Beating the odds: From a basement to a billion

By Francis Davidson, CEO and Co-Founder of Sonder

I co-founded Sonder five years ago while attending college in Montreal with no money, no network, and no experience. I didn’t know a single entrepreneur, I knew nothing about Silicon Valley or TechCrunch, and certainly didn’t believe in angels and unicorns. I can’t believe that today we’re announcing our $225M series D with a valuation exceeding $1 billion dollars. In this post, I’ll attempt to unpack how the hell that happened.

Before, a bit about Sonder. Our goal is nothing less than to build the world’s most loved hospitality brand. We want to infuse hospitality with our passion for architecture, design, culture and technology and do so across all accommodation categories (apartments, hotels, villas and entirely novel forms). We intend to surpass Marriott’s global scale, and to create an iconic brand — one of the greats of the greats along with Apple, Disney, and Nike. Finally, we aim to extend hospitality to housing by deploying design, services, and technology to rethink the home in the 21st century.

Odds are that Sonder won’t achieve this vision. Our chances of achieving our most audacious goals might be lower than my chances of turning the business I co-founded 5 years ago into the 1,000 person organization it is today. Roughly 1% of seed-funded tech companies in the US cross a billion dollar valuation within 10 years. 67% go bankrupt or stagnate. Have we just been absurdly lucky so far? Perhaps. But, like poker or chess, building a business involves both skill and chance. Some parts are a roll of the die and other parts you influence by pulling a series of levers.

Best practices aren’t enough to beat the odds and reimagine an industry. So it’s important do things substantially differently than others, yet avoid the million avenues that are original but deeply flawed. I believe that all attempts at beating the odds come down to three levers: strategy, talent, and culture. Here goes my differentiated take on each of them, and how I’ve applied those ideas to stack the odds in Sonder’s favor.

Strategy

Companies die every day because of flawed strategy. Let me define strategy as a set of decisions that are long term, not easily reversible, and of the highest impact. High impact decisions are ones that have a long lasting and substantial effect on customer experience, unit economic attractiveness, scalability, and defensibility.

In fact, at Sonder we have core capabilities which map to experience, economics and growth. We set OKRs against them every quarter. I look at the merits of our large strategic bets along those three dimensions. An extraordinary strategy is one where your team will face natural tailwinds: efforts to improve the experience, economics or growth are easier with a winning strategy and impossible with a poor strategy.

Now what can you do to ensure a better strategy?

Devote serious time to strategy. On the one hand we recognize that strategy makes or breaks us, yet most organizations allocate little time and resources to strategic analysis. The best ideas come after the moment of silence where you thought you had run out of ideas. I’ve found weekends to be great moments to immerse myself in strategy — this isn’t an exercise that you can do successfully with a time box and an agenda. I never use WiFi on planes and instead focus on core strategic questions.

Apply the highest standards of rigor. Many decisions ought to be made rapidly — their impact is not large enough to warrant careful study. Strategy is not one of those kinds of decisions. It’s critical to avoid cognitive biases. I highly recommend SuperforecastingThinking Fast and SlowFooled by RandomnessRationality from AI to Zombies and other works which focus on avoiding the systematic mistakes of the untrained human mind. This involves thinking probabilistically about outcomes, and recognizing that strategy is game-theoretical: your next move will be responded to by competitors, and you will respond to their move, etc. Strategy is also a dynamic exercise. Every new piece of information should update your beliefs about the most optimal long-term choices. It’s thus critical to allow for fluidity and periodic reviews.

Be a student of strategy. My favorite strategy framework is the book Seven Powers, Foundations of Business Strategy. Case studies or bios of successful or unsuccessful entrepreneurs are a good start, but in the world of strategy, there is no outlier success in the application of best practices. Strategies are brilliant when they’re novel, unintuitive and correct. A rapidly changing world makes it unlikely that repeating a celebrated strategy is a good move. I’ve also noticed that strategies are rarely linear. Perhaps the best way to provide streaming content online is to start with a DVD by mail business. Perhaps the best way to sell everything online is to start by drop-shipping books. Perhaps the best way to create an affordable electric car is to start by building an electric luxury supercar. The best strategies are often intentional about their end-game goal, yet radically diverging in their openings.

Engage your leadership team and board. I’ve heard of companies where CEOs descend from heaven with a ready-made strategy and vision, and their team’s job is basically to execute. Strategic decisions are too impactful (by definition) not to undergo a more thorough, inclusionary, consultative decision making process. Each assumption ought to be scrutinized, each deduction challenged. Companies often fail because of a faulty premise which could have been detected had enough brilliant people been invited to the table.

People

I believe that the best people aren’t just 2x more effective than the median. I’d argue they achieve 10x the results. Most companies think they have better talent than the company next door, but definitionally 50% of organizations have below median talent. The impact of each individual on the team will range from negative to transformational. How do you avoid the former, and overweight the latter? How do you ensure your talent is concentrated in the 95–100th percentiles?

Let’s deconstruct how people spend their working hours into three buckets, which we can map to capabilities and hiring decisions. First, employees create options. They come up with potential solutions to problems or brand new initiatives. Second, they evaluate the merit of those ideas and decidewhich to pursue. Third, they execute on the selected direction.

