Startups frequently come and go in any industry, and travel is no exception. Harvard Business Review estimates that 95 percent of startups don’t survive. The five percent of companies that are able to move beyond the nascent stages are the ones that somehow rise to the unique challenges of their industry. But what are those challenges? With this question in mind, Skift recently conducted a study on behalf of Amadeus, surveying 177 individuals who work at travel industry startups, asking respondents about “the most overlooked factors leading to failure.” The responses revolved around five core themes.
1. Issues Surrounding Founding Team and Leadership: Several respondents referenced issues linked directly to vulnerabilities in the founding team and leadership positions of their company. As one respondent explained, “Founders do not take it to next level. They lose interest over time.” Other issues had to do with “founder burnout” and “lack of operating culture and management skills.”
Even when salaries are attractive, hiring and retaining the best team possible can be difficult. One entrepreneur offered a deeper assessment of the importance of people in the startup equation for success: “From our perspective, perhaps the amount of human capital (skills, creative problem solving, etc.) needed for success exceeds what’s available in our location (as well as what we’re able to pay adequately for).”
Ultimately, a leader with a compelling vision for the company is necessary to get both management and staff in place at the right time. Without this, travel startups may find it nearly impossible to survive the road ahead.
2. Limited Travel Market Knowledge: Lack of industry and sector knowledge emerged as another leading obstacle for many survey respondents. As one respondent explained, “Due to the industry’s high cost of acquiring new customers, technology companies have made it easy to enter the market—but with poor travel knowledge, they won’t be able to continue in the business.” Many respondents reported that startups often don’t understand the complexities of the travel industry and the sales cycle. Another respondent admitted, “The sector is much more complicated than it appears.”
The tendency to pre-judge the structure of the travel market based on personal experiences may lead too many co-founders to dive in too soon. One respondent offered a candid, in-depth response: “Judgment based on high-level experiences is not sufficient to base a product or solution on. Owning property abroad gives one very little insight into what property management is about, or what the challenges and actual issues are that need to be addressed, just like me driving my car every day makes me no more a mechanic than anyone else.”
Popular sub-themes that fall into this “insufficient knowledge” were also related to challenges like a “lack of product fit” and marketing challenges could have likely been solved with a deeper understanding of the market. For example, one respondent was not prepared for the “difficulty of changing user behavior and teaching users new habits.” Another response acknowledged that “travel is a crowded space. Travel data is very complex, and so it’s hard to keep user experience simple.”
3. Weak Business Models: A brilliant idea is not enough to capture the market. According to the survey’s travel startup respondents, generating a profitable business model is trickier than it seems. One frequent challenge is customer acquisition costs. Many startup respondents noted that they must balance between pros and cons like a “higher lifetime value per user against acquisition costs per user.” Many respondents also explained that targeting the wrong consumers could be problematic, such as a decision to “focus on low-spending leisure travelers instead of high-spending business travelers.” Others spoke about the failure to solve a customer pain point, which would be necessary to sustain revenue.
4. Funding Challenges: Perhaps unsurprisingly, several respondents reported undercapitalization and running out of cash as other major issues. “You need time and money to fund the growth of a startup in its early years,” one respondent noted. Others spoke of the pressure to generate revenue for investors, which could divert a startup’s focus from product development.
Some felt their hands were tied to harsh realities, including, “Lack of funding resulting in not being able to hire the right resources for the right job, and losing focus on core objectives and working on short-term revenue generation to survive.”
5. Technology-Related Difficulties: Among the responses, technology did not weigh in as heavily as some of the previously mentioned issues. Startups struggling with technology issues can reach out to the developer community or may partner with other firms in creative ways. Nonetheless, a few respondents did describe “underestimating technology challenges” or challenges with data, such as battling to “keep user experience simple despite data complexity.” One respondent cautioned against “relying only on tech as the support for the startup to succeed.”
Check out the Amadeus for Startups infographic below to learn more about how travel startups can cross the funding gap.