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Scaling Up: “The 6-Star Entrepreneur” – Hear from Adam Schwab, Co-founder and CEO of Luxury Escapes
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13 Dec 2022
Scaling Up Adam Schwab)

Season 6, Episode 9 with Adam Schwab.

 

In this episode, we dive deep into the Luxury Escapes business model and its evolution over the last decade. Adam’s story is that of a quintessential and accomplished entrepreneur – one of trial and error, learning from mistakes and applying those lessons to the next chapter.

 

 

Scaling Up Podcast Transcript

 

Ed – (00:35)

My guest today on Scaling Up is Adam Schwab, the CEO and co-founder of Luxury Escapes a travel marketplace with almost a billion dollars in bookings annually. Adam’s story is out of a quintessential and accomplished entrepreneur, one of trial and error learning from mistakes and applying it to the next chapter as is always required. Luxury escapes and it’s coming to being is exactly this. The twists and turns of a variety of businesses over almost a decade that eventually spun out something that was scalable and incredibly capital efficient. While the scaling story is largely unknown, but nonetheless incredible, it’s a story born out of customer obsession and providing consistent value to both sides of the marketplace. What comes next for luxury escapes is exciting enough to get Adam back from an 18 month sabbatical and we not only discuss the many iterations of the business and its future, but also Adam has thought about his own journey as a leader.
Buckle up.

This is a fast paced and frenetic way to end. Another great season of scaling up the end of another season is a great time to thank all those who put in the hard work behind the scenes banner. Our tireless editor Rosie, whose research throughout gets brought to life as well as James and Dave for their guidance throughout the series. We’ve already started to plan for 2023 and excited for a few new formats and ideas to come to life to make sure we continue to improve this project to optimize the learning and entertainment for both operators and investors alike. Now onto Adam Schwab and the scaling story of luxury escapes.

 

 

The Founding Story of Luxury Escapes

 

Ed (02:39)

Adam, welcome to Scaling Up Luxury Escapes. It’s a no one brand but the story in many respects is largely untold, but it is a great tale of Aussie entrepreneurial spirit. I must admit it’s been a hard business to research cause every time I hit the website I end up down a Maldives travel rabbit hole and my wife is trying to elicit another holiday out of me. But you are what I would describe a consummate entrepreneur. You’ve made a career out of solving problems through trial and error, but the common thread’s always been around creating value for customers and creating a value proposition. So keen to get back to the founding story, but this is a lengthy one. So maybe best practice. I’ll put some show notes in with some links to where you’ve told the long version, but from service departments to lead gen for restaurants to group on rip-offs to ultimately Luxury Escapes. Tell me how this all came together. Maybe after that we’ll pull out some lessons that you’ve learned along the way.

 

Adam (03:37)

Great yeah, let’s give the crib notes version of the founder story because yeah, I had told a few times and maybe people have heard it and if not it’s probably goes on a bit. So I’ll give the five minute version flick back to 2004. I’m working at a law firm called Free Hills. Now I think as the biggest firm in the country back then was probably number two, but I think I always knew that was never going to be a lawyer for life. There’s some super smart people who work in that firm and I was just not at that absolute caliber. But I had some great mates and still have some great mates from there. But my best mate from school guy called Jeremy was working in an Investment Bank as a trader at the time. He didn’t really want to stay there, he wanted to do something for himself and this is well before the days of entrepreneurs.

(04:15)

Being called entrepreneurialism back then was less popular. It wasn’t something that people were proud to talk about. You wanted to be a banker or a doctor or a lawyer or whatever. No one really wanted to be an entrepreneur back then. It’s very much different now. This is pre Spiegel, Zuckerberg, Musk but it’s a very different situation now. But back then Jess always been great at sort of bucking the trend and being contrarian and was just pushing me to go to start a business but didn’t really, neither us had any great ideas and again this is pre-web or something, pre-web 2.0. The idea we came up with was just something we stumbled across. We were 23, 24 at the time and saw there could be a need for backpacker apartments. So well that would mean an apartment that someone would rent for two or three months.

So they couldn’t get a rental apartment themselves. You had to buy a furniture. It just didn’t make sense and you obviously don’t want to stay in a or hotel for three months. So we sort of thought there’s a nice middle market there for often people from Europe who call it Flash packing in Melbourne for three to six months. Started in sort of Melbourne Cup weekend of 2004. Little do we know we started, it seems really obvious now, but backpacking is really seasonal. So he started in November and was bombarded with inquiry. We thought well how good is this? Jess quit his job. I took a leave absence in April of oh five and started scaling up the business. We were still living at home ironically then and didn’t really have a clue what we were doing but kind of just figured it out. So we scaled to sort of 40 or 50 year these backpack apartments funded by cash flow.

(05:35)

So we had 70 grand or something each, which we used to buy the furniture. Then scaled it up and got to sort of 40 50 apartments and probably a couple million bucks in revenue or sales and a pretty low margin in Italy. And then soon realized or was sort of made to realize that this backpacker apartment thing probably had some regulatory issues. So moved to a corporate apartments model, did that for a couple years or actually still had that business. Did that that full-time for a couple of years, realized that it was a nice business but not inherently scalable. So if we set up an department, we’d be putting the furniture together ourselves. I got pretty good at putting flat back furniture together. The chairs got really good at taking rubbish out and we made a pretty good team, but ultimately we knew it wasn’t as scalable as we would’ve hoped.

