One week ago travel management company TripActions laid off 300 employees – about 25% of its work force – as it deals with a drastic reduction in revenue due to the COVID-19 coronavirus.

It was a dramatic turn for the startup that has been one of the brightest stars in the business travel startup space since it launched in 2015. The company has nearly 4,000 clients around the world, has raised more than $480 million and in late February brought in up to $500 million in debt financing to launch a new payment product, TripActions Liquid.

PhocusWire talked to TripActions CEO Ariel Cohen about the layoff strategy, what he’s hearing from his investors, what can be learned from China and why he’s optimistic about the future of business travel.

We last talked in late February when you launched TripActions Liquid, and at the time nothing came up about coronavirus and its impact on business travel. Do you recall when it first came on your radar as a serious issue for your company?

I actually remember it vividly. I was on a flight to Seattle, and my meeting in Seattle got cancelled because of the two first cases there – it was over a weekend. And I remember at that point I was like, OK, we need to rethink our strategy.

Then the situation unfolded. We modeled something back then and obviously that was a more optimistic model than what we actually saw as every week passed by and most of the flights got cancelled. Our business model – we sign corporate accounts, and we have their users using us booking trips and we have a booking fee per trip. So we make money when someone is using us. That means if nobody is traveling for business we are almost making no money.

Explain a bit more about how you have assessed the situation and reconfigured your business plan.

Interestingly enough, we see two almost contradicting things right now. On one side, we have no new revenue, but on the other side we are actually accelerating on signing new corporate customers, and the reason is they see in the post-COVID era they have to manage travel and they have to manage travel in a system like ours. So yesterday we actually signed our biggest account to date, and the reason is that from a future perspective, people really want to be equipped with the best technology...

So I had to reconcile between the two - on the one side the future volume that we think will be really high, but on the other side the fact that we don’t have usage right now and therefore won’t have any revenue. I had to reconcile between the two and that’s eventually the decision that I made [to do layoffs].

You basically operate based on a model. And you are trying to assess the situation and trying to compensate for how long do I think people will not travel and what percentage is it going to drop.

At the beginning we modeled a 50% drop – that was three weeks ago. Then we modeled 70% off. When we modeled 70%, we said we can take a lot of internal measures and still not let go of people. We cut salaries of all the employees across the board starting with me and my co-founder - we reduced our salaries by half. The executive staff took a cut, and then we built it down across the board. We cut some other things like some benefits ... and these were the fairly easy cuts. 

But eventually, when we see almost no travel right now … at that point we decided the right thing to do is to do layoffs. First of all, we have a lot of teams that you don’t need right now. As an example ... we grew 5X year-over-year for quite some time. This year our plan was calling for 4.5X on revenue, and we were planning to double the team. Double the team means you have a very big recruitment team - but you don’t need that size of a recruitment team anymore. We had a big marketing team in charge of building our brand. They were doing events - going to events and our own events. We don’t see that coming back any time soon.

So you go across the board, and you say these are teams that you just don’t need in the foreseeable future. That was the thinking. But the entire thinking was on a model where you don’t see a lot of bookings – we went on an extreme approach of saying for 12 months. Then how do we want the next 24 months to look like? This is basically how we looked at this.

We are fortunate to raise money before this. We still today have roughly $300 million in the bank. We are fortunate to have it and that allows us a lot of leeway, a lot of ability to decide how we want the future of the company to look like. But it is based on a model where you have to say this is the model I believe in right now based on everything I know.

Hindsight is, of course, 20/20. But six or 12 months ago, if you had known this would happen in March 2020, is there anything you would have done differently?

You always model for a recession – you always ask the question what happens in a recession and how do you adjust the spend. That was always in our plans, and we always talked about it. And from a value perspective, because we save money for the companies using us for their business trips, we knew our value proposition would be even stronger in a recession.

We never modeled a global travel freeze. It never occurred to me that it was even a possibility. If I had known that was even a possibility, of course I would have gone in a different way.

The situation is still evolving day by day around the world, and the end is unknown. Is there a chance you might need to make more cuts?

From three weeks ago, I was thinking this is a severe crisis, how am I going to manage this crisis? Being transparent as much as I can is one of the goals I set for myself. I think coming to employees and telling them I don’t think we’ll do layoffs again is actually irresponsible. Definitely in this environment. So in our plans right now – the answer is no. But if we model something more severe, the answer is yes.

There are a lot of different things that could happen – some of them could be positive. Governments are stepping in and providing some relief. People can get back to slowly traveling for some reasons. I’m usually not a pessimistic person, but I think people need to look at what’s going on and respond accordingly, so I will not tell you that I will never see more layoffs in TripActions. I will tell you that based on the model that we have right now that is not part of our plan for the next 24 months.

