Will never chase growth over unit economics ever again: Stayzilla's Vasupal

Yogendra Vasupal co-founded online homestay aggregator Stayzilla along with Sachit Sanghi in 2005. Stayzilla, operated by Chennai-based Inasra Technologies Pvt. Ltd, catered to both budget customers and luxury travellers. It raised about $30 million from investors including Nexus Venture Partners and Matrix Partners. But that wasn't enough.

Last week, Vasupal said in a blog that Stayzilla was halting operations and that it may "reboot with a different business model". In a no-holds-barred interview, Vasupal looks back at what went wrong and what he would never do again. Excerpts:

What was the blog all about?

One of the things that my co-founder and I had decided was that we should come clean. We knew where we had erred, and only when we would accept our failures, we would learn. I owed it to the founders and the ecosystem.

I learnt how to build a business successfully from online sources. But nowhere did I find how to fail or what can lead to failure, because failures have been buried in our ecosystem. I thought that this could help other entrepreneurs, if not me, to understand and, when the time comes, to decide the path. It could be something that strengthens our hands in deciding the path of unit economics, than pure growth or scale.

When we last spoke in 2015, Stayzilla was doing very good.

Correct. From the metrics point of view, we were doing very well. That was the problem. The metrics we were tracking should not have been the priority metrics. In terms of GMV and room nights, yes, we were rocking.

You were seen as a stiff competition to even MakeMyTrip. What happened?

At the end of the day, you can grow (faster), if cost is not a concern. But as you grow, you lose more money and the requirement for capital keeps increasing. It increased the costs and culminated in where we are today. The capital market has also gone soft. At this juncture, nobody wants, rightly, to fund any business that has only growth as its target. Sustained growth is what everyone is looking for.

What are the VCs looking at?

One common thing for all of them would be the revenue potential and the cost structure. It is like the game theory (where the outcome of a choice of action depends critically on the actions of other participants). If one person starts playing the market share game with a war chest, he or she can succeed as long as a second company does not step up. The moment, a second company steps up to use the same strategy, both cannot win.

The investors have taken a step back so that rationality is back in the market and the entrepreneurs realise that the days of growth over anything else are over. Now, it is time to build sustainable growth.

Did the MakeMyTrip-ibibo merger hurt you in anyway?

I would probably think it helped us, instead of hurting us. I have been speaking with investors from 2010. And every single time I spoke with an investor, MakeMyTrip or goibibo would come up during the discussion. But this was the first time it actually did not. Because what we were doing was differentiated enough. We had got into homestays.

In terms of competition, who hurt you?

There were no external factors. But yes, discounts-based growth, which was followed by the industry, definitely changed the game, moving away from the user-experience-based model. Subsequently, it became a game of capital. Whoever had the most capital would win.

Some founders may still be comfortable with that strategy, but some may not be. I was not comfortable with it. In the current environment, no one knows if they have the correct product-market fit, because they are discounting. When one stops the incentives or discounts, only then will they understand whether customers would stick with them.

Did you look at exit options?

Unfortunately, I had three opportunities – 2010, 2013 and 2016 – that I did not accept. It did not work out because I was not flexible enough in being accommodative on the value and other stuff. That was one lesson. It is okay to be a little opportunistic.

Mid-way you had changed to the homestay model. Was it helpful or was it a mistake?

It was a very good decision. From a strategy perspective, it was right. Stayzilla was known for its homestays. That was our differentiator. When it came to the execution, maybe, we put the cart before the horse.

Can we expect a comeback from Stayzilla?

That is exactly what I am doing right now. We are evaluating whatever help we can get from the ecosystem. Several hosts have called me up and they have extended support. We are also speaking with travel agents, both online and offline, to see if they are interested in taking our homestays and selling it on their platforms.

When you do make a comeback, what will you do differently?

(Laughs), One, I will ensure the cost structure is correct. Two, I would not go behind growth over unit economics, ever again. If we can be profitable at a smaller scale, there is no reason in the world why we cannot increase profitability on a larger scale.