Chip Conley, First Interview: by Bob Morris

Chip Conley

Chip Conley is the founder and CEO of Joie de Vivre Hospitality, California’s largest boutique hotel company that was founded in 1987. At the age of 26 with no industry experience, Chip created The Phoenix, taking a 1950s seedy motel and turning it into a world-renowned “rock n roll hotel” that catered to celebrities from David Bowie to Linda Ronstadt. Building on transformational leadership practices, and an innovative design formula that enables customers to experience an “identity refreshment,” the company now consists of over 40 unique and award-winning hotels, restaurants and spas across the state with over 3,000 employees and revenues approaching $250 million. Chip and his company’s values and operations have been featured in TIME, Fast Company, Fortune, and People as well as the Wall Street Journal. In his most recent book, PEAK: How Great Companies Get Their Mojo from Maslow, Chip shares his unique prescription for success based on Maslow’s “Hierarchy of Needs.” He cites real-world examples from his own company and peak performers like Southwest Airlines, Apple, Whole Foods Markets, and Harley-Davidson. His previously published books include The Rebel Rules: Daring to be Yourself in Business and Marketing That Matters: 10 Practices That Can Profit Your Business and Change the World, co-authored with Eric Friedenwald-Fishman. He earned his BA and MBA degrees from Stanford  University.

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Note:  Today is June 28, 2011. Chip has just announced  the debut of www.peakorganizations.com, a site featuring new programs and resources based on his book PEAK: How Great Companies Get Their Mojo from Maslow.

Morris: One of the greatest challenges all organizations now face is differentiating themselves from their competitors. By what process has Joie de Vivre Hospitality accomplished that?

Conley: One of the strange ironies in business is that the best time to differentiate your company is during a recession because most of your competitors are just focusing on the lowest common denominator.  While I’m in the hospitality biz, the reality is we believe we’re in the “creating joy” business and what distinguishes our customer experience is how we deliver service.  During the dot-com bust, post-9/11 period, most of our competitors were firing staff left and right, canceling holiday parties, and doing everything they could to save a dime.  We chose a different path.  Similar to our competitors, we had to cut costs but we continually asked ourselves, “Will the employees who deliver service notice this cost cutting measure?”  The reality is that a cost-cutting measure that’s caustic to employees will translate into a poor customer experience.  So, rather than do major staffing cuts, we took our top managers and leaders in the company and cut their salaries by 10% for a two and a half year period, I took a “pay sabbatical” for more than three years, and we froze all other salaries in the company.  But, this meant our hourly employees (the people most of our customers see) didn’t have any layoffs, nor paycuts, and, in fact, had annual wages increases during this time.  The bottom line is that our company tripled in size during this traumatic economic time in the Bay Area (2001-2005) when most of our competitors shrank.

Morris: Here’s a related question. How does Joie de Vivre Hospitality retain its unique identity while sustaining its commitment to constant improvement?

Conley: There are very few companies that have the mission statement of the organization embedded in their name.  Joie de Vivre isn’t a particularly practical name: it’s hard to spell, challenging to pronounce, and most Americans don’t know what it means.  But, the fact it means “joy of life” and it defines what we attempt to create for our employees and our customers in our business means that we have a singular purpose that defines how we do business, whether that’s opening a boutique hotel, a restaurant, a bar, a spa, a luxury campground, or a residential condo tower.  We define improvement based upon how we innovate in creating joy for our customers.

Morris: To what extent has Abraham Maslow, especially his concept of “Hierarchy of Needs,” had a significant impact on your own thinking about leadership, management, and customer relationships?

Conley: During that last downturn, on a particularly difficult day when I was pondering how we were going to make payroll, I ended up in the self-help section of the bookstore around the corner from our offices.  That’s where I stumbled upon Abe Maslow again after having been slightly acquainted with his positive theories about human motivation back in college and business school.  What attracted me to Maslow was that he really popularized the idea of human potential and isn’t that what business is all about.  In fact, I believe leaders are really “awakeners of potential, not managers of experience.”  A great leader visualizes potential – in people or in business ideas – and actualizes into reality.  During our dark days of the last downturn, we reinterpreted Maslow’s Hierarchy into a means of helping our employees, customers, and even our investors feel more self-actualized.   I know “self-actualization” sounds like an awfully new age phrase, but don’t forget that the US Army had a popular decade-long ad campaign that summarizes the definition of self-actualization: “be all you can be.”  If you create an organization in which everyone is being all they can be, I promise your company will be successful.  Creating peak experiences for your people creates peak performance for your organization.

Morris: In Peak, you share your thoughts about three “relationship truths.” For those who have not as yet read the book, what are these “truths” and why are they relevant to Joie de Vivre Hospitality?

