When Growth Exposes the Systems You Avoided Building | Sujay Mehta | Part 2

This episode isn’t about leadership style. It’s about what actually breaks when growth outpaces systems.

In Part 2 of this conversation, Sujay - founder and operator - walks through the constraints that emerged once the business started scaling and informal processes stopped working.

This wasn’t a motivation problem. It was a systems problem.

We cover:

• Why early success hid structural weaknesses
• How scale exposes decision bottlenecks
• The tradeoff between speed and control
• What had to change to prevent operational failure

If you’re a founder or operator dealing with growth constraints, this conversation will feel familiar.
This isn’t a highlight reel. It’s a practical breakdown of how real businesses actually scale - under pressure, not in hindsight.

Chief Milestones is a video podcast featuring honest conversations with founders, parents, and investors about building real businesses, staying healthy, and raising families.

New episodes release Tuesdays and Fridays.

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Transcript

Branded Vs Boutique: What “Standard” Really Means

Sujay Mehta 0:00

We're looking at properties, and I know that when it's um like a branded boutique hotel, there's a certain standard. I kind of know what to expect.

Reshma Vadlamudi 0:08

So, how do you evaluate those deals?

Buy Box: Stabilized Brands Vs Tired Boutiques

Sujay Mehta 0:10

Yeah, those are a lot harder to evaluate and a lot harder to you want to make sure all those things uh check out and you do your due diligence from that standpoint. But after that, the numbers are the numbers, and then in Puerto Rico, there's there's like two hot markets uh where you can be. If you're investing internationally, like you have to be prepared to be there um for an extended period of time, or a biggest mistake you made in a deal, and what would you do differently? Oh man. Um, so one thing that I've learned a lot uh from like doing transactions over and over is what does your buy box look like? Yeah, so um, so two buy boxes. Um for me, for the branded stuff, I look for stabilized properties now. Um so I want good brands, stabilized, the location is everything. Um and so if it's if it's stabilized, I kind of come in and I I do my value add through management, through efficiency, how I operate it. If it's doing $10 in revenue and it's flowing $2 to the bottom line, I can come in and and push it to like $3.50, right? Or $4 to the bottom line, right? Um, and sometimes when I use millions, people are like, what millions of dollars, right? But again, same thing. Like if you know, a property that we're looking at now does $2.6 million in revenue, and uh the NOI is only, you know, pushing EBITDA is only pushing like 20, 25%. Um, I know that I can take over and push 35, 40% at this property, right? And so that's where like the value add kind of comes in for me. Um, and then we stabilize it and I'll be prepared to hold it long term, right? 10 plus years in in the portfolio, right? And so um, and then on the boutique side, I look for tired assets, um, but has you know, the demand is there, uh, the location is great, um, but I could do a heavier value add in terms of like renovation. Um, the building has to be in good standing, um, but I'll do some good, good design scheme changes, uh, be able to, you know, turn up the marketing, um, and then really like leverage all those things to to drive the customers and the revenue to the property.

Portfolio Mix: 70% Flagged / 30% Boutique (And Why It’s Shifting)

Reshma Vadlamudi 2:30

Okay, how much of your portfolio currently is boutique and how much of it is flagged?

Sujay Mehta 2:35

Yeah. Um, I would say 70% flagged, um, and then 30% boutique. Okay.

Reshma Vadlamudi 2:43

Is there is there a time that you would want that to change, or do you think that's something you want to say?

Sujay Mehta 2:49

A couple years ago, I was 100% flagged and 0% boutique. Um, so I'm I'm still doing both deals, but it's it's becoming a little bit more even, right? And so um I I say it is shifting a little bit more towards the boutique space right now, um, but that doesn't mean I'm not gonna do branded deals if that answers your question. Yes.

Reshma Vadlamudi 3:11

So do you think down the lane, like in 10 years, how do you see the percentage shifting, not just in your portfolio, like the people's preferences? Uh is it safe to say in general there is 70, 30 right now with all these tiny resorts or micro resorts or tiny villages, or all that. So, how do you see this shifting?

