Play fool with investors’ money but not with that of hapless customers and vendors
“These startups get funding, they spend carelessly, they live a hunky-dory life and keep our payments on hold, and then shut shop saying we don’t have money. People doing genuine business like us have to bear the brunt,” Aditya CS, the proprietor of Jig Saw Solution and Advertising, lamented, tears rolling down his cheeks.
We have to feel sorry for Aditya because he did work for Stayzilla, and notched up bills in excess of Rs. 1 crore payable to third parties in the expectation that StayZilla, which was funded by deep-pocketed investors, would honour his bills.
However, StayZilla turned out to be a bottomless pit. It swallowed crores of rupees of investors’ funding without anything to show for it. The investors decided to cut their losses and walk away, leaving the promoters high and dry and with several irate unpaid vendors to deal with.
Stayzilla shuts its operations last week , it has burnt so much cash , now financiers backed out .
— Rahul Grover (@rahulgrover88) March 5, 2017
Poor track record of services by Stayzilla
The Stayzilla page on mouthshut.com makes for shocking reading. There are scores of customers with a long litany of complaints against the start-up.
“Always have backup plan when booking on Stayzilla,” sunnyvenki cautioned in September 2015 even as he recounted his bitter experience.
“I do not see how they can behave in such a manner where in they 1. Cheat their customer, 2. Cause inconvenience by providing false data regarding the location of hotel, 3. Lie blatantly to the customer who is trying to raise a complaint and get his refund,” he fumed.
“Beware; Stayzilla.com is not trust worthy,” sprakashbabu of Ernakulam warned.
“I do suspect this company is behaving fraudulently to their customers and beware. I afraid that StayZilla.com does not know the value of building business based on TRUST. So be cautious in dealing online with this stupid online travel site Stazilla.com,” he raged.
“Fraud Website, Will cheat your money. Don’t Book,” Madhup Khandelwal from Mumbai said in September 2015.
“This is a fake website. They cheat you and will take all your money. I regret I book my resort with them. I have booked resort and cancelled it before it was confirmed to me.
But till now I haven’t got money or any response from them.
Every time I call and they say that account department is busy and we will revert. No one has also reply to my email. I will update my reviews on social media as well. They have eaten up my money. They neither reply on phone call nor on email,” he lamented.
Sandeep Sharma suggested that “sufferers should form a consortium and hire a good advocate and file a court case” against Stayzilla. He gave detailed reasons why in his view Stayzilla is/was a “fraud, unreliable and non-credible company”.
The worst part is that it is not only the poor customers who got a raw deal but even the home stay owners were short-changed. One user recounted as to how he was saved from embarrassment due to the generosity of the home stay owner. Apparently, Stayzilla had not cleared his bills for several months but still continued to send guests their way.
These complaints are a tip of the iceberg. There are numerous other complaints on other websites like consumercomplaints.in, consumercomplaintscourt.com etc about the alleged deficiency in services by stayzilla.
Only once I used stayzilla when in the name of 3 star hotel they booked a room in chawl in Bandra. Had paid 4000/- after all discounts. 1/2
— Hitesh Gupta (@hiteshkgupta) March 5, 2017
Common sense demands that such fundamental flaws in the model business should be fixed before anything else
Any sensible businessman knows that customer satisfaction is the absolute number one priority. If the customer is short-changed and feels frustrated, it is only a question of time before the entire business model come tumbling down like a pack of cards.
In fact, this is the reason why legendary investors like Phil Fisher (the author of the bestseller “Common Stocks and Uncommon Profits“) formulated the concept of “scuttlebutt” in which investors make inquiries with customers and suppliers of a potential investee-company to determine whether everything is ship-shape or not.
Even a cursory glance at the plethora of consumer complaints against Stayzilla would have revealed that there was something terribly wrong in the business model.
Obsession with “vanity metrics” instead of customer satisfaction
The worst part is that there was no attempt by the promoters or the management to fix these problems. Instead, in Vasupal’s own words, there was an obsession with “treasuring GMV, room-nights and other ‘vanity’ metrics”.
Wisdom ultimately dawned on the young and dynamic founder though it was too late in the day to make amends.
Will never chase growth over unit #economics ever again: @stayzilla’s Vasupal | #startups https://t.co/A1BMALy9D8
— VCCStartups (@vccstartups) March 4, 2017
SOS Message from Vasupal
The fiasco led to a dramatic state of affairs. Yogendra Vasupal claimed to have got abducted by some irate vendors who lost patience at his endless promises to clear their bills. He later also got arrested by the police on alleged charges of cheating.
He sent a dramatic SOS message claiming that he was publishing a “pre-saved draft”.
I just published “Help! I need everybody…” https://t.co/2ladYJoElW
— Yogendra Vasupal (@YogiVasupal) March 14, 2017
He also claimed that someone had sent him a “voodoo doll”.
Whether these frivolous issues are diversionary tactics to gain support of the masses is not known.
