Terry Jones has had a storied career. The founder of two billion-dollar companies, he’s now a successful speaker, author, and venture capitalist. When asked about what he’s most proud of, though, he doesn’t skip a beat: Travelocity.
Terry founded Travelocity in a unique way—it was birthed under the roof of American Airlines, within its Sabre division. As Terry notes, successful intrapreneurship is rare. Most enterprise organizations are risk-averse, slow to change, and don’t have a good framework in place for nurturing new ideas. Terry acknowledges that, were it not for strong top-down support within American, Travelocity likely wouldn’t have made it.
As the internal champion for Travelocity, Terry often had to push for room to grow his innovative concepts. His first move was to relocate the Travelocity team outside of the American Airlines offices. He knew that building a distinct culture for the new brand was critically important.
Similarly, he fought for the ability to hire outside American Airlines. He wanted to bring fresh people with new talents and perspectives on board. All of this created some noise at American. But Terry and his team persevered, and with the support of American’s leadership, took the company public for $1.2 billion.
Even after a successful IPO, it was not all sunny skies for Travelocity. The disruption the company had caused in the travel industry inspired competition, with Microsoft creating Expedia and the airlines themselves joining forces to create Orbitz—the only site where you were guaranteed to get the lowest airfare.
Eventually, Sabre, which itself had spun out from American and gone public, took Travelocity private again. That’s when Terry bowed out altogether. He foresaw doom, and left to innovate again.
Kayak, unlike Travelocity, was an example of traditional entrepreneurship. Terry and several other disruptors in the travel space saw a new opportunity being created by all of these travel booking sites. Many individuals browsed on the sites, but only a small number converted. What could be done to drive the conversion rate up?
Terry and his co-founders surmised that by building a lightning-fast site that allowed users to buy directly from airlines, rather than through a third-party site, they could boost sales.
Thus, Kayak was born. And it did indeed find great success quickly. Terry cites the trust of a hands-off board and an incredibly smart technical team as major sources of success for the brand. He also shares how Kayak’s approach to marketing differed from the other travel websites, with Kayak focusing almost exclusively on internet search and keywords rather than television or radio spots.
While Terry’s experiences with intrapreneurship and entrepreneurship were very different, the common throughline is a willingness by leadership to accept risk and let the team try new things. Terry reminds listeners that, while fear of failure remains a major roadblock to innovation in corporate America, baseball players who fail 70 percent of the time are considered great.
Perhaps it’s time for leaders to begin thinking less like traditional CEOs and more like baseball coaches.
Rob Ristagno: Terry Jones is the founder of Travelocity and Kayak, two travel industry titans. Where the two companies differ though, is in how they were formed. Travelocity is an example of intrapreneurship, with the business being nurtured within American Airlines. Whereas Kayak was formed through an entrepreneurial approach. What has Terry learned about disruption and innovation from these experiences? How can you avoid getting disrupted by someone like Terry? He answers those questions and more on today’s episode.
Introduction: This is the CEO Campfire Chat with your host, Rob Ristagno. Taped in front of a live studio audience, join us to hear successful growth stories from middle-market companies, just like yours. Sponsored by the Sterling Woods Group.
Rob Ristagno: Welcome to the CEO Campfire Chat recorded live in front of a studio audience of leading executives. I’m your host Rob Ristagno, and today I have the privilege of introducing you to Terry Jones. Terry is the founder of both Travelocity and Kayak. Those are search platforms for travel that I’m sure you’re all familiar with. He’s also been on the board of numerous companies, big and small. He is the author of two books ON Innovation and Disruption OFF. Welcome, Terry.
Terry Jones: Great to be with you.
Rob Ristagno: Yeah, we’re honored to have you here. And wow, not one but two household names. We’re going to talk about them in a minute, but just to date so far in your career, what’s something that you’re just the most proud of?
Terry Jones: I think Travelocity. I’m a co-founder of Kayak. I was chairman there, so I wasn’t the founder. But Travelocity is unusual because it was founded inside American Airlines so it’s intrapreneurship and that’s a very kind of a different path to innovation. And we all know many of those ideas that have started in large corporations and generally they get killed. They don’t make it. So the fact that we were able to make it, we had a terrific team and great support from the leadership at American that allowed us to survive. But yeah, I’m pretty proud of that.
Rob Ristagno: Excellent. Give us the backstory. Let’s know how Travelocity came to be.
Terry Jones: I was CIO at American Airlines Sabre at the time we had had a product, and Patricia knows this, called Easy Sabre for a long time because my initial boss, the former CIO at American, had this idea that we were automating travel agents. We had a billion dollar business as part of American called Sabre that automated travel agents. And he looked at networks like Prodigy and CompuServe and AOL and said we had to have an offering out there. So we built this thing called Easy Sabre and I actually ran it for a while when I was in the Sabre division. And you could make a reservation there, but you couldn’t get a ticket. You had to send that reservation to a local travel agent because we were supporting our distribution channel. And the funny thing is that along the way, we were hooking to all kinds of networks.
