The Young Maverick
Rosenbluth Travel was just another storefront travel agency--until the fourthgeneration transformed it into a national powerhouse. Who says the excitement ofentrepreneurism has to die with a company's founder?
1974 Hal Rosenbluth graduates from college.He resents his family's travel agency because it hasalways been a rival for his parents' attention, andbecause it strikes him as dull. But lacking a betterprospect, he joins the dormant, $40 million(billings) company in Philadelphia as a go-fer.
1990 Under Hal's leadership, Rosenbluth Travelhas become the nation's fifth-largest travel company, with 8.3 billion in billings, 2,500 employees,and 400 offices.
Until a decade ago, Rosenbluth Travelwas as ordinary as an airport waitinglounge. Since nothing about the family-owned company distinguished it fromits competitors, no one paid it much mind. Customers passed through its doors the way they maketheir way through an air terminal-matter-of-factlyand generally oblivious to the surroundings. Overthe years, business improved, but at a ploddinglydeliberate pace. And that's how things stoodthrough three generations of Rosenbluths.This sleepy company turned into an aggressive, dynamic, and highly profitable industryleader after it fell into the hands of one memberof the fourth generation--Hal Rosenbluth.
The story of Rosenbluth Travel is not merelyone of a company that in a brief 15 years was transformed from a storefront operation into the nation's fifth-largest travel company, though that'sfairly impressive in its own right. Even more unusual is that the feat was accomplished by someone who was supposed to be only a caretaker.
If Hal had played by the well-established rulesof family business, he would have realized that hedidn't earn his position as the company's CEO, heinherited it. Hal should have known that all of theexcitement of entrepreneurism died with the company's founder, his great-grandfather. It shouldhave been clear to Hal that his most importanttask was to make sure that the family companydidn't go belly-up under his watch.
Fortunately for Rosenbluth Travel, Hal didn'tplay the game by the conventional rules. His experience provides refreshing lessons for all otherswho take over family companies. Those who inherit a company don't have to meekly keep the sta-tus quo, they caninfuse an enterprise with a newsense of purposeand entrepreneurship, as Hal did.
In fact, the business landscape is changing so continu-ously that those who don't reject the status quo may well bedoomed to failure. Nowadays, if companies don't periodicallyreinvent themselves, they'll wind up in an ash heap becausethe competition will satisfy new needs of the market first.
How do you reinvent a company burdened by three generations of ingrained thinking? For Hal Rosenbluth, the answers lay in an acute understanding of his changing market,an appreciation of how technology can add value to travel services, and a sensitivity to what employees of his generationwant out of their jobs.
As a boy, Hal seemed like a directionless kid. Nothing excited him. He had no interest in books, andwas constantly at loggerheads with his schoolteachers. His high-school grades were so poor that hewas rejected from the University of Pennsylvania even thoughhis father and mother wereprominent alumni; instead,he majored in criminology atthe University of Miami,where, he says, "I barely made it out."
Hal also perceived no challenge within the family company, which his great-grandfather, Marcus Rosenbluth, hadfounded in 1892 as a small steamship ticket office servingmostly immigrants. Marcus was succeeded by his sonsJoseph and Max. They in turn passed control to Joseph's sonHarold, now 65, and Max's son-in-law, Eugene Block, who stillshare the title of co-chairman.
Rosenbluth Travel didn't get into corporate bookings--today 90 percent of its business--until the mid-sixties. In thesomnolent days before deregulation in 1978, airline fareswere assigned by the Civil Aeronautics Board and were rarelyaltered. Most companies viewed travel as an unavoidablecost, and thus found little need to use travel agents. So thetravel industry was primarily oriented toward vacationers.
The company Hal joined after graduating from college in1974 was a 4O-person agency, which, in his mind, was plaguedwith office politicking. And because it was easy to serveclients, Hal recalls, "the company had no drive and no imagination. It was probably as good as it could get, given the lackof a competitive marketplace."
Hal spent his first two years at Rosenbluth as a generalhelper to Eugene Block, and another year-and-a-half as a vacation consultant. "I was only permitted to sell trips to Washington, D.C., and New York City," he remembers. they figured if I crapped things up, at least our clients could walkhome."
Hal became a vacation manager. Butafter two vice-presidents were let go,the elder chairmen appointed someonethey could trust--Hal--making him adivisional vice-president. It lasted a year,but Hal felt uncomfortable exercisingauthority-he thought he didn't deserve,and demoted himself to the post ofreservations agent.
That turned out to be a smart move,even though it was motivated merely byHal's contrarian instincts. "I was veryconscious of the Boss's Son Syndrome,"Hal says today. "I wasn't gung-ho aboutjoining the company to begin with, andI didn't want to get into a leadership position until people came to me on theirown for advice."
It was on the reservations floor,away from office politicians andprima donnas, that Hal says he finally fell in love with the family company--"Not so much the company, asthe people," he adds. It was one of those lucky confluencesof the man and the moment: Air fares had just been deregulated, throwing most travel agencies into chaos (today the airlines make an average of 25,000 fare changes every day). Halwas on the floor, talking to clients every three or four minutes, and the experience provided both the sense of purposeand the sense of fellowship that he'd always sought, albeitwithout realizing it.
