Travel Tech Essentialist #138: Sprout
Many stories in this edition revolve around the initial stages of growth and innovation, ranging from early-stage SaaS startups to how large incumbents are evolving. Discover insights that could spark ideas, drive conversations, or influence your next big decision. I hope you enjoy it, and as always, thanks for your attention.
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0. The most clicked link in the previous newsletter
The most clicked link in Travel Tech Essentialist #137 was Amadeus’ top travel startups to watch for 2024.
1. GPTs at work
As you probably know, GPTs are custom versions of ChatGPT that can be tailored for very specific tasks. Lenny Rachitsky (Lenny’s Newsletter) shared 20 examples of how people are using GPTs today to make their workplaces more productive. Maybe you can get inspired by one of these ideas to create your own GPT.
One of the examples is a GPT custom built to have conversations with your customer persona.
Everyone has ‘personas.’ I literally took our persona documents, made it a PDF, uploaded it to the GPT (as knowledge), and made a GPT to talk to our personas. It helps me refine roadmap ideas and really empathize better with my customers.—Dennis Yang, PM at Chime
2. The impact of eDreams Prime
eDreams announced its April-December 2023 results (its fiscal year ends in March). As has been the norm since 2017, the company has placed a very strong focus in their communication on the growth of their Prime subscription program. The company now describes itself as no longer a traditional travel company but “a subscription business.” Since its launch in 2017, eDreams' Prime membership has grown impressively, reaching 5.4 million by the end of 2023. The company expects this number to rise to 7.25 million by March 2025.
The market has rewarded eDreams investors in the seven years since 2017, in which eDreams’ stock has appreciated by 120%, ahead of Bookings (+90%) and Expedia (13%).
I’d think that a key reason for eDreams to develop a membership program is to reduce its reliance on high-cost customer acquisition channels. By shifting away from a transaction-based acquisition model, they aim to reposition themselves in a business with more loyal and recurring customer revenue, lower variable costs, and higher margins.
However, the results do not reflect this dynamic. Variable costs (primarily marketing expenses) as a percentage of revenues, are at the higher end compared to other Online Travel Agencies (OTAs) and continue to climb, increasing from 59% in 2017 to 82% in 2022, and 73% in 2023. Adjusted EBITDA/Revenue has declined from 20% in 2014 to 12% in 2023.
3. Startups vs Incumbents
This week, I came across these two observations which I thought were particularly insightful on a startup's race for distribution versus an incumbent's race for innovation, as well as the impact of internal dynamics between startups and established companies:
"The battle between every startup & incumbent comes down to whether the startup gets distribution before the incumbent gets innovation” — Alastair Rampell, GP A16z
“When a startup is competing against a large competitor, they aren't competing with the *entire* company, they are likely competing with some PM focused on internal politics/career progression.” — Dalton Caldwell, Managing Director of Y Combinator
4. Five NDC Killer Apps
Oliver Ranson's The Airline App Economy discusses the potential of the New Distribution Capability (NDC) in air travel. He outlines five conceptual 'killer apps' that should exist to address current challenges and opportunities, with the goal of maximizing NDC's potential to transform how airlines and passengers interact:
Travel Marketplace: A platform for integrating various travel services, making it easier for consumers to plan trips with options ranging from flights to local experiences.
Upstream Offer: A system allowing passengers to make counter-offers on ticket prices, potentially optimizing revenue for airlines and savings for travelers.
Tradeable Ticket: Introducing flexibility in non-refundable tickets by allowing them to be traded or sold, reducing losses for passengers and improving demand forecasting for airlines. (TravelX is already making this a reality)
Air Travel Futures Market: A marketplace for trading flight capacities in advance, similar to futures markets in other industries, offering financial stability for airlines.
Tour Guide Accreditation Pack: Enhancing sustainability and local economies by providing a platform for tour guides to gain recognition and fair compensation.
5. How to build a world-class sales organization
Lenny Rachitsky had a great conversation with Jason Lemkin, founder of SaaStr (the world’s largest community for B2B/SaaS founders) on how to build a great sales organization. Some key takeaways:
Don’t hire a salesperson too early. If you’re not spending 20% of your time in sales and 20% in recruiting, you're failing as a founder. Hire your 1st salesperson when you have closed the first 10 customers and are spending more than 20% of your time on sales.
If you need to hire your first sales rep, hire two instead because otherwise, there's no A-B test. You have to A-B test humans.
Early sales reps have to be product experts. Later as you scale, they should not be product experts or you can't scale.
Wait to hire a VP of sales when you have established a repeatable sales process and witnessed success with initial sales reps hitting quota. Hire a VP of Sales to help you scale from 3 sales reps to 300 reps, and make sure he/she actually wants to sell, not just manage.
Prioritize the early success of sales reps by allowing them to keep 100% of their initial sales for the first three months.
