This Week in Startups - E1010: TWiST Live! Thumbtack CEO & Co-founder Marco Zappacosta shares insights on pivoting to optimize for consumer experience, starting a company during the great recession vs. 2019, fundraising tips & the future of Thumbtack

Episode Date: December 17, 2019

0:52 Jason intros TWiST Live guest and one of his first investments Marco Zappacosta & Marco describes how they met in 2010 2:28 What did Thumbtack look like back in 2010? How has it changed in 2019? 6:09 Dealing with regional price differences 7:58 How much has mobile demand increased since starting Thumbtack? 11:53 What was it like running a startup in 2010 vs. 2019? 14:38 Impact of starting Thumbtack 2 weeks before Lehman Brothers went out of business 15:43 How did Marco's first try at institutional fundraising go? What did he learn from a bad investor experience? 23:13 What should founders optimize for during fundraising? 27:50 What drove growth at Thumbtack? How did they reach $10M in revenue? How did they remain focused on digging after striking oil? 31:56 Focusing on output over input 35:07 Transforming the Thumbtack experience after hitting $100M in revenue 44:33 What has Marco learned about building a marketplace over the past decade? 52:22 How has the gig-economy impacted overall employment in the US? 56:59 What is private/public healthcare's impact on entrepreneurship in a society? 1:02:33 How is Thumbtack dealing with the scarcity of trade workers? 1:04:41 What advice would Marco give himself in 2010? 1:07:16 Thoughts on minimum wage?

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This week in Startups listeners get 40% off a Calm premium subscription at Calm.com slash Twist. That's C-A-L-M dot com slash twist. Hey, everybody, welcome to this week in startups. We're live here in San Francisco. And I'm really excited to have my good friend Marco Zappa Costa on the program. He is, of course, the founder of Thumbtack, which was, I think, the third or fourth angel investment I ever made 10 years ago. Has it been a decade? We started with the bang.

You had a pretty good run out of the gate. Yeah, it was a little weird. It was a little weird. How did we meet? So you had posted about the Open Angel Forum. So pre-angelist, pre-basically, easy access to angels. You said it's too hard for good companies to have investors sort of find them. I'm going to host a dinner.

Apply. I'm going to pick the top 10 startups. I'm going to curate a list of 20 angels, and I'm going to host you guys at dinner. That was it. And we did it at 5A5, that one? That's right. Yeah, in the basement.

In the basement of the steakhouse. In the basement of the steakhouse, I bought everybody burgers, and you came. Yeah. And do you remember who was there and did anybody else invest besides me? Absolutely. Who else in that group?

So this is now March 2010. We'd been around for about a year. We'd raised just friends and family money prior to this. And we were gearing up to raise sort of a real angel round, a real seed round. And we were just at the very start of it, and this kicked it off. And from that one meeting, you invested, Scott and Siam Bannister invested. Joshua Shactor invested. And then from the three of them, we sort of moved out to the next rang of angels that invested.

And back then, the original idea for Thumbus, which if I remember you had shown me what looked like a directory of service providers and I was taken when we first talked by just the craftsmanship of the product you had little icons for each profile and I was like what are those icons and you had explained to me background check like if you bring a painter to your house you might want to know that they're not a serial killer or that we have their address and we've done a background check no serial killers on the platform. But that original idea didn't work, or it worked moderately? It worked, but not well enough. Not well enough. So the way that it worked originally was as a request for quote engine.

You would come in and you would sort of detail what you were looking for, and then we'd send that request out to our network of pros. And the ones who were interested and available and qualified and all that would send quotes back. Now, at the time, you know, this is 2009, 2009, 2010. This was certainly better than the alternative of going to Google, Yelp, or some other directory, and just calling down a list of names and numbers, where you then had to ask them the same questions, like, hey, are you free? How much do you charge? Can you do it? And so we automated that. And we made it such that you didn't have to go sort of hunting for the pros. They came to you. And this carried us from like 2009, 2010, all the way through like 2017. But then it couldn't

keep up. The amount of work that it took our pros to read, review, and respond to every request was so much that they could never respond to all the demand we had, which meant that our customers didn't get enough options back. And it was that friction that we really had to solve over the last few years. So it was almost like the success of getting the demand side started to crush the supply side, right? The supply would be the pros. The pros. The pros. professionals, you know, helping improve whatever's wrong with your house. I think generally speaking is the big category. That's right.

At first, they needed work, so they appreciated it. But then so much started coming in that it became a burden. Not just a burden, but from their perspective, they were actually kind of fine, sitting back and going to this stream of customer requests and picking off the exact ones that were right for them. And if they happened to be busy, they were sort of on the phone with a customer or they were working. and they were on top of a ladder, so be it. They'd come back later and there'd be more customers for them. So actually, this was a hard part that for pros, they were fine with it. In fact, arguably, they liked that control.

But for our customers, as you all know, what makes for a great product is consistently getting the right experience each and every time. And for us, that experience is finding the right pro, seeing the right options and confidently making a hire. And when we didn't get you enough options, that wouldn't happen consistently. enough. So that was attention. And the solution was we had to automate this whole process for

these pros. So instead of them reading and responding, they would tell us here are the customers I want. Here's where I travel. Here's how much I charge. Here's when I'm available. And then we can instantly reveal that to customers such that they don't have to wait for quotes to come back. We can instantly generate

them sort of search results, but not just names and numbers, truly actionable results that are tailored to them. So this whole moment in time where you're debating or asking the same questions over and over again to movers, which is a big category, or a plumber or a carpenter, you've asked those questions already ahead of time. But then how do you deal with the fact that when I need to fix a broken stove in, you know, California, it's $1,000. And when somebody does it in Salt Lake City or Texas,

it's $300. Yeah, you're definitely paying more. So the way that we solve for that is all the prices come from our pros. We don't set prices, which also helps us not have any of the worker classification issues that some other platforms have because it's their brand, it's their hours, it's their

prices, and we basically give them the ability to enter their rate card into the system. And that rate card isn't some static PDF like you see on their personal websites, it's dynamic, such that when you tailor the search results, you get different prices. And we've

