Masters of Improvisation
Forget strategic planning.
Forget market research.
To grow, you need a company that can respond to change and opportunity at a moment's notice
It is 10 o'clock on a steamy September morning, and as Florida braces for yet another hurricane Global Travel International's 12 team leaders squeeze into the conference room, gather around a table that just barely accommodates them all, and turn their attention to quite a different force of nature.
Michael Gross is on a roll. "I get asked all the time, 'Did you expect your company to become what it is today?' Well, it's a stupid question," rants the charismatic 30-year-old cofounder of GTI, in Maitland, Fla. "Of course we did--we wouldn't have started it otherwise."
If Gross and his partner, Randy Warren, have their way, you will utter the name of their fledgling travel company in the same breath as Microsoft and Coca-Cola. That's how they envisioned their company when they started it, five years ago. And that's how they think of it today. GTI, debt-free and profitable from day one, books $100 million worth of travel annually, which brought its revenues to $10 million in 1998. Such growth generally evokes a number of assumptions: the founders had a great strategic plan, deep pockets, industry connections. Think again. Gross and Warren had none of those. Moreover, one could argue that those resources, had they been available, might well have put GTI on the same path as so many of its competitors, which are going out of business at a rate of about 176 agencies a month. Whether by necessity or sheer foolhardiness, they grew their business by the seat of their pants, unwittingly creating the kind of company that will be the hallmark of the new economy: one not fashioned in anticipation of the future, which is unknowable, but built to recognize and respond to change and opportunity at a moment's notice. As a result, GTI resembles the travel agency next to your local grocery store about as much as Saint-Tropez resembles Coney Island. That much, at least, was deliberate.
Reject Traditional Business Models
Gross and Warren learned about the travel business--and the limitations of traditional agencies--back in 1986, when they were roommates at American University. Warren was a whiz at on-line travel bookings, and he routinely nailed down great fares for his buddies, their parents, and his professors, and then ticketed the reservations through his father's travel agent in Boca Raton. He also took full advantage of those early post-deregulation days, when a savvy travel agent could exploit the flaws in a still-evolving reservations system. One day he stumbled upon the Eastern Airlines convention department, which offered deep discounts to various businesses and professional groups. "I thought it was such a great deal that I booked a few people through that desk," recalls Warren a bit sheepishly. "Then one day a lady from Eastern called me and said, 'You really shouldn't be doing this.' It opened my eyes to the industry--that on the surface they operated one way, but there are lots of things that can be negotiated."
Warren was, essentially, an independent agent, earning commissions and agent discounts from the Boca Raton agency. That, in itself, isn't unusual--travel agencies often use a handful of outside independent agents to generate sales without increasing overhead. But a radically different concept was percolating in Warren's mind. Three years after he and Gross had graduated, he called his friend with an idea that he just couldn't get out of his head. "Remember what we did in college?" he asked. "Well, what if there were 10 of me, or 100 of me, all getting the great benefits we got when we were in school?" But instead of conventional agents, who spend most of their time dispensing information, then coordinating the niggling details of travel reservations, Warren envisioned a cadre of independent agents whose sole responsibility would be to refer their friends and business associates to a central office that would then book travel for them. "We didn't want the agents dealing with the minutia," says Gross, who abandoned a less-than-satisfying legal career to throw in his lot with Warren. "We wanted them to make our phones ring."
The structure, which had been tried before with limited success and amidst bitter protest from "real" travel agents, would allow a company to overcome most of the disadvantages that plague most agencies. Overhead would be vastly reduced, since there would be no high-rent storefront to attract walk-in traffic; advertising costs would be slashed because the company would rely on agents to generate new business; and volume would create economies of scale and eventually influence market share for suppliers. Warren and Gross would charge their independent agents $495 to cover their administrative costs--a fee that was set just under the $500 threshold that triggers state and federal franchise laws. In exchange, members would get the privilege of calling themselves travel agents plus half the commission on all travel they referred to the central office. The fee, plus a $99 annual renewal charge, would ensure a nationwide base of referrals. Members would also be encouraged to recruit more agents. "We looked at what MCI was doing with their Friends & Family program," says Warren, "giving people discounts when they helped sign on more customers. We modified that and decided to give people $100 whenever they recruited a new agent." Ultimately, says Gross, their goal was to become "a membership organization wrapped around a travel agency. But there was no model," he adds. "So we had to make it up as we went along."
