There’s Not Enough Innovation in Travel

This is a simple diagram known as a Business O...

Image via Wikipedia

There’s Not Enough Innovation In Travel

Looking just at the growth rate of travel startups like Hipmunk offers a simple example of why innovation hasn’t reached it’s peak. You may like Hipmunk, you may not. What you can’t argue against is people are using it. $70k a day in sales very soon after launch is not something you can ignore. You can argue the novelty will wear off or you can argue it’s a fundamental change in how search is done. Regardless, customers are using it. That’s my point. What once was booked on X travel agency (or online agency) is now being booked on Hipmunk.

In retrospect, it’s not surprising. There hasn’t been a fundamental change in the to/from search box in years. Why is that? Have we reached the travel innovation plateau? Absolutely not.

Travel innovation is just getting started. It’s a great time to innovate in travel — but you have to do it right. There are different approaches to innovation depending on where you stand in the travel ecosystem (are you a new company or old? Is the innovation a feature or a business? Do you have a company to put the innovation to use on? Do you know how to bring the innovation to the masses?)

You don’t need to base your livelihood on investing in travel companies to realize this is the case. Though in fairness to my colleagues in travel, it’s hard to separate the trees (innovation) from the forest (the travel ecosystem) if you’re not doing it on a full time basis. Travel isn’t known for it’s innovation and limitless budgets and boundless budgets.

I had a few thoughts come to mind on what travel companies can do about the lack of innovation; sparked by Tom Tunguz’s post on “The single greatest reason for the failure of new ventures”.

Large Travel Companies

“Not to innovate is the single largest reason for the decline of existing organizations.”

Established companies don’t put enough time or money into new growth areas. They may even know the growth areas — social travel, location travel, all the things we invest in — but can’t find the time or mental bandwidth to act on it.

Some suggestions,

  • Ideally take an investment in a promising travel startup. Work with a professional on identifying one if you aren’t sure.
  • For the more savvy TMC’s, perhaps a skunkworks internal project that gets its own staff and budget led by a trusted member of the internal team. Maybe a mid-level manager or director that’s worth investing in who’s been yearning for extra time and money to pursue “the next big thing in travel”.
  • If you can’t buy or invest in a company, become an early (beta) customer. Travel startups are always looking for early key customers to validate their business or revenue model, for feedback, for mentoring. Contact me if you’re a big shot somewhere and have an interest in doing this.
  • Mentor these companies. Informal ‘help’ and advice and to be a sounding board will put a pep in your step if you’re an executive at a more stodgy travel company. Who knows, maybe you’ll like it enough to jump ship.
  • Be on the Advisory Board or Board of Directors. You can choose a formal or informal structure that you’re most comfortable with.
  • Contact me, I love matching travel companies with travel startups.

Travel startups face an entirely different scenario.

Travel Startups

“Not to know how to manage is the single largest reason for the failure of new ventures.”

Which is worse, knowing you don’t know and doing nothing  — the predicament large travel companies find themselves in — OR doing something in a way that is never going to succeed?

Two sides of the same coin but I’d much rather be in the first category. Yet the latter happens all the time in travel startups; particular ones without travel industry executives as founders.

Being outside of travel has it’s benefits but it also has it’s limitations. The problem is, most travel startups don’t know where the line is.

Some thoughts,

  • Find a former travel executive to help you.
  • Be open to new ideas and actually implement them; especially if you come across somebody who’s in the space you’re going after. If somebody from Meetings & Incentives tells your M&I travel startup will go nowhere, think long and hard if that’s true.
  • Attend travel events and association meetings for your particular niche in travel.
  • By all means, contact me.
  • Find mentors through SCORE or through your contacts.
  • Be prepared to give up equity based on how involved the executive will be.

I come across business models and revenue models and ‘next steps’ from travel startups that will never work. NEVER as in never ever. One step up are travel startups which follow a plan that may succeed but will take forever to do. Even when they get to the promise land (revenue, clients, customers, “traction”), I’ll all but guarantee it won’t be worth it.

The ones that avoid these landlines are the ones to watch (and in our case, invest in!).

