Yep, I went there. I just gave what happened to hundreds of small businesses on the fourth of July long weekend, a name. Why? Because it was an apocalypse of sorts.
Hundreds of small businesses were told on June 30th that their online bookings, payment provider, call center, and primary distribution partner were going out of business. “Good luck, all the best!”
For these businesses, which had become almost completely dependent on Zerve, the consequences were dire and required immediate action.
In technology, we talk about distributed risk or eliminating the single point of failure. Usually this means not being dependent on one provider or piece of hardware. It involves having redundancies in place in case of outages or back-ups in case of a crash.
In business, whether you are a tour operator, a hotelier, or a widget maker, it means not relying on a single provider for all your critical business services. But that’s exactly what happened with Zerve and it’s the reason why #Zervocalypse was so painful.
Hindsight is always 20/20. When things are going well, it’s easy to overlook the risks and just keep coasting.
But when things go horribly wrong, it’s important to take a step back and figure out what can be done differently to avoid another disaster. Now that the weekend is over and the blood bath has dissipated, here are some lessons for the small businesses who were affected.
Businesses should own their direct channel
Businesses should not hand over control of their inbound phone sales and customer service to a third party, nor should a business ever relinquish control of their phone number or website domain.
No matter how attractive this seems, outsourcing inbound sales is not a good idea. Not least of which because when your primary sales channel goes out of business, you have no back-up whatsoever.
Similar scenarios have played out in the hotel space with hotels becoming entirely reliant on OTAs for bookings instead of focusing on their direct sales channels. The solution to this problem is to take control of your sales and make sure your website has accurate information, complete tour details, a secure booking engine, and a phone number to call in case of questions.
Most customers are booking tours outside of regular business hours and they are increasingly doing so online. According to Phocuswright, more than 92% of online sales are direct to the supplier. Although direct off-line sales such as in-destination last-minute or in-person sales are still very high (59% of total sales in 2012), that number is decreasing as more businesses develop online booking capabilities.
For the most part, the only reason customers should be calling a business is because there is missing information, they have a question that cannot be answered online, or they are booking last-minute in destination.
The goal of these businesses should be to reduce the number of calls that they get by providing an effective online sales presence.
Businesses should manage their own money
Many businesses seem to be comfortable with the concept of having a third-party company (other than a payment gateway or a bank) handle their money. Not a good idea.
This is an okay scenario when you are working with companies such as Viator , Expedia, or GetYourGuide, who are marketing, selling, and providing customer service to travellers. But this should never be the case for direct sales. Not to mention, only getting paid once a tour has been redeemed means waiting potentially weeks for a payout.
There have been many examples of companies who have gone out of business without paying out their suppliers. Your direct channel is probably close to 92% of your revenues, are businesses really going to trust that to someone, other than a regulated bank or legitimate payment provider?
The solution is take control of your finances by getting a proper merchant account, or at the very least use a service like Stripe or even PayPal to manage online payments.
Companies that provide bundled credit card payments, thrive in an atmosphere of laziness and ignorance. They convince businesses that taking payments through them is easy by making the process of getting a merchant account seem difficult and onerous.
For a legitimate business with any kind of credit history, getting a merchant account and payment gateway is not difficult, and in many cases it can take less than two days.
Once a business has their own payment gateway and merchant account, they can decide what technologies they want to use without being forced to use one simply because they are ignorant of the choices available.
Businesses should own their brand
Selling on Zerve meant passing off the entire booking experience to the Zerve website which didn’t look anything like the business’ website. When a customer booked an experience, even one that started on the business’ website, they were redirected to Zerve.
The customer received emails from Zerve, their credit card statement said Zerve, and they wrote their post-trip reviews on Zerve. Whose tour is it anyway? Who owns the customer? Who is the customer really going to remember? All fair questions that should have raised red flags.
The solution to this is simple: take control of your brand!
This means keeping the customer engaged with the business brand, using a booking engine that matches the business website, ensuring that customers see the business brand name on their credit card statement, and sending business-branded emails to customers. When booking direct, the customer should always feel like they are booking with business.
