Author: Jeff Fluhr (StubHub co-founder / CEO), the compiler: Amelia, title figure from: Vision China

The time to start a business will never be too bad

Every generation of stock market crashes ushered in a period of economic turmoil. For founders, especially those who need to raise funds, it is even more anxious. In March this year, the US stock market was turbulent because of the epidemic, and this situation also happened 20 years ago when the Internet bubble burst.

For founders who have not personally experienced the collapse of the Internet bubble, it may be difficult to imagine a more serious situation than it is now. However, the bursting of the Internet bubble caused the market value of more than 90% of Internet companies to be erased. Even the market value of even the best Internet companies was erased, and technology investment also cooled for two years.

Despite this, there are still many excellent companies that stand out from the bursting of the Internet bubble.

Google, PayPal, and Salesforce are all companies that started shortly before the dotcom bubble burst. They not only survived the 24-month dark period, but also thrived. Similarly, Square, Uber and WhatsApp all started only a few months after the 2008-2009 Great Recession began.

These companies have a good product and market fit, but also have the spirit of perseverance and thrift, and successfully survived the downturn. Their stories tell us that the timing of entrepreneurship will never be too bad.

My own experience confirms this. We established StubHub in March 2000, just a few weeks before the dotcom bubble burst. On the surface, the timing could not be worse. It does bringSome huge challenges. However, we still survived the crisis. In February this year, StubHub was acquired by Viagogo for more than 4 billion US dollars.

This experience has taught me five important experiences. I believe that these five experiences are also very meaningful for today’s founders.


It is the market demand, not the market timing

1999-2000 school year, I was still a Stanford Business School (GSB) first-year students: the economy was very strong at that time, and the Internet boom . In the past 5 years, several first-generation unicorn companies including Netscape, Amazon, Yahoo, and eBay have been born and listed, and have experienced a steady rise in stock prices. Just like in Prince’s song: we were all partying like it was 1999!

In February 2000, a classmate and I decided to create an online store for event tickets. Like many founders, we are also solving our own problems.

I remember that at that time, I bought a ticket for our college basketball team to participate in the NCAA tournament (equivalent to the NBA of American universities) because I don’t know if I will feel anxious when I’m rejected at the door. My father, who has a Yankees season ticket, often has a lot of unused tickets in his desk drawer.

I noticed the gap between the buyer and seller experience and set out to solve these problems. We registered the company in March 2000.

Everything changed next month. Internet stocks began to fall, and fell sharply. The Nasdaq index fell from a high of more than 5,000 in March to 3,200 in May, a 36% drop in three months!

The pain lasted another two and a half years-the Nasdaq index hit a low of 1100 points in September 2002.

Despite the plunge, we knew that market demand was real, so we worked hard to move forward.

I persuaded two college friends, Colin Evans and Matt Levenson, to join us. We invited Jeff Lawson(He later founded Twilio), responsible for building version 1.0, and John Whelan is responsible for building the company’s customer support and operations. We found a person in San Carlos and he agreed to rent us his restaurant and pantry. Although it was a bit embarrassing, we changed it into an office and the company just started to function.

In the fall of that year, we launched the first version of the product. In the first few years, we increased 3 to 4 times a year. This explosive growth let me know that the huge market demand for our products is more important than timing.

Strategy should be flexible


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After the plunge, professional investors generally believe that B2C companies are doomed to failure due to the high cost of acquiring customers, while B2B companies have a chance to survive.

In our small team, we have been debating which strategy should be better.

People who support B2B see an opportunity to work with media companies and sports teams to build co-branded market platforms and promote these partners’ high-volume websites. B2C advocates believe that we should ignore traditional ideas and build our own consumer brands.

The reason why we decided to focus most of our efforts on B2B at that time was because we had not yet found an effective channel for consumer acquisition and no money was spent on advertising. Although this is not our core focus, we have built StubHub.com into a consumer-facing website where we can demonstrate technology and experiment.

By October, we have 8 employees, established revenue sharing partnerships with several radio stations and newspapers in the Bay Area, and launched a co-branded website. We have also launched version 1.0 of the StubHub website, which only displays activities in the Bay Area;Each region proved this model, and then expanded to other regions. The first few consumers are introduced by our partners, and there are transactions on our platform.

In 2003, Our strategy changed, and we began to try paid search, which is an innovative advertising channel. We quickly realized that CAC(customer acquisition cost) can be brought directly to StubHub.com for US$30~50 , And make a profit of 60~70 dollars in each transaction. Our return is immediate! This is our most important turning point.

We have increased our spending on paid search because it allows us to grow much faster than B2B partnerships. More importantly, we can control our own destiny because we don’t have to rely on signing agreements with reluctant, slow-moving partners.

As the economy recovers, more and more people are spending money to buy tickets for sports events and concerts, and we have decided to focus all our energy on building consumer brands.

