I met today’s guest at dinner a few months ago.
Like I do in my interviews, I asked him about his business and what his revenues are and all the things you’re not supposed to talk about at dinner.
His revenues were shocking. And so was his business, so I invited him to talk about it.
Andrew: Hey there freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart and the place you come for entrepreneur stories.
Today’s guest is a guy who I met at dinner a few months ago. Like I do here in my interviews, I asked him about his business, what his revenues were, and all kinds of stuff that you’re probably not supposed to talk about at dinner. But, his revenues were shocking and his business was very interesting, so I invited him to come here and do an interview.
Today’s guest is Marco Zappacosta. He is the founder of Thumbtack which allows you to hire and verify local professionals for home improvement. For example, if you want to maybe hire someone to fix your sink you’d go to thumbtack.com, and that website will help you find a plumber.
Marco: Thank you. It’s great to be here.
Andrew: Dude, how did I do with your last name? Actually let me try again. I want to make…
Marco: Two corrections. The name was fine the second time you got it out. Then, we actually are a marketplace for all local services not just home improvement.
Andrew: Ah, okay, all local services. What’s the difference? Oh, actually, I know what the difference is. The dinner was catered by someone who you got off of thumbtack.com. That is the difference.
Marco: You got it. So, Spanish lessons, personal trainer, caterer, DJ, all available on Thumbtack.
Andrew: All right. Researcher fired, baby. I should have actually known that. Maybe I should be the one who’s fired. I forgot one other thing. This interview, and all others, are sponsored by walkercorporatelaw.com, but I’ll tell you more about that soon. Hey, the last name. Where is it from?
Marco: Both my parents are Italian. They grew up there, and in 1976 moved to the United States. So it’s an Italian last name. It actually means hoer of the coast which is literally like a farmer would hoe his fields. So it’s pretty peasanty, but it’s a fun place to be from.
Andrew: Did you get teased about it growing up?
Marco: I don’t remember. I remember stories of my brother being teased more than I was.
Andrew: About what?
Marco: About his name. But I wasn’t particularly teased about it, thankfully.
Andrew: Because you were younger and maybe more American?
Marco: Could be. I think he comes off as more Italian than I do. I also went to school with the same group of guys from preschool through twelfth grade, so it becomes easier to push back when you know the bullies from the start.
Andrew: Ah, so how did you push back?
Marco: I don’t know. Probably just bullied them back. We [??] school with the same sort of bunch of idiots, who I love very dearly, for a long time. We’re all very close.
Andrew: Were you a fighter as a kid? I mean you’re in a pretty tough battle here. So many people have tried to make this work and they haven’t gotten nearly as far as you. Wait until people hear how you’re doing. But, were you a fighter back then?
Marco: No, I don’t think I’ve ever been in a fight. I certainly think I’m fairly assertive. I just never fought to assert myself. I’ve been… I think growing up with this group of guys we got close. It also, I think, helped us be very confident. We’re all sort of, I think, pretty confident. Some would say aggressive, but I think generally just assertive bunch.
Andrew: What do you mean? How did the assertive attitude come out when you were growing up?
Marco: We just did what we wanted to do. We got in trouble. We did dumb things. But, we sort of all did it together. We were always known to be sort of independent, and I think that’s where it came out.
Andrew: Your parents were both entrepreneurs. I want to focus this interview on you, but you were influenced by them. How did having entrepreneurial parents influence you?
Marco: I think the biggest thing beyond the, like, active support, be it emotionally, financially, everything, the biggest thing is they set an example that this could be done. They showed me that if you are smart and you work hard for a decade you can do big things. Particularly, I think I got the example of how hard and how long they worked on one thing. That, I think, was a very important lesson and one that not all entrepreneurs get.
Andrew: What do you see other entrepreneurs doing instead?
Marco: I think they’re influenced by the news cycle, Tech Crunch, Business Insider, where every day is another story of somebody raising $25 million or hitting some crazy revenue milestone. And, that does happen every day.
What doesn’t get told is that they’ve been at it for five or six years and they had to grind out the first three years with no help, no support, no money. We have a survivorship bias in our news, and therefore, we see everything through these rose colored glasses. I think that leads people to think that it’s more glamorous or easier than it really is.
Andrew: Why…the dinner that we had was at your co-founder’s house, right?
Andrew: I think it was at Jonathon’s apartment.
Andrew: Why do you need Jonathan? You have the experience from your parents. You can come up with an idea on your own. You have the ability to stick with it. Why do you need a co-founder?
Marco: Well, you need to, I think…I don’t know how people do it by themselves. It’s so hard and it’s so…there’s so much to be done. It’s so hard to know what’s right and what’s wrong that not having someone you can trust to go with everything and have them be a sounding board, have them be your biggest critic, and your biggest fan, I certainly would never have gotten this far by myself.
I don’t think he would have gotten this far by himself, and I think together we make a great team. I often tell early entrepreneurs that don’t have co-founders, “If you’ve never been through this before, you should really go find somebody. I really don’t know how you do it without it.”
Andrew: How did you meet your co-founder?
