42 Days to LAUNCH Festival — Spotlights on Marco Zappacosta, Thumbtack

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This Week in Startups NOTES

11 min readJan 19, 2016

Marco Zappacosta, founder and CEO of Thumbtack will be another speaker you’ll meet and listen to at LAUNCH Festival 2016 on 2–4 March, 2015.

Today the spotlights are on him, as he walks on the stage of last LAUNCH Scale! Conference and share how he got from struggling to raise the A round for Thumbtack to raising 125 millions at a 1.3 billion dollars evaluation a couple of years later (TWiST ep#599 audio and video links).

As a lovely bonus, in the second part of this episode Sonny Mayugba from Requested (a company in the first batch of Launch Incubator) talks about street teams and teaches how to grow your startup through the old school gorilla tactic of getting on the streets for a whopping total of 1500 dollars.

After this talk he was ranked the #1 speaker at the Launch Scale conference.

Good actionable content if you are desperate for growth and on a tight budget.

Don’t forget to subscribe to the ThisWeekInStartups podcast on Itunes and never miss any other episode from these guys deep in the game.

(first part)

Jason has known Marco Zappacosta since March 2010
Jason, Cyan Banister, Josh Shecter did the angel investment
At the last round they raised 125 million dollars at 1.3 billion dollars evaluation
It’s the second most successful in his 150 angel investments (Uber is #1, )
First 2 years at Thumbtack were slow and frustrating, they still couldn’t figure out a scalable way to make money efficiently
Jason believed in Marco from the moment they met, he saw he was a winner and he often says that whatever company Marco will start in the future, he will invest in it 100%

Thumbtack’s dream

Why is it so hard to hire a plumber? Why is the world still using bulletin boards to advertise local services to find a cater, a babysitter, etc?
He founded Thumbtack to solve this problem
They looked who was trying to solve this problem online (Yelp, Craiglist, AngiesList)
Those are online versions of offline products: directories and classified, with pictures and reviews
The user experience has not change: you still have to search and browse and call, like you would do with Yellow Pages
For their categories, who can come to them to perform a specific service neither of these models worked well
Hiring a plumber is more like dating than it is like dining (“Thumbtack is like Tinder for pluming”)
The user experience is the same as dating: you can’t just pick who comes to you, you have to ask who’s available, who’s interested to do the job and they have to agree that they can do it
The dream: building the best and the most trusted way to hire a professional for any project any time any where

How Thumbtack works

In the app you can’t search or browse: the only option is to put in your request details
You want to hire a yoga instructor for example: Thumbtack would ask you what type of yoga instructor, if private classes or group classes, what days of the week, all the questions a professional would need to figure out if they can do the job and if so, how much they are going to charge
You’d have this conversation with each and every professional to figure if they can do the job
With Thumbtack you don’t have to make 12 phone calls like you would have without it, you just need to tell it once
They send those requests out to the plumbers, caters, service professionals
They provide them an inbox of full potential business, full of customers
Providers no longer need to go out and hunt for customers, they can simply wait and wait for qualified leads
They see what the customer requires: if they are free and can do the job, then they can pay and send a quote directly through the app
The quote will be packaged with everything the customer needs to make a conscious hiring decision: pictures, reviews, scheduling info
It’s the easiest and best way to hire a huge number of local services, they now cover a thousands different categories
The biggest sections: home improvement like home repair, event services like photographers, videographers, instructional services like tutors for children, wellness like yoga instructor and personal trainers

KPIs

5 million projects are happening through the site every year and growing
They are engaging 200k active paying professionals
It’s been done without a sales force
the reason: they bring what they want, customers, to providers in a way that’s easy to understand and easy to engage with
They charge them only to respond to customers they like
They sell them a billion dollar worth of business every year