Conley: First off, I synthesized Maslow’s 5 levels of his Hierarchy of Needs into three key themes: Survival (physiological and safety needs at the base of the pyramid), Success (social/belonging and esteem needs in the middle), and Transform (self-actualization).  I call this the Transformation pyramid and these three levels define how we aspire to create peak experiences for our three most important stakeholders.  For example, with our employees, the Survival need is Money, the Success need is Recognition and the Transform need is Meaning.  Most companies and leaders get stuck at the bottom of the pyramid in terms of how they try to motivate their employees, but great companies and leaders know that it’s vital to meet the foundational needs of employees, but that loyalty and inspiration come further up the pyramid.  So, there’s a relationship truth for each of these stakeholders that uses the Transformation pyramid as the model.  Great companies like Apple, Harley, Whole Foods, and Google are phenomenal at leading from the top of the pyramid and creating self-actualized employees and customers.

Morris: In Corporate Culture and Performance, John Kotter and James Heskett suggest a causal relationship between a strong culture and peak performance: “Corporate culture can have a significant impact on a firm’s long-term economic performance. We found that firms with cultures that emphasized all the key managerial constituencies (customers, stockholders, and employees) and leadership from managers at all levels outperformed firms that did not have those cultural traits by a huge margin.” That is, “culture” and character” are synonymous. Presumably you agree.

Conley: Culture is the organizational glue that holds a company together, especially during a downturn and particularly now that we have more of a virtual workplace where people are traveling or working remotely more often.  I’m a big believer in a theory I learned in biz school called the “Service Profit Chain” which suggests that in order to be create sustained profits, you first need to create a unique corporate culture which drives employee satisfaction which leads to customer loyalty which, ultimately, results in profits.  Profitability is the lagging – not the leading – indicator of whether a company is truly successful.  Back in 1996, our top 35 leaders in the company did an off-site retreat studying Southwest Airlines and we found that this was exactly how they did business as, against the odds, Southwest’s culture got stronger and better as they grew and it was a big reason for their sustained success.  We turned this into the “Joie de Vivre Heart,” a visual icon that shows the causal relationship between culture, employees, customers and profits and each of our new employees goes through a training to understand that the Joie de Vivre Heart is the core of our business model and pivotal to our success.

Morris: Given your response to the previous question, how do you identify peak performers or at least those who have high-potential during the interview process?

Conley: Each of us has one of three relationships with our work.  You can either have a job, a career, or a calling.  The interview process should help uncover whether this particular candidate will be able to live their calling in this working relationship.  When you live your calling, you are energized at the end of your 8-10 hour day.  When you’re living a job, you’re depleted by it.  So, it’s all about making sure that we find the right habitat for you: the right functional position, the right collection of people surrounding you, etc…  So, I would rather ask a candidate who wants to work on the front desk of our hotels, “Tell me something you did for someone else in the last 30 days that made you feel good” than “Explain what you learned in your computer training with Marriott.”  How a candidate answer that first question – their level of enthusiasm and authenticity, and, just their ability to come up with a good example will tell me more about whether they will be living their calling in this position with us.  Leaders are awakeners of potential, so capacity is often more important than experience.

Morris: Is Joie de Vivre Hospitality customer-centric, employee-centric, or both?

Conley: It’s a virtuous circle…treat your employees well and, typically, they’ll treat your customers well, and, as a result, your investors will be treated well.  I know this sounds way too simple, but many companies focus on the investors first.  This can be a great short-term strategy, but it’s risky in the long-term, especially in a service business.  Southwest co-founder and former CEO Herb Kelleher is one of my favorite quotable execs.  He used to say, “The customer always comes second.  It’s the employee who comes first.”

Morris: I share your high regard for Danny Meyer and what he reveals in Setting the Table when explaining the values that he and his associates share in the Union Square Hospitality Group. How does Joie de Vivre demonstrate many of the same values each day throughout its organization?

Conley: Most companies have some mission or values statement that is entombed in an ornate picture frame at headquarters, but the real question is how do you line level employees feel about that values and do they even know them.  Joie de Vivre has 5 core values that our employees crafted a dozen years ago and we have “cultural ambassadors” from each of our 38 hotels that help to refine our cultural values as a company and make them real in the workplace.  But, I really think keeping it simple is essential.  Our mantra as a company is two words: “create joy.”  Each of our employees is given a rubber band wrist bracelet with that message on it.  It speaks to our noble purpose and helps create a resonance with why our core values are important.  If your company doesn’t have a two or three-word mantra, pull together a team to figure it out as once your employees truly “get it,” there’s much less need for thick employee handbooks and training manuals.

Morris: Restaurant companies and hotel companies offer several of the same services (notably food) but there are significant differences that, in turn, present unique challenges and opportunities insofar as hospitality is concerned. Is that a fair assessment?