Marco: We worked together, and we started a student advocacy group together in Washington DC in the summer of 2006. I’m sorry, 2005, the summer of 2005. Jonathan had started the group in April. We got connected through a random mutual connection that we had, and I started working for him over that summer. Then we both took the semester off, the following semester, worked full time, and it was a start-up.
Andrew: What were you advocating?
Marco: We were advocating for Social Security reform. Basically, it’s not a typical thing that 20 year olds get into, but we were both independently passionate about it. The thesis of the group was that this is ultimately the bait that affects young people, and yet we don’t have a voice. That’s sort of the void that we tried to fill.
Andrew: You worked for him then?
Marco: Yeah. He ran and led that organization.
Andrew: Okay. Then you guys started looking for business ideas to pursue together, is that right?
Marco: Yeah, so basically what happened was he then went to work at the White House. In the summer of 2007, I interned in his office with his help to get in, and we lived together. It was very explicitly about coming up with something that we could start and we could pursue. Therefore, we just brainstormed and worked hard. I think we got lucky in that we approached things by focusing on, you know, what problems we could solve as opposed to what companies we wanted to start. That sort of customer orientation helped us ultimately come up with something.
Andrew: What kind of problems did you identify?
Marco: There were really two that…I mean Thumbtack was the second. The first one we got excited about was sort of financial accounts aggregator way for you to see where your money goes, how you’re budgeting, how much you’re saving. It was a lot like Mint. In fact, when Mint launched in the summer, end of summer of 2007, it was like incredibly bittersweet, because this was our idea. On one hand, we had been beat.
These guys did it, great. They were way ahead, and we weren’t going to catch them and that sucked, but the flip side was that it was very validating, because lots of people told us, you know, “This is stupid. Nobody is going to give you your bank account information. That stuff is so private.” We were like…we didn’t believe them. We thought, “No, if it was actually a useful tool, people must want this,” and that proved to us that our thinking was right in that regard. That felt very good and was very sort of encouraging, so we had went back and thought harder, and Thumbtack was next.
Andrew: How did you come up with the idea for Thumbtack? What was the problem?
Marco: Originally, we approached it as sort of consumers. You know, we saw really how antiquated the local services space was. In a time where you could by any product online with one click, you still had to make two dozen phone calls to hire a plumber. It’s not like hiring a plumber is that special. It’s something that, you know, every household needs all of the time. It was surprising to us how much progress had been made for goods and how little had been made for services. We felt like it was inevitable that something better would come along. We didn’t know exactly what that would be, but we knew that the current state of affairs just couldn’t last.
Andrew: The idea was I could go to Angie’s list or go to Yelp and find someone, but I couldn’t book them and schedule them there.
Marco: Yeah, and even sort of taking a step back like the user experience that Angie’s List or Yelp brought to market was effectively the offline model of the Yellow Pages. It’s a static repository of content. You know, both these online companies did smart things around reviews and pictures, and because of the internet, we’re able to deliver this product and make it searchable and better, but they didn’t fundamentally change the experience. The burden was still completely on the customer, and because there was no sort of true marketplace experience, these providers still had a very nonperformance based marketing solution offered to them. We saw the opportunity to really help on both sides.
Andrew: A few months ago, I interviewed Ethan Anderson, the founder of Red Beacon. His site had already existed in 2008, around the time that you guys were launching Thumbtack or thinking about it, no?
Marco: No. We came up with it independently. They launched after we did at TechCrunch50 in 2009 I believe.
Andrew: I see.
Marco: September of ’09. We had been working on it for about a year. I don’t know when he saw us, but I know that he came up with it independently as well. Honestly, there must have 15, 20 other companies besides the two of us that saw this and tried to do it.
Andrew: Didn’t he win that Tech Crunch event?
Marco: He did. He did.
Andrew: Were…be open. At the time when you saw that, how did you feel when he not only got the glory, but got the actual prize?
Marco: Oh, super pissed. It was our product. It was effectively the same. We actually thought to apply to TechCrunch50, and ultimately did not because of their rules around…you had to launch there. You couldn’t be live, and we had already been live. In retrospect, it should not have stopped us from applying, but no, we were super pissed. We felt that we were further and we were better. They got credit for the idea and sort of being in the right place, but that could have just as easily been us.
Andrew: The first kernel of the idea, you told Jeremy Weisz in our pre- interview here and Mixergy was a concierge concept. What was that?
Marco: It was like a doorman in a building who you can go to and be like “Hey, I need a plumber,” or “Hey, I need to find someone to throw an event to be a caterer or a DJ.” They effectively are a service that’s available to very few individuals, and we were like “Well, can we turn this into technology? Can we just be a concierge service where you come to us with a need and we deliver you what you’re looking for?”
In some ways that is what Thumbtack does. We deliver options, not just one person, because it’s hard to know exactly what a customer wants, but at the end of the day we’re in the business of fulfilling needs. That’s concierge- like.
Andrew: Did you launch that? Did you sell that service?
Marco: That’s still like part of the vision of Thumbtack. I think over time as we understand people’s needs better and better and better, we will feel more like a pure concierge offering as opposed to sort of what we have today.
