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19.05.2011How To Recover From Failure

Jeff Hoffman knows that things can go wrong in a hurry.


Jeff Hoffman knows that things can go wrong in a hurry.

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Hoffman helped build Priceline.com, the name-your-own-price travel site, part of tech holding company Walker Digital, and later headed up other Walker business units, including Priceline YardSale, which applied the auction model to selling everything from toys to refrigerators. When the dotcom bubble burst, Priceline’s shares cratered from $22 billion to $226 million in a matter of months. All units except for the flagship site were shuttered. “In one sense you are losing millions of dollars, but it was millions of dollars on paper that came as fast as it went,” says Hoffman, who was fortunate enough to cash in some of his founders’ shares in Priceline.com before disaster struck.

After various managerial stints, Hoffman, now 50, decided to share his lessons learned with the next generation of startups. In 2009 he launched ColorJar, a venture “accelerator” with eight web developers and strategists who help entrepreneurs bring new ecommerce concepts to life in exchange for slices of equity. The company also provides marketing and strategy consulting for more mature companies looking to expand online. ColorJar, with offices in Chicago and New York, has worked with 35 companies thus far, some of which have already raised fresh capital. Says Hoffman: “I’ve had a number of mentors in my career and the ability to pay that forward is very important.”

Hoffman knows that having a slick Web site and an effective marketing strategy isn’t enough. Success depends on being able to take a few punches and not go down. His three-pronged advice:

Define Success Up Front

You have to define what success looks like at the outset so that you’ll be able to recognize failure before it’s too late. I always ask entrepreneurs: “If we are doing well three months from now, what will that look like?” The answer should be as quantitative as possible, along the lines of: “We will have 100 new customers,” or “We will have doubled our revenue.”

What often happens is a year after launch you have a meeting with the investors and founders, and the entrepreneur says we are doing way better than I thought we would, while the investor says we did not do anything like I expected. By defining a rolling set of milestones, everyone can say, “If we hit these specific benchmarks we are doing well, if we double them we are doing great and if we only get half of them we are way off target.”

Adjust Midstream

The best teams make half-time adjustments–which is why you can’t rely on your gut. You can only adjust your course in midstream if you have enough data to work with. That means having measurement systems set up before you start in order to find out what is going wrong and to make the right changes.

Example: You might fear spending a lot on marketing to acquire customers. Track the data, though, and you might find that customer-acquisition costs fall over time by spending a bit more up front to establish your brand. If you’re not tracking data to analyze the cost of acquiring each new customer, you won’t be able to make that adjustment.

Conduct a Post-Mortem

Failure teaches you to be analytical. When I fail, I immediately sit down and do a post-mortem. I make a list to figure out all of the things I did wrong. By looking at that chart the next time around, I can immediately sense when things are going wrong because I have learned how to analyze those failure points.

My first startup was a travel software company called Competitive Technologies Inc. Sun Microsystems was a customer for some of our products and one day we got a call from them saying that they were going to terminate our relationship. I immediately pulled the whole team together to do a post-mortem. After charting out our expectations and the customer’s, we learned that we had made some wrong assumptions at the start. Sun eventually agreed to restructure their contract with us and now I always ask clients to write down their expectations on day one, instead of waiting for a one-year review.

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