Invent Yourself on the Fly
The partners' first sleight of hand was the company's name: Global Travel International. It sounded generic, it sounded big, and it sounded familiar. "We'd call hotels and ask for deals, and they'd say, 'Oh, yeah, we've heard of you guys," recalls Gross. And before the first member was signed up, there was a GTI members' newsletter, a product of Gross's obsession with communication and, as it turned out, a highly effective marketing tool. It was filled with information on the company, on commissions, and on deals that Warren and Gross had negotiated with suppliers by sounding, well, bigger than they were. "We had no clout back then," says Gross, "so we'd negotiate a good deal with, say, a hotel chain, then we'd subtract all our commission out of it and sell it through the newsletter. We wouldn't make a dime on it, but it would make our phones ring, and people would book other travel that we did make money on."
Squirreled away in a rented broom closet, Gross worked the phones to recruit the company's first 50 agents while Warren sat hunched over a computer, making reservations all day. "I'd sign people up and tell them, 'I'll send this over to agent processing right away," recalls Gross. "Then I'd pass the information over to Randy and go laminate the card myself." Their first members were friends for whom they had booked travel during their college days--people who signed on out of loyalty and friendship, and who passed on the good word when their commission checks proved that GTI was not a marketing gimmick.
Membership fees rolled in, and Warren and Gross used that money to create the infrastructure they needed to properly serve their members--one that the outside world assumed was already in place. "The myth became reality," says Gross. They outgrew the broom closet and moved into a much larger but still modest space that accommodated the internal agents they were hiring to take calls from members. Those agents were all salaried staff since "we never wanted the outside agents to think that we're trying to charge them a higher fare because the inside people were getting a commission," says Warren. By the end of 1995, their first full year as an incorporated business, Warren and Gross had more than 1,500 independent agents and had sold $4 million in travel.
Keep Your Ear to the Ground
That they did not drive themselves out of business in those early days is nothing short of a miracle. Gross and Warren refused to slow down, often recruiting three or four new agents a day. Customers endured lengthy hold times on the phone, and internal agents, unaccustomed to handling 50 to 60 calls a day, were often rude. GTI's competitors had fallen into the same trap, and Warren and Gross knew that if they didn't attend to their problems, the company would risk alienating its independent agents.
The two men began to build the company according to what they were hearing from their members, who were also their customers and their de facto sales force. They developed a management team that reorganized their internal agents into product-specific teams, put the newsletter on a strict publication schedule, and created a new quality-control department. When their independent agents began complaining about long hold times, they had the phone system revamped for universal servicing, which allowed any employee on a team to call up information on members. "Our agents had liked dealing with the same person all the time, but they told us they would really rather have their calls answered right away," says Gross. A newsletter ad for a cruise prompted such an enthusiastic response that Warren and Gross organized a separate cruise department. Members' suggestions regarding the Internet spurred the creation of GTI's Web site, where independent agents can book their own travel. Now more than 28% of GTI's air reservations are handled on-line, which frees internal agents to handle more lucrative travel reservations in-house. Warren estimates that 80% of all referral agents make reservations at least once a year and that 90% of them renew their memberships.
Seize Opportunities Created by Growth
"If we sell it, they will come," philosophizes Gross. That has always been GTI's attitude toward suppliers, who keep close track of travel-agency volume. "The airlines get reports on all the agencies," explains Gross. "All of a sudden, we'd get closer and closer to the top of their list."
After the airlines capped commissions, in 1995, one way for agencies to boost their revenues on ticket sales was to earn commission overrides by increasing market share for suppliers. "We weren't a big airline in Orlando," says one executive from a major U.S. airline, "but I noticed that GTI was doing well above the average market share. What they were doing was a new concept for me, but it was obviously working for them--and for us." The airline put GTI on an override agreement--an incentive that gave the agency an additional commission--up to 5%, provided it gave the airline a certain percentage of its air business.
Club Med, too, noticed GTI on its radar screen. "Their district sales manager came in and challenged us," recalls Gross. "If we hit a certain number of reservations with them, then we'd get up to 17% commission and free trips for everyone on staff. We had a year to do it. We did it in two months." Avis negotiated a similar deal with GTI, setting up performance awards that the company shared with agents. "We've been in growth mode ever since we started with them," says Michael DeChello, regional travel-industry manager for Avis in Miami. GTI had learned how to mobilize its referral agents to pump up market share for suppliers, thus reaping the benefits that those suppliers reserved for a shrinking number of top producers.