Andrew: I see, but you never did that MVP concierge concept where you actually had…no.
Marco: No. We quickly realized that the reason why the concierge is effective is because he knows you. He knows what you want. He knows that you’re into, you know, one type of music and not the other when looking for that DJ, and that’s what makes him able to be effective. We did not have that type of relationship with our customers nor did we want a high touch manual relationship with them. We wanted to build a sort of scalable software product experience, and so we had to deliver the customer options, hopefully, enough so and the right one such that we nailed what they were looking for.
Andrew: Were you or Jonathan technical?
Marco: We were not, but we had a technical co-founder.
Andrew: How did you find the technical co-founder?
Marco: He also worked with us at that student advocacy group.
Marco: Yeah, so he was graduating the University of Tennessee, computer engineering, and he basically…also passionate about sort of the mission and helped us build a bunch of infrastructure for empowering our student groups around the country to publish articles and organize their groups. It was awesome, and way more than most sort of advocacy groups did for their chapters and we were pretty excited about that.
Andrew: You know, Mark Shuster says that you as an entrepreneur might be better off just starting the company, getting a little bit far head…I mean, not far, but getting a little bit ahead, and then bring on other people as first employees and giving them big shares. Why not do that as opposed to making them co-founders?
Marco: I think if you know what you’re doing that could be a good way of going about it. If you’ve built and sold a company or have seen it enough times that you can just go, then maybe, yeah.
But, I would argue for a first time entrepreneur in the long run it was highly value accretive [sp] to have a co-founder even if you’re splitting the pie straight up from the start with two or three people. I just never would’ve gotten this far. At the end of the day it’s not about maximizing your ownership percentage. It’s about maximizing sort of what you create, and if you own a smaller sliver of that that’s okay.
Andrew: How’d you get the name or the domain name thumbtack.com?
Marco: My wife actually came up with, my girlfriend at the time, the name. It was a very mechanical process going through a list of potential names, synonyms, and antonyms.
Andrew: I hate that. I went through that process.
Andrew: For me I tried to merge different words together to make my own unique name.
Andrew: That’s how I came up with Mixergy.
Marco: Then we stumbled on Thumbtack. Nothing had been built around it, which we were surprised. So, we reached out to the owner. He wanted 40 grand. We got him down to 35. Then, we were sort of in a conundrum, because we didn’t really want to spend that much money. It felt like way too much having nothing built yet.
So, what we did was we financed it. We offered to pay him a third up front and the rest financed at six percent over a year. We figured okay if we lose roughly 9 grand, 8 grand out of this, like, I can live with that much better than losing 35. At some point during this year we’ll either have figured out that this is an obvious thing to buy or we’ll walk away and be sad about.
Andrew: That’s a great idea. Then, he would keep the down payment?
Marco: Yeah. We paid the first installment up front. It went into escrow. There are domain escrow services. So, they knew that if we paid and had receipt of payment for the rest of the balance plus interest they would release the domain to us. Sure enough, we got it.
Andrew: If not, he gets to keep his money and his domain.
Marco: [??] you got it.
Andrew: Ah, great deal for both sides…
Andrew: …while you try to figure it out.
Andrew: All right. I heard you worked out of your brother’s house.
Andrew: How long were you able to stay there?
Marco: It was lucky. He got a job that took him to Italy. So he and his wife moved there. They had not too recently but kind of recently bought a house. They wanted to sublet to someone they trusted. So I got the nod. I got a reduced rent and an office space out of it. It was perfect.
We were there for, like, almost 18 months until we decided to hire a bunch of interns. Actually, right around a year, and he said I don’t want four interns in my house, you guys have got to get out of here. So, I did stay, but the office moved to another house where four employees lived and the rest came and worked every day.
Andrew: What are the interns doing?
Marco: That, I think, came from our student organizing days. We were like oh wow, we can probably recruit a bunch of smart kids and have them help. Sure enough, we had interns from MIT and Stanford. We probably hired too many of them, but…
Andrew: You just brought them on because you knew how to do it. You had experience…
Andrew: …and you were familiar with it. I see. But, did you have any work for them? What did they do?
Marco: Yeah, we did. There was so much work. We had two sort of on the business marketing side helping with some of the user acquisition stuff we were doing and content creation. Then, there were two on the engineering side, and they helped with sort of admin related things, like internal tools and whatnot. Yeah, it was fun.
Andrew: Okay. So then you moved out of the place.
Actually, before we continue with the story, I want to thank Walker Corporate Law. Do you know Scott Walker?
Marco: I do not know Scott Walker.
Andrew: Scott Edward Walker I should say. He is the entrepreneur’s lawyer. Walker… Actually, one of your investors is a big fan of his, Jason Calacanis.
Andrew: What point did you guys incorporate?
Marco: We incorporated in October of 2008.
Marco: That was basically when we wanted to be able to create sort of the shares in the company and that sort of stuff. We got introduced to a great lawyer, DLA Piper, who sort of did all that on a $35,000 float. And that obviously got paid back once we raised our first bit of money and that was awesome.
Andrew: Thirty-five thousand dollars?