done this for about two-thirds of our categories, and now we will keep working through. And not surprisingly, there's the long tail of stuff like appliance repair that's like an infinite grind to get right, but that's also differentiation and defensibility for us to do that work. How long does it take you to perfect a category, as it were? You know, if you have to perfect painting a house or an apartment. Ten years in and we're not done. Wow. So, I mean, I don't think we will ever end because there's always opportunity to sort of solve for more nuance. You know, now the big frontier for us is getting really detailed availability. So first it's, you know, understanding who the pro is. You know, travel was actually pretty

straightforward. But even that, something like travel. It's actually not straightforward because imagine you're a DJ, you'll travel a little bit for a small job, but for a big job, you'll travel 200 miles. And so how do you factor in these conditional preferences? But availability and getting sort of real-time availability is sort of the next frontier for us, such that we can turn it into sort of an instant book experience. When you started, mobile wasn't the driving factor, and today I'm going to take a guess, two-thirds of what you do is mobile? Am I a ballpark right? Yeah, you're definitely right. And originally, you know, we started with a website, and then it had to be sort of mobile optimized, but then about sort of two, three years ago, which in some sense was late

to the party. We realized that mobile was where all of our best customers were going. That's where our best engagement was. And for two reasons. One, it's just with you all the time. It's in your pocket. It's where you go to do all your tasks. But secondly, because at the end of the day, we're a chat product, you connect with pros to have a conversation, to schedule to sort of work with, and chatting on your phone is super natural. We all do it all day. And so doing it in chatting, you mean text-based chat. Text-based chat, exactly, not phone. That was supernatural.

And it made it very easy for people like, oh, yeah, I first I search, I find the pro, and then I start chatting with them. I start texting with them. And when did that flip over or has that happened yet where chatting is the default? Is it the default now way to communicate for customers? I bet it breaks down by age. Yeah. And there's probably some cutoff.

My guess is it's in the 30s, maybe early 40s now, where you'll use the phone to call mom, but everybody else gets a text. And that's pretty standard. Yeah, my entire life is trying to figure out how to take emails and put them into Slack rooms and take phone calls and turn them into eyemessage threads. Anything but talking to people on the phone is my goal in life. I mean, I was texting with my board today. We have just a five-person board, and we have iMessage channel, and we just chat. Just chat. Yeah, just text.

And that is probably more effective than the board meetings themselves. I don't know if they want me to say that, but it is certainly useful. I will give them that. Do you want to turn your idea, your brilliant idea, into a beautiful website? If you do, then you could build a blog and you could publish content. Maybe you could sell some products or services, promote a physical event or an online business, or maybe even announce some special project that you are uniquely qualified in the world to manifest. Well, that's where Squarespace comes in.

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But back then in 2009, 2010, it was a much different environment than it is today. Today, you know, the economy is booming. Back then, we were in the Great Recession. What was it like being in the market then versus running the company? now if you think about it as a founder. So I worry about founders today because of how much noise there is around the expectations of how quickly things should happen. There's all this sort of grass is greener.

You're looking out and seeing what sort of other crazy headlines are coming out. In 2009, 2010, our goal was to just build a great product and survive as long as it took to get it to really click and take off. And there was much less of this like, sort of like, fomo and pressure. And I don't think we could have figured it out if we were starting today. Really?

To give you a sense, over the first five years of the company, it's less than our annual, we spent less than our annual rent now. So the opportunity to be sort of scrappy, to sort of like hunker down, to pay people in equity and not cash because they knew that this was about building

sort of long-term equity value and not about sort of the pizzazz of an office. That's much harder to pull off now. Yeah. I remember one of your first offices. It's like a 20-person office with the kitchen in the middle. Yeah, it was on Natoma between fifth and six,

which for those of you in San Francisco know... It's also known as hell. It's not the most glamorous address in the city. It's like one of the seven circles of hell. Like, you basically like... But you know what we paid? We paid $18 a square front. $18.

$18. Which is like... God love you. You know, nothing compared to what you pay now. And we found it and it was too big for us. I remember walking around on a weekend with my co-founder and being like, this place is perfect, but it's 2x too big. So we sublet it. And it was to a company called Mind Snacks, which was a mobile gaming coming, which actually had drinks with the founder last night.

And so they took the front half. We took the back half and we shared the bathroom in the kitchen. I passed on investing him. How'd they wind up doing? They're doing great. Yeah. Fuck. Yeah.

It's just like this. See, what I try to tell angel investors now, and I'm training them about that period in time, I said that period of time, if you were a founder, you were such a masochist and such a true believer, to try to raise money during the Great Recession and try to build a company,

because people were kind of all depressed and, like, it was a really funky time. Well, I mean, so Dumbtack starts officially August 2nd, 2008. Oh, just in time. So two weeks later, I believe on the dot, Lehman Brothers goes out of business. Perfect. And I remember sitting there with my co-founder and we were, you know, reading the news about the apocalypse.

Yeah. Being like, well, fuck it. We're not going to get jobs anywhere else. We should just keep grinding on this. Think about how many like two guys in a van they're going to be. Yeah. With all those layoffs from Wall Street, there's going to be a lot of supply side. Our first employee was a management consultant who was paid to go 60% off, you know, 60% salary to take vacation.

Because these management consulting firms didn't have enough clients. Wow. But they didn't want to fire these, these 24 or 25 year old. So what they did, they say, hey, take a year off. We'll pay you 60% of your salary. But we'll just keep you. But you're in the mix. You're in the mix.

That's hilarious. And so this guy started moonlining for us. and then he became our first employee. Incredible. Now, I remember I had done the small investment, and I tried to get Sequo to invest, I think, two or three times. And I was like, these guys, they're just grinders. They're going to figure it out.

And they said, no, no, yes. One no and then a yes. Well, they could have done the seed round, right? Yeah, they could have. So it was kind of a no, no, yes. That's right. So, I mean, I'm not. But it took you two or three times to get that locked in.

