Podcast Summary
Thumbtack's early success and supply side challenge: Thumbtack initially succeeded by automating quote requests and filtering pros, but later faced a supply side issue as demand grew, requiring the company to adapt and address this challenge
The success of Thumbtack, a platform connecting customers with professionals for home improvement projects, initially came from automating the process of requesting quotes and filtering out unqualified professionals. However, as demand grew, the platform struggled to keep up with the high volume of requests, resulting in insufficient options for customers. This "supply side" issue became a major challenge that the company had to address in recent years. Marco Zappa Costa, Thumbtack's founder, shared this story during a podcast episode of "This Week in Startups," highlighting the importance of addressing growing pains and adapting to changing market conditions. To learn more about Thumbtack and its journey, visit squarespace.com for a free trial of website building with the code TWIST, or check out gusto.com/slash TWIST for three months free of easy online payroll, benefits, and HR services. For a better night's sleep, listeners can also enjoy a 40% discount on a Calm premium subscription by visiting calm.com/slash twist.
Thumbtack's Solution to Provide Consistent Options for Customers: Thumbtack automated the process for professionals, allowing them to input preferences and availability directly into the system for instant, tailored search results. They also allowed professionals to input their own prices, creating a dynamic system for accurate and fair pricing.
Thumbtack, a platform that connects customers with local professionals, faced a challenge in providing consistent options for customers in need of various services. The solution was to automate the process for professionals, allowing them to input their preferences and availability directly into the system. This resulted in instant, tailored search results for customers, saving time and providing a better overall experience. Another challenge was addressing price discrepancies across different locations. Thumbtack solved this by allowing professionals to input their own prices, creating a dynamic system that provides accurate and fair pricing for customers. The company is continuously working on perfecting each category and expanding into new areas, such as detailed availability and real-time booking. Mobile usage has become a significant factor, with about two-thirds of Thumbtack's business coming from mobile users. The platform's chat feature makes it ideal for mobile use, as customers can easily connect with professionals to discuss their needs and schedule services. Overall, Thumbtack's focus on automation and providing a seamless, mobile-friendly experience has led to success in connecting customers with the right professionals for their projects.
Text-based chat is popular for business interactions: Younger generation prefers text-based chat for business communication, including iMessage channels for professional groups. Squarespace is a versatile tool for creating websites with customizable templates, e-commerce functionality, and easy features.
Text-based chat has become the preferred method of communication for many people, especially the younger generation. This includes business interactions, as seen in the use of iMessage channels for boards and other professional groups. Squarespace is a useful tool for creating websites, offering customizable templates, powerful e-commerce functionality, and easy-to-use features for creating and managing a website. Starting a business in the past, such as during the Great Recession, required a different mindset and approach, with a focus on building a great product and surviving until it took off, rather than the pressure to grow quickly that exists today.
Starting a business during economic downturns: Unique opportunities present during economic downturns, perseverance pays off, and a strong business foundation is crucial.
Starting a business during economic downturns can be challenging, but it also presents unique opportunities. The speaker shared his experience of leasing an office space in San Francisco during the Great Recession for a mere $18 a square foot. Despite the space being too large for his needs, he and his co-founder subleased it and shared facilities with another company. This period was difficult, with many layoffs and economic uncertainty, but it also led to an influx of skilled professionals looking for work. Thumbtack, the speaker's company, officially started in August 2008, just before the Lehman Brothers' collapse. Despite the challenges, they focused on solving the liquidity problem of their marketplace business and worked hard to build the flywheel of supply and demand. After raising funds from angel investors, they faced rejection forty-two times before securing investment from Jet Cats and an unnamed investor. While some investors made offers but reneged on the terms, the experience taught the speaker valuable lessons about perseverance and the importance of a strong business foundation.
Relying too much on Google for traffic can be risky for startups: Google algorithm changes can impact investments, but clear reasons from investors should be addressed, monetization is crucial, and rejections are opportunities for improvement.
Relying too heavily on one source for website traffic, in this case Google, can be risky for startups. This was painfully demonstrated when an investor, who had initially shown interest, suddenly pulled out due to a Google algorithm change impacting another investment of theirs. However, the investor who ultimately came on board, Sequoia, showed conviction and changed their mind after the founders addressed their concerns about monetization. Founders should remember that a "no" from an investor is not a definitive answer, but rather an opportunity to understand their feedback and improve. It's crucial to ask for clear reasons and not take rejections too personally. Additionally, the importance of monetization and having a solid business model cannot be overstated, especially in the early stages of a startup.
Focus on the right investor and terms, not just high valuation: Founders should prioritize the quality of investors and terms over a high valuation to ensure long-term benefits.
