Crazy Until It's Not: Startups, Venture Capital & Big Ideas
Crazy Until It's Not: Startups, Venture Capital & Big Ideas
My firstminute | Spencer Rascoff, Hotwire, Zillow, Dot.LA, 75&Sunny
The power of a crisis, where to spend your startup budget and how do people learn. We discussed this and much more with Spencer Rascoff in May 2020.
Spencer is Co-founder & former CEO of Zillow, Board Advisor at Tripadvisor, Co-founder & Executive Chairman of dot.LA, Co-founder Hotwire.com and Co-author of the New York Times' bestseller "Zillow Talk: The New Rules of Real Estate".
We dived into Spencer's career as an investor, entrepreneur and company leader who has co-founded two businesses that became household names, Zillow ($8bn market cap) and Hotwire.com ($663m acquisition by IAC). Early this year, he also launched, dot.LA, a media and journalism company dedicated to covering and bringing together L.A.’s startup world.
00:00:00:15 - 00:00:27:04
Speaker 1
First minute capital is $100 million seed fund, proudly backed by a number of tech founder LPs, including 30 unicorn founders. Part of our DNA is to take wisdom and lessons learned from one generation of successful entrepreneurs and share those lessons and pieces of advice with the next generation of successful founders. And that's really what this webinar series is all about.
00:00:27:29 - 00:01:00:02
Speaker 1
My first minute is a fun opportunity to speak informally to some of the world's top founders on the first minutes of their careers, how they see the world in general. Leadership Advice. My name is Clara Lindbergh and Dorf. I'm an investor in First and Capital. And today I'm speaking to Spencer Rascoff. And very hard job is to try to summarize Spencer's career, which is way too impressive to to summarize.
00:01:00:25 - 00:01:30:02
Speaker 1
Spencer Haskell co-founded Zillow, which he ran for a decade and took two IPO and $10 billion market cap. Before that, he started Hotwire, which sold to IAC for close to 700 million. He's been a board advisor to a number of big companies such as TripAdvisor and recently co-founded DOT L.A., which is a media site that we love and that helped make this webinar happen that covered the booming tech scene in Los Angeles.
00:01:30:17 - 00:01:58:08
Speaker 1
He teaches entrepreneurship at Harvard Business School. Is The New York Times best selling author has two phenomenal podcasts, one called Office Hours, and another one, which is my favorite, which is called Dad. I have a question which he runs together with his 11 year old, absolutely wicked smart son, Luke. Spencer has also recently co-founded a second very stealthy and intriguing company.
00:01:58:19 - 00:02:09:17
Speaker 1
And on top of all of that, he's been an angel investor for 20 plus years. So obviously a very busy man. Thank you so much for taking the time, Spencer.
00:02:10:05 - 00:02:11:28
Speaker 2
Thank you for having me. It's great to be here.
00:02:13:10 - 00:02:28:07
Speaker 1
I thought we could start with you taking us back to the humble beginnings. Or maybe not so humble. Where you were born to be a mega-successful interpreter? Or how did entrepreneurialism come to you? How did you start your first venture?
00:02:29:15 - 00:02:59:06
Speaker 2
I definitely grew up in a household like my kids are growing up in, where business and entrepreneurship was discussed at the kitchen table. My dad had an important influence in my career path because he was an accountant, so he went to Penn under or went toward an undergrad and was an accountant and became a partner at an accounting firm in New York and in 1972 was in the washroom at his accounting firm.
00:02:59:06 - 00:03:20:10
Speaker 2
And the gentleman next to him was a British fellow who was mumbling under his breath about how angry he was at this at this firm permanent Preston was the name of the accounting firm. And my dad said, you know, what's the problem? And he said, you know, this ridiculous white shoe New York fancy accounting firm won't take on my client.
00:03:20:25 - 00:03:45:13
Speaker 2
And my dad said, you know, who is your client? And he said, My client is the Rolling Stones. And I wanted Herman and Cranston to be our auditor. And, you know, and they and they threw me out of the place. And that was Sir Rupert Lowenstein, who was the Rolling Stones longtime manager. And my dad said, well, I'll take a leave of absence, and I will I will be the tour account.
00:03:45:17 - 00:04:07:23
Speaker 2
And so my dad took this very weird, you know, his career path took this very weird left turn from the straight and narrow from the Ivy League into into accounting. And so I was on the go. I'm the kind of investment banking, private equity path, which is very, you know, very common out of, you know, out of the East Coast American School.
00:04:07:23 - 00:04:25:07
Speaker 2
And I wasn't really inspired by it. I liked the the time pressure of working hard on a deal, but I felt like I was never there to see the next chapter written, which was what happened to the company after that, after the acquisition. Did the synergies actually come to fruition? Did it turn out to be the right strategic decision to buy or sell that that company?
00:04:25:21 - 00:04:49:11
Speaker 2
And so when I was working for Bonderman at and you should ask him about this, I was working at TPG in 99. He had come up with the idea to start a discount travel website to compete with Priceline. And TPG had a lot of airline experience. They owned Continental Airlines that they bought out of bankruptcy. America West Airlines, that they bought out of bankruptcy.
00:04:49:11 - 00:05:14:16
Speaker 2
They they owned or controlled Ryanair in the UK. And so TPG, David and I put together the company that would become Hotwire. And so we got six airlines and TPG to find $75 million to create a consortium company to try to create a discount online travel agency. I left TPG to help run Hotwire and never looked back at private equity or investment banking.
00:05:14:16 - 00:05:43:09
Speaker 1
I can see that our help, Barry Smith, who founded Skyscanner, is on the line and we got our very own Brant agreement from from last minute dotcom. So I'm sure we'll get more travel tech questions later on. But when Hotwire dot com was about two years old and a booming travel tech start up 911 hits and overnight we go into a massive travel market recession.
