In conversation with Jeff Hoffman, the American serial entrepreneur, mentor and advisory board member at the Kauffman Foundation, on strategies to be adopted by entrepreneurs in the first year of a new venture
S. PREM KUMAR
Jeff Hoffman, an Internet, e-commerce and entertainment serial entrepreneur launched his first software company in the travel space while he was a student at Yale University. Since then, he has founded a number of companies including Priceline Yardsale (part of the Priceline.com group of companies), Enable Holdings that operates ubid.com and redtag.com and Black Sky Entertainment, a film and music production company. He sold his first venture (CTI, in the travel space) to American Express and has since then guided several of his companies through global expansion plans, public listings and diversifications.
Hoffman is currently a founder and partner at Color Jar LLC, an idea accelerator company that helps entrepreneurs and small business owners launch and grow new business ventures. He says, “I have personally made the transformation from launching companies to launching people to do well in their startups.” He also serves on the international advisory boards of Global Entrepreneurship Week, the Kauffman Foundation and works with the White House to support the growth of economic initiatives all over the world.
We at The Smart CEO caught up with him in his recent trip to India. In this edition’s Startup School, Hoffman shares with us the right things to focus on in year-one of your startup. Hoffman’s list, by his own admission, looked a lot different when he founded his first company and his subsequent companies had the advantage of the knowledge and wisdom he picked up in his first stint.
In hindsight, what would you say is the ideal to-do list in year-one of a startup?
It is interesting that you said in hindsight, because my current list looks a lot different from the first one I had made. During my first startup, my focus was on less important aspects such as logistics and operations, which don’t really matter if I haven’t got the next step right. The very first aspect on your to-do list is concept validation. When you have an idea that you want to bring to the world, instead of heading to office and working on it, you need to know what you’re going to build, get out into the market and, engage with your target audience. You need to know what you’re producing, for whom, and what will be the value of it. That way, you’ll have a business, not just a good idea.
Second on the to-do list is working backwards, when building your team. First, identify the business’s long-term goal, then, identify the strategies. Following this, list out tasks that need to be executed and then, identify what skills are required to achieve those tasks. Of course, you need to hire people who can tick off those tasks. Remember, the task list comes first, then the people who can work on those tasks.
The Priceline.com group of companies is especially known for its ability to hire and retain a wonderful group of people. Please take me through the interview process that worked for you while hiring people into your startup.
Once, I had somebody recruit me for an early stage startup, where the interviewer explained the amount of hard work and sacrifice I had to put in, to make his startup successful. Clearly, there was no motivation there at all.
From this, I learnt that employees need to be motivated in such a manner that they do tasks by their own will and not because I want them to do it. So, typically, during an interview, the first question I ask the candidate is, what they want to achieve in their life and career. After listening to them, I say, let’s draw a path to your goals, through our company, and see how relevant it is. That’s the part of the interview that gets prospective employees engaged in the company. You need to match the person’s personal career goals with the role you offer him at the company.
How do you get your B2B sales engine going in year-one?
The best way to launch your sales is to develop the profile of a perfect customer. Let me give you an example. Once, my sales representative and I went out and met customers with a 20-slide product presentation. The first customer went through all the slides and said that he would think about it. He reacted well. Initially, we thought it was a good meeting.
When it came to the second customer, we were still on slide two and he asked us, where have you people been all this while? I’ve been looking for exactly this product. We closed the sale in Slide no. 2 So, I told my sales representative, your job is to find more people like him, who don’t wait until the last slide to take a decision. The best way to launch a sales effort is to identify the characteristics of the customer, write a profile, and have your sales folks look more specifically for customers with these attributes. Essentially it all boils down to understanding the buying behavior of the person. You need to identify the 2-sliders, not the 20-sliders.
How did you arrive at a financial strategy for year-one?
The most important point to keep in mind is, if you don’t know how to handle financial strategies for your company, don’t do it. You don’t need to hire someone full-time either. Instead, seek the help of a consultant who’ll come in for two days a week and get the job done.
Secondly, in order to attract investments, let’s assume I have a plan to sell five different product lines. If I try to build all of them at once, it’s going to take a long time to break even. Instead, if I pick one line of business, show its financial viability, generate cash flow and achieve a break-even, the investor community will be more willing to grow my business and invest in my venture. At that point, I can tell them about the four other revenue streams I am exploring.
How did priceline.com’s product road map shape-up during the first year? What was the plan and how did it change going forward?
Initially, the idea behind priceline was to liquidate distressed airline inventory. Given that the unit price for airline tickets was high, we built a reverse auction model where customers could place a bid on an empty airline seat. It was a good market but, the company evolved to focus more on hotels, because, even though the price per room at hotels was comparatively lesser than for airlines, we could sell many more hotel rooms at a faster pace, without it being a complex transaction. The customer liked this better too. The reason airline transactions are complex is that people are very specific about the time they want to arrive at or leave a place. In the case of hotels, people are more flexible. If you say, I’ll give you a 4-star hotel on this particular date, but I cannot tell you which 4-star hotel before you pay, people are still okay with that.
As an entrepreneur, how would you evaluate the right mentor? And, as a mentor, how would you guide an entrepreneur?
A mentor, by definition, is someone successful, and therefore busy. There are many startups that go to mentors and say, give me your time for free, I need it. If you ask me, that’s a very self-centered approach. Instead, the right way to go about it is to think why a mentor would want to help me and, approach it keeping their interest in mind. For instance, when I was doing something in the travel space, I researched and identified mentors who were passionate about this space, who were successful and who knew how this domain works. Thus, when I met him, I started a conversation based on his interest and by the time we started talking about my business idea, he loved me.
WHAT IS THE BEST ADVICE YOU’VE RECEIVED?
I have received a lot of wonderful advice. But here are two I’ll never forget. Every time you speak or make a presentation, keep cutting words, make the same point in as minimum words as possible. In short, get to the point.
The second one I have is on dealing with negotiations. Once, a mentor who was helping me in my venture came with me for a very important negotiation. As the negotiation was heating up, my mentor got up, said this is my final offer and started walking out of the room. With panic, I followed him because I really wanted the deal and didn’t want to walk out. That’s when he told me, if someone in a negotiation believes you will never walk out of the room you’ve already lost. The only leverage you have is, if they believe you’re willing to walk away.