Travel Startup Founders from Outside the Industry

Baggage claim area in Terminal 1 of McCarran I...

Image via Wikipedia

As an investor in travel companies — from private beta travel startups to larger VC & travel growth equity deals — I am fortunate to talk to travel companies of all sizes from all corners of the world.

One common theme are travel startup co-founders who do not come from the travel industry who reach an invisible ceiling when dealing with travel suppliers, reservation systems and members of the trade.

Foremost, If you find yourself in this situation, don’t feel bad. You’re not alone. That’s just the way it is. It won’t change anytime soon.  Heck, I wouldn’t have a job if it was that easy! Took me 12 years in travel (on the agency and travel technology side) to get a feeling for how things truly work and even now I learn new things by virtue of the seasoned executives I work with.

Secondly, there is nothing wrong with this situation. It’s what you do about it that I have an issue with.

How to Fix The Problem

  • Going It Alone: The Worst Thing To Do. There are outliers who do it alone but they are so few and far between that they’re not worth mentioning. The majority (in my experience circa 95% of) shouldn’t. The ones I’ve seen — and I can’t name them or I would — are because they are so different that traditional travel suppliers are willing to give it a shot  and these companies almost always have a very strong ‘IN’. While the founders may not be from the industry, they engaged somebody with some industry gray hair on their behalf. Rarely is it a ‘cold call’ into a supplier. Somebody new to the travel game going at it alone doesn’t have a chance past some fluke wins and never enough to have a sustainable business model. Ask for help, it’s natural
  • Get Good Advisors from the Travel Industry. Former travel executives, former travel company operators, somebody who has already done what you’re trying to do; who can advise you with your strategy and business development.  Somebody hands on through till the deal is completed. Not just an introduction and you’re on your own.  I’m biased but ask any travel startup whether I’m right. It would be one thing if “Going At It Alone” was only 2 or 3 times harder but my experience show it’s considerably longer. 7 to 10 times harder. That’s a lot of time and money to spend hitting your head against the wall — assuming you have the time and money to spare — which no travel startup ever does. All the while other travel startups are popping up every week.
  • Mashup with other travel startups/Web 2.0 Company API’s. Don’t have your own reservation system to pull flights from, what about using the Kayak API. What about a travel affiliate program in lieu of your own relationships. You won’t make alot of $ but you’ll have something to show your clients. Unfortunately this strategy won’t work because you’re selling what’s already out there. If you’re selling the same fares as everybody else, do you expect alot of transactions? You’re just keeping up appearances to avoid gaping holes on your site.  You’ll almost always need deep integration deployments which most affiliates programs don’t offer. It’s a viable interim solution. Travel startups use API mashups because they’re  (a) not concentrating on revenue or (b) as a stop gap measure until professional industrial grade travel technology (booking engines, GDS links, etc..) are available. You’ll need a proper travel technology platform if you intend on building a sustainable business.
  • Use Free or Open Source Data. You can get valuable content from Wikipedia.org to WikiTravel to a variety of places for free or for a low cost. Many travel startups already do if you take a deeper look. They have a core set of unique features complemented by 3rd party API’s (Google, Kayak, IAN, etc..). Panaramio is a good example. There are some good services out there I would use as an interim solution.
  • Do a Round to Hire A Travel Executive. This is a tough proposition. Most investors ‘don’t get’ travel investments. Be prepared for a lot of hand holding, a lot of ‘educating’, a reduced valuation and little in terms of productive post-investment relationships. While an investor “who knows somebody at Expedia” is better than nothing, knowing the contact is 1 thing — actually talking the talk in a way a travel supplier will understand is something only a travel industry executive can do best. Is that investor going to be with you every step of the way for the next 4-6 months it takes to close a deal? It can be done  — don’t get me wrong — but when you’re at a travel startup you don’t have the time to ‘experiment’ and no investor is going to put up with ‘trial by error’ on their dime.  Many a founder has realized money isn’t enough. You need domain expertise. At an angel investment level I think “non-travel” investors should be avoided unless they’re fine with putting in the money and hiring “travel experts” to formally guide the company. Being a “travel investor”, I am biased, but ask any travel startup founder and I suspect they’ll agree with me. If you have to get angel money, augment that with some travel executives and ensure everybody knows their place. The angel investors are the funds and the executives bring the travel industry knowledge.
  • Know What You’re Good At and What You Not. Or find somebody you trust to guide you. I had a meeting a few weeks ago with somebody in the tourism business who wanted to advise our experts on SEO and Online Marketing Initiatives yet prior to the meeting simply outsourced his website to somebody else and wasn’t using the Internet to sell his inventory now. It was purely a content site. My response was, what competency do you have with SEO/Online Marketing? This wasn’t a “I like to listen in so I can learn” call — which I encourage — this was a “I have some serious notions in mind” call yet I’ve never done this before all while I want to work with a team that’s done this for the past 5+ years with people who’ve done online travel marketing for the past 10 years. I gave him the benefit of the doubt and heard a few suggestions only to end the engagement 3 hours later. Its critically important to set the boundaries (ie: the vision is spearheaded by the founders, the travel related decisions are joint but favor the travel executive..) between what the (non travel) founders know and do and what the travel executives will do.
  • One Supplier Is Never Enough. Just because you have 1 vendors inventory — say a hotel vendor — doesn’t
    Image representing Expedia as depicted in Crun...

