Why Did Stayzilla Fail?
Stayzilla was once a rising star in the Indian online hotel booking space. Founded in 2008, it quickly became one of the leading budget hotel aggregators. However, by 2017, the startup had shut down operations amid controversies and legal troubles.
As an entrepreneur turned angel investor who has seen many startups succeed and fail, I find Stayzilla’s story both fascinating and instructive. In this blog post, I’ll analyze the key reasons behind Stayzilla’s failure through the lens of my own experiences in the startup ecosystem.
The Backstory
Stayzilla was founded by Yogendra Vasupal, Sachit Sanghi, and Rupal Yogendra in 2008. The co-founders had previously worked together at India Quotient, an early stage venture capital fund.
In its early years, Stayzilla focused on listing budget accommodation options for the value-conscious Indian traveler. It soon expanded to mid-range and luxury hotel segments as well.
By 2015, Stayzilla had raised over $34 million in funding from marquee investors like Matrix Partners, Nexus Venture Partners, and Indian Angel Network. It had over 55,000 hotel properties listed on its platform across 4,500 cities.
However, despite its early promise, things began unraveling for Stayzilla by 2016. Let’s explore the key factors that led to its downfall.
Market Landscape
The online travel agency (OTA) space in India was (and still is) fiercely competitive, with heavyweight incumbents like MakeMyTrip, Goibibo, Yatra, and global giants like Booking.com and Agoda already entrenched.
While Stayzilla initially carved out a niche in budget accommodation listings, the bigger players eventually caught up by expanding their inventory across price segments. Airbnb’s entry into India also made the mid-market segment more crowded.
Stayzilla’s undifferentiated offering and lack of a sustainable competitive advantage made it vulnerable to the pricing wars and marketing blitz unleashed by its much better-funded rivals.
Business Model Issues
Like most OTAs, Stayzilla operated an aggregator model, taking commissions from hotels for bookings made through its platform. However, its take rates were reportedly much lower than industry benchmarks.
Additionally, the company ventured into new business verticals like co-working spaces (Stayzilla BYBE), table reservations (Stayzilla InnerChef), and an in-room delivery marketplace (Stayzilla SPOT) without validating product-market fit.
These experimental offerings further stretched Stayzilla’s already limited resources without contributing much to its top line.
Funding Crunch
Despite raising over $34 million from prestigious VC funds, Stayzilla failed to achieve the growth metrics needed to raise a larger follow-on round.
A combination of an unclear path to profitability, lack of differentiation, and the onslaught of well-capitalized competition made investors wary of doubling down.
Without fresh funding to sustain its cash burn, Stayzilla was forced to start downsizing operations by late 2016. This likely impacted employee morale and its ability to invest in technology and marketing, setting off a vicious cycle.
Leadership & HR Challenges
While the co-founders were passionate about their vision, there were apparent gaps in leadership bandwidth and management capability as the company scaled rapidly.
Reports of high employee attrition, cultural issues, lack of clear decision-making, and excessive cost-cutting measures pointed to deficiencies in strategic thinking and execution focus at the top.
The pandemic-induced tailspin of the travel industry couldn’t have come at a worse time for Stayzilla, which was already grappling with multiple internal challenges.
Legal Troubles
In March 2017, Yogendra Vasupal (the CEO) was arrested after an vendor filed a criminal case of defrauding and cheating over non-payment of dues worth ₹1.72 crore.
While Vasupal was soon granted bail, the public relations damage from this legal imbroglio was severe. Several prominent investors, advisors, and employees disassociated themselves from Stayzilla.
With its cash reserves depleted, credibility in tatters, and key personnel exits, Stayzilla had no choice but to shut down operations in February 2017.
Lessons Learned
👉 Execution is key: A good idea is just the starting point. Disciplined execution across all functions like product, marketing, operations, and finance determines success.
👉 Differentiation matters: In a hyper-competitive market, having a unique value proposition that can’t be easily replicated is crucial for sustainable growth.
👉 Operational efficiency: Maintaining a tight rein on costs and striving for profitability early on provides greater control over a startup’s destiny.
👉 Leadership resilience: The ability of founders to make tough decisions, learn from failures, and inspire the team during turbulent times is paramount.
👉 Cash is oxygen: Running out of cash due to poor fundraising planning or ambitious over-hiring can sink even a promising venture.
TL;DR
Stayzilla’s failure can be attributed to a combination of an undifferentiated product in a hyper-competitive market, lack of a sustainable business model, leadership missteps, funding constraints, and eventual legal troubles that eroded stakeholder trust. Its trajectory underscores the importance of focused execution, frugal operations, and resilient leadership for startup success.
Q&A
Q: What was Stayzilla’s business model? A: Stayzilla operated an online hotel aggregator platform, earning commissions from hotels for bookings made through its listings.
Q: How much funding did Stayzilla raise? A: Stayzilla raised over $34 million in funding from investors like Matrix Partners and Nexus Venture Partners.
Q: What were some of Stayzilla’s failed initiatives? A: Stayzilla unsuccessfully ventured into co-working spaces (BBYE), table reservations (InnerChef), and an in-room delivery marketplace (SPOT) without proving product-market fit.
Q: What were the legal issues faced by Stayzilla? A: In 2017, Stayzilla’s CEO Yogendra Vasupal was arrested after a vendor filed a fraud case over unpaid dues, leading to a credibility crisis for the startup.
Q: What lessons can entrepreneurs learn from Stayzilla’s failure? A: Focus on execution and operational efficiency, build a sustainable competitive advantage, maintain financial discipline, and demonstrate resilient leadership – especially during turbulent periods.
Stayzilla Failure Quiz
- Which of the following was NOT a key reason behind Stayzilla’s failure? a) Lack of product differentiation b) Funding crunch c) Entering too many unrelated verticals d) Having too many hotel tie-ups
- How much funding had Stayzilla raised before shutting down? a) $10 million b) $20 million c) $34 million d) $50 million
- What was the criminal case filed against Stayzilla’s CEO about? a) Tax evasion b) Non-payment of vendor dues c) Data privacy breach d) Employee harassment
- Which of these was NOT one of Stayzilla’s unsuccessful initiatives? a) Co-working spaces (BYBE) b) Table reservations (InnerChef)
c) Vacation homes (Stayzilla Homes) d) In-room delivery marketplace (SPOT) - Based on the lessons outlined, which is the MOST CRUCIAL factor for startup success? a) Raising a large seed round b) Having a famous founder c) Disciplined execution
d) Getting early media buzz
Answer Key:
- d
- c
- b
- c
- c
Scoring:
5 correct: You have deep insights into what it takes to build a thriving startup!
4 correct: You’re well on your way to understanding startup success drivers.
3 correct: You have a decent grasp but can learn more from failure stories like Stayzilla’s.
2 or fewer correct: Read the post again to understand the key lessons for entrepreneurs.
