Episode Sixteen

Prevailing Against a Pandemic:

Amit Saberwal of RedDoorz

27 April 2021


ALAN  0:13  
Welcome back to the Indo Tekno podcast Season Two, Episode 16. I'm Alan Hellawell, Founder of Gizmo Advisors and Venture Partner at Alpha JWC Ventures. Selamat datang kembali, semuana. Now some of the most exciting stories of innovation and recovery in the internet industry during the pandemic era can be found in the hospitality space. As streets cleared and business and leisure travel dried up nearly overnight; hotels, airlines and offline retail outlets were faced with a sudden and sharp drop off in business. Today's guest, Amit Saberwal, Founder of RedDoorz, will hopefully share with us what detours he and his team had to take in their path toward building Southeast Asia's largest chain of budget accommodation. Amit, thanks so much for joining us today.

Hey, thanks, Alan. Thanks for having me.

ALAN  1:02  
You're very welcome. Now Amit, hospitality clearly runs through your bloodstream, and in copious amounts. Can you share with us that part of your personal background that led you to found RedDoorz almost six years ago?

I'm a hotelier by training. I went to hotel school. And then I worked for hotels for many years before joining MakeMyTrip (NASDAQ: MMYT.) And I joined MakeMyTrip to run their hotels business. And what happened was that in the early days of the internet, the folks at MakeMyTrip thought that "Hey. He seems to be a smart guy. He is a hotelier maybe he can run a hotel business". And so that was an incredible journey of nine years with MakeMyTrip, when I ran the hotels business. And then with MakeMyTrip, I came to Singapore or Southeast Asia. And then from there, when I decided to venture out on my own, I could now use my exposure to technology and my hotelier experience, and found RedDoorz.

ALAN  1:56  
That all makes sense. Now a little more about experience, if you don't mind, Amit. You've been in the hospitality and travel industry for almost 25 years. And even your current startup is roughly six years old. Much of the startup ecosystem around this neighbourhood is meanwhile comprised of first-time entrepreneurs. What aspect of company building would you advise this latest generation of entrepreneurs to focus on most to be able to get to where you've gotten?

I think two distinct pieces of advice. One is to build a culture, which you want to have for the long term from day one. It's very difficult, if not impossible, to course-correct in the future. And I think the second one is to hire a good accountant from day one itself, because you know, trying to clean up later on is a big hassle. If you get both these things, right, at least 50% of the job is done.

ALAN  2:48  
Fascinating. So in my mind one very strong piece of subjective advice is about culture from day one. And then another piece of much more pragmatic and almost quantitative advice being get an accountant on board and get a good one. Now Amit, how would you outline RedDoorz mission?

RedDoorz's mission now is to build the largest hospitality company in Southeast Asia, period. So we've removed "budget", "online", "new age" and stuff like that. Our vision right now is to build the largest hospitality company in Southeast Asia.

ALAN  3:20  
Wow. So I'm looking forward to discussing that with you later in the podcast. Clearly, conditions have shifted in such a way that there's a tremendous consolidation opportunity that you must have in mind. So let's get back to that. But before we do that, I'm sure our listeners would love to hear any anecdotes that you can share from your early days of entry into the Indonesian market.

Indonesia in 2015 was a different Indonesia, right, from a startup and from a hospitality perspective. When we moved to Indonesia, we were trying figure out, we had this concept broadly. But how should we actually execute it? And there were a lot of different things which we wanted to do. Now the first thing we did was we started trying to rent out apartments, AirBnB was big. And we said, "Hey, maybe we can do something in the apartment space". And we started by renting out the apartment which we were staying in, and then sell it off on Agoda and Booking.com. And we found that it worked very, very well. And so we then went to the service provider who had quite a few apartments, and rented or got into an arrangement, where we went and had about 30 to 35 apartments in the same building. And we figured out that this was a great business right? Long length of stay, easy to sell, city centre, and we thought we had almost nailed it. And interestingly, we also realised that when you have one or two apartments in a large apartment building, it's fine. But if you have 30, and people coming in saying "Hey, where's RedDoorz? Where's RedDoorz? Check in at RedDoorz..." It's an absolute nuisance. And so three or four months into our operation, we thought we'd completely nailed it. We had this whole product-market fit. We then got kicked out. The management came and shut us down and told us "Get out tomorrow, or else". So that was a big setback. And then we also had some setbacks on the distribution side. What happened was that four or five months of work went to naught in one day. And that was pretty interesting for us. In fact, we actually started out by working out of a coffee shop. And the coffee shop internet would expire every 45 minutes. We had to go and put in a password again...go and put in a password again. We kind of tried to bootstrap. But after doing this password business for a few days, one day, we got completely fed up. We said, whatever the cost, we need to get an office. So that's how we got our office too.

