StayZilla Shuts Down – 4 Insights Provided By Founder That Explains The Disaster & The Future

Stayzilla – The Godzilla of homestays born and made in India with over 55,000 homestays, hotels, guest houses, jungle lodges and boat houses under its armour across 900 cities and towns across India, has decided to shut down. This is one of the biggest disasters to have ever hit the nascent home stay niche in India, of which AirBnB is the global leader.

If we leave aside Oyo Rooms, which mainly focusses on hotel rooms under their own brand name, Stayzilla was the only big Indian startup in the lucrative home stay space.

Their website and app have stopped accepting new bookings, as all the properties listed are showing as ‘sold out’. As per statements issued, the company will honour every booking made till February 28th, and will issue full refund for all bookings made after that.

As per a blog published by Stayzilla founder Yogendra Vasupal, the company is ‘rebooting’ and would be soon launched in a different avatar.

Here are 4 valuable insights shared by Vasupal, which gives us a plausible explanation of the disaster which just happened, and which also provides a glimpse into the future prospects of the company:

Lack of Local Network Effect In Indian Cities

Stayzilla founder Vasudev laments the fact that ‘local network effect’ is completely missing in small Indian cities, which led to an additional burden on the company to sustain growth. Local network effect happens when the value of a product or service increases as more customers use that product or service, and thereby the overall value for both new and existing customers increases, all at the same time. In the case of Stayzilla, this couldn’t happen, and this led to the disaster.

In the blog post, he said, “The travel marketplace does not have local network effects and, therefore, we can’t really take a focused city-by-city approach in terms of matching supply and demand.” As per Vasudev, homestay market was non-existent 18 months ago, and the company had to educate and inspire both home-owners and the guests to opt for this service. This hindered their progress, and ‘stretched them thin’.

Lack of Infrastructure Support For Startups

As per Vasudev, the basic infrastructure for establishing and running a startup in the home-stay niche is missing in India, which proved to be fatal for the company. Giving examples, he said that basic public goods services like ‘logistics, tech savvy suppliers and online user demand’ were missing, and in some cases, they even had to teach usage of Internet for some hosts.

He said, “The costs, both financial and opportunity costs, creep up on you over a period of time and gets rationalised as cost of doing business in India.”

Massive Discounting Based Practices

The blog by Vasudev tells that due to massive discounting practices by their rivals, Stayzilla had to burn more dollars that it earned, thereby leading to an imbalance in the balance sheet. He said, “Forced to match prices, we could not even recoup what we put in, necessitating very large capital requirement simply to sustain growth.”

Unnecessary Focus On ‘Vanity’ Metrics

As we saw in the case of Snapdeal, the management focussed on unnecessary metrics like GMV (Gross merchandise volume), which diluted their focus, rather than focussing on the vital metrics like ‘’negative working capital, positive cash flow and a sustained ability to fund our own growth’. He says, “.. I can honestly state that somewhere I lost my path. I started treasuring GMV, room-nights and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital.”

As per Vasudev, Stayzilla is only rebooting their operations, and very soon, they would come up with a pivot, an alternate business model which is free of these issues. From the blog, it seems that Stayzilla will convert into a brand, which assures quality rooms in hotels, lodges, somewhat like Oyo Rooms is doing right now.

Explaining the future, he said, “Specialised solutions such as the concept of ‘Stayzilla Verified Homestays’ excite me in particular. Originally conceived to increase trust, this could serve as the benchmark for the entire nascent and unstructured industry.”

The blog ends with the song ‘Try’ by Colbie Caillat, which is a beautiful ballad on how a person should not change himself/herself in order to please others.

Are we getting any signals here?

Personally, I have been using Stayzilla for a while, and felt that they have a tremendous future in India and abroad. However, not all startups are meant to exist till eternity.

We wish Stayzilla team best of luck for their future endeavours.