Category Archives: Business

How to Build a Company: Part 3 – Market Research

Thus far we have reviewed the process of creating a Business Entity Type (e.g. LLC, LLP, INC) and the formulation of the Business Plan.  Now we need to look a bit closer at Market Research.

What is Market Research?

Market research is the process of gathering relevant data to help solve marketing challenges that a business will most likely face–an integral part of the business planning process. In fact, strategies such as market segmentation (identifying specific groups within a market) and product differentiation (creating an identity for a product or service that separates it from those of the competitors) are impossible to develop without market research.

The key process behind market research is to get to know your customer better than they know themselves.  The more through the research the more information one has to develop a new product and grow their business.  The smaller the niche the easier it is to develop a killer business model.  When we started Orbitz, there were only two other businesses doing meaningful travel sales online (Expedia and Travelocity).  We changed the online travel business model by making money by volume vs sales price through our unbiased matrix display showing the lowest fairs first.  Orbitz didn’t make a percentage of ticket sales price (e.g. 10% of a $1000 fare) like our competitors.  We established our revenue model around a flat fee per ticket sold (~$6 per ticket) requiring us to move significant volume and capture marketshare to be profitable.  It was easy to get new customers when our pricing was less than anyone else online!  The market void we discovered through our Market Research helped us build a profitable business that customers loved.

Orbitz Matrix Display

Orbitz Matrix Display

What is the Market Research Process?

Market research basically involves gathering two types of data:

  • Primary information. This is research you compile yourself or hire someone to gather for you.
  • Secondary information. This type of research is already compiled and organized for you. Examples of secondary information include reports and studies by government agencies, trade associations or other businesses within your industry. Most of the research you gather will most likely be secondary.

When conducting primary research, you can gather two basic types of information: exploratory or specific. Exploratory research is open-ended, helps you define a specific problem, and usually involves detailed, unstructured interviews in which lengthy answers are solicited from a small group of respondents. Specific research, on the other hand, is precise in scope and is used to solve a problem that exploratory research has identified. Interviews are structured and formal in approach. Of the two, specific research is the more expensive.

One of the most effective forms of marketing research is the personal interview. They can be either of these types:

  • A group survey. Used mostly by big business, group interviews or focus groups are useful brainstorming tools for getting information on product ideas, buying preferences, and purchasing decisions among certain populations.
    • NOTE: Survey Monkey is a tool very often used to quickly reach and gather results.
  • The in-depth interview. These one-on-one interviews are either focused or nondirective. Focused interviews are based on questions selected ahead of time, while nondirective interviews encourage respondents to address certain topics with minimal questioning.
    • NOTE: If a company is operating this is typically an easy step.  Contact existing customers and pay them something for their time.

Secondary research uses outside information assembled by government agencies, industry and trade associations, labor unions, media sources, chambers of commerce, and so on. It’s usually published in pamphlets, newsletters, trade publications, magazines, and newspapers. Secondary sources include the following:

  • Public sources. These are usually free, often offer a lot of good information, and include government departments, business departments of public libraries, and so on.
  • Commercial sources. These are valuable, but usually involve cost factors such as subscription and association fees. Commercial sources include research and trade associations, such as Dun & Bradstreet and Robert Morris & Associates, banks and other financial institutions, and publicly traded corporations.
  • Educational institutions. These are frequently overlooked as valuable information sources even though more research is conducted in colleges, universities, and technical institutes than virtually any sector of the business community.

Why do I need to Market Research?

The main issue I typically see is that an Entrepreneur who is developing a business believes they “Know” the customer and there is no need to research the market.  I see this mindset all of time.  What is surprising to me, however, is I actually see this problem in large well established firms more than startups.  I call this process designing “in-a-box.”  I have seen countless large firms invest millions into a program with zero market research then wonder why a product they launched failed. Here’s a link to an article that describes 22 epic product flops (  #22 is the ORBITZ drink!

That’s right, Orbitz was a soda before it was a travel website!  We bought the rights to ORBITZ from the bottling company, which is how we obtained our brandname.

The companies that are looking for help to get to know their customers better are the ones that tend to withstand the test of time.  Good examples of some proactive tech companies that spend the time and money to understand their customers and then utilize their research to create profitable products are Apple, Google, Facebook, Amazon, and LinkedIn.  Prominent businesses that I personally don’t believe do an effective job understanding their customers are Yahoo, Twitter, Groupon, and Travelport (Travel GDS provider: Worldspan, Apollo, Galileo).

Apple does Market Research?

Those that follow Apple may think it is strange that I would list them as a market research company when Steve Jobs famously said, “It isn’t the consumers’ job to know what they want. It’s hard for [consumers] to tell you what they want when they’ve never seen anything remotely like it.”  Although the statement is technically accurate for a company developing a never seen product before, it is only the version of the truth that Apple wants to disclose publicly.

Apple spends millions of dollars understanding their customers.  If you’ve ever visited an Apple Store, I suspect that most of you would agree it is an experience like no other retailer.  It is hard to put your finger on why.  Everything in an Apple Store form product placement to the LED lighting and Air Handlers has a purpose geared to engage their customers.  Their retail model is so pervasive that not only do customers come back frequently for the experience, they are willing to spend hours waiting in line to get their hands on a new product.  The Apple Store success is one that most retailers research throughly. We certainly did at Walgreens.  The Walgreens Flagship Stores were developed using concepts we discovered form researching Apple.

Apple operates in a highly competitive market and they do not share their secret sauce with the world.  During a lawsuit between Samsung and Apple in 2012, the Apple VP of Product and Marketing, Greg Joswiak, testified that they do Market Research and got into detail about their process.  Mr. Joswiak said, “they survey customers every month…”  Then went on to explain that “if a competitor were to find out what drives iPhone purchases – whether it be FaceTime, battery life, or Siri – it would serve as an unfair competitive edge to rival companies. Further, competitors, as it stands today, have to guess as to which demographics are most satisfied with Apple products.”  Apple petitioned the court to have the records sealed (read more).


Hopefully I have convinced you to do Market Research!  The process takes time, but it pays off more than one can imagine.  I have seen good market research transform a business.  We put orbitz on the map.  We took Walgreens who was an aging retailer and in a few years completely transformed the business.  Every business I have worked with that embarrasses Market Research and creatively implements solutions to the problems the unearth benefits form extraordinary success.  I trust you will have the same results if you put the time into researching your market and developing products that your customers want.


Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.
How to Build a Company: Part 2 - Business Planning

How to Build a Company: Part 2 – Business Planning

The next stage of this series is intended to expand on what I have found as key elements that need to be addressed to develop a winning business venture.

I suppose some may think this article series is somewhat out of order.  Arguably one should formulate a Business Strategy before actually forming a Company.  It is the chicken vs the egg scenario in my mind.  I believe planning on the business structure to be formed early in the development stage is equally important.  A business venture should never be started without a solid foundation and liability protections in place.  

Brainstorming the Business Concept

The first step in tackling a business idea is to throughly research the market, competitors, etc. before getting too far into the rabbit-hole wasting time and money.   We don’t want to start an expensive hobby.  The point of creating a business is to establish and entity that can actually make a profit, grow and evolve.  A good rule to start off with is simple…If a zillion people are already doing the same thing then chances are the market is saturated (read low profit margin); however, if no one is doing it there may not be a need for the product or service in the first place.  Identifying an area in demand that is in a niche market is generally the best way for a small business to quickly evolve.  Regardless of the concept, however, it is critical that the idea is throughly researched.

