AirHelp

Henrik Zillmer has been a friend of mine for some years now. In the past, we built e-commerce companies across the continents, but nowadays, Henrik works on AirHelp, which he co-founded and now heads as the CEO. AirHelp was picked to be part of Y Combinator’s Winter 2014 Class and has since succeeded in helping more than 250.000 customers being compensated for delayed flights.

What inspired you to start AirHelp?

That’s a completely random situation. I started by having the problem of delayed flights myself and then I spoke to other people who had the same experience: pain and suffering. Eventually I said, “Okay let me help some of my co-workers, friends and family”. Once I did that, I realized that maybe if I did it for everyone it could work as a business model. That’s basically how it happened.

I was not specifically qualified to go into aviation. I’m not a lawyer or pilot and I have never worked in the travel industry before. It just happened; it was not really my domain expertise. I have a sense of entrepreneurship and then on top of that a good mix of people in my family. My brothers and cousins are pilots and my uncle is a lawyer, so I had the right mix of people who could give advice in this model. Ultimately, it’s just a good idea!

I think the demand has always been there, but I think the lawyers – who in the past were doing this for bigger groups of travelers – didn’t see the potential in automating lots of it

Very interesting. How did that happen from being an idea to building that into an real business? How did it get started in a more formalized and structured way?

I don’t think we have been super structured at any given point. I think that may also be a characteristic of a good startup – you move so fast that you don’t have everything under control.

The way the business started was a landing page two-and-a-half years ago. We asked people for flight information and we would then go and get the money, get the compensation from the airlines in exchange for 25% of the compensation we got for them. If we didn’t succeed, it’s free of charge. There was no functionality as such. It was just a landing page where you could type in your flight information.

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Various news media and different consumer rights news shows picked up our landing page. We got about 3,000 members in one week. Then my two co-founders and I were doing customer support for two months, just answering people and figuring out how this would work. We also tried to map out how we could automate a great part of the work so we could get high volume of claims instead of just the one or two people we could help per day.

That was the first phase of the landing page that turned into a bigger page with more functionality that then turned into a mobile app that turned into an email scanner, which turned into partnerships and so forth. I think all of it happened in a natural order, but everything began with just emails being sent back and forth.

Its sounds like the perfect way to test the demand before building a business around it.

I think the demand has always been there, but I think the lawyers – who in the past were doing this for bigger groups of travelers – didn’t see the potential in automating lots of it or powering the whole thing by tech, and thereby making it possible to handle lower value claims. That’s really what we did. We took law, put it into code, and made it accessible for everyone in an app. That’s quite revolutionary in a way – you don’t see law applied in that way in many other areas.

You can never be so desperate that you choose to work with people who can damage your company. If your gut feeling says that this person might cause problems in the future, then it is 100 percent certain that this will happen

You mentioned your co-founders earlier. How did you end up teaming up with them?

The first 12 months were really, really tough. At first, it was just me, but then I found two partners. One friend going way back to elementary school and another guy I met at an entrepreneurship event in Southeast Asia (Project Getaway). They both jumped onboard and then we were three.

On the topic of co-founders, it’s important to choose them very wisely. Before you start any company, you have to sit down and agree that from now on, you will do one or maybe two years with no pay and work your ass off 100 hours a week. You do that until the company raises money, breaks even, or becomes profitable. You all need to agree on the same vision and mindset, the hours that you’ll do it for no pay or very little pay, and sticking through the whole startup phase. It’s very important to align.

When you choose your co-founders, you need to set these agreements in a shareholder agreement or some document. If you don’t, then some people will lose their motivation after six months because there’s no salary or they might get an offer from another company that sounds better. But that’s not part of the deal. You need to align those expectations before you sign and say yes, this is what we’re going to do and allocate the year of our lives – or two or three years – to the project. We are going to do it even with the big chance that we won’t get any money out of it at all. You do it because this is what you believe in.

Airport delays

An issue many startups face once they’ve got the initial proof of concept, or product-market fit, is financing. How did you get it off the ground? Were you able to fund yourself in the early days or how did you get this started?

Firstly, when raising money, be very careful in choosing the right investors. You are in dire straits in the beginning because you don’t have any cash and have a lot of things you want to do, but cannot afford. All of a sudden, investors come along that can give you money, but these investors might be terrible investors, and since you’re desperate, you have tendency to say yes. But these people don’t just disappear.

You can never be so desperate that you choose to work with people who can damage your company. If your gut feeling says that this person might cause problems in the future, then it is 100 percent certain that this will happen. They just need to be small indications. Getting an investment is one thing, but when you start working with each other, whew! That’s a completely different thing. Remember, once they own a piece of your company, you can’t just get rid of them without paying them out.

You need to be careful, but don’t go too far in the other direction either and say that it has to be that one perfect investor. I have seen many startups being too proud to sell shares and equity in their company, and then the company died. It is a balance, so don’t go to any of the extremes and be careful.

Y Combinator is almost like a church—it can even be like a religion for some people in Silicon Valley. They have an extreme focus on product: The product quality and value proposition for the customer or user

You managed to secure a number of advisors and investors in the early stage, how did that affect your development?

