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Building the Apartel Part: 2

2015-12-01

In case you missed it, read Part 1 of the story.

An Exotic Fruit and an Idea

With issues mounting, a trip to Brazil that is now part of company legend would provide a push towards something different. On the trip, Areg and Amoor found themselves in markets with fruits they never knew existed, let alone eaten. They bought several varieties and brought them back to their hotel, but for all of the services the hotel provided, a knife was unavailable.

After washing the fruit in the bathroom sink, they went to the hotel kitchen to procure a knife. Several minutes and sincere promises to the chef later, they had a knife to cut their fruit. The experience prompted the idea of offering the luxury of a hotel with the convenience of home.

From the B&B experience in Amsterdam, it was clear that a market for apartment style lodging existed there. Discouraging experiences with the travel agency business left them wondering if offering their own product was a better path than advertising someone else’s. At the same time, they knew that providing the same level of service as their B&B wasn’t scalable.

They eventually decided to buy an apartment in Amsterdam with the intention of renting it out to guests. What they found was the Prinsengracht Apartment, Ginosi’s first foray into short-stay apartments.

Almost immediately, the apartment began selling. The online travel agency and its technical resource proved to be a real asset in marketing and selling the new investment. While the short-term rentals were a success, the online travel agency continued to struggle.

On a trip home to Los Angeles, the idea of leasing apartments to rent as short-stays occurred to Areg. After researching rent prices, however, it seemed too risky. The high rents in Hollywood would put the fledgling company in serious jeopardy. Expansion with that plan would have to wait.

Over time, the online travel agency began to resemble a free platform for other businesses to advertise their products. The founders were receiving mounting pressure from family members who were concerned that they were being taken advantage of. Some even pushed for them to call the project a ‘charity’ for Armenia. But in Amsterdam and Yerevan, the belief persisted that they were onto something. But was the idea worth the risk involved?

Taking the Risk

The idea of leasing apartments in Hollywood stuck with Areg into 2013. With success in Amsterdam and a promising core of Ginosiks in Yerevan, expansion seemed imminent. The impetus for that expansion came in the form of a man named Michael Womack.

Michael convinced Areg and Amoor to lease apartments in Los Angeles and set them up for rental. The technology heart of Ginosi would allow the apartments to sell dynamically online. It was quickly apparent that the risk was worth it. By the middle of 2013, Ginosi had twelve apartments in Los Angeles.

At the company headquarters in Armenia, things were great. Selling the apartments on the backbone of the OTA infrastructure was easy. It seemed that the co-founders were well on their way to realizing the dream of a hospitality company based in Yerevan. At the same time, there would be lessons to be learned about managing apartments from half a world away, just around the corner.

Around the time that apartments began to really sell, staff turnover in Hollywood made logistical problems like housekeeping schedules and key distribution nearly impossible. With both Areg and Amoor in Yerevan, Ginosi needed to find a way to solve these issues remotely.

Areg did what many do in times of crisis, he turned to family. Several family members who were located in the US stepped forward to help. As the apartments began to add up, so did Ginosi’s staff both in the US and in Yerevan. While operations management continued to be a problem, juggling two separate business models became a more formidable issue. Not only were the rentals more profitable, they also did not come with the problems tied to the travel agency.

At the annual gathering of Yerevan headquarters staff in 2013, there was a discussion about the future of Ginosi’s business. The answer was obvious, Ginosi would continue as an short-term apartment company and would end its OTA business.

Simply ending the OTA support alone, however, did not fix the operational issues in what came to be known as the ‘Frontier.’ Running a travel agency and running a hotel-style business are very different things. Areg knew about apartment rentals from his experience in Amsterdam and after months of running the operation remotely, he flew to Los Angeles in August of 2013 to stabilize operations.

2014: Growth and Storm Clouds

At the outset of 2014, Ginosi could only grow. Apartments were added not only in LA, but in Seattle, Washington, DC, and Madrid. Hollywood and Los Angeles continued their growth in Ginosi’s core market. Ginosi also began listing apartments on popular OTAs like Booking.com and Expedia which led to faster sales and even more advancement.

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Unfortunately, not all was well with the vacation rental market. High profile lawsuits involving Airbnb and HomeAway highlighted the growing controversy concerning vacation rentals across the United States. Several cities, including tourism destinations like San Francisco and New Orleans began drafting new laws or enforcing existing laws in an attempt to regulate the vacation rental industry.

Although Ginosi was as yet unaffected by these developments, a way to protect the business from the murky regulation and eventual law, changes were an obvious need. With this in mind, company leadership began developing a plan to take Ginosi not only through any legal challenges, but also to a point where it would be immune to the whims of government regulation.

The resulting plan involved categorizing all Ginosi products into four maturity levels. Level one encompassed the initial expansion of Ginosi into the short-stay apartment world. These apartments were single apartments with little connection to other apartments in the area. Level two products featured apartments that would be in the same building, possibly on the same floor, but with no central office. Level three products featured apartments in a single building with an adjacent office, some signage, and on-site storage. These first three levels were already featured in Ginosi’s portfolio. Unfortunately, these levels were also the most vulnerable to legal issues.

Level four apartments presented some immunity from legal challenges. These products, according to the plan, would feature an on-site office, full signage, and full hotel permitting. The only issue was that these properties were just that, a theory. For all of the growth and success of 2014, Ginosi now needed a level four property as a proof of concept.

Check out Part 3!

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