Over the past few years we’ve had more than our fair share of people asking us about hostels in India. The line of thought among the 20-something year olds in India is to quit your job and become an entrepreneur. If you’re an entrepreneur without an idea, then just go ahead and open a backpackers hostel. There have been several articles in the press glamorizing hostels, where less than an hour of research was spent on these articles. Gross negligence has resulted in hostel names being misspelled in the process. From the newest shiny gadget to a radical new way of thinking, everything has to go through the excruciating adoption lifecycle and hostels are no different. Given that I’ve spent the last 4 years dreaming about hostels, I will try and take you through the adoption of backpacker hostels in India.

Round 1 – Innovators

“Hostels provide budget-oriented, sociable accommodation where guests can rent a bed, usually a bunk bed, in a dormitory and share a bathroom, lounge, and sometimes a kitchen. Rooms can be mixed or single-sex, although private rooms may also be available.” – Wikipedia

Backpacker hostels originated in Germany in 1912 and approximately 99 years later in 2011, the concept came to India. Amber and myself quit our high-paying consulting jobs in Singapore and moved back home to India to open what was arguably India’s first backpacker hostel on the sunny shores of the backpacker capital of India – Goa. Backpackers have been coming to India for decades but with everyone was so focussed on finding themselves, no one ever bothered to start a hostel. Asterix Hostel was a drastic move away from family operated guest houses and it got off to a flying start. Asterix quickly made a name for itself on all the usual review sites and even sneaked into the erstwhile backpacker bible – The Lonely Planet in a record 2.5 years (hence erstwhile). In fact the success of Asterix Hostel caught us completely off-guard and with both of us differing on the long term plans, Asterix was shut down and it quietly receded into myth. Amber went on to open Moustache Hostel in Delhi, while Laura (my partner) and I kickstarted The Hostel Crowd in Goa.

Round 2 – Early Adopters

This particular moment in 2013 coincided with the birth of several hostels and hostel chains in India.

The Hostel Crowd

After the Asterix demise, I got a chance to reboot the hostel machine and start from scratch; this time learning from Asterix’s mistakes (I can write a book about that). Hostels, and most other small businesses, have the inherent risk of taking on the personality of the owner. Most hostel owners get to know their guests personally. This is a great thing until the owner moves away from the business and then everything falls apart. We opened Jungle and Prison simultaneously in the first year with the objective of operating design led hostels in India. The focus was to completely remove the owners from the guest experience and create a scalable model without compromising on the underlying values or quality. 2014-15 saw the birth of Old Quarter in Panjim, Goa’s capital city and Maritime in Fort Kochi, Kerala. With these 4 hostels, THC as a brand was firmly established within the backpacking circles of South India. The guarantee of standardized quality and a unique experience at each hostel resulted in guests making their way through Goa and Kerala by hopping from one hostel to the next. The coming week will see the opening of THC’s 5th hostel – Summer.

Zostel

In an industry that typically consists of innumerable small players, Zostel changed the game with 7 MBA students deciding to do for hostels what McDonald’s did for burgers. Instead of growing organically which would’ve taken decades in India, they raised a million dollars in funding. They opened two hostels in Rajasthan in 2013 and then proceeded to quickly opened 6 more hostels with the money. The expansion was so rapid that one of their hostels opened inside a mall in central Gujarat and with backpackers struggling to find Mumbai on a map, the Gujarat plan was highly optimistic. With little or no infrastructure, staff or processes to back this rapid expansion, Zostel Goa and Zostel Gujarat silently shut down with no Facebook fanfare. Zostel then continued to make the impossible happen by raising another round of 15 million USD from investors. But this time, plan had changed. Operating hostels was hard work and so Zostel 2.0 transitioned to a booking engine built around franchising their brand to a bunch of devotees who were willing to do all the work, invest all their money and give Zostel a 15% commission. They then (obviously) went international. Zostel is currently the only hostel giant in India and they are not afraid of throwing their weight around. However, what remains to be seen is whether their business model and questionable work ethic is sustainable in the long run.

Moustache Hostel

After shutting down Asterix, Amber wasted no time in moving back home to Delhi and opening up a hostel there. Armed with the experience of having operated Asterix Hostel for 1.5 years, Moustache Hostel monopolized the hostel scene in Delhi until 2015 when the competition finally arrived. Amber made hay and expanded his brand by opening Moustache Hostel Jaipur. Most backpackers who stay there don’t realize that a mini-fortune was invested into building this perfect hostel from scratch to make their stay completely frictionless. Moustache is very consistent with delivering the same quality day after day. However with so many hostels opening in Jaipur and Delhi, standing stationary is a risky game and only time will tell whether Moustache has built walls high enough to survive the ongoing onslaught from competitors.

