Shakeups

Kevin Ryan Asks Jetsetter CEO Drew Patterson to Step Down After ‘Mutiny’ From Staffers

"From an internal morale point of view, things have not gone as well as they should have," says Gilt Groupe CEO Kevin Ryan.
drew 16 Kevin Ryan Asks Jetsetter CEO Drew Patterson to Step Down After Mutiny From Staffers

Mr. Patterson via @jetsetdrew

Gilt Groupe founder Kevin Ryan and chairman Susan Lyne spent Monday at the offices of Jetsetter, a deals site for luxury travel that operates independently under the Gilt Groupe umbrella. When the day was done, the Jetsetter board, where Mr. Ryan serves as chairman, approved a bold decision in response to an exodus of six senior executives and pervasive frustration among Jetsetter’s nearly 90 employees. “More than half of us are looking to leave within the next month, at which point the business won’t be operational,” a Jetsetter employee told Betabeat last week, recounting “mutiny” among staffers.

“Drew [Patterson, the company’s CEO and cofounder] is going to step down effective immediately,” Mr. Ryan told Betabeat by phone this morning. In his stead, Mr. Ryan named Rob Deeming, Gilt Groupe’s director of strategy and operations, and Mr. Ryan’s former “chief of staff,” as acting general manager of Jetsetter. Mr. Deeming had been in charge of Jetsetter’s UK office, which was launched last September.

Mr. Ryan said the change at the top was motivated by turnover and morale. “Too many people have left. When you’re the CEO, you’re responsible for that. We’ve had a lot of communication over the last six months on this issue. At a certain point, for myself, you make a change.”

Interviews with staffers, who spoke under condition of anonymity last week, painted the picture of a company hampered by Mr. Patterson’s and CTO Colin Kroll’s unwillingness to listen to and implement other people’s ideas–at the expense of employees eager to grow the brand. The initiatives that the duo had put forward, such as a UK office, had flopped, sources said. “They talk to themselves and they think they’re smarter than everybody, but they don’t know how their customer works,” said another Jetsetter staffer, referring to Mr. Patterson and Mr. Kroll. “We have great members, we want to keep them happy.”

The way some employees tell it, morale started nose dive around the time Barry Herstein, the company’s first-ever chief marketing officer, left Jetsetter. Mr. Herstein, a veteran marketing executive from PayPal, American Express, and the Financial Times Group, had actually been in consideration for the CMO gig at Gilt Groupe. When his appointment was announced last month, Mr. Patterson hailed the opportunity to “get the Jetsetter brand to a larger audience.”

But Mr. Herstein’s tenure was short-lived. “Barry started on a Monday, didn’t show up for work the following Tuesday and it was announced on Wednesday that he wasn’t coming back,” said one Jetsetter employee who agreed to speak under condition of anonymity. “He came in and realized all the things that were wrong with the company immediately.”

Turnover and disagreement over direction are routine for a startup, but Mr. Herstein was the third highly-respected senior executive to leave Jetsetter this year, following Heather Leisman, the former VP of merchandising and operations and Stephanie Dolgins, the former head of marketing.

Sensing unease among the ranks, two weeks ago, Mr. Patterson broke staffers up into small groups to meet with top executives. Sources say the most successful session, in terms of open dialogue, was with Taleeb Noormohamed, a Canadian entrepreneur brought in to head up Jetsetter’s “Homes” division. A week after the meeting, Mr. Noormohamed announced he would be leaving the company as well. “I definitely think Drew was threatened by how much people trust and respect Taleeb. His loss is a huge blow to hope,” said one employee. The day of Mr. Noormohamed’s goodbye party–for which Mr. Patterson showed up two hours late–employees found out that two more staffers would be leaving as well: Stuart Horowitz, VP of human resources, and Ivana Naeymi-Rad, director of engineering for business platforms. Five minutes after Mr. Patterson arrived at the party, hosted on the roof of the Gansevoort Park Avenue, employees started dispersing. “They all get marginalized, they all get frustrated and they all leave,” a source said last Wednesday, adding, “There are about twenty people who are ready to walk out the door tomorrow.”