How did you do that? So this probably requires telling the story of our series A. Yeah. So we raised from these great angels. We feel great about ourselves. And all of them, by and large, were operators. And they understood what it take to build a business, particularly a marketplace business. And all of them said to us, focus on solving the liquidity problem, of building the flywheel of supply and demand such that this marketplace really starts to turn over.

standard good advice. And so we worked really, really hard on that. And come, you know, summer and fall of 2011, knowing that we kind of crushed it on that, we went out to go raise a Series A and ended up getting rejected 42 times in a row before we got our two yeses. Which was Jed Katz?

Was Jedkats and an unnamed party who deserves not to be known about. I know who it is, but they don't deserve to be associated with this. Oh, got it, got it, got it. That was the people who you didn't take money from. Yeah, and there's more to that story. Oh, it went south?

Yeah, it wasn't clean. It was one of those term sheets where it was like, here's the term sheet, and then they sort of yank your chain. Yeah, exactly. Oh, that's the worst. It is the worst. What is it? Why, this is, without, we won't name the person, obviously.

But I'm always trying to figure out the mindset of an investor who takes the time to make an offer only to then jerk around the founders. I know what happened. What was it? So I'm going to forget the name of the firm. They had also invested in this other company that was doing, it was helping people buy products. It was like meta search for products.

Okay. Got a ton of search traffic, organic Google traffic. And they got crushed with some algo change in the middle of our negotiation. And we at the time were getting a lot of our traffic from Google as well. And they said, oh, we don't want any more SEO. at our companies and pulled the term sheet back. So brutal. So brutal.

I mean, the lesson for founders is don't have all your traffic come from one source. It's a valid, it was a risk. That was fine. But they knew it the day they gave us that term sheet. And whatever happened to that other company, you know, didn't change anything about us. It's so weird. There's some investors who seem like they're skittish. They're fearful of everything.

It's like, why on earth would you take the job of being the highest risk capital in the world if you're a scaredy pants? There's not always very much venture and venture capital. It's embarrassing, really, because really what gets you paid is conviction. And conviction when the world is saying no or is saying that's not smart. And this is where I have to give Sequoia a ton of credit, where despite them passing on the first round, and they gave us the reason. They said, hey, we don't see how you're going to monetize this effectively enough. Fair feedback.

We weren't monetizing. It was a fact. When we put that in place and showed how well we could monetize, we showed up with six weeks of data, and they did the deal of our new monetization system. And they didn't ask to us to run a process or what other people were thinking. They were even willing to change their own minds and say, you know what? You proved us wrong? Thank you. We'd love to do this deal.

See, I always tell that story to founders who I'm investing in now, and I tell them, play the long game. If you get a no, it's a not yet. And force the investor to tell you why. And there's really simple language for that. You just look them in the eye and say, I really appreciate all the time we spent. It would be very helpful. If you could be extremely candid with me and tell me what it is, that makes us a not yet or a no. is it me? Is it my experience? If I had a management team, what is it? Tell me as honestly as you can.

And maybe half the time they'll tell you honestly. Maybe. Maybe. Maybe if you call and ask in the background. Yeah. It's, I mean, from their vantage point, they're trying to maximize optionality. And the truth is they don't even really know why it's a no. They just know it's not a yes. And they are very wary of saying something that might upset you or turn you off or not get you to come back. But I think that's short-sighted. You know, what's valuable is good smart feedback, and they should just do more of it. And you kept it in the back of your mind the reason of why they said no. Yeah. And what I'll tell founders is, like, any one investor telling you a reason of why they passed,

interesting, think about it, but don't over-index on it. You get four, five, six people saying the same thing. You have a very, very strong signal that something is off. And in our case, this was the number one feedback. people were super impressed at the sort of liquidity and the volume we were creating, but we weren't making any money. And we were telling stories about how we'd make money, but that wasn't cutting it because we were first-time founders. And you've got to remember, this is local pre-air Airbnb and Uber really being a thing. Yeah.

In fact, I had made the Uber investment that same year. At the same terms. At the same terms. We both raised an angel round. Four and a half? 1.2 at a post of six. so 4.8 pre. Yeah.

It was interesting. I met a couple years ago, a founder, and he was coming out of another accelerator. I won't say the name of it, but it's one where maybe the founders sometimes think very highly of themselves. And now I was down a bit. And he said to me, I said, you know, when I invested in the two most successful companies I invested in Thumbtack and Uber,

you know, they were 9 million or 10 million. And he said, well, we're only asking for 12. And I said, oh, I didn't finish my sentence. They were like 9 or 10 million combined valuation. And you have nowhere near the traction or experience of those individuals. And he said, well, what difference does it make if we become a unicorn? How do you answer that question? And I said to him, I said, at that time I was super candid.

And I said to him, I said, well, it basically means I could invest in three companies like yours. I can find three other companies with the same traction as you for the same price. I can just invest in three at $4 million. And I have three swings it back, which gives me three times the chance of hitting a unicorn. So it would make no economic sense. You've priced yourself out. Now I don't even bother saying that. I just say, yeah, that valuation, we would want to see you fill in that valuation with the revenue that would sort of make that fit a little bit better for us, for our firm.

not an our Goldilocks zone. But it is weird, the valuations and, you know, how much more you had to prove back then, I think. Also, when you do the math on what it actually means in terms of your percent ownership as a founder, you're talking about a couple points. Yeah. And, yeah, that's real. Points matter, particularly at scale. More is better.

I get that. I respect that. But the amount of effort and over-optimization that happens for that marginal point. certainly leads to founders taking money from the wrong people or with structure in the worst cases. And it's just not worth it. It's just the wrong thing to optimize for. Having a high valuation. Top ticking the market is not the most important thing. The quality of the investor is by far the most important thing. Price is second to that. Actually, structure I would put second to that.

What do you mean by structure in this sort of context? Explain. Good structure, bad structure. Structure is all the things that make up preferred stock that give it its preferredness. So in a simple case, it can be a liquidation preference, and a sort of non-participating 1-X liquidation preference is standard. And that means the investors get their money back before anybody else gets paid. Pretty reasonable. They're giving you money, and they're putting the dollars at risk.