But as part of that process, probably in oh 6, 0 7, 0 8, we actually bought half a dozen properties, sold the properties, paid back the deck pretty quickly but had this million dollar windfall just because property prices went up and we were able to style the properties, et cetera, et cetera, and sold them on our own terms. So had this million bucks, we were 28 at the time and wanted something more scalable. So we were looking around for a businesses 2009. So Web 2.0 just starting to get moving. I have to be in the uk, saw a business called Top Table growing really well since been bought by booking.com or Open Table and booking.com. But it was effectively a location based, discount driven restaurant booking site. So imagine a Dimmi but with discounts that are built in

 

Ed (06:39)

Sounds like Eat Club

 

Adam (06:45)

Exactly like Eat Club, which is a great business and love those guys And those guys actually solved a bunch of stuff that people hadn’t solved with our virtual credit cards.

But we started that business but realized we just didn’t have the capital to really get it going cause we had sort of a million bucks. We thought we needed need more to build a marketplace of thousands of restaurants should say. In the meantime, JS was in the US and saw a business called Groupon Quick as business to a billion dollars in sales flying at the time. Instead of doing this restaurant thing, why don’t we do this Groupon thing? We can create a database and then pivot back to the restaurant thing, which you thought was a better business but it had a much more startup cost. So we pivoted to the Groupon model in 2010 started that. Then everybody else saw the group on model as well. We weren’t certainly weren’t Oracles there. By the time we launched in July, there was the six or seven competitors.

We became the biggest independent Groupon clone. We were called Zoopon originally. There was obviously Catcher Day had one called Scoop on Channel nine, had one, channel seven had one channel 10 had one. News Corp had one. So there’s a 82 at one stage we were the biggest independent. We then sort of bought everyone Bar Groupon who are now ironically look worth less than us. They were worth 26 billion at us at one point. But that business started in thousand 10 and it started really well, incredible momentum, incredible viral growth. But we realized probably within a year that there was inherent problems with the business model of that business. The issues we had were twofold. Firstly there was unit economic issues. So the average basket size was only 50 bucks and the repeat rate was an incredible because we didn’t control the end-to-end user experience. So because of those two issues it made the longevity of the business really difficult.

(08:26)

So if you didn’t compare that to travel, which has nearer those issues. So the beauty of travel is your basket size is two grand or even higher, whereas basket size in locals 50 bucks. So you’re paying the same to acquire a customer, you’re getting a much bigger basket size. I was much bigger profit on first purchase. And the second beauty of travel business that doesn’t exist in the local business is we’re working with in many cases really good hotels who A, are committed to hospitality and customer service. B, even they weren’t, there’s this thing called TripAdvisor and also booking and Expedia have review site. So there’s really high call almost guard rails for hotels and if they do a bad job they’ll get slammed on TripAdvisor and they’ll destroy the goodwill of business. So hotels want to be good hospitality businesses anyway. But on top of that, there’s that first sort of second level guard rails. So for two reasons, travel was just a similar business to the group on business originally, but travel just had a lot more longevity than just a much better business model. So he just pivoted to travel more and more from 2000 probably 11, 12, 13, 13 with Launch Luxury Escapes a standalone brand really to work more closely with hotels and then just built that business up more and more. And that’s been our focus really for this of the last seven or eight years.

 

 

Luxury Escapes Business Model Deep Dive: Core Revenue Model

 

Ed (09:30)

We’ll get to unpicking the Luxury Escape business model in a second. I just want to pick up on a few things. As I said, I’ll put some longer founding stories in the show notes because people will get a sense from that that it is deep and convoluted and there are some great anecdotes of you trying to get rid of bedbugs by putting mattresses in saunas and all kinds of crazy hustle stories that can only go with bootstrapping your own business. A couple lessons on the way that have allowed you to build a big business in Luxury Escapes with a little bit of a head start. And that is you understood pretty quickly what can be scalable. You needed a business model that needed to be efficient and in many respects, capital light, you needed to maximize and guarantee the experience of both the supply and the demand side of the network.

And also shore up supply by having a clear proposition while generating demand. I mean this is all classic marketplace stuff. And so if we were to move that and those lessons to the business model, that was horizon one for Luxury Escapes and that was what I think you’ve termed the Flash part of your business in this highly curated marketplace and it has allowed you to engage a very specific and targeted customer. But I’m keen just to dig into both sides of the marketplace and how you’ve thought about creating a value proposition for both the supply being the hotels and also your customers, the demand side as well.

 

Adam (10:55)

So the two things we solve with our Flash model for the customer is this great curation inspiration. So if you went to Luxury Escapes, there’d be five or 10 products on the site, one for Bali, one for Thailand, maybe one for Maldives. And you go, oh that’s an incredible deal. I wasn’t planning on going to that hotel but that deal is so good, I’m going to go there, I’m going to change from Thailand to Bali or vice versa, I’m going to go to Vietnam instead of London or whatever it was. So we gave this great curation inspiration. We also spent a lot of time talking about the property. So film videos, we sent video crews there, we’d write a lot of content. It’s not the stock content you got on booking.com. So we give a lot more information to customers. So there’s a lot more knowledge of Will going in before they book and obviously we give this great price so it’s 30 to 50% off the value you find elsewhere.

So virtually all travel sold at what we call par or best available rates or bar. Whereas we come in at that 30 50% off in terms of value. So how we calculate our value is we would never be 50% off the cost. So it’s not going to be a hundred bucks instead of 200 bucks. Ritz Carlton London is 200 bucks a night. We’ll never be that price. Let’s say it was 200 bucks a night, we might sell it for 150 bucks or 160 bucks and then give a free breakfast and a free dinner or a club lounge access. So we’d add that extra value and that’s how you come up with our discount and we compare our discount whenever we run a campaign. We have some pretty detailed modeling, we make sure we’re discounted across the whole period. Compare we scrape the internet, we make sure we’re where we are at the best price.