Terry Jones: We were maybe on 30 different networks and somebody came one day and said, “You know there’s this thing called the internet. And we’re getting bookings from that.” And I said, “Well, let’s go find out about the internet and maybe we should hook up to that thing.” Well, this was maybe 1993 or ’94. And when the internet was still under federal regulation and you couldn’t do business on the internet. So the people who were getting to us from the internet we’re coming in through CompuServe. And we went out to look at it and said, “No, you can’t connect to that thing. It’s just an educational. Forget about it.” So they forgot about it. And then in 1996, the travel agents had woken up to this Easy Sabre thing and they came to us and said, “Turn it off because you’re selling bullets to the enemy here.”
Rob Ristagno: Yeah. Yeah. How do you handle that when your distribution channel that’s gotten you to where you are afraid of innovation?
Terry Jones: So, don’t be competing with your customers. And Bob Crandall, who was our great CEO said, “Nah, somebody’s going to do it. Give it to Jones. He’s over in IT. We’ll hide it over there.” Because I had been a travel agent in a previous life. And the first thing I did was to say, “Well, why isn’t this on the internet?” Because by 1996, of course, you could do business that way. And we put it on the internet and we quickly ended up dropping the travel agent referral requirement and became our own travel agency. Because the travel agents didn’t get it. These bookings would show up and they wouldn’t service people and they didn’t know where they were from. I thought, well, this is stupid. So we became our own agent and it took off like a weed in the spring and that was the beginning. But I’ll let you ask more questions because it didn’t just happen.
Rob Ristagno: Yeah. Let’s talk a little bit about the initial planning, initial strategy. Who did you think was your customer going to be? Who did you think you were going to be targeting?
Terry Jones: Well, we were headed for consumers and of course. We had maybe a million people over time who had used Easy Sabre. So we talked to them and we said, “Look, we’re going to this web platform and you should come over.” And we started to begin to build an audience. And back then, of course, there was no search and Yahoo was just a hand-built index, so we did banner ads. American didn’t want us to spend much money. So it took a while to do radio and TV and convince people that we had to actually build a consumer brand. And earlier, before we even brought it out, we were in discussions with Bill Gates. And Bill was sort of our account rep at American. He used to come down. We were a huge Microsoft customer. We’d see him at least once a year.
Terry Jones: And he said, “We should do this travel thing together. We’ll do the front end because we know PCs and you do the back end because you do mainframes. And so Travelocity could have been a joint venture. And I was asked to negotiate how to do that with Steve Ballmer, and that was basically porcupines making love–it just wasn’t going to happen in a very pleasant way. And they were a big company who wanted to do things their way and we wanted to do things our way. We both wanted to drive the car, so that didn’t happen. And less than a year after Travelocity came out, they came out with Expedia who became our biggest competitor. And we were actually terrified that they were going to build travel into the browser because some of you will remember at the time they were building all kinds of services into the browser.
Terry Jones: And so we thought they’re going to crush us. So we went off and did very large deals with Yahoo and AOL to get their travel as a white label. It was very expensive. We got a lot of business. Expedia didn’t need to do that. And the government eventually told Microsoft they couldn’t do that in the antitrust suit. So they had more money to spend developing their brand than we did, although our brand was considerably bigger than theirs for many years. And there were a bunch of other people who started–Priceline started at that time.
Rob Ristagno: Yeah. How does it work actually thinking about your marketing budget and growing Travelocity? How do you lobby for funds when you’re a company within a much larger organization?
Terry Jones: Well, it was very hard. And that the good thing is that we did several things that helped the business. First of all, our budget was basically held at the CEO level of Sabre, and it was kind of a black bag budget. Nobody else knew how much we were losing and that was good because they all wanted our money, and they knew we were losing money. They didn’t know how much. And he would dole out money for advertising slowly. We promoted in many other ways, a lot of word of mouth, a lot of conferences, a lot of banner ads, all kinds of other ways. I moved Travelocity out of the building. We ran out of space quickly and I wanted to get out of the American culture because we were competing with startups, and build our own culture. Because we had people, the finance people and the IT people and the marketing people all reported to those departments so they cared more about those departments than they did about Travelocity.
Rob Ristagno: I see.
Terry Jones: By moving in together, that helped. But for awhile they still had to go two staff meetings and, sort of, servant of two masters. It took me a long while for Travelocity to become a mini company inside of American. So budget was important, actually moving out was important. Hiring people from the outside, I was told I couldn’t do that. I had to hire from the inside. I said, “I already have those people. I don’t want more of them. I want different people.” That took a long time to convince HR to do that. In my book ON Innovation, I go through a lot of that and talk about some of the issues of how do you separate from the corporate culture? How do you get rid of the services you don’t want? Purchasing was way too slow. IT was much too [inaudible 00:09:22]. And luckily we had the support of Mike Durham who was heading Sabre and Bob Crandall and later Don Carty who were running American to say, “Yeah, go ahead and do this.”