Business Planning Word CloudTo start a plan of any type one needs to brainstorm the idea and get their thoughts on paper.  I often use a word-cloud that has linked short phrases on a notepad with the core idea in the middle — building out the concept as new ideas come to mind.  I’ve found that this method is one of the most efficient ways to test and develop a potential business idea.

The Word Cloud step generally forces one to think about areas where they need more information — competitors, pricing models, sales strategy, etc.  I typically take one area at a time and gather as much information as I can.  The point is actually to try to kill the business idea at every step.  Look hard and be honest.  Is there money to be made?  Are there customers that will legitimately buy from you vs a competitor?  How much money will it really take to get started?  Have other businesses entered this market and failed?  Why?

After researching a sub-topic, I then create a word cloud with that topic in the center and build out on it.  Competitors, for example, can be expanded by adding sections:  Who are they? Who are their customers?  How long have they been in business?  Do they have good/bad reviews online?  Who are the principals?  Are you connected through LinkedIn or other sources to employees and/or customers?  What products do the sell?  What is their pricing model?  Are they making money?  How many customers do they have?  What are their product limitations?  etc., etc.  When all of the questions are reasonably answered (don’t spend months on this task) I move to the next section.

The word-cloud process can really help hone in on a working business model quickly.  If there are areas that will nuke the idea they are generally unearthed during this step fairly quickly.  It is much better to move onto another business idea than to try to start one that will very likely fail.  Statistics work against startups.  Something in the neighborhood of 90% of startups fail within 24 months.    If you want to be in the 10% that survive category, don’t spend time developing a business that your preliminary research predicts will not succeed!

Market Entry Planning

The next step in the process is to be honest with yourself and build a market entry strategy. This should not be a Masters Theseus, but it needs to be complete. You need to clearly identify your market, you need to accurately estimate what it will take to create the product, and you need to realistically project sales.  The best product in the world is useless if people don’t know it exists.  Conversely if you don’t understand the customer-base it is very easy to create a product that no one wants.

Market research is the core to building a workable Business Plan.  No one can sit in an office creating an idea on their own.  They need to talk to customers and sincerely invest time into developing their go-to-market products and services.  Getting a strong handle on what people will pay is equally as important.  Again, the point of starting a business is to make money.  You don’t want to sell a product for $100 that costs $99.75 to create.  This is an area where you have to be painfully honest with yourself.  It is very easy to only see the facts you want to see.

See How to Build a Company: Part 3 – Market Research for more details on Market Entry Planning

Business Plan

There is a ton of hype and confusing information on creating a business plan.  I personally don’t believe it should be a novel.  Regardless of what you create, any business that survives long-term morphs into something entirely different than the founders initial intent.  I’m sure the early IBM founders never thought they would be making Personal Computers one day…  I know those of us who started Orbitz never planned to be owned by Expedia  — our #1 competitor — ever!

The key elements of a business plan need to stay simple.  If you are looking for investors then a section about the principal owners is very important.  A new business typically doesn’t have a working product or revenues.  Investors are investing in and trusting the founders.  If you aren’t qualified by yourself, look for others that can join your team.  I personally, and I know of many others, will sit on an Advisory Board for minimal compensation up front until the company gets going.  Others may be looking for the next big thing and join your day-to-day management team for ownership interest vs a big paycheck.   The more experience you have on the management team the better the market and investors will valuate your business.

The Problem

The most important section of a plan is to clearly describe what problem you are solving.  Are you reducing costs, are you filling a niche market, are you solving a problem no one realizes exists (e.g. Apple iPod/iTunes)?  It is very important that this section is well thought through.  If you aren’t solving a problem, filling a void, saving money, improving efficiency, or doing something that has meat on the bone no one will buy your product.  Understanding the problem statement is also key to marketing and sales pitches.  It should be tested, tested and retested on friends, family social network, etc. to refine this section into something that anyone can understand.  This is not a book.  The entire concept should be easily understood in a few bullets.

The Solution

After the problem is defined then the solution section is where you describe how you will solve it.  What products will you offer?  What makes your products different than your competitors?  Who are your competitors?  Why would someone buy your product over theirs?  The more compelling the solution is the more likely you will secure investors and customers.  Similar to the Problem section, the solution needs to be tested.  Market research potential customers, call competitors customers, hire a market research firm, send out Surveys, etc. and nail down the solution!

Expanding on the solution concept, this isn’t a section where all of the worlds problems are solved.  Out of all of the areas you will likely discover through research, pick one or two solutions that will have the widest understanding and market appeal then zero in on those offerings only.  Too many offerings will dilute your brand and confuse the audience!

A/B Testing

Up until this point I have written a lot about developing a concept.  What I want to make clear in this post is that none of this can be done in a box.  Testing the market early and often is the key to being successful.  I believe a lot of Entrepreneurs wait too long to get offerings to the market. They try to create the “perfect” product and miss the boat entirely.  I like getting a product out as soon as it is stable to test the waters.  It is better to find out early an idea is not working than investing months or years into a product no one wants.

At Orbitz, we were one of the first travel companies to launch a mobile app.  It was exclusive to the Apple iOS platform and would only allow search (had to call an 800 number to book).  It was simple, but it clearly showed there was a demand for mobile search, which then provided us with data on what customers were looking for that helped us evolve the app and justify the expense to develop on the Android platform.  For example, we observed that travelers would actually get to a city and then search for a hotel vs. buying one early.  That was a surprise to all of us.  We “assumed” that people would use the app predominantly to find hotels before they traveled.   What travelers understood better than we did was that hotel rates drop the closer you get to a checkin time.  If a hotel property has a lot of available inventory they will release more rooms to the online travel sites and often dramatically drop their room-rates to fill the property.  Watching pricing change via our app was an unexpected benefit to our customers that clearly helped grow our revenues.

Business are Dynamic

Businesses that survive in this economy are dynamic and ever evolving.  The business planning process is cyclical.  Work through the steps, A/B test, refine the process and evolve every section of the plan accordingly.  The key is not to get stuck in a rut doing the same thing that although may be successful one day could be nonexistent the next.  Apple is a good company to research that follows this cycle.  They find a niche market, they build a killer product, they gain crazy market share, then they start working on the next big thing in secrecy while their competitors play catchup.  When Apple sees sales drops and competitors taking their marketshare they launch the next game-changing product.  Companies that are in a proactive position will always be more profitable long-term.

Expanding on the proactive vs reactive business is why I believe startup businesses are viable and can succeed in any economy.  It is a lot easier to change the direction of a small company vs a large one.  Employees are also very close to the market as well as the leadership in a small business.  In a large corporation it can take decades for them to evolve.  The older they are, the bigger they are, the more profitable they are, etc. stifles creativity in most big businesses.  Large company employees know what is going on in the world, but they don’t generally have a voice at the executive level that has the authority to make changes.  It is an accordion effect in a large business.  By the time the executives see a market shift other competitors are materially impacting their revenues. What generally happens is the large company does what they do and opens their checkbook acquiring a competitor vs building a product in-house.

