StayZilla was the Airbnb of India!
But, after raising $34M, in just 5 months they,
1. fired 210 employees
2. ran out of $13.5M in capital
3. and, landed their founder in JAIL! π€―
Here's how poor finances & marketing cash burn led to this startup's EPIC downfall! π§΅
But, after raising $34M, in just 5 months they,
1. fired 210 employees
2. ran out of $13.5M in capital
3. and, landed their founder in JAIL! π€―
Here's how poor finances & marketing cash burn led to this startup's EPIC downfall! π§΅
Structure:
1. What is StayZilla?
2. StayZilla's rise in India
3. So, what happened to StayZilla?
4. Why did it fail?
5. What do we learn?
1. What is StayZilla?
2. StayZilla's rise in India
3. So, what happened to StayZilla?
4. Why did it fail?
5. What do we learn?
1/ What is StayZilla?
StayZilla founder, Yogendra (Yogi) Vasupal, absolutely loved travelling.
But, during his travels, he realized that the unorganized travel industry in India was in need of serious reform.
So, he built a travel agency called Inasra in 2005!
(contd.)
StayZilla founder, Yogendra (Yogi) Vasupal, absolutely loved travelling.
But, during his travels, he realized that the unorganized travel industry in India was in need of serious reform.
So, he built a travel agency called Inasra in 2005!
(contd.)
But, in 2010, they saw an opportunity to cash in on the fast-growing homestay verticle. So, the team decided to make a BIG pivot.
They started their own homestay network by renting hotels aiming to reach every Zilla in the country.
So, Inasra became StayZilla!
They started their own homestay network by renting hotels aiming to reach every Zilla in the country.
So, Inasra became StayZilla!
2/ StayZilla's rise in India!
Inasra was completely bootstrapped for the first 5-6 years and they generated decent profits.
But, to sustain their pivot they raised $34M.
With the funding, they very soon grew to list 15000 stays on the platform and reached 11000 cities!
Inasra was completely bootstrapped for the first 5-6 years and they generated decent profits.
But, to sustain their pivot they raised $34M.
With the funding, they very soon grew to list 15000 stays on the platform and reached 11000 cities!
3/ So, what happened to StayZilla?
Now, on paper, StayZilla's business model sounds doable:
1. The online booking space was rapidly growing. Plus, more people were using the Internet in India.
So, there was space for StayZilla to be successful in the OTA space.
(contd)
Now, on paper, StayZilla's business model sounds doable:
1. The online booking space was rapidly growing. Plus, more people were using the Internet in India.
So, there was space for StayZilla to be successful in the OTA space.
(contd)
2. Only 15% of all gross hotel bookings in India happened online. So, having a homestay side business with better margins of ~15% made sense.
And, with millions backing them, the vision seemed achievable. But, StayZilla's current finances couldn't support its growth.
(contd.)
And, with millions backing them, the vision seemed achievable. But, StayZilla's current finances couldn't support its growth.
(contd.)
1. Revenue = INR 13.8 Cr
2. Loss = INR 94.5 Cr
3. Marketing spend = INR 56 Cr
They were essentially burning 4 Cr on marketing for every crore they made!
So, StayZilla's poor finances led to an EPIC downfall with layoffs, cost cuts, desperate investor meetings and Yogi in jail!
2. Loss = INR 94.5 Cr
3. Marketing spend = INR 56 Cr
They were essentially burning 4 Cr on marketing for every crore they made!
So, StayZilla's poor finances led to an EPIC downfall with layoffs, cost cuts, desperate investor meetings and Yogi in jail!
4/ Why did StayZilla fail?
A) Massive marketing spend
To compete with giants like MakeMyTrip, StayZilla had to enter the discount war.
With only 10-15% margins, they gave 30-50% discounts, paid out of their pockets.
But, their discounts didn't work as expected.
(contd.)
A) Massive marketing spend
To compete with giants like MakeMyTrip, StayZilla had to enter the discount war.
With only 10-15% margins, they gave 30-50% discounts, paid out of their pockets.
But, their discounts didn't work as expected.
(contd.)
Example 1:
During one of their 2-week discount periods, StayZilla's bookings soared to 80 to 90%.
But, they later realised that 60% of these bookings were made by hotels themselves.
This practice is called Round Tripping. Let me explain this in detail.
(contd.)
During one of their 2-week discount periods, StayZilla's bookings soared to 80 to 90%.
But, they later realised that 60% of these bookings were made by hotels themselves.
This practice is called Round Tripping. Let me explain this in detail.
(contd.)
1. Suppose, a hotel room is priced at => INR 1000
2. A customer physically books the room with no involvement on StayZilla.
3. But, now instead of registering this booking as "offline", the hotel owner goes to StayZilla to book the room.
(contd.)
