Go Public or Stay Private? 5 Unfiltered Growth Lessons From Trivago’s CEO
Rolf Schromgens dishes out the costs and benefits of taking his company public
PHOTO CREDIT: Getty Images
There’s something to be said about Trivago’s unusual business model—unlike most travel websites that earn once users make a booking, the German hotel search platform doesn’t allow them to make one. Instead, Trivago lets its users sift through over 1.3 million hotels, from 200+ booking sites and hotel chains across 190+ countries, “to find the ideal hotel at the lowest rate,” and in turn earns through qualified referrals it closely tracks.
It’s a business model that’s remained largely unchanged throughout the years, even as Expedia, Inc. acquired a stake in Trivago in 2012, and even when Trivago had its initial public offering (IPO) last December 2016.
And it’s one that will remain the same “in the next five to 10 years,” as confirmed by its founder and managing director, Rolf Schromgens, at the RISE Conference in Hong Kong last July 11 to 13. Speaking at RISE about his experience in going public to grow the company he started in Düsseldorf in 2005, Schromgens affirms that, for now, “there is nothing more to expect from [Trivago] than getting people into the ideal hotel. I think we’re not even halfway done solving that problem.”
Building a company, says Schromgens, is a finding process. “You have to find yourself in the different stages of the company, find what you’re good at, what you can and cannot do well, and you have to find your identity,” he says, adding that he attributes Trivago’s success precisely to this: its unshakeable identity. “If you’re getting too much money to do other things, then you are diluting your identity—and that’s where I see the risk,” he points out.
Thinking of following Trivago’s footsteps?
Like Trivago, there will come a time when your start-up experiences a moderate level of success, and you start looking into your available growth options. If instead of staying private you’re keen on diving into an IPO, Schromgens sheds light on the things you can expect when you go public:
1. ‘You don’t ever IPO for fun’
When Schromgens created Trivago, his motivation had a lot to do with freedom. “It’s a lot about being able to take my destiny into my own hands,” he relates, adding, “This is why I became an entrepreneur, why we ran Trivago over the years, and how we ran Trivago over the years.”
However, there comes a point within an IPO process where the destiny of the company just isn’t in your hands anymore. Schromgens says you can be prepared for it and even insist you would do things the right way, “but you will somehow be maneuvered into that situation and that never feels good—you’re not in charge anymore. And that’s something I would not like to experience again. There are positive and negative experiences around an IPO, and that is definitely a negative one.”
Some of the positives? “There are really good hedge funds. We met so many amazingly smart people who knew the history of my company way better than myself. It’s incredible how much deep thinking they did about the business model, and this exchange also helps evolve your model, gives you new ideas, new impulses. I think for our management that was a really good learning experience,” shares Schromgens.
2. ‘You get closer and closer to your identity’
While it goes without saying that going public deepens a company’s coffers, Schromgens relates that one of his motivations is to tell Trivago’s story outside of Expedia, its majority stakeholder.
“We are connected and we report the numbers together, but also separately. I felt it was not a real identity. Trivago has a very unique story, and we wanted to tell that story. And it feels way more natural and way more easy to speak about the story of Trivago now that we also have that identity in the stock market,” he says.
3. It’s a great way to band your people around the company
Beyond telling Trivago’s story to the world, Schromgens shares that going public also brought with it “one currency” with which to motivate people. “I think it worked out perfectly because people are even more united around the company. They are able to get even more people as shareholders of the company, more employee shareholders of the company, and they are more sure of the value they create,” he relates.
4. The shorter the IPO process, the better
According to Schromgens, Trivago’s IPO was among the fastest ever done by an international company at NASDAQ. “We started with the IPO in July 2016 and went public in December. It was a hard process for us—we had to change our accounting structure, and dealt with governance issues, among other things,” shares Schromgens.
He adds that when founders go into the IPO process, expect that “it consumes brain time and it’s bound to slow down your business. That’s why timing wise, I’m glad we did it last December and not wait for March this year. I’m happy that beginning of January I was able to start and focus all my brain time back to product, back to creating user value, and back to creating a lively and liquid organization—those are way better focus [areas] than focusing on the IPO.”
5. Decide for long-term value creation against short-term gratification
While there’s definitely street cred that goes with owning a publicly listed company, one of the cons for founders is that they might find their time split between minding the shop and romancing the public market. In this regard, Schromgens advises making yourself as detached as possible about what is happening in the stock market.
One thing Trivago’s founder is “super happy about” is that it continues to operate at its own rhythm. “That was our communication from the beginning, and perhaps also the reason why in the beginning our stock price was not as high as we wanted to be—we told people to expect that we will not change, that we will go in for long-term value creation, that we will not look at the stock price, and to not expect [anything] from us except that we will fulfill our users’ expectations, create the best user experience, and create the most user value,” says Schromgens.
This seems to have augured well for Trivago, as it recently reported a strong start to 2017. “I think maybe people now understand that you can go for long-term user value and still deliver results,” ends Schromgens.