Nine Startup Scaling Secrets from Eventbrite

1/24/11Follow @wroush

On anyone’s list of the fastest-growing and most interesting social-commerce startups in San Francisco/Silicon Valley, Eventbrite has to rank near the top. Since collecting $6.5 million in Series C financing from Sequoia Capital in late 2009, followed rapidly by another $20 million infusion from DAG, Tenaya, and Sequoia less than a year later, the online ticketing company has more than sextupled in size—from 15 employees to 100. It now expects to grow to 200 people this year. It handled $100 million in gross ticket sales in 2009 and more than twice that in 2010.

Eventbrite has succeeded by making itself both ubiquitous and indispensable. Judging from my own experience, there’s hardly an organization in Silicon Valley, Boston, or other U.S. tech hubs that doesn’t use the company’s Web-based event registration system to track and monetize attendance at conferences, seminars, or cocktail parties. (If you’ve ever been to an Xconomy forum, you know we’ve been using Eventbrite ourselves for years.) And while the company is still young—it will reach its fifth birthday in July 2011—it’s already hard to remember how anyone handled small-event ticketing before Eventbrite existed.

Last month I sat down with two of Eventbrite’s three co-founders, the husband-and-wife team of Kevin and Julia Hartz. (Kevin is CEO, Julia is president, and the third co-founder, Renaud Visage, is chief technology officer.) I wanted to hear the backstory to Eventbrite’s founding and the Hartzes’ unusual partnership. But I was also aware of Kevin Hartz’s connections to what’s been called the “PayPal Mafia”—the group of engineers and investors who helped launch the foundational online payments company in 1998—and I wanted to know how he’d profited at Eventbrite from the lessons he learned as a Paypal investor and subsequently as CEO of Xoom, the international money transfer company he co-founded prior to Eventbrite.

I’ll get to those lessons shortly—there are nine of them altogether, some intuitive, some not so. But first, a biographical side trip to investigate how the Hartzes came to run one of SoMa’s hottest companies.

Kevin Hartz—who is a far more modest and unassuming guy than most of his dot-com-era contemporaries—emphasized to me that he was “the first generation off the farm” in his family. His mother was raised on a dairy farm, and even though Hartz himself grew up in swank Orinda, a conservative suburb on the other side of the Caldecott Tunnel from Oakland, he says he was raised with “a strong work ethic,” plus entrepreneurial drive and a need to be challenged intellectually.

After finishing his undergraduate degree in history at Stanford in 1992—and detouring to the University of Oxford for a master’s degree in the same subject—Hartz worked briefly for Silicon Graphics. In 1998, he co-founded Connect Group with a group of Stanford friends. The company provided high-speed Internet access to hotels, and was almost immediately bought by LodgeNet (NASDAQ: LNET), still one of the largest players in hospitality broadband. “That was my first taste of the entrepreneurship bug, even though we had hardly made a big impact,” Hartz says.

The LodgeNet deal left Hartz with enough money to start angel investing. One of his Stanford connections, through student government activities, was Peter Thiel, who had recently returned from the East Coast to set up a small private equity fund on Menlo Park’s Sand Hill Road. Thiel had decided to start a company with recent University of Illinois graduate Max Levchin. Over sandwiches in Palo Alto in early 1999, Hartz was invited to invest. “We went to Hobee’s one day, and I left committed to investing, just knowing Peter’s smarts,” Hartz says. That’s how he got in on the ground floor with FieldLink, the company that would eventually become PayPal.

Meanwhile, Hartz took a day job with Outlook Ventures, a small venture fund—”the super-angels of their time,” Hartz calls them—that had seen phenomenal success with its first fund in the late 1990s. Unfortunately, the second fund struggled. “We watched the portfolio crash and burn around us” after the dot-com crash, he says. During the “very dark economy” of 2001-2003, Hartz says, two companies stood out as bright lights: Google and PayPal. With a former SGI colleague, Alan Braverman, he started a mini-incubator/think tank called Mollyguard, with the goal of developing PayPal-like startup ideas. Xoom, which collected a Series A round from Thiel and a Series B round from Sequoia, was the first result. It’s still in business today, helping workers in the United States send money home to their families in other countries.