ALAN  5:40  
Fantastic. So I guess the equivalent of the "Silicon Valley garage" for Southeast Asia is the coffee shop. Is that one of the takeaways?

Seems to be. At least it was in our case.

ALAN  5:53  
Great. Now, you talked about some of the challenges in localising into Indonesia, finding the right product market fit. Let's flip that coin over. What percent of the RedDoorz solution can be applied across markets? And what percent would you say requires that local customization, whether you're in Thailand or some other market?

From a tech side, about 85% can be applied across markets. The only localization is on the payment side and on the language localization side. But if you really look at it from a business perspective, our business is really unique. You really need to nail the business aspect of it by going country-by-country. It is not a model which lends itself to sitting in a boardroom spending a lot of money on marketing and going global. And so to understand the way consumers behave, and even the way suppliers behave, in each unique market takes a bit of effort. I would imagine that about 35% is unique for every country. 

ALAN  6:56  
Makes sense. Now, in 2021, what are the unique challenges of the Indonesian small hotel market relative to other markets that RedDoorz operates in?

So I think you know, with all markets reeling under the COVID challenge, Indonesia is better off because there is a decent amount of local travel. And when I say "local", I mean domestic travel. So it's better off from an occupancy or a financial standpoint. But otherwise, the challenges are really immense. Each hotel owner is a human story behind him. Some people have taken loans for their properties. Some people are generally finding it difficult to operate, and so on and so forth. I think the shadow of the COVID situation is across all markets. And of course, Indonesia has felt the effects of it.

ALAN  7:42  
Understood. Now I assume that RedDoorz's value proposition has evolved somewhat with time. What single metric today would you cite as proof that RedDoorz is unleashing massive value for a small hotel owner that you have on-boarded? Would it be a decline in vacancy rate? An increase in room rate? What is the KPI that is the most powerful indicator of our value proposition?

I think number one is that the hotel owner makes more money. And I think when the rubber hits the road, that is the most important thing for him or her. The other peripheral benefits are also immense. And the biggest of the benefits is that we take away a lot of their headaches. So they don't have to worry about occupancy, hiring this revenue manager, what technology to use, and so on and so forth. We take that away from them.

ALAN  8:32  
Understood. Now shifting tack a bit, are there any particularly interesting ongoing government initiatives from the Indonesian government around hospitality and tourism?

I think the Indonesian government is doing a fairly good job in trying to push domestic travel. I think post-Ramadan, there will be a spirt in travel. And there are initiatives around domestic travel, though in a controlled manner, by the government. From our side, in the early days of the pandemic, we launched "HygienePass", which was a certification programme for our hotels. We launched Health Protocol for our properties, so that our customers feel more safe and secure. We launched helplines for our staff and our hotel owners' staff. So lots of initiatives in the early days. Some of them have tapered down because of the diminished relevancy of it. But then some of them continue. 

ALAN  9:21  
Very useful set of initiatives you're talking about. I wanted to ask you point-blank: how have 2020 and 2021 played out in Indonesia for RedDoorz's business as it relates to the pandemic?

Yeah, well, we've actually grown up as a company fairly quickly. We had no choice. It was survive or perish. And so we were in survival mode. I think we've done a fairly good job, even if I may say so, in tackling that pandemic. And now we're looking for the recovery to happen. On the macro side what did happen was that the property owners needed a service like ours, even more than any time in the past. Because when the chips are down and things are not doing so well, people like us can do a better job. It's documented; our hotels have an occupancy which is 10 percentage points over the average occupancy in our market. So, from a property owner's standpoint, they became far more open to the idea that they could take a franchise from us, or could work closely with us and take our technology. But from our own company standpoint, it was a huge growing-up experience. We learned quickly. We implemented quickly. And I can say that with a certain amount of confidence that we've dodged a bullet, at least the existential bullet.