2. A customer physically books the room with no involvement on StayZilla.
3. But, now instead of registering this booking as "offline", the hotel owner goes to StayZilla to book the room.
(contd.)
4. Now, StayZilla offers a 30% discount on the room.
So, the hotel owner has to pay INR 700 for the booking.
The hotel, however, gets the entire amount of INR 1000 from StayZilla.
5. As a result, the hotel makes an additional INR 300 in the process!
(contd.)
So, the hotel owner has to pay INR 700 for the booking.
The hotel, however, gets the entire amount of INR 1000 from StayZilla.
5. As a result, the hotel makes an additional INR 300 in the process!
(contd.)
Example 2:
StayZilla introduced a Referral scheme that quickly became a hit and put a huge dent in its marketing budget.
They had to spend 20% of their INR 1 crore marketing budget in just those 5 days of the Referral scheme!
(contd.)
StayZilla introduced a Referral scheme that quickly became a hit and put a huge dent in its marketing budget.
They had to spend 20% of their INR 1 crore marketing budget in just those 5 days of the Referral scheme!
(contd.)
B) Not Focusing on Retention
StayZilla sacrificed its unit economics to spend on marketing in hopes of better "growth numbers".
But, they missed the fact that while discounts attract users, they don't make them stay.
To solve for retention, they had to do more!
(contd.)
StayZilla sacrificed its unit economics to spend on marketing in hopes of better "growth numbers".
But, they missed the fact that while discounts attract users, they don't make them stay.
To solve for retention, they had to do more!
(contd.)
C) Bungled Finances
In May 2016, StayZilla had just raised its latest round of $13.5 million.
But, in a couple of months, the team realized that they would run out of cash by March 2017!
With only 5 months of runway left, they desperately looked for funding.
(contd.)
In May 2016, StayZilla had just raised its latest round of $13.5 million.
But, in a couple of months, the team realized that they would run out of cash by March 2017!
With only 5 months of runway left, they desperately looked for funding.
(contd.)
But, with their current finances, no one would invest.
So, they went on a huge cost-cutting mission:
1. Marketing β cut down advertising cost
2. Employee β 210 layoffs
3. Rent β they closed multiple branches
But, all the effort was too little and too late.
(contd.)
So, they went on a huge cost-cutting mission:
1. Marketing β cut down advertising cost
2. Employee β 210 layoffs
3. Rent β they closed multiple branches
But, all the effort was too little and too late.
(contd.)
D) Vasupal goes to Jail!
In the final act, one of StayZilla's clients, Jigsaw, filed a case against Yogi for fraud of INR 1.69 crores after StayZilla failed to pay the borrowed amount.
Vasupal was sent to jail for almost a month. He was bailed out after paying INR 40 lakhs!
In the final act, one of StayZilla's clients, Jigsaw, filed a case against Yogi for fraud of INR 1.69 crores after StayZilla failed to pay the borrowed amount.
Vasupal was sent to jail for almost a month. He was bailed out after paying INR 40 lakhs!
5/ What do we learn?
Now, it was quite unfortunate that a civil dispute that could have been resolved without criminal litigation landed Vasupal in jail.
But, StayZilla had much deeper problems. Yogi went through a massive cash burn without a plan for the future.
(contd.)
Now, it was quite unfortunate that a civil dispute that could have been resolved without criminal litigation landed Vasupal in jail.
But, StayZilla had much deeper problems. Yogi went through a massive cash burn without a plan for the future.
(contd.)
He didn't realize that discount wars are only won by startups with deep pockets.
They were completely reliant on investor money which eventually ended them.
After the jailing debacle, people were expecting a comeback, but Yogi had no motivation to keep fighting.
(contd.)
They were completely reliant on investor money which eventually ended them.
After the jailing debacle, people were expecting a comeback, but Yogi had no motivation to keep fighting.
(contd.)
π‘ Lessons:
1. On the jailing debacle β You either die a startup or live long enough for India's system to eat you alive!
2. On survival β The first revenue goal of your startup is not a million dollars, but to earn enough to keep things running.
(contd.)
1. On the jailing debacle β You either die a startup or live long enough for India's system to eat you alive!
2. On survival β The first revenue goal of your startup is not a million dollars, but to earn enough to keep things running.
(contd.)
3. On perseveranceΒ β Startup battles are regularly won by people who can run longer than those who can run faster.
4. On discountsΒ β Startups not only require you to learn but ALSO un-learn all the lies popular media has told you about building it.
4. On discountsΒ β Startups not only require you to learn but ALSO un-learn all the lies popular media has told you about building it.
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