Rob Ristagno: Is that just what you need? I mean, do you just need top-down support? Is there anything else you need to do…?
Terry Jones: It is incredibly important to have top-down support, but I think it was also important to get out of the building, to hire people from the outside people who weren’t from the American culture. People who’ve been in startups. All those pieces were important. And at one point the rancor grew quite loud, and people thought we should sell Travelocity and we probably could have gotten a couple hundred million bucks for it. And so Mike Durham, who was the CEO at the time of Sabre said, “Let’s have a debate.” So we had a real Harvard-style debate for and against. And some Travelocity people were on the for and against side and some Sabre people were on both. I was not allowed to participate. And it was quite contentious and at the end, the ayes for keeping Travelocity won. And it got all the crap out on the table and it was quite useful in getting all the naysayers to talk about it.
Terry Jones: And then several years later I saw Durham at a cocktail party somewhere and I said, “What would you have done if we had lost?” And he said, “Well, I would have found some way to keep it. I don’t know how I would’ve done that. I didn’t want to sell it, but I needed to get everybody going in the same direction.” And eventually of course we took it public for $1.2 billion, so they did very well.
Rob Ristagno: Not a bad payoff there. So after it goes public, tell us a little bit about relationships with American. Is it completely its own entity now? And how did that–
Terry Jones: Yeah. Two things had happened, American had spun Sabre out. Actually the same week Travelocity was going public, all of a sudden Don Carty who was chair of American was in a big fight with the unions, and he decided to spin Sabre out. So the Goldman Sachs people suddenly disappeared from the roadshow. I didn’t know where the hell they went. And they went over to do the Sabre roadshow, and we were kind of on our own. So we were spinning out of a company that was spinning out and we were both trying to do it tax-free, which had never been done before. And our corporate structure was built in the Goldman Sachs laboratory. And it was extremely tax efficient, and no one on Wall Street understood our structure at all. It was quite difficult. And one of the things that happened after that separation was, I’m a public entity. I have to run the company for the shareholders.
Terry Jones: I was not running it for Sabre or, certainly at that point, not for American Airlines who started to look at Travelocity and Expedia as the enemy, because we began to be the biggest travel agents in the country and then way bigger than any travel agent had ever been. And they saw a new intermediary rising, which they hadn’t seen coming at all. So suddenly more and more tickets are being generated, particularly low price tickets, they’re paying full commission. They immediately cut commissions, all the airlines from 10% to 8%, later from 8% to 5%. They were still paying physical travel agents full commissions, so they were trying to starve us. They wouldn’t give us the best prices. They’d give them to Expedia, but they wouldn’t necessarily give to Sabre because they didn’t… Sabre of course, was extracting a huge tariff from the airlines to participate in the Sabre system and they didn’t like that.
Terry Jones: Everywhere I went, they said, “Well, we like you but we don’t like your parents.” And I said, “Well, my parents aren’t my fault.” That didn’t really matter.
Rob Ristagno: That didn’t fly?
Terry Jones: Nah, it didn’t work. So they kept not giving us the best prices. And then they got together and formed Orbitz. So Orbitz was initially formed by the carriers who came together for a variety of reasons. Some of them said, “Look, if this is the new way of things, let’s build our own. And at least as a group will earn revenue from it.” Others thought they could IPO it. We went to Congress to fight it, even met with President Clinton. And we said, “Look, if GM, Ford, and Chrysler got together and formed a website and said, ‘This is the only place you can get our lowest price.'” They said, “Oh, that would be illegal.” And I said, “Well, that’s what this is.”
Rob Ristagno: How is this any different?
Terry Jones: They went, “Nah, it’s okay.” The only guy who got it was Senator Rockefeller, who said, “My granddad would have liked this idea.” This was clearly illegal monopoly. And it was tough to compete with Orbitz for awhile because they did have the best price. And then 9/11 hit and obviously travel fell 70% and that was devastating for all of us. And it took a long time to come back. And the airlines right after that time took the opportunity to reduce air commissions to zero. So our principle income was gone, but luckily, we had enough customers and we were selling enough hotels and tours and cruises that it still was a profitable business. And there’s a wonderful quote, I’m trying to remember who it’s from, it says, “The game is over if the startup gets the distribution before the incumbent gets the innovation.”
Terry Jones: And that’s what happened here. By that time we had 40 million members of Travelocity so it hurt. It wasn’t nice, but we survived and became a public entity. Expedia eventually passed us. They got into virtual tours, combining air, car, hotel, virtually. We were off doing cruises. They grew faster than us after that point.
