So, you have been to a conference, spotted a supposed gap in the travel industry and now you want to create a startup to fill that gap. Great, happy days!
But hang on a second, is the idea achievable as a small startup?
Will consumers or the industry take to it in sufficient numbers for it to be a commercial success? Or will you just get plaudits at launch but six months later quietly close your doors when no one is looking?
Here are five themes that always seem to struggle.
It does not, however, necessarily mean that it is impossible to run a startup based on these models, simply that perhaps wannabe travel entrepreneurs should at least consider switching their focus to other areas where success is easier to come by.
1. Selling consumer leads to travel agents
There are so many of these startup companies around! It seems natural that agents will buy leads, but really they are a lot of work for the agent to handle – they don’t really want an email inbox full of “I want to go to Spain, what can you sell me” style questions.
That is why we all built websites in the first place, right?.
Now, this type of business has the ability to work when you sell such leads to the next layer down in the industry (eg. tour operators or suppliers) or when the lead is well focused (i.e. the lead includes some element of product selection and travel dates rather than just open ended unspecific requirements).
Suppliers have the margin (30-40% rather than an agents much smaller 5-15%) to afford staff time to dedicate to answering these emails properly.
The trick is to get the leads to the right suppliers, not in sending leads to agents that then have to work out which is the appropriate supplier.
Do that work and the lead starts to have value.
2. Trip inspiration/trip planning websites that are too focused on user interface
Who really is going to spend an hour fiddling around answering questions using a fancy UI hoping that at the end of it the website is going to come up with a wonderful, fully matching, trip plan?
There are travel products that are inherently inspirational. These are what you should focus on exposing to consumers. Product, product, product rather than UI, UI, UI.
Big caveat here, as noted philosopher Bertrand Russell once said: “Time you enjoy wasting, was not wasted.” So if you are going to have a user interface-oriented trip planning website, at least make it enjoyable! Easier to say than achieve though.
3. Two-sided marketplaces
A two sides marketplace is one where you both generate both supply and demand. A conventional business might be one where you are generating consumer demand, but selling another organisation’s supply.
The problem with two-sided marketplaces is that to grow them companies need to run the so-called hockey-stick growth curves on both sides at the same time, and at similar rates.
The worse case scenario is to end up with too much supply and insufficient demand (then suppliers get bored and leave, unless they have another reason to stay).
If you are starting a small travel startup then focus on a sector where you just need to achieve one hockeystick growth curve not two.
4. Solving a new consumer problem
If you are going to solve a consumer problem ensure it really is a problem that consumers have. Don’t invent a new consumer problem and then look to solve that.
Otherwise you have to both sell the idea, as well as sell your solution to the problem. Double the work.
One of the classic cases in the sector is the startup created primarily after the founders had a problem of their own when travelling, a relatively isolated issue rather than widespread.
Also, just because the problem exists doesn’t mean there is a business to be made in solving that problem. Gaps in the market hardly ever exist because you are doing something completely unheard of beforehand – but because others have entered and exited before you.
5. Small travel agents setting up flight/hotel booking websites
Don’t! It just isn’t necessary. It is a battle you cannot win versus the existing, larger and probably well-established online travel agents.
Even using simple technology doesn’t make it easy.
If it takes three hours to configure a hotel in a reservation system (including loading in a contract, finding images, creating a description etc) and you get one booking a month per hotel, then that three hours looks bad.
But that same three hours is necessary for a company which sells 20 bookings for that hotel per month. Much better ROI. Just not a game small travel agents can win.
As always, would love your feedback in the comments. Any models to add to or ones to subtract from this list?
About Alex Bainbridge
I think soon we’ll be able to add a #6 for the dozens (or more) of new websites built around “planning your entire trip and sharing it with your friends” all in one place. So many people come into this business assuming that consumers are all looking for one site that does it all, and obviously consumers aren’t.
@roger – some might say Facebook will probably end up doing that.
More importantly, consumers aren’t looking to do work to plan their vacation. The successful travel planning tools out there try to minimize time on site, not maximize it.
I would not touch tours and activities with a bargepole! Or a villa rentals/holiday lettings website, or anything else that is the ‘buzz’ at the moment’ Nor would I try and launch anything that tried to do too much or cover too many destinations, unless you have very deep pockets. Fine a niche, and focus on that.
Best position for an entrepreneur, in any case, is to be entrant 2 into the market, just behind the leader. Let them make all the mistakes, then learn from it and overtake.
Ha ha James with your “I would not touch tours and activities with a bargepole” !!!
Howabout running a tours/activities marketplace as per point #3 !!!! Not sure who is mad enough to give that a go!
Ouch!
What was that?
Ah, a bargepole…
Vayable and PocketVillage, to name a couple…
Hi Nadav
Vayable – yes – running both sides – so a Marketplace.
pocketvillage are not though….. they are running the consumer demand side but not the supplier side – so they are not a two-sided marketplace.