While having a high valuation for a startup can be desirable, it should not be the primary focus for founders. Instead, the quality of the investor and the terms of the investment should be prioritized. This was emphasized in a discussion where an investor explained that a high valuation meant having to prove more to investors for only a marginal increase in ownership. He also warned against the potential downsides of over-optimizing for valuation, such as taking money from the wrong investors or accepting unfavorable terms. The investor also discussed the importance of understanding the structure of preferred stock and its potential implications on future fundraising rounds. In essence, it's crucial for founders to remember that the right investor and terms can provide long-term benefits that far outweigh the short-term gains of a high valuation.
Focusing on customer growth through a clear North Star goal and metric: By clarifying a qualitative North Star goal and an unambiguous metric, Gusto attracted customers, monetized them, and repeated the process, leading to significant growth.
Gusto is a comprehensive HR solution that simplifies payroll processing, tax filing, and benefits administration. With easy onboarding, persistent communication, and a user-friendly interface, Gusto saves businesses time and effort. The company's success can be attributed to a clear focus on one strategy for growth – attracting customers, monetizing that, and repeating the process. As a leadership team, it's essential to clarify a qualitative North Star goal and an unambiguous metric to measure progress against it. For Gusto, the North Star was "accomplishment" and the metric was "getting each customer three plus quotes." By maintaining this focus, Gusto has seen significant growth.
Balancing Metrics and Customer Experience: Focus on both metrics and delivering a great customer experience to ensure sustainable growth. Ask more questions for richer data and context, even if it means a lower conversion rate initially.
Focusing too much on metrics and inputs, such as the number of quotes requested or trials started, can lead companies astray from their ultimate goal of delivering a great customer experience. Instead, companies should aim for a balance between metrics and the end goal. For instance, in the case of quote requests, asking more questions to gather richer data and context may result in a lower conversion rate initially, but it leads to a better experience for the customer and a more accurate quote. This approach builds confidence in the customer and turns the process into product marketing. Ultimately, the goal is to provide a superior customer experience, and metrics should be seen as a tool to measure progress towards that goal, rather than the goal itself. Companies can create a heat map of their categories and geographies, with green representing a high number of quotes or trials, and red representing a low number. However, it's important to remember that a green number doesn't necessarily mean a good outcome if the quote or trial doesn't result in a job well done. By focusing on both the metrics and the end goal, companies can ensure they are providing value to their customers and growing their business in a sustainable way.
Thumbtack's Transformation from Human-Crafted Quotes to Instant Options: To grow from 234 to 203040 options, Thumbtack transformed their customer experience by eliminating the need for human-generated quotes and instead providing instant, programmatically generated options, aiming to retain specificity, intent, and quality while making the process faster and more efficient.
Thumbtack, a company that had reached 100 million in revenue, recognized the need for a significant change in their business model despite strong growth rates. The issue wasn't with growth but rather the "quotes per request" metric, which had proven to be a challenge despite years of effort. The team realized that to move from 234 to 203040 options, they needed to transform the entire customer experience. This meant eliminating the need for a pro to generate quotes and instead providing instant, programmatically generated options. The goal was to retain the specificity, intent, and quality of human responses while making the process faster and more efficient. The industry's reliance on word of mouth for service referrals further highlighted the need for a solution. To sell this transformation to the management team and board, the team focused on the problem's urgency and the potential to become the "Amazon for services" by solving it. However, overcoming the narrative violation that Thumbtack's unique selling proposition was human-crafted options was a challenge. In hindsight, the team could have communicated the difficulty of the project more effectively.
Being honest about challenges: Honesty about team challenges builds trust and motivates people to face uncertainty, leading to greater success.
Being honest and transparent about the challenges ahead, even if it means setting a more realistic and difficult expectation, is crucial for a team's success. The speaker regrets not setting this tone earlier in his leadership role, as people generally fear uncertainty more than known obstacles. He draws an analogy to Shackleton's explorer ad, where the high risk and uncertainty attracted those willing to take on the challenge. The speaker also mentions the importance of sleep for productivity and focus, and promotes the com.com application as a solution to help people sleep better and perform at their best. In retrospect, the speaker wishes he had been more truthful about the challenges they were facing as a team, even if it meant being less of a cheerleader in the moment.
Unlocking Value with Marketplaces: Human Talent and Time: Marketplaces can connect underutilized human talent and time with buyers and sellers, creating significant value. However, not all marketplaces are commodities, and consumer needs for intimate and high-dollar services require agency over who they choose.
Marketplaces have the potential to unlock significant value creation by connecting underutilized assets with buyers and sellers. This was first seen with the liberation of underutilized capital assets like homes and cars through platforms like eBay, Airbnb, and Uber. However, the biggest untapped asset is human talent and time, which is still largely underutilized. Marketplaces, particularly those focused on labor and professional services, have the potential to unleash the infinite talent and diversity in the world. However, not all marketplaces are commodities, and consumer needs for intimate and high-dollar services require agency over who they choose. Marketplaces offer a positive-sum game, but the economics can be challenging for commoditized services. Calm.com/twist, for example, offers a solution for managing stress and sleep, connecting millions of users with the value of calm and focus. Overall, marketplaces represent a significant opportunity for value creation and innovation.
