Two years ago, we started our “Share Your History” page on our website. We solicited contributions from our readers, telling us of their history with enterprises large or small. To start the page, we seeded it with several stories of our own, focused on successful businesses we have been a part of. Here is a very personal, very different story – one of the failure of a young, startup business. Over twenty years later, this story qualifies as “business history.” The story starts this week and continues next week. (And we continue to solicit your own submissions to the “Share Your History” page.)
The Lead-up to TravelFest
While my friends and I had created three small businesses while in college, my initial larger success was the first chain of large discount bookstores, Bookstop, the story of which is told here. By the beginning of 1990, Barnes & Noble had purchased that chain and used it as a basis for rapid expansion of the idea. B&N paid $41.5 million for the company, of which I owned about 6%, netting me around $1.2 million after taxes. I used some of the money to buy a big house on Lake Austin and to travel around the world – a week each in a Buddhist, Hindu, and Muslim country (I am the grandson of two Protestant Christian ministers and am interested in world religions).
I looked at my long list of business ideas and decided to proceed with the creation of The Reference Press in early 1990. I funded about the first $3-400,000 with proceeds from the Bookstop sale to seed the new company. The idea was to create “the Webster’s of business.” In my years as a bookseller, I saw the big demand for reference books, broadly defined – travel books, computer manuals, cookbooks, books about music and art. Books on the shelf could answer most factual questions about sports, travel, food, and other subjects.
But if someone wanted to know which car company was biggest or which airline the most profitable, they had to go to the library and sift through big, fat, very expensive financial reference books that were not fun to read. I had wanted a consumer-oriented, affordable book telling the stories of big companies for about twenty years. The idea was to come out with an annual guide to corporations, then follow it up with related titles like the companies of Texas or a foreign companies book, all developed from a master database of company profiles.
Our first book, published in October of 1990, was titled Hoover’s Handbook 1991: Profiles of Over 500 Major Corporations, a $19.95 paperback with a page on each of the world’s most important companies. We chose that title because it was easier to protect the trade name than if we had used a broader name like the Almanac of Business. The book contained information found nowhere else in one volume – what parts of the company made money, how much the executives were paid, stock price history, a list of key competitors, and the history of the company.
In this effort, we soon gathered more capital from investors and attracted a talented team of writers, editors, and software wizards. The company soon added separate books on tech companies, the companies of New York, and others. The start was rocky, with mixed success.
At the same time, I missed bricks-and-mortar retailing. In book publishing, it is a challenge to see your customers face-to-face, to see their reactions. The Board of Directors and I turned the leadership of the company over to my old college friend Patrick J. Spain. I remained Chairman of the Board for a couple of years and stayed on the Board until the company was sold.
Patrick and his team led the company, renamed Hoovers, Inc., to great success, going public on the NASDAQ market in 1999. At the time, three of us who had started our first business together on the University of Chicago campus in 1970 were on the Board of Hoovers! When the “dotcom bubble” burst in 1999-2000, the stock dropped from around $30 to under a dollar, but then rebounded. The company was purchased by big business information and credit reporting company Dun & Bradstreet for about $117 million in 2003. Sometime in the future I will write up more details on the “Hoovers” story.
The Next Big idea
Reducing my responsibilities at Hoovers gave me the time to consider what type of “store” I wanted to create. A few years earlier, I had written an article about the future of “theme stores.” The idea was to create retail experiences based around a topic of interest rather than a pre-conceived category of merchandise. For example, one could have a store based on sports, pets, history, travel, cars, or on many other broad concepts. Such stores could include any mix of travel packages, merchandise from books to apparel, guest speakers, workshops and seminars, training or advisory services, and any other relevant product or service.
Tied directly to that idea is the continuing rise of services in our economy. Restaurants, hotels, airlines, cruise lines, educational services, healthcare services, and financial services all have great futures.
A good example of a retailer which grew into services is PetSmart, which started out selling pet food and toys but gradually added veterinary services, pet lodging, pet grooming, and pet training. Services carry a higher gross margin than merchandise, along with higher labor costs. Most importantly, customer demand for services is growing faster than demand for merchandise.