00:05:43:27 - 00:05:55:12
Speaker 1
Are there any lessons learned from battling through that downturn that you think could be helpful for the founders on this call, who some of them are grappling with similar market dynamics today?
00:05:56:04 - 00:06:25:28
Speaker 2
Yeah, it was it was awful. It was really awful. I mean, and to make matters worse, it was really quite personal for those of us at Hotwire. So first of all, we had tens of thousands of passengers around the world that that were stranded because flights were grounded for I think it was 13 days. Secondly, I had given a speech at the Millennium Hilton in New York, which the day before or two days before which became ground zero, it was it was crushed by one of the towers.
00:06:25:28 - 00:06:49:25
Speaker 2
And I was on the flight from Newark to SFO the next day on September 10th. So for me, I was, you know, one one day away from being on that same plane. And then furthermore, Hotwire had sold some of the tickets to the hijackers, not not the flights on September 11th, but the September 10th flights from Bangor, Maine to Boston Logan, which put one of the one of the cells in position for 911.
00:06:49:25 - 00:07:07:01
Speaker 2
They bought those tickets on Hotwire. And I actually only started talking about that in the last couple of years. It wasn't something that we ever disclosed. And to my surprise, it actually never came out. It was only something that the most senior people were aware of. The FBI was aware of it. They called us that day and started investigating it.
00:07:07:01 - 00:07:29:04
Speaker 2
And so there was this very weird sense of of of guilt and involvement on the part of the company and this awful tragedy. And then, of course, the business the business aspect of it was was devastating if people didn't travel for six or more months because everyone was terrified. So what did we learn and what are the applications for for today's crisis or future crises that will face on?
00:07:30:04 - 00:07:53:27
Speaker 2
You know, the first thing we did was we we got the company to the size that we thought could survive the crisis. And the advice that I give to founders or executives in times like this or times like that is to try to cut deeply enough that you'll only need to do one round of cuts. And that's particularly difficult in this crisis because none of us know how long it's going to last or if it might get better and then worse again.
00:07:54:12 - 00:08:27:16
Speaker 2
But to the extent possible, you know, if you can do one round, that's ideal. The second piece of advice I give is to treat those people as generously and fairly as you possibly can in terms of acceleration or extension of the of the exercise period on options or health insurance or outplacement. But I see a lot of these now doing a great job with something that we didn't think of 20 plus years ago at Hotwire, which was creating these online, you know, directories of people that have departed the company.
00:08:27:16 - 00:08:56:03
Speaker 2
I see one from Airbnb floating around, I see one from Uber. I see one from TripAdvisor, where I'm on the board. And that's really that's helpful. And and then most importantly, showing empathy. You know, it's amazing how many companies forget the importance of showing empathy during during that during that really difficult moment in the company's life. And the companies that really get in trouble and get kind of raked over the coals in the press are the ones that don't do it empathetically.
00:08:57:01 - 00:09:19:09
Speaker 2
Then then the most important thing is the next day, the day after the layoffs, the day after the cuts. And they're I counsel people to to try to reconnect the survivors, if you will, the people that are still at the company with the mission. You have to re recruit them at that moment. You have to try to remind them of why they joined the company in the first place.
00:09:19:09 - 00:09:37:25
Speaker 2
What is it that we're doing here? You know, what is the what is the higher good that the company exists for that they should really care about? And I guess there's one other tactical thing, which is either at that moment or in a couple of days before, I think it's valuable to let people opt in to the reductions.
00:09:37:25 - 00:09:58:04
Speaker 2
And you'd be surprised how many people actually choose to be part of the layoff for one reason or another. Either they want the severance that the the laid off people get or they want to get ahead of the job search, you know, rather than waiting three months later when it might be a more competitive job market, they'd rather do that up front where they weren't that happy at the company anyway.
00:09:58:04 - 00:10:14:21
Speaker 2
And it's a good opportunity. Separate but but giving people a chance to to opt in is is important because you want to be able to look at those people on day two the next day and say, like, okay, this is it. We're in. We're locking arms. We're reunited. And that's what we did really well at Hotwire in 2001.
00:10:14:21 - 00:10:45:29
Speaker 2
And actually, that's what we did really well at Zillow in 2008 when the same thing happened just two years after after founding the company. And last point is that next six months, if Hotwire 90,001 zero, 2008 post layoffs, post reductions were awesome. There was this explosion of creativity and efficiency and efficacy and dynamism and creativity, which came from there being a heightened sense of mission and urgency.
00:10:45:29 - 00:11:00:26
Speaker 2
And frankly, fewer people, just the creativity that comes from having to do more with less is really powerful. And I think if you ask employees at either of those companies, three years later, they probably would almost unanimously say that it was a blessing in disguise.
00:11:00:27 - 00:11:07:12
Speaker 1
Because I remember hearing you in a in a different context, referred to the 2001 crisis as a the silver.
00:11:07:12 - 00:11:33:08
Speaker 2
Lining I mentioned. Figure two is number one. The company really came together and became, as I say, just just a better company. But crises also proved that are present disruptors with huge opportunity. You know, I was talking yesterday with a fintech company, a crypto fintech company that was saying the same thing that, you know, when all the cards are thrown up in the air during these crises, there's just a lot of opportunity created.
00:11:33:19 - 00:11:55:15
Speaker 2
You know why? Well, number one, companies and consumers change their habits to adapt to the new behaviors. Number two, it's pretty hard for, you know, for startups, unfortunately, to get funded during crises. So if you're already funded, there's probably less competition. And number three, the big dumb companies are really distracted and they're retrenching. You know, they're not fighting off the new disruptors.
