How Questioning Basic Assumptions Made StubHub A $310 Million Company

In 2000, people had all kinds of assumptions about buying and selling tickets to events. They assumed it was illegal or that they’d get ripped off or that it was a small-time business run by guys who stood outside of stadiums.

Jeffrey Fluer noticed this chaos of assumptions and discovered an opportunity. He, and fellow Stanford student Eric Baker, raised some money and hired lawyers to clarify the law. When they told him that it wasn’t illegal to resell tickets, they created an online, trusted marketplace for tickets.

In 2007, the business was sold to eBay for $310 million. I invited Jeffrey to Mixergy to teach how he thought about the opportunity when he first discovered it and how he implemented it.

Jeffrey Fluhr

Jeffrey Fluhr

StubHub

Jeffrey Fluhr is the co-founder of StubHub, an online marketplace where you can buy & sell concert tickets, sports tickets, theater tickets and Broadway tickets.

 

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Full Interview Transcript

Andrew:

Hey everyone, it’s Andrew Warner, founder of mixergy.com, home of the ambitious upstart. And in this program you’re going to hear one of the great success stories of the internet. Jeff Fluhr and his friend from school got together and created a company called StubHub which they built up and sold to eBay. StubHub was a market — in fact it still is a marketplace where you can buy and sell tickets to live events.

In this program you can hear about his career before StubHub; I mean going all the way back to elementary school how he had the entrepreneurial experience even back then. Did you by the way, did you sell candy back in elementary school? I’m hearing more and more entrepreneurs tell me that they had these little side businesses back, even as far back as elementary school.

You’re also going to hear him talk about how he thought through the business opportunity. If you want a great example of how to think through the size of a market, the opportunity in a market, you’re going to hear Jeff talk about that in this program too. And you’re going to find out a little bit about the sale; all that and so much more. This is kind of a biography of StubHub and a little bit of the man behind StubHub. As I say all that and more in this program, in my interview with Jeff.

Jeff, here’s what I noticed when I looked you up. It seems that you were an entrepreneur from an early age; you even sold candy back in elementary school. And like me — I also sold candy — you were stopped by your teachers. Did you always have this entrepreneur bug?

Jeff:

Yeah, I did. I always enjoyed thinking about ways of making some money. I was always short on cash as a kid in Jr. high school and high school and liked to find ways of scrounging around, getting some extra dough to, you know, satisfy my appetite for, at the time, you know, various types of activities I enjoyed back then, whether they be, you know, video games or sports. So yeah, I was often trying to figure out a way to make a buck.

Andrew:

Were you known as the entrepreneur in elementary school and high school, even that far back?

Jeff:

You know, I don’t think I would — I wouldn’t say I was known as the entrepreneur back then; I don’t think too many people knew of me in that light other than, you know, the kids who maybe were buying candy from me. But, you know, I think it wasn’t until after my first real company StubHub that people, I think, thought of me in that light.

Andrew:

All right, and the bulk of this interview will be a biography of StubHub, but if you don’t mind can we tell people about, was it called Snapazoo? The toy that you sold?

Jeff:

Yeah, that’s right. There was a toy that was marketed mostly in the Boston area that was basically a piece of material fabric with kind of a cushion inside with lots of different snaps and you could snap the snaps in different ways to create different animals. And when I was a little kid I thought it was kind of a neat little product.

And I noticed that they only had really sort of limited distribution and a small number of different — almost, you could almost see them on like carts that you’d see on the airports. You see different carts walking through the airports that are selling little toys or games. The only place I ever found these Snapazoo toys was in those carts, either at the airport or outside at outdoor fairs. And so I thought it was a pretty nifty, clever toy and I though it would be a toy that would have appeal outside of that small geographic area and that limited distribution outlet.

So I contacted the owner of the company and proposed to him that I be a distribution outlet for their product in retail channels outside of the Massachusetts area and began to help that company get some distribution where I was living at the time, which was in Jersey and kind of greater New York City area. And had some limited success with that for probably about a year or two and then kind of moved on.

Andrew:

And how old were you at the time?

Interview: Wow, that’s going to rack my brain to answer that question. Probably, you know 10 or 12 years old, something like that I would guess.

Andrew:

Wow yeah, that’s the point I was trying to make. That’s an incredible story for a 10 or 12 year old; that’s an incredible story for someone in their 20’s. To go out — to find out where the manufacturer is, to work on distribution, to even know what distribution meant at the time.

So that’s why I wanted to get that out. I love listening to entrepreneur stories and it sounds like you’ve got a bunch of different ones in your past. But as you said earlier, the big one was StubHub. How old were you when you came up with the idea for StubHub and what point in your life were you?

