- Spencer Rascoff is the CEO of Zillow, a real-estate website and app. Before that, he helped create and lead the travel website Hotwire.
- Zillow went public in 2011 and has grown tenfold since. Today, the company generates over $1 billion in annual revenue; it has made 16 acquisitions and has 3,500 employees.
- Rascoff led both Hotwire and Zillow out of crises to success after making deep cuts and recommitting the companies’ original missions.
Spencer Rascoff knows a lot about running a company during a crisis.
He’s the CEO of Zillow, which he ran through the housing crash. That was after he ran Hotwire, which survived the dot com crash only to learn it sold plane tickets to the 9/11 hijackers.
“There’s the shadow of this weird connection to the actual tragedy itself, and then from a business standpoint, basically nobody traveled for like six months,” Rascoff said on Business Insider’s podcast, “Success! How I Did It.” “And so it was a very difficult time and we had significant layoffs.”
Through personal and professional tragedies, Rascoff and his companies bounced back. Zillow now has a market cap that exceeds $5 billion. On this episode, Rascoff tells how he did it. Plus, he tells what Uber’s new CEO is like (they worked together twice), and what it was like touring with rock bands as a kid.
You can listen to the podcast below:
Subscribe to “Success! How I Did It” on Apple Podcasts, RadioPublic, or your favorite app. Check out previous episodes with:
Following is a transcript of the podcast, which has been lightly edited for clarity and length.
Alyson Shontell: We’re really happy to have you today. Thanks so much, Spencer.
Spencer Rascoff: Thank you. I’m excited to be here.
Shontell: Can you take me back to growing up — what it was like for you? I understand you were an athlete and a chess whiz, and your dad had an awesome job.
Rascoff: I grew up here in Manhattan through fifth grade. My dad was an entrepreneur in the rock-and-roll industry, which I’ll tell you about, and my mom was a real-estate agent and then a schoolteacher. I had a terrific upbringing.
I was really academic, was a nationally ranked chess player and played really competitively. I was the fourth-best chess player in the country when I was a little kid and played every weekend really hardcore. Then we moved to LA, and my eyes were opened to this whole other world of possibilities where you could go swimming and play basketball and play sports, and so my whole worldview changed.
From an early age, I was inspired by my dad’s entrepreneurialism. My dad was a partner at an accounting firm, one of the Big Eight accounting firms, now is part of KPMG. And in 1972, when he was just a young partner there, this white-shoe, New York, early-’70s accounting firm told the manager of the Rolling Stones, Prince Rupert Loewenstein, to take a hike. “We’re not going to be the accountants for a bunch of rock-and-roll, drug-addicted crazy people.” And my dad thought that sounded pretty interesting actually.
And so he took a leave of absence from the accounting firm and became the tour accountant on the 1972 Rolling Stones tour. And this was a couple years before I was born. That started his career, which spanned decades in rock-and-roll and ultimately he was a tour producer, a business manager of the Rolling Stones, U2, David Bowie, Pink Floyd, Paul Simon, and many others.
Watching that experience and growing up in and around the rock-and-roll industry and watching him leave a pretty conservative industry of accounting for the music industry — and the innovation that he brought to that industry — was a big part of my upbringing.
Shontell: When you see someone take a big risk like that and then ultimately become successful at it, I have to imagine it makes you feel like you could tackle a lot as well.
Rascoff: Yes, for sure.
Shontell: From what I understand, you had a pretty awful family tragedy happen early. Did that shape your career?
When I was 15 and my brother was 17, he passed away in a car accident just a couple days before graduating from high school, and obviously it changed me dramatically. It made me grow up real fast. But it also kicked me into a different gear in terms of my quest for achievement.
Prior to that, I hadn’t experienced much grit in my life. I grew up pretty affluent — frankly — spending summers touring with rock bands in Europe and in Asia with my family. And then when you lose your brother at an early age, all of a sudden you’re sort of jolted into just a different world. Those last couple of years of high school, I kind of felt like I had to really overachieve, and I worked really hard and am still working really hard 25 years later.
Winding up on Wall Street
Shontell: You went off to Harvard, and then you did what a lot of Harvard people seem to do: You wound up on Wall Street.
Rascoff: Too many, in my opinion.
So I graduated from Harvard, class of ’97, and the internet was just a couple years old then and, of my graduating class of about 1,600, probably fewer than 10 people moved out West to work in tech. They went to companies like AltaVista and Excite and Yahoo and eBay, which were tiny little startups at the time. Honestly, if you ask them why they did it, I think most of them would say it’s because they couldn’t get jobs in consulting or investment banking at the time. Of course these people went on to incredible careers and massive riches from having been so early in technology.