00:11:55:24 - 00:12:18:05
Speaker 2
So in the case of Hotwire or last minute in the UK, for example, or Expedia in the U.S., they all benefited from 2001 because the travel suppliers gave more inventory to online distribution because they needed it, and consumer behavior shifted from working with offline travel agents to online travel agents. So there were business behavior changes and consumer behavior changes during that crisis.
00:12:18:12 - 00:12:46:22
Speaker 2
In the case of 2008, the financial crisis and the real estate crisis globally, same thing in the UK. Zoopla and ARIA benefit. Sorry Rightmove benefited in Australia. Aria benefited in the US, Zillow and Trulia benefited. Why? Because real estate brokerage is started moving their listings inventory online. As a result of the crisis and consumer behavior change. They stopped working directly with agents offline and started searching for mission information on the internet because of the 28 financial crisis.
00:12:46:22 - 00:12:50:18
Speaker 2
So crises create opportunities for startups and disruptors, no doubt.
00:12:50:18 - 00:13:17:05
Speaker 1
And things definitely worked out well for for Hotwire to lead two years later, 2003, and it was acquired by IAC for four 685 million. So it's definitely huge, huge success there. And if we fast forward to Zillow, which we talked a little bit about your first check when Zillow was basically still just a PowerPoint presentation was from Bill Gurley at Benchmark.
00:13:17:17 - 00:13:24:03
Speaker 1
If we asked Bill, what do you think he would say that he saw in you or Zillow or that deck?
00:13:24:15 - 00:13:48:08
Speaker 2
I think he would say he invested because of the team. And it was a it was an Expedia team. So I have been in Expedia for a year after the sale, I were to Expedia, the parent company was IAC, but Expedia was the operating company. And you know what? The team that pitched him was the former CEO of Expedia, former CTO of Expedia, the former head of Hotwire, and the first 15 engineers and others from Expedia.
00:13:48:08 - 00:14:20:19
Speaker 2
And the importance of it's not so much about the high quality talent of the individuals, it's that the team had work together. That's actually, I think, what was super valuable. And number two, I think he would say he was he believed in the thesis of information empowerment of turning on the lights, that in this huge category of real estate and home, there wasn't yet a great site that had just turned over all this great information to consumers.
00:14:20:28 - 00:14:51:14
Speaker 2
There were industry focused sites like Realtor.com and real estate brokerage websites that had guarded information in order to generate business for the industry. But there was no consumer first company that was empowering consumers with a very an ethos of democratize information. And the fact that that opportunity was still available in 2005, you know, ten years after the birth of the Internet in such a big category, was surprising to him.
00:14:51:16 - 00:14:53:19
Speaker 2
I think those are the two reasons he said he invested.
00:14:54:14 - 00:15:14:21
Speaker 1
And build, then went on to serve on your board for for ten years. Then you made him a ton of cash. And I would actually love to hear a little bit more about what your early investors were like, whether it's that Bill or others, and how that influenced what you're like or try not to be like as an angel investor today.
00:15:14:25 - 00:15:37:24
Speaker 2
But back then, you know, Bill represented Benchmark, Jay Hoag represented TCV Technology, Crossover Ventures, and then Eric Blatchford, who was a former CEO of Expedia, he was an independent director. We had a real estate broker who had industry expertize, and we had Greg Murphy, who was the former chairman of Expedia and now is the CEO of Liberty. He he also was on the board.
00:15:37:24 - 00:16:03:20
Speaker 2
So in constructing that board, it was really important that we had a diverse group of skills. You know, we had the early stage venture investor that was really the product person. We had the late stage venture investor that was kind of understood the growth stage. We had the real estate broker who understood the industry. We had the deal person who understood capital markets and deals and regulatory and and.
00:16:03:28 - 00:16:04:18
Speaker 3
They all.
00:16:05:08 - 00:16:30:03
Speaker 2
They worked well together as a team and they also respected each other's expertize such that they pretty much stayed in their lanes. And, you know, that's something that I've seen not work as well at other boards. You know, I've been on plenty of other venture funded boards. And, you know, I remember there was one board I was on where, you know, like we're having some discussion.
00:16:30:04 - 00:16:45:15
Speaker 2
There was about I think the company was moving to cloud there. It was like seven or eight years ago. And one of the VCs was, was, you know, checking email and not really paying attention during the board meeting as as is sometimes directors do any kind of perked up and he's like it literally said is a.
00:16:45:16 - 00:16:46:04
Speaker 3
Cloud.
00:16:46:07 - 00:17:06:25
Speaker 2
If we it a cloud company five years ago it's run by Joe you know you should really you know you should talk to Joe I'll connect you guys by email. And I was just like, oh, god, this poor CEO of this portfolio company now has to burn an hour talking to this random person. And like that's the worst type of VC board member is the connector that just wants to introduce portfolio companies to portfolio companies.
00:17:07:03 - 00:17:30:25
Speaker 2
And I see some heads nodding. So maybe this has happened to you all now. Sometimes it's valuable, you know, and you know, for the VCs here, like don't necessarily stop doing that, but just just be respectful and mindful of the time of the management team that you're burning with with those types of introductions. But the role that Bill Gurley played in particular was, was the anti advertiser in the room.
00:17:31:18 - 00:17:58:11
Speaker 2
Bill would not let us do any CRM, any search engine marketing, any online advertising or any offline advertising for the first couple of years. And his attitude was, advertising is a tax on mediocrity, advertising, you know, whatever you would have spent on Google or there wasn't really Facebook back then, but Google or Facebook or Instagram today spend that on engineers and product managers and designers and build something so cool and so amazing that people want to use and want to tell their friends about.
