Bonding on the beach

A Grace Bay butler offers a welcome drink and cold hand towels.

Foreclosure Inn

Luxury hotels are defaulting on their loans as the economy kills off business travel. But what is ailing the hotel industry is good for consumers as room rates fall.

View photos

Quick Vote

Who will benefit most from the Obama administration's proposed financial regulations?

• Consumers
• Banks
• Regulators

or View results

(Fortune Small Business) -- When Colorado-born developer Mark Durliat discovered the Grace Bay Club hotel, located on the Caribbean island of Providenciales (part of Britain's Turks and Caicos group), it looked like the perfect investment: a hotel on a beautiful stretch of beach, in an up-and-coming tourist destination with a stable government and no restrictions on foreign ownership. After raising $17 million from investors, he bought the property in 2001 with plans to turn it into a premier resort.

The next day, his entire staff went on strike.

"They all expected to be fired," he recalls, "and felt they were entitled to severance."

Durliat, now 42, waded into a meeting of angry workers and for hours listened patiently to their complaints. Once they had cooled down, he explained his intentions and won them over. They were back at work the following day.

But the level of service remained low. Turks and Caicos had only just begun to attract tourists, and Grace Bay's employees had no experience catering to a well-heeled clientele. One morning Durliat walked into his hotel's flagship restaurant and found the headwaitress in bare feet, using one of the butter knives from a table setting as a shoehorn.

"I couldn't yell at her," he recalls. "I just had to laugh."

Change began with listening. "The relationship-building process is much lengthier than it would be in our culture," Durliat says. "For us it's all about performance. Here it's about who you are and how you're treated. For the next three months, all I did was develop relationships. I didn't change anything." Instead he "shook hands, walked around and learned how things worked." He often helped set up breakfast, arriving at 6 a.m., and spent time in the back office, not his own.

Only after he'd earned his employees' trust was Durliat ready to start making improvements. In 2004 he poached Nikheel Advani from Singapore's Raffles Hotel to be general manager. After studying the operation, Advani set up a school to teach the staff basic hospitality skills, such as the order in which a meal's courses are served. In the meantime he encouraged them to keep their warm, personal style.

"Our headwaitress would hug the guests," Advani says. "That's something you would never do at the Raffles, but the guests loved it."

Progress was slow at first: Durliat didn't notice significant results until nearly two years after Advani arrived. Many of Durliat's competitors avoided similar hassles by importing their front-of-house staff from Indonesia and other countries with high-end-service traditions. But the extra effort at Grace Bay paid off. Today the resort generates revenues of $50 million a year and attracts A-list clients. Durliat's employees understand the value of the improvements he made. "Most of us are really happy about the retraining," says front office manager Adelphine Pitter. "We have to focus on getting better because of the competition out there."

Durliat now plans to expand the brand to as many as 10 more properties throughout the Caribbean. He says he believes the Grace Bay Club succeeded in large part because of the strong rapport that has developed between guests and staff: "We are one of the few Caribbean resorts that truly feel Caribbean."