They get the first dollars out. Okay. But in some cases, that can be a 2x liquidation preference. or there can be things where if you don't hit a certain financial milestone in a certain time, like an IPO or something else, they get more stock or they get the right to block. And this happens typically much more in later stage than the early stage stuff. But it's why you can't necessarily compare these valuations apples to apples. Right. Somebody may be in unicorn status, but they have to hit an IPO by a certain date

or that valuation might get cut down or in half. where we saw other instances when people priced below their IPO price, they had to give extra shares to those investors. Making them whole, yeah. So we've never played those games. In fact, the terms that you signed have stayed our terms until today. Nothing has changed. And in fact, I tell people, when they have high quality angels around the table,

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That's a great deal. So try a free demo and see for yourself at gusto, g-U-S-T-O.com slash twist. That's gusto.com slash twist. Okay, let's get back to this amazing episode. Let's talk about the moment you passed, let's say, $10 million in revenue. What did it take to get to that moment of $10 million in turnover? and then we'll talk about hitting, you know, 50 or 100. But when you look back on that, what did you need to have as a company to hit that?

So I'm trying to remember the year that that happened. I mean, thankfully, for us, it was really just a model that we knew how to compound. You know, actually, when you really understand the stories of what drives growth at companies, it's almost never like 17 different things. It's typically like one, sometimes two, but typically one strategy that just really works. I once had an investor tell me, if you're lucky enough to strike oil, keep digging. It's unlikely your strike oil again. And what he was getting at was, you know, we had a strategy for attracting customers, attracting professionals,

monetizing that, and then just like rinse and repeat over and over. And you eke out little percentage improvements. You get more cost effective. you get smarter, you get sort of bigger scale. But it was kind of just like one strategy for us. And for marketplaces, it's always kind of a feedback loop where we learned how to leverage the demand that was coming in to attract more professionals. And when those professionals came, that helped us attract more demand. And then that just sort of feeds on itself.

And you keep sort of working hard to make these sort of transitions happen more and more efficiently. But there was no magic. How did you keep the organization focused on that one methodology, that one flywheel, as opposed to what happens in most organizations and with a lot of, let's say, inexperienced or young management teams where they're like, okay, we got this going. We're at $2 million on this flywheel. Let's do something else. How do you keep the management team focused on that?

And how have you done at that? Was that something that was a strength or a weakness or something you learned over time? Focus. So I think there's two things you have to do as a leader, as a leadership team. First and foremost, you have to clarify the North Star qualitatively. And ideally as few words as possible. So Thumbtack has always been about accomplishment. It's about getting shit done.

You have a problem, you've got a need. You come to us, you get it done. Similarly, for these pros, they're trying to grow. They're trying to get that done. So accomplishment. And that is really important because you may not always be able to measure this sort of North Star spiritual thing that you're going after. In our case, we couldn't at the time. And then you need a metric that you're operationalizing against that is crystal clear, that is unfakable, that is not subject to interpretation.

And for us, early on, it was getting each customer three plus quotes. and what that told us was when we got you more than three quotes, we knew you had a great experience, your MPS was super high, your repeat rate was high, when you didn't, you were less happy, when you got zero, you hated us, one and two was mediocre, three plus was great. What that told you is you could make then a heat map of all your categories and all your geographies.

When it's above three, it's green, and when it's below green, it's red. And then what do you do? Make more green into red. it's just so that but you really need both because if we had just been about these three plus quotes you might forget that a quote is a means to an end it's a means to getting a job done right so a bad quote or an ineffective quote that doesn't get fulfilled it counts as a green number here and like okay that that's true but you and i know that's not the point right the point is to get something to done and so you always need this guardrail and i think customers companies can go astray when

the sort of metric becomes the goal, when really the metric is just your best way to measure progress to that goal. I've seen this happen a lot recently where people in the SaaS business are saying, like, trials, when people trial the software, we convert like one-third of our trials to pay. So all we have to do is get more trials. So now you get a whole organization getting people into trials, and they're getting rewarded and they're getting judged on trials, not how many trials convert.

And then all of a sudden it's like, wait a second, we solved the trial thing. We had a bunch of people who don't need the product and we tricked them into trialing it or we over-optimized what a trial is. So that happens all the time and the biggest cost that comes from that is you're spending your time and energy

focusing on a input rather than an output. And this actually is really, important. So in our case, early on, you had this request for quotes per request metric. And we learned that the more questions we asked the customer, the more quotes we could give them. And despite the fact that conversion rate would dip a little, not surprisingly, you ask customers more questions, some more are going to fall off. Actually, less than you would think in our case, but not zero. Got it. But when you looked at the value to pros, who then had richer data and context to respond to, they loved it.

What's an example of that where you get to the sixth or seventh question? So you're looking for an interior painter. Well, it's a ton of shit that matters for that interior painter to be able to give you a quote. How tall are your ceilings? Do they need a ladder or can they reach it? What is the surface of your walls? Does it have, is it clean? Is it sort of all chopped up and they're going to have to do a ton of sort of plaster work?

What type of finish do you want? Is it just regular plane? Is it semi-gloss? Is it gloss? You have to do different finishes and different finish work for that. Do you have crown molding? Because that's more.

Do you want the ceilings? Sealings are a real pain in the ass. So all these questions, you know, if you're just conversion optimizing that first, you know, getting a customer to put in a request, your instinct is to take questions out. Because you're like, oh, thinner, simpler, faster. But in reality, when you have that sort of end-to-end objective

of getting customer great experience, you can sort of push through that and say, actually, yeah, I'm giving up 5, 10% of conversion, but look what happens on the other end of that. Yeah. I'll take that all day long. Right. And you might actually, by asking that 6th, 7th and 8th question, are you supplying the paint or are they supplying the paint?

I remember was one of the questions when I went through this. And if you get, if you are not serious about it, if you're just looking for pricing because you might be painting next year or you're curious, you're going to drop off. So you get rid of the looky-lose. It self-qualifies, and it actually turns into product marketing. We hear customers all the time. You ask me more questions than I realize I should be asking. But they all made sense.

As soon as you said it to me, like, oh, of course, the crown molding. I get why that's different and more expensive. Thank you for asking. And it built confidence in us. Like, oh, this sort of service, this application really knows what it's talking about. You guys started to hit $100 million in revenue at some point. and the existing business as constructed wasn't growing at the velocity that you thought it should or the product wasn't exactly what you wanted it to be.