Unlike building a product team, there is no efficiency when building a sales org. If you have a sales-led motion, 50% of your company is going to be in sales whether your’e at $10 million or $100 million in revenue.
6. SaaS startups: Is your marketing site better than your product?
Jason Lemkin believes it should. When it is, you’ll get more leads up and down the funnel without shipping any new features, fixing any bugs or getting engineers to work on any of it.
Lemkin points out that a common pitfall for SaaS startups in the $1.5m-$10m ARR range is that their marketing sites often fail to evolve with their products. As products become richer and target markets broaden, outdated marketing sites can detract from the brand's perceived value. He stresses the importance of ensuring your marketing offering reflects the current state of your product and company.
He offers practical advice for evaluating and improving your marketing site. Among them:
Get your exec team around the table and ask each one: “Is our marketing site better than our product?” If they don’t all say yes, make changes this month.
Adopt the persona of any customer segment with > 10% of your revenue. Does your marketing site really speak to them?
It is super easy to contact sales, support, marketing, the CEO, anyone? No? Why not?
Does the marketing site make you look like you are at least 2x larger than you are? Why not?
These are some of the questions that Lemkin raises, which your marketing site should answer first, before potential customers ever even see your product, in many cases.
Upgrade your marketing site to be even slicker than your product itself. And watch your close rate go up, or at least, your conversion from visitors to contacts. Pretty much always. Without even writing a line of code. Easy peasy. — Jason Lemkin
7. Journeys of the top $1+ Billion founders
Endeavor researched the career pathways of 200 unicorn founders (100 in the US, 100 in emerging markets). Here are some of the key learnings:
55% of US founders and 32% of founders in emerging markets are immigrants or second-generation immigrants
60% have international study or work experience
1/3 have a bachelor degrees from elite universities
20% previously employed by elite firms (top consulting, FAANG, top banks)
50% worked at startups/scaleups, often with successful exits
49% had previously founded businesses
The average founder had 10 years of work experience.
Undergraduate studies: 61% in science/engineering and 19% business. Graduate school: more in engineering than MBAs. And for the 10% of founders who completed a PhD, most were in CS.
Emerging market founders were 10x more likely than US founders to have worked in finance/marketing; US founders more likely in product and engineering.
8. KLM is using AI to reduce food waste
KLM is reducing onboard food waste using AI to accurately forecast passenger numbers and ensuring that the right amount of meals are prepared. The AI model, named TRAYS, developed with Kickstart AI, fine-tunes meal planning based on historical data and continuous updates up to 20 minutes before departure.
A three-month analysis shows that 63% less food is wasted compared to catering for every booked passenger. KLM said that the largest improvement can be seen on intercontinental KLM flights from Schiphol, “where 2.5 fewer meals (1.3 kg) need to be thrown away per flight.” So, if 2.5 fewer meals represents, say, a 70% reduction in food waste, it means that approximately 3.57 meals were wasted per flight, and after AI, this number has been reduced to approximately 1.07 meals per flight? That’s a good % improvement, but I am maybe more impressed by how little waste there was before: 3.57 meals in a 250-350 passenger flight.
KLM says that on an annual basis, this amounts to a saving of 111,000 kg in meals across all KLM flights that are catered from Schiphol. This would amount to around 213,461 fewer meals per year (using the 2.5 meals @1.3 kg). Assuming a cost of around $5 to $10 per meal for an airline (depending on the source, the range goes from $4 to $20+), this translates into annual savings of $1 million to $2 million for KLM.
9. Fundraising from seed investors
Created by Alex Cohen, founder of Spendoso. Careful, this is intended for humor and not to be taken seriously. But, with almost 1 million views on X, it's striking a chord for many.
10. Funding and Deals
Mews raised $110 million at a $1.2 billion valuation, with Kinnevik leading the round with a $41 million investment.
Nicer, a travel planning and booking solution for travel advisors raised $2 million in pre-seed funding led by Trip Ventures.
Capital One Travel is adding vacation rental properties inventory in a partnership with AvantStay and Boutiq. Read +.
Are you fundraising?
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Mauricio Prieto
Regarding eDreams, note that looking at adjusted EBITDA is not the best way to look at it, as Prime revenue is received up front, but recognized over time. The fairer, and more accurate, way to look at this is via cash EBITDA margins., which are clearly going up, and should continue to go up as long as the percent of Prime members that are at least one year old grows relative to first year Prime members. This gets to you other point on variable costs. In the early days of Prime (we are still in early days in my opinion), variable costs will run high as they are paying google, etc., to help them find new Prime members. It's in the second year, that performance marketing drops off, for the most part. See the Prime tab in the quarterly financials spreadsheet they release for a more clearer view on Prime. LTM Prime Marginal Profit Margin went from 30.6% five in Q3 23 vs 37.8% in Q3 24. This proves out that performance marketing drops off as Prime members cross the first year threshold.