Stayzilla CEO Yogendra Vasupal arrested, black magic dolls sent to threaten family and staffhttps://t.co/gxYqvxjcHZ pic.twitter.com/S04R74XQlk
— TheNewsMinute (@thenewsminute) March 15, 2017
Elite start-up founders fume at Vasupal’s arrest
Naturally, the elite members of the start-up brigade have ganged up in support of Vasupal. This is not surprising given that many of them may be in the same boat with tottering business models and irate customers and vendors chasing them for dues.
Together we stand! Indian startups rally in support of Stayzilla CEO Yogendra Vasupal
— Brand Equity (@ETBrandEquity) March 16, 2017
Stayzilla CEO Yogendra Vasupal's arrest raises hackles of startup community… https://t.co/2n9LGxNlFO India business
— mediat business (@mediat_biz) March 16, 2017
"Entrepreneur bachao, Desh bachao" @InMobi provides full support to @stayzilla Founder!
— Naveen Tewari (@NaveenTewari) March 15, 2017
Spoke to Dr. Manikandan,IT minister for his intervention in @stayzilla case, I am sure he will help if @YogiVasupal is on right side of law
— Priyank Kharge (@PriyankKharge) March 15, 2017
RoomsTonite goes bust
Meanwhile, even as the start-up founders are fuming over the stayzilla fiasco, the grim news is that RoomsTonite, a “room aggregation app” has closed its operations.
RoomsTonite had raised investor funding of $1.5 million (Rs. 10 crore) on the basis that it “has witnessed meteoric growth from its business and user base standpoint”.
Obviously, all of that alleged “meteoric growth” was not sufficient to make ends meet.
Start-up founders are visionaries but should pay heed to the advice offered by old-school investors on how to do business
Nobody can dispute the proposition that the business model of start-ups like stayzilla, roomstonite etc are revolutionary and have the potential to make loads of money, especially in a Country like India where there is infinite demand and supply.
However, these business models have to be conducted bearing in mind the old-school traditions of doing business i.e. of ensuring that customer satisfaction is paramount and by keeping an eye on cash flows and profitability parameters.
“Let’s remember—#GMV is vanity, profit is sanity,” @snapdeal @stayzilla @Olacabs #India #ecommerce #startups https://t.co/bbifOl2jqp
— Mathias Léopoldie (@Mat_Leopoldie) March 5, 2017
Novice investors cannot advise visionary start-up founders but …
Of course, novice investors like you and me are in no position to advice the start-up founders, some of whom are visionaries in their own right.
However, it is our duty to draw their attention to the advice offered by legendary old-school investors like Rakesh Jhunjhunwala, Prem Watsa, Mark Cuban, Mohnish Pabrai, Samir Arora, Aditya Puri, etc on how to do business in a profitable manner (see Mohnish Pabrai, Aditya Puri & Other Legends Sound Death Knell For PayTM & Other E-Com Cos).
In fact, Radhakishan Damani’s D-Mart is a shining example of how old-school techniques of doing business can lead to enormous profitability even while rivals like Amazon, Flipkart, Snapdeal etc are bleeding to death.
If the new-age promoters can implement old-school business techniques in their business model, it is certain that enormous wealth will be created for all concerned!
Any business which can not fund its growth will most likely fail .All sound companies which created wealth never asked money for growth.If company can not fund its growth ,how it will create wealth for investers.
You are 100% correct.
NOT ONLY FUND THERE GROWTH, THESE BUSINESSES REQUIRE ADDITIONAL FUNDS FOR THERE DAILY OPERATIONS. AS SOON AS MONEY STOPS THEY CANNOT STAY AT THERE CURRENT OPERATION LEVELS.
Good article. Next is Oyo rooms.
Even a person with basic investment knowledge hesitates to put even 1 rupee in such companies. But, these VCs poured billions. Only GOD knows why they did.
Because it’s someone else’s money. VCs collect money from other investors and investors are befooled giving very rosy and promising pictures of a new venture and are even told that even if 40 to 50% of the investment fails, the remaining 50% will earn so much so as to recoup the entire investment cost and still make huge and tremendous profits.
On these false and fragile promises, they collect money from others and invest recklessly. The most bizarre part is that most of the investors in such VCs/PE funds is the educated class who is supposed to understand a business plan, risks involved and make a considered, rational and unemotional decision.
Most of you are making rubbish comments for two reasons :
1. you don’t want to do your homework and learn new things specially the difference between cash flow and profit
2. you are biased with your “old school of thought” model and old school business’s
Suggest you folks to spend some time, do research and learn about tech startups, how they are valued and why a select few are funded because someone has done his analysis, arrived at a risk/reward assessment and wants to make a bet.
There is also the hypocrisy angle here – that making bets on stocks in the stock market or real estate is OK but making bets on NEW IDEAS is not OK. Your view of investment is biased on the stock market. In a similar way others have a view to bet on startups that want to transform a part of the society we live in.
All the things you are enjoying today – is all because someone somewhere (mostly many many entrepreneurs) had the stomach to take the risk, convinced investors and got down to execution to make something. One would have failed, so also another while a third or fourth would have hit success. But all these people together tried and so you have emails, laptop, blogs and word.
Think about it !!
lets not preach double standards.