Part 1: Finding an Inn and building a company

Tell me how you came up with the idea behind Bedandbreakfast.com?
The idea came when my wife and I moved to Dallas, and we were looking for houses to buy and we were doing it from print newspaper ads. The ads sounded really good and then we would drive by and the houses were just dumps.

And this was in 1990, and I told my wife, "you know somebody should take all these pictures of houses, put the floor plans in and the space etc." And then if I could go into someone's office and say I want to see this, that would be great.

But at the time I was thinking, well someone is going to do it; I'm 24 years old and I just graduated college and there are multiple listing services out there. I can't do this but eventually someone will and that is going to be fantastic.

We've always loved staying at bed and breakfasts, and a few years later we were planning a trip to Hawaii. We've stayed at B&Bs in Dallas, Grandbury, Fredericksburg and we wanted to find one in Hawaii. And sort of the same idea hit me in regard to bed and breakfasts being put online and having the search capability to find one that you needed within a certain location etc.

I checked out thirteen books from the library and they were so hit and miss. I had to read all the descriptions, some of the books didn't have pictures and they were all very limited by the print medium really. So I said to my wife, you know if someone could put these all online for the bed and breakfast industry that would be fantastic.

I started looking into the statistics of bed and breakfasts in the 90's and they had increased in numbers from 1000 properties to 15,000 properties. The average nightly rate had increased from US$78.00 to US$120.00. And at about this time the Internet was just starting to take hold and none of the B&B information was available online.

So I put together a business plan and my wife was getting her Ph.D. in finance so she helped me with the business side. We raised money from friends and family and I quit my job at SWBell and started this company.

What did people say when you quit?
People were saying I wish I could do that. Some others were like, "Moron, what are you doing? You're set for life here." Those are the people who are just happy punching the clock all day. But you know we didn't have kids, and so it was easier for me to take a risk.

The original model was let's offer all the bed and breakfasts that we can find, a free totally comprehensive listing. This would have been just pages and pages of information. We thought we'll send out these forms, they'll send it back, we'll key it all in. The database will be so valuable we'll license it to people. But what happened is the innkeepers thought it was a gimmick, so out of the 15,000 we sent our mailing to, we only got 2,700 properties the first year. A year later we only got 3,000 and so then we decided that we needed to help the innkeepers understand the value in our proposition.

The whole distribution plan was based around, "Well, we can't afford to go out and build this brand." At the time, our site was called inns and outs and people were thinking we were a porn site and that wasn't helping us with the innkeepers. It cost me US$25,000.00 to buy the current name and that was the best money I've ever spent.

Our goal was to ultimately create the best database and searching mechanism around the bed and breakfast niche. And we went to all the travel sites and said, "We'll give you the data, we'll co-brand it for you for free, you guys give us the eyeballs, we'll give you the content."

That worked really well; we were at sites like Expedia and Mapquest and Travelocity, and other sites that are out of business now. Once we got the distribution, then we had the eyeballs, then we went back to the innkeepers and said, "We're now providing value, now you guys can pay for it." The ramp was slow and it took a couple of years. But each year it kept progressing and I could see that we were going to make it.

Was it difficult to go back and charge people to be listed on your site?
It was different, because we weren't charging the consumers - we were charging the innkeepers. I think that made it easier for us. We started charging the innkeepers but by that time we were driving business. It was a no-brainer, and we had three levels of membership. We had various plans for each level of membership and what it covers. And once you get them to sign up, then it's all about renewals and your acquisition rates and costs, and renewal rates and cost. The renewal rates are very important to pay attention to and to drive at.

What kind of renewal rate do you guys have?
It's 75% and we're making more changes to our websites to show more value to the innkeepers, changes that I think will boost that level even more. Our effective rate is 85 to 90% and we've more than offset that with marketing because people find us. Our innkeepers find us on all these top sites and they come to us. And a lot of our marketing is done through word of mouth. I think one of the keys to renewal rates is to keep the promises you make and consistently engage your customer base.

Continued...