Since I love to travel and believe in the long-term future of the travel and tourism industries, my eyes turned there. What I saw – from a customer and retailer viewpoint – was an industry that lagged behind retailing at large.
Travel agencies were small shops with short hours, rarely open Sundays. Even the ones with long hours closed Saturday at perhaps 1, just before the peak of the retail shopping week on Saturday afternoons. Agencies tended to be biased toward one airline or another, rather than putting the customer first. And every traveler needs (at least back then) maps, travel guides, luggage, and travel accessories – which were almost never sold at a travel agency. Planning a trip required many stops, from the bookstore to the luggage store to the travel agency.
Few things warm an entrepreneur’s heart like a big market that is not being well-served. In my opinion, the time had come for a new type of “travel superstore.” I wanted to bring long hours, easy access, one-stop shopping, and great customer service to this industry which was stuck in the past.
The airlines were coming to believe that the travel agencies did little for them, that people either were going to fly or not fly, and the agencies were just order takers, taking a cut of profits that the airlines thought the agencies did not deserve. So in some ways, I was coming from the same place the airlines were, that the agencies were not doing a great job, although unlike the airlines I saw leisure and even some business travel as discretionary, as a service for which demand could rise if offered in the right way and the right environment.
Liberty Travel in New York and Flight Centre of Australia operated retail store fronts which were headed in the right direction, but they still did not offer true one-stop shopping. I studied these operators and many others.
In 1992-3, armed with in-depth data on the size and future prospects of the travel industry, I raised $150,000 from three venture capital (VC) firms for early stage research, $50,000 each. (My own money was by then tied up in Hoovers.) We dug deeper, commissioning consumer surveys, attending industry trade shows, and talking to everyone in the industry. I spent one day in Dallas visiting airlines, a half-day at American and a half-day at Southwest. The cultural difference between the two companies was quite striking, American feeling very “corporate” and Southwest not at all. One of the airline fellows was so impressed with our ideas that he soon joined the TravelFest team.
Upon reviewing all the information we gathered, the three VC firms decided not to invest more money in the idea. One prominent venture capitalist asked, “What happens to you if the airlines decide they no longer need travel agencies, and cut the commissions they pay to agents?” I dismissed his concern on the basis that the airlines could not leave the giant travel agencies like American Express and Carlson high and dry, with no commission income. My mistake on that issue was to end up costing me and others dearly.
I remained excited about the idea and decided to move ahead, with or without VC funding.
Having raised about $11-12 million to build Bookstop, I had wide experience raising money from venture capitalists, individual “angel” (wealthy) investors, big corporations, and via a Small Business Administration (SBA) loan. But I always wished I had a broader base of investors, including the customers who loved our stores.
At that time, raising money from small investors for a startup was almost impossible. Laws required that almost all of your investors in a startup be “accredited investors,” essentially millionaires. But I knew hundreds, maybe thousands, of smart businesspeople, often with MBA degrees, who were savvy about investments but not (yet) millionaires. Why couldn’t I sell stock to them?
Our business lawyers told us “it cannot be done.” There was too much risk in taking money from people who were not rich. If anything went wrong, as it often does in startups, we would be sued off the face of the earth. Most attorneys would not touch my project. But lawyer Frank Arnold, who had served as a top law enforcement officer for the Texas State Securities Board, said we could do it if we “did it right.”
With a great deal of effort, including becoming a registered stock dealer myself, Frank Arnold and I got approval from the Texas State Securities Board to sell stock directly to the public, but only within Texas. It was called a “Self-underwritten Texas public offering.” There was no public market for the stock; those who bought in the offering would not be able to sell their stock until a later standard national public offering or sale of the company.
We prepared a professional-looking prospectus and I flew or drove around Texas, making presentations in Austin, San Antonio, Houston, and Dallas. Over time and through a series of offerings, we raised about $6 million from maybe 600 investors, averaging $10,000 each. We ran television and newspaper ads, each of which was approved by the state regulators. In one session at a north Austin hotel, I raised $2 million in a three-hour presentation. These people became core customers, especially those who lived in Austin.
