Latest / The CEO Diary with Fexingo: Leadership Lessons, Executive Decisions, and Corner Office Stories / How Takumi Yamamoto Saved a 400-Year-Old Kyoto Ryokan
Transcript
- Lucas: There's a 400-year-old inn in Kyoto, tucked at the end of a lantern-lit alley, with a moss garden that's been manicured since the 1700s. In 2019, it had six rooms, a leaky roof, and fewer than 20 guests a month. Luna: That's a death spiral for a small ryokan. What happened? Lucas: The third-generation owner, Takumi Yamamoto, took over that year. Most successors would have modernised — added en-suite bathrooms, put rates on Booking.com, cut the kimono service. He did the opposite. He halved the rooms to three, raised prices by 40 percent, and stretched the evening meal into a seven-hour, 12-course ritual that starts with tea in the garden. Luna: Seven hours for dinner? That sounds like a guest experience, not just a meal. Did it work? Lucas: By 2023, occupancy hit 95 percent at about $1,200 a night. Revenue tripled. And in 2022, a big luxury hotel group offered to buy the place — probably to turn it into a branded boutique — and Yamamoto said no. That's the episode: radical subtraction as a CEO strategy. Luna: Let's unpack that. Because most business thinking is about adding — more rooms, more features, more marketing. He took rooms away and raised prices. That's counterintuitive. Lucas: The key is that the inn had a hidden asset: its cultural authenticity. Yamamoto told me in an interview that the previous generation had tried to compete with Western-style hotels by adding TVs, mini-bars, and Western beds. It diluted the experience. His insight was that the inn's real value was in what it had never changed — the tea ceremony room, the handwritten guest logs dating to the Meiji era, the fact that the garden had never been photographed for social media. Luna: So he leaned into scarcity. Only three rooms means you can't book it last minute. It becomes something you plan months ahead. That creates anticipation. Lucas: Exactly. And he fired the corporate marketing agency he'd inherited. Instead, he asked his head housekeeper, a woman in her sixties who had worked there for 40 years, to write a monthly letter to past guests — handwritten, on paper made in the same Kyoto district. That letter became the inn's only marketing. No website booking engine; you call or send a fax. And it worked because the people who received those letters became repeat guests who told friends. Luna: Wait — fax? In 2020? Lucas: Yes. Yamamoto said the fax machine was already there, and his older guests — many in their fifties and sixties, who could afford $1,200 a night — actually preferred it. He didn't force them onto a new system. That respect for the guest's preferred pace is part of the omotenashi philosophy. Luna: So the strategy wasn't purely about cutting costs. It was about redesigning the experience around a very specific, high-intent customer. Who is that customer? Lucas: He defined two segments: international travellers who had already been to Japan three or four times and were tired of the standard tourist route, and Japanese professionals in their fifties who wanted a weekend that felt like stepping into their grandparents' era. He stopped accepting groups larger than two. No families with young children. No single-night bookings. Minimum stay of two nights. Each decision reduced his addressable market, but increased willingness to pay. Luna: I've read about some hotels that do the opposite — they try to capture every possible guest. The numbers show that narrowing the customer base often boosts profitability, but it takes nerve. Especially when the roof is leaking. Lucas: The roof repair alone cost about $80,000. Yamamoto had to take out a personal loan. His father told him he was ruining the family legacy. But he had a theory: if you make the experience so distinctive that a guest remembers the scent of the bath oils and the specific crackle of the fire pit, they will tell ten people. And that's what happened. Within 18 months, the inn had a six-month waiting list. Luna: Let's talk about the pricing. Forty percent increase on an already expensive product — what was the rationale? Did he benchmark against other luxury ryokans? Lucas: He didn't benchmark at all. He calculated the cost of delivering the seven-hour dinner: the ingredients, the sake pairings, the fact that two staff members are dedicated to each room for the entire evening. Then he added a margin that allowed him to pay those staff well above industry average. The price came out to $1,200. He didn't check what competitors charged. He said, 'If the experience is worth it, the price is right.' And it turns out, for the right guest, it was. Luna: That's a very different approach from, say, the dynamic pricing models we see in airlines and hotels. He set a fixed price and refused to discount. No off-season rates. Lucas: No discounts. Not even for corporate bookings. In fact, he stopped accepting corporate bookings entirely, because he found that business travellers often treated the inn as a backdrop for meetings, not as an experience. They'd be on their phones during the kaiseki dinner. That disrupted the atmosphere for other guests. So he banned laptops from common areas. That's a CEO making a cultural call, not a financial one. Luna: It makes me think about the buyout offer in 2022. A luxury group comes in, probably offering millions. He turns it down. Why? Lucas: He said the group wanted to expand to 20 rooms, add a spa, and standardise the menu. They would have turned the inn into a product. Yamamoto felt the inn was a place, not a product. He said, 'If I sell, the garden dies in five years.' He was referring to the fact that the garden's