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IPO Hopeful 10 – Barrier to Entry?
Continuing from the last post, I asked, “Aren’t you worried that someone else might copy this model and steal those hotel contracts?”
Kevin smiled and said, “Theoretically, anything is possible. But who would spend ten years finding and convincing the right people to assemble the right team, signing contracts with hotels and advertisers, burning through eight figures to develop a custom software system tailored for hotel operations, and then giving away hardware for free while sharing profits? Just getting the Hilton agreement took over 10 years of building trust and customizing our solution. Good luck to anyone trying to break into that! And even if someone did all that, they’d still need a model so compelling it’s impossible for hotels to refuse. That’s not happening unless someone introduces a disruptive solution from a completely different sector, and even then, we’re talking at least 10 to 20 years into the future. By that time, we’ll have already exited well in advance. In addition to all of that they have a stack of patents in place creating an incredible barrier to entry. Some of the most important function will be impossible for any competitor to offer.”
He continued, “As for competitors, there are three (two after the acquisition of our main one is completed), but they both started out on the wrong path. Their strategy was to charge hotels to adopt their tablets, without integrating advertising. Naturally, they could only target the ultra-luxury segment that could afford their fees, and their main value proposition was simply enhancing customer experience—financially, it didn’t bring much to the table and created very slow growth companies. Also, since their audience is primarily high-end resorts and hotels, there’s no way they could pivot to include our advertising model. Their business was doomed from the start to never being able to scale up to any significant value because they relied on charging hotels directly without understanding how slim hotel profit margins are.
This is why understanding the core of an industry’s model is more critical than rushing to be the first mover. It’s not about who starts the race; it’s about who delivers the knockout blow and wins in the end. That relies on starting with the right strategy, and not losing sight of that goal, no matter what obstacles come up.”
Fair enough—the barrier to entry seems reasonably high.
I told Kevin, “Let me see if I’ve got this right. You’ve already signed a world-wide agreement with Hilton’s corporate, and now you’re rolling out the system hotel by hotel, many with 1000 rooms or moreeach. With this in place, you can approach their competitors like Marriott, Hyatt, and more. Convincing them should be just as straightforward, and there is the pressure to ‘keep up with the competition’. Once you’ve locked in the major global chains, the smaller players will follow suit—it’s just a matter of time. The process is the same: corporate-level contracts lead to large-scale rollouts across tens of thousands of tablets per deal, free hardware, and profit sharing. The more ‘ad space’ you add, the more advertisers you attract, creating a virtuous cycle.”
Kevin nodded, “Exactly. And by the way, I forgot to mention: we’re already in discussions with the largest of Hilton’competitor’s corporate headquarters and have contacts that have been nurtured over the years. Now that Hilton is rolling out, they quickly began evaluating our product. It’s moving through their internal processes now.
Me: 😅
Then I asked, “How much more runway do you need to reach IPO? How much cash do you have on hand? What’s the burn rate? What are your revenue targets and scale for going public? What’s the timeline? What’s the plan for your next funding round? What’s the current valuation? How long would we need to hold the shares? What are the exit options, what’s the timeline looking like and what’s the potential return?”
Till next time!