Marco: Mm-hmm. Well I don’t think we used all of that, but that was what we had allotted to us.
Andrew: Wow. And tell you what, instead of just making this an ad for Scott Edward Walker, why don’t I just ask you, one piece of legal advice for other entrepreneurs based on your experience.
Marco: I would, just don’t get cute. It’s, like, not where you’re going to win. Do the plain vanilla option and sort of try not to sort of reinvent this stuff. Like, take your lawyer’s advice, take the mainstream wisdom and just get back to work.
Andrew: Great advice. Walkercorporatelaw.com if you’re looking for a lawyer. Hit them up, talk to them. Or just email Scott. Scott@walkercorporatelaw.com. All right, then moving on with the story. You now have interns. You have a place to work. You have a website. It’s time to start getting people on the site. I mean, the service professionals. Do you start there or do you start with, I guess you do, right? You’re not starting with traffic coming over.
Marco: Yeah, you’re right. You know, it’s chicken and the egg problem. You got to pick a side. Ultimately most everybody picks the supply side in our space because they’re much more receptive to the offer of new business, even on the sort of chance that there won’t be any. And so, really, like, our first year and change was focused on this problem.
And not having much money in the bank, we’d raised friends and family money in June of ’09, but, you know, we couldn’t build a big sales team and so we had to get scrappy. You know, my answer to how people, how do you solve the chicken and the egg problem, it’s, you know, you steal chickens and build a chicken farm.
Andrew: How’d you steal chickens?
Marco: So, what we realized was these people are already on the Internet, advertising themselves. And if we built enough tools to sort of crawl the web, understand who’s out there and then sort of reach out to them programmatically. You know, we didn’t have to buy this list. We could sort of take it from the rest of the internet. And that’s what we did.
Andrew: Did you, you scraped what was out there and did you automatically add it to your site, or did you scrape so your salespeople could call?
Marco: Yeah, so, we built up this database in the background, you know, with a lot of machine learning, learned how to classify things in terms of category, location. And then we would programmatically reach out to them via online marketing, email, basically any way we thought was scalable and effective.
Andrew: How, when you’re just starting out and you’re not that great at sales, aren’t that experienced yet, how did you start selling the first people?
Marco: So we got, one of the good fortunes of Thumbtack is it kind of sells itself. We are in the business of delivering dollars to these service professionals. And turns out, they are very interested in more dollars.
Andrew: They like more dollars.
Marco: They like more dollars . . .
Andrew: All right.
Marco: . . . and so when you come to them and say, Hey, Joe the plumber, Thumbtack’s great for plumbers. It’s going to get you more business. Like, that’s going to pique their interest. And over time as we started to drive the demand side, we actually leveraged the demand side to recruit more service professionals. We’d say, Hey, Joe, we’ve got, you know, Jane here in your area looking for a plumber. Are you interested? And when you show up with a live customer that makes for a very compelling marketing message.
Andrew: I heard, again, heard. This is from our research and the pre- interview, that you, that personalization helped with selling it. That mass personalization is one of the things you did, right?
Marco: Oh yeah.
Andrew: How’d you do it?
Marco: In pulling out, making sure we had their name correctly. Pulled out, understanding exactly what services they offered it, where they offered it, what they liked to do. Anything that could increase the relevance of the marketing message we were delivering to them paid huge dividends.
Andrew: And you can get that by scraping. You can scrape and make sure you have the right name. You can scrape and make sure you know what they’re doing.
Andrew: Can you scrape the internet and also find what they’re specially good at or something interesting about them?
Marco: Yeah, they talk about it on their website, right. And so you can be smart about how you target them based off the group of keywords that’s on their website. We thought it was going to work and, and it did.
Andrew: Wow. So how much, seems like a lot of resources went into scraping.
Marcp: Yeah, actually, you know, crawl, web crawling…
Andrew: Let’s call it web crawling. It’s basically the same, right? In this situation?
Marco: It’s what Google does to the whole Internet.
Marco: Every second. Every day. And, what, the real challenge was, was not sort of crawling in scale. That’s not trivial. I don’t want to minimize the effort that went into that. But in sort of interpreting that data and cataloging it in a way that was then helpful to us. And sort of applying, you know, machine learning algorithms over this sort of raw data set to pull out the people that were relevant for Thumbtack, to understand who they were, what they did, how best to reach them. That was the real hard part.
Andrew: There’s a guy, Matt Ellsworth, who works at StoreFront, whose, I guess, they scraped other sites, Etsy, for example, to see who was selling online, and then they convinced many of those people to set up real life store fronts, pop up stores-
Andrew: And he’s a huge advocate now of scraping. I’m trying to get him on here to teach it.
Marco: Yeah. Yeah. I mean, at the end of the day it’s like you’re just building your own sales and marketing list, right?
Marco: These are people who are actively looking for what you’re selling, and you’re just doing so in a programmatic fashion.
Andrew: But that’s also spam. How do you stop it from. . .
Marco: I don’t think so.
Andrew: Why not?
Marco: Because I think spam is, by definition, sort of un-targeted and mass and unpersonalized. We send a different message to every different person, and we sent them what they wanted.