At Xoom, “We were very clearly going after Western Union,” whose high fees for money transfers had created an opportunity for disruptive competition, Hartz says. After leaving the startup in 2005, he noticed a similar market—event registration and ticketing—dominated by a big incumbent that charged consumers high fees. “In the case of Eventbrite, I wouldn’t say we were necessarily setting ourselves up to go after Ticketmaster, but we saw a really underserved market”—especially for events smaller than large sports games or concerts. “We like to use the analogy of Siebel and Salesforce. Siebel was serving the Fortune 500 with a very expensive, cumbersome solution, and Salesforce produced this SaaS [software-as-a-service]-based, nimble solution that could serve just one person.”

Amidst all this, Hartz was doing the long-distance dating thing with his future wife Julia, a Santa Cruz, CA, native who had studied broadcasting at Pepperdine University and had a challenging job as a creative executive at the FX Network in Los Angeles, overseeing shows like “Nip/Tuck,” “The Shield,” and “Rescue Me.” But while its shows were acclaimed, FX was struggling with basic issues like distribution, online branding, and advertising. “My whole last year was unfortunately spent on product-placement deals with companies like Anheuser-Busch and Ford,” Julia says. “The writing was on the wall.”

Julia had watched Kevin build Xoom and conceive a new ticketing startup—”he would practice his presentation to Sequoia maybe 60 times in a weekend,” she says. After the pair got engaged, Julia decided to leave FX and move to the Bay Area, and came close to accepting a job at Current TV, the San Francisco-based news network co-founded by Al Gore. But “something wasn’t feeling right,” she says. “If you want to be in TV or film, you should be in LA.” She says she’d also started to feel the allure of the velocity of startup innovation. “I was always looking for a quicker process, a way to change things in a speedier way, which was why I’d chosen TV over film,” she says. So she decided to take an unpaid post with Mollyguard, which soon renamed itself Eventbrite. “I thought, ‘Okay, this will be interesting,’” she says. “We had never been together for more than two days at a time. Suddenly we were getting married and starting Eventbrite all in the same month.”

At the time, the Hartzes and their co-founder Renaud Visage saw the ticketing market as “one of the last bastions of e-commerce where there was an underserved market,” Julia Hartz says. “Many organizers were still [running events] using e-mail and Excel and paper invites and checks.” The new startup didn’t bother with beta-testing its online-ticketing service, which allowed users to sign up for an event and pay through PayPal (and later, Google Checkout); the service was live on the Web for all comers from the beginning. “Kevin worked on product development and strategy, I worked on customer support and marketing, and Renaud built the site,” says Julia. “We’d QA-test during the day and he’d build at night. It was just the three of us for two years.”

The rest, as they say, is history. In 2008 the company raised its first serious financing and grew from three people to 15. And in 2009, the ticketing business really took off, thanks in part to the galaxy of balls, parties, rallies, and other events surrounding the inauguration of President Obama—not just in Washington, D.C., but around the country. “That was a once-in-a-lifetime event,” Julia says. “There was no way to forecast what an incredible number of inaugural events would be hosted on the Eventbrite platform.”

This New Year’s Eve, the company reached the symbolic milestone of $400 million in gross cumulative ticket sales. It’s a little tricky to figure out how gross sales translates into actual revenue for Eventbrite; the company profits by charging event organizers a fee amounting to 2.5 percent of the cost of each ticket plus $0.99 per ticket sold. (For free events, there’s no cost to use the system.) In a recent blog post, Eventbrite said it sold 11,004,743 tickets in 2010, which would imply the startup collected $10.9 million in revenue from the 99-cent flat fee alone. In any case, it’s earning enough to pay a little more rent: the company is moving next week from its cramped quarters at 410 Townsend Street to an office three times the size at 651 Brannan Street.

Now on to some of the scaling lessons that seemed to emerge as the Hartzes told me more of their story—-things they either learned from their previous jobs and applied at Eventbrite, or have deduced since starting the company. If you want to build a fast-growing technology business these days, these might be some strategies to keep in mind.

