7 Aug 2012
Small Spaces – What’s in a Name?
Expert Advice: Bob Diener, president and co-founder, getaroom.com.
By Heidi Staseson
It sounds like the setup for a joke but when Miami-based entrepreneur Bob Diener needed advice on the name for his startup, he literally called up a priest, a pastor and a rabbi. The holy trio gave their blessings to the name in question—getaroom.com—which, since launching three years ago, stands hale and hearty among its online travel agent competitors, Priceline and Hotwire.
With a catchy satellite radio jingle to the tune of the William Tell Overture, Facebook fandom, triple-digit growth, 24,000 hotel partners worldwide AND William Shatner as your competition’s spokesperson—Diener’s having a blast—amassing low, low pricing for his customers.
And all this the second time ‘round. The 53-year-old kite-surfing philanthropist is no stranger to the online startup—he’s been there done that—and way before the bubble burst. In 1991, Diener and partner Dave Litman co-founded Hotel Reservations Network which morphed into the wildly triumphant Hotels.com. When they sold it eight years ago to Expedia, resting out a five-year non-compete, instead of throwing in the high-thread-count towel and kicking it for good in Costa Rica, Diener flipped over his Do-Not-Disturb door decal and chased success, again, from the ground up.
Diener talked to Small Spaces about working life as an internet pioneer and how he grew his successful startups through some of history’s worst financial meltdowns.
SS: How did you get into this business?
B.D.: In my first career I was as an attorney and then started an airline consolidation business. I sold that company in 1991 and started what was then Hotel Reservations Network. In 1995, we built our first internet site which was hoteldiscount.com. It was really the “Stone Age” of the Internet; we had one of the first sites for commerce and it grew significantly.
SS: When did you go public?
B.D.: In February 2000. We were about $200 million in sales. It was one of the most successful public offerings ever. We were oversubscribed about 20 times. And when NASDAQ tanked in March 2000, we went the other way; we went from a stock of $16 to over $90.
SS: Were there any challenges?
B.D.: [At first] we were turned down by pretty much every major investment house on Wall Street. They told us our business model was wrong, that we were too profitable to go public and that we needed to spend a lot more on marketing. Then we found [some] conservative investment bankers who loved our business model. They thought investors would have a great appetite for it and we went public without changing it.
And even then our public valuation was $800 million—Priceline’s was $12 billion. We were very profitable and they were losing a fortune. That was the market mentality at the time.
SS: What is that success correlation?
B.D.: Most companies, even now, are just focused on growing their top line and expanding [from there] … Our competition never watched the bottom line. Back then, they thought the internet was a different way of doing business—that somehow, magically, you’re going to get profits. You still need to focus on the fundamentals of the business and on that bottom line.
Also, most Internet companies were spending 50 per cent-to-100 per cent of their revenues on marketing; we were spending two per cent-to-three per cent…There were hundreds of internet companies that went out of business in 2000.
SS: How did you have that business sense, or foreshadowing, of what not to do—while everyone else practically became a victim of the dot-com bust?
B.D.: Most Internet businesses that came around started as internet businesses and they weren’t really experienced. We had a strong, profitable business before the internet. We leveraged it and used the internet to expand our business internationally and used e-mail to communicate with consumers and leverage our growth opportunity with very little additional incremental costs. We always believed the internet was the same as any other business—the only difference is you can leverage the technology and make your business much stronger and enable it to grow in the right way.
SS: What kinds of marketing did you do?
B.D.: We figured out very creative ways to market our company at very low cost—we kept to our principles of keeping our marketing budget at three per cent. That was our unique strength. We used affiliate programs where we focused more on the backend and provided inventory for companies on the frontend. We produced TV commercials in-house at about one tenth of the cost of what our competitors were spending. When your back is to the wall you work harder. We also made sure we found the right people.
SS: How many employees did you have?
We had about 200 employees. Growing an organization is all about the people. We made sure that we found the very best employees—and we couldn’t afford to pay them market rate so we incentivized them each with strong option packages. Every employee became an owner of the company.
SS: How does that differ from other companies that do that?
B.D.: Most companies get the wrong people. We like employees that believe in the long-term success of the company. We focused on employees that had a passion for the business versus employees that were just looking for their paycheques and working nine-to-five. So we ended up with an office full of people that loved the business—who felt that it was their business—and nobody was watching the clock. And we made sure that we treated all our partners fairly and worked closely with them.
SS: So how did you get to Hotels.com?
B.D.: In 2002, we had a brainstorm; we were going to expand. Hotel Reservations Network was not a very good name. We came up with the name Hotels.com. People loved it and we acquired the website address. It very quickly became a household name. We were probably the lowest- cost, fastest-branding campaign ever. We took Hotels.com from pretty much zero awareness to 80 per cent household awareness in about nine months.
SS: So what was behind your decision to sell it?
B.D.: We got so big that we felt we couldn’t really grow it at triple-digit rates anymore. We were over a billion in revenue. We sold the balance of our interest in late 2003.
SS: You watched your revenue increase to a billion—why bother starting all over again?