Now did some people not want it? Sure. We didn’t convert 100%. And that’s fine. But, you know, if that’s spam, then any billboard is spam too, right? It’s spamming your eyesight. Or a TV commercial that you didn’t actually want to buy, is that spamming you? Like, I think it’s obviously a continuum, but at the end of the day being targeted, being thoughtful about how you create, curate that list, enables it to be incredibly effective.
Andrew: I’ve talked to people who had legitimate lists, of people who asked to be signed up to their mailing list, who would still have deliverability issues. In fact, SendGrids, their whole business model is, because it’s designed to help get people deliverability because it’s so hard. When you’re doing this, how do you ensure deliver-ability?
Marco: You just have to be smart and careful, right? You know, the email service providers don’t want you to send crap that people don’t like, and if you send crap that people don’t like, they will shut you down. And so, you can’t do that. It has to be good. It has to be relevant. It has to be something people want, and you have to be very careful about how you monitor that.
Andrew: Okay. Did you focus on a specific category at first, or a specific city?
Marco: No, actually we, because our sort of service pro acquisition strategy was by and large categorically or geographically invariant, we kind of went everywhere at once. The thinking being we didn’t know who exactly this would stick for or work best for, and if we were going to try it in one spot, we might as well try it in every spot and learn that answer faster.
In retrospect, this was a very good move. Most companies in our space have had a lot of trouble scaling and taking a much more geographic or categoric approach. Us being cheap, not having money, and being scrappy found this very scalable approach, and then kind of just went for it. You know, we always wanted to build something very big, so we said, you know, “Let’s go.”
Andrew: How much money did it take at first? What was the first raise? Friends and family?
Marco: So we raised, our first sort of seed round was half a million bucks.
Marco: And, so, to give you a sense, over the first five years of Thumbtack, from founding until basically today, we’ve only spent $6 million.
Marco: And we haven’t touched the money we raised six months ago even, so. . .
Andrew: How far did that first half a million get you? How much, how many, how much traffic and how many service providers?
Marco: Yeah, so it got us, well, we raised, then, an angel round in June of the next year, June 2010, we raised 1.2. That’s when Jason Calacanis and all our angels invested, which was huge, and those two rounds together got us to hundreds of thousands of service pros, hundreds, oh, maybe even low millions in revenue, at least on an annualized basis. So, decently far.
Andrew: Alright. I want to get to revenue in a moment. First, how did you get, now, buyers? You have the sellers and you talked about the process for finding them, contacting them and getting them to come on the site. How did you get the buyers?
Marco: So, what we realized through the help of an early investor and adviser was there were a lot of customers looking for what we had already. Because of our approach, we never put up unclaimed content, you know, Yelp, [??], it’s full of profiles that they’ve put together, that they’ve scraped or bought and put together. We never did that. We only wanted profiles that we had a relationship with that pro. That’s because at the end of the day we saw ourselves as a marketplace and wanted to be connecting a buyer with a seller not with information about a seller.
That was like a philosophical approach, but the practical benefit was that having these pros create the profiles themselves made them very unique. It gave us a bunch of content that nobody else had on the internet and gave us an audience that was sort of willing to invest in that profile, be it evermore content, reviews, biographical info, and links, everything we needed to do well in organic search.
It turns out that people are already looking for plumbers online. This was not a behavior we had to teach or train. We needed to be where they were looking and then we needed to be compelling to convince them to use us.
Andrew: Mm-hmm. So was it search and optimization then?
Marco: Organic search was the biggest driver of new customers and now more and more it sort of direct and word-of-mouth.
Andrew: Okay. So, what about the revenue model in the beginning?
Marco: So, I think we took an approach early on to try and be sort of transaction based, commission based. We saw eBay and Amazon Marketplace and the other established ecommerce marketplaces take that approach and it makes sense, right? If you can do it that way there’s no risk to the sale side and there are benefits to the buy side if you can engineer it correctly.
The challenge for us was that our buyers and sellers are going to meet in the real world. When you hire a carpenter to refinish your cabinets, he’s going to come and look at your cabinets and give you an estimate. There is often a lot of price discovery that happens after the point of introduction.
So it’s very hard to stay privy to what’s going on, who gets hired when for how much and you can’t force people to stay just within your platform because that’s not how they want to do business. They have got to connect in the real world. So, the commission model didn’t quite work. There’s no incentive to stay on the platform. There was no stick to force people to do so and there’s actually a disincentive because it meant you had to pay when you reported to us what was going on. So those are collections issues.
Ultimately people just didn’t pay it. At first that was fine. We didn’t really care about the revenue at first. We wanted to just understand the product better, make the experience better, and keep growing it. The revenues were sort of tertiary to those two. Then there came a day when we started raising our Series A. We, I think, mistakenly assumed that investors would give us the benefit of the doubt on the monetization front.
Our view was this is a highly lucrative transaction that we are facilitating. We’re bringing buyers and sellers together and of course we can make money out of it. It turned out not to be the case. There’s not always a bunch of venture in venture capital. They want everything to be proven out.
