Can ixigo’s Frugality Playbook Show The Way In The Year Of Cockroach Startups?

We have seen startups tightening their purse strings, costs being cut to extend runways, and more than 21K layoffs amid a brutal funding winter for startups. It’s taken many founders by surprise, but not ixigo cofounder & CEO Aloke Bajpai, who says that working in a slowdown is like a home ground for the company.

The online travel startup is banking on the lessons from previous cycles to battle the current macroeconomic slowdown. The CEO believes that having witnessed the ebbs and flows of the market over the past sixteen years, ixigo’s business ethos has naturally been built around frugality.

“I do believe there will be more bearish markets in my lifetime, because memory is very short. When capital is abundant, you tend to overinvest and companies feel the pressure to grow fast,” Bajpai says, speaking about how this pattern has played out in the past.

Incidentally, much of the startup ecosystem today is looking at examples such as ixigo, Easemytrip, Zerodha, Zoho and others to find a way forward. So-called cockroach startups are in vogue, the fickleness of unicorn valuations is being questioned, sustainable business models are the talk of town, but Bajpai believes these only address the symptoms and not the actual problem.

Even though ixigo put off its IPO, given the current market volatilities, Bajpai believes the focus has always been to build as if there’s a slowdown.

Building The ixigo Way

“I remember speaking about building a cockroach startup in 2016. We have always been a very scrappy and frugal company, not always due to choice but also because of circumstances. In the first five years of our journey, we didn’t have a series A round. I think the capital starvation in the early days was the best thing that happened to us in hindsight,” ixigo’s Bajpai tells Inc42.

Founded by Bajpai and Rajnish Kumar, the company, over the past 15 years, has raised close to $88 Mn in funding from the likes of Sequoia Capital, Singapore’s GIC, InfoEdge, Elevation Capital and Fosun RZ, among others. Its last round came in the form of a $53 Mn infusion (mix of primary and secondary) in July 2021, at the height of the Indian funding boom.

Despite the fund infusion at a critical time for the travel industry, the company claims to be relying on maximising its resources instead of the funding.

The CEO claims the last three months of 2022 saw the highest ever revenue and EBITDA margins, adding that the travel bounce back has seen ixigo’s business surge 5X compared to pre-Covid levels on many metrics. The frugal approach allowed ixigo to achieve what Bajpai calls a “record quarter in December”, but the company did not reveal its actual financial performance.

After a loss-making FY22, the company posted operating revenue of INR 118.8 Cr in Q1 FY23 (April- June 2022), according to an addendum it filed with the SEBI for its IPO application. The travel tech company reported profits of INR 8.73 Cr in the quarter on the back of revenue from ticketing.

Bajpai says the acquisitions of train ticketing platform ConfirmTkt in FY21 and bus ticketing platform AbhiBus in FY22 has changed the income mix significantly for ixigo. These two segments have an overlap in terms of audience, which also helps keep ixigo’s marketing spends low.

The CEO believes that ixigo’s zero-dollar marketing approach has paid off immensely when it comes to profitability. For context, ixigo spent INR 24 Cr in advertising in the quarter, which has shown great returns in terms of revenue and profits.

The company’s revenue grew 180% year-on-year (YoY) to INR 379.6 Cr in FY22. Though ixigo was in the red in FY22, Bajpai attributed this to the higher costs related to ESOPs after its funding round in July 2021.

In fact, the company had turned profitable in FY21, capitalising on the travel rebound after most businesses had come out of the lockdown, and flights and trains resumed operations.

The feeling among seasoned Indian startup investors is that many businesses and founders are only used to flourishing in happy times. This is as much true for unicorns as it is for growth or early startups. For these startups, this is the first real market test. Perhaps the ixigo way can be a guide, and if so, how did Bajpai infuse this into the ixigo DNA?

Chasing funds traps startups in a vicious cycle of equity and culture dilution. The answer to beating a slowdown, he claims almost simplistically, is culture and customer, before delving into each aspect.

Customer Centricity Vs Cash Burn

On a very basic level, there are two ways to bring in customers to any service or product – pull marketing or push marketing. The former involves keeping your ears close to the ground and requires plenty of patience, while the latter is about attracting attention through ads, marketing and promotions.

While there’s a right time for both approaches, Bajpai opines even as companies jumped to burn cash for marketing and scale, they forgot to pay attention to customers while spending millions to acquire them.

ixigo started out as an aggregator and comparison tool for flight, trains, buses and hotel bookings, and took 10 years to become a meta search engine for travel bookings i.e. fulfilling ticketing on its own.

Bajpai claims this allowed ixigo to launch the most customer-centric product. In a world where investors are calling for monetisation-first models, this contrarian approach has somehow worked for ixigo.