Where Boutique Wins (And Where It Doesn’t)

Sujay Mehta 3:35

Yeah, I I think um I think there's gonna be a need for both. It's a market dependent, right? So um, for example, in Ohio um or in Columbus, where I'm from, um, there's not gonna be as much of a need for so many boutique properties. Um, it's just gonna be harder, right? Uh, but if you're off the coast or in like North Carolina or you know, Sedona, markets like that, I think um, I think it will shift a little bit more towards the boutique, but there will always be travelers, just same thing for like the Airbnbs. Why there's certain travelers that will just not say an Airbnb is just because it lacks consistency uh overall, right? Um, it lacks consistency, just I mean, safety concern. Um, you know, with with brands, there's a certain standard. Yes. And you know, like even right now, we're we're going to Europe soon and we're looking at properties, and I know that when it's um like a branded boutique hotel, there's a certain standard. I kind of know what to expect. When there's like a 20-room boutique property, I just like the pictures are deceiving. Like, I don't know. Like there I see a really cool wallpaper, but like that could be wallpaper in a bathroom of the public space. Like, I don't know if the whole hotel is that kind of like vibe or trend or whatever, right? And so um, you know, you just don't know what to expect, and it's it becomes difficult. So but with that being said, like once you've been through that experience, once you've gone there, um, you know, and and with like reviews and social media and all that stuff, it's gonna get easier to to kind of put those uh doubts at peace, but yeah, still.

Reshma Vadlamudi 5:15

So what what do what does your exit look like on your boutique, or like when you're underwriting it? Is is your goal to eventually get a brand onto it, or either like sell it off to Marriott if Marriott wants to take take that on, yeah, or whatever.

Sujay Mehta 5:31

Like, yeah, that's a that's a hard um thing to kind of underwrite, you know, is like to sell it to Marriott or something like that. Um, but for us with like our boutique, I mean, for me, I always underwrite for long term, right? Because like hotels are cash flowing assets, like that's the biggest thing. It's not like a lot of these people that are doing like the multifamily value add, get rent sub, exit. It's it's not like that. It's I mean, you can hold this in the portfolio and you're getting 10, 12% cash on cash return. Yes, right. And um, and it's great. So why not just hold it, let it cash flow, let it, you know, then let it build, you know, that mailbox money, yeah. We say, right? So let it build mailbox money after two, three years, use that cash flow um to then get into the next asset, right? Or or buy the next property. Um, and then after five, seven, eight years, you can re-fi it, pull out the cash and and then again reinvest it, right? So I I don't see a need to really have to sell. Obviously, everything's for sale if you get the right price. Yes. Um, and so I'll exit a property when you know it's you know, when maybe it's too much to handle now, or we get an offer that's you know too good to pass up. Yes. Um, we'll go ahead and do that as long as you know there's another opportunity that we can roll that back into.

Reshma Vadlamudi 6:48

So, how do you evaluate those deals?

International Deals: Diligence, Fraud Risk, And Financing Reality

Sujay Mehta 6:50

Yeah, those are a lot harder to evaluate and a lot harder to close on. Um, the the one international property that we have in Belize, um, I got into that because of my partner Britt and um and Bethany, um, our my SEC attorney. And so um, you know, I the I was brought into that um because of them. Um, and luckily they already did the hard part of like the underwriting analysis and all that stuff. But we do have a coaching program that we have, and a lot of our members are looking at overseas deals. Um, and and so one thing I always um I always preach to them to be careful of is, you know, just in today's age of fraud, like you want to make sure that it's the deal's legit. Yeah, right. Um, and the the property may be there, but you know, who you're giving the money to, the title company, all that stuff, you want to make sure all those things uh check out and you do your due diligence from that standpoint. But after that, the numbers are the numbers, you know? And so, you know, you you can underwrite it just like a property in the states. That's not an issue. Yes. Um, to do the the harder part is like the financing um and getting the investors and and just being creatively um kind of locking that deal down, yeah. Um, is the harder part about those international deals, right?

Reshma Vadlamudi 8:07

Yes, and also understanding the market. Like, how do you know if it's like what do you look at? The is it supposed to be close to an airport, or how do you look at how do you know the I mean you understand the location here in US, but then I I tend to understand something in India a little bit because I'm familiar with that market. Yeah, uh, but that but then even if in India, if you're going someplace farther from the place that I know, it's like for me, I don't even know if it's a good location. So how do you know if it's a good market or a good location? How do you determine that?

Sujay Mehta 8:42

Yeah, I mean you you have to know you have to know the area, right? Like you can't just just like you said, I mean, the only reason you know about India, like you said, is because you have you have experience there, you've been there. So, like when you're looking in in Puerto Rico, you have to really study like the hot areas, right? And and who your avatar is, what you're trying to build. You can build something by the airport. There's hotels by the airport that are doing well, that are doing fine, right? But it's a different customer base. Yes. And what you offer has to fit, right? Um, and then in Puerto Rico, there's there's like two hot markets uh where you can be, right? And so you have to research Puerto Rico to be able to figure out, like, okay, I want to be walking distance to here. This neighborhood's a little bit rough, you know, like this area gives me the highest ADR, so I can have a luxury asset here, right? Now, this area is still good, but I'm not gonna get a crazy high ADR. So then maybe you don't need to invest so much into the renovation side, right?

