Lessons learned building a local-services empire with Marco Zappacosta and Javelin's Jed Katz
At Vator Splash Oakland 2015, Marco Zappacosta, Co-Founder and CEO of Thumbtack sat down with Bambi Francisco, Founder and CEO of Vator and Jed Katz, Partner at Javelin Venture Partners, which led the first institiutional round in Thumbtack.
To have Zappacosta on stage as a Keynote was quite a treat for the Vator team since five years ago, Thumbtack was on stage pitching his startup in the startup competition.
Thumbtack was the winner of Vator's first-ever startup competition, in partnership with TheFunded. At that time, Thumbtack had only raised a few hundred thousand dollars. At Splash, the audience was treated to a viewing of Thumbtack's humbe beginnings and Zappacosta's winning pitch.
To date, Thumbtack has raised nearly $150 million from notable investors, including Javelin, Google Capital and Sequoia Capital.
Here's some highlights [slightly edited]
On traction, and getting the flywheel going:
- When Zappacosta pitched his venture five years ago, there were 2500 service providers on the website. Today, there are one million. One way to attract service providers early on was to give them software tools that would benefit them regardless of the marketplace (considering there were no consumers really using the marketplace at the time). "We built a way to help local service providers advertise themselves online. It was a simple and effective marketing solution and it's what spun up the marketplace," said Zappacosta.
On giving up and struggles:
- Raising Thumbtacks' Series A was one of the company's biggest challenges. "Part of the main reason was we simply didn't know how to raise venture capital. We went out trying to raise $10 million to $12 million and that was exuberant relative to what we accomplished. The monetization piece of the business was too early... We had to re-calibrate."
On having a neuroscience and political science degree:
- Clearly, one doesn't need those degrees to create a platform matching consumers with plumbers. So what was the value in those degrees and experiences? For Zappacosta, coming in without experience in the local services business was good. "Ignorance can be helpful. Our successs was due to not knowing any better," he said. As for what Jed Katz saw in Thumbtack - "Marco and his team were very hungry and data-oriented," Katz said, highlighting that the team understood the market and how they could and should build the marketplace.
On three business models:
- It took us three tries to get it right. First we wanted to charge transaction fees. It was the "normal" monetization. The challenge is that these are real-world transactions, where plumbers go to your house, so staying in the loop of the transaction and being in the middle of it was tricky. Also, we were helping customers higher by giving them options, and when you don't charge a professional for getting a customer, they respond to all of them. Then we had a subscription model. It worked. We had 12,000 paying subscribers paying $24 a month. But the challenge there was that it didn't scale with the activity of the marketplace. When professionals went on vacation and had a bunch of business with past customers, they wanted to turn us off. Then when professionals got a ton of business from us, we didn't benefit. So we were either over-charging or under-charging. So about a year after Javelin got involved, we changed our business model to an introduction-based model. It was super scary. Read: How does Thumbtack make money?
How to keep head down and not get caught up by competitors?
- When Thumbtack started, it had a competitor - Red Beacon - that received a lot more press and attention. How did Zappacosta feel about that? "It sucked... someone else getting all the love for effectively the same idea," said Zappacosta. To their credit, they built up early buzz. But in some ways, it was part of their demise. We from the get go were focused on building up our network of professionals. That's all we focused on. We didn't focus on getting press.
Increasing bids per request, how do you do that?
- Main reason professionals don't use Thumbtack is because they're not aware of it. So it's a marketing problem. We'll soon test a big brand campaign in cities - traditional radio, TV and bus ads.
How do you stay ahead of Google and Amazon, as they get into your market?
- The reason they're interested is because it's big and broken. But we've been working on this for the last five years. We have the most momentum and scale. Obviously, they have incredible brands and money, but they haven't learned all the hard lessons and done the hard things to get it right. It's scary and motivating. But we're in a good position.
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Joined Vator onJed Katz is the Managing Director of Javelin Venture Partners. One of the pioneers of online commerce, Jed has spent his 20 year career developing, advising & investing in early stage tech ventures.