Well, well, well, if it isn’t our old friend Sonder. You might remember the article I wrote on Sonder’s much touted partnership with Marriott International, where I was critical of the company’s position and plans for a turn around, while hopeful that Marriott’s lifeline might give Sonder a much needed second chance. Well, that second chance didn’t last very long, as it was discovered this week, much to the surprise of everyone, that Marriott had terminated its licensing partnership with Sonder, that Sonder had filed for bankruptcy, and that guests and employees had mere hours to vacate the premises at dozens of locations all over the globe.
The whirlwind of updates can sometimes mask the human element of all of this. Thousands of employees have lost their jobs, many more thousands of guests have lost their reservations, and an industry that is already grappling with increased costs and waning demand took another big reputational hit.
Could all of this have been avoided? Was there a path for Sonder to have taken that could have saved it? The answer is complicated, but I have some thoughts.
A Brief Recap and Revisit
So for those of you who don’t want to revisit my article on the lead up to this epic collapse, let me recount it for you here. Sonder, a short term rental (STR) company offering guests apartment style hotel accommodations in major cities all over the world, grew explosively in the 2010’s, thanks to a combination of strong demand for travel and cheap capital.
That growth waned in the face of the Covid-19 pandemic, and faltered even after due to tightening capital markets, tempered demand, and fierce competition from other STR brands after the pandemic. Faced with rising costs and a lot of debt, Sonder opted for a number of fixes to try and turn the business around, going public via SPAC to raise capital, exiting many unprofitable locations with expensive master leases, and, grabbing the most headlines, forming a licensing agreement with Marriott International.
In the grand scheme of things, that last point might have had the least impact on Sonder’s inevitable demise. It was far more important for Sonder to raise the appropriate amount of capital and exit as many master leases as possible, as doing so would have helped to create a more sustainable business model from which Sonder could then grow more strategically. But the Marriott headline grabbed our attention because it did signal that the end was closer than initially thought. Unlike Marriott’s competitors that purchased brands with specific market focus, Marriott opted not to purchase Sonder directly, maybe because they saw that Sonder owned nothing of value, or maybe Marriott realized the integration between the two would be more difficult.
Either way, the decision proved a wise one, as Sonder’s slow decline, then sudden shuddering, left a lot of damage. And now we have to pick up the pieces, and see what we can learn.
The Details Have Always Mattered, and Always Will
I think the way Sonder wanted to operate and how they actually worked was one of the biggest disconnects here, and it precipitated their downfall years before it materialized. A microcosm of that disconnect was the ridiculous way they shared their culture deck, touting their culture as the way “we make decisions, how we conduct meetings, how we communicate with each other and how we treat each other and our guests.” while sharing it all over LinkedIn.
Hindsight is 20/20, and we can see that this supposed culture masked a lot of problems, or was a complete fabrication. We’ll take a look at a few below.
One operational detail I keep seeing repeated over and over again was how the original operating model of Sonder differentiated it from traditional hotels. This model worked by sharing labor and material resources between a group of hotels within the same city, and idea known as “complexing” in the industry. This allows workers, from housekeepers to maintenance engineers, to go where the greatest needs are, and not be stuck at one building for the length of their tenure with the company. The same goes for other material resources, which allows flexibility if storage space is tight at one location but bountiful at another.
As long as employees are prepared for this type of work environment and compensated appropriately, I think complexing is a great idea for companies with multiple properties within a larger metropolitan area, and gave Sonder an edge as they pursued a growth strategy in multiple cities. The pandemic of course made moving employees around to multiple locations less attractive, and so Sonder eventually turned away from that strategy and lost the associated benefits.
Another detail in their culture deck that Sonder touted as helping them “accelerate innovation” was their dependence on technology, both within their hotels and within their corporate structure. The hotel technology a lot of the time wasn’t proprietary, as I can attest to from deploying it in dozens of hotels across the country. And while a tech-forward approach can have amazing benefits like unlocking employees to focus more on the guest experience and lower operating costs, the average Marriott guest profile doesn’t neatly ascribe to all the ways Sonder utilized technology. And on a corporate level, their insistence on rigid rules for Asana and email utilization is a drag on employee morale and reads more like a teacher’s list of classroom rules than an answer to how to unlock creativity and innovation.