Employees told Betabeat that revenue at Jetsetter was “flat,” despite adding new venues, wondering why the board didn’t act, despite the fact that there were “no positive signs coming from the company (including financial).” But the company vehemently disputed that claim on the phone. Jetsetter is poised to do close to $100 million in gross bookings this year, a spokesman said, adding that at yesterday’s board meeting, Jetsetter reported 16 percent growth year-over-year for this quarter despite an industry-wide lag in the discount offerings. “The travel market is doing pretty well right now, which means there is less discount inventory available,” noted Mr. Ryan. Individuals months may have been flat, but never a quarter, said the spokesman.

We had heard that Jetsetter was burning through $500,000 a month, but a company spokesman says Jetsetter has been cash-flow break-even since it was launched, which is unusual for ecommerce companies that normally require a fair amount of cash to build up. Jetsetter was capitalized with $1 million three years ago and hasn’t raised since. After that initial raise, neither Gilt nor any outside investors have put money into Jetsetter, says the company. From an accounting perspective, however, Jetsetter still loses a few hundred thousand dollars per month, which is half of what it was six months ago. But the business should cross over into profitability next year, on schedule.

In terms of cash flow, said the spokesman, Jetsetter has been the single best business in all of Gilt.

The company also disputed employee statements that Jetsetter’s UK office, one of Mr. Patterson’s pet projects, had shut down. “That was a pretty big deal when we opened up another office,” said a Jetsetter staffer. “And then to see it fail so quickly was pretty demoralizing for everyone. There’s still some people over there, but we’re no longer really operational in the UK. They’re more there just for the sales side.” Jetsetter, on the other hand, says the UK has not closed down and claims the company is in the proces of hiring five more people. Currently, however, the UK office is just there to source deals for the US. Originally, Jetsetter had hoped for an independent UK team to create a business overseas, but found it difficult to get members. The last entry from Twitter account @jetsetter_uk was February 1st.

According to one employee, during a meeting of twenty staffers, Shaun Stewart, VP of sales and operations, suggested that Jetsetter start copying their competitor, Tablet Hotels. The source said Mr. Herstein, the short-lived CMO, asked why Jetsetter wouldn’t stick with what it’s good at it–beautiful pictures and editorial content–over copying someone else. Jetsetter used to showcase “quality products,” said the staffer, “now it’s crappy hotels.”

Mr. Ryan offered praise for Mr. Patterson’s willingess to try new things, contrary to what we had heard from employees. “When Drew came up with the idea of selling full-price hotels a year and a half ago, no one at Gilt had done this and no one in the flash sales space had done this,” said Mr. Ryan. “Now it’s 40 percent of our business.” Jetsetter also plans on announcing a number of new hotel chains into its offering this coming month, including the recently added Mandarin Oriental. He also spoke highly of Jetsetter’s product, especially as compared to its competitors. “The product itself is fantastic. I actually think it’s one of the best products we have at Gilt. It’s won lots of awards. I’m sitting here in the conference room looking at the 2011 Webby award,” he said.

Most of our competitors like RueLaLa or Haute Look that entered the travel space two years ago, either have dropped out or have small businesses,” said Mr. Ryan. “Neither one is doing even $15 million in revenue. Ideeli same thing. We all started at about the same time. We have a bigger travel flash sales business than the three of them combined.” He also pointed out how a European competitor called Voyage Privé tried to enter the U.S. market a year ago, but “dropped out because they couldn’t compete with Jetsetter in this market.”

Ultimately, however, Mr. Ryan’s decision to replace Mr. Patterson, a former VP of marketing at Kayak.com, was motivated by the fact that, “There’s been more management turnover for a variety of reasons in a small company than there should be. There’s always some unhappy people everywhere but I think the internal cooperation within Jetsetter is not great between various departments.” During the breakout sessions with senior executives a couple weeks ago, Mr. Patterson’s staff also blamed low morale on lack of communication, which one source called merely superficial. “It was still a top-down movement of them telling us what was wrong with the company, rather than us telling them what they needed to change,” said the source. Mr. Kroll, Jetsetter’s CTO who led alongside Mr. Patterson, will be staying in place.

Mr. Ryan said Jetsetter has not yet begun a search for a new CEO. Considering that Voyage Privé is about a $400 million business in Europe, he said, Jetsetter could be expected to approach that as well. “The person in charge, we need to feel comfortable that they can scale this into an international large travel business. It’s too early to learn if Rob is that person,” said Mr. Ryan. “But we’ll do a search. And my guess is within six months, we’ll have someone new in here from a travel background.”

We will be covering this story as it breaks. If you have information about Jetsetter, please contact ntiku@observer.com.

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