Jeff:

I was a first-year student at Stanford Business School. I was probably twenty-four, twenty-five years old. There were … You know, I was sitting at lunch one day with a … another gentleman, who was the co-founder of StubHub, by the name of Eric Baker, who was in my class at Stanford. And we were … kind of started talking about the ticket industry. Both of us had experience as consumers buying tickets for sporting events and concerts. In fact, his father was a Lakers season ticket holder at the time, and I think still is. My father was a Yankees season ticket holder at the time and still is. And so we both had experience also selling tickets and, you know, you get a pick package a tickets for … for a season … for a season ticket package, and you can’t go to all the games in a season so there’s a lot of tickets still available for resale. And both of us had experience in … you know … in buying tickets as well as selling tickets. So we started talking about the ticketing industry over lunch one day and got really excited about the secondary ticket market, or the resale of tickets. And there were really three different characteristics of that market that created what we viewed as a big opportunity, and they are as follows. Number one: we recognized that it was a large market in the US, so we didn’t have exact numbers but we estimated that it could be as big as ten billion in the US … That is, ten billion dollars’ worth of tickets being bought and sold in the secondary market in the US. The second characteristic that was very appealing was the fact that it was a highly fragmented business, so there was no dominant national player that was addressing the secondary ticket market; instead, it was really served by a number of small “mom and pop” ticket brokers who were … tended to be sort of regionally focused on a given city or geographic area and tended to … you know …focus on a limited number of teams, a limited number of events, a limited number of venues in their geographic area. And there was no kind of national player with a national footprint. There was on the primary ticket side, Ticket Master being a large player there, but there was no player that had created a significant market share in the secondary market, or the resale of event tickets. And the third thing that got us excited about the market was the fact that it was really a stigmatized market that was leaving consumers with a lack of trust, and sort of a bit of a concern around getting legitimate tickets. So there was always, when you talked to consumers before we started Stub Hub, and even, to some extent, even today, when you talk about buying a re-sold ticket, a lot of people have a picture in their mind of a ticket scalper outside of a venue scalping a ticket, and immediately people get nervous. Kind of “am I going to get tickets, am I going to get scammed,” and so there was a lot of perception challenges and stigma associated with the whole … kind of … the whole market of reselling tickets. So, for those three reasons, we felt like we could create a large, national, dominant player in a space that had the trust issues figured out and really brought peace of mind to consumers when they look at tickets. So that was really what we identified as the opportunity, and we … you know this is really over this lunch, and the following month or two when we started doing some research on the market. We submitted a business plan to the Stanford Business Plan competition and from there started meeting with investors, and the company was born at that point.

Andrew:

The three points you made about a large number of brokers, and a fragmented industry because of it, the size of the market of about ten billion dollars, and the concern consumers have about fraud … those are very rational, very thought out reasons to start a business. At what point did you … did you come up with those reasons? Did you come up with them early on because you were a business school student, or did you come up with them when you had to put up a business plan, or was there another time?

Jeff:

I mean, it was very early on, and those were the three … the three drivers of what caused us to believe that there was an interesting enough opportunity before the work on it. I’m not necessarily sure that we articulated it that clearly back then, but certainly recognizing that it was a large market was part of it, recognizing that it was sort of a fragmented business that didn’t have a dominant player with deep pockets, and recognizing also that it was in some ways broken market that really had an opportunity to pick something. I think those all were very early realizations that we had that drove us to kind of go to the next level and do additional work to understand the market better, talk to industry folks and learn more about it. Had we not identified those types of —– I don’t think we would have gotten to the next step, and we would have lost our interest.

Andrew:

And you said that you and your cofounder had experience selling tickets before. What kind of experience did you have selling tickets?

Jeff:

I was just speaking in terms of having family members that were season ticket holders, you know when you buy a season ticket package for a baseball team for the New York Yankees as an example, my father is a Yankee season ticket holder for a long time and still is, you get 81 games worth of tickets in your season ticket packet. So if you have two tickets to 81 games you have like a 160 some odd tickets to different baseball games over the course of the summer, and invariably you are not going to be able to attend all those games….

Andrew:

How did you sell them back then? Were you going on Craigslist or just shopping them around to your friends?

Jeff:

My father was really handling the process more than I was. He would go through sort of a list of sort of different steps, not necessarily formalized steps, but he would probably start by asking family members if anybody wanted these tickets, he can’t make it, then he might ask his friends, then he might ask other people he knew, and from there if he still found no one who wanted tickets he might try to sell them to a ticket broker back before the Internet was used regularly for selling tickets or maybe through other channels. So a number of different avenues he would look to get rid of the ticket – none of them were really simple and safe and none of them were, you know – a lot of them were not about maximizing your own revenue, because for example if you give a ticket away to a friend you’re not getting money for it. When you make a season ticket investment you’re actually spending a lot of money on tickets so you know, a lot of it became an alternate to actually giving them away.