As far as I know, no other company in Texas had been as successful at legally raising money from small investors in a startup. We also offered “private placements” for accredited investors in other states, enabling those who had profited from the Bookstop sale to invest in TravelFest. All together, around $13 million was invested in TravelFest.
Today, what we did in the mid-1990s is called “equity crowdfunding.” The Obama administration put in place new “Regulation A” offering rules for startups which now allow regular people to more easily invest in new ideas. This is a wonderful development – and would have made my life much easier in the 1990s.
At the same time, I pulled together an outstanding team of travel and retail experts to execute our ideas.
The First Store
With these funds, in July of 1994, we opened our first store in Northwest Austin. At 6,000 square feet, it soon proved too small.
Our original projections were to sell about $1 million a year in merchandise, primarily books, luggage, and travel accessories. Those sales would yield around $350,000 in gross margin dollars (gross profit) at a 35% gross margin rate. We found that the average travel agency did about a million dollars a year in ticket sales and reservations on which they earned commissions. A mature, strong agency could do $3 million. We thought we might hit that $3 million in our first year given our large store and long hours. With commissions of 10-13%, that would yield another $300,000+ in gross profits, matching the dollars generated from merchandise sales (which took up more space than the travel agency).
Boy were we wrong.
That first little store was overrun. 18,000 people came through the store in its first nine days. We could not hire more travel agents fast enough. In the first year, we did more like $9 million in tickets and reservations, triple our expectation.
While the only recognition I wanted was the joy of our customers, TravelFest also attracted national attention, a tribute to our team’s creativity.
We won the “travel agency of the year” award from the industry trade magazine, Travel Weekly. Our outstanding store design, by Alamo Architects of San Antonio, won “best store design of any type store, single store operator” award from retail industry trade publication Chain Store Age. The New York Times ran a story, “Travel Advisory: Correspondent’s Report: A One-Stop Superstore for Texas Travelers.” The Los Angeles Times headlined, “Store Trek: The Next Generation: Shopping: Texas: From a former mega-bookstore chain owner comes a one-stop travel superstore in Austin.” The Seattle Times crowed, “Travel Marketing – Austin Superstore Points to Future of Travel Sales.” Every Austin television station covered us, as did all the major Texas newspapers. When Southwest Airlines ran a discounted sale, we had to stay open until after midnight to handle the crowds, generating more publicity.
When the State of Texas kicked off a tourism campaign for its state parks, Governor George W. Bush held the press conference at TravelFest (we had a large space for the event and were, unlike other travel agencies, supportive of road trips as well as airline travel).
So we were off to a phenomenal start.
The ideas of TravelFest are best understood by reading this long text from one of our prospectuses:
The Principles of Retailing as Practiced at TravelFest
We believe there are six key factors in retail success:
Here is how we take them into account at TravelFest:
The sun-faded travel poster has become the hallmark of many of America’s travel agencies. By contrast, smart merchants create visual excitement at every opportunity. One of the fastest growing chains in the nation, Warner Brothers Studio Store, presents a fun idea in a colorful multimedia atmosphere. Leading clothing retailers like the Gap attempt to present their merchandise in a way that adds sex appeal and energy. Barnes & Noble, by presenting a library-like atmosphere and adding a coffee shop, has significantly increased the emotional content of the book shopping experience. Even food retailers pile soft drinks and chips up to the ceiling in an effort to create visual appeal. Stores which are perceived as boring have trouble competing in this kind of environment. As catalog shopping, on-line shopping, and television shopping get better, it will be increasingly important for retailers to give the customer an experience they cannot get at home (or anywhere else).
Within this context, we believe that no product is better suited to excitement than travel. If home improvement centers can make chain saws interesting, then we should be able to do the same with Paris and the Grand Canyon. Our exact techniques are always evolving. In the first two stores, here are some of the ways we involve our customers with travel:
Quality store design. A large part of the excitement generated by a retail store comes from the fundamental design of the store itself. Our first store has a model of a cruise ship as our cash register area, a silver airplane wing over the ticket counter, and a statue of our logo on the outside front corner of the building. The colorful store interior design won Chain Store Age magazine’s “1994 Store of the Year” design contest for the single store (non-chain) category. We believe the design for the second store presents an even more stimulating environment for the shopper, and the third store takes the concept to yet another improved level.
