Ep. 103: Matthias Tillmann - Managing Industry Disruption & Crisis Management

Contact Matthias Tillmann: https://www.linkedin.com/in/matthias-tillmann-58997a53/

Trivago: https://www.trivago.com/

FULL EPISODE TRANSCRIPT
Adam: (00:00)
 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.

Mitch: (00:42)
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?

Matthias: (01:01)
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.

Mitch: (04:59)
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.

Matthias: (05:13)
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.

Mitch: (06:54)
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?

Matthias: (07:18)
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...