Yes, we’ve had some great advisors. Different advisors for different things. We’ve had entrepreneurial advisors – one of our angels for example, Morten Lund, a famous Danish angel. Morten is very inspirational and knows what it means to be a startup, to create a company, to get other people to follow you, and to build an ambition or a goal that everyone works toward. He also helped connecting us to the right people.

From an industry perspective, we’ve had other advisors who know how the travel or legal industry works. We quickly got advisors with the expertise that we didn’t have in the team.

At the end of the day, many of the advisors we worked with shared their knowledge but didn’t recommend a decision. They mostly said, “This is how it works, this is the knowledge I can give you, however you are in the best position to make the decision yourself because you know more about your own company and about the specific situation that you’re in.” You have to make this decision yourself. That’s also something Y Combinator preaches a lot. They don’t make the difficult decisions for you.

Advisory can be many things, but we’ve used it for knowledge –to gain expertise. Eventually, you will reach a point where you know more about what you’re doing than anyone else. That’s got to be your competitive advantage. If you don’t, then someone else will be able to do it better. Eventually, the advisors will turn into a board of directors for bigger companies. They are industry experts, and that is a different form of advisory.

We will get more in depth with the experience with Y Combinator later, but one thing that strikes me looking at AirHelp and having been on the sideline from early on is that you were a very global business more or less from day one. How did that affect the way you built AirHelp?

Yes. That’s a very good observation. That is where AirHelp differentiates itself from a lot of our competitors today. AirHelp was born global. We never had one country in mind where we would grow the business and then spread to other countries if we were successful. AirHelp was an international play from day one. We knew that there might be some local law firms who would focus on, say, Germany, Holland or Spain. You would think they would move to other countries, because they wouldn’t be satisfied, right? Interstate Removalists Australia can create a stress-free relocation for you. You know, if I were a German startup and had 80 million people as potential customers, I would be pretty happy about that market and wouldn’t have any incentive to go to other places. Those markets are big enough for a company.

Silicon Valley attracts some of the brightest minds in the world. It provides many opportunities for people with the interest and passion for tech. All those people gathering in one place, with money and funding for the whole thing

The lack of incentive was exactly the gap in the market that we saw. We wanted that people could always use AirHelp, no matter which country you are in, who you travelled with, where you travel from, or where you live. If we could succeed in this then we would be the preferred service of every traveler.

No one wants to search locally for a provider in each country that they’re flying to or from. We said from day one that AirHelp would launch in eight languages and eight countries in Europe, even if it would slow down our development. If you have eight countries and eight languages, then everything you do, any functionality, you’ll have to translate. That definitely slows things down. In hindsight, this was actually what made us the preferred service and created a momentum compared to many of the competitors. It was also one of the reasons Y Combinator saw us as a team who could take this entire market of flight compensation. The international scope has been a fundamental part of what we do and we’ve focused on that since day one.
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Now that you mentioned Y Combinator – coming to Silicon Valley as a foreigner, what are some of the things that struck you as different from your experiences in both Europe and Asia previously?

Y Combinator is almost like a church—it can even be like a religion for some people in Silicon Valley. They have an extreme focus on product: The product quality and value proposition for the customer or user. You are your product, right? You can’t hack growth. You can’t be very good at sales. You can’t be very good at your finances. You can’t be very good at anything unless you have a product that kicks ass and sells itself. So really, get focused on product.

The focus is perhaps a bit different from what you see outside of Silicon Valley where the emphasis on product is not as high. Society works in a different way in Europe or Asia for example; it’s not so much about getting the cleverest minds to create a product that is superior to everyone else, right?

Silicon Valley is all about product development and less about everything else. The belief is that if your product is good, it will naturally become big, as people will use it and refer others to use it.

Is this focus on product the only reason they have been able to build so many large and successful companies?

I think brainpower is a big difference. Silicon Valley attracts some of the brightest minds in the world. It provides many opportunities for people with the interest and passion for tech. All those people gathering in one place, with money and funding for the whole thing –the universities play a great role too where people jump in and out of faculties as CEOs or co-founders. All this has created this huge melting pot of great talent, money and people who know what they’re doing and with great expertise. Those three things make Silicon Valley special and are very difficult to copy.

I don’t think you will find the same power of VCs in line with Silicon Valley anywhere else. They simply don’t have that amount of money in one place, in one city or one area.

It is definitely easier to raise money in Silicon Valley. When we started in Europe, we probably had about 30-40 “Nos” for every “Yes” from investors we talked to. Forty meetings for every Yes from investors in Europe! When we moved to Silicon Valley, that number went down to around 20 Nos for every Yes we got – and that was on twice as high a valuation! All of a sudden, we could raise money much easier than before. That has a big impact, especially on startups like ours. We knew that if we want to go fast and meet the demand then we needed to raise money. If you can’t raise money, well it’s going to go slower and it’s going to take too long time.

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Regarding your point on the valuations, is that because they see more opportunity in the companies or do they just have higher valuations for comparable companies?

