In this conversation, they discuss the travel industry post-COVID era, private vs public fundraising and dealing with the crisis.
Rajesh Magow is the Co-Founder & Group CEO, MakeMyTrip Limited that runs and operates India’s leading travel brands MakeMyTrip, goibibo and redBus. A part of the founding team that built MakeMyTrip from ground up, Rajesh led the successful transition of MakeMyTrip into a public listed company and drove its successful listing on the NASDAQ in the US in 2010.
Listen to the podcast to learn about
01:30 - Experience of crisis and lessons learnt
06:38 - Advantage of being a small startup in navigating the crisis.
10:53 - Fundraising in Private VS Public market
15:04 - The path to profitability
18:39 - Travel industry post-COVID era
23:50 - Message for young entrepreneurs on building a travel startup
26:21 - How Rajesh stays calm during the crisis
Read the complete transcript below:
Amit Somani 0:46
Welcome to the Prime Venture Partners podcast. Today, I’m delighted to have with me, my former colleague, boss and friend, Rajesh Magow, the group CEO and Co founder of Make My Trip. Welcome to the show Rajesh.
Rajesh Magow 0:58
Thank you Amit.
Amit Somani 0:59
Rajesh, I have obviously worked by your side in the trenches for a few years at Make My Trip. But I call you the man for all crises. And so I wanted to dig in during this COVID-19 time that we’re recording this podcast on the various crises you have seen in your career, particularly at Make My Trip. I can think of 9/11, the 2008 financial crisis, you know, Kingfisher and now COVID so can you take us through a little bit of your experiences with these various crises and what you learn through all of these?
Rajesh Magow 1:30
Yeah, sure Amit. And you’ve been very kind today. So thanks for that. But let me just give you the learnings over the years of going through all kinds of crises that we’ve had. And I think before I start there, you know, I think it’d be fair to say overall travel business is a very cyclical business. So it does go through many cycles, and over the two decades now, of Make My Trip, actually, full two decades, because when the company was incorporated in year 2000, we’ve had our share of many mini crisis, big crisis and this one seems to be probably bigger than all of them put together and let’s talk about that in a bit.
But, you know, be it like you called them out whether it was a financial crisis or SARS early days or it was 9/11 early days, or also the fact that you know, couple of airlines have gone down not only Kingfisher, but you know, just recently this pre-COVID, we also witnessed Jet going down. So, there has been no dearth of the difficult cycles and some of them are led by macro crises. And clearly, from our point of view, there has been a tremendous amount of learning so you know, while you walk into this probable mother of all crisis, you definitely have some learnings with you from these crises when you have gone through some of them and weather that storm.
And I guess when you look at some of these learnings from the past, you know, there are a few that come to my mind very quickly. And then we can go deeper into it. But just on the top of my head, the most important one is that, a lot of the times what happens is when you’re hit by a crisis, which you weren’t really expecting, then you tend to panic. And I think if there is one thing that you have to control at that point in time is to take a step back and not necessarily panic and overreact. Because it’s time for you to actually absorb very quickly and think through and not necessarily overreact. And then more you start thinking about it, at least, you start more towards finding the solution.
Even in the difficult times, first taking stock of what’s going on, it also becomes a very dynamic and a fluid situation typically. And you know, when we were hit with the crisis earlier, we were very, very small. And it was probably relatively speaking pretty easier. Now, I can say so hindsight, looking at now for the last couple of months, this particular crisis, that maybe that was almost like a cakewalk, to be honest but, and the reason for that is probably there was, you know, we were small and this the size of the company was small. And we were able to just, we were on our feet, we were quick, we were agile, we were like a startup-like we were also not public, you know, and that adds to another level of complication as well.
And we were able to just probably take it a little bit more calmly and thinking through and focusing more on confronting the problem rather than just getting panicked and then overreacting out of it. So that’s really the big one. And then, obviously, you have to just probably divide the problem into two, which is, what is that you need to do especially, you know, the crisis which will probably question your existence.
So these will be existential crisis. You know, if you talk about now COVID, it clearly is more like an existential crisis. So what you need to think about is, how would you survive first? Right, rather than just thinking about anything else. So that’s definitely one track that goes in that, how do you, what is your strategy to survive first? And then the second parallel track, whether you like it, or you don’t, you also have to figure out your path to recovery and how you come out of it.