(12:13)

So the customer is getting a genuinely good deal cause customers are pretty smart if you try and hoodwink them, they just won’t come back or they won’t buy. Probably the more important piece is how are you guys able to get this 30, 40, 50% off? Doesn’t make any sense. Sounds too good to be true. And that was a big issue we have from the customer side for many years and still have the way we can get our discounts is there’s really sort of four reasons. The first one’s the most important one and we talked about before is incrementality. So hotels virtually never run a hundred percent occupancy or very rarely do. And more importantly, hotels have high and low, especially resorts. So if you look at Thailand from November to March, they’re pretty full, can be 80 to 90% full. And then from April to October they’re often 40 50% for it can be the best hotel in Thailand, it’s a low height model so they just don’t run full all the time.

So the hotels in Thailand know in June they’re 40, 50% occupied and that’s great for Australians who have holidays in June July. So we actually fit a really nice niche there. Now we sell internationally but certainly back then we were just a Australian. What we are were able to do is we’re able to fill rooms that are going to be empty. So we give revenue where revenue wouldn’t be there and because goes that 96% incrementally point is we’re selling rooms not only wouldn’t be bought but wouldn’t be bought by people who don’t ever know about the hotel. We have a stat that 67% of our customers weren’t going to the country they bought till they saw in Luxury Escape. So we genuinely change travel behavior and travel patterns which benefit hotels. So reason one is we give lots of revenue in a really quick time when the hotels are otherwise not full.

So they know we’re not competing against a $200 night room, we’re competing against a zero or even a negative because hotels can make a incremental revenue. And what’s more, not only do we give incremental revenue, we actually give more revenue than most other channels. So maybe not a booking but take out sort of maybe booking Expedia. We give more revenue in two weeks than most channels given a year. So it’s a lot to revenue really quickly, albeit at a lower rate. Second thing we give for hotels and resorts and to our partners is we don’t just sell a bed in a room, we never do that. We sell lots of other stuff. Consumers love it. So customers love getting the breakfast and the dinners and massages transfers and whatever it is. So customers love that. But hotels love it because this stuff’s much high yielding.

So you think hotels got a restaurant on the property, they’re paying their staff probably the same amount cause you need a staff for a restaurant, obviously you’re buying your food. Yeah there’s a bit of variable cost there but you’ve paid your capital, you’ve got your dna, that doesn’t change. So there’s a heap of sunk cost in there. So you margin 60 to 80% on spa, on fb, on rooms, all that kind of stuff. If we can include that, which we do, we’re getting a much higher yield cause owners care about EBITDA, they don’t care about 80, 80 hours of battery metric that the brands use. All the thing owners really care about is how much money I’m making cause they’re going to flip a hotel on a multiple basis. So we make owners lots of money because of those two things. Third one, make owners money.

Since we’re essentially an early bird model, we actually also have a last minute model but we are the core business early bird, the average Luxury Escape customer buys six months in advance. So any business is willing to give a discount for early bird cause they can yield up. So whilst we may be cheaper than other channels because we feel 10, 20, 30% of the base load of the hotel like aircrew, smart hotel, wherever you managers go, oh now we’re 30% full. We’ll yield up on other channels, we’ll charge more on every other channel. So hotels actually make more money from higher yielding than they lose on the ADR discount for Luxury Escapes. Fourth thing we give hotels is great what we call billboard effect. So we, we’ve had deals with run that get for individual deals, a million views. This is more than a hotel we’ll probably get in 10 years.

So we can drive more eyeballs to a hotel name brand landing page and hotels will get almost a million views that don’t look at us because everyone who sees a luxury case probably also go to the hotel website. So hotels getting millions of views as well. So even an average deal for us might get 40 or 50,000 views, which is again more than a hotel will get in a year likely. So we create this great PR billboard effect as well for hotels. So if you sort of accumulate all those four reasons, hotels essentially make more money. So we’re able to facilitate this transaction where what we try and do across all our business and Flash is a great example we do across all our businesses. We want to create a win-win, win, hotel wins, make more money, customer wins gets this great experience and we can just sit in the middle and take a small margin. Our margin is pretty small, which is common for travel. We don’t make fashion margins or SaaS margins or anything like that that you’re probably used to but because TTV is high for travel. So yeah we think the Flash model, it’s got its sort of difficulties from a corporate perspective but from a customer perspective I think they think it’s a really good model.

 

 

Luxury Escapes Business Model Deep Dive: Building Trust in the Brand

 

Ed (16:20)

Two things to pick out there, just to touch on. What was a great breakdown of the utility for both sides of the marketplace? One is around building trust and I know when you first started there were these huge ads in the paper that as you alluded to too good to be true, 50% off a trip to Thailand and I’m sure a lot of people thought it was a scam and I was probably in that bucket until again my wife went to Thailand and had the trip of her lifetime notably without me, but came back and said this is the real deal. This Luxury Escapes thing is not a scam. How have you thought about building trust on the demand side, particularly starting a brand fresh and in something that is so emotive and does have a large basket size like travel does.

 

Adam (17:03)

What you’ve sort of encapsulated there is I guess the perfect problem we had from the customer side. So we have two difficulties in the business. One is one of the problems with Flash, the good is it’s great barrier to entry. The hard part though is these Flash deals are really hard to negotiate so the hotels still have to get over the fact they’re giving us a sniffly better offer than everywhere else, which no one really likes doing. Cause you’d obviously rather charge as much as you can prima facia. So that’s the challenge we have. So we have to fight really hard to get our supply, which is really unusual. So if you’re looking at a business, Guzman and Gomez doesn’t have to fight very hard for its product, it buys it from a supplier and it’s a phone call. We have to can spend five years negotiating it to get a deal.

