Watching the government shutdown a couple months ago I was disgusted with Ted Cruz, his ego, and his utter lack of respect for the way the U.S. government functioned. For those of you who don’t know who Ted Cruz is, he is the Freshman Republican Senator from Texas who embarked on a quixotic mission to repeal Obamacare, despite the fact that he didn’t have the votes in the Senate and the Presidency was occupied by a Democrat. He was so committed he helped cause a government shutdown over it.
Cruz refused to compromise and steadfastly stuck to his position regardless of the reality that he didn’t have the votes to change any laws. In his hubris he viewed himself as a crusader, a “disrupter” you could say, of the status quo in Washington, a position that is only reinforced by the “echo chamber” that is Fox news, Tea Party rallies and “unskewed polls.” Cruz didn’t care about Washington and its rules because he was going to come in and shake things up. He was financed by deep pocketed investors like the Koch brothers hoping to get massive returns (tax breaks) from a new political order.
In the end, Ted Cruz’s lack of self-awareness about public opinion and the way government worked lead to failure. The government was reopened, the Republican’s hand has been weakened, their bluff called, and Ted Cruz is considered a “wacko” by many of his own party.
I couldn’t help but notice the parallels to many startups in Silicon Valley.
Startups who fashion themselves as “disrupters” often shoot themselves in the foot due to their **lack of self-awareness** and a **refusal to truly understand and respect their industry**. This happens all the time in one of the largest industries in the world: Travel.
Now, this isn’t a judgement on the policies Ted Cruz was advocating, but merely the methods by which he went about trying to accomplish them.
Much like Ted Cruz has little to no awareness about how the U.S. government he is trying to change actually works, most travel startups that pop out of silicon valley have absolutely no self-awareness about how they fit into the trillion dollar industry.
“It’s archaic, we can do things better,” they say, truthfully. “We are going to ‘disrupt’ everyone, just jump into the middle of things and shake everything up. The big guys won’t even know what hit them. Expedia? No one will use Expedia in a couple years, and we will be incredibly wealthy.”
It is healthy to not let industry norms restrict your ambitions. I like Aaron Levie’s quote about how Uber was a $3 billion lesson in building for how the world should work instead of how it does work. And a certain amount of naivete is necessary to plunge into any industry rife with bureaucracy. You have to be a little ignorant of the obstacles that lie ahead.
But a healthy respect for the fact that there are at least a few logical reasons a massive trillion dollar industry operates in the way it does is completely absent in many startup founders. There is a reason that Expedia is still the leading online travel property, and that’s because customer acquisition of once-a-year leisure travelers is notoriously difficult.
There is disruption, and then there is a complete disregard for realistic industry obstacles and rules. To build this self-awareness, and to know where best to disrupt you . . .
**Have to Get Your Hands Dirty**
The best travel startups aren’t photo aggregators, or social travel plays with nice interfaces, or anything you can assemble from open APIs at a weekend hackathon.
They are immersed in the industry, solving industry problems with expertise usually, but not always, gleaned from spending time in the industry. They are getting their hands dirty, knee deep in problems the average traveler wouldn’t even understand.
ITA software, the back-end technology that used to (before they were acquired) power many of the flight search engines you know and love, was bought by Google for $700 million. I imagine their biggest obstacle was navigating the backend reservation systems of various archaic airlines.
HotelTonight sells hotel’s spare rooms at a discount. Sam Shank was a veteran of Dealbase and TravelPost, two previous travel sites, and had deep industry knowledge and understanding about how the industry worked. Sam understood that hotels would be willing to give steep discounts at the last minute to fill up their perishable inventory.
TripIt was acquired for $170 million by corporate travel giant Concur. They figured out how to plug in all your various confirmation emails from various services and have it automatically assemble into an itinerary. It was started by Gregg Brockaway and Scott Hinz. Gregg’s last startup? Hotwire.