What are you hearing from your investors?

I have been fortunate not just to have the ability to raise money but also to have the best investors on the planet. In my board I have people with a lot of experience that is actually relevant in this context. So if you think about someone like Ben Horowitz [of Andreessen Horowitz]. He was running his own startup in 2001. He wrote a book about it. He gives me a lot of advice on what’s the best way to weather this storm.

I have an investor who was investing through all of the crises - Oren Zeev - he was actually very aggressive through all of the crises ... and I have Lightspeed [Venture Partners] and Arif [Janmohamed] who is someone who has great expertise in the B2B space.

All of these guys are in TripActions for the long run. We all believe that people will continue to travel for business once the health crisis is solved. And we believe TripActions can become the leader in the corporate travel space. We think that we have a huge advantage from a technology perspective. So the belief is really high and also the support. It’s much more a long-run thinking than what’s going to happen in the next 12 months.

There are some who wonder if this crisis – particularly in tandem with climate change issues – could change corporate travel strategy permanently. What are your thoughts on that?

People were saying similar things after 9/11. I think eventually we are all social creatures, and we want to meet face-to-face. TripActions’ mission is to enable personal connection. I think if you and I were sitting right now in the same room, the level of energy would be completely different, the abilities in terms of interacting would be completely different. So do I fear a world where people are not traveling for business? I cannot even imagine a world like that. I think that as long as people are social creatures, they will want to meet face-to-face.

And eventually it’s an efficiency question. Is it faster for me to close a deal via video conference compared to meeting face-to-face? If it’s faster and easier then I’ll do it through video conference. And am I getting training now that I can do more stuff through video conferencing – of course yes.

But also will it be urgent for some people immediately after they can get out of their homes to go into their offices? Think about me – I laid off people in London. Do I really want to fly right now to London and meet with the team there – the answer is yes. Do I want to talk to them through video conferencing – the answer is hell no.

I think people will optimize based on the best thing for the business. Budgets will be very tight ... I don’t think COVID is just going to vanish. I think there may be a hybrid where there is some COVID and people are traveling out of their houses, so people will need to manage budgets very effectively and TripActions is in a position to help solve it. But I don’t see a world without business travel.

China just tightened flight restrictions in an effort to cut down on imported cases of the coronavirus. Doesn’t this foreshadow the issues other countries will face – and the possibility travel could be limited worldwide for quite some time?

We have a partnership with Ctrip in China, and we have connections with a lot of Chinese investors. I was talking this week with people from China, in Beijing, and also people in Singapore, and talking with them is almost like talking with our future. You can ask them how life will look like for us tomorrow and in three months from now. What they told me is that for the Chinese government, it was important to bring business travel back online before consumer. So they have restrictions on both, but the restrictions are different.

Regarding the situation of when you open it up and then close it again and so on ... post-COVID people will get back to some normality. But I think you will have this – you will have a COVID outbreak in one region and you’ll have regions that are safe. ... Companies that will use technology to manage travel at this point will be able to say I’m allowing my employees to travel to New York but you cannot travel to China right now, or vice-versa. You will see this selectivity, and this is where you can make these decisions just with technology and based on data.

I think what you are seeing in China is a good indication of how our future here is going to look like. And technology companies like us will be able to build a product that will allow companies the ability to have business continue to operate in a completely different environment.

You explained that two of the big areas where you’ve made cuts are in recruitment and marketing. What parts of your business are staying busy – or even busier – due to the virus?

I’m a product person so when I see a problem I’m usually addressing it through product. So maybe that’s my comfort zone. Our R&D right now is extremely busy. While we don’t have users using the product, there is a lot of innovation that is happening right now around two or three kinds of features. One is really safety. Everyone is calling it duty of care, but it’s not duty of care. Duty of care is almost a feature in the way you want to manage business travel post-COVID era. You want to rely on data, you want to make decisions online based on data. So there are a lot of innovations there - our team is working very hard on that.

Then there is how do you run your budget in the most efficient way possible. It’s not just you are a director and therefore you can fly this or not that or this is the approval process. It’s not a work-flow thing; it’s actually a data-driven thing. ... So budget is very important.

Then last thing, we talked about Liquid – the credit card - last time. Think about it – even if you booked outside the system, I still know you did it, and then I can connect you to safety, and I still know where you are.

I can talk to you for hours about product and what kind of innovations you will see from us. And it’s one of the reasons it’s important for me to maintain cash and be responsible here, because I know that there is a day after. And in the day after I see a world where we are one of the leaders in the travel space because we are a technology company.