00:17:59:00 - 00:18:20:24
Speaker 2
And then once it's totally awesome, then we can talk about advertising and that I've, you know, I've kept to that mentality in my own angel investing, wanting to make sure that companies you put focus on investing in product and differentiation and and maybe PR or viral marketing or growth hacking or other organic forms of traffic acquisition before they turn to paid.
00:18:21:01 - 00:18:37:10
Speaker 2
Because paid can become a crutch really, really quickly. It can it papers over limitations in the product because, you know, they're like, oh, traffic's growing. It's like, yeah, it's because you keep throwing money at Facebook. Like, of course traffic is growing. Like, is the product any good? Do people like it? What's that net promoter score of the product?
00:18:37:10 - 00:18:46:06
Speaker 2
Is there virality? You know, there really is. It's like, you know, you can you can paper over all of those issues with just advertising budget.
00:18:46:06 - 00:19:13:07
Speaker 1
Yeah. And then as an investor that focuses on consumer, that that resonates a lot. But let's go back to you still go for it for a second and to get everyone who is on this call up to speed on what that journey looked like. You co-founded a company in 2005, 2006. You launched the site, 2011, you IPO. And at that time you had 65 million in revenue, 500 million market cap.
00:19:13:17 - 00:19:39:02
Speaker 1
And then when you stepped down in 2019, you had 4000 employees, 3 billion in revenue and a $10 billion market cap. And what I'm intrigued by here is what was that journey like for you personally and as a leader, to go from running a scrappy startup to managing thousands of employees and billions in revenue?
00:19:39:02 - 00:20:11:03
Speaker 2
It is difficult to change your own schedule and communication style and management style and work habits and travel habits as the company goes through those different phases. And it requires a lot of circumspection and thought and planning, it forced me to say every year, you know, I probably I probably every six months at certain stages of the company, I would sit down and think, okay, if I were coming in today as the CEO of a company at this stage, what would I do?
00:20:11:03 - 00:20:33:14
Speaker 2
How would I manage what you know, who would I meet with? Would I attend that product review? Would I would I still sit out, sit in on those customer service calls for 2 hours a week like I did when we were ten employees? You know, does that still make sense? That's probably what I would I think I did best as CEO was really changing the way I manage and lead based on the company's scale and stage.
00:20:34:08 - 00:21:01:19
Speaker 2
The big the big buckets of change there are probably, I'd say, number one, just just how you how you manage your calendar, like how you vote with your time and stopping to go to certain meetings and starting to go to others. I think number two is realizing that your voice for no good reason just has more weight the bigger the company gets and people tend to defer to you more.
00:21:01:26 - 00:21:19:05
Speaker 2
And so you have to be much more careful what you say and where you say it. You know, I found myself once we got to a couple hundred employees realizing that when I wanted to offer product feedback, for example, I'd have to I'd have to preface it by saying, look, this is just one user talking. Like, I think that when I press this button, it should do this.
00:21:19:05 - 00:21:34:16
Speaker 2
Not that, but like I don't at all, you know, go do research on it. Go ask the designers who are experts at this, not me, you know, go evaluate this. But in my single person's opinion, because if I just, like said it, then they would just go do it. And so that's what I and that's how I thought about managing my calendar.
00:21:34:16 - 00:22:07:21
Speaker 2
Like, am I the only one at this company that can be doing this thing right now? And so I tried to focus my time on those things like PR like, you know, doing interviews with the media where they, they, we would get unique coverage and more coverage if they talked to the CEO or TV or employee recruiting, where if we're trying to close a candidate, there's no substitute for the CEO calling this candidate and trying to recruit them or preparing really thoughtfully for all company meetings, which is a very important time to motivate thousands of people all at once.
00:22:07:21 - 00:22:28:04
Speaker 2
I mean, that's a great ROI and making sure that those are our shows, those are production ins that are really effectively run and successful. You know, that those are things that only the CEO can can really do. Whereas sitting in a 30 person design review is not something that only the CEO can do. And frankly, I'm probably not the best person to be running that meeting.
00:22:28:04 - 00:22:33:07
Speaker 2
There are other people that are better at that. So that's that's what I focused on as we scale.
00:22:33:16 - 00:22:40:29
Speaker 1
Did you use a CEO coach? Was there a particular advisor that helped you as you scaled and asked you these things for for the first time?
00:22:41:13 - 00:23:13:29
Speaker 2
I never had a mentor. The way you think of a mentor, kind of like someone that you're with ten or 20 years and they put their arm around your shoulder like the sort of prototypical mentor concept. And and what I have found in reflecting on, on that for me and thinking about that for other people is that's pretty common nowadays that because we all job hop a lot more than our parents did and because things move very quickly, therefore, people, mentors tend not to take the time to actually mentor a single mentee.
00:23:15:00 - 00:23:36:07
Speaker 2
I have tried hard to hack my own mentorship by, you know, with some in-person, you know, people I actually have a relationship with but with a lot of people that don't have a relationship with. So for example, we were talking about Kevin Ryan, who was a guest on the show a couple weeks ago. We're talking about him during the kind of the pre the pre meeting here.
00:23:36:22 - 00:23:59:21
Speaker 2
And Kevin is not someone I know very well at all. I met him maybe twice and yet I or Jeff Weiner from LinkedIn. You know, Jeff, I know a little bit. You know, I've talked to him a couple times. I met him for conferences. But he you know, we've never worked together. We're not that close per se. But I actually consider both of them mentors, which is to say I have watched almost everything that either of them have ever said publicly.