Videos. Not only do we rent and sell videos, but we continually run excerpts on at least 4 screens throughout the store. We show full-length videos (at no charge) in the learning center. The second store has a large video wall (similar to those in Warner Brothers Stores) which has an even greater impact.
Events. The continuing development of the Learning Center will be one of the most exciting things we can do for the consumer. At our first “SingleFest” for single travelers, we attracted 212 people and raised over $400 for local geography teachers. The following week, we had the geography teachers in the Learning Center to receive their check. Our first weekend-long “SkiFest” saw 900 people flow through the store. “Italy Fest” drew 250, “Bass fishing in Texas” over 100. Texas Governor George Bush held a press conference at the store, announcing a new state travel program, because there was no better travel agency venue for the TV cameras. We began a major Disney travel initiative by having “Goofy” meet the kids at both stores. As a result, we are now the number one Disney Vacations account in Texas. Our annual attendance now exceeds 8,000, and continues to grow. Most importantly, we believe attendees leave our store remembering an experience they can get nowhere else — not from any retail or new media competitor.
Hours. The overwhelming majority of travel agencies are open Monday through Saturday, rarely later than 6 PM on weekdays and 2 PM on Saturdays. Sunday hours are even rarer. In contrast, hours operated by regional shopping malls are at least 10 AM to 9 PM Monday through Saturday and Noon to 6 PM on Sunday. The weekly shopping peak is Saturday from 2 to 5, the time most Austin agencies close for the weekend. Agencies are also usually closed on the holidays that have become important to retail sales (Labor Day, 4th of July, Memorial Day). TravelFest is open seven days a week, from 9 AM to 9 PM Monday through Saturday and at least Noon to 6PM on Sundays. During these hours, TravelFest also offers complete telephone and fax service, including an 800 number for our out-of-town and traveling customers. We also make our services available on-line at travelfest.com, giving our customers 24 hour access. This website has been substantially improved during 1997; those improvements will continue in the future.
Location. While the nation’s luggage stores and travel book stores think like retailers and look for retail locations, travel agencies often do not. They are usually in office buildings or have small storefronts in strip shopping centers. A great store that people cannot find, or that is not convenient for them (on their way home from work, near other stores, etc.) does them no good. The first TravelFest store is in a very visible location within a major new shopping complex in an affluent part of Austin. The second store is near the downtown offices of a substantial number of workers and on the way home from work for many of them. The third store is in a landmark 1930 shopping center adjoining Houston’s most affluent neighborhood, River Oaks. Each TravelFest store is intended to be convenient, visible, and obvious. Building large stores with bold signs helps facilitate this goal.
Welcoming environment. The typical travel agency is a small office, with little elbow room. It is not an environment where browsing is encouraged. On the other hand, successful retail chains earn their customers’ loyalty by being comfortable places to be. At TravelFest, we want people to “hang out” during their lunch hour, we want them to kill time in the store before or after dinner, we want them to bring their kids, and we want them to browse to their heart’s content without feeling pressured to buy something. Our best customers will come to the store often, stay for a long time, and often find everything they need without much assistance. Our facilities are designed with “shopability” in mind.
Organization. An important part of “ease of access” is the way a store’s products and services are organized. For example, in a traditional bookstore, someone interested in Mexico might have to visit the art, nature, music, fiction, and history sections as well as the travel section. At TravelFest, we go to great lengths and expense to make it easy to find all of our products, to make sure they are well-signed and well-lit, and to make sure that aisles are adequate for traffic flow. By building stores that are relatively large (the first store is 6,000 square feet, the second 10,500, and the third 10,800), we have more space to “do it right.”
One-stop shopping. TravelFest offers all of the following in one store:
Ticketing and Reservations Services
Worldwide airline tickets and reservations
US and European rail reservations
Worldwide hotel and car rental reservations
Cruises, escorted tours, and package deals (Las Vegas, Cancun, Disney, skiing)
Special interest tours (river rafting, wine tours, etc.)