How many startup founders in SF do you think would go around to airlines and try to close deals with them to get access to their systems to create the next ITA? How many startup founders would go close deals with each individual hotel and not just rely on a publicly available API from a Hackathon sponsor?
How many startup founders truly understand an industry enough to figure out that hotels have a perishable inventory problem for HotelTonight to take advantage of? Or that there is a need for aggregation of bus and train data (Wanderu and SilverRail). Or that there is a focus on ancillary revenue from airlines, which opens up numerous opportunities in Travel Insurance, Airport Lounges (LoungeBuddy), Transfers and Ground Transportation (Limos.com and my own company Mozio among others), and Car Rentals (CarTrawler).
These are not the startups you read about in TechCrunch. I bet you haven’t heard of most of them. You read about the next generation way to organize your trips, the iPhone app that allows you to see pretty pictures, meet friends while you travel etc.
And much like Fox News and Tea Party rallies, the silicon valley press cheerleads every new app, rarely turning a critical eye on whether the latest attempt at industry “disruption” has any realistic chance of succeeding. Like the “unskewed polls” that predicted a Romney landslide, startups trump up vanity metrics like “engagement” to support their cases and refuse to take a hard look at their chances until it all comes crashing down in a post-mortem tell-all blog post.
Now, new companies will always be breaking rules, informal industry norms and occasionally actual laws. And you don’t have to be an industry insider to startup a company. To be sure, there are several notable travel successes from people who didn’t work through the industry and necessarily have industry knowledge. And the biggest examples even adopted very Ted Cruz-esque attitudes to their segments of the industry. I’m of course talking about AirBnB and Uber, whose fights with hotel regulators and taxi commission officials are almost weekly.
They prove that a startup can succeed despite, and sometimes because of spurning the current laws and industry norms. But again, they were **self-aware** enough to realize that they were riding a groundswell of public support, aware of which rules they could break with the public’s approval, and where the weak spots were in the industry.
The point isn’t “don’t break industry rules,” it’s “make sure you are self-aware enough about the industry you are in so you can break the right rules.”
AirBnB was able to succeed because they defined a completely new category. People did not believe that locals would be willing to rent out a room to strangers. Before AirBnB, home/room rentals happened informally through Craigslist, and not very often. AirBnB unlocked that pent-up demand, and like Sidecar, Lyft and FlightCar the public sided overwhelmingly with collaborative consumption companies.
As for Uber, the story goes that Travis Kalanick and Garret Camp stumbled on their insight in their own way: by renting out a bunch of limos for them and their friends to call on demand, and realizing it could be a business. They could get away with disobeying the laws because consumers were pissed they could never hail a cab, and limo drivers had too much downtime during which they weren’t making money.
In their legal battles with city governments they have disobeyed rules and disrespected authority, but the industries they were usurping were fragile and unpopular enough that it worked. More importantly, they knew which rules they could break with public approval, and which were the best rules to break in the industry. They were self-aware of what they could get away with.
You don’t need to be the consummate industry insider to disrupt travel, or healthcare, education, government or any other bureaucratic industry that needs disrupting. And I’m definitely not saying to follow all the rules, either unspoken or explicit, an industry has. But at the very least you need to understand them and be self-aware about your place in the industry and what you can get away with.
True disruption comes from people who understand an industry and know which parts they can change, and which parts they can’t, which rules need to be followed, and which ones they can get away with not following.
Most entrepreneurs don’t ever get that far, their hubris gets in the way of them ever realizing their limitations and figuring out how they could truly disrupt an industry. **They think they don’t even have to learn the rules because they don’t plan on following them anyway, and they don’t entertain the idea that there could possibly be some rules they can’t break.**
But there are rules you can’t break in every industry. Despite our Silicon Valley swagger, there are parts of each industry we can’t change all by ourselves, and the plethora of dead travel startups and a still dominant Expedia is evidence of that.
Just like the U.S. government was reopened and Ted Cruz has proven startlingly counterproductive in his quest to change Washington, it rarely pays to ignore the system and everyone in it.
David Litwak 