And how are you going to rebuild the whole thing. At a just a very fundamental level, this is how you typically approach it, if I may just say so, clearly, by no stretch of imagination, this is an easy task to do, it is extremely, extremely difficult, it is rough, it is painful, but you know, you don’t have a choice, but you know, basically you have to just keep your head down and try to just navigate now through this crisis.
Amit Somani 6:01
Great Rajesh. So clearly one is to stay calm. Don’t panic. Number two, take control of the situation. Because you have to confront it and get through it. I want to pick on two things you said. One is that when you were, as a company younger and smaller, it was easier to navigate the crisis. That seems a little counterintuitive. We have a lot of young entrepreneurs listening to this podcasts. They’re thinking, I’m a small company, don’t have a balance sheet and don’t have cash. And you also said something about being public, it’s also a little bit more challenging. So can you elaborate on the advantage of being small? And in what way can people take that to their benefit?
Rajesh Magow 6:38
So if you think about small, the difference is that when you have reached a certain scale and size, your cost structures have also bloated. So when you start looking at a scenario where there is no revenue, literally as the case has been for the last couple of months, so when you have no revenue all what you have to do is to just then fall back on your balance sheet and the war chest that you typically have. Suddenly that war chest which was in a business as usual case which was looking healthy, suddenly when there is no revenue it starts to look pretty small because your fixed costs are very, very high.
And when you’re small and young, your fixed cost is not that high. You know you can also take those decisions very quickly to optimize some of them. When you large you know like in our case 3000 people on roll, three brands now, Make My Trip, Goibibo and Red bus and also having on third party rolls another 3000 people. So suddenly we have to start thinking about 6000 people fixed costs besides the facilities, the infrastructure, the tech infrastructure and overall, all the components of the fixed cost that you needed to to look at, keeping in mind the the war chest that you have on our balance sheet that you will have to to fall back on. So when you link it with the two, then it becomes far more complex.
When you are small, I think, yes, in terms of the resources that you might have or the challenge will be there in terms of probably raising more capital. But the fact that your cost will be very, very low for you to be able to just, the amount of money that you need to take care of, the crisis time to manage your costs is not necessarily as big an ask. So I think from that point of view, it only helps. Now in terms of private setup versus public setup, it’s a lot more complex because, just the stakeholder management, the investors, you know, the level of scrutiny by the investors, institutional investors and all that is far more in a publicly listed company, especially in company listed in the US versus the small startup.
Because young startup has a board that they are accountable to. With the public listed company, you have many considerations, you have reporting requirements, and you have an analyst community that you have to just deal with. And you also have the investor’s perception that you have to deal with on top of it, what also makes it even more complicated that in a private setup, the valuations and all that, yes, that might get impacted. But at the end of the day, it’s probably easier for the startup founders to go back if the fundamentals of the business haven’t really changed.
Take a long term view still pitch for some correction in the valuation in a private discussion, but in a public limited company, given that it’s all out there and it’s also very quickly benchmarked with the other peer group etc. Then it makes it far more difficult, because you know, the stock markets have fallen and there has been a panic reaction and so on. So I think many ways it becomes more complex and complicated when you are a large and public listed company more so during the crisis time, actually, there are many, many advantages when you are a public listed company in terms of the platform that it provides you and the peers that you can be compared with globally, when the business is as usual. But when there’s a crisis, then obviously then the opposite is true as well.
Amit Somani 10:25
So Rajesh, I know you’re also on the board of Flipkart and you have been for a while. Why are companies like that that are quite successful choosing to not go public? Of course, the crisis is right now, somewhat of a black swan event. But in general, you noticed larger and larger companies, including in India, the likes of Flipkart and many others unicorns and so forth. Is it just the public scrutiny? Or is it that it’s been easier to fundraise in the private market? Maybe just your thoughts on IPOs
Rajesh Magow 10:53
Yeah, sure. Sure. Amit, it’s a very good question and I think it’s more the later. You know, what you just mentioned of late if you look at it for the last what, you know, maybe about 10 years now, definitely seven, eight, where the private market in India private capital market in India was very, very hot. I mean the amount of capital that India attracted, especially the internet tech stocks it was very, very good. And that ecosystem actually became far more stronger.