Reshma Vadlamudi 9:45

So it's still about the same thing. You would research the market ahead of time, yeah, and then know a little bit more about your customer or your target avatar. Yeah. So it's the it's still the same. It's it's the same.

Sujay Mehta 9:58

Like if I if I if I tell you, like, hey, there's this property in Idaho, like you're not gonna know, oh, do I want to be by the airport or do I want to be here or there? I mean, you may know about Idaho, but I just picked a random. Yeah, so or like even for that matter, like New Orleans. Like New Orleans is a good city. There's a lot of things for sale in New Orleans, and you know, it's New Orleans has had its struggles, but like I'm sure there's properties in certain pockets that are doing well, but you got to know what those pockets are, right? So either way, no matter where you invest, you're gonna have to do the research on the on the area, on the location.

Reshma Vadlamudi 10:33

Yes. Um, yes, and then when it comes to finances, is where you would sale extra due diligence, like who you're transferring the money to or the title company that they would be.

Sujay Mehta 10:44

It's just being careful, right? Just be careful that you know someone's not pulling one over you.

Staffing Abroad: Keep The Team + “Boots On The Ground” Requirement

Reshma Vadlamudi 10:48

Yes, especially coming from third world country, I totally get that. So do you just take up the employees from the from the previous owners, or how does that actually happen?

Sujay Mehta 10:59

So yeah, that's the easiest way to do it, right? Is like to keep the staff if they're good, right? And then once you take over, then you gotta evaluate the staff, you gotta be there. Um, and I always say, like, if you're investing internationally, like you have to be prepared to be there for an extended period of time, or have someone boots on the ground that's gonna be there that you trust, right? Um, and so one of those two things, like in my opinion, would have to be absolutely necessary for me to invest in that property. Um, either I have to have the ability to be there or I need somebody boots on the ground that's gonna be there managing that I trust. Yeah, right. Um, and honestly, I would get them in on the deal with me as a as like on the own ownership stack, right? Yeah. Um, and then um two, usually for international investments, that is like tourism is the number one, you know, income for for these people. So staffing is usually not that difficult for international properties, like take Mexico, for example, because most people have traveled to like Cancun or something, right? Cancun runs on tourism, right? Um, and so when you have a hotel and you're hiring, that's kind of like the top kind of job for the locals there, right? Um, and and they would love to do it. You know, that's like a white collar job, like they get to wear a uniform, they speak English, all that stuff, right? And so, um, and we pay in dollars, right? And so usually, you know, in in the countries that are close to the US, um, the dollar is weighted pretty high, right? And so you're able to attract kind of top-tier talent at your property when you're when you're owning, operating it, and you you have an opening for a job. Um, so it's about interviewing, getting the right people there. And then the biggest thing about the management is you know, making sure that you're tracking performance uh for those properties.

Biggest Mistakes: Psa Negotiation + Staffing Underestimation

Reshma Vadlamudi 12:53

So a biggest mistake you made in a deal, and what would you do differently?

Sujay Mehta 12:57

Oh man. Um, so one thing that I've learned a lot uh from like doing transactions over and over is uh the negotiation does not stop at just the purchase price. Um, there's a lot more that you can negotiate even in a purchase sale agreement, right? Um, and if you kind of just pass on all that stuff, now you're in due diligence and it's already too late to go back, right? And so the purchase sale agreement is very important. Um, and there's a lot more in there that's just like, hey, this is the purchase price, and this is the earnest money deposit, right? So each one of those line items is is important. And you may think like, oh, default like this, that, you know, none of that stuff's gonna happen to me, but it could happen, right? So you want to make sure all of those things are are dialed in. Um, you've thought about it, they're intentional. Um, and and there's some things that you may have to let go. That's part of negotiation. Um, you know, negotiating the purchase sale agreement is one. Um, two, it's underestimating the staffing, right? So, like you think, like, oh, I'm gonna take over. The staff said that they want to stay. You take over and half the staff is leaves. Like, what are you gonna do then? Right.

Reshma Vadlamudi 14:04

What are a few things that have been effective for you in tr in building that trust and momentum with the investors?