You felt there was something better. Explain that mini pivot or that evolution. Yeah. So it actually wasn't due to growth rates. Growth was pretty strong. It was due to actually that quotes per request metric. So this had been our North Star. We had thrown years at it, a ton of engineering and planning.

product work and marketing, and we never could move it by, we could never add a zero to it. We could move it by 5% or 7% or 4%. But when you looked at it, it's like we want 10 times more options. And the more we battled that, the more we realized this isn't going to be just a matter of finding a smarter sort of growth hack on this. This is about changing the whole experience. And so what I was saying before about getting our pros to sort of pre-answer all these questions, what we did is we eliminated the entire step of a pro being in the loop to generate these quotes.

Way to think about it, Thumbtack historically was a search engine that had to go through the skull of human beings to generate you search results. Now, human beings being smart and thoughtful generate really good search results. So the quality was super high, but they were slow, and they weren't enough of them. And so we said to ourselves, how can we retain the specificity, the intent, the quality of these responses, but do it programmatically? So that when you show up, we can instantly show you the list of not just 23, 4, but 20, 30, 40. And then you can search through that and sort through that and quickly find the right pro for you. So it was all about the customer experience, and it was really informed. by this metric, which, despite years

of grinding on, we never moved enough to feel like, okay, we got it. And just to finish that off, one thing to remember is this is true about our industry writ large. So historically, and still technically, our biggest competitor is word of mouth.

It's you posting on Twitter saying anybody got a plumber, you texting your neighbor, your friend, and asking for a referral. But when you call those numbers, half the time they don't pick up, another fraction of the time they're not available, and some other fraction of the time they charge too much. So maybe one in ten is a good fit. So that is life in our sector.

It is just really, really hard to make that match because it's so specific. We're more like a dating service than we are e-commerce in that sense. It's like really hard to find that match. And so this is something that nobody had solved, and we said to ourselves, the only way we become the Amazon for services, the category killer, the verb in this space is if we're the ones to solve this problem. And we believe the only way to do that is to transform the experience. How did you sell that to the management team who you had pushed and driven and led to do that incremental improvement for so long? And do you just lose people?

And how do you explain it to a board who you've said, hey, this is my best idea. You try it for four or five years. Now you've got to come in and say, you know what, my best idea? is obviously not the actual best idea. I now know the best idea. So this takes you back to late 2017. It's basically like two years ago. And the why behind it was very easy to communicate

because they saw our inability to move this core metric fast enough. So they got the problem. The hard part was that it was a narrative violation. because historically what we had said to ourselves is our magic sauce, what makes us unique is that these are human crafted, that this isn't just a list that is programmatically generated like Yelp or Angie's list does. It is a human crafted option that is actionable and tailored for you. And so people's first reaction was like, well, shit, doesn't this just make us a list?

Have we been saying that lists are bad? And so it was that hump that was very hard to go. get over. The other part, which in retrospect, I would have done differently, was telling people how hard it was going to be. When it's all dream, it sounds easier than it's going to be. And part of that is useful. Nobody jumps to do something crazy thinking it's going to be impossible. You think it's going to be possible. But when you're confronted with reality of being like, oh my God, this is really hard. It shakes you when you're expect. was not that. So the thing I would have done differently would have been to go back and say,

guys, I don't know how long this is going to take. I don't know how hard it's going to be. I'm actually certain it's going to be harder than whatever you're thinking right now, because right now we know the least we're ever going to know about this problem. All I know is that the only way for us to become the company that we aspire to is through this road. So if you're excited about that, let's get to it and if you're not and you thought you would join something that had everything figured out

and was done like respect yeah see you later but I either was like naive which is certainly part of it or scared to confront that fact as part of it too

or not a big enough leader to just come out and say that but in retrospect that would have made things way better right it's like shackled And when he put out, you ever see Shackleton's classified ad? So Shackleton, the Explorer, puts out of a classified ad.

And he's looking for explorers to go to the North Pole or South Pole or one of his crazy things. And he says in the head, extremely low pay, high risk of death, torturous cold, you know, come Sunday if you want to explore the North Pole. Infinite Glory. And then Infinite Glory. Yeah. And literally there's a line of maniacs who show up. They're self-selecting into like, yes, I would. like to high certain, yeah, large chance of death and glory, let's do it.

But it's hard to say that to a group of people, especially if you've worked with them. Yeah. Well, and you want as a leader to be the sort of like cheerleader in chief, to be the optimist, to say, hey, guys, like, we're going to get it. We're going to figure it out. We'll make it happen. And that is important. But what's more important is being the truth teller and just setting the tone and being

honest about what you're facing because humans don't react well to uncertainty. That is much scarier than a known obstacle. Uncertainty really, really messes with people. And so that's what I would have done differently if I could have. Yeah. It's like when you walk across the ice, it's like, yeah, if they tell you like, yeah, the ice is not very stable, like you go into it with one expectation. But if you're on ice and you hear a crack, like that's terrifying.

It's going to freak out. Yeah. You have no rope or no expectation that you're going to go through. Oh, the holidays. It's so stressful. There's so much going on. You got to go to parties. You got to go shopping.

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back to this amazing episode um what have you learned about marketplaces over this decade long journey because they are extremely popular now they were not extremely popular when you started back then the only corollaries were really eBay was the marketplace and I guess arguably people would call craigslist a marketplace yeah you may in our early decks was the like shining light of what we were trying to do. There was no Airbnb Uber examples of marketplaces. Amazon was first party at the time. Only in the last five or ten years has really become a third party marketplace. So I really believe that they are the source of some of the biggest sort of value creation possible. And it is what the internet and technology does most magically,

which is sort of liberate these underutilized assets and help. them find a market such that the buyer has access to a richer diversity of things and the seller broadly defined can monetize this asset better. And when you think about it, the sort of what's been happening in these marketplaces in the sharing economy, really what worked first was underutilized capital assets, homes and cars. I would argue that what Uber and Lyft are doing is getting you a car. Now it happens to require a driver to get you from A to B, but the point. point is that it's transporting you. It's a capital asset. This is why the experience is a commodity. You don't choose the driver you want. You say, pick me up here, I'm going there. Done. And they

