Flightfox founders Lauren McLeod and Todd Sullivan are flying high after securing a US$800,000 investment in their airfare search site last week.
The pair are living in California’s Mountain View to take part in the latest Y-Combinator class, a boot camp that for start-ups that brings together promising entrepreneurs for intensive mentoring and work on their ideas.
The deal, which values the company at several million dollars, is vindication of the site’s business model, says McLeod. “If we didn’t get [the investment] we would still go ahead with it, but it’s definitely nice to have other people believe in the concept and the team,” she says. “It’s good to have support behind us.”
Flightfox tries to find the cheapest flights by using crowdsourcing – where tasks are outsourced to individuals who try to find the best solution, in this case the lowest cost airfare. “Flightfox aims to outsource the searching of flights to experts, who compete against each other to find you the best flights and cheapest deals,” says McLeod.
Users agree to pay a fee ranging from about $20 to $200 to the “finder” who sources the best flight, with a higher fee attracting more finders. Once the traveller has chosen the flight that best suits them the finder takes them through the booking process and collects his fee on completion. Flightfox earns its revenue with a 25 per cent cut of the finder’s fee.
McLeod says Flightfox’s finders seek out cheap fares that aggregator sites like webjet miss. “There’s not one aggregator site or one online travel site that will search every single airline for every single route, there’s nothing out there that does everything, so a lot of the sites miss the low cost carrier airlines,” she says.
The finders are travel agents or frequent fliers who have a good knowledge of the arcane systems of airline pricing, routing and scheduling, and are from all around the globe. “If you come to the US from Australia, you don’t necessarily know about Southwest, which is a low cost carrier here, so you’re not going to know to go and search their website because they’re not on any other travel site,” says McLeod.
“There’s also a million other things, especially with routing. If you’re travelling from Sydney to San Francisco you might not know that it could be cheaper to go Sydney-Dallas-San Francisco than Sydney-LA-San Francisco that all the airlines usually give to customers.”
McLeod, 27, and Sullivan, 32, are applying the lessons they learned from their previous start up, Globetrooper, which allows travellers to meet up with other like-minded people to go travelling together. They developed the site while they were travelling overseas, living for months at a time in cities including Montreal, Lima and Bangalore. In fact, McLeod became the first Australia woman to walk the Gobi Desert after reading about a group’s planned trip there on the site.
They sold Globetrooper in October last year for an undisclosed price – McLeod says it was about enough to cover their cost of living while building the site – so they could start work on Flightfox.
“The biggest mistake we made with Globetrooper was not having a business model from day one. We thought if we could just work out the users, make them love the site and they would tell their friends, then we could figure out the business model later,” says McLeod.
Also, they didn’t listen to their users about how they used the site and how it could be improved. “When someone would tell us something contrary to our view, we made excuses like ‘well they aren't our target market’.
“With Flightfox, we're making money every day and making sure all of our users have a good experience.” For the time being, however, the partners are reinvesting the profits back in the site, into marketing and bonuses to motivate the flight experts.
Sullivan, who has an IT background, works on the site’s development, while McLeod, with a business and design background, works on marketing and dealing with the finders.
Since launching site in February, Flightfox has had over 15,000 flight contests created, with 2,000 of them generating a finder's fee of $19 to $200. It currently has 600 registered flight experts – or “flight hackers" as they like to be called.
The next step is to harness expert knowledge about frequent flyer points to help flyers best navigate their way through the labyrinthine world of points and flights.
For the next three months the pair are ensconced with 81 other start-ups at the Y-Combinator, a US seed-accelerator that provides funding and mentorship in exchange for a small equity stake, all in a hothouse atmosphere.
The group holds weekly dinners, which help give focus to the start-ups. “We have to pitch our idea to everyone that will listen and it gives us more accountability. Every week we have to set goals and meet them to show people what we’ve done,” says McLeod.
The pair have also had several meetings with founder and venture capitalist Paul Graham.
“He’s just been helping us stay on track. The two things we should be doing over the next three months are growing our customer base and building out features and that’s it, we shouldn’t be thinking about more fund raising or anything like that,” she says.
“If you haven't been productive since the last meet, he'll be honest and ask what the hell we've been doing.”
McLeod isn’t sure how long she and Sullivan will stay in the US to work on the site once the Y-Combinator is over. For the time being, she’s enjoying the ride. “It's a different roller-coaster every day, but usually with an adrenaline rush,” she says.
She most enjoys talking to the flight hackers. “They’re really interesting for me to talk to because I’ve been looking for flights for years and trying to find the best deals and [frequent flyer] programs can take months and months to understand and just to be able to tap into their knowledge base and ask them question after question is gratifying.”