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Dan Ruch, founder and CEO of Rocketrip, thought he could jump into the world of corporate travel as an outsider in 2013 and shake things up because the way things were done were so inefficient and seemingly didn’t make much sense.
“It does allow you to come in bright-eyed and bushy-tailed and have a lot of energy and enthusiasm to really shake things up,” Ruch says. “It was a very, very swift kick in the head and rude awakening as far as how complex it is.”
Rocketrip offers corporations a platform that provides rewards to employees for beating certain budgets on their trips. Tactics might include booking an apartment through Airbnb or staying with friends instead of at a hotel on a business trip.
The startup, which initially modeled its platform on aspects of Google’s travel program for employees, is finally signing contracts with corporations even though some companies are still horrified at the prospect of open bookings and “a lot of employees hate us because they say we make the travel budget artificially low,” Ruch says.
Skift sat down with Ruch in Los Angeles several weeks ago to get an update on Rocketrip and trends in corporate travel.
An edited version of the interview follows:
Skift: Are managed travel programs yesterday’s news?
Dan Ruch: Today’s version is yesterday’s news. Today’s version doesn’t work. Today’s version has to evolve and the smart TMCs are already evolving. Today’s TMCs, in order to stay relevant, have to figure out a way to let employees book through the methods that employees want to use.
They have to let employees book through open market alternatives. Airbnb, Uber or on Hipmunk perhaps. That does interfere with the existing financial models that TMCs are profiting on. It does require re-calibration of what that means.
Skift: I’m sure you’re finding that only a small percentage of TMCs are open to these ideas at this point.
Ruch: I think in a big way they’re getting pushed there by their customers. It’s a major multi-national corporate that wants their employees to book on Airbnb. They need that data for duty of care and there’s only so much that TMC can push back. At some point it just makes sense.
This is something that we talk to potential partners about: There is no reason why you wouldn’t want to provide duty of care on something like an Airbnb or something like staying with a friend to save the company money. It does need to be tracked and you do need to get the data and there needs to be technology in place to do that.
Skift: I’m sure they would say, duty of care and Airbnb are opposites?
Ruch: To an extent, yeah.
Skift: Mutually exclusive.
Ruch: Yeah, to an extent. Actually, It’s not about the TMC. Again, it goes back to the corporate travel manager at the corporation. It’s really up to the travel manager. We speak to just as many travel managers about that and their hairs on the back of their neck go up if you mention Airbnb in their presence. Then, you have those who are actually much more forward-thinking and understand that it’s just a part of life.
Just like some of the low-cost carriers were a dirty word, EasyJet was very very hard to stomach for a lot of people when they first launched. Now, it’s a mainstay. The same will happen with Airbnb. Not because it can; it has to. They have a sheer volume of what’s going on now. It’s the same thing as Uber is creating a shift in the way that people will travel.
Skift: I saw that that Morgan Stanley has approved Uber as a car service provider.
Ruch: Right. It’s a slow burn. The whole market is shifting in that direction.
Skift: Can you give me an update on what Rocketrip has been up to lately and where you’re headed?
Ruch: We staffed up. The team is about 20 people full-time. We brought in a head of engineering and head of business development. Obviously, they focus on their respective domains. I think the biggest development for us is a focus on where we’re acquiring the data, to define what a budget to beat is for a given employee.
It gets very interesting because we’re talking to larger customers than we ever have before where they do have very large, structured, negotiated programs with vendors. It’s no longer just about what’s available on KAYAK or Expedia. It’s about what’s available within the travel management company (TMC).
Skift: Can you talk a little bit about how the basic program works?
Ruch: The basic program is that an employee uses Rocketrip and gets a budget to beat. That budget is informed by what’s available in the market at any given time for flights, cars, hotels and train travel. We filter that data through the company’s travel policy and provide that individual with a budget to beat. They then have 24 hours to beat the budget by booking travel through Airbnb or Priceline Name Your Own Price or Hotwire, or if they’re just staying with friends.
They keep 50 percent of whatever they can save below our budgets in Rocketrip Rewards, which can be redeemed with us for merchandise in our store. Effectively, it’s paying employees to save their companies money on travel.
Skift: What kind of uptake is that getting from companies? How many companies have you contracted with that want to use your platform?
