On 23rd February 2017, Yogendra Vasupal, the CEO of Stayzilla dropped a bombshell when he announced in a blog on the Stayzilla website that they were halting operations from the end of the month. This shook the startup world to the core. We look at the reasons why a startup founder had to take such a drastic measure.
Founded in 2005, Stayzilla operated in the travel and hospitality sector and claimed to be ‘India’s largest homestay network’ where users could reserve hotels and homestays across the nation. Backed by the Indian Angel Network, Matrix Partners and Nexus Venture Partners, Stayzilla had raised a total of $34million in four rounds of funding. The latest being $13.5 million Series C round in May 2016.
By unifying the homestays across the country, Stayzilla had virtually created its own market from the scratch. Despite the many successes it witnessed along its journey, many factors culminated into its consequent failure.
Supply and Demand Mismatch
Yogendra realized that the Indian travel marketplace lacked the local network effect thus creating a mismatch in the supply and demand. As he says, “We can’t really take a focused city-by-city approach in terms of matching supply and demand. The demand and supply for homestays were 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.”
As a result of this mismatch, Stayzilla had to invest on both sides of the marketplace – in creating homestays as well as getting guests to stay in them. This process kept cutting their finances thin.
Creating a Market
Yogendra lamented the fact that there was no ready-made marketplace for them to exploit. The attempt to create a proper market hindered their ability to expand in a cost-effective manner.
He also mentioned that the lack of infrastructure for startups in the homestay niche was a major factor. He said, “India does not have a lot of public goods, often taken for granted in mature markets like logistics, tech-savvy suppliers, and online user demand.”
This required investing in the infrastructure support as well as educating the market about the concept of homestays. This came in as a big roadblock in their sustained growth.
Discounting practices and Competition
The other big pocket players in the travel industry like Oyo and Airbnb promoted discount based business. Due to these massive discount practices, Stayzilla had to burn more money than it earned. “Forced to match prices, we could not even recoup what we put in, necessitating a very large capital requirement, simply to sustain growth.” says the Stayzilla founder.
Focus on unnecessary metrics
As has been the case with many other unsuccessful ventures, Stayzilla was tracking its growth by ‘vanity’ metrics and not taking into account the vital ones like negative working capital, positive cash flow and sustained ability to fund growth. As Yogendra rightly pointed out, “I started treasuring GMV (Gross merchandise volume), room-nights and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital.”
This ignorance didn’t let them realize that their inflow of cash was less than the outflow which ultimately led to their downfall.
In retrospect, Yogendra must be thinking that the biggest mistake he committed through the years was not tracking their growth by the right metrics they should have.
A Clean Start Awaits
After his 11 years of entrepreneurial journey with Stayzilla came to a momentary halt, Yogendra said that Stayzilla was only rebooting operations and he had many unique things in his mind for the future of Stayzilla. He realizes the mistakes he made down the line and is enthusiastic about correcting them in the future.
A Lesson in Entrepreneurship – The Importance of Execution
This episode comes out as a perfect example of a venture which had an amazing beginning but lost its path down the years and had a miserable ending. Stayzilla was a great idea which came out at the perfect time but lacked the right execution, ultimately leading to its downfall.
As the genius of our generation, Steve Jobs once said, “To me, ideas are nothing unless executed properly. They are just a multiplier. Execution is worth millions.”