Rob Ristagno: Yeah. So one thing I want to come back to just because I think it’s an interesting theme in general is you mentioned Orbitz, you really couldn’t compete with Orbitz on price. So when someone’s running a business and their competitor is just the low cost provider, how did you think about differentiating yourself, creating some brand loyalty, getting people to go to Travelocity instead of Orbitz?
Terry Jones: One of the things that I did that my team thought was crazy. It was very expensive to run an online business like that, where you’re only converting about 6% into sales. Now in the online world, that’s fairly normal. If Walmart had a back door as big as its front door and everybody left with empty carts, their stock would crash. But in online, nobody sees that this is sort of the way it is. So I said, look those 95% who don’t buy cost us a lot of money because I have to pay Sabre for all that search capacity, which in those days was very expensive. It’s less expensive now. So I said, “Why don’t we do this: The third time a person comes, if they haven’t become a member, we say, yep, no more searching. You’ve got to become a member.”
Terry Jones: And we cookie them, and nobody knew much about cookies in those days. They weren’t bad thing. And my team said, “Oh, people will go away.” And I said, “I don’t think they will if we tell them what they get.” And what they got was a newsletter. We had a club. We watched all their searches so if they searched San Diego three times, we knew they wanted to go there and we’d send them an email when the price went down, first people to do that. They got a lot of benefits that Orbitz didn’t figure out. So by the time Orbitz came around, we had this database of 30 or 40 million people. And we aggressively marketed to them with email, and they loved it. It was a new thing, nobody was doing that. So we build a CRM database and we ended up…
Terry Jones: My head of marketing complained all the time that CRM was running IT because it also served customer service and other departments and it wasn’t responsive enough. So I said, “Okay, I’m going to give it to you along with the programmers and the analysts and everybody.” He said, “I don’t want that.” I said, “Too bad. You won.”
Rob Ristagno: You asked for it, you get it.
Terry Jones: “You got it.” And it really helped because he drove it very hard, but he also learned how to serve other departments and he went on to become a successful CEO. So it turned out well, but we really had a very large and pretty leading-edge customer service and CRM database that others didn’t have.
Rob Ristagno: That’s early times. That’s pretty forward thinking [crosstalk 00:18:02]—
Terry Jones: It was and Expedia never really did that. And eventually we had to take it down because the other guys didn’t copy it and over time we had to. And when commissions went to zero Expedia and Travelocity started charging five bucks for a ticket and Orbitz didn’t. So we could only do that for maybe six or eight months and then we were bleeding because people will change airlines for $2. It’s a very transparent marketplace.
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Rob Ristagno: Let’s shift gears a little bit and talk about Kayak because I’d like to hear some comparing and contrasting. What problem was Kayak trying to solve and how did you get involved?
Terry Jones: Well, let me end Travelocity first because it has to do with that. Eventually, we were a public company. Sabre looked at their future and thought this asset is very important to us and Jones is over there running it for the public shareholders, not for the benefit of Sabre. And there were a lot of decisions we were making that they didn’t like. So one day I got a note under the door, it said, “Form a special committee. We’re going to take it private.” So we had then to negotiate a deal with our 70% owner to get a good price, which wasn’t easy, but they bought it back. And I decided to leave at that point because I was convinced they were going to screw it up. And they did, because they then divided the company, sent marketing back to marketing, sales to sales, IT to IT, whatever. And eventually seven years later they sold it to Expedia for $250 million. So they took a $1.2 billion asset and ran it down into the ground. Yeah.
Rob Ristagno: Need to do the math on the IRR there, but not too good.
Terry Jones: Wasn’t too high.
Rob Ristagno: So it sounds like maybe the main thing I’m taking away from that story is if you want intrapreneurship to work, you have to make it a standalone company. All these dotted lines and double lines and double reporting just chokes off the innovation.
Terry Jones: They could have held it as a separate division. And it doesn’t always that way. The head of internet at REI said to me once, “When the internet got big enough, when e-commerce got big enough, we blew away the e-commerce department. And we poured the internet in the top of the org chart. And it was everybody’s responsibility.” Their whole company had to do that. And that can work. In Saber’s case, they kind of didn’t do either. They just left a few people in charge of the brand, and that doesn’t work. Somebody has to really own it when it’s a business that’s separate from your other business. In the case of REI, it was integrated with their stores, so it worked. So, I became a public speaker and I went to work for General Catalyst Partners, a VC in Boston.