Chicken and the egg problem

As a marketplace they had to solve the “chicken and the egg” problem, how to bootrap the network (with no vendors it’s useless for customers, with no customers it’s useless for vendors)
The solved it by building network independent value so vendors would “come for the tool, stay for the network”(Chris Dixon)
At Day 1 as a marketplace, there’s no networking value so you have to find a way to entice one of the 2 sides that’s independent of the network
They built a way for vendors to quickly post their Thumbtack profile onto Craigslist
With one click they could bring pictures, reviews to Craigslist and building a much better looking presence on a place that did have customers
Then you need to find the people that will use it: they crawled the web at scale and found which pages represented professionals, which services they offered and that gave them a marketing list that they were able to market to to get people to sign up
To use the tool, they had to create a profile on Thumbtack with content
Once they had enough of them, they were able to attract customers and instead of the tool, sell customers instead

How Thumbtack makes money

They had to face another challenge: how to make money
Jason introduced them to some investors but most of them said no while raising the their A round because at the time they hadn’t solved the monetization problem
At the time they had a commission model, they would get a fraction of the revenue professionals would make
Customers and professionals would meet in the real world and it was hard to stay in the loop and claim the commission
So they tried to move to subscription model
It was very easy to collect (you can’t disintermediate it), got 15k professionals to sign and 3 millions in recurring revenues
It had a flaw: they weren’t charging on the margin of value creation and as a marketplace, you are in the business of facilitating commerce, helping profs to get hired and make money in the proportion of how much money they make
With a subscription model, if they doubled or tripled the amount of customers sent in a month to professional, the fee wouldn’t grow; same way, if you had no clients you’d still be paying for nothing
So they were either overcharging or undercharging
Today’s model it’s an introduction based model: customers come to the site, tell what they need and Thumbtack send that out to their network of pros
Professionals that are available and interested pay Thumbtack to send an introduction/quote to the customer
This made the customer experience better as well: if providers get free, unlimited, new potential customers, they will respond to all of them lowering the average quality and intent in those responses and making the customer less likely to hire and the overall experience worse
By charging a fee, they make the customer experience better

Data-driven unconventional wisdom

They believe that “customer laziness is like gravity: it will flow to the easiest solution that solves their need”
They often look at the data to tell them if they are building a solution that’s getting the customer what they want
Don’t trust received wisdom on how to do thing: while onboarding users from Google, they ask users to answer to plenty of questions about the kind of service they needs when signing
Traditional UX wisdom would suggest to make it easier for users to sign in to improve conversion rates (complex sign in form=lower conversion rates)
Yet they have 26% conversion rate
By being so thorough with their questions, they establish trust with their customers and that complexity makes them more confident to sign up

Sales force

They told them it was impossible to build a self-served marketplace for SMBs without having a sales force
It’s not true
What you have to do is offer them a solution that’s valuable and easy enough that they want it
They are excited to use it, they sure about that because pros don’t leave

Liquidity is king

People go to Craiglist not because it’s pretty and safe, because it has what you are looking for, vendors, customers (=liquidity)
As a marketplace you need to find the unit of liquidity to focus on, the north star that should be the metric correlated to success
For Uber it’s the average time to pick up: people want to get a car picking them up ASAP so lower it is, the more likely you’ll use Uber the next time
For Thumbtack it’s the percentage of requests that gets you 3+ quotes: when customers get 3+ quotes they love it, repeat rates are discontinuesly higher, qualitative feedback is discontinuesly higher

Growth fueled by network effect

Their market is now 1000 different categories in every city of the US
200 categories in top 50 cities — every day they are tracking how they are building liquidity in these markets
Today their growth is driven by their network effect
As they have more projects and more customers, they are able to recruit more professionals
More professionals means more and better matches with the customers, faster, more, better customer experience, it’s a virtous cycle
You have to find your measure of liquidity, what delights people, excites them, what drives your growth and then maniacly focus on that
This is just the start, now they are matchmakers, introducing professionals to customers

End Goal

For the future they plan to build more tool to do more: scheduling, payments, CRM systems etc
Goal: to be a true end-to-end solution that becomes the Amazon of local services