Someone takes two weeks, someone has, it takes five years. So it’s like an enterprise sale to get our stock, which is not great. Usually you’re doing enterprise sales to get your customers if you’re a B2B business. That’s one challenge of the Flash model. And it was partly the reason why we moved to marketplace as well as Flash we’ll talk about. But to your point, the only challenge we had is customer trust. So we have the benefit of great viral growth and your wife’s great example, people who take a Luxury Escapes generally really like it and travels viral. And we have the similar benefit that Airbnb has and one of the great things about Airbnb is obviously it’s strong brand, 90% of its traffic is organic or it’s we’re similar, we’re about 85% organic. So we have a similar thing. You don’t say I went to Japan and stayed in a villa.

You say I went on Airbnb in Japan, I went Tokyo, same thing if you go on a Luxury Escapes to Thailand, people will say I took a Luxury Escape to Thailand, I took a luxury to Bali or Maldives. You never say I took an Expedia Maldives, you say I stayed at the C block wherever you stayed. So we’ve got that inherent brand association but that’s taken a long time to build and it’s been really a lot of social proof. So yeah we did a lot of newspaper advertising early because it’s that great medium to add trust because people see a newspaper a, they’re more likely to believe it than obviously an online ad because it’s the inherent distrust of everything online. If you think of the trust hurdle that businesses have to jump over and obviously the hurdle is a different height based on the business.

If I’m buying a pair of AirPods from the Apple store, there’s zero trust hurdle. You trust Apple as a product and I’m getting the AirPods from this person in the store. So I’ve, there’s no risk at all if I’m buying from AirPods from Apple online. There’s like a small amount of risk but minimal risk because apple’s really good at delivering and you can always get a refund doesn’t come if you are buying a pair of AirPods from overseas and they’ve got ship it to you cause you’re buying on gray market somewhere. Yeah does it get a bit more risk Again? But worst case you don’t get your AirPods, you get a chargeback. It’s not the end in the world.

If you’re buying travel overseas travel, it’s like the highest risk level of everything. So you’re buying online which is high risk for customers cause they don’t trust online. You’re buying a high basket size $2,000 basket size and probably most permanently you’re rocking up in Bali or Thailand. You don’t want to rock up 10 o’clock at night to the hotel and not exist. They don’t have your booking it looks like it looks terrible. There’s a bunch of things you really need to trust with travel. So most people can name probably five or six travel business. They’re all probably pretty massive booking Expedia, Airbnb, Flight Center, that’s probably what most people can name maybe hello world, they’re all massive businesses so there aren’t that many travel sort of startups whereas you can get away with e-commerce startup, all that kinda stuff. So we spent really yet 10, 12 years building social proof and building customer trust and trying our best to make sure we deliver a great customer experience both from the value side but also we as a result we overinvest in customer service both pre and post sale.

We have a locally based customer service teams around the world. So if you’re calling from Australia, you’re almost certainly 99.9% chance speak to an Australian person. Maybe you speak to someone in America if it’s 2:00 AM because we have twenty four seven, three sixty five day year phone lines and you can usually get through within a couple minutes and Amazon target 60 seconds, probably not quite that we’re not far behind. So we spend a lot of effort on customer service because we know that the value of these customers is high, like our CPA is $300 plus. So it’s an expensive consumer acquisition and we don’t want to burn consumers by giving them bad experience or even worse kicking our own goal and treating them badly. So generally when we do have sort of negative NPS comments, it’s almost always the customer’s disappointed of the hotel for whatever reason. So it could have been we didn’t represent it right, which 1% of the time happens could have been the hotel just did something wrong, which nobody’s perfect, humans make mistakes but we have sort of 95% positive customer reviews publicly and NPS is generally sort of 70 revolves from 69 to 72. So very consistently so we just spent a lot of investment in making sure the customer experiences is what you get if you’re going to a high end travel agent. But we’re much more of a mass market travel agent.

 

Ed (21:37)

The last thing I do want to glean from this horizon one, and you touched on this early bird offer is obviously get paid upfront and so that has allowed you to scale in a very capital effective way and in many respects fund your own business for the first 10 years of its existence. That is a rarity but it’s the beauty of the business model.

 

Adam (21:59)

So we were bootstrapped till late last year and we did a post covid round or end of covid round just to sort of clean the balance sheet up and give them secondary, but it was a pretty small round in terms of dilution. We were into covid with 105 million bucks in the bank a year later we 104 million bucks in the bank. So it, it’s really stable cash and the business generates a lot of cash although that’s changed slightly for a couple of reasons. Firstly, marketplace has reduced the window. So Flash people book more in advance marketplace, it’s much sooner. And also we, about three months ago we introduced a deposit product, call it our own version of Afterpay Bit better if you’re buying a pair of jeans after pays great for customers but travels doesn’t suit the Afterpay model as well because it’s six months, six month window and you’ve got to pay it off in eight weeks.

What our product does is you pay a 20% deposit upfront and you’ve got to pay the rest of it sort of 45, 60 days. So if you’re booking two days in advance, we don’t have access to that cash anymore but our conversion rate’s literally skyrocketed because people are much happier paying 20% down than a hundred percent down. But we have to build the technology ourselves and we’ll soon be launching a better than AfterPay product. So you’ll be able to pay weekly over two years or fortnightly over two years or two year travel. So a much more flexible after pay product. But yeah, initially we were able to bootstrap because we had that great negative working capital model.