"I came to understand clients' needs and frustrations," herecalls. "I also got to know the needs and frustrations of thepeople I was working with. We bonded-we'd go out to a watering hole every night and talk about the endless possibilities we as a company could attain. That's when we realizedthat we weren't really in the travel business but in the information business. We figured if we could get better information to our clients than our competitors could, we would begiving them better service, and would get their business."
From those late-night bull sessions emerged RosenbluthTravel's current away of sophisticated computer servicesaimed at saving money for corporate clients. Hal's troopsproduced a dazzling array of proprietary computer servicesthat were ahead of their time. They provided clients with instant, lowest-fare information on flights, rental cars, limousine services, and hotels. They analyzed corporations' travelpatterns and negotiated bulk discounts based on them. Andalmost as if they had never been noticed, Hal and his gangwere suddenly accounting for most of the company's day-to-day business. The old folks were impressed, and they wiselyand respectfully stepped aside. In the end Hal got control withlittle overt resistance. Today Rosenbluth Travel handles 48percent of the business air traffic in the Philadelphia area, andmore than 1 percent nationwide, a considerable figure in an industry with 36,000 agencies.
But those sessions also fertilizedHal's determination to create a collegial company in which all employeesconsidered themselves partners.
By late 1978, when air travel wasderegulated, Rosenbluth Travel's reservation agents accounted for about halfof the company's employees. But corporate clients sought the firm's help insorting out the new fares and routes,and Hal began to negotiate service contracts with them. As he did, he hired additional agents and leased computers,having that latitude since he had his father's trust. Hal was enough of a corporate politician, though, to avoid majorcapital investment that would havecaused his superiors sufficient wowythat they would feel compelled to meddle. Instead of buying computers, heleased them. And instead of parading inscores of them, he brought them in gradually, as increasedbusiness justified.
By 1984 Hal had engineered his own kind of skunk works.His cadre of 20 reservationists had increased to 100, learning and supporting each other while the rest of the companyremained stagnant. Without receiving so much as a promotion, Hal had become the most important person in the company. Then he signed a major deal with DuPont, and thetravel industry stood up and took notice of Rosenbluth as abig-league player.
The introduction of computers also producedan unexpected byproduct: It forced the companyto reassess its relationship with its employees. "Itwasn't a matter of hiring outside experts" in orderto integrate the computers with the business, Hal says. "Everything was new. There were no experts. We had to learnwith the people we had, depend on each other, follow our instincts." Over time, Hal's practice of inculcating teamworkcreated just the sort of familial atmosphere he had yearnedfor in the first place.
Whether Hal's evolutionary makeover of their companywas seen as heretical by his father and Eugene Block is difficult to say. Both Harold and Eugene--described by a company spokesperson as "private and publicity-shy"-declinedto be interviewed for this story. But as Hal recollects, Haroldand Eugene basically let him pursue his own vision.
"When it came to big things likebringing in computers, I'd sit down withDad and Gene and give them my reasoning," Hal says. "When it came tochanging how we handled people, I justdid it. For the most part, Dad was supportive and provided insight for me. Ormaybe he and Gene didn't fight me because they saw that what I was doingwas working.
"I always respected Dad and Gene because they let me make decisions," Halsays, "and most of my decisions were togive other people the power to make decisions. One of the great limitations offamily owned businesses is that the family tends to make all the decisions.That's wrong, I00 percent wrong. Thekey to a successful company is havingloads of people with diverse views whoare all making decisions."
By 1985 Hal had become thecompany's de facto boss, and heofficially assumed the CEO title.Harold and Eugene limited theirinvolvement to review and advice, as co-chairmen of the board, though they stillheld much of the company stock. "Thebeauty of our company, my father hassaid, is that each generation has knownwhen to turn it over to the next one,"Hal says.
Whether consciously or not, by allying himself with the troops at the bot-tom, Hal tapped into a resource overlooked by most businesses: legions ofbright, young people hungry and grateful for an opportunity in a tight labormarket. He used symbolism to makethem feel part of the team, too, callingthem "associates" instead of "employees." The label "employee," he explains, "has connotationsof subservience. Once someone feels subservient, you're indeep trouble. I felt we all worked together."
Hal's willingness to listen and give his people's ideas achance has fostered an unspoken sense of obligation. Thisis critical to the success of Hal's strategy because, in truth,his so-called associates are really just plain old employees.Rosenbluth Travel doesn't pay higher'wages than average,and doesn't even offer a profit-sharing plan. ("If you haveprofit-sharing," Hal argues, "you should have loss-sharing too.But who the hell's going to do that") Instead, monetary motivation comes largely from an elaborate system of performance bonuses and promotions.