Investor Trust: Transparency, Cadence, And Keeping Leads Warm

Sujay Mehta 14:11

Yeah. Um, so I think um honesty and transparency is something that a lot of investors value, right? Um, and that's one of the things, like again, I want to live a principle-based life more than anything else. Like, I don't care money, this, that, whatever, portfolio, all that stuff is important. But, you know, to do things with values and principles is is the number one priority, win or lose, right? And so just being honest and communicating and being transparent and building that relationship with the investors um has, I think, allowed me to be able to continue to scale and raise capital. Um, and and most of these people now are like my brothers and sisters, right? And so they don't even ask about the deal, they don't ask about the metrics, they're just like, yeah, let us know when.

Reshma Vadlamudi 15:00

So did that happen naturally to you from I know you've been in this for over a decade now, right? So did that happen naturally to you uh initially?

Sujay Mehta 15:09

You know, again, then these platforms and processes and all that stuff come. Yes, after the relationships, yeah, after the relationship and after the the principle of like, hey, we want to treat these people like like our own. Yes, you know, and so then it's like, okay, how do we do that? Right. And then it's like, hey, why don't I invest in this, or why don't we, you know, create this kind of communication channel?

Reshma Vadlamudi 15:30

You don't have an active deal going on right now, okay, but then there are people that want to invest with you. Yeah. And uh, how do you keep in touch with them uh when you don't have an active deal going on?

Sujay Mehta 15:43

Yeah, yeah. I I think you know, just reaching out, like sending up calls, like doing check-in calls, letting them know what you're up to, what you're doing. Um, but at the same time, like, you know, and that's the importance of of having deals, right? Is like you gotta keep them warm, right? And there's there's only so much that you if you don't haven't built that relationship, there's only so many times that you can check in on them. And so uh, you know, oftentimes like, you know, I haven't really been in that situation because we've had deals constantly. Yeah, yeah. Uh I think 2023 was the only year where, you know, we didn't do many deals. And um in 2023, you know, I think, you know, some of some of my investor leads did go cold, right? Um, and and I checked in with them every couple months. Um, but then after two, three times it it becomes difficult, right? So um I think that's when like newsletters or investor letters um would be important. But again, if there's no new deals coming, um what would you talk about? Yeah, and if they're not active in the hotel space, like they may not care, yeah, right, um, about like what's happening in the hotel industry, right? And so um I think there's like a fine line and a fine balance um to keeping that and building that. But I think building that's why building the personal relationship is so important because with a lot of my investors now, I could talk about like how the baby's growing or like what we're up to, or hey, we just bought a new house, or hey, come visit, right? And so that's why I think building that relationship is is key because then you can talk about more than just hotels or investing.

Reshma Vadlamudi 17:15

Yeah, especially when you have an active deal going on. Do you have a system or a process? Like, how do you keep the momentum going with them, like from the start, or when you when you see that land, or how do you keep them informed, or how do you keep in touch?

Sujay Mehta 17:31

Yeah. So um, you know, first I'll let them know, like, hey, we have you we have something on the on the dock like that's coming up. Um, you know, give them a little bit of overview of what it is, let them know, like, hey, you know, as soon as I have the deck ready, I'll get it over to you. Um, and then I get the deck ready, get the numbers ready, send it over to them, give them time to review, then I set up another call with them, um, or someone from my team will. Um, and then we go over, you know, the numbers. Again, sometimes it doesn't even get to this point and they're already ready to go. Yes. Um, but you know, we'll we'll go over the numbers, explain to them, you know, what the deal is, what we're looking at. Um, and then at that time, um, you know, we'll they'll they'll let us know, like, hey, what what which way they're leaning or what they're thinking. And then we get a soft commitment letter signed. Yeah. Um, and then once I have that soft commitment letter, usually they're pretty good about, you know, coming in on the deal. Um, and then, cause again, it could be a 90, 120 day process before closing. Um, but you just want to like touch base, like, you know, in between that, you know, once or twice and just let them know like the progress. We've been doing our due diligence, the deal is better than we thought, or it's exactly what we thought it was, or we're having some challenges and these are the things that we're working through, but we're still very confident on the deal and we're still looking to move forward, right? And so, like, whatever that cadence and communication is, you want to keep them warm um throughout the process. But again, it comes back to relationship. If you've built that, they've given you their word, and then there's like that trust element to it.

Reshma Vadlamudi 19:01

Yeah. Yes. I'm also asking that for the first time capital raisers. Oh, yeah, that's why like I wanted to hear through the process of where you go to what's something you thought would work for raising capital that totally did not.