General Travel Services
Access to visa and passport expediting services
Traditional luggage (hardsided cases, luggage on wheels, shaving kits)
Contemporary luggage (daypacks, totes, collapsible bags)
Specialized luggage (for cameras, computers, and golf clubs)
Luggage accessories (carts, tags, straps)
Electronics (shortwave radios, travelers’ alarm clocks, language translators)
Security items (hotel door alarms)
Personal Care (travel irons, coffee makers)
Health (cosmetic bottles, packages of medicines, water purifiers, first aid kits)
Tools (small flashlights, pocket knives and tools)
Decorative and wall maps
Geographic merchandise (globes, home decorative accessories,
Folding maps of every major city, country, and region in the world
General travel guides to every major place in the world
Specialized guides (to birds, to ski runs, to art, to scuba sites, to architecture)
Background reading on places (fiction, history, poetry, cooking, art, music)
Language aids of all types (instruction books, dictionaries, cassettes, CD-ROM, videos)
Travel videos (for rent and sale)
Travel and geographic software (on floppy disk and CD-ROM)
Newspapers and Magazines from places around the U.S. and World
Special interest magazines (hiking, skiing, trains, planes)
Books on specialized travel needs (handicaps, with pets, with kids)
Learning center (classes and lectures on everything from playing blackjack to how to pack to speaking foreign languages)
Geofun (puzzles and games to teach geography or to play on trips; kids’ books)
Reference Works (World atlases, road atlases, hotel guides, campgrounds, airlines)
Reference Desk (free public access to travel industry reference guides normally available only to travel agents, such as the Official Hotel Guide and Garth’s Cruise Ship reviews)
Brochure library (hundreds of travel and tour brochures for in-store reference)
Brochure wall (1-200 selected brochures that are available for customers to take home)
Travel advisory services (e.g., Weissmann travel reports on destinations around the world — for free or a small fee)
In this “information age” people have easier and faster access to information of all types than at any time in history. In health care, people have taken more responsibility for their own health: self-testing of sugar levels, pregnancy, and blood pressure are now the norm. People previously reliant upon computer programmers to help them now satisfy their computer needs themselves with minimal assistance. With improved access to information, more investors are able to do their own research and use a self-service firm. By contrast, the travel industry still works on the model of “I’m the expert and you will have to trust me.” Key industry references like the Official Hotel Guide and Weissmann Reports have not previously been made available to people who want to do their own research.
TravelFest, on the other hand, is committed to giving our customers as much information as they want, on the terms they want. Our most important information asset is the multitude of books, maps, videos, and other products listed on the previous page. By also offering free brochures and travel agency reference materials at our customer-accessible Reference Desk, we present the most travel information available in one place. Other ways in which we share information with our customers include:
The learning center. TravelFest provides a venue for speakers and presentations by travelers of all types. By interacting with real people with real voices who have been there, our customers become more personally involved in the travel process.
Information panels. In each area of the world we have a bulletin board which has clippings about that part of the world. Our customers are invited to fill out index cards with their own experiences and recommendations, another way we encourage “customer-to-customer” communication and involvement in the travel information process.
Computer Terminals. In each TravelFest store, we have placed computers running our own proprietary travel information software. Currently, customers can get information on all the books and maps we carry, a schedule of learning center events, and numerous travel tips. Over time, we expect to add numerous other features to this system, such as customer comments on the places they have been.
People. For many travelers, the most useful thing we can do is to fill the store with other travelers who are willing to share their travel insights. Most travel agencies are small and have a narrow, neighborhood appeal. By offering everything related to travel in large stores serving large areas, we are more likely to attract crowds to our store at any one time. During the grand opening of the first store, we attracted over 18,000 people through the store in the first nine days. Today, we attract more than 1,500 people to each store each week.
TravelFest aims to give each customer the type and level of service that is right for him or her. It would not be unusual to have an entrepreneur making a round-trip flight to Dallas, followed by a self-researcher considering Nepal, followed by the person who wants us to do all the work in sending her on a ski trip. Our convenient, well-organized stores with a multitude of travel books and information are environments which cater to the self-service shopper. If customers want to do their own research, we believe there is no better place than TravelFest. When those customers who prefer self-service are allowed to do it, our staff has more time and energy available to allocate to those customers who need more hands-on help. Our goal, like that of most great retailers, is to “customize” our store to meet the needs of each and every person who walks in our door.