No, I don’t think those are the reasons. It’s much more risk-willing capital. In Europe, VCs are not willing to take the high risk on software or internet startups. There are a lot more people with more money in Silicon Valley and since they are not scattered over 18 different countries, nationalities, languages, it’s much easier. In Europe, people don’t speak the same language, which also makes VCs much less connected and harder to reach out to.

When you have a high concentration of VCs and angels on that level, then they’re competing with each other in getting a good deal. It’s the push on the entire market. If you don’t want to dilute yourself as much as possible, then Silicon Valley is the best place to be. It also attracts people for that reason when they can raise large sums without giving away the entire company.

Many of these things sound like they are difficult to replicate. Are there any lessons that other parts of the world can apply to catch up with Silicon Valley?

I think it’s the mindset first and foremost. I definitely saw that coming to Y Combinator. The European startups had a disadvantage because they didn’t know how to sell themselves. They didn’t know how to present their own company so that other people would understand it. If you pitch to investors and you can’t present what you’re doing so other people understand it, then you can’t raise money. It’s that basic. Many of the people who were in our batch were simply not as good at this because they were European and being modest. They were maybe also less clear about what their value offering was. That’s why they didn’t do as well in fundraising after Y Combinator.

In that sense, entrepreneurs outside the US can learn to present their company better and figure out what it actually is that they sell and how they make the world a better place. That’s very important – especially also to raise money in Silicon Valley.

The mindset of the investors is also different. Investors in Silicon Valley are typically all startup people themselves so they’ve gone through the hell of starting a company or maybe multiple startups and maybe done exits. They know what the entrepreneurs have been through from day one. This is something that most European and Asian VCs don’t know.

To my experience, most partners in VCs in Europe are typically management consultants or bankers. They’ve never had a startup. They don’t know what it means to run a startup. They look at the investment as if they were looking at a corporate company they used to work for. This is completely different.

You’ll certainly never find the next Facebook, YouTube or Google if you apply management consultant logic to a startup. Many VCs in Europe are simply not picking up on the good deals because they don’t have the mindset of an entrepreneur. That may also be the case to some extent in Asia, but there it’s more family-driven. A family may have created a huge success, but they might not be as talented investors as European or American investors where former entrepreneurs have gone through several exits and invested several times.

Most startups I’ve seen that failed has been because the founders were simply not having the sense of urgency and seeing the painting on the wall, so to speak

Taking a step away from Silicon Valley as a topic, what have been some of the biggest learnings you have learned yourself and would pass on to other entrepreneurs?

Henrik Zillmer, AirHelpMy biggest recommendation is to get a sense of urgency in the company. From the day you start a company, you only have a limited amount of time before your company will die. You only have limited amount of time where you can go without money, or where you’ll be able to raise money and then the company may be able to live for another 18-24 months. But then the company will die. You’re always fighting for survival.

If you don’t have the sense of urgency and ability to execute quickly, then your startup will die. It will either run out of cash or survive a few years and eventually die when other companies will win the battle because they have that sense of urgency and are able to execute much faster.

The first two years of a startup are all about survival. You need to implement a sense of urgency in everything you do in a startup. There’s no reason to say that you are going to do it tomorrow or to sit and talk about it some more and then figure out what the customer will say or what the partners will say and speculate. Instead, go out and ask the actual customer or partners. Pick up the phone or email and take action.

I cannot emphasize this enough, most startups I’ve seen that failed has been because the founders were simply not having the sense of urgency and seeing the painting on the wall, so to speak. Your company will die if they don’t get to profitability as fast as possible.

Great advice. I couldn’t agree more! Do you have any other projects going on now, or are you still fully devoted to AirHelp?

That’s the thing –you can’t have more projects on the side. AirHelp for me is 110 percent. That’s what we focus on and what we do. We have been under way for two-and-a-half years now.

We initially said it was going to be three-to-five year project and potentially longer if we were successful. Now, it seems we have really attained a foothold in the industry and we have lot of new things coming out. We could potentially go all the way to an IPO, if everything goes as we want it. But of course, there is only a fraction of startups that have gone that far. But you shouldn’t be spending a lot of time thinking about this because you will never get there unless you are able to build a company. That’s where all my attention is on right now.

Finally, what are the different places you look to get inspired in your work? Are there any books, blogs or podcasts that you would recommend?

Maybe cliché but I think Richard Branson has done some great books. They really illustrate the hard work associated with success and that it has taken 40 years of working your ass off to reach the point where he is. That is really what you have to acknowledge before going into a startup. There is no easy way.

For blogs, I think Sam Altman, Paul Graham, Paul Buchheit, some of the Y Combinator partners are writing great stuff about entrepreneurship in general.

There’s a couple of podcast I listen to: I think 500 startups Dave McClure has a weekly podcast that’s very good. He’s a no bullshit kind of guy. He quickly picks up on business models or revenue models and asks the right questions. Michael Arrington is also a good guy who has a podcast. They do interviews of startups or founder interviews and they show a very good understanding of entrepreneurship and the business model. It’s different to what you would hear from any journalist at TechCrunch or Business Insider, etc. They wouldn’t ask those questions.

 

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What is your take on the focus on product and what can the rest of the world learn from Silicon Valley?

 

Images: A1Travel and AirHelp 

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