uBid.com & The Miami Marlins
Jeff Hoffman is one of America’s greatest entrepreneurs, business leaders and investors. Most successful entrepreneurs and business leaders only excel in one industry. Jeff has had amazing success in online commerce, music, film, publishing and professional sports—to name just a few. When Jeff speaks, it pays to listen.
During our unique podcast, Jeff Hoffman offers sage advice on issues such as:
- Allocating HR budgets to the best performers
- The importance of patenting inventions
- How much tolerance to have when portfolio companies pivot
- How to release tranches from escrow accounts when milestones are met
- Setting, dispersing and weighting milestones
- Whether to be a first mover or fast follower
- The importance of leverage and deadlines in negotiations
Jeff Hoffman – Founder, uBid.com & Co-Owner of the Miami Marlins
Jeff Hoffman is one of the original creators of the now $80 billion company, Priceline.com (aka Booking.com). After Priceline, Jeff became a founding partner, Chairman, and CEO of Black Sky Entertainment, an independent production company in the film and music industries that produced the independent horror film “Cabin Fever,” a $1.3 million project that has grossed over $100 million to date.
He also has produced concerts with Elton John, NSYNC, Beyonce, Brittany Spears & the Backstreet Boys. Jeff is the producer of a Grammy winning jazz album, an Executive Producer of an Emmy Award winning television show. He has founded several other successful companies including uBid.com, another multibillion-dollar company. He is the co-author of the best-selling book SCALE. He was inducted into the Hall of Fame for Entrepreneurs by the International Association of College Entrepreneurs in 2010.
Jeff built a sports company and bought the Miami Marlins with Derek Jeter. He is one of the founders of GiveForward.com that has raised $5 billion.
Speaker 2 00:02
Hello everyone, welcome. My name is David. Wanna check? I’m the CEO of Solution nation. Today we’re going to have a very interesting podcast with Jeff Hoffman. Jeff is a wildly successful he was one of the founders of priceline.com which is also known as a booking.com He was active in became chairman and CEO of Black Sky Entertainment which is an independent production company. You produce concerts with Elton John, Beyoncé, Britney Spears, the Backstreet Boys. He founded several successful other companies such as Ubid that’s a billion dollar company, best selling author of a book called Scale and He built a sports company and brought the Miami Marlins, bought Miami Marlins with Derek Jeter. So Jeff, thank you very much for joining us.
Speaker 1 00:51
Thanks David. Thanks for having me today.
Speaker 2 00:53
So your first big success was Priceline. Maybe you could just tell us a little bit about how that got started and any keys why that was so successful?
Speaker 1 01:04
Actually the fifth startup that I was part of so far from our first success, which is important because we weren’t. I’m saying that because by then we weren’t rookies anymore.
Speaker 2 01:23
Ok. So maybe just tell us a little bit about how the idea came about for Priceline, how you raise the capital, how the people came together?
Speaker 1 01:33
Yeah, you know, here’s the thing. It’s a the capital raising story won’t help anybody now because it was at the Internet bubble where you didn’t have to raise capital. You just had to go outside and there were people standing there with bags of money trying to give it to you. This will probably never happen again. So at the start of the Internet, the idea was that of a of an inventor named Jaywalker, and Jay had patented the concept of a reverse auction. Name your own price. That was his patent. And Jay assembled a team of people. To go build a company around the concept of reverse auctions, the pricing. So I was part of that original team when Jay came up with that idea. And again, we built this around a base of patents with the reverse auction, the idea of the business was to sell off the unsold inventory, right, if you have a hotel with 100 rooms in it. Every travel websites selling those 90 rooms at full price, there’s a little difference between each site, but roughly the same. The model was give us the 10 empty rooms that you never sell through your retail chain and we will auction them off on the Internet. So it’s a very different business model auctioning off unsold inventory with the model and raising capital. Like I said, the story doesn’t help anybody today because back then everybody was calling you and saying please take my money. It was. Dangerous in the other direction. You can’t take people’s money, you know, without all the proper steps in place, just because they’re willing to give it to you and they don’t care about the process. We had to be particularly careful today. Raising money is all about traction. Show me that people like your business model and will not only use but pay for your product and service. That’s today’s market. Everybody wants to see traction before they’ll invest. Back then they just needed to hear the word Internet and they would hand you money. Crazy moment in history.
