Unlocking the secret to startup success

Annabel Denham
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Annabel Palmer talks to the co-founders of Secret Escapes about their adventures in the online travel industry

IF YOU watch television, it’s likely you’ll have been exposed (and possibly raised an eyebrow) to Secret Escapes’ marketing campaign – arguably the most provocative advert since Cindy Crawford donned denim hotpants for Pepsi. Brand ambassador Camilla Arfwedson’s loud whisper about the “worst kept secret in luxury travel” has not only propelled her to a stardom on the BBC’s Holby City, but has helped the business acquire over 4m members.

Secret Escapes is a members-only travel club, selling heavily discounted luxury hotel stays and holidays to anyone who signs up to their newsletters. While global online travel sales reached $524bn (£329bn) in 2012, most hotels will experience quieter periods where a chunk of their rooms are empty. And herein lies the genius in Secret Escapes’ business proposition. Hotels, for minimum effort, can flog their spare rooms at lower prices – generating revenue they otherwise would have missed.

It’s backed by a mixture of well-known business angels including Alex Chesterman of Zoopla and William Reeve of Lovefilm, as well as Octopus Investments, Atlas Investments, and more recently Index Ventures. In the seed round, founders Alex Saint and Tom Valentine raised just under £1m.

It was 2010 when the pair spotted a gap in the market. Britain, they say, was primed to expect a consumer brand offering luxury travel deals. Saint had previously launched travel price-comparison website Dealchecker in 2005 (acquired by Easyvoyage in 2011). He and Valentine, who had a long history working in e-commerce, were introduced in 2010. Valentine had been working in fashion flash sales (the e-commerce business model championed by companies like Groupon), but was unconvinced it suited that industry. “When flash sales sites work, they work incredibly well. But fashion was incredibly tough because of supply. When I met Alex, it became clear that combining the flash sales model and the inventory that’s accessible from spare hotel rooms could lead to something amazing.”

Their extensive experience in travel and e-commerce meant they knew early on that the business would reach sustainability. In those first weeks of trade, when they were doing just tens of sales a day, they had benchmarks to compare the uptake to, and a set of tools to make changes if a metric wasn’t working.

But online travel is often viewed with cynicism – with consumers worrying that some businesses could cease trading, leaving them out of pocket. So the pair initially focused on weekend breaks, rather than longer trips abroad. “We knew we would eventually serve both types of holiday purchase. But when you’re working with a new brand, the trust barrier is lower for a shorter break. After six months, we started to add the longer trips,” says Saint. It’s a pattern they’ve followed in all new territories: focus on a local product to give people confidence; then introduce the bigger, longer duration deals.

They’re also convinced that TV advertising created a halo effect. “As the web has matured, the companies that have evolved into proper consumer brands remain those that use more traditional marketing methods. TV gives you stacks of credibility,” says Saint. Last year, the business doubled its UK membership, saw turnover of £75m, launched in Germany and Sweden, and made its first continental acquisition – of Berlin startup JustBook.

What is different about their business model, compared to the industry’s giants, is that the purchases their customers make are wholly discretionary. Elsewhere in the market, a consumer will be seeking a specific location on a specific date, and will use the internet as a travel agent. “We’re tapping into an entirely different part of the wallet. Our recent research confirmed that we’re creating incremental demand, convincing people to take additional holidays that they wouldn’t otherwise have taken,” says Saint.

As for the hotels, it was an easy sell. “We weren’t a dangerous business to them. All they had to do was give us the discount and block out some of their rooms for a week.” Today, they’re offering 150 deals every week, and their biggest obstacle is the counter-intuitive problem of not being able to spend enough money. “Our business is fundamentally a membership business, so the challenge has always been getting into the virtuous circle of acquiring more members, to get more deals, to attract more members. It’s the chicken and egg of trying to spend investor money wisely, while wanting to put your foot on the gas and bring in more members. Most of the stress has come from the cognitive dissonance of growing a brand while running a direct response marketing company,” says Valentine.

They’re unconcerned, however, about the bigger, more established and resource-rich brands in this sector. They are determined not to fall into the trap of losing focus as they grow, thus veering away from their central proposition. “Many competitors get flabby in the structures they build.” Instead, the real competition is for brand attention. “We’re in an awareness game now,” says Valentine. “Online travel is not always the most transparent industry. Many sites falsely claim to offer the biggest discounts.” Which brings us back to that shushing sound on our TV screens. “Our ad is just our spokesperson explaining why you can trust that the deals are real. That resonates with consumers, and explains why it’s one of the most effective direct-response ads ever made.”

The pair, both regular commentators on the UK travel industry and entrepreneurship, have just returned from Seedcamp. They offer budding entrepreneurs nuggets of advice including “to test, iterate and use data to build insight”. But ultimately, Saint thinks, aggressively raising money is the secret to success. “Dealchecker was a self-funded business, and you cannot underestimate the power of significant chunks of investment. You’re better off with a smaller percentage of something that’s amazing, than 100 per cent of something unexciting,” he says.

Company name: Secret Escapes

Founded: Late 2010

Turnover: £75m (2013)

Job title: Co-founder and chief executive

Age: 43

Lives: St Albans

Studied: Geography at the University of Nottingham

Drinking: Margaritas, Guinness

Reading: A Possible Life, by Sebastian Faulks

Heroes: Winston Churchill

First ambition: To play professional rugby

Motto: Believe in yourself above all things

Job title: Co-founder and managing director

Number of staff: 87

Age: 33

Born: Wimbledon

Studied: Psychology at New College Oxford

Drinking: Coffee, Maker’s Mark, Diet Coke

Eating: Carbs

Favourite business book: The Lean Startup, by Eric Ries

Talents: I’m quite good at Excel

Awards: I won the gardening cup at school

Most likely to say: Is there a world where..?

Least likely to say: Let’s just guess