 

 

Luxury Escapes Business Model Deep Dive: Scaling Product and TAM

 

Ed (23:09)

It’s a great call out for anyone thinking about trying to build a business. You’ve touched on this what I’d call Horizon Two Marketplace model or Lux premium listing so moving away from the Flash sale element and in many respects this highly curated marketplace is now moved to an open marketplace and you have them sitting on the same site side by side one as I said, highly curated, very easy to target customers and then all of a sudden on the other side of the open marketplace, this paradox of choice where as is the case for many open marketplace you can be crippled by the sheer volume of hotels on offer. How have you thought about trying to scale these two businesses side by side? I’m curious to dig into that and then maybe also how this came about because it has a great founding story, sort of incubation period that came through Covid as well that I wouldn’t mind touching on.

 

Adam (23:09)

Let me answer the second one first. If you look at the challenge of Flash and the productivity of Flash, apart from the fact that it’s, it’s really labor intensive and costly to negotiate these deals. The TAM of the Flash business is probably a two or 3 billion even if looking at a global TAM. So it’s, yeah it’s a bigger business than we are now and we can keep growing into that footprint but it’s inherently limited because you can only run so many deals at the same time. So eventually you just sort of reach the upper limit and you saw the same for last minute products. So Hotel Tonight for example became an OTA (online travel agent), what if became an OTA? So those sort of niche hotel businesses eventually become marketplaces. It’s kind of inevitable. We love the Flash business, still a majority of our business by far the majority of our revenue.

But going into Covid, so a couple of our shareholders guys called Gabby and Hezi Leibovich who found the catch of the day, had a similar journey on the product side. Catch of the Day was a flash sales business based on Woot which Amazon bought eventually and they with a deal all day business and gradually became sort of multiple deals a day but inherently this flash sales business. And they got to about 250 million in turnover 2013 and kind of just sort of stuck there and couldn’t get higher and profitability was reducing and I know it was he or Gabby probably both of them come up with the idea of a effectively a saw eBay doing marketplace really well. Obviously saw Amazon and they started doing effectively a curated marketplace on cash for the day and they then sold to West Farmers with a business sort of turned over well over a billion dollars.

So able to break that ceiling just because they had more products. And those guys who had seen that experience a catch kept pushing us pre covid, you guys got to do marketplace, you got to go to the marketplace. And that they certainly, he is in paper of a really wide open marketplace, which I was always actually most of us were always quite worried about. because as you mentioned, paradox of choice, Luxury Escapes, Flash business solves the paradox of choice by adding a marketplace, you just create the problem you’re solving. It kind of doesn’t make sense. So we knew we wanted to go to marketplace to expand the product mix but at the same time we also didn’t want to kill the golden goose cause we had a profitable business and it was doing pretty well and growing. So wanted to try and sort of thread the needle there.

Anyway, we sort of kept putting it off. It was no great urgency. Covid came, I was actually working sort of outside the, I was in the business a couple days a week but was doing a bunch of other staff we had a CEO in and then sort of just the idea sort of all accumulated Covid happened, basically had the choice we could do what every other travel business did and fire half the staff or two thirds of the staff. But we only had 200 people at the time so it wasn’t a huge team and we had some really good people and we want to lose this great talent. So thought, well question for us was how do we go from market based concept to reality and how do we use Covid as a reason to do that? So what happened with Covid is half the hotels around the world shut, Australians couldn’t leave Australia.

(26:36)

So half our sales teams didn’t have anything to do because the region was shut. So we basically said to half team, you guys focus on Flash in Australia because we could sell domestically certainly from June, 2020, the other half you guys go and start negotiating a different type of deal. So we’re already negotiate deals with hotels around the world, which are always on but are better than anyone else. So we wanted to still solve the paradox of choice but give a bit of choice. Again, if you look at the problem we’re trying to solve with marketplace, we would do detail qual quant studies into our customers for years before Covid, what they told us was really contradictory. They basically said we love Luxury Escapes, huge NPS, huge CSAT, we love everything you do, but we don’t buy everything from you. We still go to Booking and Flight Centre and everywhere else.

And we go, hold on, that doesn’t make any sense. You love us but you don’t buy from us. And they go, well yeah we love you but you don’t have what we want. We want to go to London, you don’t have any London, we want to go to Dubai. You’ve only got this thing in Abud Dhabi, we want to go to Thailand but you’ve got Bali. So we thought, well we got to solve that problem. The way we came up with solving the problem is we we’re not going to beat booking.com because booking.com were a dominant beast with connections and 20 years of AV testing and a hundred billion valuation. So we’re not going to beat booking, we’re not going to beat Airbnb. What we are really good at is we understand curation, we understand impulse driven purchasing. Let’s take that, extend it. So instead of having zero products in London or maybe one thing a year, let’s go have 20, 25 products that we’ll heavily curate.

So there’s a thousand properties in London we could put on the site, let’s choose 25 like a mix of price, geographic location, brand, whatever it is we’ll put that on the site and also have Flash deals as well. So you know can always go to scapes, type in London or Berlin or New York and instead of getting zero you’ll get 20, 25, 30 really great properties still often get free inclusion. So you might go to London say at the Shard and get free breakfast, which costs 70 bucks a day per person and get a free cocktail at night. Or you could go to Thailand and get a daily massage and free dinners over five days. And the inclusions grow as you stay longer. So reward people who stay longer cause we know that’s what hotels want. So we had half the team started scouring the world to negotiate agreements with hotels.