just send you somebody. But actually, the biggest asset that exists in the world is human talent. And the time we have to express it. And that is something that I still think is that day, not even one, day zero of being liberated. and that is something we're working on, but it's bigger than just us. If you think about all the industries and all the global talent that's out there, that still has no path to market. That, to me, is what gets me so excited. And so when I see sort of new labor marketplaces or new professional service marketplaces, I get excited because what I'm certain of is that there is almost infinite talent, diversity, ability, hustle in the world. Unfortunately, it's not always digitally savvy, doesn't know how to market. market itself online. It doesn't know how to set up an online business. Like, look what Shopify

did. Again, that's products, not services, but still, like, just unleashed this incredible potential that was out there. So I am like a forever bull on marketplaces. I think Uber taught people the wrong lesson. Everything became the Uber for X, and it's sort of this like, oh, it just should be on demand, you click, and then it's done, it's magical. And that over-applied a user experience to categories where that was not appropriate. I can't tell you how many investors were like, why don't you make this into on-demand? I was like, because tell me about the cleaner that comes to your house and knows where all your valuables are and like sees your underwear on the floor, you're telling me you're just going to let me send anybody in there? Yeah. No. My guess-

And the people who tried that all failed. They all 100% of them. On-demand services. Because it didn't solve for the true consumer need, which is, yes, convenience, of course. And the- we all want convenience, but these are intimate and these are high dollar and it's your family, your home, the things you care about most. And because of that, you want to have agency over who you pick. Right. And so, you know, I think there are actually very few true commodity sort of marketplaces. You've got on-demand, you know, transportation and delivery. And, you know, it's unclear how many more there's going to be. And also the economics, when it's a commodity, It's a price race to the bottom.

And that makes it brutal. And, like, you know, they've found a way through it, but it's a huge challenge. So, you know, marketplaces have this beauty that they are positive some. Nobody loses. When you find and hire a pro on Thumbtack, you win. The pro wins and we win. And that's a great business to be in. What's the right take rate for these marketplaces?

And how do you think about when the take rate breaks the marketplace versus founders just charge way too little? It seems to me something like Kickstarter and Patreon are in this kind of debt spiral where if you're donating money to a Patreon, the idea that you have to give 10% of it to the platform seems horrible for the person who's on either side of that transaction. And for the platform, they can't make a living. So a couple things go into that. First off, there's a question of when are you really creating value? and are you aligning your fee to that value creation? So, for example, something like Sumtack, we charge for the first match when the customer and pro come together,

but if you hire that gardener, that cleaner, that photographer again through us, great, please, you found a great pro. We want to give that away for free because we created our value up front. Now it's just on the pro to deliver a great service and earn that repeat business. that said, charging, so you have to be careful, like, you know, when you're just processing payments after you've made that match and you're trying to take a 5% rake or a 10% rake for just moving money, that's really tough. You know, there's a reason why money processors, payment companies charge basis points. Right. Like, it is a commodity business and it should not have points of margin in it.

That said, I also think that at times founders can be too wary. of charging. And like in our case, the fee makes the experience better because the pros self-qualify by virtue of paying. And we tried originally to not have them pay.

And what would happen is they would kind of like spray and pray. They'd respond to everybody. But when you respond to everybody, you don't take that much care and how well you do it. So paying $20 and $30 for that lead

and for that job means I don't want to burn that 20 or 30. going to feel terrible if I don't do the job, but there's a little more skin in the game. You got it. So it's a really, pricing is super hard. You know, I think in some ways we still haven't fully cracked it, you know, exactly what you charge for, what do you give back, where do you really take your margin? How do you price? Really, really hard things to get right. And you guys eventually will take payment, do you think through the system or let you actually book a date? Yeah, so we will we will close the loop all on Thumbtack. It's already sort of like

like in some sub cases being tested live. But what I'm not sure about is whether our business model will be a transactional one. So today we charge per lead. Now, Facebook and Google charge per lead, and it works just fine for them. And we are in the same boat where it's actually very helpful because it's a way of self-qualifying. And if you only charge a percent of the job when it's done, you have two big problems. One is policing because these things happen out in the real world and we're not, there to know whether it did or didn't happen or for how much. So you talk to other marketplaces

that tried this and there was a huge investment in policing to keep it from happening. Secondly, again, it goes back to the same issue. When the pro knows they only get charged when they win the job and you contact them, they might say, you know what, this Jason guy, I'm just tired right now. I'm going to drop this lead on the floor. And now you have a terrible customer experience because that pro doesn't have skin in the game. So it's a balancing act because we only want to make money when they make money, but we also want to make sure that they're motivated to deliver a great experience for you, the end customer.

What impact do you think the gig economy has had on the absurdly low unemployment we've had, leaving politics aside of who's responsible for it? Obviously, this downward trend and unemployment started under the previous administration, but has continued. Presidents kid themselves if they think they can actually impact the account. Exactly. But I have,

look at it from my perspective I think Uber Lyft, Postmates, you know, and Thumbtack have created some sort of a safety net for this gig economy job and those people are now choosing to not take jobs at Starbucks or Target

or Walmart that are shift-based Yep, because they don't want the flexibility. So how do you think of the gig economy overall's impact on the American economy? Yeah. So a couple of thoughts. One, by the own data that these platforms publish, what they show is year after year, the fraction of

workers on right sharing or delivery are doing it for fewer hours, and a smaller fraction of it is doing it on a full-time basis. So the way to think about these on-demand platforms in particular is as the best source of secondary income ever invented. And that is phenomenal. We should celebrate that. We should be happy about that. It's amazing for the economy that somebody could work 10 hours this week to pay off a credit card and then not work for six weeks, pay 10. You turn your car into an ATM. It's a beautiful thing. But we need to be careful not to take that too far and pretend that these are the jobs that we want our future economy to be made up of primarily. And in fact, at some point, they're going to automate the drivers away. So these jobs

are going to go away. I don't know if it's in 5, 15, 25 years, but it's going to happen. And what that's going to leave after automation takes its toll, after outsourcing continues are non-routine, non-tradable jobs. You know what that turns out to be? Local service jobs. That's Thumbtack. It's healthcare, it's education. And the reality of this work is that it is going to be gig-driven. So a plumber is a gig worker. I think the definition of a gig worker is someone who doesn't get a W-2 paycheck, doesn't have a steady client paying them the same amount every week, and it's hustling job-to-job. So service companies are already out there. So the question is the best parts about that job are the flexibility it provides, the autonomy, and the

sense of pride that you get from sort of being your own boss, being a craftsperson, sort of delivering a service that is creating real value. You know, on Thumbtack, the average pro is earning more than 50 bucks an hour. So it's a middle class living. The scary part and something that we as a platform have to work harder on is providing more security. Because the biggest challenge with these gig jobs is they are not certain. So obviously we as a platform want to get these pros as many jobs as they can get, but we can't guarantee that. So this security question, which is actually the number one thing people want out of their job. And when you say security, we're not talking about physical security, we're talking about reoccurring payments, financial income security.