Andrew:

And you said you entered into a Business Plan Competition. I read that you pulled out of the competition. Why is that?

Jeff:

Yes, so we initially … when we had the launch I described, when we first started talking about the business, we were probably a few weeks before the Stanford Business Plan Competition Executive Summaries were due, we probably had three of four weeks and so the timing just so happened to work out that we had this idea and this vision for a company right around the same time that we needed to be working on the Executive Summary to submit for the Business Plan so we said to ourselves let us write the Executive Summary for the Business Plan and submit it to the competition. And we did do that and we were accepted as one of the six finalists. I think there were 50 or 60 submissions and then they chose six finalists and what was supposed to happen was the six finalists were going to present their business plans to a panel of judges that would be large and capital firms as well as industry folks from the technology or Internet industries and entrepreneurs so there were going to be six of these judges who would listen to the six finalists and determine one winner. The winner was then going to get like a $25,000 grant for starting the company. So, we were one of the six finalist and we had a few weeks before the final panel was going to happen and during that period of time we decided we really actually were excited about the company and interested in starting the company as opposed to just going through some academic exercise of writing a Business Plan and then sort of leaving it at that. So, because we decided we actually wanted to start the company we made the decision that it would be better to the final round, because we didn’t want to attract more attention to the business than we already had.

We already had a little bit of extra media attention by being one the six finalists. We didn’t want to be the winner, because if we were the winner, then we might invite competition into this business before we had much in the way of defensibility.

So, our agenda was, let’s take it out of the business plan competition, let’s actually start the company and keep a low profile until we have something more that is really defensible. So that was really the rational behind pulling out.

Andrew:

I hear a lot in my interviews here, that you shouldn’t be in stealth mode, that you shouldn’t be afraid to show your ideas, because execution is what matters, not ideas, because you’re going to get competition later on anyway.

Here, what I’m hearing from you is the opposite of that. That you did to protect your idea. Why?

Jeff:

Well, I generally agree with what you said and what you heard regarding execution being key, and that ideas don’t necessarily mean… Just because you have a great idea doesn’t necessarily mean you’re going to have a great company, because there’s a lot of execution in between. So I think that makes a lot of sense and I would agree with that.

However, all else being equal, if you have the opportunity to gain some traction and build the beginning of a business to the point where you have some more defensibility, and you have some more sort of progress, and first mover advantage behind you.

I think, all else being equal, I think you’re better off getting some of those milestones achieved before kind of going out in a big way with what you’re up to, because with a lot of Internet companies, the barriers to entry are fairly small, and a lot of it is about the first mover and getting some critical mass.

So, if you’ve got an idea that can be fairly easily replicated, I think it does make sense to try to get down the road a bit before you try to draw too much attention to it.

Andrew:

Okay, and before we talk about how you went down the road, I think we should bring up the legal issues, because there’s a perception that it’s illegal to sell tickets that you own. You looked into it, right? What did you find when you looked into it?

Jeff:

Yeah. So, the reality is that there’s a lot of misconceptions around the legality of reselling tickets. People tend to be confused about it, and even more so nine years ago, when we started the company, than today, where there’s still probably some misconception and confusion, but not as much as when we were starting out.

So, let me tell you what it was like when we were starting out, and then try to show how that’s evolved up till now.

When we started out, and still today, there are no federal laws regarding the resale of tickets. So as far as the federal government is concerned, you can do whatever you want with your tickets.

So, from the federal perspective, there never has been, since before we started the company, laws that restricted the resale of tickets.

The laws that do exist come into place on a state-by-state level. So, when you look at the 50 states, when we started the company, most states also did not have restrictive ticket resale laws.

Meaning that, in most states, you could resell a ticket for fair market pricing — Whatever a willing buyer and a willing seller would agree at … In most states was legal.

There were a handful of states back then, and even fewer today that did have restrictive resale laws. Where again, it really varied from state to state, but most of them either had a price cap as a percentage of the face value.

For example, they would say ‘You’re not allowed to resell tickets in this state for more than 20% above the face value.’

For some of them, it was just a fixed dollar amount above the face value. So, it could be ‘…for more than 10 dollars above the face value.’

Some of them were based on a specific type of event only. So, only for boxing in this state, you can’t resell tickets. As long as it’s not a boxing event, you can resell a ticket.

