Paul Touw’s serendipitous Stellar Labs
It may have been serendipity, but for the last 20 years Paul Touw’s career has been pushing him towards launching Stellar, the private jet marketplace. In 1996 he was a co-founder of Ariba, a business to business market place that was sold to SAP for $4.3 billion. He then launched XOJET, one of the US’ largest operators of business jets. He left after selling it to Texas Pacific Group.
In 2015 he launched Stellar. In November this year it agreed a strategic cooperation with Rockwell Collins to rebuild FOS – the flight scheduling system most used by large business jet operators.
How has launching Stellar in 2015 been different to co-founding Ariba in 1996?
Touw: We founded Ariba in 1996 at the beginning of a technology boom period from 1997 through 2001. During that period, the NASDAQ rose from about the 1,000 in 1996 to over 5,000 by mid-2000. Corporate budgets for new IT systems also rose significantly do to the infamous Y2K bug (Year 2000 Bug). Consequently, we entered a boom period in both corporate spending and technology company valuations. Ariba grew from a startup with seven people and no revenues to a nearly billion-revenue company with 2,000 employees inside of four years. It was an artifact of the times I don’t think we will ever see again.
Back here on earth in 2014, Stellar (no pun intended) was created in a more normal financial period with more realistic expectations for technology valuations. Consequently, it puts a little more pressure on having to deliver results without endless amount of capital and customer spending to do so.
Could you have launched Stellar then?
Touw: Nope; or, said another way, if we started Stellar back 2000, we would have required ten to fifteen times the capital to deliver the same product as we can produce today on a fraction of the budget. After about three years at Ariba, we had invested over $200 million in a product that was back then less sophisticated than Stellar is today from a technical perspective. We also currently license over 150 different open source software stacks that back did not exist. Today, we get a significant amount of our technology stack for free from the open source community that we also participate in. What we now take for granted in billions of calculations per millisecond, ultra-fast searching, cloud-based computing, security, workflow systems, rules-based systems, optimization engine, and big-data solutions simply did not exist back then.
Stellar today is much more sophisticated than Priceline was at its initial release in 1999. Priceline didn’t have to calculate the performance and FAA applicable rules for over 126 different aircraft types between 5,000 airports against thousands of varying schedules in a few seconds. Rather, they simply had to look up available seat inventory from a database and then produce a price against search criteria on a single day date. Commercial aviation was a static problem that was scheduled 330 days out. Even today systems like Sabre and Amadeus stretch their technical skills dealing with disruptive operations (changing or dynamic schedules due to weather events, etc.). We deal with disruptive operations essentially every day and every time a customer executes a search in our system.
Having been an operator, do you think you get a different insight into the industry than others?
Touw: Having been at XOJET very much helped drive my insights at Stellar. XOJET was really the first operator to take a airline approach to business aviation. As a result, it grew quickly in from a zero revenue company to over $200 million inside of three years. We leveraged advanced revenue management pioneered in the commercial aviation industry. We standardized on a common, interchangeable fleet. We developed 23,000 city-pair pricing rules based on a sophisticated number of inputs including statistics, deadhead rates, varying demand, and customer willingness to pay. We hired veteran airline executives from US Airways, Jet Blue, and others.
XOJET was a laboratory to test what worked in business aviation to optimize every revenue dollar and leverage cost opportunities. That experience was unique and helped me developed where to focus from a technology perspective at Stellar.
Ironically, many operators just aren’t ready to think in terms of all the technology that is currently in Stellar from a revenue management and optimization standpoint. But when they are, Stellar is ready.
Do you think you could have been able to launch Stellar without launching XOJET?
Touw: I would have never known where to focus and where the important value points technology could deliver without the XOJET experience. In addition, I know so much more about the business aviation industry having spent a decade at XOJET. That experience and insight has really helped launch Stellar.
Operators are often tough entrepreneurs with very fixed opinions. Many of them are very sceptical of new entrants promising to change things. Do you have an advantage because you were a member of the club – even if you were a competitor?
When we initially launched Stellar more than a year ago, we were met with the typical opinions new technology entrants get when they enter traditional markets. We were also met with significant enthusiasm from more forward thinking entrepreneurs in the industry.
Some said private jet clients would never book online—this opinion, from someone still using a Blackberry in 2015. The same traditional thinking also questioned whether vacation rentals, airline tickets, Christmas shopping, or new car purchases would ever be bought online. Today, 50% of Christmas shopping will be done online. And, over 80% of consumers make their car buying decisions online.
As we now enter the market with production product, I think the real question is becoming whether the younger generation of business aviation buyers will actually buy something offline and/or over the phone. It was exciting to see five operators at the CJI Miami 2016 conference agree that in five years, “if you don’t have a digital online strategy, you probably out of business.”
What advice would you give to someone starting out in business aviation – is it an easy market to crack?
Touw: Business aviation is a highly specialized market. It is not an easy market to enter. If you do, make sure you either have a lot of money or can hire the right people with significant experience in the industry.