Marketplace Eureka Moment!
This is a fantastic read for anyone into consumer marketplaces.
The founder here talks about what worked, and what didn’t, as he burned through $34 million in funding, expanded to over a 1000 cities in India, and yet has to suspend operations after 6 years. From the looks of it, and as the founder acknowledges — their team executed on all fronts brilliantly, from design to marketing to hackathons to customer townhalls, yet failed spectacularly.
My core takeaways from this:
1. “NPS > GMV”: Net Promoter Score needs to be a fundamental metric. How many people were happy and referred others and came back themselves to use, re-use ? As opposed to different folks who came due to a promotion, had a bad experience and never came back again. Both contributions being alike from a GMV perspective, the higher NPS score is the one worth far more. The founder laments a lack of focus on earning money.
2. “Know your customer”: (I think) they did not understand the local customer profile before trying to replicate the Airbnb model in India. Growing up in India, one thing I learnt was that people are inherently and strongly distrustful of others unless it is a friend or relative. Every transaction with a stranger is based on haggling, stemming from a deep mistrust. For people to rent their houses and to go live in strangers houses’ is a tall order in India compared to the US/Canada.
3. “Play the long game”: Fundamental approach needs to be long-term brand building based. Think Starbucks. Block by block, city by city, growth spread over decades. People need to trust the brand — and that takes time. There need to be more of “someone who used your service” kind of referrals. To try to compress that in 6 years over a 1000 cities — wow, too soon.
4. “Bluest of blue ocean is extremely risky but extremely rewarding if done right”: Startups which seek to change human behavior — such as this, are orders of magnitude riskier than startups which are based on existing human behaviors and providing efficiency over there. For eg — you won’t think twice with a stranger driving you around on Uber because that was the taxi model. But to let a stranger rent your room; or to get cooked food from a stranger — those are entirely different ball games.
Massive consumer marketplaces which require a change in human behaviour and perception, and connect strangers are an exercise in brand-building which require an extensive amount of time, patience and excellent customer experience. Think Starbucks, when it comes to brand-building.
Please read this. Kudos to the founder for sharing and being honest here.
I would like to announce today that we would be bringing to a halt the operations of Stayzilla in its current form, and…blog.stayzilla.com
The travel marketplace does not have local network effects and, therefore, we can’t really take a focused city-by-city approach in terms of matching supply and demand. The demand and supply for homestays was non-existent 18 months back, excluding a few small pockets. As a result, we had to invest extensively in both sides of the marketplace, creating homestays as well as guests who would choose a homestay across the country. We were actually successful at this — we have created 8000 homestays in over 900 towns — but this stretched us thin.
..(a) marketplace needs to invest in educating the market on the concept and even using Internet (!) and not just the product. The costs, both financial and opportunity costs, creep up on you over a period of time and gets rationalized as cost of doing business..
In the last 3–4 years, though, I can honestly state that somewhere I lost my path. I started treasuring GMV, room-nights and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital.
I have come to realize that the value of a business is extremely subjective, like beauty. While there exist many benchmarks, true beauty is intrinsic and begins with the comfort one has with one’s skin. Similarly, while there exist many benchmarks for valuation of a company, its intrinsic value starts from inside and is tied very closely to the metrics that founders value and their comfort with that selection.