Terry Jones: And I was EIR there and I was looking for opportunities. By that time, I’d been on the board of a company called Overture, which was one of the big search companies. We eventually sold that to Yahoo for a billion dollars, roughly. And we said, “Why isn’t there vertical search in travel?” And the thought was really the typical dinner and a napkin, the former head of Orbitz, one of the top guys of Expedia and I, and the VC started talking about the fact that 94% of our visitors didn’t buy. Where were they going? Well, they were going to the airlines directly. So we said, “Why don’t we build a site that does that?” That you can search anything but when you click, you buy direct. We went to the airlines with that concept and they liked it very much because we proved in prototypes there was much higher converting than a Google search because Google only took you to the front page of the airline.
Terry Jones: We took it to the checkout page because you already selected your flights.
Rob Ristagno: Oh, yeah.
Terry Jones: So your propensity to buy was exceptionally high. And they said, “Gee, that’s a great idea, but we don’t want to pay you.” Typical airline deal. So we got funded by General Catalyst. We found two great guys to run the company. Steve Hafner from Orbitz was CEO and Paul English from Intuit was CTO. They built a terrific team. They made some early decisions that not only would we build a search site, but it would be faster than anything else in travel. Stripped down, super fast, and it would have the sliders that some of you have probably used to allow you to really filter your result. And it became an instant hit, people liked it because they could buy direct. They liked it because it was fast. And with the airlines, it was kind of a strange story.
Terry Jones: We built up a lot of volume to these airlines and they liked it. So one day we turned it off, one carrier at a time. And US Air called and said, “Hey, where did the traffic go? What happened?” We said, “It went to the same place your money did. Nowhere.” And they went, “Oh, well, okay. We’ll pay.” So I think we invented ransomware. Very similar.
Rob Ristagno: Or Bitcoin, you couldn’t charge Bitcoin back then.
Terry Jones: Or Bitcoin, the first Colonial Pipeline. Yeah. All that stuff. So it worked and they paid and they were getting great traffic. And obviously, we then built in hotels and cars. But it was a very different startup, this was a venture backed, typical external startup, not an internal startup like Travelocity.
Rob Ristagno: Tell us some of the non-obvious differences. I think people off the top of their head probably can list a few things that are different between intrapreneurship and venture backed entrepreneurship. What are some things that maybe were surprising, or the average person wouldn’t think of?
Terry Jones: I was chairman of the board, but the board was composed of great VCs. Mike Moritz from Sequoia, one of the most famous VCs, was on our board, a guy from London. We had some super guys who had done lots and lots of startups. And they really gave the two founders a tremendous amount of space to innovate and make mistakes. It was a very loosely controlled startup. It helped that for both the biggest investors that was in the tail of a fund. And some of you guys will understand that, that they’d already made their money in that fund so they didn’t kind of care, so they can take more risk because the investors had already been paid back. And we would tell the guys things like they wanted to go international. And they’d said, “Oh, we can run it from the U.S.” And the guy from Expedia and I were on the board said, “No, you can’t and you’re going to fail.”
Terry Jones: And we did that. And we did fail trying to run from the US. You have to put people in every country, and they didn’t and they failed, but we didn’t make them do that. The only thing we made them do is, just before we went public, we had never done any advertising. It was all built through search, so very different than Travelocity. It was a time when search arbitrage worked very well because keywords in travel were relatively cheap. And we said, “Look, you’ve got to do TV and radio because we’re going to go public and we’re up against Priceline and Expedia who have, at that time, billion dollar budgets for brand-building.” So they didn’t like it and they built some terrible ads, hired a stupid guy. We eventually made them fire him. They got a good guy and a good agency. And we did all that advertising.
Terry Jones: And right after we went public, we sold the company to Priceline less than six months later. And they stopped all our advertising, went back to search. But I think that was a kind of a non-obvious thing for me, that the board was very hands-off in almost everything they did. And they did a lot of experimentation. The IT headquarters was in Boston and everything else was in Connecticut because that’s where the other guy lived and that worked okay. That’s not a big deal. Usually VC’s will force the team to be together, they didn’t. That still worked.
Rob Ristagno: So you’ve come up with paywalls, ransomware, and now remote working, you had the trends down for…
Terry Jones: And vertical search, which was very new at the time.
Rob Ristagno: Search was a key thing but how did you think about customer segmentation, personas? Who was the Kayak customer?
Terry Jones: They really didn’t. I really tried to push them into doing email marketing. They could have cared less. Segmentation, they didn’t do any. It was all just optimizing keywords and getting people to come to the site. And key was self-directed traffic. So, how many times did we have to buy this person before he became loyal? And it turned out that the website was so fast and so easy to use that people became loyal very quickly. They did some interesting things. So we didn’t have customer service. Travelocity had a thousand people in customer service, Kayak had none because we were a search company like Google. You can’t call Google. I guess you could, but I know what would happen, wouldn’t answer. But we did get emails and we sent the emails to the engineers and that’s kind of a thing people might say, “Well, engineers are expensive. Why did you do that?” Well, our slogan was give the pain to the people who caused the pain, right. Give them that feedback and it worked.