Speaker 2 03:32
So when we have those eras like the Internet bubble and this back bubble that we had a couple years ago, sometimes it’s hard to retain good people. So any insider? For advice you have to CEO’s of companies in situations where there’s a lot of demand for labor, how you can retain good people yeah i mean, there’s two answers to that, David. It’s a really good question. One of those is culture and i’ll talk about each of these for a second and the other one of those is impact super talented people the rock stars which is you know to build great companies you can’t build greatness on the backs of average people. So you need to find the rock stars. It’s been building a company on the conventional wisdom is spread your money as far as you can and hire as many people as you can right if I have 100$ and employees. Or 10 bucks. Just use a silly example. Then I should try to get 10 people for 10$ each. No, that’s the logic most CEO’s run with. It’s actually better to spend 30$ Thirty 3$ on three rock stars, right? Because three rock stars will perform 10 average people. So spending your money on less people and way higher caliber. The rock stars are the ones that win. Rock stars care about their salary, but they already know they’re going to make money. Because they’re rock stars. They perform their whole life. So they care about two other things which are key to them. They care about the culture, right? What is it like working this way? Does this company give back? Does this company have a heart and soul? Does it do anything in its community? What are its values? What’s work like there right? We used to take play breaks. We would play with a miniature baseball bat and a beach ball in the middle of the hallway in early days and just take a break and have a baseball game in the middle of work. You didn’t want people’s whole life to be worked until they burned down. Culture matters and the second part, David, is impact. They don’t just want to paycheck, they want to look back and see that they actually made a difference. Did were you part of changing your industry? Did you rewrite history a little bit? Are you part of something you’ll be proud of later and be able to tell your own grandkids? This is the point where this industry changed and I was that caused that change. So those are the keys. They care about your culture, they care about the impact and experience they’re going to have, not just the title and the page.
Speaker 2 06:01
Ok, that’s a very good point. Some people have said that a players hire other a players, but B players higher C and D quality.
Speaker 1 06:09
People think that’s very true.
Speaker 2 06:12
So you mentioned the importance of jaywalkers patent back in the days of Priceline. A lot of your businesses are not patent centric, your sports teams, your movies and books and things like that. But when you do look at a technology based company, how important our patents to you today?
Speaker 1 06:33
I happen to think they’re just as important. They are not important. Note is, David, they’re not a business plan. My business plan can’t be I’ll just pat and stuff and then sue people, right? There’s actually laws that protect patents, that kind of behavior. It’s not plan A. Plan A is to. Doctor service that the world wants that people will pay you for. That’s plan a. But a patent is critically important to protect your investment and your ideas when you can. So I normally tell people a lot of times I ask people is that patentable? And they say I don’t know and I’m shocked that they don’t know so well. It’s the for the price of a phone call an IP attorney and run it by them and see if you have something there right the cost. There’s a cost obviously to filing patents but typically the cost. To calling an IP attorney, telling them what you have, and saying do you think I have anything patentable right is not a high cost, makes no sense not to take your proprietary work and at least seek counsel on whether or not you have protectable IP. And if you do, I am one of the ones that believes that the patent is always a good investment because you’re protecting your entire future.
Speaker 2 07:49
Well, I’m glad to hear that. We do a lot of patent work, so that’s nice to hear. So are you more of a big picture guy or more of a detailed guy? Do you have a team of investment advisors that helps you ferret out the investment opportunities or family office that helps you with details?