I personally believe that the build a very solid product, get noticed by companies with deep pockets and be acquired is a very good long-term business exit strategy.  Having the right product that a large corporation would want can instantly make founders millionaires practically overnight.  Having a clear end-game strategy is something that should be incorporated into a business plan.  Not many businesses are built to last 100 years anymore.  Venture Capital Investors specifically look for clear exit strategies.  The better an exit strategy is defined the more likely you will get a VC’s attention.


Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.
How to Build a Company: Part 1 - Business Entity Types

How to Build a Company: Part 1 – Business Entity Types

I have started over a dozen businesses throughout my career.  Some successful and some “learning experiences.”  I am fortunate that more have succeeded than failed.  I try to pay it forward for the blessed life I have had by helping others learn from my mistakes and benefit from my experiences.  I coach young Entrepreneurs every chance I get.  I am proud to see many of them grow to create successful businesses of their own.

One of the questions I frequently get when talking to people thinking about starting a business is, “do I really need to form a Company?”  After answering yes with zero hesitation, I usually get the deer in the headlights look.  With that WHY? look in their eyes.  Establishing a company and dealing with lawyers, accountants, taxes, forms, annual board meetings, etc. isn’t generally the first thing that someone wants to do.  I thought I’d write a series on what forming a company actually means.  This first post in the series will discuss different business entity types.

Sole Proprietor and Partnerships

One of the key reasons for a new business venture to establish a formal entity out of the gate is to insulate the founder(s) form liability.  Anyone can start doing business as themselves, but that comes with significant risk that isn’t always understood.  As a Sole Proprietor, one who is in business for themselves, the principal owner is 100% at risk for everything they do.  If they have an employee that drops a box on a customer, the Owner/Sole Proprietor is personally on the hook for damages.  Every personal homeowner, auto, and umbrella policy I’ve seen has exceptions that exclude professional coverage.  In other words, if you are sued for doing work for a business you own…your personal insurance likely will not cover you.  Simply hauling boxes in your car to a clients house could result in no insurance and policy cancellation if you are in an accident (even one not your fault). Employees with a grievance can sue for a multitude of issues that could wipe out a Sole Proprietor’s personal assets even if the petitioner doesn’t win the case. 

NOTE: The personal liability issue also holds true for the small multi-level marketing businesses such as Amway, Mary Kay Cosmetics, Herbalife, etc. as well.  The people selling those products, recruiting others, etc. are typically operating as Sole Proprietors and could be personally held liable by an unhappy customer or recruit.  

A side note on personal liability and insurance is the emerging “shared economy” business models such as Uber and AirBNB.  When one starts driving for Uber, as an example, they are in the gray area of commercial vs individual operations.  Uber covers a driver and passenger liability and the vehicle (with restrictions) under their commercial policy as long as a paying passenger is in the car or the driver is on the way to pick up the passenger (e.g. they have accepted the trip on the Uber app).  However, when the driver is waiting for the next assignment they are doing so under their personal Insurance policy.  Uber will cover a loss with state minimum coverage in some cases if the main insurance doesn’t, but an accent regardless of what sage of a trip the driver is in often leads to policy cancellation putting them on the high-risk list.  

Geico and other carriers are starting to offer Hybrid personal/commercial policies for drivers that is significantly more expensive (read: Geico Ridesharing Insurance FAQs)

Accordingly, when one lists their home through services such as AirBNB, they turn their private residence into a rental.  Most personal homeowner polices do not cover commercial operations such as rentals.  When operating either of these business types the person and/or property/vehicle owners are considered Sole Proprietors or Partnerships when the asset is co-owned.

Similar to a Sole Proprietor business, a Partnership is a company formed by two or more people.  The only difference from a liability perspective is that all owners are equally liable for business damages and losses.  For example, one partner could file bankruptcy leaving the other 100% responsible for all debts and liabilities.  A Partnership is not an equal split either.  One partner could be silent with minimal direct interaction with daily operations while the other could be fully engaged, yet when liability is handed out the person who has the most assets ends up being responsible. The percentage of involvement in the business has zero effect on liability in a partnership.

Partnerships and LLP’s

Partnerships come in all shapes and sizes, but if a partnership is what one wants then we have to look no further than the legal profession.  Most Law firms are LLP’s, which stands for Limited Liability Partnership.  LLP’s are unique in that there are legal protections that cover the owners (states have different laws though). LLP’s are considered a General Partnership arrangement, which basically means that every partner has an equal say in how the business is ran.  It is management by committee.  When there is a stalemate then effectively the hold-out wins since decisions can only be acted on when voted in favor by the majority.  It tends to be best to form partnerships with an odd number (3, 5, 7, 9) of partners to prevent situations such as this from occurring.

Another potential downside with both partnerships and LLP’s is that you can’t simply leave the group.  In the case of a traditional Partnership the Business would have to be dissolved if a partner leaves or dies.   A partner cannot transfer or sale their portion in a traditional partnership.  An LLP is somewhat different in that partners can be added or removed, but a majority vote of the remaining members must pass to permit a change.  The remaining group may actually decide they do not like someone a partner is trying to sell their partnership to and deny the transaction.  Liabilities and profits are also equally spread over all partners.  If the business has a loss, the partners are responsible to settle the debts every year.  They are also personally liable for their portion of a business profits.

Limited Liability Company or LLC

A LLC is a form of a Incorporation (Inc.) I will discuss shortly.  LLC’s are similar to a partnership where individuals can buy into ownership, but the main difference is that there can be levels of shares that can equate to voting rights  One person in an LLC could own 51% of the shares and bring in others while maintaining control over the Business.  Similar to LLP’s, profits and losses are generally spread across the owners based on the percentage they own of the Business.  The prorated gains or losses are incorporated into each owners personal tax return.  Depending on the success of a company and the wealth of each individual owner, however, the income tax liability may be significant.  Individuals are generally taxed at a higher rate than a standard Corporation.

Another key advantage of forming an LLC is that some states, including Delaware, have laws that enable an LLC to be single entity formed.  This means an individual, or another Company type, can create a LLC without any additional owners.  A LLP requires at least two named partners.  The advantage of a single-entity LLC is that this enables the business to be formed, bank accounts opened, leases signed, etc. by the business in preparation to bring in investors, customers, and/or other owners after the company has started operations.  Individual Entrepreneurs can create a business on their own to incubate and then go to market with a working business, which will have more value than an idea on paper.

I’m not a tax attorney, so I highly recommend seeking professional advice when it comes to taxes.  It has been my experience that it is best to form an LLC and change its tax classification to a Corporation.  There are tax forms that need to be filed for this to happen…again talk to a tax professional…  When an LLC is taxed as a corporation it then files and pays its own taxes.  Moneys paid out to shareholders are paid in the form of dividends that are carried on the shareholders personal income tax returns.  In certain situations, however, a corporation classification for an LLC can lead to being double taxed — the business pays for its income then the owners are subsequently taxed on their dividends, etc.  Shareholders can get hit with capital gains if the company is successful and they sell their shares or the business as well.

Standard Corporations (a.k.a. Inc.)

