BCG - The Boston Consulting Group

Michelle Peluso President & CEO Travelocity.com BCG Office: New York, 1995-1998

Imagine yourself as a White House fellow, bright, young, successful, and helping to both influence and determine national policy. From a career standpoint, the sky’s the limit. Doors will be opened. Calls will be returned. And, if you play your cards right, some pretty sweet career opportunities will come floating by you like a dessert tray at a four-star restaurant. Now ask yourself this: what kind of a phone call would make you leave that job and start a new one the very next day?

If your name is Michelle Peluso, the answer would be a twofold opportunity. First, to fulfill the entrepreneurial drive that runs in her family. Second, a chance to reconnect with BCG and many of her former colleagues from the New York office. The call came in September 1998. BCG had moved forward with one of its Web-based business concepts called Site59.com, and it could think of no one better suited to make it happen than Michelle.

"The business was growing at a very fast clip. In July and August of 2001, we started to get approached by some major players about getting acquired. We were expecting a term sheet the week of September 11."

“At the time, Site59 was last-minute travel, but it was also a broader last-minute lifestyle brand. The opportunity, particularly the travel piece, seemed intriguing and met two of my professional interests. One was to do something entrepreneurial in an industry that I really enjoyed, like travel. And the other was to renew my professional association with BCG.”

Michelle started working at Site59 the day after she left her job as senior adviser to the secretary of labor. “It was a quick turnaround. Suddenly five or six of us were very hard at work writing a business plan and working with people on the outside to develop the technology. After a few weeks of meetings and some initial hiring, the group rented space downtown, in the Wall Street area. From that point on the pieces seemed to fall into place.

“Far and away our biggest coup was getting Tracey Weber—then a manager at BCG New York—to come on board. She had spearheaded a lot of the thinking at BCG on Site59, so to me it was an enormous addition.” As it turns out, Tracey was considering leaving the firm to join the world of startups, but Michelle and her partners had no way of knowing that. They were so eager to have her become a part of the team that they made their feelings known in a way that can only be described as both melodramatic and irresistible.

“We bought her flowers and a cheap tiara at an accessory store near the old BCG New York office and marched into a meeting she was in. We all got on bended knee and begged her to come and join Site59—give up the coffee machines and the car service at BCG and come to our scrappy office downtown. Thankfully, she said yes.”

In accepting the offer, Tracey joined Michelle and a group of BCG alumni that included Damon Tassone, Joshua Feuerstein, and Richard Harris. The next major milestone was a soft launch in March 2000, followed by an initial release of the site with a focus at the time on last-minute travel. They decided to kill a lot of the earlier ideas from the business model about last-minute gifts or last-minute babysitting and really focus on one area. In looking back, Michelle feels it was a critical decision.

“I think it was instrumental to our success that we stayed incredibly focused on doing one thing exceptionally well. A lot of Internet companies at the time were very opportunistic in their approach to making money. Maybe not even making money, but gaining visitors or whatever the currency was at that time. We stayed laser-focused on the last-minute travel side.”

Last-minute travel, however, wasn’t the only area where they needed to keep their eyes on the prize. At the time, the travel industry, including airlines and hotels, was being sold on commission. The group decided that it needed to go against this trend and insist on being the merchant of record in every transaction.

“We told hoteliers and airlines that we didn’t want commissions; rather we would just take a negotiated rate, bundle it together, and then put our own markup on it so we could control our own economics.” That ended up being a very important strategic decision, because over the next two years the travel industry cut commissions drastically. The merchant model that Site59 had adopted became the one that survived as a way of doing business in the online travel industry.

The next milestone came in the form of an initial round of funding in September 2000 from iFormation and several leading hotel chains. That was followed by almost a year of steady growth. At that point, the group felt its product was so distinctive within the industry that it could safely redistribute it to other Web sites in the field. It proceeded to lock down distribution deals with Travelocity, American Airlines, Orbitz, Cheaptickets, and Priceline. By now, Site59 was powering the last-minute sections of these sites with its deals and getting a lot of accolades in the press.

“The business was growing at a very fast clip. In July and August 2001, we were approached by some major players about getting acquired. We were expecting a term sheet the week of September 11.” The weeks and months that followed would test the group’s collective determination in ways that no business school could ever have prepared it for.

“It was pretty dramatic. Our offices are two blocks from Ground Zero. Our staff—about 75 people—was in shock. Our revenues immediately dropped 70 percent. But, on top of that, it was just horrific. Emotionally, it was just very, very difficult for us to pull together.”

They immediately called off all acquisition talks. Michelle was emphatic in telling the board they were not going to reverse course, they were not going to do a down round, and they were not going to begin conversations about layoffs. The board, led by former Site59ers David Pecaut and Sara Allan, was outstanding in its commitment to Site59. For the two months that followed, the group received a reprieve from the board that allowed it to focus on expanding the business, instead of looking for ways to lower its costs. Over time, it would realize that it didn’t need to lower costs. But the emotional cost would be a price it could never have anticipated.

“I don’t think people ever worked as hard as they did during the month after September 11. After that, we became family in the way we identified with each other and worked hard to build the business back up. We did a lot for the community. We adopted a local firehouse and started cooking for the firefighters every Monday night. This particular firehouse is right next to us and it had five men on duty and lost four of them on September 11 because they were first responders.”

Whether the long hours that followed that fateful day worked as therapy for the company’s employees is impossible to say. What is clear enough, though, is that the growth of the business wasn’t only temporary. By January, revenues were again as big as they had been the previous August. By March 2002, they had almost doubled. Acquisition talks resumed in the winter of 2002 and on March 27, 2003, Site59’s board agreed to accept an offer to be acquired by Travelocity.

“Forty-three million dollars in cash is an extremely nice financial benefit for BCG and all the other investor groups. Since the acquisition, it’s pretty remarkable how much of the Site59 talent has been absorbed by Travelocity. I’m currently chief operating officer. But additionally, if you look at the VP group in Travelocity, it’s probably 50 percent BCG New York/Site59 folks.”

Site59 became profitable the month it was acquired, a full six months ahead of its founder’s initial schedule. Its success is a testament to both the power of a business model and the perseverance of the people behind it. It’s a story about Michelle Peluso, entrepreneurial spirit, and the type of bonds a team can form in the face of incredible adversity.