Speaker 1 08:08
Yes so I’m going to separate that into two because yo, which I was since I was, I was a CEO since I was 24 I’m not, I’m not doing that anymore. But during those days, I think that, you know, if I had to look back and see if there was any skill I developed during that time that helped me, it probably was the ability to look at and see the bigger picture and then clear off the table and focus on the most important things to do. This year the big picture is many puzzle pieces, but right now I got to make the piece in front of me think so. I think our ability to figure out what was most important to get done now and not be distracted by the bigger picture helped us on the investment side. I think it’s very important to have a team of people in different domains that are in the R and D space of looking out ahead and saying right, what is blockchain? What is Web three, what is AI? What is crypto? How do these things play? What are they gonna mean? Where might they be going? Who might be the players, right? Where are the strategic plays? Who do we follow all? That’s a lot of work and a lot of research. And so having a team of people that focus on different specialty areas so they can give you at least the best advice that they can, that you can get from someone who spent a lot of time digging into it. I think it’s really important.
Speaker 2 09:32
You tend to be more interested in new emerging industries and like to be the first mover. Or do you like to see some proof of concept that a new idea works and maybe be a fast follower rather than a?
Speaker 1 09:46
First, we we’ve tended to do the former, not the latter. I haven’t really been in the fast follower phase nearly as much as looking for those innovators who are trying something no one else ever has. Which, by the way, is why some of our. Ideas were just abject failures because we were too early with some of the ideas we’ve had over the years, but I would still take those fails. Because the ones we were right about, the bets we placed really early that we were right about were wins that were way bigger than the fails were because our sort of risk profile was pretty wide open. So that’s a DNA thing. Everybody picks their own. But you asked me and our tendency, you know that old saying, being an entrepreneur is like jumping off a Cliff and trying to build an air way down. We kind of spent our lives throwing myself off cliffs and hoping we have the right parts. So I’m definitely the former, not the latter.
Speaker 2 10:45
Ok. Well, somebody else very successful said about one of his investments. We were very early and that’s the same as being wrong. But anyway.
Speaker 1 10:59
I would get that though, because we were one of the first people in online travel and the company today is the world’s largest online travel company. So how did being early translate to being wrong? Maybe I missed something on that was just a different situation. But anyway, what? What is the difference between a you bid and Priceline or how are they comparable? How are they?
Speaker 1 11:24
Their model, just like I remember getting a phone call from the guys that created Groupon. Same business model. Wherever retail sales cycles can’t sell all their product, there’s leftover product that the sales channels couldn’t sell that somebody could just auction off. That’s true for many markets. So if you bid, we did that with hard goods. Consumer electronics was huge for us. Jewelry was huge for us. Actually, clothing was a big category, 4 times a year. When the season changes, all the retailers pull out the fall fashions to bring in the winter ones and suddenly there’s a whole bunch of brand new clothes for our home. So same business, unsold retail that, you know, that’s why it was called you bid because it’s the same type of auction model where you just place an auction bid on inventory that whoever the manufacturer retailer was just couldn’t sell it. So I willing to take what they can get it option same business model.
Speaker 2 12:23
I don’t know if you’ve heard of an Israeli company called Worthy. Yes, or they, yeah, this seems to be interesting model sort of a play on divorces. They basically have their expertise is jewelry and particularly wedding rings and that kind of thing that it’s a market that one can sell their.
Speaker 1 12:43
I went online and looked at that.
Speaker 2 12:44
Before yeah, I.
Speaker 1 12:46
Usually do a pre COVID and annual trip to into Tel Aviv and meet with Israeli startups all over the landscape.
Speaker 2 12:56
So when you’re investing in a very early stage company, are you most attracted to the addressable market or the quality of people that have already had success or that the cogency of the business plan, the patent portfolio or?