So during our Series A we realized wow, we really should have shown more here and the commission model, we knew was not working great. So, we quickly put in place a subscription based model. That actually worked quite well. We had tens of thousands of paying subscribers, millions in recurring revenue, but it was fundamentally flawed because it didn’t monetize on the margin.
The atomic unit of value creation, the thumbtack, is when a customer requests a service and then that service sort of transpires. When you’re charging a fixed monthly price, it doesn’t matter if we have one customer or a million or ten million, still the same fee to that professional and we’re not aligned with how our product creates value.
So at some point less than a year after having the subscription model in place we realized it had to change and we moved to sort of a per- introduction model. The way that that works is you as a customer come in, tell us what you’re looking for, we send that work request out to our network of pros in your areas and the ones who are available and interested pay us to send you a quote.
This is the most performance based offering they’ve ever had. If you think about their alternatives it’s pay-for-placement in the offline and online world, pay-per-impression, pay-per-click, pay-per-lead, but they have no discretion over which leads they actually pay for. And now for the first time, they can pay for introductions. They greet the customer, understand what they want, and decide based on their own preferences that this is worth engaging with.
Andrew: So I say I need a gardener, they get to see me on the site. If they want to meet me, they say yes, and you make the match, and that’s when they get charged.
Marco: Correct. And actually, we’ve now gone a step further. If you then don’t read the message that, that gardener sends back to you, we automatically give him or her a refund.
Andrew Oh, got you. Okay.
Marco: And over time what you’ll see, we’ll keep moving the trigger claim closer and closer to the transaction. At the end of the day these business owners are evaluating us on a hour wide basis, right, dollars in dollars out … is this worth it for me? The more risk we can take out of the equation for them, the better and secure it’ll be.
Andrew: I asked the founder of Red Beacon about you, and here’s what he said. We have this really open directory of tons of … maybe I should just tell you instead of trying to read the transcript. He saying you’re switching more towards his model. That at first everything was open on your site and on his site it was closed. What helped you was, because it was all open and available, Google can crawl your site and you’d get all the benefit of SEO. And you’re moving more towards a closed model because … what’s happening?
Marco: I don’t quite see it that way, and it’s true that they were closed, we were always open and continue to be open, and what is closed, is the messaging part. The customers request a service through Thumbtack, and then we deliver them quotes through Thumbtack. Our directory is open in the since that it’s available to Google. We certainly push people to request directly as appose to searching and browsing.
I think what you’re seeing is that there’s an evolution beyond this sort of directory model. What we do, what Beacon tried to do, and getting customers to done is the impetus behind the user experience. I think we both shared that from very early on.
Andrew: He said it’s more of a Lead Gen model now, which is what you’re basically saying.
Marco: Yeah, we consider it a market place model. We think about our take rate, and the ROY for these business, I think where Beacon never really got to scale, any meaningful scale. So what works for a handful of transactions doesn’t actually work across true scale, marketplace is doing hundreds of millions in GMV like ours. What we found was it’s not about how you charge, it’s what you charge for, and how much ROY is there for the business owner. I think over time as we build out a deeper and deeper relationship with these pros, you’ll see us be ever more transactional. Today this sort of point we charge for, this introduction, and we feel it works great.
Andrew: You told me at dinner, you have a team of people in the Philippines. Can you tell me about them?
Andrew: What do they do?
Marco: They do four main things. We do what we call marketplace operations in the Philippines, and that includes customer support. We serve a group of users that are not the savviest tech users around. They’re great, they’re smart, they work hard, but they didn’t grow up with the [??] in their pocket, and so they have questions, and we want to help them out. So we have a big team of support agents.
Marco: I believe it’s almost half, or 75 out of the 200. We get like 60,000 support inquiries a month. On one hand it’s tough, because it’s a lot to work with and respond to. But on the flip side it goes to show just how invested our professionals are, our customers are and they want help. So we’re going to do the best we can to serve them. So that’s a big thing.
Another big task that’s done in the Philippines is on-boarding of new businesses to make sure that meet our community standards, that they meet our quality bar. We check certain things about them, and verify what we can. Then finally there’s and editorial team that goes and cleans up all the content that the pros give us. Because they’re not always the most natural of marketers, and so we want to give them a leg up and make sure they put their best foot forward. We’ll go and clean up content, correct spelling, all sorts of stuff like that.
Andrew: Do they also do sales where they call up professionals and say, “We’re going to set up a page for you,” or any of that?
Marco: No, no. We don’t do sales. We have 32,000 paying small business on a monthly basis.
Marco: Effectively no sales people.
Andrew: They all pay you just when they get an introduction, just when a match is made.
Marco: Correct, so there’s no contract keeping them. They stay because it’s ROI positive.
Andrew: They have to actively do something in order to get the action that would then cause them to get paid.
Marco: That’s right.
Marco: That’s right. The reason we’ve been able to get this mass of service professionals is because we’re driving them a ton of value.
We send them over 100 million dollars’ worth of requests every month. You know, a billion dollars a year on a run right basis at this point. It’s very enticing. They want more customers and we’re delivering them by email, by text to their pockets, and they love it.