Hire creative people. Great decisions are bounded by the options we imagine. I’ve often found that a long debate about idea A or B is quickly dismissed the minute a novel option C is uttered. Given the proper culture, every single employee can contribute to this creative exercise of conjuring paths out of a blank slate. And this isn’t a number’s game. Three things are critical when evaluating creativity. First, how novel are the ideas presented? The more unusual, the better. This is where a diversity of perspectives is invaluable. Second, how believable are the ideas presented? This is more art than science. The best ideas can’t be immediately refuted. Third, how rapidly can the person come up with those ideas? Every minute counts.

Hire rigorous decision makers. An organization is the sum of all of its decisions and how it executes them. You need people who choose the paths with the highest probabilities of success. Nearly every person who interviews with Sonder takes a timed “challenge” which resembles the kinds of choices that have to be made in the job. We grade the challenges, and walk through the results with the candidates to give them the opportunity to defend their choices. Another good way to evaluate rigor earlier in the interview process is to present actual choices I am currently facing. Given that I spend 30–40% of my time interviewing, this also provides an opportunity for me to devote more time to refining my decision making. If the interviewee provides little insight into my decisions, it’s usually not a good fit.

Hire people who get things done. Highly productive, capable people can articulate with excruciating detail how they got things done. They do OKRs, roadmaps, staff meetings, 1:1s and avoid the planning fallacy. They’re rarely late, they have agendas, they follow up, they don’t miss deadlines but sometimes move them. They can credibly explain deltas to plan, and write excellent memos. They are inspirational and high energy. They have a deep desire to win. They communicate directly, but compassionately. They come with a track record of rapid achievement and increased responsibilities. They have an impressive work ethic. People love working with them, even if their bar is so high that you feel that you always need to do better. In backchannel reference checks, I ask: “Was this the best person on your team?” and “Would you hire them again?” Most people say yes to both without hesitation for 95th+ percentile talent.

Getting people who are outliers at those three things is so rare that you can rarely afford more criteria. The strength of your mission, vision and culture give you a chance to bring them in despite their many other offers.

Culture

The goal of culture is to improve the odds of achieving your mission. You do so by accelerating innovation along experience, growth or economic dimensions. The litmus test for a culture’s excellence is whether, holding strategy and people constant, innovation occurs far more rapidly.

Let me define culture as a set of principles and customs that define expected and unacceptable behavior. As with strategy, adopting cultural best practices won’t generate radically superior outcomes. Thus a core component of successful cultures is that they encourage or constrain behavior in a way that is at times counter-intuitive, yet conducive to improved innovation velocity.

Principles as a behavioral code. The principles act as the culture’s constitution. Every action made by any person in the company should be classifiable as valuable or unacceptable based on the principles. The framework I’ve used to select Sonder’s principles aims to map each to behavioral traps that should be avoided in order to innovate faster. As organizations get bigger, people can struggle to build meaningful relationships and trust each other. Decisions are skewed by cognitive biases. Understaffing tempts hiring managers to lower their bar and underinvest in coaching their team. We don’t speak up when something is wrong, too intimidated by the hierarchy or by being perceived as complainers. We can become overloaded, and thus unfocused and slow. We tend to gossip until our frustrations blow up. Problems outside our areas of responsibility are rarely flagged. Missed deadlines or poor results are often explained away. Loss aversion can translate to a fear of change and optimism wanes. Once something works, risk aversion sets in and we don’t dare to reinvent.

At Sonder, our principles are our antidote to these all too natural tendencies. They are: Hospitality Everywhere, Think Rigorously, Hire and Develop the Best, Obligation to Speak Up, Prioritize Relentlessly, Communicate Directly with Compassion, Act Like an Owner, Deliver Results, Be Grateful and Optimistic, and Improve Continuously. I’m hopeful that those principles will give Sonder a fighting chance to avoid the exponential challenges of global scale.

Customs as operating rhythm. Never underestimate the impact of otherwise mundane processes. Well-engineered customs will foster faster innovation. It starts with the hiring and onboarding process, goal setting and how 1:1s are run and at what frequency. At Sonder, we have a bi-weekly leadership meeting for each of our 5 company goals. Each participant is required to read and provide commentary on a written memo and dashboard sent 24 hours prior to the meeting. Every team sets OKRs such that each KR has a 75% probability of being hit. All exempt employees including me write a weekly brief that is transparent to everyone else in the company. In our briefs we track progress against OKRs, reflect on mistakes, share important updates, and give shoutouts to our team. Our new performance review grades people’s capabilities (creativity, decision making, execution, OKR completions) and character (each of our 10 principles). Other customs include how all-hands meetings are run, what kind of recurring meetings exist and how they are run, the company’s philosophy towards spending and headcount growth, the overall sense of urgency and expected work ethic, which opportunities are given for people to socialize, quarterly or annual offsites and so on. Each one of these choices impacts motivation, information flow, and the company’s overall speed. Studying, experimenting, and deploying differentiated customs is an undervalued part of culture can radically improve the odds in your favor.

The above merely scratches the surface of that past 5 years I’ve spent obsessing over Sonder’s path towards becoming a great company. I recognize that this is just the start, and certainly no time to become complacent. Perhaps with enough focus on sound strategy, team building and culture, we will have a shot at building an iconic global brand and designing an environment that drives human fulfillment for both travelers and city dwellers. And hopefully, with a bit of luck, we might once again beat the odds.

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