Marcus Räder is one of the best-placed persons in the world to talk about building and growing a vacation rental tech business. Not just because he has built his software company, Hostaway, from the ground up, but also as his company’s marketplace is integrated with 100+ other vacation rental solutions. It gives him a comprehensive vantage point on the industry’s landscape.
Hostaway is both a PMS and channel manager solution, i.e. the kind of software that acts as the operating system of property management companies. For other industry software and solutions, from accounting to dynamic pricing, communication tools to guest screening, smart locks to booking channels, business success depends a lot on building an integration with the leading PMSs and channel managers.
Such an integration is not only a tech requisite but also a way to reach new customers through a PMS or channel manager’s client base. It means that, over the years, Marcus Räder has become a gatekeeper and has had hundreds of conversations with vacation rental tech entrepreneurs seeking advice, access, and direction.
We caught up with Marcus to get his insights on how to build and position a new vacation rental tech business. In this interview, he shares that 60% of vacation rental tech solutions are created by property manages who had to solve an issue for their hospitality business. Yet, a lot of such founders fail at creating a successful vacation rental business because they did not validate the existence and size of the problem they want to solve. Most of them also have no experience building a tech startup, which is very different from a property management company. Marcus talks about the importance of creating a business plan and figuring out the funding needed to scale the company. He explains why it can be hard to launch a product in a completely different new category and how Hostaway was successful at first by simply stating they were an Airbnb management software company. Marcus then talks about the best channels to go to market and to find clients.
While many vacation tech solutions have property managers as founders, it is no guarantee for market fit and commercial success
Marcus Räder: A lot of property managers have unique ways of doing things that make them stand out. And, and a lot of times, there’s no software available for that. So, they build some software that connects to their PMS, or they build a complete solution from scratch.
Many property managers realize their business doesn’t evolve as they wanted. They realize that no matter how hard they work, they aren’t going to make any money with the property management business. Yet, within their property management company, they’ve developed a tech product that they decide to spin out and launch as a separate company.
In fact, that’s how over 60% of our partners have started. They were property managers who have built some tools themselves. At that point, a lot of them come to speak to me because they start looking at how to go to market or how to learn more. I get to talk to a lot of these founders before they’ve even launched their company. In many cases, they have a prototype or they have a working product, but they’re not sure whether to start or not.
The three questions that vacation rental tech founders should ask themselves when starting out
Question #1: Are you willing to go all-in to dedicate the time to get your business to scale?
Marcus Räder: The first question that I always ask them is, will it scale? Is it something that they want to do? Because if you’re running a tech company, the scaling part is not a side gig.
You can’t just build a tool and sell it as a side business. If you want to build a successful technology, you’re going to have thousands of users. You’re going to have tens, hundreds, thousands of employees, that’s not a side job. That’s something that you go all-in. That’s usually my first question. The reason why so many side projects stay side projects is that the founders never figure it out.
Question #2: How have you validated the existence and size of the problem that you want to solve?
Marcus Räder: I sometimes see founders who haven’t validated the problem. It is the number one thing that any VC will be looking at a tech startup. The number one slide in an investor deck is always the problem. Then, of course, the company, what it does, its idea, which is called the solution.
Now, the main problem is that this is not only for the vacation rental industry. When you’re an industry insider, you might think a problem is big because you see it every day. Every time you talk to other people in the industry, they see the problem as well. But that’s because you have a bias. Let’s say if you’re a property manager in Florida, it’s very likely that you’re talking to other property managers in Florida. And that’s why they agree with you. You’re not talking to property managers in France, and you’re not talking about managers in Washington.
Don’t rely on your own experience, on your employees, on your network, because I think they will say: “Yes, that’s a problem”. Instead, go out and do cold outreach. Choose a place. Let’s take London, UK. Google “London UK Airbnb property management”. Call these 10 companies you find and ask, “Is this a problem for you?”. If it is, then you probably validated your hypothesis. It is a problem. What many of these founders fail to recognize is that the problem that they solved was only a problem for them or a very small part of the market. Make sure the problem is big enough.
Question #3: How much do you actually know about building a tech startup?