Terry Jones: A good example was in mobile. We had a separate team doing mobile than the web, and this was our CTO’s idea. But we brought up mobile, this was very early in the use of mobile for commerce. We thought it’d be about next flight out or a hotel for the night, the meeting ran over. It was something you had to do on your phone because you needed to do it right now. Turns out where we’re dead wrong. People were using it, just like the desktop. They were booking two and a half weeks out. In the early days, nobody thought that would be true, but it was, and we had to totally rewrite that app. And now they have something like 60 million people who use that app.
Terry Jones: So having short feedback loops and listening are a critical skill for entrepreneurs and startups. And the number one reason startups fail is lack of market fit and not pivoting. And “This is my idea, and you’re the customer you should like it,” is the idea–
Rob Ristagno: We’ve heard that once or twice here.
Terry Jones: Yeah, of course, and you’re dead wrong. So we were flexible, we did try a lot of things. Some of them failed. I noticed yesterday that Kayak just started a loyalty program and I went to sign up and you had to use your mobile phone and a QR code and it failed on my phone, which I sent to the chairman of Kayak. And he went, “Oh my God.” So I should hear from them shortly.
Audience Member: No customer service to fix it.
Terry Jones: Yeah. No customer service.
Rob Ristagno: Go right to the chairman.
Terry Jones: Luckily I can write the chairman, but they’re still experimenting and doing well.
Rob Ristagno: Well, you’ve been on lots of boards. You’ve had these great success stories here. Now you’re really passionate about studying disruption, how people can disrupt the industry’s like you have in your career. And then, potentially more importantly, how big companies can avoid being disrupted themselves. Tell us a little bit about what you’ve seen and what you’ve learned on that dimension.
Terry Jones: Well, this is my other book, Disruption OFF. Well, I’ve been speaking on innovation for many years and I’ve seen innovation work, and we’ve all seen it fail. And I just got the feeling from audiences that they were worried about disruption, but not worried enough to do anything about it. And it’s always convincing people there’s a burning platform. Now in the last year, that’s been easy because we all went through a burning platform, but usually it’s fairly hard. So the book talks about 10 new technologies from AI to 3D printing, to cloud, to robotics. And in each case shows how incumbents are being disrupted by startups using those technologies, but also where incumbents have adopted them.
Terry Jones: And that first half is to sort of expand your mind about what new technology is doing to business. It also talks about new business models because in many cases, people are combining the new technology with a new model. But not always, sometimes it’s subscription razors, billion dollar business. That’s the first half of the book and then the second half of the book is what do you do? So the first half is also to scare you a bit about–
Rob Ristagno: Create that burning platform.
Terry Jones: Yeah. To create the platform enough, particularly in a speech, that people listen to the second half.
Rob Ristagno: Let’s assume people are sufficiently scared. What are some of the things you talk about in the second half?
Terry Jones: I think the most important has to do with accepting risk and failure. Every company is started by a risk taker, but risk gets driven out. It gets driven out by quarterly earnings. It gets driven out where, as the CEO of Panera Bread said, “Our delivery muscle gets way stronger than our discovery muscle.” We forget to discover and nobody wants to fail in corporate America. Oh my God. I was on a project that failed. Well, you have to learn how to kill projects and not people.
Rob Ristagno: Yeah.
Terry Jones: Now obviously, if Terry fails over and over again, you’re going to send me to the miners, but look, a baseball player who fails 70% of the time is awesome.
Rob Ristagno: That’s true.
Terry Jones: But he gets a lot of at bats. And so as a corporation, you have to say, look, this is what I’m going to do. I’m going to spend this much on research and development and new business models and experiment and know that many of them will fail. The nice thing today is you can fail small, right. You can build a new product with a 3D printer and try it out. You can, as Shell and Bose and many large companies have done, try something on Kickstarter. See if anybody cares, right. You can experiment on the web, very cheaply to get customer feedback.
Terry Jones: Obviously, if you have to build an electric car and build a factory, it’s a different thing. 70% of corporate innovation is into an adjacency anyway. So you have to have that culture and the right team of people who are glass half full and people who want change and people who’re willing to take risks is probably the most important thing I’ve seen in companies that they just don’t encourage it. And they drive it out and things stop. And if they end up instead of being successful, there’s a nice historical marker that says here was The Jones Company, right? They still employ a lot of people, but they didn’t change.
Rob Ristagno: But it sounds again, it has to come top-down. I mean, this is a tough thing to get [crosstalk 00:33:44]—
Terry Jones: Yeah. It is very much top-down. You need people to not be afraid. And it’s top down first to get bottom-up later. It was General Dynamics, I think, who decided to get into crowdsourcing new ideas. And they put up this big crowdsourcing system. Half of the ideas came from their own employees. They just weren’t listening before. So that happens a lot if you don’t have a system of listening to the people. The guy in the line, the guy making the machine, the woman in sales, the customer service agent, they’re the ones to contact. That’s where the good ideas come from.
