Magnuson Hotels: It took a family home to build a hotel group
March 29, 2016
While you won’t find the home-crafted enterprise created by Tom and Melissa Magnuson on Etsy, it is doing a robust business online nonetheless, attracting hoteliers who, for 13 years – and counting – have searched for what the duo describes as “the low-cost alternative to hotel franchising.”
The Magnusons – she is chairman, he is CEO – helm Magnuson Hotels, an independent hotel group that represents more than 1,000 independent and formerly franchised hotels that have become affiliates of the company’s reservations management network and/or opted to be branded under any of the Magnuson’s three flags: Magnuson Grand, (upscale hotels and resorts), Magnuson Hotel (mid-scale to upscale hotels and resorts) and M Star Hotel (economy to upper-economy hotels).
The two former Best Western International members literally launched what is now a multi-million dollar organization from the kitchen, bedroom and basement of their Spokane, WA, home, debuting the disrupter on Feb.3, 2003, supported by two Apple iMacs and 12 friends-and-family clients representing independently owned hotel affiliates in the Pacific Northwest of the United States.
Tom Magnuson’s “aha” moment had come during a BW convention in 2000, where, he said, a long line of members looking to question and discuss the issues with the board and CEO around representation and specific needs that were not being met left a “powerful” impression on him.
“Over the next year or so, I talked about that with Melissa actually a lot and we said. ‘Wow. Someday, somebody’s going to come along and do some type of an alternative to that.’ We didn’t know it at the time that it would be us,” said Magnuson.
A seminal high point for the Magnusons was the night they got their very first reservation, recalled the CEO.
My office was in my son Frankie’s bedroom – he was five – and Melissa’s office was in the basement. We stuck a fax machine in Frankie’s bedroom, and I set the reservations system so that when we went live, a copy of every booking made through the 12 hotels would come to our home. The hotels were all on Expedia, Orbitz, Booking.com etc. It went live at 10:30 a.m. and, then, nothing happened. We ate dinner, then went to bed. At about 2:30 that morning, the fax machine started going off. We ran across the hall and a property in Seaside, OR, got a booking from some guy in New York City for a few hundred dollars.” said Magnuson, his voice sounding as excited as it must have been that night holding the fax in Frankie’s bedroom. “As soon as we were done reading that, more came in and more came in and more came in. That was the first day. We’ll never forget that.”
In its founding year, the start-up provided connectivity for independents to 650,000 travel agents via global distribution systems and Internet booking sites, according to Magnuson. “We offered owners the ability to keep their own name, be powered by the same systems as the biggest chains, benefit from a personal revenue management service and pay only for bookings produced. While we started with only 12 hotels out of our house, the word quickly got out that we delivered what we promised, and the next year we hit our first 100 hotels,” he said.
Fast forward to 2007, a record year for the hotel industry, and the Magnusons decided in Q3 to create the current brand family, looking to attract brand-centric hoteliers who were exiting their traditional franchise brands.
“The first evolution of our company was for independents, the unbranded, but then we noticed so many people leaving brands and coming aboard,” said Magnuson. He recalled one such hotelier who quizzed him as to what he should call his property. “I said, ‘Well, Bill, you can call it whatever you want now.’ And, he said, ‘No. What should I call it?'” The CEO offered several other suggestions such as incorporating the owner’s family name or the hotel’s highway location. “What I didn’t realize was he wanted a brand.” said Magnuson. “So, we came up with our three brand tiers.”
The decision how to tier the platform came from owner input, said Magnuson. “It was very clear that owners like to be among other properties like themselves. If a hotel owner is of a certain level like upper-midscale, he or she likes to be associated with properties like that. They want to be denoted differently from economy properties.”
By 2009, as the economic recession was tightening its grip, Magnuson Hotels was adding both branded and independent hotels at a quick clip, surpassing the 1,000-hotel mark. In August that year, the company was cited by Inc. magazine as the number one hotel company of the Inc. 5000 fastest-growing U.S. companies.
The CEO said the enterprise was able to attract hoteliers from the get-go by being very cost-contained. “We put them on a platform where they paid reservations commissions but no brand fees. The reservations commission was 15% of the bookings that came through the central reservations system,” he said, noting it was only in 2014 that Magnuson implemented a full 5% fee structure.
With hoteliers continuing to slog through the recession and international markets feeling the strain, Magnuson at the time expected numerous hotel owners, not only in the U.S., but elsewhere, would remain in need of a way to survive for a 12 – to – 24 month period as they attempted to regain prosperity.
The Magnusons cast their eyes towards the United Kingdom where they signed up 20 hotels in April 2010. Committing themselves to global expansion the couple and their young son – they also have grown children – decided to move to Britain in August 2010, opening an office in London.
The move brought its challenges.
“When we moved to the U.K., initially we brought a lot of hotels on, but I didn’t anticipate how difficult it would be to do business in a foreign country on a completely different continent,” said Magnuson, acknowledging, “There were many months when I wasn’t bringing in any deals.”
Almost six years later, the company has solidified its position in Great Britain, although its model is different than in the U.S., where it still maintains a corporate base in Spokane.
“In the U.S., our base of hotels is independents and now we’re growing the brands very ambitiously because the U.S. is a brand-driven country. Europe and the U.K. are not brand-dominated areas, so our focus over here has a couple of aspects: We’re marketing our distribution and technology services. I’m contracted to add about 300 U.K. and European hotels on distribution services for this year so, for those, our technology will sit invisibly behind hotels like a credit-card processor. That’s a really great way where we can continue to expand business lines for the company. I couldn’t have done that from the U.S.,” said the CEO.
Still, the origins of the company are characteristically American in terms of pursuing a dream. Though she stepped back from the day-to-day operations some five years ago to take on the mantle of company chairman (her title preference), Melissa Magnuson worked “shoulder-to-shoulder” with her husband as co-CEO’s of their fledgling – then soaring – business.
“She oversaw marketing, th