Marcus Radier: The third thing that’s many of these founders, don‘t seem well read up on how to start a tech startup. This is very simple. You can actually pick up a book or you can Google it. You need time and money. Even if you have a great problem and a great solution, and you decide to go all-in, it’s going to take a lot to get the company actually to take off. That stuff can be hard work, but hard work isn’t good enough.
Quite often, these people, who come from the hospitality industry, are not experienced in starting tech companies. In fact, many of them haven’t even worked at a tech company before, which puts them at a clear disadvantage. There are some very basic skills you need to know. For example, they need to understand
- What is it like to develop software?
- What what’s needed in version 1? And what’s needed in version 15? How do you get there and how much money does it cost them?
- Where does the money come from?
- How do you put up the capital structure?
- Can we get external funding? Should you get external funding?
Before you even get started, figure everything out, figure out the timeline. It’s called a business plan. Fill in a spreadsheet that answers questions such as:
- What if you have a thousand customers?
- How many questions will they ask?
- How many employees do you need to answer those questions?
- What does it cost to hire those employees?
- How many engineers do you need? What are the features? I’m sure your software is not going to stop with one feature, because if it’s only one feature and it’s so easy to build, anyone could build it, maybe even cheaper than you.
- So it needs to be pretty advanced. It needs to be hard to build, but then how much does that cost and where do you get the money?
Key success factors for vacation rental entrepreneurs: listen, talk, and ask for help
Marcus Räder: When we started Hostaway, we didn’t know anything about the industry. We had maybe traveled on Airbnb a few times. So we had never hosted anything. We were not from the property management space at all. And this was six years ago.
The most important lessons I learned were by talking to people. By doing that, we managed to build an extensive network of not only customers but also future partners. In 2021, we launched our marketplace. We have over a hundred integrated software solutions. Most of these software solutions are focused on the vacation rental space. They’re companies like Airbnb, which focuses on vacation rentals or they’re companies like PriceLabs and Beyond, which provides pricing to property managers.
Over the years, I’ve spoken to so many entrepreneurs within this space that I’ve learned a lot about the mistakes that they made and that we could be making. It prevented Hostaway from making quite a few of these mistakes.
I believe that entrepreneurs can only be successful if they get help. When they become successful, they pay back by giving help. I have received tremendous amounts of support and mentorship from people. I’m giving that back by participating in incubators, holding speeches, and one-to-one mentoring, which also allows me to meet a lot of exciting people.
It is much easier to start a new tech business in an established product category. What to do if your category is new to the world?
Marcus Räder: Positioning is the part where you take the problem that exists and you take the solution that works, and then try to find out who is the one who is willing to pay anything or pay something for it.
Once you find out what is the mindset of those who have the problem and who love your solution, they are, of course not willing to pay the money for that. Now, one thing that I’ve learned through Hostaway is that we were really lucky when it came to positioning. The category that we started with was Airbnb management software, which eventually became vacation rental software. It was an established product category. It was something that people were searching for.
When it comes to positioning, you’ve got to be realistic. Take your product. Does it belong to an existing category? Is it something that people are searching for? Do you have competitors? If so, then everything will be easier because you are dealing with an existing frame of reference.
If you’re not in one of these categories, then that’s a challenge. Take some companies that have new ideas in the vacation rental space. Let’s say, if you are launching a company that does smart locks, that’s a category that exists. People who are looking for smart lock solutions for Airbnbs. They will go to Google and type “smart lock solutions for Airbnbs”. That’s how they find you’re in that category.
Let’s take an example for which there was no category, five or ten years ago. For instance, there’s a lot of companies producing data for the industry, such as AirDNA, Transparent, and Key Data. What these companies had to do was create a completely new category. They knew there was demand, but the success of these companies is not random. It’s in fact, way harder than the success of someone producing smart locks
The problem was there, but there was no product category. For example, the manager wants to know, should they take on a new client? The investor wants to know, should they buy a property? The city wants to know how many vacation rentals do we have in our city.
When it comes to positioning, clearly know whether you are in an established category or not. Because if you’re not even an established category, you have to create a category. You can create a product and a company but nobody will find you because nobody’s looking for that category.
