My Favourite Failure: The dangers of diversification - Emmanuel Arnaud

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0:35Personio constantly adds new features like this to make your life easier and your company more successful. You can get set up with them incredibly quickly, which is great if you're time poor. So, if you're leading a growing business and want to offer a better employee experience for less effort, then book a demo at personio.com forward slash secret leaders. That's personio.com forward slash secret leaders. There's a link in the show notes. Within two years acquiring Airbnb, that was basically the plan. That's Emmanuel Arnaud, the CEO of Home Exchange. They're doing tens of millions of dollars a year through home swaps.

1:15But a couple of years ago, they saw another opportunity which could have been even bigger. It was a good idea, but they wasted years and a million dollars trying to make it work.

1:32Emmanuel and his team spotted something which they thought could lead to a massive exit. What we realise is that about a third of the homes on home exchange are secondary homes, and about half of those homeowners of the secondary homes also live their homes on platforms like booking or Airbnb or rent their home in some way or another. And the way they use our websites is that they're going to be renting their house typically in July and August, if you're talking about a beach home, and they'll be exchanging it in June and September so that when there's less demand and they can't get a full, they can't rent all their weeks.

2:17They're going to use those weeks to earn some guest points, and then they'll use those guest points to travel wherever they want. And what we also realized by asking them some questions is that they viewed our community as a safer community than the competing rental websites, because rentals are very much open marketplaces where anybody can come and rent your place out. And the rental marketplaces tend to give you incentives to have like a book now button. So you don't really have control over who's coming to your home. And so the idea there was to say, okay, so we have these people who are renting their homes and who trust our brands more than they trust other brands.

3:01and we already have all their home information. We already have the pictures. We already have the amenities. So why don't we create a community that's around rentals but that has the same characteristics in home exchanging in the sense that it's a closed community where they can feel that they find those same values which they like at home exchange but which is based on a rental business model rather than a home exchanging business model. So that rather than them putting their home on Airbnb or booking or whatever the other rental website is, they would just stay within our family of brands. And so we hesitated between launching it on the homeexchange.com platform or on another brand, and we decided to launch it on welcomeclub.com.

3:55They had past experience of launching new initiatives and then failing. which they were keen to learn from. We decided from the get-go and we convinced our board, we have two VC funds at our board, to invest about a million dollars. That was a ticket where we thought that something smaller, we had tried in the past to launch other businesses that would come and piggyback somehow on home exchange. And those were other faders, so other opportunities for podcasts. but those didn't work because they were sort of half-hearted. So we had tried to launch a, for instance, a guidebook. So the idea that, you know, when you come to a home, you are going to leave some papers saying this is, you know, how the fridge works, how the coffee machine works, the washing machine, the dryer, here's who to call.

4:48These are the nice restaurants around the house. And we felt that that usage was ready to become digitalized. And at the time, I think we put maybe, you know, 50 ,000 with a freelancer. And we sort of had a little bit of my time, a little bit of the time of our CMO, our chief marketing officer, and two people in product who were excited by the project. You know, everybody was sort of part time and we sort of had like a shoestring budget. And so that didn't work. And so we decided, OK, if we're going to do this, we're going to do it seriously. We're going to put some money on the table. And so a million had a nice round sound to it.

5:25They hired people, outsourced the building of the tech, we'll come on to that, made the thing, prepped the marketing, and then the big day. So the launch went pretty well in the sense that our strategic analysis of the sector was that renting was a little bit like dating in the sense that it's a marketplace with two sides, but one side is more desirable than the other. So typically, if you're doing a dating marketplace, you're going to often focus on having women on the app, because if you have the women, you'll have the men. That's sort of how the dating world works. And what we understood of renting is that if you had the homes, you would have the travelers like that.

6:10You know, Airbnb booking and all the others are always fighting to get homes. And so if we were able to get a good inventory, we would be able to get the travelers. Makes sense. And they executed that part of it perfectly. We had said that we wanted at least a 500 homes inventory and focusing on France and Spain. So we didn't go in all of our geographies. And we were able to achieve the 500 homes being one month late. And then the theory was, because we had the 500 homes, we're going to be able to attract enough renters, enough people who would want to go into those homes and that that's going to start a virtuous circle because you know things are the bookings are starting to arrive and it will be easy to attract other homes etc and we deployed a lot of energy on on getting it right on the homeowner side and we failed miserably on attracting people who wanted to go to those homes and i think it's it's interesting because we we made a huge number of mistakes but one of them was that the common wisdom in the rental space at that point was that if you had the homes, you would have the travelers.