00:23:59:21 - 00:24:22:11
Speaker 2
I've read everything they've ever written. I've listened every podcast they've ever done. You know, I've I've sort of cyber stalked them more than either of them know. And I consider them mentors. And, you know, there were plenty of times, especially that Jeff Weiner, who was running a company about the same size, LinkedIn, same size as Zillow, you know, as we were both sort of, you know, the companies were scaling.
00:24:22:23 - 00:24:34:25
Speaker 2
And I watched him really closely from afar in terms of how he communicated with employees, you know, how he did media. And I consider, again, I consider him to be a mentor, even though he's he doesn't know that he's one of my mentors.
00:24:35:13 - 00:24:58:17
Speaker 1
But I love that. And I know that you are you're definitely a mentor to to a lot of people and not the least your your students in your Harvard Business School and friendship class. If you could only leave your students with three lessons on proprietorship and leadership, what would those three lessons be?
00:24:58:17 - 00:25:20:01
Speaker 2
So the course that I taught, I created this course and taught it in the fall. And one of the key points of it was about the importance of communicating, of communication, executive communication to your teams, because so many courses in business school to talk about strategy, how do we make the right decision? You know, should we move in this direction or that direction and a lot of them talk about individual management.
00:25:20:01 - 00:25:38:13
Speaker 2
But what I have found in my career is that even more important than making the right decision is communicating that decision to a variety of constituents. So what the exercise that we did for this course several times was we would read the case, we would debate the case, and then I would have them communicate that decision across different channels.
00:25:38:13 - 00:26:01:26
Speaker 2
So they had to write a Slack message, announcing it to the company. They had to create a PowerPoint for the board. They had to write a speech for an industry conference. All this, you know, the same decision like we're going to Zillow is going to start buying and selling houses. Okay. Well, how do you communicate that to your employees, to your investors and to and to people in the real estate industry who might and they all approach it very differently?
00:26:01:26 - 00:26:18:27
Speaker 2
The employee wants to know, what does this mean for me? The investors want to know, what is this? You know, what does it mean to the value the company and the industry wants to know? What does this mean for me? And they probably have a negative bias towards anything that that looks like change. So communicating decisions is, is probably even more important than the actual decisions that you make.
00:26:18:27 - 00:26:49:17
Speaker 2
I think that's the most important lesson. Briefly, other lessons are, you know, the key thing that has been successful for me in my career has been surrounding myself with people that are better than me, that that are better than I, that that work well as a team. And just the importance, the the fact that a small group of people properly motivated can accomplish much more than any individual, no matter how smart or any group of individuals, no matter how smart or hard working, they have to have great teamwork and proper motivation.
00:26:49:18 - 00:26:49:24
Speaker 4
And.
00:26:54:01 - 00:27:02:11
Speaker 1
We have a very, very special work from home guest to bring in and Spencer do you want to call on our special guests.
00:27:02:11 - 00:27:18:11
Speaker 2
For my son, Luke Rascoff? Come on over here, Luke. Luke is 11 and is a loves everything that we've been talking about business, technology, entrepreneurship, etc. And and I'm excited that he's here.
00:27:18:24 - 00:27:42:29
Speaker 1
At Luke's got 20,000 listeners in over 20 countries. And if you haven't listened to that, I have a question. You should you should definitely do that. Maybe you could tell us about your favorite podcast episode so far and would you discuss and what lessons you learned in that episode? I would say that my two favorites are the one that we did.
00:27:43:02 - 00:27:59:13
Speaker 1
We did one on how how does Google work? So like how does how does the physical search engine work? Like how did they get the images as and how do they like how do they find what stuff to put when you search something in? And I really like that one because I'm super interested in technology and super interested in business.
00:27:59:13 - 00:28:33:26
Speaker 1
So to learn how Google worked and how it makes money, it was just super interesting to me and definitely different than I would have expected. Different. Different than I would have expected it. And it's cool to have that information now about both sides of Google. And then I also really like the artificial intelligence one that we just did because again, I really, really like technology and I really like how I learned that artificial intelligence is integrated into so many of the things that I use, like recommended things, recommended things on Google.
00:28:33:26 - 00:29:01:19
Speaker 1
When you search in or like Netflix recommendations or like YouTube recommendation and how like I can see artificial intelligence so much in my everyday life now that I've learned about it more. I love that. And one of my favorite episodes was the one that you did on company culture, and maybe you have some lessons to share on enterprise no ship and and leadership in particular.
00:29:01:19 - 00:29:23:10
Speaker 1
Yeah. I mean, we don't we've been a lot of podcast episodes about big, big companies, big tech companies, mostly NSA learned a lot about like how to run one leg, how to branch out. For example, it's Disney bringing out and creating their new streaming service. And we talked about some things that Disney is using to help that succeed.
00:29:23:26 - 00:29:51:04
Speaker 1
And we talked about like how we talk about how big companies are under a lot of scrutiny from the government recently and how they've been kind of like helping and like getting around that a little bit. And we've learned a lot about like potential for tech companies, I'd say, because like when you talk about Apple and Google and Amazon so much, you start to realize like they build these huge, huge tech companies.
00:29:51:04 - 00:30:14:03
Speaker 1
It all started like so small and had like such humble beginnings. And it really makes you think like how, how, how much potential a company has to grow. I'll quote you on that. That's that's great. And with all these things that you learned, do you have some advice for for your dad on how he could be a better, better leader, a better boss?
00:30:14:03 - 00:30:33:26
Speaker 1
Not in particular. But I'd say he'd I'd say that he does he does a really good job, what he's been talking about with like communication and management and like he is super inspiring to all of his employees and all of the people that he works with really like really talk about him really positively and really enjoy how he ran the company.