Conley: Yes, the restaurant biz is a sprint and the hotel biz is a marathon.  A restaurant typically opens at a certain hour, puts on a show, then closes down for the night and, in the midst of that, an entertainment experience is delivered and restaurant staffs’ tend to run on lots of adrenaline.  Hotels are 24 hour business – they never close.  In sum, we have lots of employees who’ve worked in one of our 20 restaurants or one of our 38 hotels, but there are few who love them equally – usually they’re more drawn to one or the other.

Morris: The Four Seasons and Ritz-Carlton organizations have recently been the subjects of books written by Isadore Sharp and Joseph Michelli, respectively. What do you admire most about what they do and how they do it?

Conley: They’ve both built great luxury brands.  One of the key ingredients to their success is how they’ve built an empowerment culture.  You will encounter problems in any hotel.  The question is how does the staff solve the problem in a way that you feel great about the experience.  The Ritz-Carlton, long ago, gave their hotel front desk employees the ability to “spend” up to $2,000 to solve a customer problem.  This might mean giving a guest a free night in the hotel because their neighbor was too noisy or taking a room service charge off the bill because the eggs came cold or something much more costly to the hotel.  The fact that the company trusts their employees in this way means the customer rarely hears, “let me check with my manager” and it gives the employee the sense that they have a bigger and more important job.

Morris: Here’s a question I bet you’re asked all the time. Of all the companies you have observed outside of the hospitality industry, which consistently delivers superior customer service?

Conley: Zappos, the online shoe and apparel company, was just purchased by Amazon for $900 million.  This is what I call Karmic Capitalism: “what goes around, comes around.”  CEO Tony Hsieh has become a good friend and he’s a huge evangelist for my book, PEAK.  What makes them different is that they truly believe – deep down to their toes – that they are in the business of “delivering happiness” and this informs all of the unorthodox service decisions they make, whether it’s the fact that they provide free shipping (even if you’re returning something) or the fact that they offer new employees the ability to leave their job any time in their first couple of months and be paid $2,000 with no questions asked.  Tony believes that if a mercenary and unhappy employee realizes that Zappos isn’t their proper “habitat” that it’s better to find that out early and give them the incentive to move on to some other company.

Morris: One of the characters in Ernest Hemingway’s novel The Sun Also Rises tells his friends in Paris that previously, in the United States, his company became bankrupt. They asked him how it happened. “Slowly and then suddenly.” I think that describes many business breakthroughs that have occurred. Your own opinion?

Conley: That’s also an apt description of what the 2008 credit crisis felt like: “slowly and then suddenly.”  Many companies (and maybe the U.S.) have an unstable foundation that’s not built on some of the PEAK principles I’ve talked about here.  So, when a small earth tremor comes (given that I live in San Francisco, earthquake country, I figured this metaphor was apt), the company can come tumbling down because of this poor foundation and, possibly, the lack of that organizational glue we call culture.  Similarly, on the positive side, great innovations don’t just happen overnight.  It’s great leaders that create the conditions for these breakthroughs to occur.  While the conditional components may vary from industry to industry and in different parts of the country and world, I would venture to say some of the essential elements include: an empowering culture, a strong sense of purpose, an impatience and desire for constant improvement, a willingness to constructively critique people and processes, and a bias toward “transformational leaders” rather than “transactional leaders.”

Morris: How is it that you have written 3 books in the past 8 years and grown your company into the second largest boutique hotelier in the U.S. at the same time?  Do you sleep?

Conley: I probably don’t sleep enough, but am now learning the fine art of siestas on certain weekends.  When someone is living their calling, they have a high pain threshold (think of a woman having a baby or Lance Armstrong riding up a steep mountain).  For my first two decades as the CEO of Joie de Vivre, I was living my calling as the chief innovator and culture creator surrounded by amazing folks who were just as committed to our purpose as I was.  But, in the last few years, I’ve come to realize that my new calling is writing and speaking and, fortunately, I’ve found that there’s an audience out there who’s interested in reading and listening.  So, now, I’ve created PEAK Seminars and we’re teaching those around the country and I’m working on a couple of new books.  Frankly, the last couple of years have been challenging when I’ve been juggling an old calling and a new one, but, just when I think I may have hit my limit, I’m often energized with a “second wind” (that’s why I like the Lance Armstrong analogy) that comes from somewhere I hadn’t even imagined.  In fact, on more than one occasion, someone has come up to me at the end of one of my PEAK speeches and said that I’m “channeling Abe Maslow.”  When you’re living your calling, you tap into something much deeper than yourself.

Chip Conley invites those who read this interview visit these Web sites:

www.jdvhotels.com

www.chipconley.com

He can also be found on Twitter and Facebook.

 


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