There are other tours/activity marketplaces though that you haven’t mentioned
Hi Alex,
thanks for clarification, you hit the nail on its head! We’re developing solutions to drive more demand to existing tours & activities aggregators.
Great read, your point are well-taken.
@Nadav: Glad you pointed pocketvillage out anyways!
Hi Alex,
we are mad enough to give #3 a go, have a look at Excursiopedia.com
We launched in Russian this January, are online in English since March and German since May. We now have the traction to start our PR activities, let me know if you want to be the first one to cover us. Looking forward to hearing from you
Best wishes
Yulian
Good list Alex. Think your tip of getting leads to the right suppliers with travel dates is great.
I’d add a 6th theme that struggles – A travel blog covering a traveler’s round the world adventures and hoping to cash in on advertising via page views. There are so many of these and unless the site is super focused on a travel niche and with great content consistently updated, its tough to get the traffic needed to make this idea work.
good article, Alex…
Great article Alex! I’ve seen at least one example of every no-no point you make and have done a few of these mistakes myself.
Great stuff but you forgot that the world does not need any more flash sale sites – the first (jetsetter.com) is still the best.
To sum it up, it’s probably best to stay out of travel altogether! Seriously, well made points all, Alex. It does help to have a good basic understanding of the industry and the real problems that exist calling for solutions.
#1 “…Now, this type of business has the ability to work when you sell such leads to the next layer down in the industry (eg. tour operators or suppliers) or when the lead is well focused (i.e. the lead includes some element of product selection and travel dates rather than just open ended unspecific requirements)….”
This is the model TravelRope.com uses, an inbetweener of suppliers and leads for agents and supplier, providing exactly what is stated above. Qualified leads related to direct product.
The problem with asking too much information from travellers is the reduction in travellers completing the enquiry form – a fine balance is needed between a qualified lead and asking for too much information.
A relevant question would be “can agents afford to be picky about leads qualified nowadays”? and if so does disregarded email enquiries lead to fueling the OTA fire of success?
But you do have to be an optimist to do any start-up, in any sector.
If it was easy, the opportunity will likely be small and the threats of followers large. Madness is carrying on without regard to the evidence around you.
But if you are an entrepreneur out there, I say give it a go and remember that: “Fear saps passion. When we conquer our fears, we discover a boundless, inexhaustible well of passion” to quote Steven Pressfield.
If were easy, everyone would do it. A measure of success is creating something that others find difficult to replicate. It’s not the idea that matters, it’s how you make it happen that matters.
@David Well put
Execution trumps ideas every time.
However the “ideas are worthless, execution is everything” meme is a step to far.
Great article Alex. Insightful. Especially like the trip planning one…no one spotted the Emperor’s new clothes earlier! Amazing how much on venture capital has gone into this.
I think we’ll run out of original domain names in the travel space before we do passionate entrepreneurs determined to give it a go! Good article Alex. Check, Check and Check…
Interesting post, am looking forward to the sequel: 5 themes that work!
@Colin: “Madness is carrying on without regard to the evidence around you.” – I like the attitude. Let’s create something new & great!
As always Alex, throwing it out there and saying it how you see it… keep up the good work!
Consume and mashup! Use Facebook and Google. ….and have a twitter strategy.
All else is futile
I would characterize the root causes for ventures to adopt each of the themes mentioned in the article and the comments as falling into one of the following syndromes:
a) SOS (Shiny Object Syndrome) – Someone sees something sexy (flash sales, social travel recommendations, an iPad _______ [fill in the blank], etc.) and rushes to get beta version 0.1 to market. When that doesn’t work, they try to add a new hot technology (like a mobile app) to make it more appealing. Most often, the basic functionality still doesn’t do much and is often easily replicated by competitors.
b) SSS (Simple Solution Syndrome) – Trying to provide a simple solution to satisfy a complex industry challenge. This is commonly due to a superficial market analysis and naive product planning – often by individuals lacking sufficient travel background who repeat errors that may be known (and in some cases, perhaps solved) by others before.
c) COS (Customer Obliviousness Syndrome) – In short, product development conducted in a vacuum, absent any customer research / requirements validation / usability testing. This may be experienced in parallel with SOS & SSS. This also commonly results in unrealistic market sizing, penetration rate, and share expectations.
With SITA, ATPCO, OAG & IATA data costs exceeding 125,000$/month what can you possibly expect. Journalist constantly piss and moan about lack of innovation in the Travel Tech Space but with an Army of Lawyers preventing screenscraping in the US, OTA’s charging for API access, and Exorbitant data costs for Raw data + LCC discouragement for API (vis-a-vis RyanAir, SWAir, EasyJet) It’s a frigging Miracle Everbread ever succeeded in building a product, How much chance do two guys in a garage have of innovating in TRAVELTECH. #TravelIndustryFail. Forget GDS Hegemony, ATPCO, SITA, & airlines support this oligarch thru exorbitant data fees. THIS IS WHY I PUBLICLY SUPPORTED GOOGLES ACQUISTION OF iTa. They have a history of supporting open access to raw data.