00:30:34:12 - 00:30:54:11
Speaker 1
And so I'd say that that's a really important thing to continue. Great. I think you both get a blast. This father son made us all up. And now we're going to turn to Q&A.
00:30:54:11 - 00:31:15:08
Speaker 3
I'm Spencer. I love your son's podcast. I'm going to get my my 12 year old son on to that. The question relates going way back to what the hot wire and when I was doing mass metal some days, did you look at cooking? How did you feel about what are the lessons we can all learn from not being Booking.com and looking back on it?
00:31:15:09 - 00:31:30:17
Speaker 3
Yeah, I mean, they all bowed out. Yeah. I mean, my quick thing was that I wasn't clever enough to have got them mobile, but the minute somebody explained it to me, I was like, God, that's way smarter than what we're doing. We should do it. And then I sold the company to Travelocity and I said to them, Let's do it, guys, let's talk.
00:31:30:17 - 00:31:34:22
Speaker 3
I know, but we've got margin compression where you've broken code. It's all off.
00:31:35:20 - 00:32:02:26
Speaker 2
So okay. So, so thank you, Brett, for for the question. So for those who don't know Booking.com was bought by Priceline for very little for what was it, Brett, like 200 million or something? Not very a little bit, you know, a fraction of what the company would become worth. And then and then within Priceline exploded and so much so that the company renamed itself from Priceline to Booking Holdings.
00:32:03:02 - 00:32:30:13
Speaker 2
And it's now $100 billion market cap company earliest before COVID. It was probably the most the best ever acquisition of all time. The best ever Internet acquisition of all time was Priceline acquisition of booking right up there with Google's acquisition of YouTube or Facebooks of Instagram. Okay. So so here's what you all should understand. As founders, all these online travel agencies were selling either a merchant model, meaning a fixed 20 to 25%, or they would charge a hotel.
00:32:30:18 - 00:33:06:28
Speaker 2
They would take a hotel room at $200, mark it up $225, 25% margin, always that 25% margin. I always get my math mixed up, mean whatever, $25 markup or they would have a commissionable model. So they sell they sell the room for $25, they get a 10% commission, so they get $12.50. Okay. And that was like the way that we all did it all around the world bookings model was to have a variable margin where they would say to the hotel, Hey, look, you set the margin and on nights when you need us a lot, you can just increase it to 20 or 30 or 40%, and then we'll sort you to the top and
00:33:06:28 - 00:33:28:04
Speaker 2
nights when you don't, you put the margin low and you'll be short to the bottom and I think they started at 10% margin. It was brilliant and it was brilliant for two reasons. Number one, it blames shifted the margin to there the competitive hotels. Hotels no longer said got booking those jerks. They're charging me $30. They said, wow, there's other hotels, there's jerks there.
00:33:28:04 - 00:33:48:15
Speaker 2
You know, I'm having to go increase my margin up to 30% in order to get higher than those other hotels. Google actually, we talk about this and look in my episode on how Google makes money. Google does the same thing with blame shifting in their auction, right? Nobody blames Google for it being a $4 cost per click. They blame the other companies that have bid it up to $4.
00:33:48:22 - 00:34:10:21
Speaker 2
So these auctions are brilliant and actually Zillow carpet booking and and Google. When Zillow switched their cost per lead model for real estate advertising from a fixed price to an auction. So and Zillow did it primarily for this blame shifting reason. So you know what? Now, one more on the phone with an agent. We're like, oh, it looks like it's $50 a in their zip code.
00:34:11:03 - 00:34:32:05
Speaker 2
They don't get mad at us. We're like, Yeah, I can't believe it, $50 late. It's because those other three agents, they're jerks. They bid it up to $50. You know. You hate them, don't you? Yeah. Only pay 55. So lesson one is auctions are amazing if blame shifts away from the auctioneer to the auction participants. Number two, disruption is pretty cool because it sounds like you pitched the idea to Travelocity.
00:34:32:05 - 00:34:53:23
Speaker 2
I pitched the idea to Expedia in 2003 when we sold power to Expedia and I said to Expedia, I said, Look, I'm running the hotel business for Expedia. I'm negotiating these merchant rates with all the big hotel chains. And I can tell you, they started at 25%. They're 20%, they're at 18%. I renewed the Starwood deal at 17% and Hilton it 16%.
00:34:54:10 - 00:35:29:03
Speaker 2
And I went to the Expedia, the CEO of Expedia at the time, I said, we need to switch to a booking model because I can see these margins are just going to keep coming down as the hotels have more of a substitute product, which is supplier direct on their own website, we need to switch to an auction model like booking and they said we can't make that switch because it's too disruptive to our public market investors because we have too much working capital and too much or too much float because the hotel, you know, we're basically we get paid by the consumer and then we pay the hotel later and everybody's used to this current
00:35:29:03 - 00:35:46:01
Speaker 2
model and it would just be too hard and it's just like, Oh my God, if they had been a private company, they would have made the switch. If they had been in more long term oriented companies that didn't care about short term results and cared about long term creation, they would be booking today. They'd be $100 billion, not ten or 20 billion.
00:35:46:01 - 00:36:06:07
Speaker 2
So there's a lot that can be learned from booking. And actually, I see my my co professor from HP Jeffrey report is on and we thought the TripAdvisor case together which we wrote together this fall and there's a lot of this in the TripAdvisor case, but there's a whole separate case on booking as well. And there's so much to be learned from booking holdings there.
00:36:06:07 - 00:36:14:06
Speaker 2
There that they won. And the rest of you did online travel, even those that got out like you and I, we lost relative to both.