Speaker 1 13:12
Combination of those. So David, in my case it’s way more about people. A friend of mine, you know, one time i posted, why can’t investors learn to read and study people the way they do spreadsheets? Because they’ll analyze the hell out of a spreadsheet and then set it aside and say, I don’t see the money in this one. And meanwhile, they just kicked the next Steve Jobs pick a name out of their office because they didn’t recognize who was standing in front of them. Our model is the opposite. In fact, a longtime friend of mine, Nolan Bushnell, he’s the creator of Atari, Guy that found jobs and Wozniak. He wrote a book called Finding the next Steve Jobs, right? And you know, I agree with Nolan that if you can. Build kind of a stable of amazing, innovative rock stars, smart people. The idea in front of you right now might fail, but they’re probably gonna have four things that work. You know, maybe it’s four out of seven, but it’s those people. I once I had a group come in looking for investment. Present a business plan. And then they handed it to me, just stood there and I actually said, David, I put the plan on the table in the conference room and I said, let’s all watch plan for a while. And they’re like, what? And I said, look, just let’s watch the business plan. It was this awkward silence. The businessman was sitting on the table and finally the head guy said it’s not doing anything. I said exactly, is it? All you have is a pile of paper. There’s not one thing any person room did to convince me that any of you could execute. This plan at all, a business plan, a great plan with average people, goes nowhere. Brilliant innovators, even if their plan is wrong, we can help fix the plan and adjust the market and adjust the product, but we can’t rewrite your DNA. So we’re more interested in the DNA than we are the plan. If this business idea is wrong and the market’s not there, we’ll find another one. But we’re not letting that Rockstar go because they’re going to guide things to success because they have the skill set.
Speaker 2 15:17
So if you’re investing in a young business that’s run by young people, how do you know that they’re good quality? Because they’re too young to have a track record how? How do you know you’re investing in good people if they’re very, very?
Speaker 1 15:32
Young there’s a lot of things that have that have nothing to do with track robin my first company I was involved in was successful and had a big exit and I had zero track record. 20 something years old. I had a solid plan that I could explain. I knew what the market was. The market made sense. There was a clear value equation in the market. The size of the market was good. I was already building relationships with key players. And so a lot of times who as an investor or an advisor bring is you are the credibility that they don’t have. So to throw out the baby with the bathwater makes no sense. If your biggest concern is that’s the call I get today, our big concern is we don’t have a track record let’s just make up an example so we won’t be able to get a phone call to the airlines. So like mister. Hoffman, that’s why we’re calling you. If you’ll come on and be involved in this project, then the airlines are going to say, wait, Jeff, you believe in this guy and already you’ve improved our credibility. I didn’t have that when I started. I was making those calls myself. But you know, the smart said, man, this thing is going to work. Let’s take a little gamble on them. And it starts with a pilot program. They give you a little rope and if you don’t hang yourself, they give you a little more rope and pretty sure they say. Even though he has no track record, he sure is performing. So we don’t automatically assume everybody had to have their first company, right? Everybody started with no track record. I hear that a lot, by the way, with investor groups. They’re like, it’s the cat. And the entrepreneur is frustrated by the catch 22 The investor says, well, you have no track record. And they’re like, well, yeah, because no one will give me a start. How am I ever going to get one? I was that young entrepreneur with no track record and I had investors that said I think he can pull this off. And gave me that first chance to prove that I could. So likewise, we don’t assume that your lack of experience dictates that you’re not going to be successful. Everybody started somewhere.
Speaker 2 17:24
So when you invest in it in an earlier stage company, do you tend to keep them on a tight leash? You know, just give them enough resources to get to the next milestone? Do you have a lot of milestones that they’re that the CEO is supposed to meet or, you know, do you give them more generous capital? So they can sleep better at night and.