Ruch: Dozens. The sales are right now starting to really take off. We brought onboard two individuals on the sales team. The sales team is growing. The focus is to get us to a point where, by mid next year, we’re well into triple digits on customer accounts. From there we want to really begin to explore what entry into the Fortune 1000 looks like. Our target customer today is a hundred to a thousand employees where they have a managed or lightly managed or an open booking model.
Where we’re going is to much larger corporate-managed programs.
Skift: You want to get into the managed travel space, right?
Ruch: Yeah, but not in any way intervening with what a TMC does today. We’re actually partnering with TMCs to offer the only thing better than a TMC by helping their clients save money. By partnering with TMCs, we can empower them.
Skift: You were founded how long ago?
Ruch: Incorporated in April of 2013.
Skift: How has your thinking changed since that day? What kind of surprises did you have or new directions did you take?
Ruch: When we first launched my perception of managed travel was that it was largely smoke and mirrors. And that every company could let their employees book freely on the open market and get away with it. The reality is TMCs do provide a significant value for a certain type of customer with a certain type of need. I do think that smaller companies are overly eager to launch into a managed program a little too early.
That’s where TMCs create a lot of friction with employees who are used to booking travel in the open market. Where the negotiated discounts, the volumes of bookings just aren’t there to warrant any meaningful negotiated rates. At a larger scale, when you talk about the Morgan Stanleys of the world, not only does managed travel matter, it matters so much that Morgan Stanley built their own system. Their own booking engine because they wanted to control the experience.
That makes a ton of sense for them, but that’s how serious they can get. It is important especially from a duty of care perspective, but also for customer service and the negotiated rates and a data aggregation and policy enforcement. All of these things make sense to large multinational organizations. If you have a couple of hundred employees, I’m not so sure that the value outweighs both the cost and the friction.
Skift: Without you being self-serving and telling me that everybody loves your platform, what have you learned about employee behavior in using your system?
Ruch: No. A lot of employees hate us. That’s actually a learning. What’s really interesting about our business is we sit at the intersection of company policy and employee desire. One of the most frequently asked questions of our sales team is our revenue model is predicated on a percent of the savings that we are able to generate. Which, effectively means, our intention might be to inflate the budget. However, our decision-maker at the organization has an interest in controlling costs and so do we. Our actual intention is to keep the budgets as tight as possible, and make it hard for an employee to beat the budget.
The budget real is a budget to beat. It’s a game of sorts. It requires an employee to go above and beyond to earn rewards. They shouldn’t get a reward for doing what they would have done anyway about it. Which means, that you get a lot of employees coming at us and saying, “You know how the budgets are unfair. They’re too tight. I couldn’t save money on this budget. Your budget’s artificially low. You’re unfair. I have to stay at an Airbnb in order to beat it.”
Skift: Or maybe the employee loves the 4-star or 5-star hotel he’s already staying in.
Ruch: Or maybe they’re an entitled employee and they say, “You know what? Screw it. I want the lobster for dinner.” There are all different shapes and sizes of employees. For every employee who complains and moans about the budgets, there are an equal, if not, a higher number of employees who get a real kick out of earning real value from their companies by doing the right thing, by staying with a friend.
By taking the lowest cost flight available that day. By even taking a connecting flight or staying at a lower quality hotel and renting a smaller car. There’s so many ways to save, but it’s not for everybody.
Skift: What’s your connection to Google? The program was inspired by Google’s travel program? You took on an advisor, the guy who manages Google’s travel. What’s the Google tie-in there?
Ruch: The Google tie-in is purely Mike Tangney, who has been a phenomenally helpful resource. He was effectively the pioneer or one of the pioneers of this idea and this concept. It works very differently at Google than it works at Rocketrip for a variety of reasons. We had to adjust the program. The budgets have to be much more sensitive and relevant to a given company in a given location with a given employee demographic.
Skift: Whereas for Google?
Ruch: For Google it’s certainly designed to control cost, but it’s also designed to improve culture and give employees autonomy and provide feedback to employees. They have a different algorithm that they use to calculate their budgets than we do. The redemption is very, very different in terms of what the reward is. So at Google the redemption is only for future business travel upgrades. I stay in a friend’s couch this time or I stay at a 3-star hotel this time, then I can stay in the 5-star hotel the next time.
