Travel Business Startup Programs
Most startups fail. More precisely, about 90% of startups fail. The mental bias that distorts our thinking about startups is called silent evidence (aka availability bias); the startups we are familiar with are the winners. And the graveyard of competitors they have left behind is not visible to us. These odds should be no different for a travel startup.
With that in mind, how do you determine the feasibility of a startup idea? The major problem is that business ideas do not exist in a vacuum and you could say that any business project is a child of its time and environment. Determining one-for-all secrets for success is, therefore, an exercise in futility.
How to start a travel startup?
Our case for why and how you should direct your resources to the travel sector actually begins at the end. Like the brilliant mind that said that he wanted to know where he would die so that he could refrain from going there, we believe you should start at the end and work your way backward.
Let us then presume that you were to bet the majority of your resources on one travel startup idea. The objective of your bet would be to identify a travel startup that would be a market leader in its niche or market in ten years time. How would you do it? What would your thought process look like? We propose that instead of trying to create the ideal travel startup in our minds, it might be more fruitful to eliminate the travel businesses that are unlikely to reach a market leading scale in year 10. So, who do we eliminate?
Scalability. The low-hanging-fruit inference to make is to eliminate those businesses for whom growth is inherently costly or constrained. A bus company that wants to grow its business by increasing its capacity or adding new tours has to invest in new vehicles and personnel. Each increment of growth will require investment in capacity. The business we are looking for can increase capacity without significant investment.
Hard to replicate. Is the value the company provides to the customer easily replicable? How easy is it for competitors to enter the market? The competition in sectors such as accommodation can be significantly affected by supply and demand of capital, causing overinvestment in the industry.
Pricing power. How much control do you have on your pricing? One way to evaluate this is to consider how much of a commodity your product is. Airlines, for example, have a very limited control on airfare pricing. When people shop for flights, in most cases the most important criteria is the price. The business we are looking for is not as forced to change prices with the ebb and flow of business cycles.
Resilience. What happens if the market drops 10%? Companies with a high fixed cost structure will be forced to operate at a loss and are therefore less likely to survive the 10 years in our mental exercise.
Based on the inductions above, it is not unlikely that this exercise would lead you to a startup idea based on aggregation. Travel companies that function as aggregators are particularly interesting, as travel services tend to have long product lifecycles and they generally do not require investments in inventory.
Another feature of an aggregator is that they are adversely affected by sector overinvestment in capacity. Imagine a theoretical destination with an airport with two airlines. If a third airline started scheduling flights to that destination, prices would most likely be driven down the supply and demand curve. However, the airport and local travel agents would benefit from the added traffic to the destination.
How do you aggregate a travel market?
So how does a travel startup aggregate a market? The most common misconception regarding aggregators in our opinion stems from people looking at successful aggregators such as Facebook, Amazon or TripAdvisor and being blinded by their global dominance and subsequently reaching conclusions about their requirements that are not necessarily feasible.
It´s not uncommon that we get travel startup proposals that are based on accessing global inventory through an API connection from other aggregators and starting to sell. The reality is that these gigantic aggregators reached their dominant positions by focusing on much smaller markets and then growing in concentric circles.
The risk of this approach is that it forces the travel startup to chase players who are far bigger and competing on their terms. Our belief is that picking a niche that the travel startup could reasonably become an authority on has a much higher potential success rate.
As PayPal founder Peter Thiel points out, the initial target group of PayPal was 20.000 Powersellers on eBay. Facebook started by targeting the Harvard campus and Amazon was an online bookstore that targeted educational books.
Lean Startup Programs
Make no mistake, aggregating a market is not easy and it might require significant investments. We estimate that a realistic assumption on the costs of breaking into a market requires startup funding up to $3 million, which is well beyond the reach of most travel startup budgets.
Therefore, is should not mean that partnerships should not be approached in a way where validation for the business idea can be tested before startup funding process begins. We are always interested in learning about travel startup ideas and have come up with a lean startup program for travel startup projects.
For outreach regarding startup programs, we require the project owner to send a discovery letter. In the letter, the senders should indicate as concisely as possible, the following elements of their proposal:
- Define the market. What are you trying to aggregate?
- How do you plan to onboard suppliers and/or access inventory?
- What is the preferred form of partnership (joint venture, revenue sharing agreement, etc)?
Discovery letters should be sent to email@example.com.
Before you press send
The travel industry is an exciting and thriving sector with a seemingly endless amount of business opportunities and prospective start-up ventures. We love to team up with intelligent and creative people and enjoy receiving new proposals and learning about new exciting travel startup projects.
For more reading, take a look at this article: How to Start a Travel Agency