But back then, the Ivy League was just this conveyor belt to Wall Street. And, in my opinion, unfortunately, not that much has changed actually, 20 years later. A huge amount of our intellectual capital just gravitates there, really not out of passion for those industries but just because they don’t know what else to do when they graduate from college. And I think that’s unfortunate. I did my two years and couldn’t wait to get out of there.
Shontell: When you were realizing that the Wall Street and finance world was not for you, you said your wife helped point things out before you even realized that you’re unhappy doing something.
Rascoff: Yeah, I call this a “career mirror.”
I think it’s incredibly important for everyone to have a career mirror. It can be a spouse, a friend, a parent, but it has to be somebody that’s far enough away from you that they’re not in the super day-to-day — like it can’t really be a coworker — but they have to be close enough to know you better than you know yourself.
Every career decision I’ve made has been because my wife told me to, because she’s held up a mirror to me. She said: “Look, you’re unhappy. You may not realize it, but you’re unhappy doing this thing.” And when I left Goldman Sachs to go to private equity, and I left private equity to do a startup, when I left that startup to do another startup, every one of those career changes was because she saw something before I did about how I was feeling.
Shontell: So talk to me about the move from private equity into your startup, Hotwire. It ended up being a huge success. Everyone remembers it. So tell me about how that got formed.
Rascoff: When I got to TPG, which is a huge private-equity firm, in 1999 after I left Goldman Sachs, the private-equity firms were sort of on their heels. But the smart thing that the private firms did was they looked at their existing portfolio companies and tried to figure out how to leverage the internet.
And so in the case of TPG, we had bought Continental Airlines out of bankruptcy, America West Airlines out of bankruptcy, Ryan Air, which is the largest airline in Europe, and we had sold much of the Continental stake to Northwest, so by the time I got there, in the late ’90s, we basically controlled four airlines.
And so Hotwire was born out of TPG, saying to these airlines and then a couple of other airlines: “Hey, let’s create an industry consortium startup to compete with Priceline.” I was basically staffed on that project, and I eventually left TPG to start the company. We had to call it something cool, and so we called it “Project Purple Demon” because that sounded really hip and this was San Francisco, 1999, you had to sound cool to attract employees, and Project Purple Demon would eventually become Hotwire.
And the little-known fact is that, at the same time, those airlines that we went to, to create the company, said: “Hey, this sounds great. We’re going to create an airline-industry-controlled and -owned consortium startup in the discount- travel space to compete with Priceline. Will you, TPG, also create one in the full-price category to compete with Travelocity and Expedia?”
And the project name for that was T-2, which stood for “Travelocity Terminator.” And we said: “No, we don’t really do this. We’re a private-equity firm already kind of out of our depth doing this one startup.”
And so the airlines hired Boston Consulting Group to create T-2, which would eventually become Orbitz. So these two companies, Orbitz and Hotwire, were started at about the same time by about the same airlines but had very different governance. In the case of Orbitz, the airlines controlled Orbitz, and in the case of Hotwire, the airlines all got non-voting stock, and so the management team had latitude on how to run Hotwire.
For example, Hotwire pivoted very quickly to the hotel side of the business, which is where most of the money is in the travel industry. But in the case of Orbitz, they stuck with airline tickets because the airlines wanted Orbitz to basically be a foil to Expedia and Travelocity. Fifteen-plus years later, you probably still think of airlines when you think of Orbitz and you probably think of hotels when you think of Hotwire. The airlines wanted it to be that way. Of course, now they’re all owned by Expedia Group, which is who we sold Hotwire to and, ironically, who Orbitz eventually sold to as well. So Expedia Group owns Orbitz, Travelocity, Expedia, Hotwire, Hotels.com, Trivago, and basically everything.
Leading through adversity
Shontell: So you started what eventually became Hotwire, in the late ’90s. Prime dot-com boom.
Shontell: And then in 2001, obviously 9/11 happened, and that rocked the entire industry, but you were in the travel industry and it really hit your business hard. So talk about that, because it also sounds like, from what I understand, you all discovered that you personally had a role, unintentionally, in that day.
Rascoff: You know, 9/11 really tested the company for a lot of reasons.
So first off, for me personally, I was in New York on September 10. I spoke at the Millennium Hilton at World Trade Center, which was, of course, crushed the next day. I was on the Newark-to-SFO flight on the 10th — or maybe I’m off by a day — but within a day or two on the same flight, same flight number, and so I was personally shaken up by my connection to it, and I actually lost a family friend on the plane that went down in Pennsylvania, and so that was obviously difficult. And then that morning we had tens of thousands of customers who were stranded around the world, who we had sold airline tickets and hotel rooms to. So we had this huge customer-service nightmare. And then to make matters worse, as you alluded to, Hotwire actually sold some of the tickets to the hijackers.