Stories of Hurt and Hope
The way Sonder folded directly contradicts the way they postured their communication and their treatment of employees and guests, a key aspect of their culture deck that ended up mattering little in the end. The details are quite striking; within 24 hours of Marriott announcing the termination of their partnership, Sonder subsequently announced their intention to file for bankruptcy and wind down operations. Guests were notified that they had less than 24 hours to vacate the premises or risk being locked out of the building with all their belongings inside. Many guest stories, gleaned from both online articles and the Marriott subreddit, tell a tale of mass confusion and extreme disappointment as guests were many times left without options for rebooking their reservations or retrieving their personal belongings.
For the guests, this is similar to booking through a Online Travel Agency (OTA) like Expedia or Booking.com, where the OTA is the one holding the reservation (and the payment) and simply transacts with Marriott on behalf of the guest. The same process was similar through Sonder, but the difference was in appearances, as many guests thought they were booking directly with Marriott and entitled to the same privileges as any other Marriott guest with regards to cancelled reservations. The reality was quite different, and many guests were surprised by the fact that Marriott wouldn’t assist them in finding alternate accommodations.
Even more striking was the treatment of employees during this ordeal. It was reported through many different outlets that Sonder employees weren’t made aware of the company’s ceasing of operations until after news broke to the media of the forthcoming bankruptcy filing. The timeline of events means that when Marriott announced the termination agreement on the morning of November 9th, employees didn’t receive any official communication until the next day shortly before 5 PM.
Even more astounding, many employees learned from guests directly of the closure, since the guests received notices of cancelled reservations over 24 hours before employees were told directly they were out of a job. Employees received neither severance nor job relocation benefits and still many employees showed up the next day to assist guests in vacating the premises before the 9 AM deadline.
Overall, the fumbling of Sonder’s closure could not have been more poorly managed by all parties involved. Marriott had an absolutely gang-buster opportunity to make things right for thousands of guests and potentially hundreds of employees by taking over the job of what Sonder should have done. Even though they had no responsibility to do so, Marriott could have taken it upon themselves to find alternative accommodations for guests or work with former Sonder employees on filling open positions at their hotels and generate mountains of good will plus more loyal guests. Of course, the easier decision is to wipe their hands clean of the situation and dodge questioning, but overall I think this was a missed opportunity by Marriott, especially if, in my estimation, the writing was on the wall and they knew a default was coming.
On Sonder’s shoulders is the real responsibility, and it’s a story of failed leadership and phony culture. Sonder’s executive team and board surely knew what the financial health of the company was weeks if not months before the eventual default, and most likely purposefully delayed the announcement until the very end. In the process, they ruined the livelihoods of hundreds of employees and disappointed thousands of guests. If anything, they should be fortunate that they can’t continue to operate, since it’s unlikely their reputation would allow them to gain the trust of guests and employees ever again.
Have We Learned a Lesson? Maybe
Ultimately, the writing should have been on the wall earlier than many of us thought. I had called the consequences of Sonder and Marriott’s initial partnership a “death knell”, but even I didn’t think the fall would come as quickly as it did. Sometimes you like to think that competent and responsible people are at the helm of the ship, and only when it runs aground do people think to question the captain.
There are a few lessons to be learned, but ultimately there will still be further industry consolidations and closures before we find calmer waters. Firstly, growth at all costs is a poor attitude to have in hospitality. I’ve seen big and small players in the industry fail because they were too focused on growing unit counts or expanding into too many markets. Anecdotally, it is far better to focus on refining operations, improving the guest experience, and ensuring the longevity of individual properties if you want to survive. Secondly, I think we finally have all the proof we need to pronounce the master lease agreement as the worst vehicle for STR growth. It’s what doomed Sonder and the many STR companies before it, and there are far more sustainable methods for growing unit and property counts. And Finally, culture has to be more than a slide deck; it needs to be represented in every company’s actions, and that clearly wasn’t going on in this case.
It doesn’t take a genius to see the pitfalls of Sonder’s rise and fall, but sometimes you do need a helping hand to navigate a hotel renovation or transformation, and that’s where Ascension Associates can help. Contact us today at clients@ascension-consulting.com or through our online form to see how we can help your next hospitality project ascend today.