00:36:14:27 - 00:36:17:00
Speaker 3
Yeah. Thank you. Great answer. Thank you.
00:36:17:14 - 00:36:27:18
Speaker 1
This is such a legendary conversation. So since we've had Mr. Hotwire and we've had Mr. last minute, I can't help but pick on Mr. Skyscanner.
00:36:28:12 - 00:37:07:15
Speaker 3
Thank you, Spencer. Thank you, Kyra. And it's been great to meet after all these years. Congratulations. And this is kind of a reinvention question I think we give you, having co-founded many successful companies since 1999 across three completely different sectors during that time, the shift in new technology and what new technology has enabled has been monumental. But with those changes in mind and regard to what that tech has enabled, what traits of yours as a co-founder have remained the same and consistent across time and sectors?
00:37:07:15 - 00:37:16:12
Speaker 3
And on the flip side of that, which co-founder traits have you always have had to change significantly over that time in order to remain successful across sector?
00:37:16:12 - 00:37:47:21
Speaker 2
I think the two that have stayed the same have been my prioritization of communication to my teams and the recognition of the importance of repetitive communication. This is just just like one minute on repetitive communication. One thing I learned as CEO is that your employees aren't really paying attention to that. You know, you'll say something in one meeting or put something on one Slack channel or send something in in an all hands email, and it'll kind of go in one ear out the other.
00:37:47:28 - 00:38:06:07
Speaker 2
And so if you want things to sink in, you have to constantly repeated over and over through all these different channels. This is something that politicians do really, really well. They have a single set of talking points and they hit them over and over again through all these different mediums. And then they deploy their proxies, you know, other other people that work for them to to hit those same messaging points.
00:38:06:18 - 00:38:50:21
Speaker 2
So CEOs need to do that very well. So that has not changed in me. One thing I do think has changed and traits of founders is and this might be controversial potentially, but I would argue that it's easier than ever to be a non-technical founder and a non-technical kind of leadership team that there's so much technology now that is accessible off the shelf, through open source, through us, through, you know, shared code libraries, through dev contractors, through these platforms like Upwork and others that I'm not an engineer, I've never written a line of code and that was a pretty big disadvantage ten or 20 years ago.
00:38:51:01 - 00:38:59:20
Speaker 2
And it's less of a disadvantage. Every every passing day and and to that, I think it's been a big change over the last ten or 20 years.
00:39:01:19 - 00:39:23:24
Speaker 1
That that's actually an investment theme that we spend a lot of time on the infrastructure that's democratizing entrepreneurship. So, yeah, I couldn't agree more with you, Spencer. Next question is from a very, very dear former colleague of mine who left first minute to go and start a unicorn of his own. Eliot, can we unmute you?
00:39:24:17 - 00:39:43:00
Speaker 3
Spencer, nice to meet you. Really, I really enjoyed it. Yeah. So, I mean, my question is just about marketplace is I mean, a lot of that a lot of the great marketplaces were built ten years ago, like the ones you built and Brant and Barry and so many other people on the call. And I can see Darcy is also there from it, from A16z and Darcy.
00:39:43:00 - 00:40:01:05
Speaker 3
Now we just talked about this like last week is what's the future of the marketplace business? You know, if you're starting one in 2020 or you started one in 2019, kind of what are the what are the new tactics? One of the playbooks, what can you do to outcompete the Zillow's and the, you know, the dominant players, if anything?
00:40:01:05 - 00:40:05:26
Speaker 3
And I just want to weigh what you take is on the future of the marketplace business.
00:40:06:20 - 00:40:42:14
Speaker 2
I mean, I look at invest and invest in a lot of marketplaces. So I think there's still plenty of opportunity. I will say, though, that a lot of the angel pitches that I get on marketplaces are pretty niche and there shouldn't be venture funded. And, you know, either because the TAM is not big enough or because some other marketplace on the side is going to move in that direction and so, you know, I, I, it's definitely getting competitive, you know, as you know, the key to the marketplace, it's sort of trade.
00:40:42:14 - 00:41:10:28
Speaker 2
But supply begets demand. Demand begets supply. And trying to figure out how to jumpstart that, you know, the combination of those two is really hard. So what I look for when investing in marketplaces is the team or the idea that has some, you know, some differentiated advantage to jumpstart one side or the other of the marketplace. If it's total cart cold start on both sides, it's you know, it's very, very difficult, especially if the TAM is small, then it's probably not worth it.
00:41:11:01 - 00:41:23:11
Speaker 1
Thank you for that question, Eliot. And little shout out to Elliot at his remote labor startup just got featured in The Economist today so congrats that's not.
00:41:23:11 - 00:41:54:14
Speaker 3
Really is a lot of talk about the Facebooks the Googles the Microsoft who build so successfully because the culture was so great but now given what's happening with COVID, there is a lot of talk about people working from home and working from home becoming a next few thing. So I guess the question is, do you think large corporates or new companies will be able to, you know, create this culture to drive the success or will they have to come up with some new ways of actually, you know, working around that to create the proper community within the companies?
00:41:55:04 - 00:42:19:16
Speaker 2
So on my schedule for today is time to finish writing a blog post that I've been working on, which is how to build company culture in a remote workforce. So I am working on a blog post on this exact topic. The answer is, I think it's quite possible. I think you definitely can build a unique and competitive advantage, creating culture with a remote workforce and some companies have already done it.
00:42:21:02 - 00:42:43:07
Speaker 2
It's harder, but it's totally possible. And you know, it's a lot of the same things that create regular company culture. It's a mission brand in it, elevating small wins. It's having a lot of communication. And these are all possible remotely, especially if the whole company is remote, where it's very hard to create remote culture is when you have pockets of the company that are remote.
