travel startup
122 days ago
 

10 lessons I learned from building a travel startup

“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.

travel startup

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).

travel startups

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 starting Hipmunk,” by Adam Goldstein, and “Email from a travel entrepreneur to a travel startup founder” by Max Kraynov of  AviaSales.ruJetRadar, 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.

 
 
Special Nodes

About the Writer :: Special Nodes

Special Nodes is the byline under which Tnooz publishes articles by guest authors from around the industry.

 

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  1. Prasad Kopanati

    Absolutely fantastic read, Diego. I am currently working on the unit economics for my startup and find you insights into immensely valuable. The cost of acquisition is indeed very low (or zero) for most of the social startups. In fact, Dropbox hasn’t spend any money on user acquisition. It was all network effects.

    Thanks for sharing valuable insights and congrats on your recent acquisition. Glad to see the roller-coaster ride come to a pleasant halt!

     
  2. manisha

    Nice article Diego, really helpful one to read. i’m very happy to read this post.keep it up

     
  3. Juan Pablo Lopez

    Excelent article Diego, great advices for every travel entrepreneur. We expect to be in touch soon with great news about our travel startup. Thanks for the lessons.

     
  4. krishi

    Great article Diego. contains more valuable points and i’m really happy to read this article. most of the time i won’t read full article but this time i’m visiting 2nd time to read this one. thanks for sharing this one..

     
  5. Sam Daams

    Awesome article Diego. I can’t even pick a favourite, since I agree with all of them so much! I think point 8 combined with the new SEO landscape is a huge deal-breaker for many, compared to say 5 years ago. The student/youth travel industry is not a bad place to end up. Might run into you at WYSTC at some stage then?

     
    • Diego Saez-Gil

      Thanks a lot Sam. I agree, it’s getting harder, but I believe there are still voids in the market. Looking forward to seeing you at some of the industry events!

       
  6. Mark

    Diego — great article & congratulations! We met briefly at a meet-up and I thought the app looked really nice. Happy to see that it succeeded.

     
  7. Adam Medros

    Diego- congrats on the acquisition. Excellent article- really well summarized!

    Look forward to catching up in the future and hearing how things continue to evolve for WeHostels!
    -Adam

     
  8. Niranjan Gupta

    Great article Diego.

     
  9. Adam Healey

    One of the best articles I’ve ever read on travel startups. Well said (and congrats on your exit). I would add one more tip from my time building the hotel meta-search site hotelicopter, which we successfully sold to RoomKey: #11) create compelling and unique content to drive a successful, targeted SEO strategy, as you won’t be able to afford paid search as a customer acquisition channel.

     
    • Diego Saez-Gil

      Adam, thanks a lot! I agree with your addition. Unique content and again… hopefully interesting unit economics. All the best!

       
  10. Sandeep

    #8 point on unit economics is so crucial to scale up. Economics when starting out and after 2 yrs might be totally different and put things in perspective if one take off or take out of the game. Great post, thanks for this Diego

     
    • Diego Saez-Gil

      Thanks a lot Sandeep. I agree, the scalability of the economics is very important too, many channels ironically become more expensive at scale…
      All the best in your endeavors

       
  11. Tedd Evers

    Great post, Diego. Very pertinent advice – particularly #5. Not knowing industry history / “the game” puts those new to the industry at a serious disadvantage.

    Suggestion for a potential #11: “Know Thyself”. To do the startup thing I believe you’ve got to be able to follow your gut amid a ton of conflicting “advice” – to have a “focus filter” to see through your own BS, that of others and anything else that will distract you.

    As for #2…let me just say thanks for keeping others out of the inspiration space! :)

     
    • Diego Saez-Gil

      Tedd, thanks a lot. I agree with your suggestion. It’s really tough and believing in yourself and taking courageous decisions is essential. I really like what you’re doing, make sure you get close to the ‘moment of truth’. All the best!

       
  12. Matt Zito

    Fantastic article Diego and congrats on the acquisition. I especially liked #5 Why Now. Having the answer to this question helps brings reality back into the equation for the entrepreneur. I would also say that the student travel market is a big market with a limited number of players presenting opportunities for travel startup entrepreneurs with new ideas.
    Matt Zito
    Founder, TravelStartups.co

     
    • Diego Saez-Gil

      Matt, thanks a lot! Staying in touch with reality is indeed essential.
      As for the student market, I agree, it’s huge and we’re just scratching the surface. Stay tuned for amazing things we’ll be building in 2014 and beyond.
      Cheers,

       
  13. Alexi H. Khajavi

    Diego – well stated and perfectly written. For an industry void of mentors, this post should be a mandatory manifesto for anyone with dreams of launching a travel startup.
    Thank you

     
  14. Gene Quinn

    Gene Quinn

    Nicely played, Diego. Good advice on no. 3 … everyone hates a headache and loves pain relief. And there are plenty of headaches out there in travel.

    Thanks for sharing.

     
    • Diego Saez-Gil

      Thank you Gene! I agree, there are plenty of headaches. They are challenging to solve, but creative entrepreneurs can tackle them. Best!

       
  15. Minh Bui

    it’s truly deeply insightful!

