so straightforward that this is an investor with a different attitude.

Speaker 2:

Totally Investment with a purpose. You know purposeful investment are coming more and more on the market. Okay, more and more socially responsible companies that can still make money but can still produce goods for the community or the industry that they represent. Because sustainability is not just about recycling and whatever, separating rubbish from plastic to aluminum, because you can only do so much. Sustainability is also about business. If you cannot make your business sustainable forever ideally, that's not sustainability. Where's the point to do something for three or five years and then shut down because there's no money, because you cannot produce further business, you cannot grow or improve your efficiency. I mean there's no point. So for me, purposely invested money is also about being sustainable as a business for the long term, and I think more and more investors are getting into this field as well.

Speaker 1:

Rocco, do you have investors who question whether or not they can actually be profitable by being sustainable? I oftentimes we look at hotels who have an organic design. They use local materials and they really commit to a regenerative way of business. I think on the surface those things all tend to be extremely costly, especially with the local materials. Part of it because that stuff is going to be costlier than prefab materials that are sourced in other ways, and all that eats away at profits. Do they give you pushback, saying, look, we'd love to do this, but there's just no way. How could we ever make the numbers work?

Speaker 2:

Listen, it is true that using local material can be difficult in certain countries. For example, in an island in the Maldives, there is little opportunity to use local material because there is no local material available. The closest local is India or Sri Lanka. So you cannot cut a palm tree and make furniture out of it. I mean it's not possible. Otherwise you're going to have a bare sand pit. That's all. That's not sustainable at all. Now, a country like Mexico definitely you can A country like many countries in Europe definitely can. Africa can, india can.

Speaker 2:

Many countries cannot do because of the resources that they don't have and therefore they need to import. Whether they like it or not, they need to import material from other countries. That's where it becomes expensive and not so profitable after all, because obviously, instead of paying I don't know $300,000 per key, you might need to spend $400,000 per key, so this $100,000 going down the drain. But in a country like Mexico, you definitely can do that. The sustainability part has a cost, you know, and cost in manpower, cost in time, yes, I agree with that. But again, I'm looking for that 1% of investors, I'm not looking for the 99% of investors. So if I come across a traditional investors, then I tell them you know, go invest with Marriott or Hilton or Accor, you know they do very good job.

Speaker 1:

Okay, it's time for the mystery question Are there secret destinations in either Italy or Mexico, or both, that you would direct people to instead of say the Tulum's and the Venice's of the world? What are two places? What's a place in either country that could use a little more tourism and deserves a little more tourism traffic?

Speaker 2:

Listen. I mean in Mexico, for example, you can definitely look at Yucatan as a destination. You know a lot of people they look at. You know Quintana Roo, where you have Cancun, riviera Maya, tulum, playa del Carmen and so on and so forth, you know, and that's not Mexico. To me, that's already so vandalized by tourism I mean literally vandalized by tourism. So it's actually not the real Mexico one should expect and should visit, should expect and should visit. So places like Morelia, michoacan or even Mexico City Believe it or not, mexico City is touristic, but it's a huge city. You need a lot of time.

Speaker 2:

Coahuila I lived in Coahuila, in Cuatro Cienegas, for a year and a half. I mean it's desert, desert and mountains, but the scenery is so unbelievably nice. I mean I had some of the best time. Valle de Guadalupe, which is one of the best wine regions in Mexico, is amazing, and I can go on and on about Mexico. Now I can go less on and on about Italy, because I didn't travel a lot within Italy. I come from Calabria, which is still unexplored from a region point of view. Basilicata, which is also between Campania and Calabria, actually sandwiched in between, basilicata, is also another very beautiful region, region, but still unexplored and not as much affected by over tourism. Marche, also on the Adriatic side, for example, is also a very beautiful region Great wine, great food, great coastline and still unexplored. So yeah, there is a lot to see, but most people they go because the transportation is easy you have an airport Within an hour, you get to your hotel and Bob is your uncle. Why should I drive six hours to go to a different place where I don't know?

Speaker 3:

And perhaps that's precisely why you should go there, because it's a six-hour drive and you might find what's really happening in the country.

Speaker 2:

You see, jeff, at the end of the day, my kind of customer, my kind of client is the traveler, is not the tourists. You know you have travelers and tourists. You know the tourist is where everyone else is going and that's okay. Okay, maybe for comfort, maybe because you've been there, because somebody told you to go there, but for me the travel is the explorer, is somebody who actually go to visit with a purpose and not just go to the same place over and over again because they've been there and because they know they will take care of them. Yeah, I'd rather prefer the traveler and discoverer.

Speaker 3:

We wish you the best with my Humble House. It's a business model unlike anything I've ever heard of or seen in this industry. It's the potential to shake things up. I cannot describe how afraid other businesses should be if this gets off to the start you plan for it to have.

Speaker 2:

Shake it up.

Speaker 3:

Imagine that, imagine, imagine if this works, it's going to be a mess. It's going to be a real mess for a lot of people.

Speaker 1:

A beautiful mess.

Speaker 3:

As they say, throws a Spaniard in the works.

Speaker 2:

I can't wait for that day. So I'm getting very close anyway. So I've got a lot of things on my side which makes things going the right way, and I'm only 54, so I still have a good time ahead of me, so I won't give up very quickly.