Hi everyone, today’s interview is with João Ricardo, co-founder and CEO of Hotel Urbano, a company that lets travelers find and reserve accommodation and activities. It’s the single largest travel brand on Facebook, and with well over $135 million in funding, it’s one of the most heavily-funded startups in Brazil.
A Law School Dropout Uncovers the Profitabiliy of the Internet
João was going to law school in Brazil when he went to do a six-month foreign exchange in London. While he was there he got so familiar with technology and the internet that when in went back to Brazil in 2001, he dropped out of law school to start making money online.
In 2003, he and his brother started a traditional ecommerce business, at a time when there were only one or two large competitors in the space. They started in their garage with no investments, and reached R$80 to R$90 million in revenue. They were doing so well, that by 2008 and 2009, they started to receive some contacts in the venture capital world.
The only problem was that they had very small margins, and at the end of 2010, they faced the reality that it would be really tough to keep the business, so they started looking at the online travel space for new opportunities.
There was only one big player in online travel in Latin America at the time, but it was focused on flights. They realized there wasn’t someone specializing in hotels, so they started Hotel Urbano.
Building a Startup in Brazil
Hotel Urbano is headquartered in Rio de Janiero, so they’ve got some advantages as far as access to the best brands and clients in such a major city.
But four years ago, when no one knew about them, it was hard for them to hire good engineers, because they usually got to work for investment banks in São Paulo.
They sold the engineers the dream of working for the first travel company in Brazil to go public on Nasdaq… they focused on showing potential hires the size of the ocean, rather than all the work they would have to do to build the ship.
Inspiration from Alibaba’s Jack Ma
When eBay started in China, Jack Ma said, “eBay is a shark in the ocean. We are a crocodile in the Yangtze River.”
João liked this quote, so he twisted it to fit the comparison between Expedia and Hotel Urbano. He said, “They may be a shark in the ocean, [but Hotel Urbano is] a crocodile in the Amazon River.”
The idea is that Hotel Urbano has a better, deeper understanding of their specific market. And with 300 million people in the Latin American market, it’s definitely something to be taken advantage of.
For example, the occupancy rates of hotel rooms in Brazil are very low compared to other countries. Since only 45% of Hotel Urbano’s revenue is demand-driven (people who already know they want a hotel room on a certain date), they make up the remaining 50% to 55% by tracking customer behavior on the web and trying to create enticing travel ideas for them.
They’ve also uncovered a strong value proposition for hotels, where they’re sometimes responsible for 65%+ of a hotel’s occupancy rates.
The Numbers That Show Hotel Urbano’s Massive Success
Brazil’s Fragmented Hotel Market
João says that in Brazil, hotels are very fragmented, since 85% of them are independent. And when they started Hotel Urbano, almost 50% of those hotels didn’t even have internet-based sales.
And in Brazil, it’s just as important to deliver value for the hotels your serving along with the travelers. When hotels see that you’re helping them book the exact same loyal customers every 3 to 4 months, it becomes the tipping point that makes the difference between the hotel giving you 60% or 70%.
This, coupled with Facebook and the inherently socially-based culture of Latin America, has helped Hotel Urbano grow.
Data: The Other Piece of the Growth Puzzle
Before Hotel Urbano, individual consumers in João’s market traveled just one or two times per year. But using data-based outreach, Hotel Urbano is trying to get them to travel more than three times per year.
To do this, they try to make a lot of correlations between a person’s online activity and the travel and entertainment industries.
For example, even if you don’t do anything related to travel, says João, you might do something related to food, theater, or sports, which can give them hints on the kind of travel-based correlations they can draw.
They’ll try to push you some ideas that you’d like to do related to travel, but you may not have known about.
It’s a huge challenge to draw these correlations, says João, but he believes it will be a huge growth trigger for them when they crack the code.
To boot, Brazil is a country that doesn’t receive that many tourists. They got around 6.8 million last year, even with the World Cup.
To compare, the city of Buenos Aires alone has 20 million tourists per year, Las Vegas gets 80 million, and Barcelona gets over 55 million.
Since hosting the olympics helped boost Barcelona’s tourism numbers, João thinks the same thing will happen after the olympics in Rio in 2016.
He’d like to double the number of international tourists coming into Brazil in the next five years, and truly believes it’s possible using technology to uncover patterns.
The Big Struggle of Growing Hotel Urbano: Hiring
João says that in the beginning, they hired too fast and made some mistakes.
Now, they make it a hard process to be able to work there. It might delay them a little bit in executing and trying out their ideas, but they make sure to hire teams that will still be in place in ten years rather than brilliant jerks that are good for the short term, but aren’t a good long-term culture fit.
Advice to His 25-Year-Old Self
You can fail doing something you don’t love, or you can fail doing something you love.
João says that at 25, he wasn’t sure when he would drop out of law school. He spent two years not knowing what to do, and it was not a fun time. If he had heard this piece of advice at that age, he wouldn’t have wasted so much of his time.
One Must-Read Book
João recommends Dream Big, a book about the three Brazilian owners of Budweiser, Burger King, and other companies.
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