What we’re finding is while that works, the motivation to save is far higher if the value is personal gain. We actually do provide real personal value back to employees.
Skift: Can you think of an insight or two that Mike Tngney provided to you, something that helped you out?
Ruch: I can think of tons. The complexity of travel data is so remarkable that the good news for us and for other travel startups is that it really does create a defensible moat around the business from a technology perspective because it’s a full spider web and some cobwebs to navigate. But once you’ve figured it out, it’s actually fairly straightforward.
Having said that international, multi-city flights are something that not only do we struggle with, but everybody struggles with. International multi-city hotels. There’s not a single online travel agency that exists today of any consequence that can provide you with three separate hotels in three separate cities in one single booking.
But we have to do that. An employee can ask for a budget, “What’s my budget to beat if I’m traveling from Chicago to London to Amsterdam? I need a hotel for two nights in each location.” We have to be able to give them the budget to beat. There is no resource for them. We need to go and pull data from a variety of sources. Mike has been helpful in helping us navigate that.
What should the budget to beat be for an international multi-city flight? You actually may need to calculate that based on the cost per mile unless you want to pay a lot of money to get access to very expensive data.
Skift: You talked about the experience that Mike can provide in terms of complexity of the data. But he’s given you an insider’s view. You’ve come from outside the industry and I assume much of your team may come from the outside. Is that an advantage or disadvantage?
Ruch: That’s a great question. When I talk about things that I’ve learned. There is something to be said for the blissful ignorance of not knowing how painful the technological hurdles in this industry are …
Skift: When you stared the company.
Ruch: Yeah. It does allow you to come in bright-eyed and bushy-tailed and have a lot of energy and enthusiasm to really shake things up. It was a very, very swift kick in the head and rude awakening as far as how complex it is. We had not had any travel expertise in the team and we are starting to bring that in. Because, to an extent, it’s helpful to be bullish about opportunity, but the reality is beginning to become an obstacle that we do need to overcome. We are bringing in team members who do have the breadth of experience in this space to help us understand the complexity.
Skift: Talk about Rocketrip as a company. Ninety percent of startups fail. You run out of money. You might have a good idea, but it’s tough going. Talk about where the company stands and your ability to keep at it.
Ruch: Sure. My DNA is in startups. I’ve been through two successful exits, Tacoda, which was a behavioral advertising network and sold to AOL in 2007, and Tremor Video which went public back in June of 2013.
My DNA is how to build successful startups from the ground up. I do think it’s very easy to raise a bunch of money and become a little less sensitive as to burn rate and what you’re using your spending your resources on. We are intensely sensitive to our burn. The entire team has a culture of understanding that we’re very open internally about our metrics and our cash burn, and how much cash we have left in bank.
Skift: Are you very open about that?
Ruch: With the team, yeah.
Ruch: Not publicly, with the team. We raised over $6 million to date. We have the overwhelming majority of that left. I think so far things are looking very very positive. We’ve got paying enterprise customers, dozens of them. That is more than most startups can say in the enterprise B2B space after a short amount of time we’ve been in market selling our product, which really in earnest was the beginning of this year. The feedback from existing customers is extremely positive. Now, it’s a numbers game and it’s a function of how big we can get and how fast. That’s what we’re using the money for.
Skift: I should have asked you this earlier, but could you explain the business model?
Ruch: Sure. We actually don’t charge anything for our platform. Customers are free to use it. If they don’t save anything, we don’t make anything. If they do save money, we take a 10 percent service fee off of the savings that we’re able to generate. The employees redeem their rewards through our gift store. There’s obviously a margin on that side of the business, as well. Then we have an affiliate program where we recommend travel providers for fulfillment, whether it’s Expedia or Priceline or Airbnb etc.
Skift: Anything else you’d like to add?
Ruch: I think it’s an exciting time to be in the space. We are finally at a point where you’re given the health of the markets of the last four years you are seeing a large amount of investment in the early stage startup scene, especially in travel. Even in the B2B space. I do think we’re at a point now where TMCs are waking up and realizing that they need to innovate. There’s a lot of startups that are trying to disrupt the space. I think back a couple of years ago, it’s really interesting.