7:22But I think we had read it over too literally in the sense that if you're Airbnb and you add a home, you're probably going to be able to rent it because you have the right kind of inventory and you already have those people who are looking for homes. But if you are an unknown brand who is trying to grow a closed website based on referrals, which was part of that value proposition we wanted to offer to our members was this idea that we were a club, hence the name Welcome Club. Then having the homes just meant that we had those homes where we had pestered the homeowners to put their availabilities online and everything for launch day, and nothing much was happening.

8:07We had some members of Home Exchange who were interested in it, who looked at rentals, but we definitely didn't get that momentum going. And then we spent the next six months trying to fix that, trying to change our value proposition, open up the website more so that it was a bit less referral-based and more SEO-based, do some partnerships, buy some traffic, hack some traffic. organized contests on social media. We tried a lot of things to try to get the website running. And in the end, what we realized is that while the home exchange community was a good provider of homes, because we had the information about the homes and we knew that they were already renting and we could safely put them on Welcome Club without competing with home exchange.

9:07We were competing with Airbnb or booking, but not with home exchange since those homes were already on Airbnb and booking. But we weren't comfortable doing the same thing for the travelers because when a traveler was looking, they were looking both at renting and home exchanging. And since our flagship was really about home exchanging. We weren't comfortable trying to push them rentals until they became cold. And once they were cold, they weren't interested anymore. So I think it was a pretty big failure and a lot of learnings there for us. There were problems from top to bottom. And then, you know, on top of those big strategic mistakes, there were a thousand small mistakes.

9:50the provider we chose for our website was really, really bad despite our due diligence and trying to choose the best fit for us. So he was late on many parts of the product and that really didn't help getting the trust of our members when our brand was supposed to be a much more trustworthy experience than the leading platforms. At the same time, we were ramping up our public affairs efforts to try to explain the difference between us and rental websites, because a number of municipalities around the world are regulating rentals. And we were finding ourselves in a conundrum where we were explaining how different we are from rental websites at the same time as we were trying to launch a rental website.

10:35And at the end, we had to pull the plug. They learned that the big challenge was the demand side, not the supply side. But Emmanuel also learned something vital about the way he operates, which could apply to you or people you work with. I was in charge of this project and I have a business partner, Shailua. And he tends to be the guy who thinks and who doesn't excel before taking action. And I tend to be the guy who acts and then try to think about why I acted that way or to act on intuitions and hunches. and I think this project was very much led with more of my vibe to it so the good thing about it is that we we gave it a try and we learned a lot in the process but my way of doing things implies that you're able to course correct very frequently that you know you have an intuition and then you realize it's wrong and then you you you do whatever you need to to do to be able to course correct.

11:36And that's something that worked well with my company when we were pretty small. And that's probably something that really helped us become the leader in our sector because we adapted to the environment and made a lot of mistakes. But we're also able to get out of the traps we fell into by making a lot of quick changes. And one of the things I realized leading this project is because our company, our main company, HomeExchange.com, has become somewhat bigger. And we're not talking about BP or a huge company. We're talking about a company with about 100 people. But nonetheless, it's a company with 100 people, a board, some VCs, business plan targets that everybody cares very much about.

12:26And because of that, there's a built-in rigidity that's actually really good to protect the business and its growth. But that also means that if you are going to build a side business where part of the business case is going to be to piggyback on the flagship business, then you have to be better at planning than I was and more deliberate in your understanding of the kind of resources you're going to need from the flagship. And I think at some point we have those conversations with my business partner where I was, okay, well, we need more travelers. Why don't you send more travelers my way to some extent?

13:03And he was, well, no, we can't do that because we have all these BP objectives and because this is our flagship. And I think that was an aha moment for me to realize that back in the days when, not that long ago, to be honest, we would have been able to do that a lot more easily because we were more in flux. But now that we have a much stronger value proposition and a much clearer brand and a much better sense of what we're doing and we're making tens of millions of revenue, then those kind of quick changes should not happen. And it's a good thing that they don't happen. But it means that if you're going to be planning something that requires those kind of changes, you really need to plan better in advance.

13:49So a big lesson for me is that next time, because I want to try building side businesses again, next time we do so, we have to be more explicit and deliberate on exactly what resources we'll need from the main company and factor it into the business plan and the objectives of the main company and say, okay, this is not money we're wasting or exchange opportunities that we're losing to the sort of competitor that we're creating. this is an investment we're making and we're okay with reducing our speed of growth on the main flagship because we're trying to help this other business take off. That was Emmanuel Arnault, the CEO of Home Exchange.

14:32Thanks for listening to this episode. I've been your host, Dan Murray-Serta. I'll see you next time.

14:42if you enjoyed this episode and found it useful please write us a review and subscribe wherever you listen to your podcast it makes a real difference and we genuinely love reading what you think we read every single review i've been your host dan murray surter and we'll be back next week with more lessons for entrepreneurs and leaders see you next time Thank you.