Typically when we talk about a Company we are talking about the Incorporation or what we see in many business names as Inc.  An Inc. is an entity of its own in the eyes of the taxing systems and can have a virtually unlimited amount of shareholders, stock classifications, etc.  When we see US businesses being publicly traded they are generally an Inc.  Other country’s have similar classifications that go by different names.  In the UK, for example, they have a company definition as a PLC (Public Limited Company), which is basically the same as an Inc. in the states.

Inc’s have a big advantage when it comes to raising funds while maintaining control.  A business could release millions of shares while the principals continue to maintain control over the business.  Walgreens Alliance Boots (NASDAQ: WBA) is a good example.  Stefano Pessina is the primary investor that owns approximately 45% of the publicly traded Company.  He effectively has implicit control over the $130-Billion per year business with billions in assets.  Mr. Pessina along with any other other investor that owns 5.1% or more of the Company makes the final decision on what the Company will do.  Shareholder meetings, voting rights, etc. have no material impact on how the Company is operated.

Inc’s have many advantages, but as an entity in their own right traditional Company formations are fully tax burdened.  The Company is responsible for its own income taxes and any financial distributions to shareholders, investors, etc. are fully taxed.  I generally do not recommend starting an Inc. unless a Business is clearly on the IPO track bringing in multiple stages of funding or has plans to raise money through a significant number of investors (e.g. Penny Stock or GoFundMe investors that acquire ownership in a business).

Although it can be a complicated transition that could require back-filing of taxes, ownership structure may be changed in the future if necessary.  At Orbitz, for example, we started the company as DUNC, LLC in Delaware when the airlines (Delta, United, Northwest and Continental) were the sole owners of the Company.  After the LLC formation the airline owners subsequently added American Airlines to the LLC.  We later formed Orbitz Inc. when we were preparing to go public.


Hopefully I have helped bring clarity to this confusing topic.   The main decision can be boiled down to asking a couple of questions.  Are you creating a partnership that will have equal voting rights for everyone or do you want different levels of ownership?  In general terms, if you want everyone to be equal form an LLP.  If ownership levels are needed, the principal founder(s) want to maintain majority control, a single individual needs to start the initial business, etc. form an LLC.  However, if you expect to be brining in a large number of investors through penny stock sales and other means that would require SEC oversight then form an Inc.

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.
Orbitz the End of an Era

The End of an Era for Orbitz

Expedia Acquisition of Orbitz

Expedia announced their intent to acquire Orbitz Worldwide in February 2015 for $12 a share cash. In September they got regulatory approval and the nod from the US Justice Department indicating they will not try to block the deal.  The acquisition officially closed in September 2015 stopping all trading of OWW Stock on the New York Stock Exchange (NYSE: OWW).


The stock trading stoppage isn’t the first time for Orbitz.  The Company has been an independently traded company twice.  The first time we IPO’ed was December 2003.  We were young entrepreneurs that all had the dream to go public.  We went out on NASDAQ as ORBZ with loads of fanfare and press.

2003 also the time when the scandals of Enron and Arthur Anderson were dominating the news.  Being a Chicago company, our auditors were Arthur Anderson.  We were required to retain a new audit firm.


Orbitz’s first IPO and Sarbanes-Oxley Compliance

Sarbanes-Oxley was being formulated back then.  Standards had not been fully defined and everyone was running scared from the fallout of the Enron collapse.  As a management team, we had to  shift our focus to SoX compliance.  Our executives had to personally sign risking their own assets indicating that every dollar was true and correct.  Our focus was diverted from building the best travel website in the world to accountants.

As the Director of Technology at the time, I was responsible for building the systems to ensure the company achieved SoX compliance.  A company technically has 2 years to become SoX complaint after going public.  Orbitz financials were based on a Calendar year (Jan-Dec).  Going public in December, however, shortened our timeline to 12 months since SoX compliance is based on a Company’s fiscal year.  It was a challenging time in our history to setup all of the systems and audit points required to be a public company.

I personally believe the focus on compliance took our eye off of the ball.   This was the time that online travel companies were emerging and establishing dominance in the industry.  Expedia owned the market and Travelocity easily pulled back ahead of us.  My memory of this period were that our stock price dropped after our IPO and didn’t rebound, our sales weren’t growing as expected, we weren’t gaining market share and we were struggling to be SoX complaint.  I assume these events and likely many others factors I am not aware of made us a good acquisition target.  Orbitz was acquired by Cendant Corporation (NYSE: CD) in September 2004 — 9 months after going public and 3 months before we had to file our SoX complaint financials.

Orbitz Acquisition by Cendant Corporation & Blackstone

The Cendant experience was an exciting time.  They had virtually unlimited resources to expanded the online travel portfolio worldwide.  We grew the online business through some very prominent acquisitions.  I was fortunate to be involved with several of these initiatives as a member of the Cendant Global Operations (GO) team.  It was an exciting time.

Cendant leadership subsequently elected to divest into 4 public companies (Travel, Car Rental, Hotel and Real Estate).  Orbitz moved into the travel division called Travelport.  My role at the time shifted to assist with separating various IT assets and contracts from Cendant to Travelport.  June 2014 the assets of Travelport were acquired by the Private Equity firm Blackstone Partners.

It wasn’t long after the Blackstone/Travelport deal was closed that the Board of Directors voted to consolidate all of their online travel assets into one company — Orbitz Worldwide and take us public once again.

Orbitz second IPO, Orbitz Worldwide

My role during this era shifted to assisting Orbitz with moving systems and contracts from Travelport to Orbitz and I officially rejoined the Orbitz team as Senior Director of Architecture (aka the A-Team).  This go-around we went public on the New York Stock Exchange (NYSE: OWW).

The second IPO has been a real struggle for Orbitz.  The Company not only had high performance expectations they were carrying obligations from the prior acquisitions and integration activities on their books.  As an example,Cendant acquired Orbitz for $1.2 billion.  The companies valuation dropped from the time they acquired us to the point when Orbitz Worldwide was formed.  The difference in the paid value vs the current value is carried as a loss on accounting books.

Orbitz Names New CEO

Suffice of to Say, Orbitz Worldwide did everything they could to survive, but the weight they had to carry was substantial.  Steve Barnhart, the Orbitz CEO and the executives were under intense pressure to perform.  Steve was a good man and worked harder than anyone I’ve seen to make the company work. He was devoted to trying to make things right for the company.  I am confident that Steve did everything he could to pull Orbitz through.  In 2009, the CEO of Travelport, Jeff Clarke, visited the Orbitz office in Chicago with a former Expedia employee, Barney Harford.  They met with Steve for about an hour then called an all hands meeting.

Orbitz CEO Barney HarfordDuring the meeting they announced that Barney Harford would be taking over as President and CEO of Orbitz and Steve Barnhart would be leaving the Company.

“Based on Barney Harford’s LinkedIn Profile, he held six roles at Expedia over 7 years (1999-2006).  He held several Advisory and Board positions the period after leaving Expedia prior to joining the Orbitz team.”

Photo of Steve Barnhart Taking the news standing by Jeff Clarke, CEO of Travelport.

Steve Barnhart with Jeff Clark


This is a photo I took during the announcement of Steve Barnhart being replaced by Barney.  Steve is standing by Jeff Clarke, CEO of Travelport.. Steve appeared to be dazed, but handled the situation professionally.  We all know how difficult this had to be for him.  