Employees also have little hope ofrising to the top. For one thing, eightfamily members are actively involved inthe company. In addition to Harold, Eugene, and Hal, there's Hal's mother,Frances, who has worked in the accounting department four days a weeksince the kids finished school; Hal'syounger brother, Lee, 36, an executivevice-president; Hal's sister, Amy, 33, avacation consultant; Eugene Block'swife, Cecily, who works with olderclients; and Eugene's nephew RobertRosenbluth (Hal's second cousin), whomanages one of the company's branchoffices. All of the company's stock issplit among Hal, Harold, Eugene, andEugene's son Chuck, who manages ahotel in Washington, D.C., but isn't involved in the company.
Still, there's no doubting the sincerity of Hal's passion for his people."Under my dad and Gene Block," Halsays, "the company had a very goodfocus on the client. My basic philosophyis: Focus first on your associates.Clients can only be first to the associates if the associates are first to the company. Our people are happier, so theyserve the client better. To me, it's justcommon sense.
Hal's views may sound self-serving.Yet much the same characterizationwas reached by Wharton professorsEric Clemons and Michael Row in a recent case study. Rosenbluth Travel,they wrote, largely owes its success inthe eighties to "the vision of Hal Rosenbluth and his ability to create an organizational structure predicated on service and innovation . . . There is apervasive concern for associates thatmay be more characteristic of a progressive family than amodem corporation."
"A lot of corporations believe friendships complicate business decisions," Hal says.''That's nonsense. If you're fiends,you look-out for each other."
It remains to be seenwhether the company's good vibrations can be extrapolated in-definitely into the future. Continued growth at the 30 percent annualrate of the eighties will make it increasingly difficult for Hal to maintainthe personal contact with the rapidlygrowing work force on which he placessuch importance. And continued expansion is essential if Hal is to continueto satisfy the rising expectations of hisarmy of upwardly mobile young disciples.
"We have virtuallv no turnover in leadership," Hal acknowledges, "so that canbe frustrating for ambitious peoplebelow." Nevertheless, he insists, "Wecan give people opportunities to learnnew things. We can give them more responsibility, even if it's not necessarilyvertically upward."
Hal's recent venture in North Dakotasuggests that his capacity for contrarianmanagement decisions is far from exhausted. It began in the summer of1988, after he read about the Midwestfarm drought. Hal felt he wanted to helpsuffering farm families. Several inquiries led him to hard-hit EmmonsCounty in North Dakota. Within weeksHal was in Linton, the county seat, advertising in the local paper for 20 people from farm familiesto do computer data-entry work for three months.
He was amazed at the response. More than 80 qualifiedwomen applied the day after his ad appeared, for jobs payingjust $5.87 to $6.65 an hour. He hired 40 of them part-time andsat them in an abandoned tractor dealer showroom. By theend of the summer Hal concluded that his philanthropic gesture was actually a business bonanza.
''There was no turnover among these women," he says, "noabsenteeism, and virtually no errors. And the people werelovely." So he decided to keep the data-entry center in Linton, and furthermore, to expand it into a telephone reserva-tions center. He could have 200 employees there by the endof 1991, and he plans to expand his phone and computer operations to similar North Dakota communities.
"Linton turned out to be what I think is the future forhuman resources for corporate America," he says. "Companies say they can't find good people anymore. But farmersand their wives are very resourceful, and they know how tosolve problems together."
Hal is also building a four-bedroom vacation house forhimself on 308 acres next door to the training center, whichsuggests that his enthusiasm for North Dakotans is morethan corporate minded."Theproblem with a lot of familybusinesses," Hal says, "isthat they concentrate on thefamily. I say the hell with thefamily. There's a more important family, and that's my associates. Too many families say to their employees, Wherewould you be if it weren't for the family I look at it the opposite way."
The irony, of course, is that Hal's rhetorical revolt againstfamily control is largely the result of his family upbringing."I've tried to be as interested in the views of my associatesas my father was in mine," he says. "I became a contrarianbecause of the value my parents placed on debating issueswith us kids at the dinner table. Contrarians can contributeif they have parents who let them. If they're snuffed out--well,maybe that's the genesis for a lot of family problems."
But will Rosenbluth Travel be a family firm in the future?
"I hate nepotism," Hal insists, in an indirect reply, not with-standing the critical role it played in enabling him to exercise his management style. "It's the worst thing that can happen to a company." He maintains that the people who'vemade the company successful and have leadership qualitiesshould be the ones to run the company, and "not merelythose with good genes. If they have both, fine."
Does this mean hell steer his own children--Jeffrey, 7, andJessica, 1--away from the company? Hal's answer: "I'm teaching Jeffrey to kick field goals."Hal Rosenbluth
Family: Wife, Renee,children Jeffrey, 7, andJessica, 1.
Homes: Gladwyn, Pa., anda 308 acre ranch inLinton, North Dakota.
Motto: Employees first,family second.
Challenge: Maintaindouble-digit annualgrowth rate, expandservices to clients, stayclose to workforce.
Business: Travel agencies(400 offices).
Billings (1990): $1.3 billion.
Founded: 1892, by MarcusRosenbluth.
CEO: Hal Rosenbluth.
Ownership: Shared amongHal, his father Harold,Harold's cousin EugeneBlock, and Eugene's sonChuck.
Claim to fame: Got in earlyon airline deregulationand helped create thecorporate travel agencybusiness.