GTI's success did not go unnoticed. On December 27, 1996, the Wall Street Journal ran a prominently placed story on the company, titled "New Breed of Travel Agents Scares Old Breed." Filled with examples of small-business owners who had signed on as GTI agents to save money on company travel, the article gave GTI credibility as a bona fide travel agency. It was an important stamp of approval, since the company had been unjustly compared with "card mills," businesses that sell agent credentials but that don't actually book travel.
Ironically, the Journal story also very nearly put the company out of business. "I thought, 'It's right after Christmas--who's going to read this?" Warren recalls. He went out for a run that day while the more prudent Gross decided to check in at the office. To his horror, Gross discovered that GTI's skeleton staff had been inundated with calls. "We went into crisis mode," says Warren. "We called people back who were on vacation, and we took 2,000 calls that day. That story gave us tremendous success, but it put us on the brink of disaster."
Call volume increased sixfold, hold times became unbearably long, and Warren pinch-hit on the phones, taking on a double identity as "Jay in reservations." A crisis, sure. But Warren and Gross saw the flip side as well. Determined not to squander the interest among small-business owners that the article had piqued, they began running regular ads in the Journal seeking yet more independent agents. By the end of 1997, the company had 12,031 agents, 60% of them corporate members.
Be Ready for the Unknown
Warren and Gross are now faced with their biggest challenge: they must prepare GTI for a future that is all but impossible to imagine. Anticipating more exponential growth, they've put into place an intensive seven-week program that will train neophyte internal agents, so the company won't have to rely upon the dwindling local pool of experienced agents. They've got a telephone system that's capable of handling 10 times their current call volume and a proprietary computer network that can accommodate additional airline-reservations systems without adding more hardware. "It will allow us to do things we haven't even thought of yet," says Warren.
In the past Warren and Gross struggled to keep up with the growth they had put in motion but that always seemed on the verge of consuming them. Now they're older, wiser, and better prepared. But not complacent, not predictable.
As Gross stands before his team leaders, he tells a few cautionary tales. He's been reading about problems at Starbucks and disappointing profits at Disney. "Michael Eisner has been my hero," he says. "How did he stumble?" GTI, now 22,000 members strong, has never had a bad year, a bad quarter, or a bad month. But if giants falter, Gross cautions, so can they. He doesn't want his staff to take success for granted; he doesn't ever want them to think that they can afford to slow down.
"Eisner says all companies need to reinvent themselves every few years," he continues. "Well, I disagree. We don't need to reinvent, we need to evolve." It is an important distinction for all entrepreneurs. Companies that evolve, that constantly modify and change in response to the marketplace, don't need to reinvent themselves. They stay ahead of the curve naturally. And they put themselves just a little bit closer to the top of the food chain.
Donna Fenn is a contributing editor at Inc.
Masters of improvisation need masters of systems
Along with their business, Warren and Gross also developed their staff on the fly. Most of their key managers came on board when the company was young, so they've grown into their current roles.
HIRED AS: Bookkeeper in 1995
MAJOR RESPONSIBILITY TODAY: Director of operations; oversees five departments
SALARY INCREASE: 140%
HIRED AS: Travel manager in 1995
MAJOR RESPONSIBILITY TODAY: Director of air-travel operations; supervises 45 employees
SALARY INCREASE: 100%
HIRED AS: Receptionist in 1996
MAJOR RESPONSIBILITY TODAY: Human-resources team leader; handles all aspects of employee benefits
SALARY INCREASE: 63%
HIRED AS: Administrative assistant in 1996
MAJOR RESPONSIBILITY TODAY: Director of marketing; supervises a staff of 13
SALARY INCREASE: 105%
On the way to being a big fish in a big pond
|Total U.S. travel sales through agencies||$93.5 billion||$126 billion|
|Average travel sales per agency location||$2.9 million||$3.8 million|
|Average number of full-time employees per agency||5.5||6.5|
|Source: 1998 Travel Weekly U.S. Travel Agency Market Survey (conducted by Louis Harris and Associates).|
|GLOBAL TRAVEL INTERNATIONAL||1994||1997||1998|
|GTI's travel sales||$500,000||$67 million||$100 million|
|Number of GTI independent agents||56||12,031||22,000|
|Number of full-time GTI employees||5||80||120|
DONNA FENN | Inc.com Contributing Editor
Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.