Shontell: How did you realize that? And what was it like when you put that together?
Rascoff: Not that it makes much difference, but it wasn’t the September 11 flights, it was the flights a couple of days earlier that put the team in place in Bangor, Maine, and then they flew from Bangor to Logan. I think the way we found out about it was the FBI told us, they came knocking, I think, probably that day or within a couple of days. And it cast this really awful shadow of culpability over the company. So as we were struggling with dislocated customers, employees who we weren’t sure of their location, and then there’s the shadow of this weird connection to the actual tragedy itself. And then from a business standpoint, basically nobody traveled for, like, six months.
And so it was a very difficult time, and we had significant layoffs. We did a down round, which wiped out a lot of the equity that the employees had in the company. To our credit, two years later we had turned the company around and pulled through all of that trauma and sold the company successfully to Expedia for about $700 million.
Shontell: In all cash.
Rascoff: In all cash, which at the time — this is so quaint, right? — in 2003, when we sold the company, that was the largest-ever all-cash sale of a tech company. You know, now $700 million is just like an Uber series E round.
Shontell: So coming back from that, it must have been hard because it rocked your business, and every tech business was rocked hard, and coming back to that kind of exit. I mean, how did you do that?
Rascoff: The team stuck together.
I mean, the first thing we did was we cut deep at the company, and I’ve done layoffs, unfortunately, twice in my career, once at Hotwire and then once at Zillow. I think it’s important to cut deep enough that you never have to have a second round of cuts, if possible, because the fear of, “Oh, am I going to be next?” It just paralyzes the organization, so we cut probably deeper than we had to, intentionally, to leave some cushion, and we recommitted the employee base to the mission and to each other.
You made me talk about my brother, but I guess it’s not that different than that, it’s like, “Now we have to sort of succeed so that those that are no longer here didn’t sacrifice what they sacrificed in vain.” And so we worked our butts off to make Hotwire successful. We did a lot of really smart tactical business-oriented things around the pivot to hotels, around innovations in the product.
At the time, Priceline was our main rival and the “name your price” thing Priceline’s innovation, and Hotwire’s innovation was that we showed you the price, and so you didn’t know what the hotel was until after you purchased, but we showed you what the price was and so it took some of the guessing out of it. And that was very innovative and it made for a very appealing value proposition to our suppliers, our airlines and hotels, but also to consumers.
And then we took a big bet on advertising. One of the benefits of the dot-com meltdown was TV advertising was pretty cheap because all those startups that were advertising in the late ’90s were gone. And so at Hotwire, we invested really early in TV. Today, of course, you turn on the TV and two seconds later you’ll see an ad for Trivago and Expedia and Tripadvisor, they’re everywhere. But in 2001 to 2003, the airwaves were pretty empty from travel advertising and that was a big bet that we made, and it paid off.
Shontell: So when you’re selling the company, it sounds like a huge, amazing exit. Was it was great for you guys as founders or was it not?
Rascoff: It was not. And this is a good lesson for founders: a down round basically wipes out most of the employee equity because employees typically have common and investors typically have preferred, so a $700 billion sale sounds really great but it’s mostly the venture capitalists that made the money, not the employees. You don’t have to feel sorry for anyone at Hotwire, they all did fine and they’re doing fine. But it wasn’t the type of exit that I think people expected.
Shontell: Right, it’s not like when you read, “Twenty-five year old sells his company for $700 million in all cash.”
Rascoff: Read the fine print, or it usually doesn’t get printed as fine print, but usually stories like that have a little layer of complexity to them.
Working with Dara Khosrowshahi
Shontell: So you go on and you become a VP at what is now Expedia.
Rascoff: Yeah, so the two years prior to the sale, from 2001 to ’03, those two difficult years after 9/11. I was actually commuting to Seattle because on September 10, 2001, my wife moved from San Francisco, which is where Hotwire was, to Seattle to go to med school at the University of Washington. Our first day apart was September 11, and I remember watching it on TV from San Francisco and on the phone with her in Seattle. So for those two difficult years, I was also commuting to my wife from San Francisco to Seattle. As soon as we sold the company to Expedia, which is based in Seattle, I moved, like, literally that week, and I worked at Expedia and I managed the hotel business for Expedia, Hotwire, and Hotels.com. And I was there for about a year.
Shontell: And you worked with Dara, who is now the Uber CEO, right?
Rascoff: I worked with Dara, who I’d k