ROBERTKCOLE your comments are two layer above the knowledge of most Travel Startups. I can’t tell you when I was CtO of Everbread how many stsrtups mistook data as Free As in Beer, without Assen Vassilev’s superior knowledge of Travel Industry and Morten Lunds acces to capital we would have been doomed. The myth of 8 coders in a Villa for 6 months aside, without mature experience and acces to Capital Everbread never could have rivalled Amedues and ITA. No industry is as unfriendly to Startups as Travel, and No Industry is more ripe for disruption.
Ashley: what are you talking about? The travel industry has always been at the forefront of innovation in everything.
There is failure as well, sure, because only those who try can fail. If it were easy, anyone could do it.
Everbread must support Google/ITA acquisition because it opens a huge opportunity to replace ITA for those big clients who don’t want to be “powered by Google” even if it became open and free. Go for it.
I think the point Ashley is making is that the gatekeepers of existing datasets in this industry are what it all boils down to. You can try to innovate as much as you’d like, but things are most definitely limited to the set of data you can (or cannot, depending on $$) obtain. This makes innovating incredibly expensive, which is not startup friendly. This is why I completely agree with Ashley that big companies with open data access policies are much better for innovation in this industry than any other factor right now. Can a startup benefit from the side-product of Google’s efforts in travel? Absolutely. Can it benefit from existing gatekeepers’ efforts to fortify their business?
Probably not.
In the interests of full disclosure, I am not currently CTO of Everbread, but do remain financially related.
Alex has properly elaborated on my premise.. in a General Sense yes it’s true, the travel industry has been a part of innovation in the economy, I should revise my statement to: No Industy is less friendly to “unfunded, hacker oriented” startup culture than the Travel Industry.
TO B perfectly clear: My opinions are my own and do not reflect Everbread’s official position, nor are they necessarily informed, intelligent or even gauranteed to be coherent.
Excellent stuff! selling leads to agents – total and complete waste of time. Why? Travel is not easy, it also suffers from customers who think they know what they want – look at it this way: “I want a fridge of x cubic feet” Easy enough for a salesman/ selling website, look at fridges and recommend the best one. Actually, the client does not need a fridge at all. They need a freezer. Now, a website is excellent mechanism for selling you something; it is totally useless at analsys, to work out what will make the customer really happy. This is an agent’s skill… only by asking lots of questions, close, focussed questioning in a way that the customer does not feel pressured, can one really establish the likes and dislikes and so steer the person to what they seek – and why vague leads are worse than useless.
Item 2 – Precisely. Even in the rather limited area of business travel, most clients want to ring up – nay, need to ring up. The call comes twixt two heavy duty meetings, from the back of a taxi, from an airport terminal. Apart form the point that companies pay their employees to (hopefully) close multi million dollar deals… not muck about working out the best way of getting from Boston to Amsterdam. The ideal “app” would be one that recognises your voice, so understands your foibles, knows where you are and can interpret clipped sentences and then email an itinerary before the end of the conversation… actually, we call them a business travel agent on the end of a telephone. I do like the “inspiration” bit. Thing is, how do you monetise “Ooooh! That’s a good idea!” ?
3. Can’t comment – never been there.
4. Yes! There are about as many travel “problems” as there are actual travel “events”… In my agent days this was translated simply as “All small print is relevant, it’s just that some small print is more relevant than other small print. Bit Orwellian, but true. Further, an 80 year old consultant once said to me, about 15 years ago (!), “Unless you are Einsten, there is no such thing as Einstein thinking” and having quite a few miles on the clock myself, am seeing many, many old ideas being re-hashed. As said in the article, anything you think of, chances are someone, somewhere has the T shirt. Don’t let that deter you, though (see 6 below)
5. Yes. Agree. That said, there is always the “crumb” philosophy. Any agent should have a website and best off just getting a white lable version and taking on board that every so often you will get thrown a bone. I did this and have had a few bones in the past… some even had a bit of meat on them! Bit like affiliate advertising, in a way. No harm done in pushing Thomsons, Thommy Cook, Monarch or anyone else… doesn’t matter if you like them or not or if you think their product is any good or not… if it sells, then maybe, just maybe a few crumbs will fall in your direction. Just remember, in order to achieve this, you do not need to re-invent the wheel.
6. There is one thing that could be added. History. Look back through time – even pre internet time and find out what was done badly. I am not saying that one may find a reason for a start-up, but just because things are now more online than on the high street, this does not invalidate a concept – but someone may well have tried and failed to achieve something and therein may lie a valid new concept.
These are current travel website business models, maybe need a litter bit improvement. But adjust them even a bit will cause the whole production line changes
Great points. The biggest takeaway I see is to target your niche and do it well.