"About three years ago I jumped into the crazy adventure of creating a travel startup, launching WeHostels out of my passion for travel and my experiences as a backpacker."
NB: This is a viewpoint from Diego Saez-Gil, a travel industry entrepreneur.
From Latin America we took an idea off the ground, enlisted a great team, and after an unbelievable roller-coaster ride full of blood, sweat and tears (and to be honest also lots of fun) we were recently acquired by StudentUniverse, the largest US travel agency for students and youth.
Under the new umbrella we will continue growing our company and hopefully together will fulfill our initial dream of building a “multi-billion dollar travel company” by creating the largest travel agency for youth. We had hard times, made tons of mistakes along the way, but somehow managed to build a valuable enterprise.
As many young entrepreneurs interested in making a travel startup, we had no previous experience on the travel industry. And as such we had no real idea of where we were getting into.
As I wrote on my blog, ignorance can actually be positive when it enables you to go for crazy ambitious goals that you wouldn’t have ventured if you knew more.
That being said, there are many things that I would have actually loved to know when I started! Understanding some basic things would have saved us a lot of precious time, money and struggle.
I recently had the great pleasure of being one of the judges of the Travel Innovation Summit at the PhocusWright Conference, where for the first time I seated on “the other side of the table”, listening to pitches and judging their businesses’ potential.
I was truly inspired by the amazing energy of all the entrepreneurs presenting, but I also saw many of the basic mistakes that we made ourselves at the beginning.
That’s why I decided to write what are the main 10 lessons that I learned in my journey building a travel startup. These are the things I wish someone had told me at the start.
I truly hope that it helps other entrepreneurs avoid some mistakes and build really successful travel companies.
1. Warning: The odds may not be with you
I don’t know if there is any actual data on this, but after some years as an observer I have the sense that the travel industry experiences a higher rate of mortality of startups than the general average.
There are many reasons that make the travel industry an especially hard arena: the infrequency of purchase, the consolidation of incumbents on truly large companies to an almost oligopolistic point, the unbeatable marketing spend of these big guys and consequent high cost of customer acquisition, the fragmentation of the supply and more.
That doesn’t mean that new valuable companies don’t emerge, though.
As I have documented in Quora there have been many IPOs and hundreds of acquisitions in the industry in recent years. But you have to be aware of your odds. You have to do it for the love of the game, for the journey and not for the outcome. You will need to be relentlessly resourceful and embrace that if failure was going to be the fatal end you’d go for it anyways.
2. Ain’t no dough in “inspiration”
It has been said thousands of times, and given as feedback at every TIS, but we keep seeing new travel startups building products for the inspiration and planning stages. Many of them build truly beautiful products that people seem to love, but later fail to discover sustainable sources of monetization.
The people who used to pay for Lonely Planet books and Travel & Leisure magazines are not paying for content online nor on mobile. And when you are too far away from the “moment of truth” (the magical moment when a customer gives you their credit card number to book a trip) it’s hard to get good conversions.
Phenomena observed in other verticals like fashion or design where inspiration sites like Pinterest or Fancy are strong drivers of conversion had not been observed yet in travel. TripAdvisor is a terrific driver of conversions but not by inspiring people, rather by giving users valuable information at the moment of booking.
I might be wrong on this and the “Pinterest for Travel” could be around the corner, but after having tried “inspiration features” ourselves my lesson learned is that it’s better to focus on bigger problems and later stages of the funnel.
3. Consider the un-sexy
As much as I have seen too many travel startups building “sexy” inspiration and planning sites, I have seen too few trying to solve un-sexy technical problems of the industry.
The “backend of the travel industry” is full of cr#$p complex and inefficient legacy software built (and patched over and over) during the ‘80s and ‘90s when the GDSs and the OTAs were built. Horrible UX/UIs still live in the desktop computers of too many hotels, travel agencies, airlines and other travel companies.
Many enterprise tools that are far developed for other industries are still inexistent in travel. Examples of great innovators in this front are Duetto Research providing hotel revenue management tools or KDS with travel and expenses management solutions.
There is a lot of value to be created in unsexy areas in the next decade enabled by trends like cloud computing, mobile, big data, personalization, artificial intelligence and more. Consider building an unsexy travel startup, Mashable might not write about you, but your odds of success might improve.
4. Build something truly new -- or ten times better
If you take a look at the travel companies that have been able to scale greatly there are two kinds: those that built something truly new where there was a void in the market; AND those that built something that was ten times better than what was available in the market.
Booking.com and Hotels.com connected all the hotels in the world to the web and made them immediately available for bookings to the public in the web. StudentUniverse created a protected channel for airlines to sell distressed inventory while giving students great discounts. Uber is connecting the black car and taxi market to the phones of everyone. All these companies built new channels that didn’t exist before, filling big voids.
HotelTonight on the other hand, built an app that was 10X better than the current websites to book same-day hotel rooms from mobile and for hotels to sell distressed inventory. Airbnb built a website that was 10X times better than Craigslist to rent an apartment for short term, by adding payment, calendar and reputation. The new value that these companies brought to customers versus previous available services was significant.
The lesson here is that marginal improvements are not enough to build a scalable company. The good news is that there are many voids still to be filled, and many services that can (and should) be improved on a 10X fold.
5. Know your “why now?”
One of the best questions that I received from investors or advisors was “Why now?”
I think entrepreneurs should ask this question to themselves very carefully. Why the company you are trying to build hasn’t been built in the past? Are the technology and the customers actually ready for the service or is it too early?
I recommend researching and studying the history of the travel industry. If you take a look you will see a pattern: each decade a new group of billion dollar companies emerged, all taking advantage of similar technological advancements or stages of development of the stack.
