(FORTUNE Small Business) – How did chip Conley successfully navigate a Bay Area Internet bust that devastated most of his competitors? The founder of San Francisco's Joie de Vivre Hospitality, a chain of 28 boutique hotels, says, "Life is all about managing expectations." When his company dove into the red--revenues dropped from $65 million in 2000 to $52 million in 2002--he was forced to write investors to openly ask them for cash. With his employees, Conley, 44, adopted an open-book management style that allowed all of them to see that the downturn was real. Conley trimmed executive salaries 10% and froze pay for the rest of the staff (he hasn't been paid in four years). In March, Conley began exceeding expectations again when he opened the $53 million Hotel Vitale on San Francisco's waterfront, the first new local hotel in three years. --I.M.