Again, it varied from state to state, and it was only a small number of states that had these laws, but they usually either were a fixed amount over the face value, or a percentage over face value, or specific to a type of event, and in some cases, were also specific to the proximity to the venue.

So, in a handful of states, there were laws that said ‘If you’re within 1,000 feet of the venue, you cannot resell your ticket, but if you’re not within 1,000 feet of the venue, you can do whatever you want.’

Andrew:

So, that makes me wonder. You’re not a lawyer, you’re just a young entrepreneur with an idea. How do you go about finding this stuff? Do you have a family lawyer friend who you ask, do you hire a lawyer early on, do you do some research on your own in a library, or do you take a risk on? What do you do?

Jeff:

So, yeah, one of the very first things we did, with the very first dollars that we raised. We raised a very small round of capital…

Andrew:

[interrupting] How much?

Jeff:

…starting the company in August 2000. About $550,000, really as a kind of seed stage, friends and family round.

We took a small amount of that money, and we hired a regulatory law firm that does a lot of work on kind of regulatory issues, and had them do a full state-by-state survey of all the laws that existed, and how that would affect our business, and really tailored our business model, and built our business model in such a way, so as to be compliant with the laws and to minimize any risk, from the company’s perspective, of being in violation of those laws.

So, we knew that there were some regulations. We knew that a number of states did have laws, and we wanted to fully understand that before we launched the company.

So, that is one of the first things that we actually spent some money understanding better.

Andrew:

So, we talked about the legal aspects of this. Let’s talk about where you raised the money? How did you get to raise, you said half a million dollars for the first round? How did you get to do that? Who’d you go to?

Jeff:

Yeah, so the first round of capital we raised from a number of different individual investors. Folks who the two founders had existing relationships with. Primarily from our previous jobs that we had before business school, as well as one or two angel investors who we didn’t have relationships with, who we were introduced to, and kind of heard the story, and got excited about it.

So, it was really a sort of pass the hat type of round. Most of the investors were in the 25 to 50k range, and had a number of folks in there who participated. Probably the biggest investor might have been 150 grand. The smallest investors were probably 5,000 dollars, but kind of averaged 25 to 50k range.

Andrew:

The person who put in 150,000, was that the professional angel?

Jeff:

Yeah, that was an individual who, I wouldn’t necessarily say professional angel, but a wealthy guy in New York City, who managed at the time and still manages today, a hedge fund. Does a number of investments in early stage companies. Had been doing it before we met him, and still does it today with his own capital.

We pitched him on the story, and he liked it, and he invested, and came on in follow-on rounds as well. It ended up being a good investment for him. So, it was obviously great for us, and it worked out well for him too.

Andrew:

What was it like to go back to people you used to work with and ask them for money for a business idea? Were they receptive?

Jeff:

You know, some were, some were not. I had gone back to a couple of the people I had worked with before going to business school, and some of them said yes, and some of them said no.

That was sort of the reality of raising capital, especially at that time, because we did that first angel round or seed round in August of 2000, which was about four or five months after the dot com bust, and the bubble had burst, so to speak.

So, it was a tough time to raise capital for Internet companies, and more specifically for consumer Internet companies. There were a lot of people who said no. For every person who invested, there were probably 5 or 10 people who said ‘No thanks.’

So, we just had to talk to a lot of people.

Andrew:

How did you convince them? Were you so passionate about the business, were you such a believer in the need for this, that you were able to convince them? Or was it that you had a relationship with these people and they were much more open to you, and you didn’t need to go overboard?

Jeff:

I think it was a mix of both. Especially in that first seed round, we did have some friends and family type of folks who probably were more investing in us, as entrepreneurs, given that they had a relationship with us, and knew us, and kind of believed in us and didn’t need necessarily get the same level kind of pitch on the business and didn’t necessarily have as much conviction on the business itself as they did conviction in the people. But there were others who we didn’t have a preexisting relationship with and we did have to sell them very much on the opportunity and the business and why it was an opportunity that we felt we could you know we could capture. So it was a little bit of both I think early on and more and more as we raised follow-on rounds after that initial round, it definitely became more about the business and the opportunity and the financial investment because you know the friend and family type investors were tapped out pretty early as the company needed more capital.

Andrew:

Let’s talk about what the site looked like when you first launched it. This is basically a marketplace right, where somebody can go and list their tickets, where, where others can come on and buy tickets, and well what did it look like at first?

