The last few weeks have seen two major travel startup new stories, perhaps giving hope to countless young businesses in the sector.
Firstly, OpenTable "exited" to Priceline for a cool 2.6 billion dollars. Then there was Uber took in $1.2 billion investment at a mega valuation of $17 billion.
But what can both of these stories teach travel entrepreneurs starting out?
I think it demonstrates again about the three core choices that entrepreneurs make.
- You can disrupt an industry (e.g. Uber disrupts taxis)
- You can fix an industry (e.g. Open Table is fixing how restaurants are booked)
- You can focus on just plain old making money (like most regular business folk).
It is never quite as clear-cut as that - for example, you could argue that Uber is not disrupting taxis as much as it is fixing car ownership problems... but you get my point.
Travis Kalanick (Uber's founder) sees the company as disrupting taxis, as this handwritten note on a London wall at startup accelerator Wayra shows. (Hailo is a UK-based taxi app that is fixing, not disrupting, taxi bookings)
So, looking at the three elements in detail:
Fixing something (eg. a sector of the industry)
- Problem with fixing something (as a startup) is that there are people who benefit in how it is currently broken. If you need them to help you fix the problem, you are out of luck. Not only will they not help you, but they may set out to hinder your progress.
- It is difficult to gauge how broken something is before you start to fix it and by then its too hard to back out.
- Normally things are broken because they are hard to fix. Hard cross industry problems are not really where a new startup should focus.
- However, larger companies often struggle to fix something as they have to start with the constraints that existing entities have to remain in place and to thrive post the fix. For example, if you are a GDS that has a large retail agent and supplier customer base, any industry fixes you put in place will require both of those sides to remain. Disruptors don't have to be shackled with these constraints.
- When something is fixed people forget how hard it was when it was broken. The fixer never quite gets the appreciation they deserve.
- Fixing problems is a cash sink - its quite possible to fix a problem without making a successful money making business. The two are not necessarily correlated.
- Other companies are also going to be fixing the problem - and this therefore leads to sales pitches based on how well you have fixed the problem. This is not an easy sales message to communicate as if you are striving to fix a larger problem than your competitor you have to explain the larger problem and your solution - which is a double action.
- Very difficult to fix something you don't understand. If you are new to the travel industry, go for a disruption or a money making business, not a fix something business.
The above probably explains why very few entrepreneurs fix industry stuff. It's simply just not particularly attractive.
- Tend to be complete win or failure outcomes. (e.g. Uber is nearing on "complete win" status).
- Probably easier to do a B2C disruptor than a B2B disruptor (especially for a "must buy" product like accommodation - where the customer has to buy something from someone. This is why Airbnb or HotelTonight have been able to come into accommodation with such ease).
- Become travel industry darlings - Disruptors are the belle of the ball at industry conferences and are often invited to talk about themselves (vs entrepreneurs who are doing the harder task of fixing sectors who get invited to talk about their sectors generally).
- Keep in mind with disruption that it has to make something better for someone - not just different. i.e. just because no one has done X before, doesn't make X viable.
- With a disruptive startup, you can go from zero to hero within 12 months. With a fix-something startup, it can take many years of hard work to build traction.
- You don't need to understand something to disrupt it. Actually, not understanding something may give you added benefits because you will come at a problem from a fresh way. However you do have to be self aware that you don't actually understand something as otherwise you can start to believe you do, which is where problems begin for young startup founders.
- Regional product business people tend to focus on making money, whilst global digital innovators tend to focus on fixing or disrupting.
- Simple to measure whether a "making money" startup is succeeding or not.
- Easier to find mentors if you are setting up a "making money" business as regular business people are suitable and many of them around (unlike for fixing or disrupting type startups where mentors and board members are best to come from active disruptors or fixers).
- There is a point of view that someone should do their first travel startup as a "make money" startup (e.g. an ecommerce operation) then come back to do a "fix or disrupt" the industry startup, once they have derisked their personal lives.
Hope this helps someone!
NB: Disruption image via Shutterstock.