     
  16. Murray Harrold

    Generally speaking, very good advice. You need a grumpy irritable old stalwart around – I found that out 40 years ago, when I was in business … They have a remarkable knack of saying “Yes…. But have you though about this” at precisely the right moment. I know we have some pretty arcane-looking tech in travel but you do have to remember that it works – and works very well. One of the reasons that it is 1980′s tech is that no-one has managed to improve on it since … errrr…. the 1980′s. One of the main reasons is that no-one is going to put a lot of time and effort into creating systems for an industry that cannot afford to buy them

    Over-riding all this, is that travel margins are minute. True, you can sell a $20,000 holiday – but not a lot sticks to your fingers. And you can sell a $3,000 air ticket – and nothing sticks to your fingers. There are, indeed, some highly unsexy things travel needs but for reasons mentioned already …. it’s no good producing something that costs $10,000 – ‘cos that sort of money does not exist in travel.

    Booking.com and airbnb (-ish) are very useful tools – and it is this way one needs to think, I reckon. What I am producing is a tool – is that tool appropriate for the job? This raises the question, of course, What is the job? This “job” thing gets rather mutated by enthusiasm – I will invent a job, rather than actually identify one. Those that identify rather invent – suceed. Those that invent – fail. Sooner or later. Thing is, to learn what “jobs” need doing, as you rightly say, you need to understand how travel works – and that is not the same as simply understanding travel.

    There is a lot in your supposition that success may lie in the detail. Do not be afraid of taking your grand idea apart … it may not be what your originally envisioned but try not to be focused to the point of tunnel vision. Emerging markets may look tempting – I am sure they are. Downside is that emerging market credit cards are not quite so tempting. The market may be “emerging” the actual people in those markets are not quite the same as in the developed economies. I wonder how the internet, in any sector, will cope with that.

    Oh! I am not too sure about your rendition of Studentuniverse … I checked some flights and as an old fashioned, irritable, grumpy high street type agent – came out $50 cheaper than them. You either have airline contracts… or you don’t.

     
    • Diego Saez-Gil

      Thanks for sharing these points Murray. Great contribution. I agree with most of the points.

      As for the StudentUniverse rates, we do have direct contacts with Airlines. The discounts will depend on itinerary and dates, but most of the time they are big, especially internationally.

       
  17. Valentin Dombrovsky

    And in addition I’d like to say that doing things that do not scale rocks. You may see Airbnb’s case in Paul Graham’s article: http://paulgraham.com/ds.html
    I also like to tell about Festicket vs.Travelatus example – we tried to build a service that “has everything” based on APIs of existing providers – Festicket started from singing up several music festivals and hotels. And I believe, they managed to grow more than we did thanks to starting from doing something that seemed like it didn’t scale.

     
  18. Valentin Dombrovsky

    Regarding point 2 – can tours and activities become source of monetization for travel planners and “inspirators”? We at Excursiopedia believe they can.
    Evan Konwiser told the same thing to Mygola at Travel Innovation Summit – the opportunity lies not in hotel booking or air tickets but in local activities. At least we’ll try to prove this point.

     
  19. Vadim Oss

    Hey Diego, what a thoughtful insight on everything everyone of us has to live through! #4 is something you emphasized on during your talk at StartUpChile.org two months ago and it’s totally proven in your example. Based on the very same discussion I think it also makes sense to remind about staying super agile and not being afraid of making some bold moves. Such as switching from web to all mobile focus in your case. Many founders believe in their ideas so much that they don’t accept failure in their strategy until it’s too late. I also learned that following your own guts could bring more success than being trapped in the traditional logic:)

     
    • Diego Saez-Gil

      Vadim, thanks for sharing your thoughts! I agree, that being agile and flexible is a huge key for success, and as you say not getting attached to your original ideas or assumptions. All the best in your venture!

       
  20. Joao Ricardo Mendes

    Amazing tips Diego. I´m really happy to see We Hostels success, Congrats!!!

     
  21. Drew Meyers

    Good learnings Diego. You’re reading my mind on these…learned a lot of the same things since I’ve entered this industry a few years ago.

    Speaking of #10…I’ll likely be in NYC in January. Would love to catch up w/ you a bit.

     
  22. Nick Vivion

    Nick Vivion

    Diego, very good collection of tips. It’s always important to remind all of us – even beyond startup founders – about these sorts of threads. With intra-preneurs beginning to take more of a positive spin, these are also tenets for those within large companies working on small projects.

    It’s also vital to remember to differentiate your product enough to bring out the most loyal, vociferous customers – because, for example, “Pinterest for travel” already exists as Pinterest’s Place Pins. If you’re company doesn’t have a differentiated value prop, then you aren’t going to get a differentiated demographic that appeals as either an investment or acquisition target. Find your niche, do it well, and then grow from there. That’s the best advice for pretty much anyone trying to build a career in any business these days – generalists are great (and those skills are essential) but you really need to start with a niche and build it out from there.

    Thanks for taking the time to write this article!

     
    • Sean O'Neill

      Sean O'Neill

      What he said.

       
    • Diego Saez-Gil

      Nick, thanks a lot for your words! I agree 100% on differentiation and unique value proposition. And I also agree that it applies to entrepreneurs and anybody working to create value in the industry. Thanks for sharing your thoughts!

       
    • Valentin Dombrovsky

      And should you even start “Pinterest for travel” having in mind that Pinterest can add “travel features’ easily (and in fact it WAS already used for travel before “places” were launched)?
      Pinterest is only example, of course – the same can be said about building any kind of social network for travellers while there’s Facebook that’s used already.

       
  23. Anna Kojzar

    Great advice Diego! Especially #9 !

     
 
 

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