Orbitz Bumps and Mishaps

From the outside looking in, It seems that Orbitz has been involved with a number of high-visibility bumps and mishaps during Mr. Harford’s leadership.  I personally believe that one of the biggest was using Internet of Things (IoT) concepts to change search results to show more expensive items to Apple users:

Orbitz Shows Mac Users Pricier Hotel Options: Big Deal Or No Brainer?

Orbitz was very clear that they were not charging more for Apple customers, however, the cat was out of the bag.  The fact they showed more expensive options first assuming “Apple users” had higher expectations than people that used Windows and Android did not seem to be well received by consumers.

The concept of showing people that use different types of operating systems more expensive and different results blew up in the press.  I believe this tactic caused loyal customers to stop trusting Orbitz who was always known for displaying unbiased and lowest fares.  I know that I stopped using Orbitz after I learned of this strategy.  I am a devoted Apple user.

Being linked with Travelport resulted in Orbitz being pulled into a battle with American Airlines, one of the original founders of Orbitz, over adding fees to their fairs.  American and Travelport/Orbitz battled in court and American ultimately won permanently pulling their content from the Orbitz consumer sites.  American was one of the largest airfare channel partners for Orbitz.  Pulling those flight options appears to have caused material impact on Company’s sales:

Orbitz Is Tanking After American Airlines Pulls Fares From Site

Barney was a member of the Advisory board of Kayak from February 2008 – December 2008 prior to Joining Orbitz.  I have no firsthand knowledge of what transpired, but based on what I read in the press, Kayak stopped using Orbitz exclusively when pulling content they use to display to their customers.  Kayak was founded by former Orbitz associate Steve Hafner.  We had a very good relationship with them.  I have no idea why they would risk their partnership with Orbitz who was instrumental in helping put them on the map.  Orbitz filed a lawsuit in Chicago for breach of exclusivity provisions against Kayak.  Orbitz ultimately dropped the lawsuit.

Orbitz sued and dropped a lawsuit against Kayak

Another area that has seemingly suffered is the Orbitz Customer Experience that the Company was originally well known for.  We lived and died by the Customer the entire time I worked for the company.  We nearly always sided with the customer and did whatever we could to resolve issues.  A quick search of the Web is now full of customers complaining about the services received from Orbitz.  Here’s a few stories that caught my attention:

Flyer Sues Orbitz (and wins) Over Their Courtesy Cancellation Policy

Orbitz sued for misappropriation of data

Orbitz Sued by Customer for “False and Misleading Advertising”

Judge throws out lawsuit against 22-year-old computer whiz who found a way to get cheap airfare
It is unclear to me why they would do this, but Orbitz and United Airlines partnered up to sue a 22-year old kid that found a loophole and created a small website that anyone could use.   Personally I would think it would have been easier to close the loophole than for big Corporations to sue a 22 year old kid that was just trying to be an Entrepreneur, but for whatever reason they decided it was easier to settle this matter in court.  The case gained worldwide attention and was ultimately dismissed.

The End of the Era for Orbitz, not the End of Orbitz

I always thought of Orbitz as the Little Engine that Could.  No matter what came its way the company survived.  This time, however, things feel different to me.   The brand will no doubt be out there, but the DNA of what we built is likely going to dissipate.  Expedia now controls the majority of the online travel business.  They own Orbitz, Travelocity, Cheap Tickets and many other prominent online travel websites worldwide (see Expedia Global Network of Brands).  Based on my experience at Orbitz trying to do this very same thing with, eBookers, and others, I personally believe it is going to be difficult for them to maintain the uniqueness of Orbitz while simultaneously operating so many different brands.

It seems to me that consumer options to find cheap fairs are closing.  What we started back in 2001 was a company that was based on providing the lowest fairs possible to customers.  Now days it seems that one site vs another isn’t going to benefit consumers much when the back end systems serving up content is effectively the same.

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.
China Trading Stopped for Second Time This Week

China Trading Stopped for Second Time This Week

China’s stock market tumbled and suffered its shortest trading day in its 25-year history on Thursday, January 7, 2015, as Beijing’s growing tolerance of a weaker currency intensified concerns about capital flight and the health of the world’s No. 2 economy.

Markets stopped trading about 30 minutes after they opened, as a newly installed mechanism to limit volatility was triggered for the second time this week.

The benchmark Shanghai Composite Index ended the dramatically brief trading day down more than 7% at 3125.00.

Pessimism spread quickly in the market after the People’s Bank of China set the daily yuan reference-exchange rate against the U.S. dollar 0.5% weaker compared with Wednesday’s level, marking the largest adjustment toward yuan weakness since Aug. 13.

The selloff was reminiscent of the similar but more drawn-out episode on Monday, the first day the circuit breaker trading curb was in effect.

The circuit-breaker system is triggered by sharp moves in an index that tracks that largest 300 stocks listed in Shanghai and Shenzhen, the CSI 300. When the index moves 5%, trading is automatically halted for 15 minutes, while a 7% move stops trading for the remainder of the session.

The CSI 300 Index tumbled 5% within 10 minutes after trading began on Thursday, which triggered the initial 15-minute halt.

When trading resumed, the selloff became even more pronounced and within five minutes, the CSI 300 Index extended its plunge to 7%, which brought the day’s business to an abrupt end.

More than 1,600 stocks fell by their daily 10% downward trading limit Thursday, according to Wind Information.

As Chinese stocks tumbled, China’s yuan fell as much as 0.6% onshore. In the offshore market, where the yuan is traded freely, the yuan fell as much as 0.9%.

The onshore-traded yuan is now down 1.5% for the year, after posting its largest annual loss last year. The daily fix was set at 6.5646 against the U.S. dollar, its weakest level since 2011. While traders had expected the yuan to weaken this year, the pace of depreciation has taken many by surprise.

The offshore yuan is now down 2.7% for the year, at a record low against the U.S. dollar.

China’s central bank attempted to soothe investor nerves and clarify its position, stressing the need to keep the yuan stable and at an equilibrium level, while attributing the yuan’s moves to speculators.

By letting the yuan depreciate, Beijing is acknowledging that the economy faces greater challenges this year and any boost that a weaker currency gives to exports would help, economists said.

While Chinese leaders have been trying to keep the economy on a measured path downward, investors are betting that the government will have to let the yuan fall further to maintain growth momentum.

The sharp depreciation in the yuan in recent weeks should—in theory—help Chinese exporters that were hit hard last year by the strong Chinese currency. A stronger currency tends to make goods more expensive in overseas markets. Since Aug. 11, the yuan has depreciated 6.1% against the U.S. dollar.

But China’s actions now have such enormous global spillover effects, which could blunt any benefits, analysts and exporters said.

In the business world, Chinese exporters say their overseas customers quickly demand discounts in line with currency depreciation moves, which negates much of the benefit that they would otherwise receive.

The same thing tends to happen in global currency markets as other nations depreciate their currencies in tandem with the yuan to maintain competitive position. “There certainly is a huge risk of currency wars breaking out,” Mr. Barron said.

The potential economic dividend is also tempered somewhat, since exports are now a less important economic driver than they were five years ago. Chinese companies now also face higher land, labor and environmental-related costs that have driven business to lower-cost nations, economists said.