Income security. So the number one thing people want out of their job is income security. Because you have bills to pay, you have a mortgage maybe, you have health expensive, you've got a kid, whatever it may be. So security is the most important thing. And if we don't do that, nothing else really matters. But on top of that, if we can solve that and give you the flexibility, the autonomy, the sort of pride and purpose that comes from being your own sort of business owner, your own sort of entrepreneur, I actually believe that we can create a future of work that is dramatically better than two generations ago when people worked in assembly lines and had very routine jobs better than today where I think there's still a lot of like

economic insecurity among a lot of the population and it's on tech but it's also on the government. It is and it's also this generation is highly or our generation I would say Gen Xers, you know, was this inflexibility that now I think this new millennial or Gen Z workforce is saying I don't want to have two weeks of vacation a year. want to come in the hours you want, I want to work from home where I want to pick my schedule. And that seems only possible with gig work. That's right. How much of a hindrance is the coupling of health care with full-time employment in this vision of the future?

Again, not to get political, but we can get political. We can get political then. We'll get political. But, I mean, it seems bizarre to me that as an employer, I employ people and now they might stay in the job, hate me, and stay in the job because they need the health care. Or they might love to come work for me, but they can't because my health care is not as good as Disney's. This seems crazy to me.

It is, it is crazy. And in fact, we saw this in the data. So when Obamacare passed, which did decouple the sort of ability to get health care from being inside of an organization, we saw a jump in the number of companies that were being started. and many of them, about a third of them, cited the ability to get health care on the exchanges as the reason why they finally could go out. They'd always had the dream, they'd always had the talent.

Maybe they'd done it as a little side hustle, but they'd stayed in their main job because of health care. So I know it, and I see it, and the thing that you will hear us talk about and advocate for is benefits portability. So if we as a society have decided that we should get health care, we should get tax advantage retirement savings account, We should have disability insurance.

We should have all these things that come with the W2. We're saying, hey, let's give that to all workers. Irrespective of the nature of that work, that we as a society decide that it should be given to all workers. Even it's the same. It doesn't have to be more, doesn't have to be less, just give people the ability to port it and take it with them. Some specific baseline would be just wonderful. This constant flip-flopping that we're doing as a society as we try to figure this out, it seems to me to be very painful to the group of people who can withstand the pain least.

Yeah. It's another thing. So we survey our pros often about how happier they are with their state government, city government, all sorts of issues. And one of the most interesting and consistent findings is it's rarely the level of taxation or the level of regulation that is something that they're frustrated by. But it's the consistency of it. and it's the ability for them to navigate it easily. So it's like, I get that I have to pay taxes. Fine.

Just make it super easy for me to know what taxes I have to pay. I get that there are rules that I got to follow to employ people. Fine. Just make it easy for me to know what those rules are and to implement it. And it's like the U.X of the law is as important as the law itself for these business owners. Yeah, I mean, this is where the flat tax became so appealing to all Americans. We're like, yeah, that sounds like a great idea. I just tell me what percent.

I make X dollar amount. I pay X percent. So the most interesting. No deductions, no nonsense. I mean, to push this all the way forward, we run these surveys, and one year Jacksonville, Florida spikes. And all of a sudden, people love the city government in Jacksonville, Florida. And so we're like, what did they do?

What magic did they do? What law did they change? And we went in and we surveyed our pros and dug in. You know what they did? They added a button to their local city website. where you could schedule a call with a government worker to get on the phone, like a customer service call. They added a customer service line.

But not just a line, like you could schedule it. Schedule it. You could instantly just get on their calendar. And people freaked out and they loved it. Because finally they could talk to a human who told them, yeah, this is how it works, it's what you got to do. Here are the two forms. Fill them out.

This is where you turn it in. Amazing. And as soon as they had that information, the, you know, the satisfaction went through the roof. You have this debate of the 1099 versus, I guess, the W2. Shouldn't there be like a third group where if you worked over a thousand hours for Lyft, Uber, Postmates, Dorritish, whatever, maybe you'd qualify for some baseline. And if you did 2,000, then you would flip over into like some status. Is there some way to do that?

Because the two types seem too rigid. So this something comes up a lot. Germany has something called the dependent contractor, which is sort of this third classification. Our point of view is that no matter how many classes you add, you're never going to solve for all the different types of work and the increasing diversity of work arrangements that are out there. So just eliminate the distinction altogether. Decide what benefits we offer.

Give them to all workers. Be done with it. Even if the worker is only working 10 hours a week. You've got to think about the financing of it. So you may have to bring the benefits down. But the nature of work is only going to become more diverse. The fraction of people on sort of W2 as their main income is going down. The fraction of people starting or sort of having side hustles and side gigs and consulting things is going up.

You know, the McKinsey study put it at 47 million Americans. So it's a huge number that's only going up. 47 million Americans have a side hustle or are earning money in the sort of like freelance or gig economy in some way. dramatically bigger than just right sharing. Right sharing is still just a small fraction of that. Yeah, that's probably one million of or two million of across. It's probably like two percent or three percent of it. It's really the...

It's everybody from like... Retail? Well, yeah, retail. But like, on Thumbtack, think about our categories. You could be a journeyman plumber. That might put you in this category where you, for six months out of the year, you join a franchise, you make a bunch of money, and then you go to Costa Rica and you serve for six months. Great. More power to you.

