Should travel startups go into “hibernation mode” during the coronavirus?

As a response to the COVID-19 coronavirus, GetYourGuide CEO Johannes Reck says that the company will embark on a “hibernation mode” as it tries to deal with the impact on travel.

“We’ll work on our tech, our infrastructure, and our supply offering, and make sure we have everything in place for when travel picks up again,” says Reck to Reuters.

Should travel startups follow this same blueprint in order to survive the economic fallout from COVID-19? 

Here’s some advice from three experts in venture capital:

1. Adjust cost structure to improve cash reach

Christian Saller, general partner at HV Holtzbrinck Ventures, says that many travel startups are going into a hibernation mode to some degree.

“Business for everyone is down by more than 50%, and in many cases by 80 to 90% over the last weeks, and everyone is adjusting their operations accordingly,” says Saller.

This usually means adjusting spending on marketing, overhead, IT and operational staff.

“We are advising companies in our portfolio to adjust their cost structure in a way that gives them cash reach into the second half of 2021, as it might take that long until outside funding for travel startups becomes available again,” says Saller.

2. Cut everything to stay alive

Depending on what your exact definition of a startup is, Technology Crossover Ventures’ Erik Blachford offers some unique advice for the travel space. 

“Any travel company with under three months of operating expenses in the bank should go into hibernation mode right now or prepare to be out of business by Labor Day,” says Blachford. 

“Cut everything other than what’s essential to keep the business alive. Not growing. Just alive.”

3. Find a minimum viable business

Says Fritz Demopoulos, founder of Queen’s Road Capital: “In normal times, a lot of fast-growing travel startups are forced to build and fly a plane at the same time.”

The current crisis allows startups to focus more on the building side, says Demopoulos. This includes areas such as improving the user experience and product features in anticipation of “flying again when the weather conditions are better.”

“I agree that the aforementioned is not a perfect analogy,” says Demopoulos. “It really applies to those startups with enough resources to weather the storm.”

Regarding hibernation, Demopoulos says that companies without deep resources will have to decide what is their “minimum viable business” in terms of product and geographic scope, staffing and investment levels.

Demopoulos adds that only implementing smaller cosmetic changes to the startup would be a mistake.

“Some founders and CEOs are reluctant to make big changes to get to a more sustainable level - that minimum viable business,” says Demopoulos. “I get the difficulty. Founders had to utilize their energy, personality and vision to move mountains, to convince the inconvincible, to disprove everyone.  

He adds: “Now they have to dismantle what they just built and retrench due to external factors that are way beyond their control and influence.”