Godzilla Of Home And Alternate Stays, Stayzilla Shuts Down – Founder Admits Failure, Plans A ‘Reboot’

“Despite having a very clear lead, despite a lot of firsts, despite being successful in getting an ecosystem up from scratch pan-India, there are a few reasons why we are at this juncture,” writes Yogendra Vasupal, founder and CEO of Stayzilla.

Backed by marquee venture capital firms like Nexus Venture Partners and Matrix Partners, Bengaluru-based Indian homestay network Stayzilla suspended its operations yesterday. Founder Yogendra announced his decision via blog post.

He wrote,

“I would like to announce today that we would be bringing to a halt the operations of Stayzilla in its current form, and looking to reboot it with a different business model.”

Founded in 2005 as Inasra, and later rebranded as Stayzilla in 2010 – the platform acted as a marketplace for homestays and alternate stays in India, with around 55,000 stay options across 4,500 towns in the country.

The platform catered to both homeowners and travellers looking for differentiated, unique stay experiences. Yogendra founded the company with his wife Rupal Yogendra and his friend Sachit Singhi.

Initially, funded by Indian Angel Network with an infusion $500K in Seed round, Stayzilla had raised an undisclosed Series A in 2013. It got further funding in 2015, when Nexus and Matrix put in $20 Mn in Series B and later $13 Mn Series C in 2016. The startup competed with Fab Hotels, Yatra, OYO, Airbnb, MakeMyTrip and others.

Why A Bumpy Ride?

Although it had first-mover advantage in the space, its growth amped up only after it was rebranded. Yogendra accepted that this was achieved at quite a high-cost and had a lot of pitfalls. He realised that – what can be easily taken as granted in the western market –  in India, required a whole lot of brainstorming. He laid out a couple of reasons which led to the failure.

Supply-Demand Mismatch

Despite an expected addressable travel market of $40 Bn by 2020, Yogendra realised that, in India, a travel marketplace does not have local network effect. As he says, “We can’t really take a focussed 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.”

Creating A Market

Another reason which led to the downfall of the company was: “India’s key macro trends.” He mentions that this deteriorated the company’s ability to expand quickly and cost effectively. He also adds, “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.”

For Stayzilla, there was no ready market to sell the product and, thus, it required investing in educating the market about the concept of homestay marketplace, how to use the product and even on how to use Internet to the users. “The costs, both financial and opportunity, creep up on you over a period of time and get rationalised as the cost of doing business in India,” he says.

High Costs, Low Revenues

Discounting-based growth rampant in the travel industry was another reason what led to the fall of Stayzilla. “Forced to match prices, we could not even recoup what we put in, necessitating a very large capital requirement, simply to sustain growth.”

In an industry where offers and promotions were the norm, Yogendra’s team was focussing on marketing ROI and getting bookings without any discounts. In December 2016, the founders also disclosed their plans to reach 5 Lakh homestay rooms by 2021. However, in an earlier statement to Hindu Business Line, he also accepted the drain out of half of the company’s marketing spend in conducting 600 townhalls as awareness sessions all over the country. The result – a 4% hike in revenue, which was way too less.

Beginning mid-2016, Stayzilla had worked on signing several MoUs with different states including Andhra Pradesh, Assam, Uttarakhand, Chhattisgarh, Madhya Pradesh, Punjab, Gujarat, and Odisha. Also, it expanded its presence in North East India, establishing homestays in Sikkim and Bengal. This tactic helped the company boost the number of bookings and bring down its cost per booking.

Month on month change in volume and cost of bookings

Over the last one month, the Stayzilla Product, Engineering, and Design team worked on developing new features for the homestay ecosystem – such as user uploaded videos of properties, map view, 360 degrees (panoramic) view, host-guest chat etc. were also being developed.

Not The Only One Bleeding

VCs and angels have been pressing upon consumer Internet as one of the ‘closely watched’ sectors for 2017. Exponential adoption of digital devices, increase in Internet penetration, the shift of consumers from offline-to-online, are a few of the reasons which have helped this segment become an investor favourite.

