20VC Trivago Founder on Why Incumbents Have Lost Their Main Business Model, Why You Have To Destroy Everything Ego Related & Why Transparency Is The Key To Capital Flow

In this episode of "20 Minutes VC," host Harry Stebbings interviews Rolf Schrömgens, co-founder of Trivago, discussing the company's evolution and Rolf's entrepreneurial journey. Rolf recounts starting his first company during the dot-com boom, learning from early funding mistakes and maintaining control in subsequent ventures, including Trivago. He emphasizes the importance of transparency in markets and the role it plays in capital flow and valuation, especially as one moves away from venture capital centers. Rolf also delves into Trivago's non-traditional leadership and organizational models, designed to minimize ego and status, facilitate information flow, and encourage continuous learning. He shares insights on IPO decisions, the future of corporate life cycles, and the challenges incumbents face in adapting to disruption. Finally, Rolf discusses the potential for more transparent early-stage company evaluations and the importance of adaptability over long-term planning.

• Harry Stebings is the host of the 20 minutes vc podcast.
• Rolf Schrömgens, co-founder and managing director of Travago, is the guest.
• Travago is a leading hotel price comparison site.
• Expedia acquired 62% of Travago in 2012 for $531 million.
• Travago went public with an IPO on Nasdaq in December 2016, raising $287 million.

This is the 20 minutes vc with your host Harry Stebings at H. Debbings on Snapchat. And today, my word, do we have a special episode for you this founders Friday.

This quote introduces the podcast episode and the host, Harry Stebings.

In 2012, Expedia acquired 62% of Travago for $531,000,000, and in December 2016, Travago raised $287,000,000 through their ipo on the Nasdaq.

This quote provides background information on Travago's financial milestones, including acquisition by Expedia and their IPO.

• Rolf Schrömgens has been an entrepreneur since 1999.
• He founded Amiro, which later merged with Chow.com.
• At Chow.com, Rolf was the director of strategy and product roadmap.
• Rolf's experience with Chow.com influenced his approach with Travago.

Entrepreneur since 1999, when he founded Amiro, later merged with Chow.com. At Chow, Rolf successfully led the product launch of the company in his role as director of strategy and product Roadmap.

This quote summarizes Rolf's early entrepreneurial ventures and his role at Chow.com.

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• Rolf Schrömgens started his entrepreneurship during his MBA studies.
• He was involved in the first big internet wave in Europe during 1999-2000.
• Rolf's first company received significant VC funding but lost control early on.
• The experience with his first company impacted how he approached starting Travago.
• Travago was founded with a different strategy, focusing on self-funding and engineering by the founders.

Actually, Trivago was not my first company, so I was starting a company before what was called shout, and I started it directly during my studies, actually last years of my MBA, and I did that for pretty, I think, like two years.

Rolf Schrömgens discusses his first foray into entrepreneurship during his MBA studies.

So Trivago was basically, the first two, three years was 100% engineered by Peter and me, so by the two founders.

Rolf explains how Travago was initially developed by the founders without external funding.

• Rolf Schrömgens believes lack of transparency in the market can be problematic.
• He contrasts the internet boom of 1999-2000 with the current market situation.
• Rolf suggests that the current market has less volatility than in the past.
• He observes that transparency decreases and valuations get lower as one moves away from venture capital centers.
• The flow of capital and ecosystem development are affected by transparency.

I think it's always problematic if there's not enough transparency in a market, and we have seen the good and the bad of both.

Rolf Schrömgens highlights the importance of market transparency.

So maybe there is still a lot of capital. Maybe sometimes it's too much in the whole ecosystem in Europe, I would say it's a little more realistic.

Rolf gives his perspective on the current state of the market and capital availability in Europe.

Then every time, basically you're seeing that basically the transparency gets lower, so people have less transparency about the business model and the valuation gets lower, the flow of capital gets less, and that's why the ecosystem has a hard time to develop.

Rolf discusses the challenges faced by ecosystems outside of major venture capital hubs due to a lack of transparency.## Efficiency and Information in the World

• The world is becoming more efficient with more information available.
• This efficiency and information growth may lead to reduced intransparency in the future.

