Outsourced IT Platform Attracts Merger Partner for Real Estate/Hospitality Company | Article

resorts with ITLike most start-up entrepreneurs, Ed Powers knew his real estate and hospitality business would have little expertise in technology. But the high-dollar clientele he would be serving was tech-savvy, so not just any IT platform would do.

Outsourcing IT development seemed a savvy choice for Private Escapes Destination Clubs, LLC, a company that allows dues-paying members access to private homes in resort areas and sought-after cities. This is an option for people who do not want to own second homes in wonderful places.

“We wanted the IT expertise without making a substantial IT investment,” says Powers, a Co-Founder and Executive Vice President Operations.

From the outset (2003), Private Escapes outsourced the development of its Web site and reservation system to Managed Business Solutions LLC (MBS). The company does its own content maintenance.

Powers says the fact that MBS is also located in Fort Collins, Colorado, was a factor in its selection. “We wanted a local presence. If we needed them, we knew they would be here in minutes. We weren’t interested in someone who had to fly in,” says Powers.

The company was also reassured because MBS works with HP. “They had the right technology resources at the right price,” he continues.

Working through the early challenges

Step No. 1: MBS helped Private Escapes develop a comprehensive IT strategy, then search the market for off-the-shelf software. Since destination clubs was a new industry at the time, the two felt no commercial applications were suitable. “They helped us make our initial buying decisions,” the executive recalls.

Since the reservation system connects “to everything,” it was the most difficult to design and develop. “We did have some bumps and bruises here,” says Powers. MBS was late on its delivery, but “it wasn’t fatal,” says Powers.

The system was challenging because members who want to book a house in, say, Vail, can put in a range of dates for their prospective trip. “There are a lot of automated tools to help members plan their trips,” explains Powers. This reservation system connects to the 450-member database and the property log — Private Escapes currently has 57 properties in 26 locales. Then there’s reservation history. At the end of a Web session, members generate their next dream vacation in a private home.

After a visit, members can return to the site to share their ratings of their accommodations and add any comments. “We can track all activity post-trip,” says Powers. “Our reservation system is the backbone of our business,” he adds.

He says as an outsourcing buyer it was his job to work with his supplier until they got the result he wanted. “Our philosophy was: ‘It’s not how far you fall, but how high you bounce. They bounced high,” he reports.

If there is a dispute, Powers says “a quick phone call” settles the matter. “It’s easy because we always hear ‘yes,'” he reports. Adds Dan Sutton, Vice President, MBS, “We have always been up front with Ed. We hide nothing. We advise him of the problems and challenges and work together to determine how we are going to resolve them.”

Because the reservation system is expandable and flexible, MBS has been able to add modules. It is also unique to the industry because it’s one of the few reservation systems that integrate data into the accounting platform.

The IT platform remains a work in progress. Powers says he and his IT manager scope out needed changes to enhance the platform. “These discussions are very informal because we know their system so well,” says Sutton. Adds Sutton, “They start talking, and we can finish their sentences. Then we come back with a quote,” he adds.

Attracting a merger partner

In addition, the customized reservation system has been able to make changes to accommodate new business conditions. A big change is Private Escapes is now merging with Ultimate Resort, making the new entity the No. 2 player after Exclusive Resorts.

“Our technology platform is part of what attracted Ultimate Resort to us,” marvels Powers. “They drooled at our functionality and told us, ‘We want that,'” he continues. “Our outsourced work was a major factor in this merger offer.”

When it started, Private Escapes had six people plus Hershey, the company mascot, a black lab. Today it has 40 employees in Fort Collins and 30 in the field. He says the company will have 150 people after the merger.

MBS stretched to work with a start-up

Sutton says working with start-ups like Private Escapes “is tough because money is an issue. They have to get the most bang for the buck right now. We had to stretch and economize,” he says.

He says the supplier relished the challenge because real estate hospitality “is a new industry.” He says it was also in MBS’s best interest to “be flexible since we planned to be with them for the long term.”

The supplier started doing business 15 years ago as a privately-held ITO supplier and has since become a subsidiary of Sealaska, an Alaska Native-owned company. “We’ve always been a small company with big plans,” says Sutton.

Lessons from the Outsourcing Journal:

  • Start-ups are better off outsourcing areas where they have little expertise. IT is typically one such area.
  • Start-ups have to find a supplier who is willing to stretch and economize because new companies have tight budgets. But it can be a good investment for the supplier in the long run if the company does well.
  • IT can be a differentiator. Private Escapes’ IT reservation system was a major reason why it attracted a merger partner.
  • Buyers have to work with their suppliers when there are challenges. Suppliers have to be transparent. When the relationship works, both parties can finish the other’s sentences.


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