There were a lot more private equity players, the VC ecosystem and institutional investors looking to invest in the private stocks, the ticket size has increased. So, you go to the public market, definitely one of the reasons for that is access to a larger pool of capital. And that was available in the private space. So, therefore, probably, while you were on your journey, and a lot of these internet stocks were not necessarily profitable, or probably had the line of sight to profitability in the last few years as they were going through their growth journey. I think it was a sensible decision if the pool of capital available in the private space.
And you know, and maybe there is also an advantage of well, I actually call that particular advantage a short term advantage of higher valuation. And we all have seen that that happened in the Indian market as well. But that eventually catches up in my view, so, eventually you will get to a point you will probably enjoy the benefit of you know, private setup, higher valuation relative to the public market valuation, but that will catch up because eventually you would have to think about liquidity option which is the second most important reason that you go to public market unless you want to do you kind of an M&A deal or think of any other exit routes.
But, you know, a lot of the companies will have to then fall back on the public market for exit options. So when you look for those exit options, I think it catches up the overall valuation. And we’ve seen, you know, many examples of companies going public and then valuations coming under stress so, so that I would call it as a very short term advantage, but the the availability of capital was perhaps the one and combined with the fact that it gives you more flexibility to continuously keep going on growth path, you know, and not necessarily, one has to just be probably,in front of the higher level of scrutiny and so on.
So, the primary reason, definitely availability of more cash that probably led to that. But having said that, if you look at even for Flipkart, so the transaction happened now they are part of Walmart and Walmart is a listed company. So, from that perspective, now, at this stage of Flipkart, while the entrepreneurial kind of environment continues, but at the end of the day, they would be, there are majority held by a US listed company now.
And similarly I am definitely sure that many of the other unicorns eventually will have to start thinking about paths to profitability. And then trying to look for an exit route and one of the exit options would be, a public listed company. So I think eventually you will have to go down to that path. And it’s just a matter of, this whole journey and in you know, if you see that the journey is going to take long and during that journey, you can, afford to have this availability and you can afford to have private capital, why not.
Amit Somani 14:26
Rajesh, there was one more thing because particularly given your finance background, and you were also the CFO when when Make My Trip listed, which is that, having strong fiscal and sort of corporate governance and this focus, like you said, on unit economics, contribution margin profitability, somebody just recently said, you know, profitability is a new product market fit. That also I think if you’re on the path to listing for an IPO or whatever you keep those things quite intact. Do you believe that because otherwise ends up being that you just want access to capital and you just grow, grow, grow at all costs, and therefore when you suddenly say oh, now I have to go to the path of profitability, that ends up being a very tough ordeal.
Rajesh Magow 15:04
So, you know, I see this as a stage of a complete journey and various stages of the lifecycle of the business. So, they will be stages where you would need growth capital and during that stage and again it will vary from business model to business model, it will vary from different organization to different organization.
So, when you follow very carefully your stage of the lifecycle of the business from a buildup stage to a growth stage to a mature stage where you will have some line of sight to profitability, that will be the journey. Now, during and how long a particular stage of life cycle will vary from company to company will vary from business model to business model.
And I think the most prudent thing to do is to make sure that we don’t lose sight of these stages and get carried away with only the ability of capital that you have I mean, you know, there are n number of examples that you could look around without calling them, where there you would see the examples of people getting carried away on one particular stage of life cycle of growth by, getting more capital as a fuel and, you know, going very aggressive, more price disruption more than anything else, I’m not sure that is long term sustainable.
Now, coming to your point of, the fiscal discipline, corporate governance and all, most definitely, you will have to have that in place. Actually, I would first link it to the scale of the business, I actually fundamentally believe that you are not necessarily able to scale the business, depending upon what your scale ambitions are, scale the business very well, unless you have some method to the madness. I mean, you know, you can’t just be completely going haywire.