Stops Hostels

Pankaj and Pallavi quit their jobs and started Stops in Varanasi with the goal of building something substantial and taking it across the country. From day one there were no shortcuts and they took great care in getting every detail of the hostel right. In fact, they did not even charge anybody for several weeks after opening their hostel because the hostel wasn’t complete. Although this must’ve been financially stressful, in the long run the goodwill paid off with Stop Varanasi firmly establishing itself among the top 10 hostels in India. Next came their Delhi project which made Stops Varanasi look amateurish. The attention to detail continued and where it stands right now, Stops is paying a lot more attention to maintaining the utmost quality of their operational hostels as opposed to expanding rapidly with a low quality product.

Round 3 – Early Majority

The early majority was made up of people who had stayed at backpacker hostels in Europe, South America, etc and then noticed backpacker hostels popping up across India. They visited these hostels and then began to question why no such hostel existed at their favourite place. And then like all entrepreneurs, they stopped talking and started doing.

The Hobbyists

Backpacker hostels somehow attract guests who are not afraid to take chances and stand up for something they believe in. It takes an incredible amount of courage to abandon your home, pack some belongings into a backpack and venture out of your comfort zone to explore the world. So it should not come as a shock that most backpacker hostels are run by backpackers on crack (sometimes literally). In India, these prolific hostel owners are everyday heroes who battle bureaucracy, social stigma and overcome financial nightmares to put their hearts and savings on the line by running a backpackers hostel. However, in many cases the reward isn’t monetary in nature. It’s the possibility of traveling without moving, making friends with people of the world in your living room and having a house full of life and a life full of excitement.

On the brink

Several hostels in India like The Hosteller and Roadhouse Hostels would like to make the transition from amateur hostels to professional businesses. Currently operating 2 hostels each, the biggest challenge that lies ahead of them in this development is staff. Hostels generally employ lower wage employees who do not possess the necessary skills to single-handedly manage a property which results in the properties currently being driven by the personalities of the founders. Which makes for great hostels but as a business is not scalable. Hiring a skilled general manager for every property is financially infeasible and highly risky. This silver bullet strategy of hiring a manager to deal with everything can only work as long as the motivations of the manager aligns with the owner assuming this manager is competent in the first place (not a guarantee in India). Solving problems through automated processes is the only sustainable but time consuming solution.

The Wannabes

Like any other developing economy, India has its fair share of me-toos and no better place to find these types than in an industry that hasn’t become an industry yet. This facet of a growing industry is mostly invisible to the public but as a hostel owner, I’ve had quite a few run-ins with this type. Although the early adopters have their advantage, that advantage can quite easily be overcome by the wannabes. And this game gets dirty pretty quickly. You find wannabes behind your reception computer trying to copy data off the hostel laptop. Some wannabes take a more direct approach and go straight to the landlords to try and rent the hostel you created off them at a higher price. In a growing industry, the enemy is the Government because regulation does not keep pace with economic development. However, a lot of effort is wasted in mudslinging and fending off competitors instead of uniting as a industry to press for reform.

Round 4 – Late Majority

India is going to see a boom in the number of hostels in the next 5 years. Given the archaic practices of family run operations that currently service the budget sector across the country, there is definitely a huge scope for improvement. A couple of budget hotels have already started replacing double beds with bunks and referring to themselves as hostels. However, in the process of commoditizing hostels, a little bit of the culture behind why hostels exist is lost. Backpackers are very quick to sniff this out and in an age of perfect information cosmetic changes don’t fool anyone.

Most of the new entrants in the hostel industry are first time entrepreneurs who are very exuberant about the upsides but do not consider the huge responsibility it is to operate a business that is open to the public 24/7. Taking our cues from a developed market like Singapore, we can see that it went from a handful of hostels in 2010 to 75 hostels in 2015 which resulted in price wars, a wave of hostels shutting down and with the wheat being separated from the chaff. Given how quickly backpacker hostels are growing in India, we might not be a long way away from this. And as Warren Buffett always said – only when the tide goes out do you discover who’s been swimming naked.