We’ve got about 1200 direct hotels live now. Targets get to about 5,000, which we’ll get there probably about two years. We’re doing about 50 to 60 a week now and you have great coverage around the world. So if you go to Bali you’ll see 60 or 70 great always on properties in addition to Flash properties. So you can get something in Ubud, something in Seminyak, wherever you want to go. We’ve got much better selection and that’s not just Bali, it’s also we’ve got stuff in Memphis, we’ve got stuff in San Diego, we got stuff in Vancouver. So the places that we wouldn’t sell enough to justify Flash deals but we can just tick it over in the background with marketplace. So we’ve created this sort of synthetic model of still got Flash. Flash is still a dominant part of our revenue, but marketplace is now about 40% of transactions by number and we expect it becomes the majority within next year.

So eventually we think marketplace becomes 90%. Our big challenge is how do we grow our business globally? Travel businesses inherently scale globally. Every great travel business is global business. We’re still 80% Australia source market that international is growing every day. US is growing really well but still has ridiculous amount of upside. We’ve sort of grown this marketplace business in the last year. It’s really exciting. We’ve also grown a bunch of demand tools on the back of that. But if you look at our journey, we went from travel marketplace to really what we are now is how do we then go the next step and create the best travel booking and use and travel experience using technology which has sort of caught the next phase of our journey. So we’ve built out our supply and now we’ve spent the last year, how do we build these great demand tools to supercharge supply.

 

 

Luxury Escapes Business Model Deep Dive: Horizon 3 and the Billion Dollar Question

 

Ed (29:58)

I do want to touch on quickly the capital allocation decision in this case the human capital allocation decision at a time under some duress. When your revenue essentially goes to zero during covid, to reallocate that to something that you’d wanted to do for some time would’ve taken a huge amount of courage. But you’ve now seen the benefit having built the next phase of your business under some pressure and really has set you up. Let’s move to horizon three as you touched on that is these demand tools, be it I imagine a trip builder, you’ve talked about financing options. I know you’ve got a physical site now in Melbourne, keen to understand the permission you have to layer in more utility now with four and a half million members globally. How you’re thinking about really getting this demand signed, humming.

 

Adam (30:46)

Yeah, it’s probably, it’s the billion dollar question for us. And if you look at supply side, especially marketplace that’s been done before, it’s using channel managers, the SiteMinders, the SynXis, of this world to connect to properties every OTA does it. It’s not novel. What we’re doing differently a bit is we’re not just doing hotels. So we’re creating a site that has multiple marketplaces. So we talked about the hotel marketplace, which is great, but we’re also building built an experiences marketplace. So you’ve probably heard of Red Balloon, Get Your Guide by or Clue we’ve built our own version of that. So you can go to our site and buy tens of thousands of experiences, which obviously dovetails beautifully into hotels because really you’d be saying the most beautiful hotel Madrid. But then you sit on the edge of the bed and go, what do I do now?

So it’s like hotels sort of 10% on the journey in some ways, but your holidays created by experiences. So we want to create the complete experience in a sense. So we’re probably only a quarter way through that and we really want to have a big focus on live events. So be it sporting events, theater, performances, and dining. So if you look at the sort of Get Your Guide, which is what do you think my father leader in the experience space great at that sort of attraction stuff. Not great at dining or events. So we think we can have a bit of a competitive advantage there. But what we’re trying to do is just how do we create better trips for people. So we’re building multiple marketplaces. So there’s hotels, experiences, obviously flights which we sell, which everybody sells. Building a fuel’s marketplace or mini air, luxury air, Airbnb also doing cruises.

Cruises is something that really isn’t bought online. Most people who buy a cruise have to call up somebody, which is a really unwieldy way to do it. We’ll have thousands of cruises online, browseable, bookable to the point where you can choose your state room from the map. So very few sites on Earth do that, have that. And the final one is tours, which we have our own tours and we work with third parties as well. So we’ll we’ve got 500 tours live and bookable all online now. So we’ll have the complete marketplace and marketplaces. Some like travel agents might be able to do this but probably not everything. So no one in the world really will have our range of inventory. We don’t have the depth of inventory that others have, but that’s intentional. So we’re never going to have 500,000 hotels like Airbnb, not going to be a Skyscanner we’re not going to be as deep as clue in terms of experiences.

We want to be more targeted and specialized. So we want to give people what they want. So we’ve got all these called six marketplaces as well as our Flash product. And then the challenge for us is how do we put these together? So how do we create the great booking and traveling experience And that’s where Trip Planner comes along.

So Trip Planner, again, it’s not a novel concept. Lots of business have built trip planning tools, trippers have well known one. Skyscanner has tried to build one, booking.com talked about it for 20 years. I think the reason why no one’s really nailed that product, we think there’s two reasons. Firstly is no travel business really is UX focus. So bookings is great AB engine with a great list. Even Airbnb which has done pretty well, got rid of most of these guys and girls. So as Covid hit and they listed travel businesses haven’t really innovated since the OTA in 2002.

So there’s very little innovation for customers in travel. So what we think we can do is combine our great breadth of product, not depth the breadth of product with a booking planning tool which morphs into connected trip planning tool. So what we’ve launched, we’re actually about to launch now, we’ve been in beta for six weeks, is a trip planning tool where you can book your flights, your airport transfers, your hotels, obviously your experiences when you’re on the ground, book your own stuff and really easily enter it in or you can book our stuff with one swipe or click. It’s always mobile and your pockets mobile for genuine mobile first product. So it’s not just a trip planning tool where you’re just booking stuff elsewhere and putting it in our site. You’re going to book everything on our site or book elsewhere. So you’ve got the option to do whatever you want.

