Ep. 103: Matthias Tillmann - Managing Industry Disruption & Crisis Management
Matthias Tillmann, Chief Financial Officer at trivago, joins Count Me In to talk about the challenges the industry faced following the global pandemic and how they were able to sustain their business. Trivago obviously faced a drastic decline in demand through the early parts of 2020, but Matthias explains how they were able to scale back in certain areas while preserving business operations and really making sure their focus remained on the talent within the organization. This episode is specific to one industry and the recent crisis, but these crisis management plans and strategic business decisions to enable continued business are valuable for any organization or industry! Download and listen now.
FULL EPISODE TRANSCRIPT
Welcome back to Count Me In, IMA's podcast about all things affecting the accounting and finance world. I'm your host, Adam Larson. And I'm here with episode 103 of our series. Today's expert guest is Matthias Tillmann, CFO of Trivago. In this episode, he speaks with Mitch about how COVID-19 crisis impacted the travel industry and speaks to the various crisis management plans he implemented to maintain operations. For an interesting discussion around business continuity, technology, enablement, and finance in the travel industry, keep listening as we head over to the conversation now.
The COVID-19 crisis disrupted the global travel and hospitality industry immensely, and I know it affected everything from air travel to hotel accommodations. So in your line of business, what were the immediate steps that you took to ensure business continuity at Trivago?
Yeah, that is right, the COVID crisis had a huge impact on our business. And let me start with giving you an idea of the magnitude of that effect, and just for context, we are an accommodation meta search platform. So comparing price of hotels, apartments, vacation rentals, and other accommodations on this, so we're not active in the air space, for example. So while we run and operate over 50 countries, only a minor part of our business is in Asia and we have no presence in China. So when the virus first broke out there, we got an idea of what this could mean to our business, but we did not see it immediately in our numbers. That quickly changed when infection started to spread in Italy, end of February. Within a couple of days we lost all of our revenue in that country, and as the virus spread throughout, Europe first and then Americas, our revenue declined more than 95% year over year by end of March. So why, I'm telling you this, we did not have much time to react. Our cost structure pre COVID was roughly 80% variable, which is predominantly marketing and 20% fixed costs. So to preserve our cash, we first focused on cutting our marketing spend and on the performance marketing side, you can do that immediately as you just lower your bids or stop campaigns altogether. On the other hand, on the brand marketing side, it is a bit more tricky. So we usually have part of our budget committed with certain TV channels, and you also need to brief the channels and commit budgets a bit in advance to go through clearing and secure the desired ad products, et cetera. So we started right away to cancel commitments and negotiated to post campaigns. And that was very important. As every dollar on TV advertisement obviously would have been wasted and might've had a negative effect as during a global pandemic countries and countries being in lockdowns. The last thing you want to do is to promote travel. So after we had taken care off of the 80% of our costs, we started to analyze our overhead structure as well. We are based in Germany. So as an immediate action, we utilized short labor, a government aid scheme where people work reduced hours and the government subsidized the salaries. This bought us some time to think about the implication of the pandemic, not only for us, but for the overall industry for the next couple of years and then we spoke to other industry participants to get different perspectives and try to understand how the action would impact the dynamics and all that occurred. And based on that, we formed a hypothesis around different phases of recovery. And by doing that, it became apparent that we cannot manage, through the spirit by just putting people on short labor, but we needed to restructure the business. That means reducing complexity, streamlining operations, and certainly also letting some of our talents go.As a consequence we closed or sold our remote offices and moved to everybody to our headquarter in Dusseldorf. And we reduced our headcount. but on the other hand, brought back everyone from, from short labor. And then lastly, I would mention that on the B2B side, we proactively reached out to our partners and implemented payment plans for those being in a difficult financial situation. And, that was very important because, at that moment we had a high amount of outstanding accounts receivable, but as we acted as a partner of trust and we collected almost all of the receivables, by the end of the second quarter, and as a result of all these measures, we did not burn any cash over six months period since the outbreak of the virus.
So it sounds like you had to, you had to take a lot of steps upfront, but I'm just curious if you had any crisis management plans or any of these ideas in place prior to actually having the change the business.