Also Thursday, the China Securities Regulatory Commission announced after the trading halt that shareholders who own 5% or more of a listed company will be barred from selling more than 1% of its total shares outstanding, and will be required to inform exchanges of any sales plans 15 trading sessions in advance.

The trading limit, set to last three months, succeeds a six-month ban on sales by large shareholders that the regulator imposed on July 8, as it sought to halt the market’s summer collapse. The new rule is meant to “prevent concentrated share reduction” and “stabilize market expectations,” according to a statement posted Thursday on the CSRC website.

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.
FAA Reported 181,000 Drones Have Been Registered

FAA Reported 181,000 Drones Have Been Registered

The Federal Aviation Administration reported earlier today that 181,000 drones have been registered in their database since they opened registration two weeks ago.

  • There are an estimated 700,000 drones that have been sold over the holidays.
  • People who owned drones prior to Dec. 21 have until February 19 to register.

The FAA said it is working with the private sector on ways to streamline registration including new smart phone apps that could allow a manufacturer or retailer to register a drone automatically by scanning an identification code on the aircraft.

“As of today, about 181,000 aircraft have been registered,” FAA Administrator Michael Huerta said in a statement. “But this is just the beginning. Now that we have set up the registration system, our challenge is to make sure everyone is aware of the requirement and registers.”

The FAA unveiled the registry for recreational drone owners on Dec. 14 and launched the database on Dec. 21. Owners of drones weighing between 0.55 pound (250 grams) and 55 pounds (25 kgs) must register and display an FAA identification number on their aircraft. Federal officials see online registration as one way to address unauthorized flights near airports and crowded public venues that have raised safety concerns across the United States.

If you own a drone you should register it before the February 19 deadline.  The penalty could be severe if you get caught flying an unlicensed aircraft.  They can confiscate the drone as well.  The registration process is easy.  Follow the link below to find out more.

FAA Drone Registration Website


Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.
Starboard Calls for Management, Structural Changes at Yahoo

Starboard Calls for Management, Structural Changes at Yahoo

Activist investor Starboard Value LP sent its latest missive to Yahoo Inc. on Wednesday, calling for a change in management and stepping up its pressure for a spinoff or sale of the company’s core Internet business.

“The past year has been an extremely frustrating one for shareholders of Yahoo,” Starboard wrote, pointing to a “continued downward spiral of the operating and financial performance of Yahoo’s core search and display advertising businesses.”

The company’s management team, hired to turn around Yahoo’s beleaguered Internet business, “has failed to produce acceptable results, in turn, causing massive declines in profitability and cash flow,” Starboard said. “It appears that investors have lost all confidence in management.”

Starboard called for a sale or spinoff of Yahoo’s core business, for which it said there are interested and credible buyers. Such a move would require a change in leadership, according to Starboard.

A representative for Yahoo didn’t respond to a request for comment.

Wednesday’s letter follows one in November, when Starboard took its gripes public after about a year of private talks. In its earlier letter, the investor criticized management but stopped short of calling for a change at the top. On Wednesday, Starboard was more forceful in its call for new leadership.

Maynard Webb, Yahoo’s chairman, told investors last month that the board hasn’t approved a sale process for its Internet business. But in a sign that many observers took as a signal that Yahoo is open to a sale, Mr. Webb said then that “the board has a fiduciary duty to entertain any offers.”

In November, Starboard—which owned 0.8% of Yahoo’s stock as of Sept. 30—also called for Yahoo to halt the spinoff of its holdings in Alibaba Group Holding Ltd. Yahooeventually shelved its plans to spin off the Alibaba stake.

The pressure from Starboard and other investors comes as Chief Executive Marissa Mayer has tried to suggest that reviving growth at Yahoo would take multiple years. Dozens of executives who had been instrumental to Ms. Mayer’s turnaround plan have left for jobs elsewhere, and The Wall Street Journal reported in August that the embattled CEO asked senior executives to sign a written agreement pledging to remain at Yahoo for at least three more years.

Ms. Mayer has said she would announce a more detailed reorganization plan on the fourth-quarter earnings call.

Over the course of Ms. Mayer’s tenure, Yahoo’s core business has shrunk. In 2012, when she arrived, Yahoo sales totaled $4.5 billion. In 2014, they were $4.4 billion. Over the past 12 months, shares have lost 35% through Tuesday’s close.

Shares of Yahoo fell 1.8% to $31.61 in premarket trading amid signs of a broader market selloff.


Reporter, The Wall Street Journal
People are feeling better about the economy for 2016

People are feeling better about the economy for 2016

Good news! The world is looking at 2016 with much more confidence in terms of economic outlook than 2015, according to market research firm WIN/Gallup’s end of the year survey published on Dec. 31, 2015.

The research has found that an average of 45% of over 66,000 people interviewed in 68 countries had a positive outlook towards the economic situation in their own country in 2016, expecting it to be better than in 2016, and only 22% thought it was going to be worse (the remaining 33% didn’t expect changes or had no opinion). This is an increase of 3% compared to 2015—and a signal that people might feel things are getting better.

Leading the world in terms of economic optimism are West and South Asia, where 60% of people have a positive outlook, East Asia and Oceania (53%) and Sub-Saharan Africa (45%).

Sticking out for negativity—despite finally having started growing again— is the EU, where only 14% of people are optimists.

People with Positive Economic Outlook for 2016

People with Positive Economic Outlook for 2016

People with Positive Economic Outlook for 2016

A look at the results shows that the negative sentiments are found mostly among the richest countries: in prosperous economies (which the survey defines as G7 economies) only 18% of people think 2016 will be a good year for the economy, while in emerging economies (defined as G20 economies minus the G7) and aspiring ones (everyone else), 54% and 40% of people respectively have good expectations for the coming year. The most optimistic country is China—65% of people are looking forward to what the economy of 2016 has to bring.

Economic outlook for 2016 (by country’s wealth)

Economic outlook for 2016 (by country's wealth)

Economic outlook for 2016 (by country’s wealth)

But while the macro results show that those who have more wealth (G7 nations) tend to be the most pessimistic, the opposite is true when looking at the micro results: demographic-wise, it’s the advantaged who have the most optimistic outlook on 2016. Men under 34, with medium-high income and a university degree are the most positive—although overall no one beats Hindus: with 61% of positive responses, they are the group with the best outlook on 2016.

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.
Creating a Billion Dollar Startup

The Process of Creating a Unicorn (>$1B Valuation Startup)

Orbitz was the first company I was involved with that exceeded $1B in valuation. We achieved what they now call Unicorn status.

The Unicorn name came from an article from venture capitalist Aileen Lee in November, 2013, and from that point on, the name Unicorn has permeated the startup culture.

When I look back on the Orbitz experience I see a Company that did a lot of things right even though we were working in uncharted territory. A startup in the Midwest didn’t have the support infrastructure as our West Coast counterparts. In some ways a lack of support was a challenge, but in other ways it pushed us into innovating completely unique solutions that propelled us. Orbitz was one of the first commercial companies to implement RedHat Linux, we were one of the first to use JAVA as a programming language, and we were the first to implement Oracle RAC — all considered standard technologies now days. We were even running our development processes Agile-like a decade before Agile was coined as a term.