Balancing Take Rates in Marketplaces: Founders must strike a balance between charging enough for value and not overcharging in marketplaces, ensuring a win-win situation for all parties involved.
In the world of marketplaces, ensuring a win-win situation for all parties involved is crucial. This is achieved when a pro finds a job through a platform like Thumbtack, and both the customer and the pro benefit. However, determining the right take rate for these marketplaces is a complex issue. Charging for value creation up front is important, but processing payments after creating a match can be a commoditized business with thin margins. Founders must strike a balance between charging enough to provide value and not overcharging. The gig economy has played a role in the low unemployment rate by offering a safety net for workers, allowing them to choose flexible work arrangements. Thumbtack, along with other platforms like Uber, Lift, and Postmates, has contributed to this trend by creating opportunities for independent workers. However, it's essential to ensure that these workers are motivated to deliver high-quality services and that the marketplace makes money only when they do. Ultimately, the goal is to create a mutually beneficial ecosystem where everyone wins.
The future of the gig economy: Balancing flexibility and income security: The gig economy offers valuable services and secondary income, but addressing income security challenges is crucial for its future success. Platforms must prioritize financial stability while preserving flexibility and pride for gig workers, and explore alternative solutions for healthcare access.
The gig economy, with its flexible and autonomous nature, provides secondary income and valuable services for the American economy. However, it's essential not to overlook the need for income security in these jobs. The gig economy's future lies in non-routine, local service jobs, and platforms must prioritize providing financial stability while preserving the flexibility and pride that comes with gig work. The gig economy's impact on the American economy is significant, but it's crucial to address the challenges of income security to create a better future of work than the rigid, insecure jobs of the past. The coupling of healthcare with full-time employment can be a hindrance in this vision, making it important for platforms to explore alternative solutions to ensure access to healthcare for gig workers.
Decoupling benefits from employment leads to business growth: Decoupling benefits from employment can increase entrepreneurship and business formation by making benefits portable for all workers.
The ability to provide portable benefits to all workers, regardless of their employment status or nature of work, can lead to an increase in entrepreneurship and business formation. This was observed after the passing of Obamacare, which decoupled health care from employment, leading to a surge in new businesses. Consistency and ease of navigation in government policies are crucial for business owners. Simple and clear taxation and regulations, similar to a flat tax system, can also make it easier for businesses to understand and comply with. The addition of user-friendly features, such as a button to schedule a call with a government worker, can significantly improve business owners' satisfaction with their government. Exploring new classifications or eliminating distinctions altogether may not fully solve the issue of diverse worker arrangements. Instead, offering benefits to all workers and making them portable could be a more effective solution.
Growing Trend of Gig Economy and Skills Gap Challenge for Businesses: The gig economy is expanding rapidly, posing challenges for businesses in sourcing skilled labor. Apprenticeships and trade schools offer viable alternatives to traditional education, but their high cost and on-the-job nature present hurdles for income sharing programs.
The gig economy is growing rapidly, with an estimated 47 million Americans engaging in some form of freelance or side hustle work. This trend is expected to continue, and businesses may face challenges in meeting the demand for skilled labor in various trades. Apprenticeships and trade schools are viable alternatives to traditional college education for those who prefer hands-on learning. However, the high cost and on-the-job nature of learning these skills pose challenges for creating effective income sharing programs. Looking back, investing in public relations and communications earlier could have helped establish Thumbtack as a leading player in the gig economy. Despite these challenges, income sharing agreements and trade schools offer promising solutions for addressing the skills gap and providing affordable training for the next generation of workers.
Minimizing labor costs vs fair wages for workers: National minimum wage or portable benefits can create a stable and fair floor for workers, potentially leading to unexpected positive effects on the economy.
The free market approach of trying to minimize labor costs for commodity services can lead to dehumanizing working conditions and potentially exploitative wages. Instead, a solution like a national minimum wage or portable benefits could provide a more stable and fair floor for workers, benefiting both them and the economy. The experiments in Seattle suggest that increasing the minimum wage can lead to unexpected positive effects, such as increased consumer spending and economic growth. However, implementing such policies on a national level requires careful consideration of diverse economic realities. Ultimately, the goal should be to evolve the social safety net to better align with the future of work and meet the needs and desires of the population.
Speakers express optimism and bullishness towards America: Despite economic concerns, speakers remain confident in America's future and investment potential, acknowledging potential challenges but maintaining a positive outlook.
Despite concerns about the economy and the length of the current bull run, the speakers expressed strong optimism and bullishness towards America. They believe that America is still doing great and will continue to thrive. This sentiment was expressed repeatedly during the conversation, with both speakers expressing their confidence in the country's future. They acknowledged that there may be some downturns or challenges ahead, but overall, they remain positive and committed to their investment in America. This perspective highlights the resilience and optimism of the American spirit, even in the face of economic uncertainty.