However, despite the high market opportunity, Indian consumer Internet companies are still struggling to generate revenues and become unit positive. For instance, a few days back, Mint published an analysis based on the state of 41 consumer Internet companies in India.

According to the report, Flipkart leads the charts, accounting for 75% of the clubbed revenues of all, but only 46% of the total losses, for the financial year ending March 2016. Snapdeal, Paytm, ShopClues, followed Flipkart to mark the second, third and fourth position on the financial ladder respectively. Sector-wise, as expected, ecommerce rules the industry, amidst eight other sectors including health, auto, hyperlocal, services, finance/insurance, real estate, travel and messaging service.

While the status of most of the consumer Internet businesses is unclear at the moment – some startups have already started showing signs of downfall, such as Snapdeal, which recently laid off over 600 employees, shut down in offices in different locations and handicraft marketplace Shopo and also witnessed a valuation downfall by Softbank.

Stayzilla: Same Story

The company had reported $14.2 Mn (INR 95 Cr.) in losses and $2 Mn (INR 13.8 Cr.) in revenues for the year ended March 31, 2016. But, it is not the only one bleeding high in this segment. Delhi-based OYO incurred losses of about $52.5 Mn and revenues of just $2 Mn during the same period. Although both incurred similar revenues, there is a huge gap in the funding raised by the two!

While Stayzilla has roughly raised over $33.5 Mn in total funding in four different rounds, OYO has, so far, raised over $188 Mn.

Players like Treebo are scaling fast, but with tight fists at the moment. Unlike OYO and Stayzilla, Treebo has raised only $23 Mn, so far. However, as specified above, the story is same for all – bleeding and struggling with losses. Zo Rooms was another well funded startup in this domain which after struggling long with cash crunch was acquired Oyo last year.

On the other side, the MakeMyTrip-Ibibo  merger marked the consolidation of India’s two biggest travel booking portals, filling up the pockets of their stakeholders – Naspers, Tencent, and C-Trip. In another positive development, Yatra Online also completed its reverse merger and became the second online travel venture to make its debut on Nasdaq, after MakeMyTrip.

The competition in this space is becoming even more fierce with global players like Airbnb aggressively trying to capture a maximum pie of the Indian market. The strategic partnership of the company with The Times Of India Group is an ‘alarming situation’ for the homegrown players, considering the local network base and investor support of Airbnb.

Cooperation And Specialisation: New Mantra For Stayzilla

Yogendra finds an opportunity to sort the needs and solve the problems of Stayzilla hosts, going forward. He further plans to see Stayzilla becoming a hassle-free distribution channel, going out to the right audience and work closely with both online and offline travel partners.

He mentions that they will have an increased focus on the supply side with the in-built specialised solutions such as ‘Stayzilla Verified Homestays.’ However, how the next product will take form has not been specified clearly, at the moment. Cooperation will also the next buzz word for Stayzilla.

“I believe that the market is at a phase where cooperation among players is going to be the most certain way in which we can create value for all stakeholders involved.”

A Clean Start Awaits

Yogendra started his entrepreneurial journey 11 years back. What he realised was that the value of a business is extremely subjective. As he reminisces,

“The initial seven years were all about having negative working capital, positive cash flow, and a sustained ability to fund our own growth. Those were the only metrics we tracked. In the last 3–4 years, though, I can honestly state that, somewhere, I lost my path. I started treasuring GMV, room-nights and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital.”

He further adds, “While there exist many benchmarks for valuation of a company, its intrinsic value starts from inside and is tied very closely to the metrics that founders value and their comfort with that selection.”

Although they took a great start but lost the path somewhere in the middle. “The last year has been a focussed attempt to get back to our initial, and stable, value system. However, 12 months was just not enough time to shift paths, when we were already 36 months down a dramatically different path.”

With a great learning experience, he is now set to start with a clean slate and get back to the roots.