Secret Escapes: Creating Unfair Advantages In Building Local Champions

My most recent seed investment is in UK company Secret Escapes. Whilst there's nothing original about the model (think Voyage-Prive for Brits), there is a definite difference is the method behind building a business that's sustainable over time and aiming for leadership versus simply cloning. 

Clones

Clones have been widely derided as pale copies of their original models, and often rightly so. It's hard not to be amused when Groupon spawns as many as 20 copycats per European country, including (a) from the get rich quick crew and (b) from folks who seem to have woken up to the news that the Interweb was huge only recently.

The Master Cloners are of course the Samwers of Germany, who have built a factory around their Berlin homebase to capture every single trend that comes out of the US. A perfect case study of the technique was MyVideo, started late, perfect YouTube copy, pumped with a EUR1m of marketing and quickly funded and flipped. Stable management team not included in the price.

The Samwers have turned cloning into an art form (and since moved past that stage into helping US companies win in Germany -- see here). You may not like what they do, but they do it with extreme efficiency, the "Cloning Mannschaft" I suppose. Heck, they even cloned a set of my slides once. The same cannot be said of most clones, which I would define as average companies hastily set up to mirror the latest runaway innovation.

Local Champions

Clones are inferior copies, but there is a time honored tradition of taking stuff that works and building it properly, or even better. After all, that's how Toyota was born (copying the Chevy straight six engine at the time).

There is in any event a perfectly valid investment strategy in Europe around building local champions, and I have certainly done my share of those. If you nail a large category in a local market, you can certainly build a company worth $300M or more. None of them has ever felt like a clone though, because we build them differently and weren't looking to flip but rather to build sustainable businesses.

PriceMinister of France, which was sold to Rakuten last year, is an eBay like marketplace but innovated around some key concepts. It was item centric rather than listing centric (allowing it to do price comparison and product search as well as listings) and acted as a third-party guarantor to every transaction.

Zoopla of the UK was started on the strong belief of the founders, Alex Chesterman and Simon Kain, that the UK market needed a better listings solution. It was in part driven by Alex's frustration and amazement with the quality of the existing solutions and in part by the profitability of Rightmove, a company that needs a serious competitor ! Zillow and Trulia may have provided some inspiration, but the UK market lent itself beautifully to leveraging Land Registry data and user provided data (which only Zoopla does) to enhance its property valuation engine.

DailyMotion started at the same time as YouTube (and both later than Metacafe in any event) and whilst both companies borrowed a few things from each other, neither is a clone of anything. They just happened at the same time for different reasons.

 

Secret Escapes: creating unfair advantage for local leadership

My latest investment on European soil is in a company that is of the same ilk called Secret Escapes.

Secret Escapes is private sales for travel. Private sales as everyone knows well was pioneered by Vente-Privee of France as a way to get around sales regulations and struck a nerve with internet shoppers, driven by the "blink and you'll miss it" dynamics and the constant stream of attractive offers (most of which you don't need or never thought about buying, but never mind, at that price, load the credit card). There are successful companies in this field already, such as Voyage-Prive which has impressive metrics.

If you're going to launch a new entrant in a market that is clearly on everyone's expansion roadmap (the UK), you better make sure you have some assets that will give you more than a fighting chance. In this case:

  • Insider founders: The founders (Alex Saint, Troy Collins and Andrew Bredon) were behind Dealchecker.co.uk, which they bootstrapped to a successful exit to EasyVoyages. They know about travel, and they know about scaling startups in a lean way. See Tnooz.
  • Insider execs: The team currently running the business is made of up dedicated internet veterans such as Tom Valentine who ran product at Seatwave and was at eBay, Daniel Evans who has extensive experience sourcing hotel deals, notably at Lastminute or Tomas Lin for example who is a senior lead dev and ecomm vet.
  • Insider investors: OK, ok we all know investors about as much value as Gordon Brown did to the UK economy, but at least the list of companies we collectively backed looks good on paper. William Reeve of LoveFilm fame represents the money men on the board.
  • Users from the outset: SecretEscapes start with a large database of active users, solving the chicken and egg problem that typically plagues these types of initiatives by giving us a large active user base, which means hotels and other suppliers should see immediate results on the inventory that they provide.
  • A real desire to make it happen: maybe most important, these guys are not that interested in getting an early call from say Jetsetter. They'd rather show they can make it happen and go long. Because they've built a decent success before, they want to take it to the next stage with this opportunity and really nail it.

Don't get me wrong, we'll need all of this goodness to become #1 in the UK and put some clearwater between us and the rest of the pack. This segment's busier than Paul Carr's favourite pub on a Friday.Just looking at the obvious contenders:

  • Voyage Prive, focussing on mid-market travel. Successful on the continent but haven't caught the consumer imagination in the UK
  • Travesse, small operation launched out of a travel blog, not getting too much traction as far as we can see
  • Groupon, Living Social, doing occasional, successful, travel deals, generally with broad appeal (Mediterranean packages and UK spa)
  • Big US players planning to launch, including Jetsetter & Living Social Escapes

I've been there before; when we financed DailyMotion there were over 100 video sharing websites. Normally I like to have a distinct product advantage and with this one it's really all about great supply, but we think we've got the best domestic team to make this happen. So bring it on boys, we're ready :-)

Screen shot 2011-06-21 at 10.44.55 PM

Reprinted from FredDestin.com

Fred Destin joined Atlas Venture in 2004 and is a Partner in the technology group. He focuses on software and technology-enabled services and digital media infrastructure and applications.

Add New Comment

1 Comments