Jeff:

Yeah, so I mean we were a fairly straightforward simple idea, you know, kind of eBay for tickets is the high level. Basically a marketplace where third party buyers and sellers could transact to buy and sell tickets to live events. When we first launched, we launched only in the bay area. So we tried to focus initially, for the first few months, just on bay area events because we thought we could market in a concentrated way to bay area event goers and people who had tickets in the bay area and that it was the type of business that lent itself to kind of localized marketing in a pretty straight forward way. So rather than try to build a national brand right out of the gates we thought prove it in a single geography and grow it from there. So that’s what we did, we started in the bay area, which is where the company was based, and kind of grew it from there. There were soft of two things that we were doing initially from the business, soft of strategy perfected. One was we had a consumer website where consumers could buy and sell tickets and that was always called stubhub.com. But really what we were trying to do even more than building out that brand and that website was we were actually trying to be a more of a “b” type solution where we would enable other websites to have a ticket exchange. So we did a deal with MSN early on and we did a deal with a number of sports teams and other media partners like AOL and others where it was really the partner’s brand, so it was like the MSN ticket marketplace but it was powered by us and, you know, we didn’t really have much brand recognition in those, in those partnerships but we did all the software development, all of the code was ours, we did all of the transaction processing, and the collection of the money from the buyers…

Andrew:

{What kind of} deal did you have with them? Were you paying for placement or were you just giving them a share of the sales?

Jeff:

You know, early on we were almost exclusively doing revenue share deals. As the company grew and we started to transition more to a directly consumer solution and less about being a b to b player, we did more deals where we were paying upfront to partner with a bigger company like MSN but we would have our brand be a lot more prominent in those deals we would keep 100% of the revenue but we would just sort of pay for the placement, so that evolved over time. Initially we were, you know, hyper focused on cash and making sure we didn’t have to have guaranteed payments so we would only pay for performance, but as the company grew it made more and more sense for us to pay the partner upfront and keep 100% of the revenue and 100% of the upside for ourselves, and get our brand name more prominent in those deals. So that was an evolution that changed over time and took probably three to four years to really fully swing from having a larger focus on the b to b side to a company where we had a larger focus on the consumer side. That was really about a three to four year evolution.

Andrew:

But in the early days the way that you were able to get the distribution that allowed you to bring in revenue and establish yourself was by partnering up with these major sites. And then you transitioned away, and it also kept your costs down right because you were able to get large distribution without paying money upfront and each partner helped grow your marketplace which was good for the overall network.

Jeff:

That’s absolutely right. We… you know it kept our costs down, it kept our sort of risks capitol down because anytime, you know, anytime you make an upfront payment to a partner you always have the risk of how well that’s going to perform. So it was more of a — it was a less risky way of growing a business.

But it also was a less rewarding way in a lot of ways because we had less brand recollection from our own customers. We had less of the revenue, you know, sort of lower margins because for every dollar of revenue that we generated we had to share a large piece of it. So there was a trade off. I mean, it was probably less risky but it was also not the big opportunity.

And so after a few years we realized that the big opportunity was creating a consumer brand where, you know, StubHub.com was really the focus. And yeah, we still wanted to have partners in deals but we wanted those deals to look different. We wanted them to be more deals where we had our brand out there front and center. Where we, you know, could control the customer data so we had a relationship with the customer, we could market to that customer at will and we could keep 100% of the revenue. And we’d be more willing to pay for that up front and making sure we get those things than being too concerned about, you know, revenue share, you know, and risky investments

Andrew:

I heard that Google ads were also very helpful. What kind of impact did buying ads on Google have on the business?

Jeff:

Yeah, and that was, I mean, you know, one of the main contributors to the evolution I described was Google Adwords. So when we first started the company in 2000, you know, we were not using Google Adwords to draw traffic to our site. And it was probably in the kind of 2002 time frame when we really started to experiment with Google and Overture which, you know became Yahoo, Yahoo’s paid search program.

We were experimenting with driving traffic directly to Stubhub and not having to rely on some distribution partner. And so what we realized pretty quickly through that experimentation was that, you know, we could really control the traffic that we could send to our website. Not only could we control how much traffic we wanted to send but we really had a lot of control over how profitable that traffic was because we could in real time adjust how much we were willing to pay per click for a particular keyword based on how profitable that keyword was for us. So how well it was converting and how much the average ticket price was by keyword.

So we became very sophisticated with the analytical rigor behind paid search marketing and understand, ‘OK, how do we want this to perform? Do we want to drive lots of revenue and only break even on it? Or do we want to drive a little less revenue with a lot higher profit margins?’ And we could really fine tune that and control that ourselves as opposed to, you know, have some deal with some big media partner who may or may not, you know, make this a priority, make our partnership a priority and therefore may or may not drive the same scale of revenue.

So we became very focused on the consumer side of the business just as we were seeing the growth and the control that we had over the growth based on the Google Adwords business and other types of advertising that we spent —

Andrew:

How much were you spending at your height on Google ads?