Unbiased, friendly, quality service. Customers who deal directly with airlines and other travel providers do not expect unbiased advice about which airline to fly or which hotel to stay in. As an enterprise with a retail heritage, TravelFest’s bias is to find the best products and services available and offer them, but also to offer the customer whatever brands and items they prefer. We are committed to serving customers on their own terms and beyond their service expectations.
Focus on the individual consumer. Most travel agencies derive a meaningful portion of their business from serving the needs of corporate travelers. Many such agencies would not want a client to visit with his kids. TravelFest has resisted the urge to pursue this large corporate segment of the travel industry. We welcome entrepreneurs, consultants, and other business travelers who are spending their own money and making their own travel plans, but we are not in the business of cutting special deals for large corporations. Our organization and design is based primarily on our objective of serving each customer one person at a time and delivering superior service. We believe that this philosophy is reflected in our actions, and that our individual customers will appreciate it and ultimately reflect it in their shopping patterns.
Retail attitude. We believe that great retailing requires a special attitude — a genuine and pervasive willingness to place the needs of the customer first, ahead of all other variables. Being a frame of mind, this aspect is difficult to describe. Here is an attempt to list some of the implications of TravelFest’s “retail attitude.”
We gladly sell the services of all transportation providers, from American
Airlines to no-frills air carriers like Southwest.
If a customer has a favorite travel agency, that is great. We are happy selling them luggage and books and maps. (Home improvement centers do not refuse to sell hammers to those who bought their lumber elsewhere).
If we have to stay late to meet your needs, so be it.
If you want to make reservations on the phone or Internet, or walk in, we’re ready to serve you either way.
We will always smile and treat you as a loyal customer, even if you have just walked in the door the first time.
If you want a $50 airline ticket and the person who is behind you in line wants a $10,000 cruise, we will not shove you aside.
A critical part of the success of most superstores is the huge selection of products they offer. At TravelFest, we carry over 15,000 different products related to travel. Our goal is to have the best selection of travel books, maps, and background reading about places of any store in the world. We intend to offer a bigger selection of travel accessories than any other supplier. We carry an increasing selection of luggage and carrying devices to meet every need of the traveler. We offer virtually every airline and hotel in the world.
Value has become the latest buzzword. It is important to realize that value is the ratio between “what you get” to “what it cost you.” What you get includes:
The product itself.
The advice you received.
The feeling you had when you left the store — hopefully a desire to return.
In other words, what you get should be the old-fashioned concept “satisfaction.” What it costs you includes:
The price you paid.
The amount of time you spent getting to the store, getting from your car to the store, and finding what you wanted in the store.
How much aggravation, if any, you had to put up with.
Customers are smart; they understand their time is worth money and they understand this total value equation. It is often oversimplified to only mean price and product. TravelFest applies this holistic approach to value, with our belief that price and product are the single most important factors in the equation.
Customers should be able to rely on us to give good value at all times. In areas where there is little pricing flexibility (for example, airline tickets), we will do everything we can to find the customer the lowest fare available. Unlike many travel agencies, we do not presently charge a fee for doing a basic inexpensive airline ticket.
We believe TravelFest is the first consumer travel agency to offer FareWatch. In this program, the traveler can buy fare protection for $5. If a cheaper seat becomes available on your flight, we will let you know.
TravelFest is committed to using all the technologies and methods available to us to lower our operating costs; where appropriate, we will pass some of those savings along to the customer. We will always search for ways to offer better value than our competitors, including the creation of our own “house brand” products and services. Most importantly, our new way of delivering travel should save the customer time and aggravation. This is an important part of the modern value equation.
The Next Chapter
And yet, with all these great ideas and such great initial success, TravelFest failed. We lost all those investors’ money and all of my own. By the start of the 2000s, the company and its stores no longer existed. Stay tuned for the rest of this story in next week’s newsletter!
Update: Read the second part of this two-part story here.
American Business History Center