Around the world in many ways

Around the world in many ways

Summary: Rome2Rio's founders have rejected the widely accepted dogma that start-ups must rapidly acquire non-paying consumers and leverage this for a multimillion-dollar investment or buy-out, a high-stakes game dominated by Silicon Valley natives.

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TOPICS: Start-Ups
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Rome2Rio's founders have rejected the widely accepted dogma that start-ups must rapidly acquire non-paying consumers and leverage this for a multimillion-dollar investment or buy-out, a high-stakes game dominated by Silicon Valley natives.

Instead, to avoid becoming another Australian victim of the "winner-takes-all" Silicon Valley roulette, Melbourne-based multi-modal travel start-up Rome2Rio is breaking from its consumer-focused roots to aim a new paid service at businesses — a move considered as being sacrilege in some start-up circles.

Rome2Rio recently secured $450,000 from the founders of RetailMeNot and an unnamed Asian-based investor for its "multi-modal" travel website. Online travel consumers can use the website to create cross-continent itineraries for travel via plane, train, bus, ferry and car. The funds will be used to enhance the product, so the multi-modal search technology can be implemented in the back end of partner websites as part of a newly introduced business-to-business (B2B) model.

Interim CEO Rod Cuthbert convinced Rome2Rio founders Michael Cameron and Bernie Tschirren to start targeting online travel businesses, such as travel agencies, destination sites (eg, visitfrance.com) and guidebooks (eg, Lonely Planet), to be customers of the multi-modal search technology, converting potential competitors into partners.

"Building a consumer site is a very hard thing to do; there are a lot of entrenched competitors out there, but developing a B2B business — that's something completely doable, and we can be the leader in our space very quickly," Cuthbert said. "This was a major decision the company had to make. Do we want to be consumer-facing, and try to attract large volumes of users to the Rome2Rio website? Or do we want to deliver the technology to partners and other websites who have traffic already?"

Limited development resources were another reason for the switch, according to Cuthbert.

However, he admitted that by not focusing on a consumer-facing site, the company could miss out on increases in the large volumes of end-user transaction data and feedback, which is invaluable for enhancing the product and user experience.

"At 100,000 users a day or week, you can learn a real lot; you get a lot of benefits from having that B2C [business-to-consumer] presence, and we definitely won't give that up," Cuthbert said.

"We're lucky in that Bernie and Michael got their consumer site pretty good, pretty quickly; we're starting this B2B strategy with a really strong consumer presence in terms of the quality of the site and user feedback we've had so far," he said. "We can deliver new functionality without having to redo that site or spend an enormous amount of effort on the situation, and the new tech we're delivering will flow straight through to the B2B side."

Cameron and Tschirren founded Rome2Rio in 2010, when they quit their engineering jobs in Microsoft's Bing search group and developer tools group and repatriated to Melbourne from the software giant's campus in Redmond, Washington. They later appointed Cuthbert to an advisory role.

The founders' recognition of their lack of sales ability is a key factor in the company's success, Cuthbert said, and is a common stumbling block for entrepreneurs.

"The one thing I would say that some of them will fall over on, the one thing that Michael and Bernie got right, is they understood they were engineers, and engineers are not business people," Cuthbert said. "They understood in order to launch themselves on the world, they needed to complete the team, and there are a lot of engineers out there who don't get that, and I think entrepreneurs have to be wary of that."

Cuthbert hopes to sign over 20 partners, and oversee the release of the API by the year's end. However, he has a "very liberal" policy towards generating revenue, and is focused on boosting awareness of multi-modal travel.

"We will be charging a base monthly fee for access to our services, but I would also say for the next 12 months, we'll be very liberal ... we want people to fall in love, no doubt in many cases we'll allow people long trial periods without charge," Cuthbert said. "What we really want to focus on is developing the underlying tech and suite of services that will propagate the product widely, and then, when everyone's using it, it will be clearer to us how to charge and what to charge.

"The European Commission (EC) has dozens of people working on multi-modal issues. They want to get people off planes and onto trains, they want to get people taking more ferries and coaches rather than riding in aeroplanes, taxis, etc, and we really believe the world is going to shift away from the Google model of flight-only search results to our own."

SWOT analysis

Strengths

The company has changed direction, raised funding and will focus specifically on B2B.

Weaknesses

The B2B model has long lead times for sales, so the company's not generating revenue.

Opportunities

There is a growing number of potential customers for this service — there is demand for sophisticated technology as the online travel market breaks into more targeted segments.

Threats

Google could provide a killer offering by integrating with Maps.

Conclusion

The change of focus is a very mature and brave decision, especially when they could've found justification to continue on their end-user path. The founders must also be applauded for keeping the business in Australia, which will definitely make it a stronger company. Cuthbert responded thoughtfully to critical questions about the model, and is open minded about testing the market to find the best opportunity.

Verdict: BOOM

Topic: Start-Ups

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4 comments
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  • Is it widely accepted that start-ups must rapidly acquire non-paying consumers and leverage this for a multimillion-dollar investment or buy-out?

    Is creating a paid service for businesses considered to be sacrilege in any credible start-up circles?

    Both claims -- presented without evidence -- took me by surprise.
    snoblenet
  • Thanks for the comment Steven. I should've mentioned it's anecdotal evidence, sourced from my comprehensive discussions with countless Australian start-ups and entrepreneurs, the prevailing view is definitely to grow users with the primary goal of securing investment or being acquired, and revenue is a secondary consideration or not considered at all.

    I'm not sure there are any studies or research to back up this view, because it's not exactly the most popular topic.

    I'd be interested to hear your view of the attitude/strategy of Australian start-ups and entrepreneurs and how have you arrived at this view? Feel free to email me at maheshsharm at gmail dot com
    Mahesh.sharma
  • I don't have any data either. It's all based on conversations. But my impression from these conversations is that the startup founders that I would consider to be leaders are focused on two things: (i) testing/proving the business model, which may not require massive numbers of customers; and (ii) scaling the business model once proven, using a mix of retained earnings and outside investment. Also I see a great deal of interest in B2B models among the startup founders I consider to be leaders.

    Happy to catch up any time. Am in Sydney on 27 June. Reachable on steven at snoble dot net, and blogging at hack the gong dot com.
    snoblenet
  • Mahesh, I think it is the standard acceptable norm that the investors and VC's look for. Consumers translate to potential source of income and that is attractive to investors. As you improve your business model, the users will come anyway (well that was what happened in our experience). Having said that not all start ups / pre commercial entrepreneurs look for investors/ sell up.

    For our business model, we built everything on private funds, brought in the consumers and built the partnership networks. We saw it as building value into the company rather than bringing the investors in too early.

    I am not sure if this is anyway normal but am happy to discuss.

    Azizi Khan
    CIO, GovReports.
    azizikhan