Jeff:

How much were we spending?

Andrew:

On search ads.

Jeff:

You know, I don’t even remember and if I did, I probably wouldn’t say just because it’s a probably a confidential number but we were spending a lot of money. It became a large portion of the companies marketing. You know, we also did marketing on radio, we did email marketing, we had an affiliate program with commission junction and also had our own affiliate program so it became one piece of a broader marketing budget, but it was a significant piece and —

Andrew:

The most powerful piece?

Jeff:

What’s that?

Andrew:

Was it the most powerful?

Jeff:

It probably depends on how you define powerful. I mean, I think the two things that really helped grow the company more than anything else were paid search and radio. And they were different in a lot of ways. Radio was better for kind of getting the word out, building a brand for maybe people who, you know, weren’t necessarily searching for tickets on the internet but were listening to sports talk radio or other forms of radio. And there was a lot of power there. But in terms of really being able to track it and having, you know, a very surgically accurate understanding of our —

Jeff:

— costs, our acquisition costs and our profitability to that channel, it was a little bit tougher to nail down exactly, whereas page search, we had very good understanding of the profitability to channel and a very good ability to make that revenue versus profit tradeoff decision on a real-time basis where we said, hey, we want more revenue this month and (inaudible0:24) profit, let’s do that. So we need to generate a profit this month, we want to kind of ramp revenue down, it’s [too wide].

And so we had more of that type of control in the [page search] channel. For that reason, it was very — it was a very attractive and important channel for us. But it didn’t have the kind of brand-building capabilities that for example radio has.

So I’d say radio and page search were the two big killers for us. And we did other things also, but those were probably the two most important and, you know, count for different reasons.

Andrew:

All right. Let’s talk about the user experience really quickly. How did that evolve? The site, what did it look like at first?

Jeff:

Yes, I mean, you know, the first version of the website which we launched in October 2000 was, you know, a very dumbed-down version of what StubHub is today, where it was, you know, it really just had sort of the key functionality that was required for somebody to list a ticket and for somebody to buy a ticket, and as I said before focus on the bay area.

But we did have — you know, we did have obviously full functionality in terms of those key things of listing and buying tickets, because without those you had nothing. So we had that out of the gate.

Over time, the site became much more robust in terms of the search capabilities, what we call browse by map, which allows you to click on a specific section of a venue map and see what seats are available in a section, you know, lots of different searching and browsing capabilities, lots of different listing functionalities.

So we launched pretty early on, what we call the season ticket listing tool where instead of having the list, a set of tickets for every single game, if you had 25 games to sell, you could just say, hey, I want to list a bunch of different games on the season ticket holder for this team. You could list your tickets and then it would show you a list of the games, and you could check off the boxes for all the games that you wanted to sell. And so you (inaudible2:31) bulk these tickets, kind of, for many games all at once.

So and then we can big tools for ticket brokers, to allow ticket brokers to list tickets in sort of bulk using kind of bulk loading tools. So, and if you can, more and more user-friendly and more and more seamless, and with less and less friction as time went on, and we would casually talk to users and understand what features and functionality users like, and try to build, you know, prioritize those and build those in over time.

So, and already all of our development is done in-house, so we had developers who were always working on new functionality, per se.

Andrew:

And I know we only have a few more minutes. So what was the best part of selling?

Jeff:

Well, we sold the company in February of 2007. We had been — the company had been growing rapidly for quite a while, but at that point in 2006, we had done, you know, 400 million roughly of top-line gross ticket sales. And we had — there was (inaudible3:47) interest in the company from larger players, larger companies, and we decided that it was a good time to kind of let somebody else to takeover and take the business to the next level.

And when we had a dialogue that began with eBay, you know, they were in so many ways the most ideal partner for StubHub because they really had pioneered the whole concept of marketplace on the Internet and had built a large business in that space, and had a lot of expertise to bring to the table, and had a huge user base that could help kind of grow StubHub business even further.

So for lots of reasons, we thought that deal made a lot of sense and the timing was right, and we’d gotten the business to a certain scale where we —

Andrew:

What about for you personally? What was it about it that — how did your life personally change, what was the most significant change?

Jeff:

Well, the fine thing is I had a baby boy two weeks after the deal with eBay closed, and that was a bigger change for me than selling StubHub. You know, I was as much — that was all in February of 2007. I had a —

Jeff:

I had a kid, and I sold my company, so there was clearly a lot of change going on for me then, but, you know, in a lot of ways, the stuff upscale was dwarfed by the birth of my son, so sure, there were definitely changes in my life, you know it has definitely has had an impact on my life, but you know, it’s also the type of thing where the changes it has are nothing compared to the life changes that everyone goes through where they get married and they have kids and the more important things that happen in life.

