Stayzilla, one of the fast-growing online homestay marketplaces in India, has halted its operations, its Co-founder and CEO Yogendra Vasupal said in a blog post. Stayzilla, owned and operated by Chennai-based Insra Technologies, is “looking to reboot it with a different business model”, he added.

“I would like to announce today that we would be bringing to a halt the operations of Stayzilla in its current form, and looking to reboot it with a different business model,” Vasupal said in the post.

Explaining the reasons behind the decision, Vasupal added: “Despite having a very clear lead, despite a lot of firsts, despite being successful in getting an ecosystem up from scratch pan-India, there are a few reasons why we are at this juncture. The travel marketplace does not have local network effects and, therefore, we can’t really take a focused city-by-city approach in terms of matching supply and demand. The demand and supply for homestays was non-existent 18 months back, excluding a few small pockets. As a result, we had to invest extensively in both sides of the marketplace, creating homestays as well as guests who would choose a homestay across the country. We were actually successful at this — we have created 8,000 homestays in over 900 towns — but this stretched us thin.

Some of India’s key macro trends further deteriorated our ability to expand quickly and cost effectively. India does not have a lot of public goods, often taken for granted in mature markets like logistics, tech savvy suppliers and online user demand. A homestays marketplace needs to invest in educating the market on the concept and even using Internet and not just the product. The costs, both financial and opportunity costs, creep up on you over a period of time and gets rationalized as cost of doing business in India.

This was further exacerbated by the discounting-based growth rampant in the travel industry since 2015. Forced to match prices, we could not even recoup what we put in, necessitating very large capital requirement simply to sustain growth.

The Co-founder also admits that in the last three to four years, somewhere he lost his path. He started treasuring GMV, room-nights and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital.

I have come to realize that the value of a business is extremely subjective, like beauty. While there exist many benchmarks, true beauty is intrinsic and begins with the comfort one has with one’s skin. Similarly, while there exist many benchmarks for valuation of a company, its intrinsic value starts from inside and is tied very closely to the metrics that founders value and their comfort with that selection.

The last year has been a focused attempt to get back to our initial, and stable, value system. However, 12 months was just not enough time to shift paths, when we were already 36 months down a dramatically different path.”

Vasupal hinted that he is looking at this as a clean start to get back to the roots he is comfortable with.

With this announcement, new bookings on all Stayzilla platforms — website and app — are now suspended. Bookings with check-in dates on or before 28th February 2017 will be honoured. Any booking with check-in after that date will be cancelled and the guests will receive 100 per cent refund, reads the post.

Stayzilla was started in 2006 by Vasupal and Rupal Yogendra. In early 2015, the company had raised US$15 million in its Series B round of funding led by Nexus Venture Partners, with participation from existing investor Matrix Partners. It had earlier raised an undisclosed amount in Series A funding from Matrix in October 2013.

People’s  Reaction:

  1. #StayZilla shuts down. Scaling without customer service could be reason. They cancelled my booking 3 times for hotels in 2015 becz hotel denied to book with them.

2. It gets worse: #India’s largest #homestaystartup Stayzilla shuts down !

Rough day for #Indian startupsYesterday it’s Snapdeal layoffs and now it’s #StayZilla

3. Not sure why people are talking so much about problems at #Snapdeal (It hasn’t shut down as yet) or the closure of #Stayzilla. Entrepreneurs are risk takers and so are the investors. Businesses shutdown, they change course and it is absolutely fine.

4.Two different companies, two different founders who scaled down/closed today share one common reason for failure, “GMV is vanity, Profit is sanity” So a shout-out to all the #entreprenuers out there working their ass off on profitability, keep doing it. It’s worth the effort. #snapDeal#StayZilla #RaiseBack

5. #Snapdeal #Yepme layed off 90%employees

Now #Stayzilla shuts down 😕

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