Independent Hotels Thrive Via the ‘Net-www.smartbiz.com
January 9, 2006
By Tom Magnuson
Did you ever set up a lemonade stand when you were a child? On a hot summer day, you had the grand idea you could make your first fortune selling lemonade to all the thirsty people passing by. With your parents help and good traffic, you did quite well. For adults, starting a small business is a lot like that little lemonade stand.
Today’s Internet world offers a way to build a big business by starting small. As one of my professors at Harvard Business School often told me: “Start small; don’t bet the farm on an untested idea. Sell a little. If it sells well, sell a little more.”
Historically, an independent hotel owner has had two choices: He or she can franchise with the mega-chains or go it alone. Independent hotel owners, who need access to travel agents and worldwide reservation systems, have had to go through a tightly restricted and proprietary structure controlled by legacy franchise brands such as Best Western, Holiday Inn and Ramada.
Access provided by the hotel franchise chains has generally come at a high price, with franchise and royalty fees averaging 9 to 14 percent of gross room revenue. On top of this are multi- year non-cancelable agreements, mandatory hotel renovations and expensive computer system and supply requirements.
But these demands come in the face of commoditizing travel industry conditions. Hotel owners find it difficult to realize a profitable return from most franchise affiliations. They must sell more rooms in an era of reduced cash flow in a tough market saturated with too many indistinguishable brands.
Going it alone hasn’t been a great option either. No access to worldwide reservation systems means no reservations. Since America has been raised on mass marketing, what chance does Joe’s Seaside Motel have when a Holiday Inn goes up next door? How does one compete with the 800 pound gorilla?
Melissa and I started our business as “the independent alternative to hotel franchising,” with a commitment to offer fast action for hurting hotel owners. Magnuson Hotels would provide a complete low cost service package to increase occupancy and rates without a big name hotel chain.
Hotels would maintain their own identity. To simplify their world, Magnuson Hotels’ online marketing specialists would act as their one-stop connection to complete worldwide reservation distribution, including access to 100 percent of the world’s 650,000 worldwide travel agents and more than 2,000 Internet booking channels such as Travelocity, Expedia, Orbitz, Lodging.com, Hotwire, Priceline, TravelWeb, USAToday, CNN.com & many airline websites.
Fees would be performance based upon a percentage of net reservations delivered rather than a percentage of gross sales. No long term agreements–and a hotel could get online for under $400
We were also committed that our new business, Magnuson Hotels, would be one where we had no debt and very little capital investment. To do this, we needed to start small, and use the lemonade stand principles. Our mantra: “Start small–don’t bet the farm on an untested idea. Sell a little. If it sells well, sell a little more.” Work with what you’ve got. Bootstrap it as long as you can!
We started with two Apple Macintosh computers operating in two rooms out of our house in February 2003. Our first 12 hotel affiliates were friends and family. We built a low cost website (about $2,000) to showcase our first hotels and connected them to several worldwide reservation systems via Internet distribution agreements. By summer, we doubled the number of hotels, and happy affiliates recommended our services to others.
By fall of 2003, we needed to move out of the house and start hiring employees.
May the Salesforce Be With You
All finances were run on QuickBooks, and when our growth required a Customer Relationship program, we contracted with SalesForce.com. We looked at several systems that would help us consolidate our client and sales data. Most–such as Siebel and IBM–were completely unaffordable for a small business. It would take at least a half a million dollars to get started!
Salesforce.com provided us on-demand client and sales data management services from about $69 per user per month. This uniformity allows us all to work from one playbook for the company. We could all access the same client and sales data simultaneously. It took us about a month to use the tutorials online and import all our data from Outlook and Excel files. When we got on the same playbook, our company went through another big growth phase. By having all our sales data centralized, we were able to double from 100 to 200 hotels in only a few months–and with only two salespeople! Our client service improved as well.
Almost every financial component of our operation other than office rent and the first couple of employees were variable cost items. We had to keep the overhead low!
Today, just three years later, Magnuson Hotels represents over 400 hotels across the United States; we’ve added more new hotels to our system in the last two years than eight of the top 10 franchise chains combined. The company has 15 employees, and a positive growth track ahead.
The Internet was our lemonade stand. At first, we thought we had a good idea for a small business. We weren’t sure if it would work, however. Our website was our card table, and our customers and early vendors were there by our side.
The Internet allowed us complete flexibility to change quickly, grow rapidly and affordably. If you’re looking for a way to leverage your idea and achieve the impossible, use the Internet to start small and build a great business.
Thomas R. Magnuson is a principal and co-founder with his wife/partner Melissa of Magnuson Hotels, based in Spokane, WA. Founded in February 2003, Magnuson Hotels is the independent alternative to hotel franchising and represents over 400 independently owned hotels in the US and Canada.
Magnuson is a graduate of Harvard Business School, the Pepperdine University School of Business and Tufts University. He and Melissa live in Spokane, WA with their nine-year-old son, Franklin.
About Magnuson Hotels, the fastest growing hotel chain in history.
In only seven years, Magnuson Hotels headquartered in Spokane, WA has become the world’s largest independent hotel group, representing nearly 1500 hotels and a combined affiliate base with assets in excess of $5.5 Billion. One of the top 10 global hotel chains, Magnuson Hotels was the #1 Hotel Company of Inc. Magazine’s 2009 annual ranking of the 5,000 fastest growing privately owned U.S. companies. With a four year reservation sales growth of 595%, Magnuson Hotels is listed in the top 100 U.S. business services companies.
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