Go-to-market advice for vacation rental tech companies
Why Hostaway reached out to the market before building a product
Marcus Räder: I’d say the lesson learned is always selling your solution before it’s ready because you do not want to build a solution and nobody wants to buy. You might end up losing a lot of time and money. Those are the only two things that matter in a tech startup.
Our go-to-market was either very lucky or very smart, or maybe even very stupid. I made the first ad. I put it on Facebook. I targeted people who were interested in Airbnb and I put in the text ‘Free Airbnb management software”. It was very easy for us to be free because we had zero customers at the time. At the time, we didn’t have a product but we got hundreds of signups.
I called those people. I called each one of them and I asked, “Are you really looking for this kind of software?” And they said, yes. I asked:” What would you like the software to do?” If they got annoyed, I said: “Look, I’m sorry. I really don’t have any software, but I got to talk to you, which is fantastic”.
What I learned very quickly that there were, 10% of them wanted something that’s easy to build. We started with building is. Turns out they actually wanted it, but they didn’t want to pay for it. We asked: “okay, well, what does it take to pay for it?” They said, well, if you just add this thing or that thing, then I would pay something”. And then we’d build this thing. Eventually, someone said, okay, enough with this feedback already, I want to pay you!
Choose to be global or at least to be a solution that can work for multiple use cases
Marcus Räder: We wanted to be a global company from the start. In the vacation rental tech industry, many solutions start in one country or one region and they sell to those property managers there. In our case, we did the opposite. We said: This needs to be global because we don’t know where our strongest markets will be. The pandemic proved us right: The US has never done better, while Europe is still struggling. Similarly, some tech vendors which were focusing only on urban short-term rentals before the pandemic have suffered a lo. That’s why our company’s so successful today because we have two legs to stand on.
Get feedback and referral from your property manager clients
Marcus Räder: I’d say that the easiest and cheapest way to get started is talking to people, especially their property managers. Talk to your own customers and see, do they know anyone? Do they have any feedback? Many times, I’ve asked our customers: “Look, if you were me, what would you do next?” That’s very cheap. It’s very efficient because you get one-on-one feedback that you cannot really get through to Ad-Words.
Reach out to vacation rental tech vendors of comparable size
Marcus Räder: Another one is to talk to other companies in the space. No matter what kind of solutions you’re providing, there are going to be companies that have the same challenges as you do. If you’re lonely, they’re lonely too. So, talk to them, reach out to other companies. Ideally at the same stage. If you have 10 customers and 1 employee reach out to other companies in the space that have 10 customers and 1 employee. Maybe also reach out to those with 100 customers and ask them how they do to get there.
Enter some bubbles but acknowledge they do not represent the whole market
Marcus Räder: Keep in mind the bias of your own bubble. For example, with Facebook groups or any professional setting, LinkedIn for instance, you’re still going to be in a bubble where who you’re talking to, or the views that you find, represent 1% of the market. You’re missing the 99% other.
If you go to a conference, it’s a bit of a bubble as well, but it will be a different bubble. You’ll get to hear perspectives that you didn’t even consider. People ask you questions that you didn’t realize you should have the answers to.
Paid channels: They demand time and money, so pick just a few of them
Marcus Räder: When it comes to PR and marketing overall, do one thing and do it well, especially if you’re limited with time and money. If you divide your money and your attention into too many channels, then you’re going to have a bad result in all of them.
Whether it’s an ad on Facebook, Google AdWords, banner ads, YouTube, webinars, podcasts, hiring a PR agency, don’t try to do them all. Maybe talk to your existing users, see how did they found you. Can you replicate that? Can you make that bigger and then talk to the users of your competitors? How did they find your competitor? Maybe that’s a place where you are not and you should.
How to contact Marcus Räder, Hostaway CEO?
Marcus Räder: If you’re looking to reach out to me directly, if I’m more than happy to get on a call on and give back to the community, just go to my LinkedIn profile and reach out to me there.
If you’re launching a solution for the vacation rental space, and you think that integrating with a PMS or channel managers, then a good solution for you is Hostaway’s marketplace. There’s a form that you can fill in. Our team will get in touch and we can get on a call there and see if it’s a good fit for you to reach out to our customer base.
If you’re interested in Hostawat, we give a personalized demo to everyone whether you’re buying now or later. Go to our website and book a free demo.