    Image via CrunchBase

    mean you have all the inventory to sell. Said another way, getting Hotels.com or CCRA isn’t the end all of all. They are both fine companies but the more inventory you can get, the better. They may be enough for certain use cases but without knowing the strengths/weaknesses of all the discount discount hotel inventory, how do you know you’re okay? Particularly if you have a broad client base. If you have a niche — say Las Vegas Hotels — and you do a deal with the largest Las Vegas Discount Hotel Provider — you’re golden. Most travel startups don’t follow such a narrow niche.

  • Inventory is critical to any travel startup. You don’t need 1 set of inventory, you need them ALL. Do you even know how many pools of discount inventory are out there — multiply that for every travel product you sell. Let alone getting ‘approved’ at the highest purchasing levels to actually compete with established players. The introductory “you’re a small agency” commissions and price breaks isn’t going to cut it. You need the volume purchasing discounts and its unlikely you’ll get that without millions of dollars of existing volume and a track record even if you negotiate well and are funded. Once you get your account setup — assuming it happens at all and it always takes more time than you could ever imagine — you still have to get the inventory from their system into yours. A Javascript embed isn’t going to cut it. Do you have a team of developers that have nothing else to do? And you need to repeat this for every vendor you plan on adding. If there are 12 pools of discount hotel inventory, that’s 12 integrations, 12 relationships, months for each relationship and that’s assuming you actually get approved. Oh by the way, all of the API’s change all the time so you’ll need to keep up. Did I mention there are discrepancies between what a reservation system says it does and what it can actually do via the API. There are times — shockingly — where the marketing team suggests features the technical team hasn’t implemented yet. As a new client — will you be in on the beta group to figure this out early? I can list dozens of situations any one of whom would bog a travel startup down.
  • Travel Developers, Not Just Any Software Developer. Depending on the use case, you may have no choice but in hiring software developers versed in travel technology. Simply hiring very good programmers isn’t enough. There is a steep learning curve when it comes to travel supplier integrations and the nuances of travel trade that cannot be taught on the fly. Who’s going to teach them at a travel startup without travel founders? I’ve seen this happen time and again. The project does get done but multiples longer and costlier than intended. Which to a founder translates to stress and investors screaming at you for missing deadlines. There’s enough that can go wrong with any software development package — which are sometimes rushed, poorly planned and underfunded — coupled with offshore development headaches that by the time you throw in the travel trade learning curve, the founder is really dealing with a low to single digit success rate for an on time deployment.

You can see why travel startups have a low hit rate when it comes to penetrating the industry. They’re fishes out of water. Rest assured there is help out there.

Give Me Your Feedback

Do you work at a travel startup? What are your experiences? Have some ‘horror stories’ to share? If you find this post valuable, please comment and Retweet!