Build quality distribution relationships
For now there are only a handful of world-class distribution channels that are worth the time and energy to manage. The main ones being Viator, Expedia, and GetYourGuide.
For many suppliers, these three account for the vast majority of distributed bookings.
In the not so distant past, two of these three were curated marketplaces, which means that they would only work with select suppliers.
In the past few years, however, that has changed, and now all three are open marketplaces. This means that any supplier can sign-up to sell their tours or activities through their vast network of sites. Although the distribution landscape for tours and activities is changing, it has a long way to go.
Have many service providers
As much of a hassle as the above suggested actions may seem, they are part of an important business strategy. The most common critical business components are staff, website, phone services, third-party sales channels, customer service, finance, and operations.
By deciding which are the critical components and then ensuring that each component is serviced by a provider who specializes in it, you’ll ensure that the business has built-in redundancy.
When multiple components are bundled together and provided by a single provider, there is a risk that, should the provider cease operations, all the components are affected. This is evident with the Zerve incident.
When a service provider services only one or maybe two of the components, there is less overall risk to the business.
For example, if the website provider goes out of business, the business owner can look to get a new web host without having to worry about disruption to phone, customer service, finance, or staff. Within each business component should also be a back-up process or export functionality that allows the business to retain control of their data.
In the case of the website, this might be a back-up of the website and database files in order to transfer the website to a new host. Also remember that you should always have full access and control over your phone number and website domain.
Service providers are not your friends
No matter what a business might be told, service providers are businesses like any other and are in a relationship for business reasons. Any other message is purely marketing and is there to build trust or comfort with the service provider.
Businesses don’t owe their service provider anything, especially misplaced loyalty.
Don’t forget, these businesses got four days notice of a shutdown!
In today’s Everything-as-a-Service business environment, there is no reason why any small business should be forced into a contract or long-term relationship with any service provider.
There is also no reason why any small business should have to rely on any one service provider for more than one or two critical business components. Doing so, as I have mentioned before, is a recipe for disaster.
Businesses need to treat services providers like the businesses that they are and focus on making sure they have a solid back-up plan for when things go bad.
Businesses must take responsibility for their technology
I realize that it is easy to get overwhelmed by technology and to look for one-stop solutions for what can seem like complex problems, but the internet as we know it has been around for twenty years (more than forty years all told) and it’s time to step up.
Business owners have to educate themselves and make sure that they have, at the very least, a basic understanding of how technology impacts their business.
Operators can start by joining communities like Tourism Tribe, Small Fish Big Ocean, the World Food Travel Association, and Be a Better Guide, which provide access to educational materials, forums, best practices, and tutorials that can provide guidance on everything from setting up a website, choosing a booking engine, selecting a payments provider, training staff, managing reviews on TripAdvisor, and even how to set-up relationships with OTAs.
By taking some time to educate themselves on the basics, operators will save themselves a lot of grief and stress down the road.
As hard as this event was for the hundreds of small businesses that were affected, the long-term damage is the distrust that these businesses feel for technology providers in general.
“This is terrible for the hundreds of small tour companies who rely on their services, and sad for the Zerve folks who are out of a job.
A reliable tour booking portal and customer help line ought to be a viable business model that can grow steadily for years.
But money mad Silicon Valley only wants jackpots, and tough luck for anyone who thought they were in business with a company that was committed to providing a service, not looking to cash out or, failing that, to quit.”
After #Zervocalypse, there will be lingering doubt, distrust, and caution. I wouldn’t be surprised if some suppliers abandon online altogether, for the short-term anyway.
But if operators learn from this experience, protect themselves properly, prepare appropriately, and take the necessary steps, they won’t have to worry about being this vulnerable in the future.
At the end of the day there are some things that a small business can abdicate, but control of their brand, finances, and direct sales channels should not be on that list.
Businesses can protect themselves from suffering a similar fate by spending a little time and energy on educating themselves on current technologies, taking control of their revenues, building a solid inbound sales plan, taking advantage of third party distribution, and making sure they distribute their risk.
If a little preparation may be the next disaster will be nothing more than a slight inconvenience.
NB: Picture via BigStockPhoto.