Speaker 1 17:46
It’s in between there. My answer is in between. Everything is milestone driven, but the difference is what an object is. I’ve been on both sides of the table. When an entrepreneur doesn’t want to do is every time they finish a milestone. Now I got to call David again and track him down and keep bugging him till he sends the next money. Umm, you know what we had set up was escrow accounts with triggers. That were automated. If these results are hit, the money just triggers so you don’t have to worry. Lose sleep at night wondering if the money’s coming. Just perform and if you’re not losing sleep over performance, have no idea why. Invested in you right. If you’re not worried about whether you going to hit your numbers, then that’s not a good investment. You should be every day worrying about growing your business and if your business is growing and you’re hitting the milestones, the money releases itself and you never have to call us. So our answer was somewhere in between escrow accounts with performance based automatic triggers. We’re what would the agreements that we signed so that it works for both sides? As long as you’re performing, the money’s yours. Can’t take it back so.
Speaker 1 18:53
The, key thing? Please OK.
Speaker 1 18:56
These performance milestones to get there?
Speaker 2 18:58
Ok. And typically how many milestones would they have in a year?
Speaker 1 19:06
You know, there there’s no one answer. But if I had to answer that, the number that came into my head was like a half a dozen different things. Remember, that’s a super generic answer. It’s all over the map, but that’s a pretty solid one.
Speaker 2 19:17
Speaker 1 19:17
It doesn’t things, you can’t have too many of them and they’re weighted differently typically, but you can’t have too few, half a dozen six seven major milestones to hit that are measurable. Quantifiable is a pretty good number.
Speaker 2 19:31
Ok. And then so a little bit more money is? Release from the escrow every time they hit one of those, yes.
Speaker 1 19:38
It’s all defined in advance and everyone agrees on it. Clearly, if markets and conditions change, you call the group back together and say, hey, we need to reset the triggers because blank just happened, COVID or whatever. That goes without saying that if the whole group agrees, they’re resettable, but if nothing changes except you just didn’t perform, then you got a problem.
Speaker 2 19:58
So you mentioned that you’re pretty understanding of your companies that pivot, but you don’t want too much pivoting, right? I mean you invested in a certain idea, certain plan and you that’s what attracted you in the 1st place. I don’t suppose you would want to see a lot of 180 degree, turns, or, you know, you don’t want people to pivot every three or four months. You know, you want them to do their research and have a pretty good idea where they need to go and fight like hell to get there. Because when that continues, it’s a red flag, right? Clearly you’re not forecasting or seeing markets or trends very well. How are you this wrong all the time? So I agree with you, pivoting all the time means you know, you don’t have your hands firmly on the steering wheel and you don’t have a map of the roads ahead of you. It’s not OK. At some point you cut your losses and say, guys, we’re just wrong. I said this on stage once out in Silicon Valley. I said, and I did use a bad word, but for emphasis. I said, I know you all want me to say we pivoted at that point, but we didn’t pivot, we effed up. We were just wrong pivoted sounds like you almost meant to do this. I said no, we didn’t mean to do this. We were wrong, we effed up and we just started something new. So yes, I agree with you. Lots of pivoting isn’t clever and agile. It’s you’re probably clueless, maybe you should reboot and just. Start over if you’re that far off. So some pivoting? Yes, lots of endless pivots. Something’s wrong to me.
Speaker 2 21:33
So yeah, I’ve called that the pivot pageant sequentially. So when you’re understanding of companies occasionally pivoting, is it better to have a small number of investors? So when the CEO says he needs to pivot, he only has to convince a few people rather than a large number of investors?
Speaker 1 21:56
To that, too, I kind of agree with that. When it’s a large number, there are so many other factors involved, and you’re spending way too much time trying to organize committees and talk people into it and arguments between them. You don’t want one. I did that before where I had a single investor, he said. I’ll take the whole. And his family wrote the package. And then when it when it came time for the next round of money, which we’d already agreed on, he disappeared in weeks and weeks went by, didn’t wire the money. When I finally heard from him, he literally this is this is a real story. He literally said I got caught with a young girl, my wife filed divorce, so don’t call me anymore. You don’t want to have only one investor that you’re totally relying on. But I don’t like a big group either either, because by the definition of humanity, you know, group politics and dynamics and egos come into play. So a handful is a really good number. Not too big, not too small.
