Lessons for start-ups from the Stayzilla saga

Stayzilla, the Chennai-headquartered hotel and homestay aggregator that had cumulatively raised $34 million (about Rs 220 crore), shut operations on February 23 this year. Yogendra 'Yogi' Vasupal, one of the co-founders and chief executive of the company wrote a blog post explaining the move. While the candid post attracted some praise on how to admit missteps, subsequent events have cast a spotlight on the challenges of running and, when it comes to it, shuttering a start-up in India.
 
The Chennai police arrested Yogi on March 14, following a complaint from Jigsaw advertising agency, who said Stayzilla had not paid the company its dues of over Rs 1.56 crore for the services rendered. Meanwhile, Rupal Surana, Yogi's wife and co-founder of the company, published a post on Medium, which was earlier written by Vasupal. It came with a dramatic headline that says, 'Help! I need everybody.'

In his post, Vasupal claimed that his former landlord sent him death threats (presumably for not paying rent) and also elaborated on Stayzilla's dispute with its media agency (Jigsaw) and going by what he said, it looked like some people tried to intimidate the members of the founders' families.

Since then some of the investors in Stayzilla, who had lost their money, appealed for his release. Sections of the media, who focus exclusively on the start-up world, also started a campaign on Vasupal's behalf. Karnataka IT minister Priyank Kharge said he had spoken to his Tamil Nadu counterpart for a fair hearing for Vasupal. Kharge said he had been goaded into action by some of the "stalwarts of the start-up community" who appealed to him for help. Jigsaw, on its part, claimed fraudulent behaviour by Vasupal and Stayzilla.
 
Even as Vasupal's legal team is working on getting him released, there are a few takeaways for entrepreneurs. Start-ups clearly need to plan better for contingencies like this. It is the nature of the beast that majority of the start-ups will fail. So entrepreneurs and investors need to have a plan in place on when they will pull the plug, without dropping off into an abyss. Stayzilla seems to have waited till the very end and even crossed that line. While Vasupal was forthright in admitting the mistakes made, there doesn't seem to have been a contingency plan.
 
Start-ups also need to communicate with ALL stakeholders. Stayzilla seems to have made the mistake of communicating with only employees and investors, ignoring other stakeholders such as service providers and vendors to whom it may possibly owe money. While nobody knows for sure whether more communication could have helped resolve issues with the landlord and the media agency, it looks like not much effort had been made early on to communicate the challenges confronting the company.

While death threats and intimidation are deplorable, start-ups, too, need to minimise collateral damage when they go down. Although the legal system of the country can resolve the ongoing issues, entrepreneurs can learn from the Stayzilla saga and stay better prepared to grow and succeed.