This allows us to have a consumer market, and we believe this will bring more long-term value than the co-branding strategy. We are riding a huge wave of paid search. We also started investing in other consumer advertising channels, including sports broadcasting and affiliate marketing. The B2C strategy has won us victory.

VC does not determine your destiny

When the bubble burst in April 2000, we didn’t even raise one dollar of funds. Later we pieced together a seed round of $550,000, most of which came from family, friends and former colleagues. We soon learned that these relationship-oriented investors are more lenient because professional investors take into account the market situation and do not want to invest in Internet companies.

In our Series A round of financing, we told investors about the B2B model and explained how, unlike many other failed startups in the late 1990s, they spent millions more on brand building.

We have talked with dozens of venture capital companies and dozens of angel investors, and there may be nearly a hundred investors in total. We went to one meeting after another, hoping to get some response every time. In order to extend the time of burning money, our senior team has been holding back their wages. With only two months of cash and no interested investors, my optimism began to weaken, and what I had to face was the reality that I might not be able to go on.

Just when I thought it had come to an end, when BEA (famous Java middleware software company, a NASDAQ listed company, was Oracle Acquisition) co-founder Ed Scott agreed to lead our Series A financing with a $1.5 million investment, and we finally made a breakthrough.

This experience made me realize that Financing is a digital game, especially when the market is sluggish. The more investors you talk to, the more likely you are to find the right investor. To this day, I owe Ed to our survival and ultimate success. Over the next six years, Ed joined the board of directors and became my important advisor.

In the second half of 2001, we started to conduct B round financing. At this time, the company has achieved significant growth and established a large number of B2B partnerships: we have reached an agreement with the Major League Baseball, established a white label ticket market for the Seattle Mariners and the Arizona Diamonds, and cooperated with Microsoft MSN cooperated to establish a co-branded market for their users.

However, despite such great success, we have failed to attract a major institutional investor. On the contrary, we “cobbled” $2 million, and also accepted small checks from some rich and industry executives, ranging from 2.$50,000 to $500,000.

Our fundraising path and equity structure table are special, but this has not affected our performance.

In the early years, the company’s annual growth rate was 3-4 times. Many VCs have missed this opportunity. In 2007, we were acquired by eBay.

Even after the acquisition, StubHub has maintained rapid growth, with total fare revenue close to US$5 billion last year. When eBay sold StubHub earlier this year, it netted more than $4 billion in cash from this transaction.

Can build a strong corporate culture in crisis

When I look back on the first year of our establishment, I was sometimes surprised that we survived, let alone thrive.

We founded the company in March 2000, just one month before the dotcom bubble burst. How did we survive in the environment at that time? The answer can be summed up in three points.

thrift

We are very frugal, because there is not much money, it is difficult to attract new funds. We postponed the time to pay and found teammates who were interested in equity, and were willing to pay a salary reduction in exchange for stock options. We have found cheap office space, and we always save on food and clothing when purchasing furniture and supplies.

Strong flexibility

We are willing to change the model and handle our assumptions flexibly. We want to build a consumer brand, but realize that B2B strategy will make it easier to finance. When we started to see paidWhen searching for traction, we turned back to the consumer strategy and gave up the B2B approach. As conditions change, we have taken many detours.

Perseverance

We did not allow the environment to affect our commitment or ultimate goal. We know that ticket agencies and eBay are sub-optimal solutions for ticket resale. We know that we can build a platform that is 10 times that, and we are persistently focused on this ultimate goal. We are naive, but we have the courage to continue to rush forward despite the huge obstacles.

We were “forced” to have these values ​​from the beginning, and these have become part of our corporate DNA. In the process of the company’s vigorous development, these values ​​are still our core characteristics.


Naturally straight from road to bridgehead


Traditional wisdom tells us, When the economy is down, everything will become more challenging. Indeed, raising funds will become more difficult.

However, the construction of many other companies will actually become easier. This is why so many excellent companies were established during the recession:

  • It is easier to recruit good employees because there are more talents, and these people have less competition.

  • Acquiring customers can often be easier because of lower advertising rates.

  • Less new competitors get funding, which means less competition for target customers.

  • Leasing prices for real estate have become cheaper, and many other costs have also fallen.

The current economic crisis reminds me of April 2000, when the Internet bubble burst almost exactly 20 years ago.

Many startups will encounter major challenges, including raising the next round of financing. The times will be difficult, and the future path may seem uncertain, but there will no doubt be a group of new and outstanding companies that will stand out from the 2020 recession. If you are willing to accept the values ​​of frugality, flexibility and persistence, you may be able to become one of them.

Original: The Original Apocalypse: 5 Lessons from the Dot-Com Crash

link: https://medium.com/craft-ventures/the-original-apocalypse-ea432f8aacf

Author: Jeff Fluhr (StubHub co-founder / CEO), the compiler: Amelia