Getting up out of the early growth stage is one of the hardest climbs for start-ups in Africa. This week Russell Southwood talks to Kenyan-based travel tech start-up HotelOnline's Co-Founder Havar Bauck about growth and finding its "sweet spot" in the competitive world of online travel.
So how did the merger in 2017 go with HotelOga?
The end result of the merger was fine but it was quite a tumultuous story that ended well. Marek Zmyslowski (HotelOga) is no longer with us. HotelOga was two companies: a commercial one in Nigeria and a technology company in Poland.
We did a very thorough due diligence and discovered that HotelOga (in Nigeria) was in financial trouble. Indeed these troubles were deeper than we had assumed. Attempting to solve (the scale of financial loss) would be a gargantuan task. So we called off the merger talks and it then went bankrupt.
In the meantime, we had also had a close dialogue with the Polish technology company and we decided to do a smaller merger with them to get an improved technical platform. That has been a tremendous success. It has a small but amazing team and although it took time to adjust the platform to our business model, the end result is very good.
Have you raised more funds in the meantime?
We did the first equity crowd-funding in Africa for a travel tech start-up and raised US$250,000. There were a couple of people who raised US$10-20,000 but otherwise it was a diverse group of shareholders from among other countries DRC, Mozambique, Kenya, France, USA and Norway.
So how is company growth at the moment?
We're heading for the first month above US$400,000 gross room sales revenue. This represents 5,000 room bookings on the reservation side.
Last time we talked you were going to expand your geographic footprint. How's that going?
We've built ourselves a much stronger foothold in West Africa and we're looking at further Pan-African expansion. But just staying in Africa is an unnecessary limitation. We can solve the same sort of problems as we're solving in Africa across emerging markets. For example, we've successfully launched in Pakistan. Our strategy is Africa first. It's our cradle but we're considering the overall potential in the market.
Our sweet spot is our business model and our concept. In Africa, we're basically unchallenged in many markets. There are similar opportunities in major frontier markets outside of Africa which is why we entered Pakistan.
How are you faring with the extremely intense competition between Online Travel Agencies (OTAs)?
There's fierce competition between OTAs (like Expedia, Booking.com and Agoda) and Non-OTA people. The competition between them is hardening by the day. They are our partners. So as a platform provider and adviser to hotels, we have to ask ourselves: why are we relevant and how can we stay relevant over the next 2-5 years?
We've moved from being a simple service that gets hotels on to an OTA platform to being a platform that connects hotels to other OTAs. So we're moving to selling consultancy services and becoming a Software as a Service (SaaS) provider. We help manage bookings, rates and availability. We help hotels stay relevant and have an appealing presence that gets high rankings online.
We target the hotels that need help; the small and medium-sized hotels. We offer online payment solutions for hotels. Secure digital payment processing is a major challenge. It's complicated and expensive in most frontier markets. We are an international company with the international partnerships to do this more cheaply and on competitive terms. The hotels (in these countries) don't get these.
So how will this shift affect the business?
In a situation of ever increasing competition, we have to keep reducing the commission part. So we're moving to a fixed monthly fee model. We want the hotels to cover our costs by increasing their revenues. The hotels are then more in charge. We will charge them a fixed monthly fee for the platform and additional fees if they need other services. So instead of just adding 2-3% to their rates to cover being on our online platform, they can charge less and this will improve their competitiveness.
How long will you take to transition?
We've already started and we've launched a new generation of our platform. Two dozen hotels have already moved to the new model but some of our small hotels will stay fully managed but we will seek to move as many as feasible. There are over 1,100 hotels.
We are looking at strategic investors and partners as we would like to go properly global in frontier markets. We've spent a lot of time analyzing the global market. There are hundreds of hotels that could use our software. There is no-one out there aggressively targeting that market. We can build something that changes the face of hospitality access in global frontier markets.