1. Don’t take big checks until you absolutely must. “Xoom was a more capital-intensive business,” says Kevin Hartz. “To get off the ground in the money transfer business, given the risk of fraud and the cost of government compliance, we had to raise over $100 million. Coming out of Xoom, we had the mentality that we should bootstrap to cash-flow-positive and then look at funding, versus the notion of getting a lot of funding out of the gate. In 2008, we reexamined this, and asked whether we were going too slow, when we saw all these other companies taking big checks. Then the debt crisis occurred, and the economy crashed, and we felt we had chosen the right path by building a capital-efficient business.”

2. Pick the right team. As an investor watching the growth of PayPal, Hartz says, he “saw the power of really intelligent, high-caliber teams to be able to shift and find the right formula and grow really fast. They went through two or three different business models to hit on what became PayPal, were able to beat BillPoint, eBay’s own native service.” At Eventbrite, Hartz says, “We have spent a lot of time hiring and developing a particular culture that doesn’t just want to be challenged and be part of a disruptive market, but that works extremely well together. Why did Facebook win versus MySpace or Friendster or the Winkelvi? Because Mark Zuckerberg was able to attract tremendous talent and build a great product.”

3. Just as important: pick the right trend to follow. “Why did PayPal succeed amongst the 20 or so PayPal copies?” Kevin Hartz asks. “The payment market was ripe for disruption—there was no processing solution for small players. But eBay turned out to be the perfect market for that. In [Eventbrite's] case, we originally thought we would be much like Yelp, and that our growth would come from organic search. But then the social media revolution happened, and we found that our business was growing because events are social and people were telling their colleagues and friends about events through Facebook, LinkedIn, and Twitter. That’s really what gave us that lift in 2009, and it’s what we continue to enjoy.”

4. Keep it simple. Before Eventbrite, online ticketing systems were “complex but rudimentary: the worst of both worlds,” says Julia Hartz. “We wanted to create something as intuitive as publishing a blog post, so that anybody could do it. To this day, Eventbrite is very self-service. You enter your e-mail address and you’re sent to the event creation page. You can literally start selling tickets within minutes.”

5. Build on existing tools. Says Kevin Hartz: “What PayPal brought, through their API [application programming interface], was the ability to facilitate a payment between a buyer and a seller. So we could focus on the core piece of our business, which is event ticketing, not payment processing. That’s why you could have a three-person company go this distance—what we call this ‘payment OS’ of PayPal.”

6. Empower your customers. With older ticketing systems, “one pain point was low visibility, not knowing where your buyers were and not being able to engage with them,” says Julia Hartz. Today, Eventbrite provides event organizers with extensive analytics. “You can see charts about who your attendees are, where they’re coming from, which events are selling, which marketing channels are driving traffic to your event site. It really does empower event organizers, especially those who don’t do this for a living, to make better decisions the next time they host an event.”

7. Trust in the value of your product. “In the early days we tried to offer a basic and a premium service,” says Julia Hartz. “But we wanted to give everyone every feature, and we were really bad at differentiating between premium and non-premium features. When we finally decided to get rid of the two tiers, we thought our conversions would go to hell and we’d really piss off our legacy customers. It was the exact opposite. Our conversions went through the roof, because now customers didn’t have to choose between the options. [See: Keep it simple.] We needed to have a little more confidence in ourselves, and learn that we were offering a very valuable service, and not agonize.”

8. Learn from your customers. Julia Hartz: “Google search was always the number-one driver of traffic to Eventbrite, but in 2008 we started to see Facebook pop up in the top 10 traffic sources. A lot of our users were taking their event details from Eventbrite and republishing them manually in Facebook and sharing with friends. We capitalized on that and integrated with Facebook Connect to create a one-button process so that users could send their details over to Facebook. We did a lot to make sure that it was really integrated with the Like button and the news feed. So much so that Facebook is now the number-one driver of traffic, more than Google. So if you keep your eyes open, you can learn a lot from your users and they can really help guide your company.”

9. Respect the data. Kevin Hartz: “We are really data fiends. I think we were the first to publish the metric of yield-per-share [every time an event attendee shares news of an Eventbrite ticket purchase on Facebook, it drives an additional $2.53 in purchases, the company has found]. Our head of financial analysis comes from a physics background. It’s that notion of testing, experimenting, observing, and data collection that has helped us to discover these trends and then to optimize them.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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