"And I think that is something that we will see because the world is becoming more efficient and we have more information."

This quote highlights the speaker's belief that the increasing efficiency and information availability in the world will likely lead to more transparent operations in various sectors.

• Founders can add value to startups by providing transparency and using their local market overview.
• Incubator models can help startups by standardizing internal control systems and making them comparable to other companies.
• Investors need transparency to understand a startup's business model and KPI system.
• A "batch" or guarantee from an investor that a startup's numbers are proven can reduce investment risks.

"So I think there might be models in the future where we will see that transparency has to go up in an early stage of the company."

This quote suggests that future business models should incorporate increased transparency early in a company's development to provide value and reduce risks for investors.

• The syndicate model, where one investor leads and others follow, can drive transparency.
• There may be issues such as free rider problems within the syndicate model, but these can be resolved.
• Different approaches to achieving transparency in early-stage companies are expected.
• Disruption in the business world is accelerating, and company life cycles are shortening.

"I think it's definitely one model which drives transparency, right?"

This quote implies that the syndicate model is one way to increase transparency in investments and could be part of the evolution of investment strategies.

• The traditional business models of banks, especially B2B models, must adapt due to the accelerating pace of disruption.
• Banks need to create transparency in markets where it is lacking, possibly by engaging with companies at earlier stages.
• Structured processes, akin to IPOs, may be necessary for banks to remain relevant and profitable.

"I think the model of the classical banks, at least the B2B model of classical banks, I think that it has to change."

This quote emphasizes the need for traditional banking models to evolve in response to rapid disruption and shorter company life cycles.

• Large incumbents may struggle to maintain their business models in the face of disruptive startups.
• The speaker is skeptical about incumbents' ability to successfully acquire and integrate startups to retain their advantage.

"I have a hard time to think about a scenario actually where they would basically aggregate and buy all these companies and would be successful with that."

This quote expresses doubt about the strategy of large incumbents acquiring startups as a means to sustain their market position amidst disruptive changes.

• Companies with outdated business models may face a dilemma similar to sailboat builders when steamboats were introduced.
• For companies with a legacy in a certain technology, transitioning to new technologies may not be the most value-creating decision.
• Companies need to decide whether to continue with their existing competencies or to venture into new areas where they may lose their competitive advantage.

"So basically you are stuck in that dilemma where basically your competency that you built up over a very long time in the past, that is not so much valuable anymore."

This quote draws a parallel between historical shifts in technology and the current challenges faced by companies with traditional business models, highlighting the difficulty of adapting to disruptive changes.## Corporate Competency and Acquisition Strategy

• Traditional companies may struggle to innovate in the same way as newer, dynamic companies.
• Acquisitions can be a way for larger companies to integrate new technologies and capabilities.
• However, integrating a small, dynamic company often leads to the loss of its unique culture and energy.
• The competency of buying companies should not be the sole strategy for growth.
• Private equity funds may be better suited for certain acquisitions as they can create more value without disrupting the company's culture.

"But if that is at the end, your competency to buy companies, do you not think that others are better in buying companies?"

This quote questions the strategic competency of traditional companies in acquiring other companies, suggesting that there might be others better suited for this task, such as private equity funds.

"In the moment where you interact with a company, which is small company, growing, with lots of dynamic capabilities, and you start to integrate them, basically, they lose their culture, they lose their power to go ahead and with that, you basically also lose all that energy."

This quote highlights the risk of losing a company's dynamic capabilities and culture through the process of acquisition and integration by a larger corporation.

• Trivago's decision to list on Nasdaq was influenced by the location of its peers and the desire for experienced analyst coverage.
• U.S. markets offer greater transparency and more in-depth discussions with investors.
• Talking to investors can be a learning opportunity for a company's understanding of its own business.
• European markets may not offer the same level of focus on individual companies due to banks covering a wider array of businesses.

"Every single one of them is listed in the US, so none of them is really listed in Europe."

Rolf Schrömgens explains that Trivago's peers were all listed in the U.S., which influenced their decision to list there as well.

"It's good if they really understand the market and of course, experience shapes that."