Sujay Mehta 19:18

Yeah, I think if people tell you that they're going to invest as a first-time capital investor and first-time investor, you're working with them, it doesn't mean anything until the money is actually in the bank account. Right. So many times, you know, people have said, like, oh yeah, I'm super interested. And timing is everything, right? Like anything can change in 30 days. Yeah. And so they they say they're interested, they say they're interested. But when it comes time to wire $100,000 or $200,000, it's like, you know, that's when people really start thinking about it, second guessing it. Um, and so it doesn't mean anything until you actually have the money in the bank account. Um, I think I see way too many first-time um investors get excited. They're like, oh my God, this guy's a billionaire. He said he was interested in my deal. It's like, okay, you know, let's I'll believe it when I see it, right? And so I think um, I think, you know, don't don't overestimate how much you're gonna be able to raise. Um, usually, like I if someone says they can raise, you know, a couple million bucks, it's usually uh at like a 50% discount, right? So um it's it's a lot more difficult to get the money in the bank account than you think.

Reshma Vadlamudi 20:29

I what are the objections that you hear the most and how do you overcome with the capital raise?

Handling Objections: No Pressure, Protect The Relationship

Sujay Mehta 20:35

Objections. I don't so if I hear an objection, um, and again, maybe this because of the situation I'm in, if I hear an objection, I typically don't force or I don't try to sell, right? Because again, I want to keep these investors, I want to keep a relationship with them. If it's not this deal, maybe it's the next. And so usually that's my verbiage. Um, I'm not trying to sell them on the deal. I present the deal and it's a win-win situation. If they don't think that it's a win-win situation, um, and maybe timing isn't right or those kinds of things, I tell them, hey, no problem, no pressure, maybe next time, right? And typically what that does is it shows them that we're not desperate, we're not begging them for money. And now they're excited for the next one, right? And they're like, oh man, you know, and um I've had that before where you know, I had to say no to somebody because they're just they're asking way too many questions and uh they want too much, and they're like, hey, you need to change the operating agreement to say this, that, whatever. And it's like, no, this is this is my agreement for everyone, and this is what it is. If it doesn't work for you, that's okay. You know, maybe next time, right? And now, ever since then, it's been a few years, they still haven't invested in my one any of my deals because just has never gotten to that point where I've needed it. But um, they've been like, hey, keep me posted if you have anything in the future. I'm still in. Excited. I'm still interested. And so now they're hungry. They're begging me to get into a deal. Right. Other than that, like the other common objections, especially for the hotel industry, is like the business component, right? And it's like, um, oh, you know, how, you know, what if this happens? What if the economy does this? What if this, you know, economy does that? Yeah. And that's when, you know, we talk about like, hey, this is a business, right? So even these projections, it's not multifamily where it's like set rent and you're gonna get it the first of the month, but it's a business. There's gonna be ups and there's gonna be downs. There's gonna be great years and slow years, right? Uh, we went through COVID 2020, which was a slow year. Then 2021, 2022 were great years for us, right? And we crushed it. And um, over that three year span, we blew our projections out of the water, right? But if someone had just gotten into deal in the beginning of 2020, like they would have been like, oh my God, this is failing, right? And but you have to look at it long term, you have to look at it through the cycles, through the business cycles. Um, and distributions come as business allows it to come, right?

Reshma Vadlamudi 23:04

And that's exactly what you tell them.

What New Operators Must Do: Stop Hiding Behind Underwriting

Sujay Mehta 23:05

Yeah, yeah. And you got to be honest with them, right? Because if you set the wrong expectations, it's just gonna cause you headaches um operationally as you go on. So, you know, you get objections like that, or and I wouldn't say objections, but just concerns. Yes, right. Just something that people aren't used to in the hotel industry. And so those there's answers for, and there's great answers for those, right? And so, you know, again, you it is additional risk, but that's why you get this reward. And it's additional risk uh for someone who doesn't know what they're doing, right? But because we have a portfolio, because we've done this so many times, we now have turned this risk into an advantage and we're able to cash flow so much because it's a riskier asset class, um, but we've de-risked it by our knowledge, by our operations, by our systems and processes, right?

Reshma Vadlamudi 23:52

So, what should new operators focus on if they want to start raising money?

Sujay Mehta 23:57

New operators to raise money. I mean, I think uh you should always be capital raising, right? Um, and so it's like going out meeting people. I think a lot of people just sit behind a computer um and they're looking at deals, underwriting deals, maybe posting stuff, trying to message people. That's not how you raise money. Like you have to go out, you have to go meet people, you have to show up at events, uh, local events, you have to rub shoulders, and you don't know when you're gonna find that person, right?