Put the phrase on a bumper sticker, Sam Shank says: “Startups are hard.”
Sure, the HotelTonight CEO has reason to celebrate the startup he co-founded back in 2010, having recently sold it to Airbnb for a rumored near-$500 million, but getting HotelTonight to where it is now was nothing short of “fucking crazy,” he admits.
Speaking during Phocuswright’s Battleground: The Americas event earlier this month, Shank shared how HotelTonight fought through its toughest times as well as gave advice for startup founders currently navigating similar waters.
Launching: the hard part
When Shank decided he wanted to create something from the ground up for mobile, he says he had no idea how to build an app at that point.
The previous companies he’d founded, DealBase and TravelPost, he’d approached “pretty impulsive and jumped in,” but he took the opposite route for building HotelTonight, which he believed could fundamentally change the way people travel by offering last-minute hotel bookings.
![Quote Quote](https://ik.imgkit.net/3vlqs5axxjf/PCWW/dist/images/icon-quote.svg?tr=w-70%2Ch-45%2Cfo-auto)
It’s pretty insane building a company. You’re going to have highs and lows, and that’s just before breakfast.
Sam Shank - HotelTonight
The board at DealBase gave him $250,000 for HotelTonight, and he set firm pilot launch goals around product, supply, demand, aspiration and metrics. (The aspirational goal he outlined was a call from Steve Jobs saying, “Thanks for finally making a great travel app”; that call never came, but HotelTonight did make it to No. 1 in the app store.)
“It was an intense but rewarding time,” Shank says, a time in which he learned small teams could work incredibly efficiently to make a great product.
“We met about half of our booking metrics, but we had a big problem: We had a product people loved, but they weren’t using it.”
The concept eventually took off, and by September 2013, HotelTonight had raised $80.35 million in total funding.
Scaling: The harder part
Although launching HotelTonight was difficult, it was nothing compared to trying to scale the business, Shank says.
By November 2015, Shank says HotelTonight’s monthly burn rate was $2.5 million, “which one investor told us was second-highest only after Uber.”
On “one of the most difficult days of my life” it became evident that staff cuts were needed to get costs under control, and Shank enacted a four-step plan (shock the system, call the play, build the plan, watch it happen) to turn its burn rate from $2.5 million to $0.
Shank says laying off 15% of staff would have been sufficient, but he decided to ultimately lay off 20%, which was the “right call” to avoid a second round of layoffs.
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HotelTonight’s strategy shifted to focus solely on “Building to Profitability,” or B2P internally, and Shank says he “bowed to the EBITDA gods,” which became his “North Star.”
Transparent and frequent reporting on statistics such as daily company KPIs and weekly profitability helped align his team around the goal, Shank says, and helped ease people’s concerns about if the company would run out of money.
“The team ran with it. Once they saw the levers and what they could move they got very creative,” he says.
“It went to me working for them vs. them working for me.”
The strategy paid off: By August 2016, HotelTonight had a monthly burn rate of $0.
“[B2P] was the best decision I made as a CEO,” Shank says. “It was one of the top experiences of my life and made us a stronger team, a better company.”
Lessons for founders
Below are Shank’s tips for startup founders and what he’s learned from building HotelTonight.
Build something better AND something different
“I think as entrepreneurs, one of our curses is we look at the world and see how things should be improved, but I think it’s important to look at how something can be different.
“Only with HotelTonight was I like, ‘I’m going to make this crazy-different – mobile-only with only three hotel results only for tonight.’ That difference really helped it stand out and had people saying, ‘This is different; I want to pay attention.’”
Focus on distribution, then on a business
“The idea for HotelTonight wasn’t the need for more ‘tonight’ bookings – it started because the next computing platform is mobile. What would that franchise look like? It came back to last-minute hotel booking.
“Another way [to frame it] is, does this have a solid distribution strategy?”
Define your culture early, precisely and visibly
“Build, question and respect – three words [that define HotelTonight’s culture]. They’re very authentic to us and the values we have. We put it everywhere. I was surprised at how many times that came back around.”
Get a CEO coach
“Get a founder coach – someone to give you unbiased advice. I did it late, but it was such an important thing to give you that life-coaching type of advice.
“It’s a disservice to you if you don’t have one around. It’s pretty insane building a company. You’re going to have highs and lows, and that’s just before breakfast.”
The 5-to-1 compliment rule
“For every time I say, ‘Can we improve this?’ I give five compliments. Do it as visibly as possible, and do it authentically.
“For the first few months, it felt like I was coming up with BS, but I forced myself. I recognize now that’s what the team wants and needs, and there’s so much good stuff always happening.”
It’s always darkest before the dawn, and the sun always sets
“Don’t get too complacent. Be ready for the next bump. It helps you along the way.”
* The winner of Phocuswright Battleground was Exosonic. They’ve won a spot on the Summit stage at The Phocuswright Conference this November. Learn more about The Phocuswright Innovation Platform here.