ALAN  10:34  
Great to hear. And I have to say, I've indeed heard that you responded in a very timely and decisive fashion in early 2020, when the pandemic began to spread. Do you feel that RedDoorz has right sized sufficiently in the wake of COVID today?

Yes, I think the "right size" is the right word. Because in the early days of the pandemic, there was this huge pressure which is coming in from a bunch of news media, investors,  leading venture capitalists - not necessarily ours.  There was this letter which came from Sequoia, asking their founders do stuff around cutting deep, cutting hard, and so on and so forth. And so when people were panicking, we kept a cool head. We right-sized our company. We did initiatives around salary cuts, etc, and all of those unpleasant things. But we didn't cut too deep. We didn't take their advice, literally. Because any founder knows how difficult it is to build a business. Any consultant, any "bean counter" can come in with an Excel and cu. But building is the tough part. So I think we made sure that none of our growth functions were affected, none of our tech products and functions were affected. But beyond that, we made a lot of adjustments in the business.

ALAN  11:48  
Understood. Now, going back to the beginning of this podcast, you unveiled a pretty ambitious mission statement which you suggested was, in turn, more ambitious than what you may have begun with. And I'm just wondering: what specific competitive dislocations has COVID catalysed for RedDoorz?

We feel that the whole hotel industry has gotten a wake-up call. Just the way the traditional hotel industry was being worked at is completely changed forever. And especially with the largest pieces of the pie being in the sub-three star or three-and-a -half star category, where we operate. And so we believe that the opportunity to create a multi-billion dollar company in this space in Southeast Asia is absolutely ripe. And obviously, there is going to be a lot of post-pandemic travel, and a lot of post-pandemic economic growth. Therefore, the opportunity is there. From a company standpoint, I think we are one of the few guys who actually survived it. And we've also done a good job in ensuring that our hotel partners are comfortable working with us and our employees are happy working with us. And we managed to build a business with sufficient margins to take us to the next level. So from a learning perspective and from last-man-standing perspective, RedDoorz is well poised. Once the macros improve, I think we can definitely achieve the goal of being the largest hospitality company in Southeast Asia.

ALAN  13:13  
Well, I can say my family is absolutely well primed for some serious "revenge travel". So you can count on us as being good customers going forward. Now Amit, maybe continuing on the topic of consolidation. Do you view the short-stay market is offering any interesting M&A opportunities?

Yeah, there are a lot of M&A opportunities. We started looking at a few players, because let's face it: the pandemic has battered a lot of companies. And therefore there are a lot of opportunities, but a lot of the M&A opportunity is small. That means there will be a fair amount of work required to actually consolidate that M&A, and bringing it together under the fold of a larger company. But I think the opportunities definitely exist.

ALAN  13:56  
Excellent. Amit, how are we working with that small hotelier in April of 2021, relative to, for instance, a year ago?

In March of 2020, pre-COVID, the situation was that everyone was in growth mode, including us. So we would actually have a different economic arrangement with the property owners. And what that really mean is that we would have to hit a particular threshold before we would take our margin. That was just the competitive nature of our competition and so on and so forth. Of course, during this COVID period, a lot of sanity has come in. The competitive pressures have reduced significantly, and the economic arrangements with our property owners are such that we started making margins from the first transaction itself. Plus there is a sign-up fee. Plus there is a lot of other economic stuff, which I don't want to get into right now. What it really means is that the economics of our business now looks much better. And we can actually charge our property owners for the value which we provide to them. And from the consumer's standpoint, we've continued to offer great value. So from a company health perspective, or a unit perspective, we're doing much better. Of course, the hotel owners can do with more occupancy. The average occupancy can be anywhere between 30% to 40% in some of the markets in Indonesia. That's not a great situation to be in. But having said that, we've tried our level best to make sure that they have a lot of benefits in terms of relatively higher occupancy, and some cost saving initiatives, which our property owners can also use.

ALAN  15:32  
Understood. Now Amit, it doesn't stop with RedDoorz. You guys have rolled out other brands. Can you tell us about that?

