Travel Tech Essentialist #142: Ideas
In this edition, you’ll find frameworks for evaluating ideas (good, bad and new) and for accelerating Product Market Fit for B2B founders. You'll also find insights into travel tech valuation trends, M&A activities, and the outlook on airline tech investments. It’s a packed issue, but I hope you’ll discover at least one valuable nugget. As always, thank you for your attention. Oh, and don’t forget to vote in today’s poll after reading #10. I’m interested in the results :-).
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0. The most clicked link in the previous newsletter
The most clicked link in Travel Tech Essentialist #141 was Deloitte’s Facing Travel’s Future report.
1. A new framework to help B2B founders find Product Market Fit
Product Market Fit (PMF) is often seen more as an art than a science, but by leveraging data from over 500 investments, First Round Capital has reverse-engineered a PMF method tailored for sales-led B2B companies. They are launching an intensive 14-week program for exceptional pre-seed B2B founders. It’s free, highly curated, no-strings-attached, and starts May 29 with a limited number of spots*.
Despite all the talk about product-market fit, it didn’t seem like anyone was meaningfully putting the pieces together to help B2B founders increase their odds of finding it. We wanted to change that. — First Round Capital
The program consists of eight tactical sessions, with the full content of the first session available as a preview. Here is my summary of their first session, which focuses on the four levels of PMT, metrics for each level (ARR, churn, sales conversion, magic number, burn multiple, etc…), and levers for moving up.
*Interested founders can apply here
2. Valuation multiples across Travel Tech categories and companies
In the last newsletter, I showed a graph with Enterprise Value multiples as of December 2023. A few of you asked for more recent figures. Below, you can see the EV multiples as of April 12, 2024 (data from AGC Partners).
Here is a comparison of Enterprise Value to Revenue and Enterprise Value to EBITDA for 20 travel technology companies based on AGC Partners data:
3. Travel Tech M&A
AKKR leads in the number of Private Equity acquisitions with 13 Travel & Hospitality Tech acquisitions over the last six years. Strategic buyers have significantly contributed to M&A activity, especially post-Covid.
4. Understanding Product-Market Fit through problem archetypes
Sequoia presents another framework for understanding PMF. Rather than diagnosing whether you have PMF, Sequoia outlines three archetypes that help founders understand how the market interacts with the problem your product solves:
Hair on Fire: your product addresses a clear and urgent need in a competitive market. Success requires offering something distinctly different.
Hard Fact: your product addresses issues people have accepted as a part of everyday life. Success means changing perceptions and introducing solutions that bring behavioral changes.
Future Vision: your product envisions and enables what seems like science fiction. Success depends on overcoming customer skepticism by delivering a revolutionary product.
5. How do the Michelin Keys ratings compare with guest reviews?
Michelin, known for its restaurant star ratings (and tires), has expanded into the hospitality industry by launching the Michelin Key rating for hotels. This new rating system could impact hotel demand dynamics and pricing strategies.
This analysis from Shiji Group compares Michelin Keys with the Guest Review Index (GRI), a proprietary algorithm developed by Barcelona-based ReviewPro, which Shiji Group later acquired. GRI aggregates guest feedback across various platforms to measure guest satisfaction. Key insights include:
A slight inverse relationship (not statistically significant) between Michelin ratings and GRI scores.
Only 12 out of 39 Michelin-rated hotels in Paris are in the top 50 GRI rankings, with smaller boutique hotels generally receiving higher guest ratings.
Smaller boutique hotels, especially those with fewer rooms, tend to rank higher in guest satisfaction.
The optimal hotel size for peak guest satisfaction is around 70 rooms
The post concludes that combining Michelin's professional analysis and assessments with real guest feedback will provide a more thorough view of hotel quality.
6. A framework to assess new ideas
In a conversation with Lenny Rachitsky, Dharmesh Shah, co-founder of Hubspot, shared the 4P decision-making framework he uses when assessing new ideas:
Potential outcome: If it worked, how big could it be? Evaluate the idea's potential impact, revenue, or market cap on a scale of 0 to 10.
Probability of success: What are the chances it will work? Consider factors such as market demand, competition, and execution capabilities. Avoid the mistake of only focusing on probability without first assessing the potential outcome.
Passion or proximity: How connected are you to what you are creating? Passion is important, but it’s okay if it develops over time rather than being the initial driving force.
Prowess or unfair advantage: What unique assets or advantages you possess that could increase the likelihood of success (coding skills, market access, specialized knowledge…)?
Your life stage and financial situation also dictate the risks you can afford. A 1% chance of achieving a $100 billion outcome is easier to take on if you can afford to fail. But if you are starting and the priority is putting food on the table, the 1% probability of succeeding is probably not a gamble you can make. In that case, Probability ranks highest among the Ps. In Dharmesh Shah’s case, Potential outcome and Passion/Proximity are his main considerations: “What has great potential that I'm passionate about? Even if I fail, I'll have no regrets because I cared enough about it."
