How Embracing Travel Startups Can Unlock Program Value

In the increasingly crowded field of travel startups, travel buyers could find a transformative technology for their travel program or a money pit.

BTN sibling company Phocuswright keeps tabs on more than 3,300 travel startups founded in the past decade, and those companies have raised $76.5 billion in funding over that time. Buyers who ignore that field could be missing valuable insight in their day-to-day duties and work with legacy players, EY global innovation and technology leader Ian Spearing said at the BTN Group's recent Tech Talk event in Chicago.

"Whenever we're so busy running the operations, dealing with travelers and suppliers and [New Distribution Capability], they're the ones who have a view that's not obstructed and can see the benefit that we may not see," Spearing said. "It's worth probably an hour or an hour and a half of time per week to speak with startups, to see what they can see and canvass their opinion."

Actually bringing them into the travel program, however, can be "the biggest pitfall," Spearing said. He—along with fellow panelists The Data Angel cofounder Kimberly Meyer, CTO of core services for FCM Roy Goldschmitt and Tripkicks head of product and chief technology officer Brian VanArsdale—offered advice to buyers in finding and successfully partnering with a startup.

Benefits of the Ground Floor

If you were trying to solve an issue while working with Excel, imagine picking up the phone to talk to Microsoft to work through that issue.

That can be the experience when working with startups, said Meyer, whose company, The Data Angel, offers a plug-in that works alongside meetings management software, such as Cvent, to correct and report on data. When her company started up a few years ago, it had just three clients. At that stage, when a company is still ensuring it's getting the technology right, customers are more likely to have around-the-clock access for questions and suggestions, and those discussions can shape future development.

That becomes less the case as a startup grows, she said.

"As we scale, it becomes more software-as-a-service," Meyer said. "We're still happy to take suggestions, but unless someone has an extra million lying around to do something they need, we can't turn around on a dime, especially if it's something other customers don't need."

Evolving Together

Being a customer in those early days can also influence the pivots that frequently occur with startups.

One of the biggest benefits of startups are their speed and agility, as they tend to be focused on solving a dedicated problem and are not working within the context of an "engineering engine" of a larger company, Goldschmitt said. "If they see they want to solve the problem a certain way, and it's not a viable path, they can pivot quickly," he said.

That applies to external conditions as well. When business travel program add-on technology Tripkicks launched, for example, it largely focused on the economics of travel, telling travelers how to make better choices to save their programs money, VanArsdale said. Once the Covid-19 pandemic arrived, that focus shifted to health information and entry requirements. It now has expanded to other areas including sustainability, health and wellness and diversity, equity and inclusion, he said.

Working with a startup from the onset eventually can result in it becoming a core part of a business, Goldschmitt said. FCM was working with a small startup in Spain developing a chatbot product, which eventually powered FCM's chatbot technology Sam. After investing, Flight Centre Travel Group fully acquired Sam in 2019, and from there, they were able to scale together to broaden use cases beyond chat, he said. 

"If you work closely with a startup, you can influence the roadmap, and you also have the option to, say, do a real investment and negotiate certain details, such as having exclusive access to certain features not being provided to competition," according to Goldschmitt.

Customers also should understand that their specific needs might not be on a startup's immediate roadmap, VanArsdale said. Startups might be wary of "scope creep" and the risk of extending themselves.

"You want to do as much as you can, but you also can fear saying yes to too much," he said.

Weeding it Out

Working with startups also comes with risks, particularly that a promised solution is actually vaporware or that the company is not sustainable and will no longer be around after a few years or even months.

Customer references, of course, can be one source of assurance. References don't, however, eliminate the need for thorough testing and processing diligence, and a glut of references also indicate an established customer base, which means the startup is more mature, Goldschmitt said.

"That mean you're not the first one and getting the benefit of being first," he said. "If you believe this is something that will be disruptive and something you want to be doing first, then don't rely on references, but engage early."

Spearing said buyers "have to be direct" when vetting a startup. Rather than a sales pitch, they should expect the startup to articulate what is available today and what it is trying to solve.

VanArsdale suggests approaching analysis first from identifying the problem a startup can solve.

"Just because something has shiny buttons and shooting fireworks, it might not solve an actual problem for you," he said. "It's important to really understand what the problem is in terms of a travel manager, then for the travelers, and if you can narrow that down, it helps to weed through it all."

Goldschmitt said the client and startup should work together to clearly define what they want to achieve together and what the metrics are to measure that success. Working together might come in steps, starting something small to test a concept before moving to full production, Spearing said.

Assessing Financial Health

In terms of finances, companies often have their own ways of assessing health, but if the goal is to work together for the long term, companies should not solely focus on the startup's current financial situation, Goldschmitt said.

"If you believe they bring something to the table, it's not about validating their financial situation but positively impacting their financial situation," he said. "I've heard from a lot of startups, and they're discussing partnerships with companies that wanted everything for free. Even if it's too early to invest in the startup, you can create some revenues."

The assessment should also include not just the current financial situation but also the outlook if business picks up, he added.

"If you give them exposure to hundreds of customers, they have to be able to scale according to this road map and financially sustain themselves," Goldschmitt said.

Companies also should understand long-term growth expectations for a startup. Some might have grand ambitions, but others will stay relatively small, and that will affect future service and the partnership.

"We have those 10 clients as a core and will keep working for them; we're not going to try to be a $5 billion company," Meyer said. "Others are very interested in bringing everybody onto the technology."

Investing in the startup is another possibility to add a level of financial assurance, but some startups will be wary of diluting their ownership stake, VanArsdale said.

Meyer said there are options beyond direct investment, such as with one customer who offered a venture capital investment to ensure the company would have staying power.

"We said, 'Thank you, but no. What we'll do is put our code in escrow, and if we go down, you guys can take it and have the exclusive rights to use it for you company,' " she said. "But I don't have to take VC money and grow faster or in a different way than I want."

Bringing in IT

The integration of IT is a "huge deal" for startups, VanArsdale said. As such, a company's IT team needs to be in the early stages of partnership discussions.

The ability to integrate is a "calculated risk," which is where a buyer can lean on IT departments in bringing the team together, Spearing said. Security or other departments in a company may need to be in on the conversation as well.

"You have to have someone who can have a good conversation with startups and may have a roadmap for integration that gets to what's needed with the path of least resistance," he said. "It's framing the conversation with those types of ecosystem players."

Beyond working with startups, Spearing said it's just one aspect of why innovative buyers should be in regular conversation with IT just to keep them an integral part of the program.

"These are the people supporting your program, and they're the ones who get into the mindset," Spearing said. "They're the experts, so keep feeding them with opportunities."