Yeah. We have operated in a very dynamic environment over many years and despite our global footprint and, a well known brand, we are still a small company, thus we always had to adapt change and innovate in order to be able to compete with large global companies. And this, I believe has fostered a very agile culture. So we always had to prepare for big changes and learn to stay flexible and adapt fast. So when the crisis hit, it did not take us long to adapt, and also, we also have a relatively simple business, with key leavers and product marketplace and marketing, and the biggest short-term, is clearly marketing. I mentioned it before. however, during, even during normal times, our marketing channels can be very volatile. And so we constantly reassess what we are doing there, and we always keep the flexibility to adjust quickly. So in a way we are at any time prepared for different scenarios, on the fixed cost side, our largest cost category by far is personnel and related costs. And, we are investing in people, thus we constantly have to evaluate how to allocate this precious resource. And when the crisis hit, we had to reassess our investment and projects outside of our core. And based on that, we came up with a restructionplan. So in a nutshell, I think we almost always operate, in an environment where we do have, a plan for all kinds of different scenarios and didn't need a specific one for this crisis.
Well, that's great. And I know, you know, you've mentioned talent a few times now, already in this conversation, and I'd like to kind of talk about that a little bit further. You know, obviously you had urgent financial needs going into this crisis and you certainly had to adapt the business, but how did you really balance that with your desire to maintain the top talent in your organization and also, you know, address the concerns of the talent and the organization?
Yeah, absolutely. So our first reaction was to focus on preserving our cash. and that means that we, cut all unnecessary costs and, came up with a reconstruction plan, as I mentioned, and have all partners with flexible payment terms. Internally we were very open-ended and transparent about this. So for example, we established weekly all hands Q&A's where we as management gave updates on our view of the industry, the implications for us and how we need to react. And the feedback from our talents was very positive on that, and I believe that the transparency about how we are approaching the crisis increased the acceptance of our measures. And, just to remind you that we had to take some very difficult decisions, like the headcount reduction. On the other hand, we clearly communicated as well that we will continue to invest in key projects and won't just sit, the crisis out. We do have a clear plan and product roadmap, and it is very important that all talents can look through the short-term challenges. Thus we have them to understand what we believe the long-term consequences will be by us continuing to invest. And in addition, we implemented several measures to help our talents, through this difficult time. So for example, we allowed them to take, office equipment home to have optimal working hours, working conditions from home, prepared the office to be as safe as possible for those who cannot or do not want to work from home, and organize different recognition programs, and as a reside of all these measures, we believe that our productivity even went up during that period, and then we, we spontaneously granted the whole company, one, one extra, mandatory, holiday week in August, what we called a true vacation. So that was also an initiative to show recognition and, to show that we are in this together, and if we go through this that our people were, would still get the benefits. And I believe those little things are very important, it shows that you care and there are so many ways you can give recognition that motivate the team. And in the end, we are still in a very exciting industry and it's important to, to remind people of that.
So as far as continuing to invest in your talent, I like the different initiatives that you mentioned here. However, I assume there are still some questions about the industry in general, and I'll give you an opportunity to address that if you'd like, but just hearing some of the new increases in the virus across the world, and some new restrictions coming out again, I'm curious about the current status and really ultimately what you are doing to continue to maintain and potentially even attract new talent to the organization with all these questions looming.
Yup. Very good question, indeed. And, I mean as I mentioned before, the beginning of focus was on restructuring the company. So we even had to let go some talents, unfortunately and that also meant that our recruitment activities were very limited at that time and we just focused on filling, replacements for key positions, but then during the third quarter, entering the summer season, we already saw a decent recovery in our business in particular in Europe, and we could clearly see that people do want to travel when it's possible. And we see a similar pattern right now in countries that are approaching the summer season like Brazil. And this gives us comfort, comfort that, when we will enter the peak summer season in the Northern hemisphere next year, again, that our business would decently recover. And those, I mean, those are answers to potential new talents and obviously, some were worried about, or still are worried about, the situation. And I personally received more questions from candidates on our view and outlook of the industry and Trivago's plan as a reaction to that. And then I have to say, we do have a clear plan and strategy, and we energize our company that also means that we adjust in the way we work. So for example, we are currently testing a hybrid working setup, giving talents a lot of flexibility, without losing the benefit of working together, collaborating and shaping our new culture. And I think our talents and new talents as well, appreciate that. And just as an interesting data point currently we even get, on average, the same number of application for an open position, compared to the pre COVID time.
