Index Insight

Sharing Intelligence

Posted on 14 Mar 2014

HouseTrip CEO Arnaud Bertrand on how to launch -- and scale -- a global sharing economy business.

In Easter 2007, Arnaud Bertrand and his (now wife) Junjun Chen decided they would book a holiday apartment for their Edinburgh mini-break rather than a hotel. But when Bertrand tried to reserve an apartment online, he quickly discovered it was all but impossible. Instead, he found himself laboriously scanning online classified ads, before phoning individual proprietors to check availability and -- finally -- wiring money to make a reservation.

“The whole process was just weird and painful,” he now recalls.

Yet as entrepreneurs in search of a business idea, the pair instantly spotted an opportunity. A few hours surfing revealed that no one had yet created a friction-free way of scouring for and booking B&Bs or holiday rentals online. Then in their fourth year of studying hotel management at the elite Ecole Hoteliere de Lausanne, they set about writing a business plan to remedy this. 

On the day they received their diplomas, HouseTrip -- which now has more than 250,000 properties in 180 countries -- was born. Fired up with energy and twenty-something bluster, Bertrand describes the company’s earliest days as “one long learning curve”.

“Being very naïve students, we thought we had all the answers on day one,” he says, “but of course we didn’t at all. A lot of startups want to make something that is almost too good and too revolutionary, which often means they come up with something that is a monster of innovation. That was certainly true of us.

Baffled users

“With HouseTrip, we felt, back then, that just creating a little website, where you could book holiday rentals online and search for them, was too simple and not innovative enough for us.”

He smiles wryly, as he takes a deep breath. “So we came up with an auction system, where the host of the apartment could let people bid for stays in their properties if they wanted to. And then we had a social network component, where each property had a wall, like you have on Facebook, where you could interact with other guests and the hosts -- sort of a feed or forum.”

And the result, he continues, simply baffled early users. “People went on the site and just didn’t get it. So we decided very quickly to roll-back a lot of the things we had done and focus on one simple product that does the most important thing that people were looking for: finding a quality property and being able to book it easily.

“So that was a big lesson for us at the beginning -- making sure the product is good and simple enough for people to use,” he says.

Nailing acquisition methods, on both the supply and demand sides of the marketplace, was also a critical early problem to solve – particularly for a sharing economy business, adds Bertrand. “This is because a lot of the time you are trying to persuade people to adopt a new way of behaving.

“The sharing economy, by definition, is encouraging people to share things that they weren’t sharing before. So how do you introduce people to this concept? (For us, it was how do you get people to list their properties on the website?) Answering that question is extremely important otherwise you’ll never progress.”

Cold Calling

The process of acquiring properties for the site was, at first, manual and time-consuming. In their living-room in Lausanne, the couple would pound the phones, cold-calling holiday rental owners. They began by focusing on three destinations -- Paris, London and Berlin. Because HouseTrip is a free-to-list service, owners were only too happy to allow their properties to appear.

And as soon as they started to get bookings for their prospective hosts, a viral, word-of-mouth momentum took over. “Many hosts know each other locally, so you have this network effect that happens,” explains Bertrand. “Today in Paris, for instance, we don’t do anything to acquire properties and we grow by 100 new apartments every week.”

Yet cold calling – particularly if you want to avoid ending up with an aircraft-hangar sized call-centre -- isn’t scalable, he says, so finding viable acquisition methods was key to the start-up’s success. “The right method is one with which you know how to acquire ten properties, but simultaneously you also know how to acquire thousands,” he explains. “That’s a difficult trick to pull off.”

Careful not to reveal proprietary information, Bertrand says the company now relies upon online marketing tools. “Actually 60% of our properties are acquired by one guy using online marketing methods -- and he does it on his own.”

But by far the most complex strand of the business -- particularly in the early days -- was ensuring that hosts behave in what the entrepreneur terms “a guest-friendly manner”. After all, nothing will cause a sharing economy business to unravel more quickly than a wave of negative buzz and social media sniping.

“I often compare ourselves to a franchise model,” he says. “It’s the case around all sharing community businesses, where the quality of the experience that your customers – guests, in our case -- have is mostly defined by how the sellers or hosts behave.”

Quality Score

If hosts fail to show up on time, the keys don’t work or the apartment is dirty, it is HouseTrip which will shoulder most of the blame, rather than the host, he says. “The key question for us was: how do you make sure that never happens?” 

Bertrand and Chen were faced with two options: the eye-wateringly expensive boots-on-the-ground method, where every single apartment is checked weekly, thereby requiring a battalion of staff -- or through technology. Unsurprisingly, they chose the algorithmic-route.

“We introduced a quality score that is measured live - through an algorithm - for all our properties,” he says. “It measures a lot of things: the time the host takes to reply to guests, the feedback the guests give on the property, whether the hosts keep the calendar up to date and whether the price the hosts set is competitive.  

“We define the ranking in our search based on that quality score. Basically we tell the host if you do all these things perfectly, then you will get a lot of money from us, because you’ll be on the first page of the search results. That’s proved to be an incredible incentive for them. You have all the hosts competing against each other to be the most guest-friendly, because they will be extremely well-rewarded by us.”

As the business began to take off, the founders realized they would rapidly need better access to talent. “I’m not saying that Lausanne people aren’t talented,” says Bertrand diplomatically, “but as an internet company you need a vast number of developers and internet marketers, and internet talent in general, in the location that you are in.

“It was impossible to find all that in Lausanne. So we decided to move to a place where the talent is -- and the best option for us was London, because that’s where you find the highest concentration of developers, designers and so forth in Europe. It was a no brainer to do that actually.”

Network Effect

Startup founders are frequently inundated with both solicited and unsolicited advice, particularly in the early days. So how did Bertrand learn to sift through it all?

“It’s true that everyone has an opinion on what you should do and often they are very contradictory,” he replies. “You could end up going crazy trying to apply it all.

“99% of the time, the advice your get is wrong, simply because no one knows your business like you do.”

However, when it comes to investors -- and HouseTrip has attracted investment from leading Venture Capital firms, including Index -- he says founders need to differentiate between advice and help.

“There are a lot of things VCs like Index can do to help. Index have one of the strongest networks in the internet industry in the world, and they are constantly contacted by the best talent, who want to work with startups. So they can connect you with people who are best-in-class, which is extremely valuable.

“They have also seen a lot of companies do things right, but also do things wrong, which means you can ask them: ‘I’m thinking of doing this, is this the right thing or the wrong thing to do?’”

But, he adds, entrepreneurs should never expect their investors to run their business for them. “While you want them to be your partners,” he says, “you must never forget that you’re the CEO, not them.”