The Paul Constantinou story is a classic ‘Aussie under the radar’ success story, where most of us don't know the entrepreneur behind the brand but we know his business.
Where Paul is today is a long way from his parental inspairation. The family ran fish shops, built up businesses, sold them and then went back to Greece for a three-month holiday before doing it all over again.
Paul’s company is Quest — the apartment hotel business, which now has 150 outlets across Australia and soon will be taking its innovative hospitality offering to London to show the Brits how to do it.
It’s an inspirational story in its own right.
Typically, the company does 8 to 12 new developments each year and because there is nothing that actually exists that Quest can simply rebrand, we’re talking new greenfield projects.
As you can see, this is a genuine high growth business.
This is the kind of small-to-big business story that Prime Minister Malcolm Turnbull has been talking up since gaining the country’s top job. However, it’s not a digital disruption story. No, this is an old-fashioned ‘understanding the customer’ story.
The Quest story started in 1988 with Paul having a background in hotel management. He saw the market was wanting extended stays for corporate customers. “I like dealing with the corporates because they have to travel in good times and the bad times,” he pointed out.
Paul says his business vision came out of the fact that holidaymakers to Surfers Paradise were always on the lookout for apartment-style accommodation. Meanwhile, in the capital cities such as Melbourne, he saw the trend towards corporate relocations, which meant companies would rent out flats. He also saw extended stay offerings in the US, where many livewire entrepreneurs have sought inspiration and a business competitive edge.
US apartment-builder, Jack DeBoer, showed Paul the way as the inventor of the “extended-stay” concept. DeBoer started building apartments in 1966. By 1973, he’d built 16,000 across 30 cities and National Real Estate Investor magazine recognised him as the "second-largest multi-family developer in the United States."
In case you’re wondering, the extended-stay customer wants more than a hotel room because they stay longer. They want a kitchen, a lounge room and even a laundry and that’s what you get with Quest — a home away from home.
The business model has been based on attracting franchisees, who don’t necessarily have any history in hospitality. Learning from the best of franchise models, Paul said he wanted to create a system that worked for any franchisee, no matter what their background.
“I knew from the start that I didn’t want to build a management company because when you do you have to worry about staffing, management, etc.,” he explained. “I’d learnt from my parents who’d run fish shops and take always that I wanted something I could start, build up and sell.”
But Paul had a significant twist on his Mum and Dad’s model.
“I didn’t want to start and sell again but instead try to build a business with people who were running the business and who bought into it and stayed with the business,” he said. “I watched what the likes of McDonald’s was doing and so what I wanted to create was a discipline format franchise, so someone with no hospitality experience but with some business experience or acumen could come and operate the business.”
The dream was to create the property that would be forever branded Quest but franchisees could come, make money and then sell the franchise to someone else, who then could follow the same script.
In the beginning, Paul admits, he didn’t understand the development piece but eventually he worked backwards.
“To grow the group, I knew we couldn’t rely on third party developers,” he explained. “We knew what the room rates in an area would be, we could work out the occupancy rate, so we knew what the rent would be and so we applied this to a development cost.”
That said, other developers have a role in this business. At one stage, Quest owned 10% of the company’s stock but it’s now down to six.
Not long ago, the Singapore-based Ascot Group first bought some of Quest’s capital city properties and then took 20% of the company, which Paul said gave Quest access to $500 million worth of capital!
Did I say this was a high growth company?
Like Yellow Brick Road’s Mark Bouris, Paul says giving up some equity gives you the means to create a better business future.
“It’s not so much what your equity is worth today but how you leverage it up,” he said.
Paul’s looked at listing but he says he prefers to be in control and not beholden to fund managers and the like, whose interests can be out of alignment with the business’s interests.
He says all hospitality businesses are takeover targets but he won’t be answering the door if a buyer comes knocking.
Paul shudders at the thought of being bought out and seeing his beloved Quest rebranded.
“Sometimes in business there is something I call the emotional wealth creation, as opposed to the financial wealth and to see that disappear, well, I am not ready for that.”
Asked if the company has benefited from the record rise in Chinese travellers, he said that the group picks up business tourists on one hand, here for extended stays but also as hotels get booked out with Chinese holidaymakers, it pushes local corporate customers to Quest.
The next big step will be into London because of the growth of the mobility market.
“Employees nowadays, as a part of their job, have to have their bag packed because they might be on assignment for two weeks, two months or longer, so labour travels when big project deals are signed and there’s business for our kind of business.”
On the London play, Paul says the UK is behind us when it comes to extended stay properties, which makes him confident about his strategy.
On what was the best business lesson he has learned, he advises “you have to stay true to your core.”
In the 1990s, he strayed into a tourism play at Port Douglas, with the onslaught of the Japanese traveller.
“The day we started, the market dried up!” he recalled. “These are head and shoulder markets, which are good for three to four months.
“It took us 10 years of bleeding to get out of that.”
Reflecting on that mistake, he argues that you have to know your customer and the new digital age might have some distractions that could be costly to those who forget about whose putting their hands into their pockets to do business with you.
“With the growth of the likes of expedia and bookings.com, the reality is we lost touch with our customers and we didn’t want to talk to them anymore,” he admitted. “That’s nice but you lose the relationship with the customer and so some of the big hotels are starting to invest in their loyalty programs again to book direct.”
He believes that in business you have to know how your customers want to interact with you and then build your fulfillment system around that.
He says many years ago the market-leading Flag group of motels lost their way when they thought they were a technology company and forgot they were a ‘mums and dads’ business providing beds.
On the election, he expects a hiccup for his business, as a lot of his customers are either from governments or are doing business with them. That said, the Treasurer, post-Budget, would be happy to learn that Quest has had record months lately.
“The March quarter was the best I’ve seen in 20 years.”
Asked if he has any other business goals outside of Quest, Paul answered in the negative, informing me that Quest is his 24/7 passion and is what excites him when he gets out of bed each morning.
If he has a distraction, he admits it’s his family and his grandchildren but this guy is a classic entrepreneur, who’s a great role model for anyone who’s aspirational.
There’s a lot in Paul’s quest for Quest for anyone who wants to build a great business, be a top corporate executive, a world-class sportsperson or someone who sets other goals to feel successful.
Paul on the Weekend
Read: Business books and the likes of John Grisham.
Eat: Steak and a glass of red, “really slowly”.
Sport: I love the Aussie Rules — Essendon is his team! — and going to the gym.
Social activity: Walking with Thelma my wife and getting the kids away from their iPads and seeing some sunshine.
Getaway: Travel overseas three times a year.
Indulgence: We’re now called “cruising people”, so we fly to a destination, jump on a large boat and sail for 10 days or so and love it.