Understanding what are the technological innovations of the current times and the stage of development of the industry full stack will be very useful when designing your business and its strategy.
6. Go for big markets; but don’t try to boil the ocean
Every venture capitalist will tell you that the first business criteria they look at (after the people of course) is the size of the addressable market.
The effort required to build a company in a small market is almost the same as the one for a big market. Also, the high risk of travel startups must be compensated by the theoric potential of eventually becoming a “billion dollar” company.
Therefore make sure you go after a market that can support billion-dollar companies.
That being said, don’t try to boil the ocean. Facebook started by focusing on college campuses and Airbnb on national conferences and a few cities. The challenge in travel is that often supply and demand are in different geographies so it’s difficult to roll a city-by-city strategy (like Groupon or Uber).
Yet, you should find ways of segmenting your market and focus your efforts in a small concentrated group before going for the whole market. Forget about trying to get millions of downloads or other vanity metrics and instead focus first on understanding and delighting a small group of core customers.
7. Emerging markets have plenty of opportunities; but come with big challenges
The same way that the electric grid or the railways were deployed first in the US and Europe and only some decades later in the rest of the world, there are many services related to the web and the travel industry that are just being deployed in emerging countries. Online payments and WiFi are just two examples of infrastructure that is still under development.
These early stages of development paired with the high growth of these emerging economies present an incredible opportunity for entrepreneurs to build valuable companies. MakeMyTrip in India and Qunar in China with recent successful IPOs in the US are great examples.
I think that in the next decade we will see a billion-dollar travel startup (or two or three) coming from Southeast Asia, Russia, Latin America and Africa. Building the “Kayak for LatAm” might be less sexy than building the “Airbnb for Yachts” but the opportunities might be much larger and relatively easier to grab.
Of course it must be said, the challenges are equally greater: government regulations, access to capital, languages and currencies, collection, fraud, customers distrust and more, are challenges that must be overcome with creativity and persistence.
But terrific travel startups like HotelUrbano, OneTwoTrip and WeGo are showing that you can build fast scalable companies in those markets.
8. Unit economics are the name of the game
Entrepreneur turned investor Boris Wertz wrote an essential post for entrepreneurs: “The only 2 ways to build a $100 million business”. In a nutshell, he says:
“Either your business has a high viral coefficient (or network effect) that lets you amass users cheaply without worrying too much about the monetization per user or spending money on paid acquisition”, OR “your business has a high LifeTime Value (LTV) per user, giving you the freedom to spend a significant amount of money in customer acquisition”.
The first case includes social networks (Twitter, Facebook, SnapChat) and peer-to-peer marketplaces (eBay, PayPal, Skype). The second includes e-commerce sites (Amazon, Fab), and SaaS companies (SalesForce, Intuit) among others.
The problem in travel is that the episodic nature of the activity, i.e. the low frequency of purchase, (with exception of business travel) puts LTVs at risk of staying low, more than in most industries.
A few travel companies have managed to scale with a high viral coefficient, such as Airbnb (thanks to the peer-to-peer nature of the network, in which each new node might be supply and demand) and TripAdvisor (thanks to the multiplier effect of user generated content).
But in general, most big travel companies (Priceline, Expedia, Kayak, HomeAway) have scaled by investing humongous amounts of capital in customer acquisition, paired with an insane focus on ROI.
In any case, the lesson here is that if you are interested in creating a sustainable and scalable engine of growth for your business you should deeply understand your Unit Economics. And pray to either have a high LTV or a high viral coefficient (which is less likely to occur).
9. Investors and industry veterans are jaded. Don’t let them discourage you; but listen carefully!
One thing that I noticed since the beginning is that people that have been in the industry for many years tend to be a little jaded about travel startups. They have heard similar pitches over and over, they have seen too many startups rise and then burn millions of dollars failing greatly.
When you are pitching your company with all your passion they will tell you or will think for themselves: “Kid, I love your enthusiasm, but I watched that movie already and it doesn’t end well…”
Don’t let them discourage you!
It’s typical that industries with seasoned incumbents tend to become sceptical about small new things. As entrepreneur Aaron Levie points out bad ideas and great ideas tend to look the same and as investor Paul Graham says, billion dollar ideas many times at the beginning look like only features.Things that didn’t work in the past can work today.
That being said, please do listen very carefully to all the things that veterans have to say. There are so many lessons to be taken away from the companies that have failed in the past. And experience definitely gives you a lot of knowledge.
We received many pieces of advice at the beginning that we didn’t listen to, and at the end we realized they were absolutely on-spot. Challenge the status quo, but be humble and coachable, and do surround yourself with some Jedi Masters.
(For more on this topic, read "Things I wish I had known when startingHipmunk," by Adam Goldstein, and "Email from a travel entrepreneur to a travel startup founder" by Max Kraynov of AviaSales.ru, JetRadar, and HotelLook.)
10. Build genuine relationships; it’s a really small world
It was truly amazing for me to realize what a small world the travel industry actually is at a global level.
After some years in the industry you discover that everyone knows each other, that there are several informal networks of friendships across companies, and that many people jump between startups, big companies, and investment firms throughout their careers.
I believe that it’s actually a very healthy thing: It permits cross-pollination, sharing of information that democratizes innovation and pushes the whole industry forward.
Because of this phenomenon, it is extremely important for young entrepreneurs to build genuine relationships in the industry over time. Your reputation is your biggest asset and playing the “long game” is the best investment that you can make.
Do you agree with my lessons learned? What lessons have you learned in your own path? Please share them in the comments!
NB: This is a viewpoint from Diego Saez-Gil, co-founder and CEO at WeHostels (acquired by StudentUniverse) and an industry consultant.
Image courtesy of Jetpac via Flickr.