And that brings in some sort of operating discipline that brings in some sort of fiscal discipline as well. And as you enter that level of maturity, so, as you enter that stage of life cycle where your business model is maturing, you have good repeat rates coming let’s say B2C business. So, you have reached a good decent market share, you have reached a level of maturity where there is a lot of repeat business coming in, you are already getting on the cost side economies of large scale, you are entering into that stage. Now in that stage, then you can’t not have the fiscal discipline.
Maybe you can get away during the growth phase a little bit. But as you go along in that stage, you will not be able to do it because if you do that mistake, then you will slip away and then you’ll get pushed back and then you’ll have to restart again. So I think it is very important to bring in that fiscal discipline, corporate governance for you to be able to then think of a clear roadmap to go public. That is the way I think the journey plays out, at least in my own learning experience.
Amit Somani 16:41
Fantastic Rajesh! So switching gear, let’s talk about travel. It clearly is one of the worst, if not the worst impacted sector in the economy, retail or physical retail probably comes close. So, you know, how are you dealing with this? And what is the macro kind of view in the world, since you’re also listed in the US you have, follow China, etc. So can you talk a little bit about travel and what your assessment is, what the broad prognosis is?
Rajesh Magow 18:39
Yeah sure, like I said earlier, is definitely one of the worst hit, one of the biggest crises that we’re dealing with in the travel space, the overall category, and the whole of travel, I mean, not necessarily only intermediary space, but also the whole of the travel ecosystem. So travel and tourism are put together and including civil aviation, hospitality and so on. So, if I start looking at, again, like I said two, phase two parallel tracks,one right now that the track that is going on clearly is that the whole of industry is trying to see, how do we survive this crisis? I mean, all the players, I mean, invariably, there are going to be casualties, it’s going to be extremely painful and so on.
And I think it’s all a function of, you know, the resources that you have, how well you manage your costs, you know, during this phase, and your ability to probably raise more capital in terms of just having additional resources at your disposal for you to be able to manage this crisis, and more so in COVID case, it seems like that it’s going to be more of a long haul than a short haul. And the speed of recovery is also going to be slow and various estimates going around in the industry.
But you know, from my point of view, I do think that for an industry to get back to pre-COVID level of the peak, probably it would take around two years, if not more. And therefore, you know, these two years are just going to be rebuilding phase and slow and gradual recovery. And that probably is going to be true globally. I think one of the worst hits out of the overall would be or maybe the biggest change that will happen is that I think the focus is going to get shifted to, from global tourism, to domestic tourism.
I think it’s going to be across the globe, the international travel, the global tourism is going to take a long time to recover, probably is going to be the last one to come back. Yes, some of the countries might be more aggressive. I mean, we’ll have to wait and watch. But all things considered. I think this is going to be a fundamental shift that will happen in India. It is already happening in China. To give you an example of China, we’ve been watching very closely given Ctrip has been on our board as well. In fact, we’ve been learning a lot from them, and China is definitely showing some hope out to the rest of the world.
You know, in terms of just, the way they are recovering in their travel space. So there the recovery has already started. In fact, domestic, they did see some pent up demand, you know, right after the lock downs were lifted, etc. in their country. It’s slightly different because unlike in India, the country was not completely locked down. But whatever it was, it started there. But it has started to recover. The domestic business has come to about 60% level already. But there’s no signs of international travel starting there as well.
And similarly, I think in Europe might open up within the European Union. Some of the countries might open up the borders into the country, but not necessarily, long haul flights and so on. So, I think the global tourism is definitely going to be taking time, I don’t think India is going to be any different, I think India will also be a lot more, the recovery will be led by domestic travel and then within domestic will be a lot lot more essential first, some work related travel, and some, kind of leisure destination.
I think the only other hope that might change, this whole speed of recovery, if you will, will be if there is an announcement of a cure or a vaccination. So let’s say by December or you know, in the next 9 months to 12 months, we have something that is announced, which is credible, then I do think that changes a lot because it would address a fundamental concern in people’s mind. And that is fear and apprehension right now. So if that gets addressed, things might change. And we would certainly be hoping and wishing for that. But all things considered at this point in time, it doesn’t look like the recovery is going to be very fast.