(34:07)

So version one of Trip Planner, which we’ll be launching any day people have been using it. We’ve had I think 10,000 chips planned already. But version one is you build your own trip from nothing, which is great. Version two will be we’ll create these 10 planner trips. So we’ll merge all our inventory, we’ll get experts on Morocco or on Germany, on America, on South America, wherever on Australia, wherever you travel Vietnam. So someone can create this incredible trip in Vietnam from Hanoi to Ho Chi Minh City, staying at these three places on the way, go to these restaurants cause we know these restaurants really good, these experiences are great, we’ll be able to sell them all or you can buy them elsewhere and the trip looks beautiful in your pocket. You can drag and drop and change and share with family, plan with family and friends.

Tell your friends about it when you’re on your trip. So gloat about how good your holiday is, add images, whatever you want to do. And then probably even the more exciting thing is when you’re on your trip we’re going to be feeding your suggestions and how do we make your trip better? So if you think you go to a travel agent, I’ll print you out a PDF or maybe give you a file of a static trip but you sort of on your own. What Trip Planner does is allow you to change a trip and add stuff as you go. So you rock up in London, you can order room service from your phone if you’re in the cab on the way to the hotel, you can book your Chelsea match for the next day because Chelsea’s playing and swipe. You can book your museum tickets, you can book your transport you can book your airport transfers, you can book your quick flight to Barcelona, book your cruise from Barcelona to Rome, whatever you want to do.

So you’ll be able to add to it. It’s effectively a living, breathing itinerary unlike a static itinerary that we’re helping you by making great suggestions which eventually are based on ai, by using what personalized data we have on our customers and what other similar users have used. So I think there’s just so much scope to convert us from. If you look at us two years ago, we were effectively an industrial business. We were valued similarly to Flight Center, which is a great business but is valued like an old school industrial. What we want to be in two years time is how do we use technology to make trips better and be really scalable globally, not just in Australia.

 

People and Culture: Journey and Philosophy

 

Ed (35:51)

Fascinating inside that the common threads throughout these three horizons that I’ve heard, you’ve always over-indexed on user experience and customer experience. You’ve always tried to in where you can rely on product and technology to lead the business, but it’s always been customer-centric and I think it segues nicely into the next section of people and culture because it starts with the values and to call a few of your values out, not just to serve the employee but to serve the customer. One of your values is make people happy by curating and selling the world’s best holiday experiences. Fascinating to see how that all ties in. Let’s dig into the people and culture. Let’s start with your journey as the starting point to this moment. He did allude to stepping away from the business for 18 months. I’m keen to really understand what prompted that time away, what inspired coming back and what’s changed since?

 

Adam (36:49)

There’s a few reasons for it and it’s probably plan have time to go into all the detail with it. But we were looking at potentially selling the business. I think shareholders as a group probably thought we probably need a professionalized management and this is probably at a time where founders were slightly out of vogue and they come in and out as probably back in vogue now quite highly. Although that may change again. And I’ve been 365 days a year, nine years in a row and five years doing customer service emails on the weekend. So it was a pretty hard slog and the ability to sort of step out. I had a really great time for 18 months, started playing golf again for the first time in 10 years. You work with lots of founders and especially founders who start from day zero. You just need everything and you can’t sort of help with it and everything.

It’s sort of forced me out of a lot of stuff I shouldn’t have been in and still a founder. I still probably market manage too much stuff but I’m Malcolm manager a hell of all this stuff that I used to. So now I’ve probably a bit more of a Goldilocks point where don’t put myself in this category but the great founders really understand detail but can step out really quickly but can step in and out when they need to. Coming out of the business, it really taught me the importance of how important a team is. So the first thing given came back with just reassess do we have the right talent to take this business to the next level. So as you know, the talent you need at a hundred million business is very different than 200 million, 500 billion, very different 10 billion and we had a great team for probably the stage we were at.

To scale up the business we needed a different team. So first thing we did was Shay our, our CTO CPO who who’d moved to Amazon, we got him back, he’d spent a year at Amazon so he’d cut back a much better leader as well. We had a bunch of guns in the LT who stayed and who was still with us when was great And then we just set up filling out that ELT/SLT. So hired sort of some other really good people and some people moved on and have got really good roles and just to really understood the importance of great talent. And we’re pretty lucky in a sense that we sell happiness.

Selling travel’s a pretty fun business to be in and if you can’t keep great people in a business like ours in doing something wrong, it’s much harder if you’re in other business, if you’re selling cigarettes or whatever, it’s a harder business. But we’re lucky enough that we’re selling a product people love, we sell discounted travels even better and it’s luxury travel. So we sort to have that sort of perfect storm of good luck as you need to obviously to scale up a business but we don’t think we’re perfect yet. Absolutely we’re not perfect at everything. We just try and get as much stuff right as we can both from a customer perspective and a people perspective. And we try and now hire really for culture. Culture and smarts.

Obviously we generally probably won’t hire people spent a long time in big business because this we know it doesn’t fit our culture that well. If someone’s been from a small business from big business and leaves pretty quickly, that’s great. So Julia, our brilliant chief of staff come from Coles. Obviously a massive business but just didn’t like it, wanted to come back to a sort of scale up and has been incredible.

It’s that we want to find a certain person who loves that sort of tough, gritty, entrepreneurial, day one business and it’s not for everyone so you guys got to pick and pick a match and there is someone who’s great at that we need to obviously make sure we sell our business well to them and we don’t want to pay as much as a US based Silicon Valley funded startup, but we pay what we think is really good market rates with great incentive upside and we’re in that great scale up point. So the risk of coming on to join a leadership team isn’t as high as the startup. You got some great upside which you don’t get if you’re working at Atlassian, which has sort of already had it scale up.

