Small Company: Big Technology. Compete Against The Big Boys From Your Garage
By Thomas Magnuson, Co-Founder & CEO Magnuson Hotels
Pepperdine Graziago Professor John Mooney, Academic Director, Executive Doctorate of Business Administration and Associate Professor at Pepperdine Graziadio Business School in conversation with Thomas Magnuson (MBA '89) at January 2021's "Graziadio Day Around the World: Europe."
Melissa and I started out of our house with two old Mac computers and 12 small motel affiliates as our first customers. Around 2000, right at the early days of the Internet, we noticed the struggle independent hotel owners were having and built a version of the digital platform the biggest hotel brands had - but at a fraction of the cost.
To chart our direction, we built a simple wall chart with competitors on the vertical axis and functions/costs on the horizontal axis. Then, we asked ourselves "What functions are critical, which are fluff?"
Always ask yourself "who is my customer, what is essential to their needs?" Often your customer needs a four-gear Toyota pickup to do the job, but most companies try to sell you an aircraft carrier. From this grid we were able to strip out functions that did not add direct value and create a lean low cost machine that allowed operational flexibility and scale.
Always remember the words of Michael Porter. Strategy is choosing what NOT to do.
In the early days of online marketing and distribution, in the wake of 9/11, we could give hotels the same visibility and online presence as those big brands. We got you into the game, but the difference was we were there to support the small business owner, to enhance and amplify their vision, not to marginalise it to a standardised corporate dictum.
When you're starting out, I don't think you need anything custom until you get to chain scale. In early days, you are still learning your customers and markets and adapting to what works best. So two things happen at the same time: your organisation grows so quickly that your needs change and the technology that's being produced has shorter and shorter lifespans.
When building a digital platform for scale, always remember that technology is like a car: do you buy one that breaks down and depreciates in value, or do you rent one and run it hard until the tires go bald? With technology it's far better to rent until you've outgrown it and move onto the next iteration.
It's like a little kid with clothes. Sometimes kids grow so fast, you don't buy the expensive shoe brand that's only good for six months.
For me, as a chain CEO, I'm always on the lookout for new technology and I always go to the tech shows - but it's like finding a needle in a haystack. You'll see a thousand things that look great but if you look at the engine block, some are often not useful at all.
I have a real concern for small business owners; they're always getting hit up by technology companies who often have a bigger marketing budget than development budget. Often, something's 90% PowerPoint Vaporware and 10% gears and bolts.
The most important thing for hotels is centralisation toward a single platform. Usually, most hotel owners have a half dozen platforms duct-taped together. Behind the average front desk in the UK you have a PMS, then there is a channel manager and then somewhere else there may or may not be a GDS connection.
Then somewhere along the line comes an automated revenue management and reviews platform with the vision that all you have to do is turn up to work and check people in at high average room rates because it watches your competition and changes your rates automatically.
Theoretically this is a beautiful dream. But in actuality, the hotel owner still has too many nonintegrated platforms to manage and then struggle with conflicting data. With so many layoffs now, money and staffing are leaner and time or money are not available for nonintegrated platforms.
Here's a secret for you. You might assume all the biggest companies have the best technology and run like a spaceship, but the reality is, many are a train wreck behind the shiny public listings and global brand.
For any business owner evaluating technology, you need to conjure up the spirit of the immortal John D Rockefeller. What is the shortest, most direct and controllable distance from producer to buyer?
You have to make some simple clear decisions and ask yourself: "I know I was sold on these bells and whistles, but what do I really need to drive A to B in the fastest, most profitable way."
If you can run your enterprise on a single unified stack, you're unstoppable.
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