7. Generative AI vacation planning
Morgan Stanley published an article on how Generative AI will bring disruption and opportunity to OTAs and search engines. Here are some of their takeaways:
The greatest opportunity is in China and India, with significant demand but fragmented travel information. In these regions, AI could help consolidate services into more efficient "one-stop shops.
In the US and Europe, search engines could have an advantage over OTAs and travel providers such as hotels and airlines.
AI-powered chatbots are set to customize itineraries and streamline price comparisons.
OTAs are already leveraging AI to enhance efficiencies and personalize trips.
8. Airline Technology investment trends
This recent Amadeus report examines how airlines are using new technologies to transform into traveler-centric retailers and outlines their future priorities (and budgets) for improving traveler experiences. It addresses key questions such as:
How Low-Cost Carriers (LCC) aim to improve operational efficiency
Why LCCs are focusing on the airport experience
How LCCs are looking to tailor their offer to attract business travelers
How the rollout of NDC will allow Full Service Carriers (FCC) to distribute content in new ways
What’s driving the push for better offer creation capabilities
How FCCs plan to meet traveler demands through servicing
The report is divided into seven sections:
Investment drivers, challenges, and ambitions
Investment priorities for airlines in 2024
A journey to modern retailing
Merchandising and distribution (including NDC)
Building stronger airlines through interline partnerships
Passenger experience at the airport
Schedule planning and overcoming disruption
9. Y Combinator’s Request for Startups
Here are 20 startup ideas and categories that Y Combinator would like to see more founders explore. Among them:
Space companies: The dramatic reduction in orbital launch costs since SpaceX enables startups to send satellites with minimal funding, potentially opening new business opportunities as space access becomes as routine and affordable as commercial air travel.
Enterprise Resource Planning software: ERP software is crucial but often expensive and complex. There's a significant opportunity for startups to innovate by developing flexible, user-friendly ERP solutions.
Explainable AI: To trust the output of AI, there is a need for new interpretable models or tools to explain the output of existing models.
10. Avoid tempting startup ‘tarpit’ ideas
This is the counterpart of the previous entry. Y Combinator, with its thousands of startups and alumni, is exceptionally well-equipped to predict which early-stage startup ideas are likely to succeed or fail. In this video (if you prefer text, here are the notes), Dalton Caldwell and Michael Seibel, Managing Directors and Group Partners at YC, discuss what they term "tarpit ideas"—seemingly easy and promising startup ideas that have consistently led many founders to failure.
The term “tarpit” comes from the petroleum tar pits where paleontologists find fossils. Animals would confuse the shiny tar for fresh water and try to take a drink… only to fall in, get stuck, and die. The smell of their body would attract other animals, who’d fall into the same trap.
An example they discussed is apps for discovering new things like restaurants, events, activities, concerts, etc… The pitch is: “Discovery is broken; I don't know about so many ___. Despite Google and other platforms, I prefer recommendations from friends or insiders. Lots of people tell me they have this problem too.” However, although people express a desire for unique things, their actions favor the most popular options. An esoteric, hole-in-the-wall, unique restaurant is an esoteric, hole-in-the-wall, unique restaurant for a reason.
What could be examples of tarpit ideas in travel? Here are some candidates, but I welcome any disagreements and new additions to the list. Please send them over (and vote on the related poll below 🗳️)
Travel Planning is broken. “A better travel planning solution because travel planning as we know it is broken. According to xxx report, the average traveler spends 15 hours planning a holiday, uses 38 websites to book a vacation, and uses 10 apps throughout their travel journey". This assumption has probably been the cause of the largest number of travel startup deaths.
A Travel Super App. I admire and respect ambitious objectives, but I also know how incredibly hard it is to excel in a single product category, let alone in multiple.
Seamless Travel. “Integrate all aspects of travel planning, booking, and real-time journey management into one seamless travel experience.” Synchronizing multiple travel services and data streams is quite a complex challenge, as Journera shows.
Virtual Reality travel experiences. The idea of letting users travel to distant places from the comfort of their homes is intriguing, but the practical application hasn’t yet delivered on its promise.
Off-the-Beaten-Path discovery: "A platform for exploring undiscovered, authentic, off-the-beaten-path experiences and destinations." Challenges in market size, scalability, logistics, and demand often make it harder than anticipated to sustain and grow. Plus, sometimes the authentic experience might be too authentic, such as when a traveler complained about finding a whole fried dog at a food market in Hanoi.
PS. Community Poll
The poll in the previous newsletter asked about the most crucial job for a future personal travel robot. 'Tour Guide' was the clear winner, with 35% of the votes, followed by 'Translator' with 26%. Full results here.
Today’s poll will pick up on the “tarpit ideas” (see story #10 in this newsletter)
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Mauricio Prieto
Great one, thanks! Btw, I think you may like this post: https://www.mylighthouse.com/resources/blog/the-olympics-effect-impact-on-paris-hospitality-industry
Thank you Mauricio, your content is always interesting, even though I am not in the hospitality industry.