The quote emphasizes the importance of analyst experience in providing market transparency, which is more prevalent in the U.S. according to Schrömgens.

• Direct engagement with investors can reveal new insights about a company's performance and customer loyalty.
• Investors often have a deep understanding of the businesses they follow, sometimes more than the companies themselves.
• Roadshows and discussions with investors can lead to valuable conversations about a company's business model.

"And that was really impressing me how much more people look at you than you think."

Rolf Schrömgens expresses surprise at the level of detailed attention and involvement external investors have in Trivago.

"We want to go somewhere where there is a high transparency and where maybe they do not underestimate, but also do not overestimate our value."

This quote reflects the desire for a balanced and transparent valuation from investors, which Schrömgens found in the U.S. market.

• Ego can create a misalignment between personal goals and company goals.
• Status within a company can feed into ego, creating a hierarchy that hinders communication and information flow.
• Minimizing ego and status differences is crucial for maintaining open communication and fostering a learning environment.

"In the moment where there's ego involved, you have nearly automatically a deviation between the goals of the company and the goals of myself."

Rolf Schrömgens discusses how ego can lead to decisions that are not in the best interest of the company, stressing the importance of aligning personal and company goals.

"Every time you put more distance between you and somebody else, information is lost."

The quote illustrates how status and ego can disrupt the flow of information within a company, which is detrimental in a knowledge-driven business landscape.## Information Flow and Organizational Structure

• Information flow is critical to the learning and action pace within an organization.
• Hierarchical structures often impede the speed of information dissemination.
• Slow information flow leads to slower learning and action, which can result in a company being disrupted.

"Information is not flowing fast enough, the learning is also not fast enough. And that is also why in classical hierarchical organization, this is a big problem, because information is not flowing fast enough, learning is not fast enough, people don't act fast enough, and then they get disrupted, basically."

This quote emphasizes the problem of slow information flow in traditional hierarchical organizations, which can lead to a lack of agility and potential disruption.

• Advocates for leadership models without clear hierarchies to enhance information flow and learning.
• Titles are viewed as artificial manifestations of power and are therefore unnecessary.
• Reducing the distance between individuals in a company stops harmful comparisons.
• New leadership model at Rolf's company includes three types of leaders: responsibility lead, talent lead, and knowledge lead.
• The model encourages fluidity in roles, preventing empire building and maintaining organizational agility.

"We just started a leadership model which has really no clear hierarchy anymore, not even an unclear one... And then, of course, it gets more complicated to still organize the company in a way. But it's possible, I think it's really possible because we think, like, title is just a very artificial manifestation of power and you don't need that, actually."

The quote explains the implementation of a leadership model without clear hierarchies to foster a more dynamic and less power-centric organizational structure.

• The company has introduced a model where individuals must be willing to change responsibilities and departments.
• This approach is designed to prevent status-related empire building within the company.
• Emphasizes the importance of keeping the company "liquid" to stay adaptive and fast-moving.

"We have a model where basically we always say, like, you should be able in that situation, you should be able to pack your stuff at the same day, go into another department and be comfortable that your department can be run by another person."

This quote describes a model that promotes flexibility and adaptability among employees, ensuring that the company can remain dynamic and responsive to change.

• Favorite book: "How to Create a Mind" by Ray Kurzweil.
• Biggest highlight of the Trivago journey: A party with Trivago employees in Ibiza.
• Guiding motto: "Never stop learning."
• No desire to be another CEO for a day.
• Inability to plan five years ahead in the current business climate.

"Never stop learning."

This quote is Rolf's personal motto, suggesting a commitment to continuous improvement and knowledge acquisition.

• Harry Stebings uses Zoom for video and web conferencing.
• Zoom is praised for its simplicity, scalability, and straightforward pricing.
• Viewdit is recommended for personalized video communications and has built-in tracking for user engagement.

"Zoom really is a must check out for your business. I cannot emphasize that enough."

Harry Stebings endorses Zoom as an essential tool for businesses, highlighting its effectiveness and the recent investment it received.

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Harry Stebings promotes Viewdit as a valuable tool for creating personalized video messages, with features that allow tracking and immediate feedback on viewer engagement.