Well, that's certainly very reassuring, for travel and I'm sure for many consumers listening, so thank you for sharing that. And, you know, the last thing I'd like to discuss here, as we wrap up, you kind of just talked about some of the numbers, you know, obviously in a strategic leadership position, coming from the finance function, technology and data plays a big role, I'm sure in a lot of the decisions you make for your company. So how has technology played a role in, and what kind of data are you really utilizing to make these informed decisions? You know, I know you just talked a little bit about some qualitative data and some concerns, so how does that go into it as well as the quantitative information, that you're taking into consideration?
Yeah. So technology is obviously key to us. I mean, we consider ourselves a tech company, for sure and so when the crisis hit and our revenue went literally to zero, it was very difficult to come up with an estimate of what that means for the industry for the rest of this year, let alone 2021. So we started to talk to adjacent businesses and piece together, any information we could get and we also started the European Traveler Alliacez with leading travel companies, a project to support the local tourism industry. And the idea was to provide accessible data free of charge, creating a resource for consumers and enabling travel institutions and companies to deliver the information to the users across their own product, regarding any given restriction for chosen destination. So, that we, we formed a hypothesis that when travel recovers, it will be mostly local and we assume that domestic travel to nature destination would come back first, then city trips and international and business travel last. And hence we decided to use, technology to build a better product for our users reflecting, the shift. And the result is our Discover product that we ship in in less than six months. So it's now live globally in our app and on desktop, and as demand for travelers coming back, we will again use technology to find out how user behavior is shifting and we'll adjust our product roadmap accordingly. Another example is the shift from traditional hotels to alternative accommodations like apartments and we clearly see that in our data and hands are preparing to invest further in that vertical as well. So clearly technology and data key to drive all the decisions and, that, that is very important to us and, something that has us helped now, through the crisis to, set up, the product, and in a new direction and have our users, to get more out of that.
Well, I certainly appreciate your perspective on all of this and thank you for sharing everything that you and your organization are doing. You know, I always like to wrap up conversations by giving you an opportunity to kind of share your thoughts or, you know, insights into what the future may hold. So again, as a, you know, the finance leader in the organization of a tech company, as you said, particularly with the challenges that you've faced over the last year, you know, what do you expect going forward for your company and even for finance and business as a whole?
Yeah, sure. So I think it's two fold. On the one hand travel, we are optimistic and I'm personally, positive on the second half of next year, for travel, for the industry overall. And why is that? One is, we have seen this some already that, when people can travel, they do want to travel. And we currently see that again in Latin America where, they are approaching their summer season now, and we see a similar trend, that, people want to travel, even if there are shifts towards domestic travel, because you cannot go international, but when summer comes, people want to get out and want to travel, and, certainly we recently got the positive news on the vaccine. So it seems like we will have, a vaccine available, in the near future. Obviously distribution will take time and it won't have a big impact, in my view of what next year, but will be more important for the years to come. But even, even that shows that we are making progress. and it's not only the vaccine, it's improved testing as well and, obviously we now have all the experience of, what it feels like to travel under COVID restrictions. We all used to wearing masks and having a kind of precautions in place. So that will increase the acceptance next year. And we have one more year until the summer peak season to prepare for that. And, that I believe, will, positively, impact travel, demand overall. And then on the technology side, I think that's a development that we've seen right now as well where the crisis at rather accelerated it's very, very fascinating to see how technology can enable us and make things happen that think about like, even just before the crisis. Now we see a lot of companies are going into home office and it's working and it's working perfectly well. All that business travel that is normally happening, is only happening to a very limited extent right now, and companies, get the experience that through technology, they can do a lot of things that they thought wouldn't be possible. And, for us as a company as well, it's, on the products, actually, I mentioned the example of the Discover product, where we now had to use technology to come up with a innovative product idea to help users, address their changing needs, due to the crisis and that's a beautiful example. And then on the other end on the finance side, as well, we, as a company obviously are, are challenged. And, we have fewer resources now. I mentioned the head count reduction, and that means we need to become more efficient also in how we are set up in our finance function and one way to become more efficient obviously is technology. And then we also looked at solutions. Some things we would probably would have pushed out and, and still continue to do manually and now we are in a way forced to accelerate that process and use technology to have a more efficient setup. And, that's why I'm a big believer that there's a big chance and opportunity in every crisis, and I certainly see that in this one as well.
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