00:42:43:18 - 00:43:08:14
Speaker 2
So we have this problem in spades. It's 4000 employees. About 2000 were in Seattle, about 2000 were in a dozen other offices. And, you know, the smaller the office, the harder it was to create culture and the work from home people. It was very, very difficult. They always felt like second class citizens. And the you know, the employee engagement statistics from the smaller offices were typically worse than those at headquarters.
00:43:08:23 - 00:43:36:09
Speaker 2
And it was a constant struggle to make sure that, you know, the further you were from room, the the that the message still carried and that people who are still still motivated and still felt connected to to, you know, to headquarters. But if a company is entirely remote or if a company starts from the beginning with this dual culture of a small, you know, a single headquarters office and a lot of remote people, I think it's quite possible to still build differentiated culture.
00:43:37:07 - 00:43:40:18
Speaker 3
Thanks. Looking forward to that blog post is said.
00:43:40:18 - 00:43:43:23
Speaker 1
Are you going to post it on L.A. or where is it?
00:43:43:24 - 00:43:45:20
Speaker 2
Put it on LA and my LinkedIn.
00:43:48:03 - 00:43:55:26
Speaker 1
Over to that. I think we're going to try to squeeze in one last question from Steve, who's the co-founder of DNA Capital.
00:43:56:07 - 00:44:24:06
Speaker 3
What we're seeing with some of our real estate tech companies here in the US is that unlike what you'd expect in a recession, demand is actually growing for home ownership, and home viewings are, you know, the demand is there, but the supply isn't there right now because people are afraid to actually let strangers into their home. Given what's going on with COVID from your past experience, how long do you expect this sort of sort of irrational or perhaps rational fear to last?
00:44:24:17 - 00:44:29:10
Speaker 3
And what can tech do to help bridge that gap in this side of the marketplace?
00:44:30:05 - 00:44:50:25
Speaker 2
Yeah, it's it's a huge problem, right? I mean, with mortgage rates, where they are and with people reevaluating their their location choices based on a likely permanent work from home reality, maybe not 100% work from home, but I think most companies are going to be pretty permissive about letting people work from home one or two or three days a week.
00:44:51:03 - 00:45:03:28
Speaker 2
And that means you can stomach a much longer commute, know it's not such a big deal to commute for an hour into your office if you're only going there two days a week. So now all of a sudden, that house that's an hour away, that's half the price. That has twice the space and the better school district, you know, also.
00:45:04:01 - 00:45:24:28
Speaker 2
And that's appealing. So a lot of people are reconsidering where they should be living right now. But you're right, there's limited supply. So because people don't want to list, because they don't want strangers in strangers in their house, clearly virtual tours are booming. It's a way to see a house without seeing a house. Online video is booming for for for home tours.
00:45:24:28 - 00:45:47:09
Speaker 2
Digital closings are booming. And Zillow is investing really and Redfin and others are investing really heavily in all of those. iBuying is, I think, a big question mark, meaning that, you know, that that I set in motion Zillow's strategy for iBuying and I'm a huge believer in it. And Zillow is totally committed to it. And I think it's a great a great strategy.
00:45:47:09 - 00:46:14:16
Speaker 2
iBuying is when a company like Zillow or Opendoor or others buys your home at a basically a discount. But the advantage is you don't have to show your home or deal with the uncertainty of a traditional sale process. iBuying has the potential to unstick a lot of this inventory, which which is to say, I'll go see a bunch of other people's houses because I don't mind traipsing through their house, but I don't really want anyone to come to my house.
00:46:14:16 - 00:46:33:25
Speaker 2
But if I let one person from Zillow or up into my house and they make an offer which is maybe 5% below market, but, you know, at least you know, at least their certainty and speed of close and certainty of timing, then it's worth it. You know, that that has the potential to to really unstick inventory.
00:46:34:03 - 00:46:45:06
Speaker 1
One last question, which is actually a question that Bing Gordon thought us on on a previous talk. He said that his favorite question to ask entrepreneurialism is, how do you learn?
00:46:45:13 - 00:47:10:19
Speaker 2
I like to learn by speaking to other people that are doing similar stuff to me. I actually don't love reading books. I probably shouldn't admit that. But I do like podcasts and I like reading blog posts and I like reading news, but I mostly learn by listening, by hearing, by talking to others that are running companies or building products or investing or doing other things.
00:47:11:09 - 00:47:36:14
Speaker 2
You know, I keep lists, a good little life hack. I keep lists or, you know, Google sheet of people I want to see in every city that I'm in or obviously I might go to. So, you know, I will add you to my London list and please add to your list. And whenever I'm in a city like that, I try to, you know, pack in, you know, three or four meetings with people that I just want to learn from.
00:47:36:14 - 00:47:38:24
Speaker 2
And I guess I learn by asking questions.
00:47:39:20 - 00:47:41:04
Speaker 3
That's probably the best question.
00:47:41:17 - 00:47:43:00
Speaker 2
But how do you how do you learn?
00:47:44:09 - 00:48:02:03
Speaker 1
Well, I mean, I guess I read a ton of books. I don't know where I get it from because neither you really love them. But I, I really like reading books and I really like Googling questions that I have and trying to figure it out through the Internet or by trial and error and stuff.
00:48:02:17 - 00:48:05:01
Speaker 2
It's true. You ask a lot of questions to ask questions.
00:48:05:27 - 00:48:28:04
Speaker 1
Ask them. Luke Spencer, I can't thank you enough. This has been really, really fun. Luke I'll start pestering you with emails until you accept an internship with with first minute and Spencer I'll be pestering you with emails about this stealthy new company of yours. So we'll talk very, very soon.