Jeff Hoffman, a Priceline executive and serial entrepreneur, explains why startups must solve real problems with a clear value equation where customers pay more than delivery costs. He warns against freemium models like Webvan and shares how he built a paid boarding-pass vending solution that led to a successful exit.
Hey everyone, you're about to watch Jeff Hoffman, a serial entrepreneur with a very inspiring message. If you want to be one of the founders sitting here in our campus learning from world-class experts like Jeff, make sure that you apply today at draperuniversity.com. Enjoy the video.
And now I'm off doing this, so let's, let's do this. Here are these keys to success. First of all, solve a real problem. And I'm going to tell you why I say that. I get pitches every week, right? All the time people pitch me stuff. And I can't tell you how many times people are pitching me a solution in search of a problem. What is this thing? Oh, I just invented this. Does anybody want it? We'll see. We're going to start selling them now. Okay? People are constantly creating, sitting there racking their brains to think up some cool idea to build something. And then try to sell it when meanwhile every day everywhere you go the world is filled with problems. So here's the test for me. You go out, you run an errand, you had an hour to give, you come back 3 hours later. Somebody says, you know, how was your day? And you say horrible, those idiots. It took 3 hours standing in the stupid line. These people are morons. It should have taken an hour. But you know what you do when you see a problem? You complain and you go back to what you were doing, right? Everybody does that. And I'm gonna tell you the behavior that entrepreneurs exhibit that everyone else doesn't. They stop and they say, does this bother all you guys? And if the answer is, it's a big problem that bothers everybody else, entrepreneurs do a second thing no one else does. They say, I'm gonna look into this. Is there a better way to do this that hasn't been done yet? And if the answer to that is yes, they do a third thing no one else does. They say, you guys go home without me. I ain't leaving until this is fixed. They own it. So next time you hear— I know that you all have startups and you all have ideas, but all of you hopefully will be serial entrepreneurs and do this more than once in your life. Next time you find yourself complaining about a problem, be the one person that stayed there and solved it when everybody else went home. And value equation. By the way, I also see a lot of people that are creating products, solutions without a value equation.
Yeah.
Here's what they tell me. Everybody loves my startup. Everybody loves my idea. I say, of course they do. You're giving it away free. The freemium model killed a lot— there are some that work, but it killed a lot of businesses because they were falsely optimistic because everyone wanted it. I love this thing, just until the day— Webvan was one of my favorite examples, which I can talk about because they're dead. They were near me.
Yeah.
And they were building this company in the early internet days to go, you order your groceries online on an app and they go pick them up and deliver them to you. That was a great idea. Millions of people, whatever the number was, were using it. They kept saying, Jeff, everybody loves Webvan. You were wrong about it. And I was like, dude, you're picking up their groceries for free, right? And then one day the investors, you'll love this, they took in $70 million in investment and then $74 more. $144 million later, The investors said, could we maybe get some return here? And they said, well, to recover this investment, we're going to have to turn the switch on. Overnight, I think the average price was $26 to pick up your groceries. Roughly 100% of their customers left, and they filed for bankruptcy the next day. A value equation is this: will a lot of people in the world pay you more for the thing you do than it costs you to do it? If the answer is no, congratulations guys, you have a hobby. Okay? A hobby is something you are spending money on. A business is something other people are literally reaching for their wallet, their credit card, waiting for you to finish. So I want you to be honest and ask yourself, are there a lot of people in the world that are dying to pay me for this thing? If you're not sure, there might be a better idea out there. I'm not telling you yours won't work. I'm telling you if you have the choice between trying to convince people to do something and having something that people keep saying, are you done yet? Please, could you hurry? Because I want to buy the thing you're building. Lean towards the latter. So I already mentioned to you this first one when I was in the airport, and I was standing there and everybody was complaining, and everybody, well, I missed my flight, and I did what I just told you guys. When I missed the flight, I turned around and I said, it took an hour to get up to the check-in, and I said, am I the only one that thinks it's insane that you gotta stand in an airport an hour? And by the way, all you do is they look at your ID and they hit print and give you a boarding card. What is a boarding card? It's a piece of paper from a printer. And I said to the woman, I said, this is ridiculous that we're standing here an hour so you can use the printer. She's like, sir, you gotta have a boarding card to go through an airport. And I said— To get on a plane. I said, right, but it's a printer and we all stand in a mile-long line for you to use a printer. She said, sir, you can't get through security without a boarding pass. I said, ma'am, I understand, but it's a printer. She's like, next. So I turned around to all these people and said, who's upset about standing an hour? Everybody groaned, right? In entrepreneur school, they teach you market research, and the truth is you just need groan research. Everyone in the whole airport groaned. I said, all right, market research done. There's not one person that isn't upset about this. But then I did value equation. I was standing back there and I said, how many of you would give me $5 if I could give you a boarding pass now to skip the line? You know what? People started bidding. $10, $15. I was like, crap, I wish I had your boarding pass. This is a good business. Some guy in a suit, he's like, Sir, I will give you $25 to get me out of this line right now. He was like a $600 an hour attorney. And he's like, I'd pay $25 to skip an hour. I was like, man, I got a business. So that's when I went home and created these. Because it had a value equation, it was a real problem, and I was standing in it. I just want you to look for those next time and think, would people say, is the stupid machine ready yet? By the way, I was intending to charge you like an ATM. Swipe your card and pay $3 and I'll give you a boarding pass.
Oh, really?
But it saved so many millions in airports and airlines that they said, we'll pay all the costs, just bring them. And that's how I got to go. Not only did I get to go see the world, I got— had to travel to a different country to install these in a different airport every week, but I got paid for traveling the world. That's a pretty good formula. And I'll tell you what, I was never money-driven. I was always freedom-driven. I want to do what I want to do. Turns out that costs money. But money is not what I dreamt about. Seeing the world is what I dreamt about, right? It just, I needed money to do that. And I'm gonna tell you, by not focusing on the money and focusing on solving the problem is what really got me there. And again, like I said, I'm not a money guy, but we sold this company 3 years in. At 3 years old, we sold the company for over $100 million. And it's not internet money, but I was 20-something years old and unemployed, so I was not upset about that transaction either.
