In my many years as a backpacker, out of all the wonderful hostels I stayed at, my longest and happiest was my several years at HSH in Edinburgh, Scotland.
I don’t know the full story, because the business was fully-functional by the time I stayed there, but all that matters is the model, not the precise details.
Pops, the owner, started out with a very canny vision – he found a warehouse for lease in a prime tourist location, and leased it at warehouse prices. He then set up the most rudimentary accomodation and offered somewhere free to sleep in return for manual labour.
Cleaners and receptionists received a bunk bed in exchange for a few hours work each day. No more than 4 hours. In terms of pay, the pay was poor. In terms of guaranteed work, working from home, easy-going employer and various perks, the deal was a good one.
As the business grew (there were many floors to the building), paying people with free rent cost nothing. The beds were vacant otherwise.
Tradespeople – typically Aussies/Kiwis and North Americans – worked less hours for their free rent, but the advantage was the same. No cash changed hands, and the amenities grew.
When it began, there were mattresses and curtains in large warehouse rooms. By the time I lived there, it was a fully fitted hostel, with rooms, corridors and bunk beds.
By offering a barter proposition that worked for both parties, the business grew from a very low capital base. There may have also been some skill/luck with regulations that contributed…
A similar model operates worldwide called WWOOFing – Willing Workers on Organic Farms. Workers, typically foreign backpackers, spend a few weeks or months working half days on a farm in return for room and board. The farm owner gets virtually free labour – the primary expense is the food they cook (ideally sourced from the farm) – and the traveller gets a healthy, learning experience in the fresh air without spending any savings, and plenty of free time. Likewise, with care and vision, a low quality property can be transformed into a profitable organic farm, with far less capital than would typically be required.
All labour-intensive businesses can experiment with how that labour is rewarded.