Amit Somani 23:13
Wonderful. If you’re a young entrepreneur and thinking of starting something in the travel sector, you know, people always say some of the best companies are built during downturns, even Airbnb in the travel space, although like everybody else they’ve been hit recently, was started in the year 2008-2009 financial crisis. What would you encourage them to do in terms of thinking about ideas, right, because you’re obviously the 800 pound gorilla, certainly in India. But how should a young startup who’s just starting up now think about starting up and travel, think about opportunities or scoping out opportunities. Or would you say stay away? Don’t bother. We are all just surviving right now.
Rajesh Magow 23:50
No, I don’t actually think that people should stay away. I’ll tell you why. Because, you know, every crisis actually presents an opportunity as well. And I think right now everybody’s business model is getting challenged pretty much. And that is also one of the potential learnings from the past and more so now that you know you, everybody is kind of busy reimagining the new normal new business models as well. And also looking at opportunities, different ways of doing it.
I think this COVID has taught a lot of people a lot of the new things, the operational protocols, the reimagination of the new business models, the new opportunities, new avenues for monetization, etc. And I guess that is that is the exercise that’s a that’s kind of I’m sure will be on everybody’s mind of all the existing businesses. And for a new startup, actually, you know, one has to just obviously, see I never fundamentally believe that you should set up a startup thinking two years, three years time frame and you know, let’s just do an experiment, see if it works. Otherwise, you know, we let’s just get out of it.
And therefore, if you are actually taking a long term view of thinking through about the space, I don’t think the excitement around this space changes the opportunity around the space changes. In fact, it does open up in many ways, new potential business models, new potential ways of in the post COVID arena, addressing the new normal of travel.
So, there could be interesting niches that could potentially emerge out of this. So, I would actually encourage the people to continue to keep evaluating, I mean, you have to evaluate the space relative to many other spaces that would be open when you’re thinking about starting a new sector or a new startup, I mean, you can pick up any sector and a lot of people they will be always tendency to go for more hot sector but I think for evaluation criteria, should not be because it should not be limited to the crisis-hit industry should be more thinking the space, as if there was no crisis and more from a long term standpoint. I’m pretty sure actually that you know this will give birth to some of the interesting new innovations in the space as we go forward.
Amit Somani 26:21
Great Rajesh! Rajesh, since I’ve seen you personally in action, you have a very Zen like demeanor right and which is why I reached out to you for this podcast. So what do you do on a regular basis to stay calm and composed? I know you love sports, I know you play cricket, probably badminton and many other things, maybe just a little bit on your personal self on how you stay in control. And like you said, not in panic sort of more in Zen mode.
Rajesh Magow 26:44
Yeah, if there is one thing that I’ve been actually missing because that used to be my meditation, and then you know, I used to play cricket regularly but of late for the last couple of years I’ve been more into having my regular game in the morning. And that was my meditation because it helps me, you know, stay in the game and not think anything else.
So I if there is one thing that I missed a lot was actually during this lockdown was that, unfortunately. But then what do you do? What’s your fallback? And you know, what I’ve tried to do is to fall back on two things. One, I like to then walk and with my earphones on and some music on and all of that or some audiobook and then walk. And then the other thing that I was never big on my wife was Manju that you know well, and she has been after me for yoga and all and now it has been a perfect time for me to actually make her happy. So I’ve been learning some yoga exercises as well and doing some routine or at least alternate days, some yoga exercises as well.
So I think that helps, but I think I’ll be lying if I would say to be honest, if one would say that, yes, I’m preaching that one should not panic that the mind will not be occupied, mind is tremendously occupied with all the challenges right now. But what you have to do is to make sure that you keep doing your best, and not necessarily lose your calm and cool.
And whatever that works for you personally, and, and various things work differently for various people. Sometimes, for me, actually, going deep into the issue itself is kind of, a bit of, you know, I wouldn’t say it’s a relaxing thing to do, but it’s a bit of, just get it out of the way confront it and get it out of the way is one way of dealing with it. But whenever you are able to get some time, then you fall back on some of these things. So I’ve learned some yoga asanas of late.
Amit Somani 28:49
Wonderful! So on that lovely note, thank you so much Rajesh for being on the podcast. It was truly a pleasure to have you here.
Rajesh Magow 28:56
Thank you Amit. Thanks for the opportunity.
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