Orbitz prelaunch website

Those of you who are familiar with the Orbitz history know the challenges that company has faced over the years. For example, we launched June 2001… 3 months prior to the tragic events that happened on September, 11 2001. We started a DOTCOM during the recession and in the middle of the DOTBOMB. And we started a travel business that generated nearly all of its revenue from Airline ticket sales when many of our Airline partners were on the verge of bankruptcy…

So how did we survive and achieve Unicorn status?

First, I believe the main reason we survived is because we hired super smart, dedicated, hard working people that sincerely cared about our success. Our recruiting process was rigorous to say the least. Our CEO, Jeff Katz, personally interviewed every new-hire and our CFO, John Park, was incredibly scrupulous when it came to adding headcount and increasing operating cost.

At the time we viewed these strict policies negative because it put a lot of work on our staff. We saw the money come in from our Airline founders and at the time it was easy to think there was an unlimited bucket of money raining on us. However, as I look back I see the policies our executive leaders enforced is what ensured our survival. If they had wasted the money we received in stage funding like many businesses do now days we would have never survived the completely unexpected events of 9/11.

Secondly, we focused on our customers and continually tested the market. We released rudimentary functionality as we built the platform and continually tested with our customers. Ideas we thought might be good that weren’t overwhelmingly adopted by customers were scrapped. We averaged 2 out of 10 ideas that actually landed in production. This approach established a very loyal customer-base that stayed true to our brand.

First Orbitz Website June 2001

First Orbitz Website June 2001

We carefully built our functionality starting with Air, then Car, then Hotel, then packaging. We didn’t try to build everything at once. We partnered with other suppliers until our platform was ready. This approach gave us cash flow early in our evolution that ultimately led to us surviving 9/11. We were 100% on our own after 9/11 and received zero funding from any third party source.

Unicorn Classification

I put Unicorn businesses into two buckets. There are the Hype businesses that quickly hire a ton of people and generate loads of press. And there are the Quiet businesses that grow strategically.  In Chicago we have examples of both.

Groupon is a good example of a Hyped business. They grew fast, raised millions in funding, and benefited from an unlimited sea of press. Now they are on the decline. They recently laid-off 1,600 employees, closed operations in non-profitable areas, replaced many of their executives, etc. It is clearly going to be challenging for them to survive long-term.

Unicorn examples in Chicago that I classify as Quiet include Signal, who’s CEO is Mike Sands the former Orbitz COO, and who is led by some young and smart entrepreneurs. I had never even heard or until recently. They are a great example of a solid well thought out business. They are growing slow and steadily creating value for their customers without taking unnecessary risk or setting unrealistic expectations through overly Hyping their business. It is very impressive that they have achieved >$1B in valuation quietly in a small startup market like Chicago.

Understandably it is hard to take the quiet route when we see the Hyped businesses everywhere we look, but we need to keep in mind that the point of creating a company is to build a long-term viable organization. Investors are ultimately investing in and trusting the leadership team. Behind every penny is someone that trusts us to deliver what we promised. As entrepreneurial leaders we need to take that responsibility seriously and spend every dime like it is our own.

The Business Model

The WSJ recently released its Billion Dollar Startup Club list. About thirty-nine of these companies are platform businesses. The other 39 are linear. According to INC Magazine, investor confidence is approximately 25 percent higher in the platform startups than linear.

“Picking the right business to be in is the most important decision when starting a company.” Tony Hsieh, Zappos startup CEO

The key is to pick a business model that has a high potential with less competition. The platform business model, in my opinion, is the best for long-term sustainability. Zappos is a good example. They focused on selling a small subset of products (Shoes). As the online shopping world evolved their market share shrank opening them up to acquisition by Amazon. The Zappos business has continued to be financially pressured and they continue to struggle to achieve profitability. Amazon, is another example. Although they are a household name around the world they still struggle to achieve profitability. There platform business Amazon Web Services, however, is incredibly successful.

Platform businesses are typically based on consistent revenue model. Signing up customers for a monthly fee helps guarantee cash flow vs businesses like Orbitz, Zappos, Groupon, etc. that must attract customers every day to generate sales.

Accordingly, there are many traditional businesses such as Adobe who have pivoted from a linear product sales offering to a platform subscription. Microsoft is doing the same with Office 365. Constant monthly revenue is the key to long-term survivability. Products bring in big $$ in large spikes whereas platform subscriptions are more predictable.

Ok, we agree we need to build a platform. What comes first?

The hardest problem with building a platform businesses is that you need two components to be successful that are dependent upon one another. If Uber wants to grow, it needs more drivers to get customers and more customers to get drivers. Neither works without the platform behind coordinating both supply and demand.

When building a platform revenue doesn’t come until the platform is operational. If you build customers first based on Hype and then don’t deliver they will quickly become dissatisfied, leave and likely never come back.

I am a proponent of continuous A/B testing. Roll features out, test, evaluate and change. The sooner a working prototype is in the world the quicker you find what works and what doesn’t as well as start generating revenue. Uber started small, perfected their platform and then grew market by market, which is clearly why they are incredibly successful.

The problem with many platform businesses is they build what they “think” is right. By the time it goes out the door they often discover the customers don’t embrace the product as expected. This process has killed many tech businesses. They lose their valuation when the product doesn’t work as promised and they die on the vine. Releasing small features that attract subsets of customers enable a business to learn what customers want while generating revenue. Again, look at the Uber model. They started in a niche market testing, evolving and perfecting their platform to achieve worldwide recognition and valuation they have now.

Go Mobile First

Mobile is the key to capturing seamless engagement with end-users. Most want to start with a full-blown fully functioning, “perfect”, website, but I believe perfecting and testing an engagement model on mobile should be considered as the first priority.

A company doesn’t have to launch with both iOS and Android apps. There are countless examples of platforms only leveraging one operating system at launch and after becoming successful build the other. At Orbitz, we started with iOS apps. It was several years later before we introduced apps for Android. The key is to prove that you can get strong recurring usage on one operating system and then replicate that model.

Show me the money

Raising seed funding from family and friends is the easiest way to start a business. They invest in you without needing to understanding what you are doing. However, unless your friends are Warren Buffet and Bill Gates, it is hard to raise sufficient capital to build a Unicorn. Unicorns need to be valued over $1B, which is done by investment firms that comes through staged funding. Institutional Capital firms are necessary to raise material capitalization and help get to the coveted $1B valuation, establish a brand and beat others that may end up launching a similar concept.

People often think of a VC firm as organizations that take risks. This couldn’t be further from the truth. VC’s have investors that expect them to generate ROI for them. Ones that don’t generate a return for their investors don’t last long. Institutional capital firms look for a strong management team, a product they can understand and a business model that can generate revenue.


At the end of the day the people are the key to success no matter what you are doing. Surround yourself with only “A player” people. When thinking about people I follow the saying, “Hire Slow and Fire Fast.” Use the core team to develop the business Idea with a strong slant to creating a platform business. Start with mobile development first and test small features and start generating cashflow. Use the A/B testing experience to refine the business plan. Use family, friends, goFundMe or other sources to get startup funding. Then only when having a mature enough business model approach Institutional Investment firms. Finally, work through staged funding steps exceeding all objectives at each stage and achieve Unicorn status.