moss is tended by one specific gardener who learned from his father. You can't replicate that with a landscaping contract. Luna: That's a profound decision. Most people would see a multi-million dollar exit as success. He saw it as failure to preserve something irreplaceable. Lucas: And that's the through-line of his leadership. Every decision was about protecting the essence. When he retrained his staff, he didn't send them to hospitality school. He had them study chanoyu — the tea ceremony — for three months before they ever served a guest. The idea was that the ritual of preparing tea teaches patience, attention to detail, and a certain humility. Those are the skills he wanted, not a standardised greeting script. Luna: How did the staff react to that? Three months of tea ceremony training, no tips, no commission — because he also eliminated tipping. Lucas: Initially, some older staff resisted. They thought it was a waste of time. But Yamamoto made it clear that the value of their role wasn't in serving food, but in curating an experience. He also raised base salaries by 25 percent. Turnover dropped to nearly zero. The head housekeeper — the one writing the letters — told me she felt like an artist, not a maid. That's a powerful shift in self-perception. Luna: So the financial model: higher prices, lower room count, higher staff costs, no marketing spend. What do the margins look like? Lucas: He shared that operating margin went from about 8 percent in 2019 to about 34 percent in 2023. The revenue tripled, but the cost base actually shrank — fewer rooms to clean, fewer guests to serve, less laundry, less food waste. The seven-hour dinner uses seasonal ingredients, but he buys directly from farmers, so there's no middleman. The cash flow became so strong that he paid off the roof loan in 14 months. Luna: That's the kind of story that sounds almost too neat. But it also raises a question: can this model scale? Can other inns do it? Lucas: Yamamoto says no. He's very clear that his approach worked because the inn was already 400 years old with a deep cultural foundation. He thinks trying to replicate it in a newer hotel would feel like a theme park. But he does believe the principle applies anywhere: find the thing you do that no one else can do, and double down on it, even if it means shrinking everything else. Luna: It's almost the anti-startup playbook. The typical startup narrative is growth at all costs, market share, scale. He did the opposite: shrink, deepen, charge more. But he's still a CEO making hard calls. Lucas: Right. And one of the hardest was letting go of the corporate marketing agency. They had been with the inn for 12 years. The director was a friend of his father. But Yamamoto realised the agency's strategy — social media ads, influencer stays, discount codes — was attracting the wrong guests. He had to sever a personal relationship to save the business. That takes emotional discipline. Luna: Which brings us to something you and I talk about a lot on this show: the loneliness of CEO decisions. He made those calls essentially alone. Lucas: He did. And he mentioned that during the first year, he barely slept. He'd walk the garden at 2 a.m., second-guessing himself. But he had a clear 'why' — preserving the inn for the next generation. His three-year-old daughter was born in 2020, and he said he wanted her to know the inn as it was, not as a branded hotel. That personal mission gave him conviction. Luna: If these conversations have moved your work forward in some small way, or if they've just made your commute more interesting, a couple of dollars a month is genuinely what keeps them going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. It's the reason we stay ad-free and independent. Lucas: Yeah, it really does make a difference. We don't run ads, so listener support is how the lights stay on. Buy me a coffee dot com slash fexingo. Luna: Alright. Back to Yamamoto — I want to know one specific tactical choice that made a disproportionate impact. What was the single highest-leverage decision? Lucas: Without question, it was changing the dinner format from a standard multi-course meal to the seven-hour ritual. That one change forced every other system to align: the menu, the staffing, the reservation policy, even the check-in time. It became the spine of the experience. And it cost almost nothing to implement — just a rethinking of timing and sequencing. Luna: So the biggest impact came from process redesign, not capital expenditure. Lucas: Exactly. And that's a lesson any CEO can apply. You don't need a million-dollar renovation. You need to ask: what is the one moment in the customer's journey that defines their entire memory of us? Then make that moment extraordinary. Luna: For Yamamoto, that moment is the first sip of matcha in the garden, with the sound of the bamboo water feature. He said guests often cry. Lucas: He told me a story about a guest who came in 2022, a retired surgeon from Osaka. The surgeon had lost his wife the year before. During the tea ceremony, he started weeping. The housekeeper didn't interrupt. She just refilled his tea and waited. Later, he wrote in the guest book that it was the first time he had felt peace in 14 months. That's not a metric you can put on a dashboard, but it's the reason the inn exists. Luna: And that's the kind of impact that no amount of scaling could replicate. Okay, I think we've got a clear picture: a CEO who subtracted his way to a stronger business, preserved a cultural treasure, and built a model on depth rather than breadth. Thanks, Lucas. Lucas: Thanks, Luna. If you're ever in Kyoto and you manage to get a reservation, tell Yamamoto we sent you. He'll probably laugh — and then serve you tea.