The way we're looking at hospitality per se: we need to have a solution on every property owner, or every kind of property owner. So, RedDoorz is a good solution for a two star property owner. But anyone who has a two-and-a-half star, slightly cooler, slightly better property, and sells five $7 more than RedDoorz; we have a brand called SANS. And then we have a brand called Sunerra, which is for the three-and-a-half star property owner. And for the extended stay market, we have KoolKost. So RedDoorz has a multi-brand strategy. It's simply because the idea is that RedDoorz should have a solution for every kind of property owner. 

ALAN  16:16  
Understood, very interesting to hear about the market diversification. Continuing in the same vein, can you brief us on some of RedDoorz's most exciting future initiatives?

Every bit and every process within the company is actually being re-engineered and being automated. The idea is that we want to be a smarter company, use more technology. The technology pre-COVID was just being used on the customer side or on the pricing side. Now we also focus on the back-end, on the cost saving side, not only for us, but even for our property owners. So a lot of initiatives which are underway right now are around that. But I think going forward, the vision (and we've kind of worked around it in the past) is around automation, less interaction with guests at the property itself and automated check-ins. People check-in with a QR code. It automatically activates their WiFi. It automatically gives us a signal that the person is in the room, and so on and so forth. With a lot of initiatives like that, we've taken baby steps on, and being worked on at a slower speed. I think the need of the hour now is to automate, save money for ourselves and for our property owners. The other thing which we are working very hard on is to keep improving our pricing engines, because a lot of the logic which we used in the pre-COVID days has disappeared. So we almost had to retrain our AI to price properties based on the current scenario.

ALAN  17:46  
Now Amit, you've referred to a number of times in which you have pivoted or at least enhanced the business model. How do you find property owners responding each time you do that?

Property owners have responded extremely well. In fact, we are very proud of the fact that we have built a long-term relationship with our property owners, even in the pre-COVID days. RedDoorz has a reputation of being fair, honest, responsive and transparent in all of our dealings, unlike some of the other people in the industry itself. So, we have a lot of goodwill in the kitty. So when the situation became really bad, and we had to go back to our property owners to actually renegotiate or put the facts across the table, they were surprisingly very, very understanding. And they did believe that we were their partners with their best interests at heart. And they made our job much easier. We had very little attrition. Almost all our property owners are still working with us. And we are very proud of that achievement.

ALAN  18:48  
Let me apply the same question to the team at RedDoorz. With these transitions, both exogenous such as the pandemic and internal; how have you thought about managing people during this period of rapid transition?

One of the key things from my initial comments on culture is that we build a culture from the start which was fairly transparent. And we have an intelligent bunch of folks who work with us. They're all reasonable people. This pandemic was happening for everybody around them. And so we explained to them what we were doing, our reasons for doing it, and our plans to reverse any negative steps in the future. Let me give you an example: When we decided to do a salary cut, we explained to our folks that if we hit certain targets by these months, we will reverse the salary cuts. And then the team actually rose up to the occasion, really, really worked hard, achieved those targets, and then we reversed the salary cuts. So, we try to do things in a very transparent manner. And that really helped. And we also realised early during the pandemic that not everybody was reacting in the same way to the pandemic. Some people took it really personally. And the anxiety levels and their own well being and the well being of their loved ones was paramount in their mind. And anxiety levels were hitting the roof. Then we got counsellors in. We got them to speak to our people in an anonymous manner. Then we extended that to a larger group of folks, even beyond our RedDoorz employees and so on. That's been our approach so far, and it has worked for us.

ALAN  20:29  
That's great to hear, Amit. And it's frankly great to have such a seasoned entrepreneur on the show. You've also shared some very interesting initiatives Amit, and great to finally drag you on to the Indo Tekno podcast. I've heard many anecdotes around your strategic decisiveness, your interpersonal warmth, and many other elements. And I have to say, they all seem true as far as I can tell. But seriously, thanks again for joining us today.

Thank you so much, Alan. It is my pleasure to be on your show. I look forward to meeting with you sometime soon.

ALAN  21:00  
Absolutely. Let's set up that coffee date. We hope our listeners have also enjoyed today's episode. As always, please consider sharing any feedback that you have about the Indo Tekno podcast with us. Terima kasih telah mendengarkan. Sampai jumpa lagi!