Andrew:

Ok, any final advice for entrepreneurs who are starting out?

Jeff:

You know, when I talk to entrepreneurs I generally give them a few pieces of advice. Number one is, you’ve got to go with your gut and trust your own instincts, because I think, a lot of times, when you’re getting something started, or you think of a new idea, you’re trying to test the waters by getting advice from other people, whether it be family members or friends or former co-workers, or industry executives, or advisors. You’re going to get a lot of conflicting advice and I think, you know, at the end of the day, you kind of have to take all that information and you know, it’s one set of data that’s important, but in the end, you have to go with your own gut, make a decision to go with it and not listen to what other people tell you.

And then, I think, beyond that, I would say that now is a great time to get a business started and off the ground. I think given the economic slowdown that we’ve had in the last 12 to 24 months, there’s a lot of things about that I think are really ideal for getting a better start. As I mentioned before, we started Stealth Hob in August of 2000 when internet was, when the hi-flying companies of the internet were no more.

Andrew:

But many people consider the worst time to start an internet company when you started it . . .

Jeff:

Yeah, I think in retrospect, a lot of people actually realize that a lot of the best companies were started around that time because they were forced to have certain types of discipline, and, you know, in terms of their cash burn, they were forced to have, you know, a certain conservative nature that companies don’t have when there’s a ton of capital chasing after them. And the other thing is, you know, even things like labor markets are much easier. You can hire great people who lost their job, not because they’re necessarily bad employees, but because companies, they’re shrinking and downsizing. So there was a lot of access to labor, there wasn’t a lot of competition, and all those things are true today where you know, you’ve got lots of people available, not as many start-ups being funded, probably a certain conservative nature to companies that are being formed right now which is, I think, a healthy thing. So, you know, lots of silver linings in the cloud of a bad economy, especially for start-ups, I think it’s a great time right now.

Andrew:

Alright, well, thank you. I want to be fair with your time and I know you’ve got other calls so thanks for coming on Mixergy and thanks for spending this time with me.

Jeff:

Thanks very much, Andrew.

Andrew:

All right, and there it is. The program is over, and as always, I want your feedback. Come back and give me any feedback that you’ve got about this program. What did you think about the ideas? Did you think that I got enough depth? To be honest, I’m not sure that I had enough depth in this interview, but I want to hear your feedback. What did you think of the audio-video? We had a little bit of technical trouble in this interview. Did we patch it up properly? Give me your feedback about whether you were able to hear it clearly ñ whether the video, if you were watching this on video, whether that came out clearly. Any feedback you can give me will help me make these programs better and will also help me connect with you. And do it in the comments so other people can hear your feedback too and get to know you. Number two, do check out StubHub, and of course I’ll link you over to it, and finally, number three, click around Mixergy.com. I’ve got tons of interviews with entrepreneurs who will share, as Jeff did here, their experiences with you so you can learn from them and go out there and build an incredible company. I’m Andrew Warner, and I’ll see you in the comments.

Full program includes

– Hear about the candy business he started as a kid. If you’re someone who thought about business from an early age and were discouraged by teachers and other adults, you’re not alone.

– Learn how he thought about the market size and opportunity before he launched the business. If you’re considering a new business idea, you’re going to think a lot clearer about it after hearing this section.

– See how he marketed his business. If you’re trying to grow your audience, hearing how he attracted customers will inspire you.


20 thoughts on “How Questioning Basic Assumptions Made StubHub A $310 Million Company – With Jeffrey Fluhr

  1. LIAD says:

    love how they leveraged 3rd party distribution to initially grow their marketplace and once they had sufficient traction they kicked them to the curb and concentracted on their B2C business and their own branding

  2. Really interesting interview. The legal aspect caught my attention. I wonder where the common perception that it is/was illegal to resell tickets stems from? I have not personally used StubHub, but my cousin has to buy USC Trojan tickets; he says its great.

    I half-agree with you that you didn't go deep enough. He went from a toy before he was a teenager, to Stanford Business School, to Stubhub. But, it was still very insightful.

