1Mby1M Incubation Radar 2010: Hospitality Star

By guest author Praveen Kumar

Hospitality Star offers end-to-end solutions based on a SaaS model for the hospitality industry (hotels, casinos, food and beverage, and educational institutes) in the areas of learning, knowledge management, procurement, and business process and reporting solutions.

Hospitality Star, which has its corporate headquarters in Singapore and offices in Pune, Dubai, and New Jersey, was founded by CEO Sandip Labh, who has over fifteen years of experience in the hospitality industry, process innovation, and training and has headed Six Sigma for Asia Pacific for British Petroleum (BP). Prior to working at BP he was an area director with Starwood Hotels, a global hospitality company. The co-founder, India operations head Avinash Gavande, has an MBA with a specialization in finance and is a successful entrepreneur, having previously co-founded a profitable company. During his last assignment with BP especially, Labh saw how technology was used to sort out the most complex issues effectively, planting the seed for this venture. The hospitality domain is extensive, which is is one of the reasons the company chose it as the first vertical. After long discussions with some of the senior-most people in the industry, the founders were able to clearly identify pain points. Once the problems were known, creating the remedy was possible.

The company has created three platforms, one each for hospitality procurement, management, and education (the Hospitality Star University). The procurement platform has services for both buyers and sellers. Sellers can create virtual stores, manage promotions, manage requests for quotes and invitations for bids, and set up auctions. Depending on the level of buyer, a yearly subscription for these services costs $4,990 or $24,990 with transaction fees of 3.9% to 3.4% of total sales volume. Buyers, who have many of the same services available, can also search for sellers. Subscriptions range from $1,200 to $19,500 a year with a set-up fee of $9,950 for the highest level of subscriber. The management platform includes applications for knowledge management, talent management, business processes, surveys and audits, and reporting for rooms, food & beverage, and other metrics. The education portal includes on-demand content, record and tracking systems, and blogs and forums so that students can interact. At present, the main revenue streams are e-learning sales. Subscription and set-up fees and revenue from outsourced services, including HR, marketing, knowledge, surveys and audits, and advertising, provide additional revenue.

When Hospitality Star entered the market, there were few competitors, and most of them were not using e-learning as specialization or offering solutions based on cloud, SaaS, and PaaS models. At present, there are multiple competitors that provide solutions in individual niches. For the e-university, competitors include content providers such as eCornell or EI-AHLA or learning companies such as Educomp. For the hospitality domain in general, Hospitality Star aims to compete by offering higher ROI, reduced cost of ownership, no capex, automated reporting, standardization, scalability, ability to shut off the platform as necessary, and 24/7/365 service. Most important, it aims to distinguish itself as a comprehensive, end-to-end service.

The global hotel industry (hotels, chain restaurants, and casinos) is around $1.9 billion. The industry is growing at 18% annually, and this growth is expected to over the next five years owing to a huge gap between supply and demand. The Indian market is growing especially fast. The company’s target segment is mid-sized fast-growing chains worldwide because it believes this approach will ensure organic growth. To get traction, Hospitality Star approached selected hotel groups which it saw as being in a growth phase. The company’s approach was to emphasize pain points and showcase how their product brings value. The pain they identified was around training large numbers of new hospitality workers; thus, e-learning was the core value proposition that they zeroed in on. Also, the company gives prospective clients a free trial to play with the product. Hospitality Star has several customers in the mid-market in India and Southeast Asia, including Alila Hotel Group, which has eleven leisure properties worldwide, Sarovar Group, with thirty-eight hotels, and Bergruen Hotel, with three hotels and another two to be added this year. Labh and Gavande plan to penetrate deeper into this market through the use of social media.

The company is largely funded by promoters, friends, and relatives. The founders have never tried to reach out for seed or angel funding. It borrowed a small amount from banks in the form of working capital and term loan facilities. But Labh and Gavande have generally been bootstrapping till now and are contemplating various ways in which they can grow their business; they think seeking angel funding will help them. Hospitality Star intends to seek around $500,000 by this year’s end. The founders are looking for an investor who aligns with their overall business objectives and who can help not only in monetary ways but also through expertise in the fields of e-learning, hospitality, or both. Current revenues are around $200,000.

At present, the company has a focus on the Indian market, but in order to grow it intends to expand its presence in Southeast Asia and the Middle East in the immediate future and to enter the U.S. and Chinese markets in the years to come. As of now there are no thoughts of exit, and the founders would ideally like to continue the business and pay off investors in the form of dividend payouts, but they are open to various other options such as an IPO or M&A exits, whichever is most attractive based on consultation with investors.

Hospitality Star presented at Sramana’s 1M/1M roundtable on August 5, 2010. The recording of the session is here. You can also find Sramana’s recap here. Sramana advised Labh that they should make e-learning for hospitality the core focus and skip enterprise resource planning (ERP) and procurement for now. For small companies, focus is critical, so they should not waste precious resources – engineering, marketing or sales – in building ERP and procurement solutions at this stage.

This segment is a part in the series : 1Mby1M Incubation Radar 2010