Rob Ristagno: Yeah. What advice do you have for the frontline workers in terms of raising their ideas to leadership, especially leadership who is risk averse?
Terry Jones: Well, that’s really tough. I think it doesn’t work. So as you said Rob, it has to come top-down. The corporation has to change and people from the top have to create a culture of listening and wanting to experiment. I made a speech one day, I had a whole day with a big insurance company, you know their name, all 200 of their top exec. We went through all this stuff about innovation and disruption and the chairman who didn’t sit through the whole meeting, who should have but he was too busy, came at the end and said, “Well, this is all interesting. I only want you to innovate about these two things.” The air went out of the room. I got paid, but nothing happened.
Audience Member: Yeah.
Terry Jones: But another company, and this was 120 year old insurance company, before the meeting a woman walked up and said, “I did something innovative this week.” And I said, “What did you do?” She said, “Well, I’m in the department that processes all the applications. And I went to Adobe and we worked together to unlock the form so that people could type right on the form, didn’t have to print it out and then scan it and send it back.” Now, I didn’t want to tell her that idea was so old that the IRS had done that like 12 years before.
Rob Ristagno: Yeah. Lagging the IRS by 12 years.
Terry Jones: But it was innovation to them and to her. And it was wonderful. And their customers probably loved it because who likes printing out forms and filling them in with a pen? So it can happen anywhere if you have a culture where people respect that and listen to that and let people go. And it doesn’t have to just be in IT. I’m on a board called the Research Board, which is the CIOs of the Fortune 50. And we talked a lot about IT’s role, which has changed a lot because IT is now so integral to product development. So it can work very well that IT can come forward with a new idea based on a new technology, but IT really has to embed itself in the business so they’re listening to the problems and they can go back and say I can fix that with this technology, or you need this technology to do it.
Terry Jones: I mean, one of the big cultural shifts you’re seeing now are companies who are realizing how important it is to have a centralized database and organize around the customer. And they blow up all the silo databases. You look at Ant Financial who’s had the trouble with the Chinese government, but they’re still a massive company, they were basically the PayPal of Alibaba. And instead of optimizing to become a better PayPal they said, “Let’s surround the customer with other businesses.” So now they’re into insurance, they’re into finance, they’re a huge lender. They have 14 businesses based on their billion customers. And more and more, more companies are doing that and building a platform around the customer instead of organizing around the product. And the cloud, of course at the same time allows you to be continuously connected to the customer. So those of us in web businesses are very comfortable with being constantly connected to the customer and updating, but an industrial company is not, but today you have to be.
Terry Jones: So John Deere no longer has to wait until the annual meeting to hear from the dealer what they think the farmer is doing, they watch the farmer every minute and they can delight the farmer by updating the software in the tractor and it looks like they got something new. But to do that requires a different culture and a different speed. You have to be able to run the marathon and the sprint. I still have to have this production mentality and drive out defects and all that stuff but I have to be, as well, running the sprint and listening to startups and going to what’s called the Silicon Valley petting zoo, where you go out and see all the startups, get the ideas. A lot of people do that.
Terry Jones: I was at a dinner with Ken Chenault who was the chairman of American Express out in the valley with a whole bunch of startups. And he said, “Yeah, we come out here twice a year and we either buy them or get inspired by them or get terrified by them.” He said, “American Express started as a freight company. It was express on the railroads.” He said, “Now we’re a financial powerhouse. I don’t know what we’ll be in 20 years, but it probably won’t be where we are today.” That’s a company that’s going to make it.
Rob Ristagno: Yeah. Yeah. Excellent. Let’s open it up to the audience for questions for Terry.
Audience Member: Yeah, Terry. On that point of what it’s going to be next. Let’s say that Travelocity was travel agency 2.0, Kayak was probably a 4.0, I’m probably missed a few in the way there, but what’s the 8.0? What are we going for next? What is the next iteration of the way that you see it going in the future? If you don’t have a timeline mandate, just how does this eventually go?
Terry Jones: I thought the biggest change in travel would be natural language. So I started a company… I got a call from Ginni Rometty, the chairman of IBM and she said, “Can you come up and teach IBM Watson about travel?” And I thought that sounded interesting so I did. And that eventually turned into a company that IBM invested in. And for four years we were developing both natural language search and voice search. So you could go to a website and say, “I want to go to the Caribbean in February. I want awesome golf. My wife wants a spa. Where should I go?” You can’t do that on any travel website. It says, “What city do you want to go to and what day?” And then you have a thousand pages to look at and you have to search a thousand reviews and look at a hundred pictures to see if the spa is a building or a hot tub. Right. You don’t know.
