Highlights From: Volume 21, Issue 3 •
February, 1999
Masters of Improvisation
By Donna Fenn
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.
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.
MARILEE GALINDO
HIRED AS: Bookkeeper in 1995
MAJOR RESPONSIBILITY TODAY: Director of operations; oversees five
departments
SALARY INCREASE: 140%
MELISSA WARD
HIRED AS: Travel manager in 1995
MAJOR RESPONSIBILITY TODAY: Director of air-travel operations;
supervises 45 employees
SALARY INCREASE: 100%
KATHERINE DEMING
HIRED AS: Receptionist in 1996
MAJOR RESPONSIBILITY TODAY: Human-resources team leader; handles all
aspects of employee benefits
SALARY INCREASE: 63%
MAUREEN MCHALE
HIRED AS: Administrative assistant in 1996
MAJOR RESPONSIBILITY TODAY: Director of marketing; supervises a staff
of 13
SALARY INCREASE: 105%
* Highlights selected from Inc., Volume 21, Issue 3 • February, 1999
* As of August 2002 Global Travel has
over 40,000 Independent Travel Agents in 50 States and 85 Countries
serviced by a team of over reservationists and support staff in
Florida. The current price for their program is $495 with an annual
renewal of $129.