    I never sold candy (way too shy). My first entrepreneurial activity was mowing lawns. I used to mow my grandfather's lawn, which turned into mowing two other peoples lawns. I would make $50 in a day, and enjoy the rest of the week. This experience showed me how much freedom you could achieve by doing things on your own. I'll never forget that feeling of freedom, I worked for a few hours in a day (once a week) and would wait for the grass to grow again. :)

  3. I really liked how Jeffrey approached building his idea into a business and the process he went through. The fact he did this during the dot-com bust is simply amazing; maybe that was a part of his success because as he said he had to focus on what was important. This is something every entrepreneur should be thinking all the time. Having millions of ideas is great, but you also need to understand how to execute those ideas. You don't have to know everything, but it should be a continuous process of asking, “how can I do this better, now!”. A focused disciplined approach is better in my mind than throwing all the money you can get at an idea. Burning money is not the best culture to ingrain in your business process. The idea about partnering up and branding with other companies to grow and gain a certain critical mass before making your own brand stick out was a great strategy. This is a “how can I do this better, now!” thinking that seems so natural for Jeffrey. I really loved Jeffery's advice on, go with your gut feelings because you're going to get a lot of conflicting advice. This does take confidence in your character and ideas, especially if you're dealing with people who are more experienced.

    Kind Regards,
    Rajinder Yadav

  4. loumindar says:

    Another good interview. Peaking behind the current on the history of StubHub was very interesting. I liked Jeffrey's comment at the end of the interview to aspiring entrepreneurs to “follow your gut.” Good advice.

    (Andrew – I can see the video again. Don't know what happened, but I'm back in the game!)

  5. Erik Johnson says:

    Andrew another great job… So tell me this..and don't take this the wrong way because I applaud you on your work but how do you get all these people to do interviews with you? How do you have these connections?

  6. Wes says:

    He had a very calculated way of getting there…. lots of the previous guys you talked to took less structured ways to the top. Their biz model didn't change much.

    Liked how he got only 1 in 10 of the people he asked for money. Shows you how many “no's” he got.

    That guy spent lots of his voice time rehashing the question you asked of him.. burning up time.

    555k seed money… how much more before they were profitable? When were they profitable?

    When were the most difficult times? WHen did he make mistakes? Biggest lessons?

  7. RANDYWEBSTER says:

    Andrew,

    Again, another helpful piece. Its like when your starting a company or even running a start up everyone has an opinion, and that can side track you to an area of disbelief or confusion. It can fragment your path, so I agree with Jeffery, to stick with your gut…Again, I needed this..

    Randy

  8. Casey Allen says:

    Perhaps I'm too conditioned, Andrew, but 45 minutes almost feels to quick to glean much. Then it's almost a “what-when” interview and the probing “how-why” gets chopped off.

    Don't get me wrong, there were some great insights here. Jeff's a stud for what he built. But I think 60 minutes is the “sweet spot” for gaining real insights. I'm left wanting a second interview after this one.

  9. utkemonster says:

    So happy you interviewed this guy. Im working on idea that involves the secondary ticket sale market. So hearing anything from this guy is valuable. I noticed that he has a tendency to go off on tangents and not answer the question asked, but it was very helpful to me

  10. I looked at the transcript after our conversation and was impressed by
    how focused he was.

    I'd love to hear what you're working on if you want to email me.

    Sent from my mobile

  11. chrisleis says:

    Andrew, I would have liked to hear more about when they reached profitability? And how profitable were they when they sold? And how was the sellingprice determined?

    The “partnering / B2B” aspect was very valuable for me to hear, something I go through currently as well. Its extremely costly to go the “adwords” way to the consumer…

    Thanks for your interviews…extremely valuable!

  12. sameer says:

    hey andrew,

    this is a very interesting interview. I don't usually read interviews, but this one i had to. really very creative and 'out of the box' method jeffery and his buddies used. i heard about stubhub but never actually used it. Never realized until now that they sold to ebay for $310million.

    Nows thats what i call cashing in on your creativity.

    looking forward to reading more interesting interviews!

    regards,
    sameer

  13. Scott says:

    Keep rocking these interviews Andrew!

  14. Steve says:

    Yet another open, honest and solid interview…. thank you Andrew, thank you Jeffrey. One area that I hoped you would probe just a little deeper was with the initial round of financing from friends and family. $550,000.00 is a good chunk of change but it was given in smaller pieces from multiple people – anywhere from $5k to $150K. What's the ballpark % of the shares or what kind of return is offered for the $5K, $20K . . . $150K?

    Thanks again Andrew, I don't know how you keep pumping out these great interviews in such rapid succession.

  15. Steve says:

    Yet another open, honest and solid interview…. thank you Andrew, thank you Jeffrey. One area that I hoped you would probe just a little deeper was with the initial round of financing from friends and family. $550,000.00 is a good chunk of change but it was given in smaller pieces from multiple people – anywhere from $5k to $150K. What's the ballpark % of the shares or what kind of return is offered for the $5K, $20K . . . $150K?

    Thanks again Andrew, I don't know how you keep pumping out these great interviews in such rapid succession.

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