Andrew: One of my researchers said, “Check out the…or ask about the traffic. It seems like traffic is going down a little bit.” Search engine traffic.
Marco: No, this year has been super strong, particularly in the last six months. You know, with Thanksgiving, that might have been it, over the last week. We certainly have some seasonality around the holidays, but search traffic has been super strong. I mean to give you a sense, marketplace activity is up 6x just about year over year.
Andrew: You’re also buying ads, right?
Marco: A little bit. Almost all of the sort of customers are coming through organic search and word of mouth, but we are starting to invest in paid advertising, and you’ll see us continue to get aggressive there. We believe we have the best offering for customers anywhere and we’ll work hard to deliver it anywhere and anywhere.
Andrew: You know, I was trying to look at the display ads. I have an account with WhatRunsWhere and I should have just checked it out. How effective are display ads for you? For some reason I just can’t load it right now.
Marco: We don’t primarily sort of PPC ads through the search network on Google and AdWords. That’s just low hanging fruit for us. I think the display network becomes effective from a retargeting perspective, and when you’re getting millions of visitors every month it makes a lot of sense, right? A customer comes in, you know, thinking about hiring a house cleaner, for whatever reason doesn’t complete their purchase or doesn’t go all the way through the process, that’s someone to reach back out to and sort of get out in front of. You’ll see us do a lot of that stuff.
Andrew: How much revenue you doing now?
Marco: Eight digits worth. We are in a good place. You know, our team of 240 across the Philippines and the U. S. is just about profitable based off the revenue we’ve had. We haven’t actually used a dime of the twelve and a half million we raised from Sequoia six months ago, not for lack of trying. We’ve doubled the team here in San Francisco and invested a lot in sales and marketing, but it just keeps growing, so it’s a high quality problem.
Andrew: We’re talking a burn of less than half a million a year?
Marco: On that order.
Andrew: Somewhere…wow, and over 10 million dollars in sales?
Andrew: Wow. Can we say over 20?
Marco: You can say whatever you want. I’m stating digits.
Andrew: [laughs] Would I be lying if I said more than 20?
Marco: You’d be talking.
Andrew: Did you take any money off the table with the Sequoia raise?
Marco: We did not. We were still super bullish. If anything convincing Sequoia…you know, they had a shot at the A. They ultimately passed, from our understanding, primarily around concerns around the business model and how sort of that hadn’t been sort of really put in place. We knew that, and so we said, “All right. Let’s fix it, and lets go get the best investor out there to join the team and help us.” That worked, and they’ve been great. We’re huge fans.
Andrew: Let’s see what else I want to know. Oh, actually, let’s talk a little bit about the raise. Was it easy considering how well things went from the start?
Marco: I don’t think things have always been easy or gone well. I think we focused on something that was fundamentally worthwhile, which not every startup does, and we were fortunate to have sort of identified very early. The A was hard. This was the spring of ’11. Most of the hardness came from self-inflicted challenges around not having proven enough to convince institutional investors or running a process poorly.
There were some macro-concerns, but you know, everybody has to deal with the weather, so I don’t think we get to point to that. The B was way better. You know, six weeks to the day, from first meaning to money in the bank. We had gotten a lot better at raising money, and we had thought harder around the story. It was much more compelling, and we had relationships, so we weren’t starting from scratch. We had met all of these people during the A, and we had stayed in touch, so during the B we knew exactly who we wanted to talk to and what to say. It went much better.
Andrew: What made the A so tough?
Marco: I think the biggest thing was the business model question mark. You know, we showed up saying, “We saw the [??] problem. We are bringing these buyers and sellers reliably in a way the delights both of them, and yeah, we don’t really know how exactly we’re going to make money,” or “We’re doing it this way and we’ll have to figure out a better way to do it tomorrow.” They said, “Yeah, OK. Good luck,” which in retrospect, it makes sense.
You know, my advice to people going into the series A or first institution money is make sure your unit economics are rock solid. You don’t have to be at a huge scale, but you have to give these guys confidence that the core model works and can scale, and you have sort of a path to scale or ways that you want to explore. I think we didn’t give them enough confidence around the unit economics.
Andrew: That makes sense.
Andrew: How did you celebrate after you raised so much money.
Marco: I’ve always found…we’ve raised, you know, four rounds of funding, and the feeling at the end is usually one of relief and tiredness more than like elation. When you sign the term sheet it’s pretty exciting. You know, when you sign a term sheet with a, you know, “Talk to your firm,” it almost always is going to go through to the main hurdles past.
Then it’s just a matter of herding cats, getting the paperwork and signatures, and order them. We were stoked. I think the team…the most exciting thing was that the team realized that the rest of the world was coming to appreciate what we had done. Here we were having convinced arguably one of the best venture investors out there that we were the best in his face. There was no one else they should bet on and we were the horse to back, and that felt good. It felt real good.
Andrew: All right. Let me do a quick promo for MixergyPremium.com. One of the benefits…do you know anything about MixergyPremium?
Marco: I do not. I’m curious to hear.