There's a shortage of plumbers and carpenters. All those trade services, the average age is like in the 50s now, I hear? Is that a problem for you as you scale your business? Is that there's not enough plumbers and carpenters and handy persons? I'm not sure of the non-gender word for handyman. Handy person. Handy person. Yeah. So it's not something that we run into today, but I think it's something that at scale we're going to have to run it. We will run into and we will have to help solve. And it's really only through apprenticeship. Trade Schools is one. And I think we have a narrative that overvalues college or over indexes on college for everybody. College is great if it's right for you. And if it's not right for you,

you should not go and not sort of be saddled with those loans. But if you don't want to go to college, there should be other avenues. And trade schools is a great path for a lot of people. This seems like a no-brainer for you to do Thumbtack, like, trade schools or to, like, offer training. And what do you think of these income-sharing agreements? Like, if you had demand in, let's just say, plumbing or carpentry, if you actually created a training program in your Salt Lake City office and said, hey, go here. You know, it's $20,000 for the training. You can pay us to $20,000, or we'll just take it out of your, you know, gigs. And this sort of ISAs and sort of Lambda school, all these things that are happening, I think, are incredible.

Now, they're very indexed on white collar work, particularly software engineering, data science, product design, which is great. World needs more of those. But that's not going to be the right job for everybody. So I would love to see that concept expanded. There are a ton of trades out there where you can earn a great living. Why hasn't anybody started that company? A trade? There have been a couple of tests.

Because what does it cost to, you know, learn to be a plumber or electrician or carpenter? That's got to be tens of thousands. Yeah. Low tens of thousands? The tricky part, most of that happens on the job. And so we'll get into it one day. Yeah. It's on the list. If you could go back in time to yourself 10 years ago, what would you whisper into your ear?

What piece of knowledge God would have just saved you so much pain and suffering? So there's two things. one sort of one practical and one like more fundamental. The practical one is we did not invest in PR or comms early enough. And you know the sharing economy was defined by Uber, Airbnb, and TaskRabbit. And had I done my job better, it could have been Uber, Airbnb, and Thumbtack. And that pisses me off. Does TaskRabbit even exist anymore? No. They got sold to IKEA. And then just gone, right?

Yeah, I mean, so I give them a ton of credit. It was no accident that they became that. They worked very hard at it. They built a great brand for themselves. They deserve that credit. Now, it turns out the product never became as used because it was very niche. It was not professional services. It was really a way to outsource errands and tasks that you could otherwise do yourself.

And that's like almost un-American, right? To be like, yeah, I could go pick up my laundry. but I'll pay somebody, you know, less to go do it. It's like, it's like doesn't fit. As opposed to us, it's like, you're hiring a plumber to fix your water heater because, like, you have no business fixing that water heater. Yeah. So it was just a niche that never, like, matched the brand in terms of sort of size.

But that was a mistake. Could have been us. I love the free market, but I did not like their approach to the free market, which felt like driving, almost dehumanizing in that. it was like how little could I charge somebody for a task as opposed to per hour and that was very troubling to me like I want you to you know do my lawn for $10 and then somebody who needs $10 right now goes to do it and it takes two hours and you're like that's kind of effed up like well it's the challenge that all and any commodity marketplace has when you're delivering a commodity

service price is effectively the only thing that matters and so the platforms incentive is to get that price as low as possible because that's what drives growth. And when there's labor involved in the delivery of that service, that means that the platform is trying to squeeze the labor as much as possible. It's not about good and evil. It's not about like they have the like, you know, morals or not. It's like that is what the business tells you to go do. So I'm glad we don't have that. What do you think about the minimum wage and the national minimum wage and the disparity between different costs of living and the city? So I think what's happening, there's a lot of interesting research that's coming out about the minimum wage. A lot of experiments, what Seattle just did. And they talk about it in terms of monopsomy power that there's often very few employers and these employers can actually sort of like keep wages lower than they would otherwise be.

They're kind of in collusion with each other. A little bit. Yeah. And so actually what's surprising in counter to economic theory, they've run these experiments and raising the minimum wage in these places has not had the effect that traditionally our classical economists would tell you what happened, which is that the amount of wage or employees demanded would go down. That hasn't happened, which is super interesting. Yeah, in Seattle, they seem to think the theory is that those people can afford to go to restaurants now. And so because they're getting paid a more living wage, I think it's 15 or 16 there now. I think it's 15 now. They can actually afford to spend money. Therefore, those restaurants are now getting more customers. Lo and behold, wow.

And the way I think about it is minimum wages effectively is a portable benefit. Instead of having to negotiate with your employer one-off each and every time, we've pre-negotiated with everybody and said, hey, here's the floor. And so in general, I'm very much in support of these portable benefits. We've got to be smart about where you sit the price and how you implement and all that. But it makes sense to me. It seems to me like a much better approach than just the wealth tax or kill the billion. I'm not a billionaire, so I'm fine with killing them like a, but, you know, someday, you never know. But the kill the billionaire thing as opposed to just let's just create the, keep raising the floor so that when you're coming in, and I think that's Bloomberg just came out with now, it's my favorite candidate, is like $15 minimum wage national, which is really would have a profound impact in some areas.

I don't know if that's dangerous or not in areas where, you know. This is a tricky part about doing this stuff federally where we live in a very big country. Yeah. Very diverse sort of economic realities. So I don't know. But I think there's an opportunity to really evolve really the social safety net as constructed to be one that's more aligned with the future of work that more and more is, A, what's happening, but be what people want. Yeah, just give everybody health care and just keep raising the minimum wage. I think, and with unemployment going down,

it keeps us competitive on a global stage. Oh, yeah. America's doing great. Isn't it amazing? We're still doing great. Everybody thought that this was going to end and it keeps going. Do you worry about the economy?

Do you worry about the meta conditions now that we've been on this longest bull run of our lifetime? I mean, it's bound to turn around at some point for a little bit, but I am very bullish on America. I'm long America. I'm long America, too.

All right, give it up for Marco one time. All right. Thanks for coming out. Thanks again, Wilson Sucini.