Terry Jones: And it turns out it had a dramatic effect on conversion. We got much higher conversion from people who search that way. And if we used AI so that when they arrived they didn’t see a picture of the front of the hotel they saw the golf course because that’s what they asked for and the specific review talked about the spa. But it turns out travel was dead last of all major industries in adoption of AI and they haven’t done it and they didn’t do it and our company failed. We almost pulled it off by flipping into an ad-based company and selling ads. So I think eventually that will happen because I think that it’s quite unfortunate that the user interface hasn’t changed at all using AI. They’re using AI in the basement, but they aren’t using it facing the customer. And I think the people who pull that off could do it well.
Terry Jones: There’s some other interesting things going on. I’m going to be an advisor to a company that’s using Blockchain to allow people actually to buy and sell rooms. So you purchase your room, but you also get to resell it if you want. So the price goes up, there’s more demand, you are flexible, you can sell it. And it also allows hotels to begin doing things like selling the room where Ringo Starr stayed, I want to be in that room or I want to be in… So it’s giving them the abilities to create almost NFT’s, if you will.
Rob Ristagno: That’s what it sounds like, yeah.
Terry Jones: Yeah. Out of some assets. It’s not going to be huge, but it’s going to be interesting. And I think airlines are going to have a real tough time. Business travel is going to be down 30%. CFO’s are cutting budgets big time. It’ll take time for them to come back and the business guys pay the freight so fares are going to be up. I think leisure travel is going to come back with a huge post-vaccine explosion. And business travel is going to take a while to come back.
Rob Ristagno: Actually, on those last two points. Airlines have relaxed change fees and cancellation policies over the last year. Some of them, I can see already putting them back into place, but I like your Blockchain idea. Would airlines be interested in that at all?
Terry Jones: No airlines would hate that. Airlines are really fighting very hard against anybody else arbitraging their product. They think their yield management systems are the best. They’re pretty good. I mean, American invented them, I used to sell them, but if they were really good the whole industry wouldn’t have gone bankrupt. So running an airline is a terrible business, generally. It’s going to be interesting to watch them meter capacity as they come back up and to see if they get into an over-capacity mode, which has always been their death knell. I think they’ll be quite cautious. But I think it’s going to be expensive to fly. I’ve spending a lot of time on this issue of COVID passports, because I think they’re essential to bring travel back. Now, we’re not going to have one in the US, but every other established country in the world, the EU has them, the African Union, Japan, China, you’re going to have to prove your vaccinated if you want to travel.
Terry Jones: The Biden administration didn’t want to get involved, he delegated to the states. Fourteen states have passed laws against them, mostly against the fear of something that wasn’t going to happen anyway, you’ll need them for a restaurant or a movie. So the problem is the US is the only country in the world that isn’t checking for COVID at the border. They’re making the airlines do it. And so, as a US citizen ,when we go out we’re not going to have a document that we can use in France or in Spain or in Russia, we’re going to have to get theirs every time we go out.
Rob Ristagno: Yeah.
Terry Jones: I expect we will get to the point where we will accept the EU document here, but we won’t have one, which is stupid. We’ve had the yellow vaccination card for 86 years. This is just a digital representation of it, because you could make the yellow one on your printer today. But people are afraid it’s a violation of their rights and other countries don’t give you the same right this country does. They have border control. We have border control. We say you can’t enter the US without a negative COVID test. So at that level, it’s kind of stupid to be arguing about it, but we are. And I think it will hold us back unless we figure it out, and travel’s a huge part of the economy.
Rob Ristagno: Hopefully. Yeah, it’ll take some time, but–
Terry Jones: Yeah, hopefully we’ll get our act together on that. But–
Rob Ristagno: And hopefully some of the points you’ve made about innovation and using the last year and what would I miss in the travel industry, maybe there’s been some things that people will learn from and wind up in a better spot, but it will take time. Excellent. Terry how can people learn more about you and what you do and get your books?
Terry Jones: My website is tbjones.com, T as in Tom, B as in boy, Jones. It’s very hard to buy a Jones URL. So tbjones, and there you can learn about me. There’s lots of videos of me speaking. My books are available on Amazon, in paperback and in Kindle and in audio. So they’re very unusual books. Each of them is about 75 three-page chapters. So it’s snackable short-form media for people who today have short attention spans, and they tend to finish these kinds of books. So tbjones.com, you can connect with me or watch a video, or please hire me as a speaker, either virtual or physical.
Rob Ristagno: Excellent. Thank you, Terry. We definitely learned a lot on this one. And this will conclude this week’s CEO Campfire Chat, I’m Rob Ristagno. To listen to more episodes or sign up for bonus content, visit us at ceocampfirechat.com. See you next time around the fire.
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