Speaker 2 22:57
Ok. And anything about negotiations, were there any crucial negotiations or do you have any general advice about how to handle negotiations because a lot of leverage goes into negotiations?
Speaker 1 23:10
Yeah, so my first mentor ever with my first tech company umm. Taught me a super valuable lesson. As simple as it is and as cliche as it is, no one does it. He said if you’re not willing to walk away from the take the deal. You have 0 leverage and everybody knows it, he said. When everybody knows you won’t walk, you’re done the. She would be your real estate. You’re the real estate agent. You’re in the other room. The couple is in the room next to you. And the wife says I don’t care what this house costs, I hate every other house in the city. Buy it no matter what the cost. You really think you have leverage now to counter offer? When the real estate agent heard that, so I was selling, we were selling our company actually to American Express, to a Fortune 500 company and we were at the table and he was at my side and he whispered, walk out, tell him thanks. Anyway, and walk out. I was terrified. I was going to wet my pants. We’re going to walk the deal. We’re a little startup and they’re a Fortune 5. And he said, what did I tell you about leverage? Walk out because we couldn’t reach terms. And so as scared as I was, I actually said, all right, well, thanks anyway. We’re out. We’re done. This deal is not OK. I told you what our bottom line was. So we’re finished. And I got up and he whispered, keep walking right to the elevator and out of the building. And they said, where are you going? I said we’re done, we’re not interested. And they said, well off. And I said fine, it’s off. We told you our bottom line, but I did not. I was scared to death of it really being off. And he kept saying keep walking. We got outside and he said don’t look back because they’re watching out the window. You said trust me, and then he said ten nine eight i said what are you doing? And about when he got to zero, my phone rang. And they said, OK, fine, we’ll take that price, we’ll do the deal. And he said, you can go back now. He said until they believed that you were willing to walk away, you had no leverage. When the other person knows they’re going to take our offer one way or the other. So why would we meet them in the middle? That was a very valuable lesson to me. But it was super scary at the time because I thought when I walked out they were going to say don’t ever come back. Act What they did was call back and say OK, OK Well we’ll do your deal.
Speaker 1 25:27
Speaker 2 25:28
Just sign out your willingness to walk away. I guess the final question, quick one. What about the use of deadlines and negotiations? You know, sometimes it’s good to have deadlines, you know, to force people to make a decision or we’re going to do the deal or not do a deal, you know, but you don’t want to put too much pressure, you want them to be comfortable with the deal they do, I suppose.
Speaker 1 25:46
Yeah, I agree with that. So we do use deadlines, David. We use reasonable deadlines to give them time. We use deadlines and we put them in writing. We say this deal expires Friday at five. Pm but you have all of next week. It’s a week from Friday, whatever. I’m making that up, right? We do deadlines and we say the deal expires. It protects us in case we do want to pull the deal and it does put a sense of urgency. But once again, if they believe that you’re full of it, you’re bluffing and you’re deadline is worthless because you’re not walking away. It doesn’t mean anything right then I have had times where we had to call and say, well it’s 6:00 friday We never heard from you. So the deal’s dead, we’re going to go by, we’re gonna go do another deal and that’s what got the deal closed. But if they wait till Friday and then Monday, you call them and say, OK this, it’s this Friday, give me another week. But this time I mean it, you don’t have any leverage. So I do use deadlines. They do work, but there are times where you have to send. The follow up in writing says this deal is dead. And by the way, there have been ones where they said we just need another week. And we actually won that. We’ve extended twice. I said we’re done. And we walked that deal and they didn’t think we would, but it was already a sign that if that’s how they behave, I don’t want them. I don’t want to be in business with them anymore. Great questions my friend good well, I know you have another call to take, so we’re very appreciative that you spent some time with us and told us some good stories and good advice for the entrepreneurs and CEO’s that will listen to this podcast. So Jeff Hoffman, thank you very much. We can end the formal session here alright thank you, David, Welcome.