B.D.: When a company becomes so big, there are limited opportunities for the same growth rate. We were part of a much larger organization and instead of us focusing on being entrepreneurs and creating new methods, we were bogged down in accounting, legal and administrative issues. When you lose your focus on the core business you’re not having fun anymore. At that size, the opportunity to make our equity worth more is minimal. A company can’t grow at 200 per cent or 300 per cent indefinitely. When it comes to a point where you’re growing at only single-digit rates, it’s time to move on.
SS: So you had a nice hiatus to think about what you’d do next, have some fun and enjoy all that revenue?
B.D.: The first thing I did was learn how to kite surf. I went to Costa Rica—it’s my passion now. Then I went to Colorado and learned how to snowboard. Now I spend part of my days snowboarding and kite boarding with my kids. I have a summer home in Oregon. You can snowboard and kite surf all summer long.
SS: When did you see the opportunity to start over?
B.D.: We had a five-year non-compete and when it was over in 2009 we saw a great opportunity to get back into the business based on the nature of the economy. It was about the same time as the world was falling apart. Hotels were looking for new ways to distribute their product; consumers were looking for better deals. So we saw a great opportunity to create some different models and started getaroom.com.
SS: What are some of those models?
B.D.: My partner and I created the current model for booking hotels which we call the Merchant Model. Most competitors today use the merchant model. We created two new models with getaroom.com. First, we created a flash-sale model where hotels put a product on a steep sale for a short period of time—so you may have anywhere from an hour to 24 hours to book the discount and stay whenever you want. Hotels love the model because it allows the consumer to make an instant decision to book the hotel and fills up excess capacity. Consumers love a deal and act quickly when given the right incentive.
Second, We figured out a way to get consumers lower prices than they can find anywhere online. We worked out a new system called unpublished rates where hotels give us lower rates than they put online. We put all the information about the hotel on the internet but we prompt you to call us for a better rate. We now have 12,000 global hotels participating in that program, in major markets across the world.
SS: So what’s the growth been like?
B.D.: We’ve been growing through the roof at triple-digit rates. We have a great company; our employees all highly motivated with options. Most of our executive team that was with us before is now with us again.
SS: How would you dispel a notion where some people might think “he’s not a typical start-up because he’s not really ever had to squirm?
B.D.: We started Hotels.com with $1,200 dollars. We were flat broke; we couldn’t get bank financing and we didn’t have any other source of funds. So we created a merchant model as a way to fund the business. You know when you call a hotel and make a reservation—you pay for it when you get to the hotel? Well, if you book on the internet you pay in advance. By customers paying in advance, we had great cash flow. Hotels extended us terms. We were able to fund our business growth with no outside resources by being creative.
With getaroom we use the same merchant model—we had money to put into it that we didn’t have the first time but we’re sticking to our principles of watching costs and running a profitable business. We’re not taking any outside financing; we’re financing it ourselves. The company is cash-flow positive, it’s profitable. And we got there quickly because we stuck to our principles and we focused on the bottom line. We continue to have great employees, great affiliates.
SS: Who are your big competitors?
B.D.: Our model is different so we don’t have an exact competitor. Closest is probably Priceline and Hotwire. But we created new models that are different than what’s out there. Instead of directly competing, we’re focused on attracting new and different market segments. Lots of consumers still want to pick up the phone, especially when they get a better deal and have a high level of service. You don’t see the lower price online but you know you will get a deal and can view all of the information about the hotel online. With the other opaque models you don’t know what hotel you are staying in.
SS: What are customers telling you?
B.D.: They’re saying ‘we love your model because we know everything about the hotel, where it is and we know we’re going to get a better rate—we just have to pick up the phone to find out how much better the rate is.’ We don’t actually tell them the rate until they actually make the booking but we tell them the approximate savings. By keeping it what we call “opaque,” it doesn’t compete with the hotels’ direct rate because it’s different.
SS: So what’s next for your company?
B.D.: We’re doing great; we’re profitable; we’re growing in triple digits; we’re almost 100 per cent above last year. And we’re going to keep growing like we are. But we’re going to do it in a niche market—we’re not going to try to compete with everybody else—we’re going to continue trying to do things that are different.
SS: Are you aligned with any particular causes or charities?
B.D.: I do a lot of charity work. I’m very involved with children and dyslexia. I’ve done a lot of work with The Florida Dyslexia Association and The Miami Children’s Museum. I’ve been helping ICAN, the International Cancel Advocacy Network. When you’re an entrepreneur you can’t really stop. I look at a charity the same as a business; I look at the metrics: How is it doing? How can I help it expand?
SS: Any closing thoughts for startup business owners?
B.D.: Being an entrepreneur is great. There’s no greater feeling than having a successful business—and it’s what makes us great; it’s what makes America great. It makes us thrive, gets us excited and gives people incentive to work—and work hard. And you don’t succeed unless you work hard.
To be a real entrepreneur you have to think about your business all the time. You have to have balance and spend time with your family [too]—but you should have such a passion for the business that you’re always thinking about it and always wanting to figure out ways to make it better. And by doing that you constantly get better and your business gets better.