We talked to John Lee of H2O Hospitality about the largest tech-based hospitality company in Korea and Japan, and he had the following to say:-
First of all, how are you and your family doing in these COVID-19 times?
John Lee: We are all based in Korea and Japan, where the government had superb preventive measures during the pandemic, so our lives didn’t change much except for wearing a mask.
Tell us about you, your career, how you founded H2O Hospitality.
John Lee: My name is John Lee, and I am Korean-Canadian, born in Vancouver, British Columbia. I am the founder and CEO of H2O Hospitality, the largest tech-based hospitality management company in Japan and Korea.
During my time at Cornell Hotel School, we were taught more on how to serve the customers (guests) better, but I always felt that the hospitality industry was not adapting to the fast-changing tech world as much as other industries. The world is changing very fast, and needs are changing, but travelers are forced to choose between flawed options. To solve this problem, I founded H2O hospitality to build the next generation hospitality company to become the world’s largest and most loved hospitality brand.
How does H2O Hospitality innovate?
John Lee: Let’s first start with who we are. H2O does not stand for the water symbol. It actually means hospitality 2.0: second-generation hospitality. We define generation one hospitality as manual centric management service with a soulless design, and generation two hospitality as a tech-based operating system with an authentic experience that allows more efficient hotel operation with a much lower fixed cost.
H2O is the largest tech-based hospitality company in Korea and Japan, with 6,000 rooms under management in 13 cities in 3 different countries. H2O targets between 2.5~3.5-star sectors. We target digital native travelers who desire an authentic experience but don’t want to spend $500 a night. These are some of the examples of our properties.
So how are we so different? We currently manage our properties under the brand called “H2O Stay”, and we took out these physical departments within the building to lower the fixed cost of the properties. For Sales & Marketing, we have a centralized revenue management system that allows us to operate different hotels in different regions under one operation team. For C/S, we have a centralized chat-based C/S system that does not require the C/S department to be located within a building to take a phone call. For the Front desk, we replaced it with our online-check-in system and smart locks. For Housekeeping, we replaced it with our housekeeping platform that connects check-out schedules of the rooms and the housekeepers. We also source, train, and dispatch housekeepers internally to perfect Quality of Control.
Growth was not a hard factor for us because it was very simple to sell our product: We make more money for our building owners. The only reason we can do this is because of our tech and different approach of operation.
How the coronavirus pandemic affects your business, and how are you coping?
John Lee: Covid-19 hit the tourism industry the most, and we were affected by the pandemic initially as well. However, ironically this period became an opportunity for us to enlarge our market share in both Japan and Korea. A lot of our competitors went bankrupt as they could not handle the monthly rent from their master-lease contracts.
H2O, on the other hand, focused on the management contract model with our building owners, not master-lease (more of the Starbucks model where you share the revenue or profit with the building owner). Therefore, it was not very hard for us to survive during the hard time. And when the macroeconomic downturn comes, the first thing property owners try to do is to lower their fixed cost as they can’t increase their topline. So, more property owners and real estate developers have approached us to manage their properties during this time. We currently have over 9,000 units under our contracted pipeline until 2022, so we believe when the covid-19 risk soothes out after the vaccine injection, H2O will be able to take advantage of the market the fastest.
Did you have to make difficult choices, and what are the lessons learned?
John Lee: In 4Q 2019, we successfully closed our Series B+ round and were planning to grow further through master-lease contracts so that we can increase our inventories very fast before the 2020 Tokyo Olympics. However, rather than “buying” the growth, we decided to choose the path where we hedge risk and focus more on long-term projections.
Back then, we had no idea that Covid-19 will hit the world by the next quarter, but it was a very wise decision for us to avoid master-lease contracts as we could have also been in a very bad situation at the moment if we had contracted those properties under long-term master-lease contracts.
How do you deal with stress and anxiety?
John Lee: I travel to our properties in different cities.
Who are your competitors? And how do you plan to stay in the game?
John Lee: Prior to Covid-19, there were many VC backed competitors globally. Most of them were very well funded with a unicorn valuation, but among the top-5 global companies like Sonder, Lyric, Hello Alfred, and Hostmaker, they all shut down their business except for Sonder.
H2O was the only company that didn’t lay off any employees and at the same time expanded the # of inventories further during this period. Our target is to become the largest hospitality brand in Asia by 2024.