 

 

People and Culture: Hiring, Retaining, and Remuneration

 

Ed (40:02)

Two questions come to mind. One is just that classic scaling people and culture pain point around building an executive team. And I think you’ve gone after Covid as you alluded to from seven executives to almost 20, just really building out the support around the founding team and the leaders and has allowed you to move a bit quicker. But just what you touched on there around not being the best payers, what other quivers in the bow do you have so to speak, apart from REM that you are very focused on to make sure that you’re attracting and retaining the best talent?

 

Adam (40:35)

This is my view. I’m not sure if this probably isn’t the business view, but in a way it pervades it. But you don’t quit a job, you quit a boss. So if you’ve got a bad boss, probably the classic reason people tend to quit. You want people to want to enjoy coming to work and if coming to work is a chore and un-enjoyable, you’ve kind of lost, you have to pay more, you have to let people work from home. Whatever it is you’ve got to give other staff that isn’t necessarily real value. If you look at the businesses that allow people to work from home and as you know I, I’ve got strong thoughts on work from home, but a lot of the businesses that are sort of really allowing the work from home is because they’re struggling in other areas like they’re X growth, the product’s boring, whatever.

The reason is that I want people to be friends with people they work with. Most business of our scale have lots of couples that emanate from the business, but if people are friends with people that work and actually just enjoying coming to work and it’s less about the sort of perks for the nature of the perks but what the perks give. So I wouldn’t want a sort of five star Michelin prepared lunch where people come and eat in a sort by themselves. I’d much rather have a much cheaper communal lunch. That’s just fun and the food’s still great but it’s just a different feel. So we want to create an environment people just love to come and work in. And with that it’s far more valuable than an extra 10 grand because ultimately 10 grand once you pay tax and it conscious gets, goes to your bank account, gets forgotten about. But you spend more time at work than at home if you don’t like what you do. We’ve sort of failed our, we’ve failed our team. If people don’t like coming to work, if the environment’s not fun, if we haven’t done everything you can to make that environment good, yeah, absolutely not perfect. But we certainly try and do our best in that respect.

 

 

People and Culture: The Roles of Coaching and Mentoring

 

Ed (42:05)

In many respects you are selling great experiences to your customers but you’re also selling a great experience to your employees as well. And if anyone that does want to read your views on work from home that I similarly share, I might put a link to a few articles you’ve written so we don’t end up down that rabbit hole for another half an hour. The last question around people and culture is around coaching and mentoring. And you touched on many employees leaving jobs because of their manager and being average. You do a lot of mentoring of young entrepreneurs. You host a fantastic podcast, I’ll a link to that also on the show notes. What’s been the role of coaches in your journey? How have you found it helpful? I know even in my life, in sport, many moons ago when I was struggling to go and coach young kids would sometimes really crystallize the eras that I was making it at a professional level. So I’m curious as to the role of the coach in your life and why you continue to give back to the ecosystem.

 

Adam (43:00)

That’s a really good point. It’s something you probably don’t think about enough but is I’m still on three or four board three not-for-profits and a couple of scholar boards and it’s so much easier to look in someone else’s business. I feel like actually be a much better analyzer other businesses in over of ours cause we’re in it. So the ability to sit on a board, especially with founders who you sort of always going to take a sympathetic line to a founder as a founder, but to be able to sit on a board and I don’t know how much value I add on boards, maybe it’s not much, maybe it’s a little bit but just to go through the process is really helpful. In terms of, I guess that mentor, I haven’t been a huge one for mentors. Our former chairman, Pat O’Sullivan, it’s been incredible Pat’s been chairman at Carsales for a number of years, probably the best professional director in the country.

And Andrew McEvoy, our current chairman is incredible. Just travel industry luminary. Got a great board with Ido Leffler, who’s a superstar entrepreneur. I’ve got another great couple of great directors, Gabby Leibovich, who founded a catch of the day. Josh, who was a co-founder of this business. Jeremy like my co-founder as well, mark and other co-founder. So we’ve got a bunch of people who who’ve sort of been around and can just bounce things off and also can more, as importantly tell me when I’m doing something really stupid. And it’s is that really tough balancing act as a founder CEO is having the courage to push forward with stuff but not being completely reckless to the consequences. And it’s that balancing act. So obviously you don’t want to be a dictator who ignores advice and you could argue Elon Musk at Twitter’s probably suffering a bit of that.

On the flip side, he’s probably doing a lot of stuff he needs to do, but there’s probably no one to control him. So how do you get that balance or you’re still being aggressive and trying and doing things and taking chances. And classic middle management dilemma in a big company is, doesn’t make any sense to try something because if it goes well, someone else steals the credit. If it goes badly, they get fired. So what we’re trying to always do is remove that. And the beauty of being a founder is you don’t really have that risk. You got to do a lot of stuff wrong to get fired and eventually that time counts. But you’ve have a lot of advantages of being a founder of this, but how do you sort of balance those things? So how do you set up the guardrails to make sure you don’t do things that are really stupid?

And Jeremy’s great at that. Jez will certainly give his opinion on everything. Some stuff will just disagree with it. I’ll make the call. Well I’m still going to go with notwithstanding your points, which are valid. I think there’s eight reasons we should do it, four reasons we shouldn’t. Well let’s do it because we want to make a lot of asymmetric bets. Retail stores a classic example. We opened our first retail store. If retail works for us, that’s a billion dollar opportunity. If it doesn’t, it’s cost a couple of million bucks. So the 500-1 upside justifies the investment given our scale as of business let’s not say it’ll work for sure and so far the sign’s actually pretty good in the first week, but it may not work. But if it does work, we are able to test and learn and trial. It’s a classic two-way door. So we all talk about the one-way, two-way. We want to try and go through as many two-way doors as we can and just really recognize where it’s a one way.

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