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.

Square’s IPO…What Happened?

“Square’s IPO popped on the first day. What does that say about unicorn valuations? #SquareIPO”

The IPO process is fascinating.  Back in the dotcom era every tech nerd including me wanted to take a business public.  I was fortunate enough to be a part of Orbitz going public twice (NASDAQ: ORBZ; NYSE: OWW).  However, sometimes you have to be careful for what you ask for – you may actually get it…  What we found on the other side of the IPO was a scary place that we were not ready for.  Orbitz was overly hyped when we went public both times.  It is an exciting feeling before an IPO seeing the initial sale price set high and we were all doing the mental conversions of our options in our heads.  I was even in lucky enough to be in NYC ringing the opening bell!



The unfortunate fact about tech IPO’s is that it is more a game of chance than any of us would like to believe.  Apple, Google and Facebook are the success stories we all aspire to be like; however, truth be told most tech businesses that go public drop like a rock out of the gate – in the industry they call this rollercoaster ride a “Market Correction.”  Orbitz for example, was listed around $20 something a share on NASDAQ as the initial strike price and hovered around $6 after.   The stock fell losing millions for our initial investors.  Our second IPO on NYSE wasn’t much better.  We went out around $15 and no matter what the leadership team did the stock price never reached that value again.

Orbitz and Square are not alone in the rapid decline of valuation after an IPO.  Chicago Based Groupon (NASDAQ: GRPN) have found themselves in a similar position.  There 5-year high was $26.19.  As of this writing, they are trading at $2.79.


So what is the deal with IPO’s?

Personally I think it comes down to how the valuation process works.  Everyone wants to experience the ride that Google and Apple had.  The process of getting there, however, is not easy.  The vast majority of IPO’s I’ve seen end up overestimating their valuations through a process that is not easy for startup tech leaders to navigate.  There are tricks that seed investment firms use to alter the formulas that calculate the valuation of a pre-IPO company.

As an example, when a Company gets to a certain FTE count then their valuation increases.  When they burn through their rounds of funding they get more money because their valuation goes up.  Every time a pre-IPO business hits a stage the hypothetical valuation of their business increases.  What is mind-blowing to me is that revenues are not weighted heavily in the valuation process.  They can be losing millions a day and continue to have a high valuation.  Unfortunately no one wants to admit that their numbers are overly inflated.  If a valuation goes down a pre-IPO a business is very likely dead.  No one will invest in them.  They will be out of money and are either acquired at a discount or bankrupt.

What happened to Square?

I don’t have any personal insight on Square, but chances are they fell victim to the same catch-22.  They have a good product, they have market recognition and they have experienced leadership.  So what happened?

I found this October 22, 2012 quote on the web that makes me think they were going through the cookie cutter increase our valuation process:

“Square, the mobile payments company started by Twitter co-founder Jack Dorsey, announced today that it will be moving its corporate headquarters next year to 1455 Market Street in San Francisco’s Central Market neighborhood (next to Twitter). The move will help accommodate the company’s hiring plans, which include adding about 600 employees over the next year to reach a total of 1,000. Square expects to move into its new location, which will have a chef’s kitchen and rooftop deck, by mid 2013.”

1000 employees is a big number!  How can any business manage the rapid growth in employee population?  Why would they need to grow to 1000 FTE’s?  What are the additional 600 people going to do for them?  Why not outsource and take advantage of more competitive labor rates?  Why?  They can’t.  They very likely had an objective to hit 1000 to get to their next round of funding and increased valuation.  If they don’t hit whatever the magic target is then chances are they can’t get the next round of funding and die on the vine.

“A decrease in valuation is a big deal for everyone, not just the employees of Square.  The Venture firms investing in them lose their money.  The people who invested in the Venture firms lose theirs.”

Ok, I’m sure by now you are all saying yea great.  What are we to do about it?  First, don’t invest in IPO’s just because there is a lot of hype.  Take the Warren Buffet approach. Invest in businesses you personally understand and love.  Accordingly, look at their product objectively and do your own evaluation.  Is the business truly unique?  Is it worth what they are selling it for?  Why is this product better than others out there?  Ask yourself if you, your friends, family and coworkers would buy/use it and continue to buy more as products evolve (public companies are expected to have solid quarterly revenue growth).  Then look at their competitive landscape.  In Square’s case, it isn’t that difficult to find formidable competitors.  Google, Paypal and Apple are in the mobile payment business.  Stable Businesses like Intuit is as well.  How is Square or any startup going to compete in a marketplace they do not control with highly capitalized and experienced competitors?

Step back and think about Apple, Facebook and Google.  Why have they been a big success?   They have a solid business plan that is clearly tied to revenues.  Facebook resisted for awhile, but they were smart about implementing a profitable revenue stream.  They monetized their captive audience well and respond quickly to their customers.  Google did the same with search, which is still by far their #1 profit center.  Google is so good they cornered the market in search and turned their company name into a verb Googling.  Apple lives by clearly understanding their customers.  People buy Apple products without even knowing what it does — and they pay top dollar for it.  Apple has a very loyal following.  They have  done an amazing job cultivating their customerbase.

The business plan with realistic revenue streams, not the employee count or how many rounds of investments they have had is what makes the difference.  My recommendation is to read the SEC Filings carefully before investing in any IPO.  Some of the stuff in those documents make my hair stand up on ends.  Here are some quotes that I pulled directly out of Square’s S1 filing:

“Our growth may not be sustainable and depends on our ability to retain existing sellers, attract new sellers, and increase sales to both new and existing sellers.”

“Our business has generated net losses, and we intend to continue to invest substantially in our business. Thus, we may not be able to achieve or maintain profitability.”

“We derive substantially all of our revenue from payments services. Our efforts to expand our product portfolio and market reach may not succeed and may reduce our revenue growth.”

“Our quarterly results of operations and operating metrics fluctuate significantly and are unpredictable and subject to seasonality, which could result in the trading price of our Class A common stock being unpredictable or declining.”

“An active trading market for our Class A common stock may never develop or be sustained.”

“The market price of our Class A common stock may be volatile, and you could lose all or part of your investment.”

Another area to explore with the SEC is who is actually making the money from the public offering.  In the case of Orbitz’ second IPO (NYSE OWW) we didn’t actually benefit a penny from the investment.  We raised somewhere around a billion dollars and the money was transferred from our bank account to Travelport (NYSE: TVPT) who owned 49% of the Company and was private at the time.  They in-turn transferred the funds to to their owner Blackstone who was also private.  I’m told those funds were eventually paid to Blackstone investors as dividends.  Another area in the Orbitz case was we were over valued from when we were acquired by Cendant.  We were actually carrying a loss on our books for being over valued by savvy investors that had nothing whatsoever to do with our leadership team.

Orbitz had outstanding leadership and we did what we could to keep the company going.  The Company survived for 15 years (I was there for 11 of those years); however, in the end the pressure from investors to grow stock eventually took the toll on the company leadership and they sold the company to Expedia (NASDAQ: EXPE) – our arch rival.  Chance are Square will eventually take the same path.  It is going to be challenging for them to move their stock price up with the cards already stacked against them.

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.