How to Give Bad News to Investors During Difficult Times

Between about 95 and 2001 or 2000, things were going very well in the hotel business. And so every quarter we would send out a letter to our investors. Different. We have a lot. We have 150 to 200 investors. There's a lot of them. And we would send a letter telling them how good things were, sending them financial statements, and then sending them a check saying, here you go, here's your Investor Distribution. By 2001, it was very clear that they were going to maybe stop receiving checks. And by summer of 2002, it was starting to get clear that many of them were going to have to start writing checks. And there's something that happens to investors when they have to do what's called a capital call. And investors don't usually like capital calls because that's when instead of actually receiving checks as an investor, they have to write checks because the business is in trouble and it can't actually cover its payroll or whatever. Well, we had a handful of our hotels that were fit into that category. And so In October of 2002, when I was sending out my normal quarterly letter, and it was at the end of the summer when generally investors sort of think, this is where I'm going to get my big check, because the summer is the busiest season, we needed to give them the news that they were not going to give a check. And in fact, starting going into the winter that many of them were going to have to start writing checks. So we sent them the letter and we sent them a shirt t shirt. So 150t shirts went out to people. And the front of the T shirt, this is sort of, again, it's an old T shirt at this point six years ago. This is the T shirt on the front actually had a graph of. I'll pass this around so you can take a look at it. This is San Francisco, 2002. The sky is falling. And it shows a revenue line from 1980 up through 2002. And it basically shows a very good, strong growth line up till about 1995 when it just skyrocketed. Everything was great. 95 to 2000, there was this huge peak here, so to speak, and that was the dot com boom. And then there's a dotted line that showed if the historical growth curve had just continued from 1995 on, where it would have been. And it just shows how much over the historical growth curve we were. So that's what the. And then it showed 2002 where we were. In fact, this. This line went even further down on the Back of the T shirt, it has this, and you can't see it, so I'm going to read it to you. It says, joie de vivre hospitality strong enough to restore the sky. Because on the front it said, the sky is falling, and on the back it has this little man, looks like 1950s sort of advertising character. And it says, I bought a hotel in San Francisco and all I got was this lousy T shirt. So why do I bring that up? I bring that up because actually, in terms of negotiation and persuasion and getting people in the right frame of mind to actually have them do what you want them to do, that's what we needed to do. The classic normal approach to actually giving bad news would be to be very, very sober in giving the bad news. Now, let me tell you, the letter that we wrote them that accompanied this was very sober. It was, like, told everything that was going on, told them everything that we were doing, also to actually try to turn it around, but was very clear at the end of the day that we needed to have a sense of humor and some creativity to get through this difficult time. Ultimately, what happened when they got this T shirt is, oh, he's taking a picture. I love that. What happened was two of the actual investors who got this, one of them sent to the Wall Street Journal, the Wall Street Journal wrote a story about this, and the other one sent to San Francisco Business Times. And the San Francisco Business Times took that little guy, that little cartoon character, and actually printed it in the paper and talked about how, during difficult times, how to actually give bad news to investors.