“We always build products for customer problems first, and then figure out monetisation. For trains too, we launched a utility app, which for four years was not selling any train tickets but largely attracting people with features such as train running status, PNR status prediction, finding the right platform, etc. So, I think that DNA has been very unique to us.”

Bajpai reveals that ixigo tried to invent its own playbook on marketing because doing the same performance marketing as everybody else is very expensive. Instead, the focus was on products to improve marketing returns.

For instance, with the acquisition of ConfirmTkt, the years of understanding train traveller needs finally had a product to funnel into.

Similarly on the flight booking side, Bajpai says Covid complicated refunds for customers due to the spate of cancellations, and badly impacted travel plans, which are now more flexible than ever. Ixigo launched Assured and Flex to cater to this transition in behaviour.

Assured offers one-click refunds to customers even before the amount is settled by an airline, while Flex allows them to book in advance and change their reservations for free. The latter product not only protects customers in case of last-minute changes but also ensures that airlines do not miss out on any potential business opportunity.

The travel platform believes that the only metric that really matters in the long term, when it comes to the outside world, is customer centricity. But internally, it’s critical to be sensitive about the culture.

A Culture Of Frugality

For ixigo, the culture around sustainability begins at the top. Inevitably, the discussion with Bajpai touches on the topic of layoffs in 2022 and early 2023. The cofounder had already told us how raising too much too soon forced companies to hire without a plan.

Bajpai’s belief is that such companies can never end up in the ‘cockroach’ territory. For him, it’s about living with the problem and finding a solution that covers all levels of operations, and not just the bottom rungs.

“We have managed to take care of everyone during the tough times, whether it was Covid or the Great Recession of 2008 when funding had dried up after the fall of Lehman Brothers. At that time, our small team took a pay cut for a year, and in Covid we didn’t fire anyone.”

The key to crisis management for Bajpai is being transparent and showing that the cuts begin at the very top. “When people are generous enough to work for a low salary to get us out of the woods, it builds trust and motivates them more. You can double down on new ideas because of that higher motivation. It is a function of circumstances.”

The lesson here is to retain a team that can withstand falls just as much as it can celebrate the peaks. “We look at P&L and unit economics on a day-in-and-day-out basis, just like a small trader or a shop owner. That’s the only way to build financial discipline in the whole team, right?”

Founders in consumer-adjacent spaces have long preferred to throw people at a problem, but in 2022, the emphasis shifted to automation and using technology to bridge the people gap. “There will be times when people walk up to us and say they need more people and then we’ll kind of debate about whether they really need this. This is to kind of force people to think about how to use automation, using technology as opposed to throwing people at the problems.”

The INR 1,600 Cr IPO Question

Of course, given the release of ixigo’s DRHP in August 2021, all eyes were on the company’s potential public listing. Le Travenues Technology, ixigo’s parent company, filed its DRHP to raise INR 1,600 Cr from the public market.

But the IPO is now on hold due to bearish market sentiments. For now, Bajpai and ixigo have no plans of returning to the IPO conversation until the market conditions improve. The founder declined to provide a timeline in relation to ixigo’s IPO, saying that there’s still a bit of hangover for public market investors after they got their fingers burnt in the IPOs of Zomato, Paytm, etc.

The company feels confident that it is only a matter of time before the market is up again. And that it’s not about ixigo’s business performance. “We’re not seeing any slowdown on the travel side. At least in our industry, if you speak to anyone, they will not use the word slowdown at all. Even the long-term view is favourable because of the under penetration.”

The financial performance of listed travel tech companies backs the theory that travel is on the way up. EaseMyTrip saw its Q3 profits grow 42% YoY to INR 42 Cr, while Nasdaq-listed MakemyTrip (MMT) bounced back into profits in Q3, thanks to the recovery in travel demand.

The competition is stiff when you consider other rivals such as Flipkart-owned Cleartrip, Paytm and Amazon.

Cleartrip, which raised fresh funds from Adani Group in 2021 after the Flipkart acquisition, is in the process of raising more. Its board has approved to raise authorised share capital in the range of 1,000 Cr to INR 5,000 Cr.

Paytm cited 37% YoY and 48% QoQ growth for its commerce segment in Q3, driven by high travel demand. Further, Amazon is also eyeing a slice of the travel market through partnerships with MMT and others.

Bajpai is not overly concerned about the competition because of the focus on fundamentals. He counts the diversified model across flights, trains, and buses as a key driver for the company’s revenue growth in the past year.

In its recent social media posts, ixigo claimed to be the eighth most downloaded travel app in the world in the past year. The primary focus is to build on this scale.

“We are satisfied with the growth we are able to get without burning money and because we are making profits. Now the question is are we able to monetise enough on this scale? I’m sure there is room for improvement, and this is what we will focus on rather than the competition.”