Andrew: Good. Good. Mixergy is a site where I do interviews, and I’ve got over 900 interviews on the site. All where we do a lot of research, we go in depth, we ask questions like here, let me ask you this. What is SRVSINF.com? Apparently it’s a pop-up service that you guys run on your site? Why do you run pop-ups on your site?
Marco: A pop-up service?
Andrew: Pop-ups. Apparently it’s like SR…you guys send traffic to SRVINF.com. Let me see what it is. Maybe it’s sending you traffic. I can’t really figure that out.
Marco: What is it?
Andrew: I guess…you know what, maybe that’s not the best example of the kinds of questions we ask. It is…maybe someone in…pop-up ads appearing on your computer.
Marco: I don’t believe so. I mean it be a…the one thing could be like a feedback form.
Andrew: Maybe. Maybe that’s what it is then. All right. I’ll have to come up with another example. [laughs] Well, so we do all of this research on guests. Apparently, sometimes we’re wrong. Actually, here. I’ve got to send you…here. This is where I’m getting it. Take a look. Leading destinations.
Marco: Leading destinations. Let’s see what’s here.
Andrew: Look at that.
Marco: Which one are you…
Andrew: The first leading destination. I can’t figure out what that is.
Marco: I mean all of those seem random slash wrong.
Andrew: Really? Alright.
Marco: Yeah, I don’t know. I mean all….that whole list…
Andrew: Except for Moving 99.
Marco: Yeah, and Facebook.com.
Andrew: Facebook.com. Alright.
Marco: Not sure.
Andrew: Wufoo, you guys have a Wufoo form somewhere, or I guess you were asking for feedback.
Alright, here’s what Mixergy Premium is. It’s a collection of interviews where I do research and sometimes I find interesting things and sometimes I don’t but it all is very in-depth. Step by step we walk an entrepreneur through how he founded his company, how he got traffic, how he figured out his revenue model, the mistakes they made and everything along the way.
As part of what we have, we also have courses where entrepreneurs teach one thing that they’re especially good at. Like OrenKraft is especially good at negotiating. He came on to talk about how to negotiate and he thought that. All that’s available to anyone at MixergyPremium.com If you’re a member, you get full access. If you’re not a member, go get a membership. I guarantee you’re going to love it, I guarantee you’re going to get a lot of value out of it, I guarantee you’re going to see impact and I can make that guarantee because I will give you 100% of your money back if you’re not happy and if I don’t Marco will kick my butt because he now knows where my office is.
Marco, will you guarantee that you’ll kick my butt?
Marco: One hundred percent.
Andrew: One hundred percent you will kick my butt if you’re not happy and don’t get your money back. MixergyPremium.com
Alright, here’s a final question I’ve been wondering. Maybe I have one other after this. But you did that dinner. I’m doing dinners here too because I get to meet so many interesting people.
What’s the value of doing dinners? I enjoy myself in the moment but I’m trying to think of the business value for all these dinners.
Marco: So I think one of the best things about Silicon Valley and sort of startups is that it’s not a zero-some game. You and your company can be successful and me and my company can be successful and it’s sort of independent of each other. And so makes people very open, willing to help, willing to share what’s working for them, what’s not.
You know, obviously there are competitors walls but basically everyone else will and that makes it very helpful to just sort of cross-pollinate with others and hear and listen and learn and we try to do as much of that as possible. In some ways, giving back, too. We made mistakes that I don’t want other entrepreneurs to make and if they ask for advice, I’m happy to help.
Andrew: Marco Armand, I think did a post where he happened to mention off- handed something like he used to go to dinners with entrepreneurs before he realized that they weren’t valuable and I’m thinking maybe I should second guess that, maybe it does makes sense.
Marco: I find it immensely helpful. I mean, building our network has been great for learning things. I mean, there are some key choices we made at Thumbtack because of the people we met.
Andrew: Do you have an example of that?
Marco: I mean, generally like SEO was not something we had any appreciation for until we met this investment adviser who said guys, you’re sitting on a gold mine and you are in a very privileged position of offering something that people are already looking for and you should be able to bridge that gap very effectively. And he was right and it was immensely powerful and continues to be powerful.
Andrew: Who was that?
Marco: This guy, Dennis Gross. He runs a website called Wise Geek and he’s just an awesome guy. He’s actually on a Board. We owe a lot to him and we met him at a networking event or some startup bar night. I don’t even remember what the prompt was and he was at, we were at and we’ve met employees.
So I think, look, as a founder you are in the business of creating gravity, attracting people, money, ideas to you, to your company to help it gather momentum and get bigger. And if you’re not out there, sort of you know proselytizing and attracting more people, you’re not doing your job.
Andrew: Well, it led to good things for me that dinner. Thanks for inviting me over. Thanks for doing this interview. Would you make an introduction to Dennis?
Marco: Yes, happily.
Andrew: I would love to have him here on Mixergy.
Marco: I’ll reach out, I’ll ask.
Andrew: I’ll follow up with you. I’d love to have him on but until then I’m going to say thank you for doing this interview.
Marco: Alright. Thanks for having me.
Andrew: Cool. Thank you all for being a part of it. Bye, guys.