and it had nothing to do with what I could control.

A much happier photo of myself when I decided to stop pushing my startup uphill

For years, I felt like Sisyphus pushing a rock uphill, never to make it to the top. I naively thought that the harder I worked, the more likely I would make Homads succeed. I was raised to believe in the American dream and years of schooling also confirmed this belief. Unfortunately, in startups, business and often times life, it’s not particularly true. There are a lot of factors that affect how your startup will succeed or fail. Many of these you have no control over and are only things you can watch for.

“Time is an illusion. Timing is an art.” — Stefan Emunds

Understand The Economy

I probably should have taken a lesson from Airbnb, a similar model of my own startup (we specialize in mid term rentals). Airbnb came to fame during a recession. I started Homads when things were going well for everyone in the US. Although it’s a minor detail, it is extremely surprising to see how much the economy could affect your startup.

Economic Conditions Affect Consumer Behaviors

In a bull market, cash is trash. People are over leveraging and not holding on to cash. For example, I saw hosts dedicated to the one platform (Airbnb) that has always brought in cashflow for their properties. These hosts would then over leverage and buy more properties so they can X that income. On the flip side, guests were willing to pay the added booking fees and travel was flourishing as there was extra money in the economy.

So with consumers, it was difficult to convince them to start using another booking site like Homads because hosts were loyal to Airbnb as money continued to flow. Hosts loved short term rentals and there was no need to diversify where they listed their property or how they booked out their property.

VC Money Keeps Top Companies At The Top

When there’s enough dry powder to go around, investors tend to invest differently. For years, you’d hear investors ask “how big can this get?” Everyone wanted to know who would be the next “unicorn” and disrupt the market. It was all about historical wins with millions, if not billions, of dollars invested in these companies. No mind that these startups aren’t profitable as that can be easily fixed in the end. The name of the game was market share and everyone was doing a land grab.

What does this means for companies that aren’t VC backed? You’re now competing with giants that have millions of dollars for marketing spend. Even if hosts wanted to find an alternative booking site like Homads, they’d never find us. The cost per click (CPC) for hosts were almost 5x as much as it is today.

So for instance, during the high times, it cost $.90 cents for a person to see an ad for Homads and click on it. That may not seem like a lot but with consumer apps, you have to account for the full user journey. How much would it cost to get a user to:

1. Click on your ad.
2. Browse your site.
3. Sign up.
4. Message another user.
5. Book a property or list a property.

The total cost of the user’s journey is typically considered your Customer Acquisition Cost (CAC). Back in 2016, Airbnb’s CAC was $300 per listing (I was told by their former Head of Vacation Rentals). That means to get from step 1 to 5, it would cost them $300 to acquire one listing from an independent host (meaning it wasn’t a hotel or apartment complex). To have the initial CPC go from $.90 to $.20 shows just how much more accessible it is for other platforms to compete and gain market share.

Going Into A Bear Market

Once the economy started showing signs of a recession, investors started to tell their portfolio companies to cut down on their burn rate (how much they spend) and to ensure they have enough runway to either get to cash-on-cash break even or the prospects of their next fundraising round. This moment is when it became a much more, I wouldn’t say even, but much more manageable playing field.

Why do I say this? Before you get any big dollars from a VC, you typically have to show that the unit economics make sense. Even if it made sense (in which ours did back then), it had to be significantly more if you had a 10 ton gorilla in your industry like Airbnb. Otherwise, no smaller investors (angels or pre-seed/first check VCs) would even dare to put money in a startup that had no fighting chance.

At the same time, users we’re seeing less bookings from their original platform because less marketing money is going into advertising their listings. It’s extremely evident that in the hospitality industry, users aren’t loyal. If you mess with their cash flow, they’ll ditch you in an instant. That’s exactly what we saw once hosts weren’t getting enough bookings. They were much more open minded to try out a new platform. Hosts are getting hit from both sides; they weren’t getting enough bookings from their go-to platform AND inflation has risen and there’s less cash in the bank with the economy going into a recession.

The Domino Effect of World Events

Outside of the economy going South, a major world event that has permanently changed the way consumers think happened. Covid flew in at the beginning of 2020 and shut down almost every short term rental operation. Whole industries stopped operating overnight. People had to be creative in how they would “wait out” the pandemic but not go bankrupt at the same time. Alternatively, guests started to go stir crazy as extended quarantines kept people indoors.

You Can’t Change Consumer Behaviors With Money

What a strange time to realize that such a bizarre, tragic and unexpected world event is what would change consumer behaviors. Understandably, but also coming from left field, people wanted to stay in a place for a month or longer because they still needed travel but they wanted to do it in a safe way.

Extended travel didn’t happen from just one change in behavior but rather it was a domino effect. When people were quarantined, they still had to work. This changed how the world thought about remote work which then changed how people thought about travel and living. Surprisingly, the reason I started Homads was actually because I envisioned that technology would allow us the freedom to work from anywhere. I just never imagined that it would take a pandemic to get us there.

You can’t change consumer behaviors with money or at least it’s expensive to do so. In hindsight, I battled with investors because I thought they didn’t believe that technology would change how people live. Instead, I realize that they likely just knew that changing consumer behaviors is a very expensive thing to do.

What To Look For When Starting A Startup

Although it was mainly the pandemic that helped shift the tides for me, I’ve seen businesses either shut down or flourish because of single events. Understanding geopolitics and markets outside of where your startup is will greatly help you predict and understand how it could affect you. For example, the war in Ukraine uprooted tech talent for a lot of companies and caused a bottleneck in development.

When I first started I thought I only needed to know two things:

1. How to solve a problem.
2. How much would someone pay me to solve it?

You could say that if I had done a better job of understanding #2, I’d likely have saved myself the trouble of the last several years, as many of the things I talked about earlier do affect #2. My perspective is a lot more holistic and not as narrowly honed into just selling a solution to a person.

Maybe I had to put in the years to mature and fully understand the intricacies of fundraising and starting and building a startup before I could get to this point. I hope that I can at least save you some of those years in reading this article rather than pushing that rock uphill as I did.

Today, I’ve learned to not take too much personally when it comes to startups. So much of it isn’t personal and so much of it isn’t in your control. Let the “No’s” slide right off and concentrate on the “Yes.”

Carry on my friends.