Javelin Partners and their Series A founding

In their series A they were backed by Javelin Partners
They bet on the team at Thumbtack: they saw the potential on the market and in them
They saw how rigorous their data-based analytic process was
Thumbtack were honest about what was still to be figured out but they also had a plan of what to do, what to track and they liked it
They loved their dashboards: at Thumbtack they built their own real-time mini-mix panel (before Mix Panel was aroud) so they could show them in real time all the stats and the experiments they were doing to find the answers they were looking for (i.e. best way to monetize)
“They saw how you train for the Olympics and that gave them the faith that you may win a gold medal” (Jason)
It wasn’t easy: it took them 4 years to figure out how to make money and solve all their problems
On March 13 they raised 6 and half million dollars, from then to last year they raised 270 million dollars
Once the model clicks and the traction is obvious, it becomes easier to raise funds

How he got into street teams

Sonny Mayugba went through the incubator with Requested and he’ll explain how he activated his first street team for only 1500 dollars
In ‘93 his friends and him built Heckler Magazine, a newsprint rag about snowboarding (they wanted to say they were with the press and get to snowboard for free at skiing facilities)
They had the first issue printed, a truck delivered 15000 newspapers to his front door and had to figure out how to sell them
He loved hip hop as well and took inspiration from them selling their mixtapes and promoting their shows on the streets
So he did the same, going to skate parks and shops and ski resorts selling those magazine one-to-one
It worked and they were able to scale: grow bigger with a better magazine, distributed internationally and ultimately they were acquired by a huge publisher
Most importantly they were able to build a community around the magazine of people that loved it

Requested Launch

He’s at it again with Requested, a mobile app you can use to book a table and pay with your phone in awesome restaurants, bars and cafes (think HotelTonight meets Uber for restaurants and cafes)
Their differentiator: a effortless dynamic pricing
When they launched, nobody cared so he went back to the streets (and building a community again with people that love their product)
They are now growing 50% month, month-to-month

How to activate your first street team for 1500 bucks

Step #1. You need to build crew

His suggestion: create an unpaid internship program for marketing interns
Go to a University Career Center and get it approved: students will get college credits for doing them, it will have value for them and post a gig on Craigslist
Be specific about the role and the kind of people you are looking for (they will be working on the streets with people, they can’t be introverted)
Internship has to be 90 days long, 12 hours per week (4 internships program per year)
Make sure they know your product as you do, you won’t be always with them
They tried to pay “professional street teamers” (with past experiences with the likes of Redbull) 10 dollars an hour to do the job interns do for free, but they weren’t as good. Interns get excited

Step #2. Build some marketing material

Buy postcards 4 by 6 (he gets them from PS print, in Auckland, 8000 units, at 3.5 cents per unit)
Buy promo cards with free 15 dollars to try out the platform (5000 units 1.8 cents per unit)
They are a marketplace that needs to build a network of restaurants up and then get diners to book reservations
The free money promos to book restaurants are paid by Requested (it’s their marketing budget)
They also had to create a brochure for restaurants to explain their offer, what other restaurants are getting etc
Then buy t-shirts (a uniform for your interns)
Get an array of sizes for people that will be interning (if you get from a local place, you get them fast in case you need them at the last moment for festivals or conferences)
Buy a big spinning wheel (24 inches or more, it has to be visible) on Amazon for 80 bucks to attract attention (everyone wants to spin a spinning wheel) with some nice prizes

Step #3. Get a map of the area you want to attack, find the best spots and corners where people cross into each other

Step #4. Give your team time parameters: show up at this time and work your corner until this time

Step #5. Establish goals (for Requested they are to educate people of what the app does and to make them download it and book their first meal through it)

Write them an open script, opening lines: they are college kids with near-to-none work experience and often nervous
This whole thing should cost you $1500 and it’s quite effective

Team Streets for Business-To-Business

You can do street teams for B2B as well: they go to every shop in their attacked areas and give their marketing material to any GM or owner
They would get 12 leads a day, 3 of them warm that only needed a sales guy to call them and close the sale (cost per customer, very low)

Consumer activations

Do a consumer activation: they threw parties in restaurant partnering with them to educate people and get the word out
They would intercept diners entering the restaurant, show them app and giving them free money to try it and come to the party

Iphone 6s launch guerrilla activation

When the Iphone 6s launched, they went to the Apple Stores in Sacramento early in the morning and offered a free coupon to people waiting in line “In celebration of the Iphone 6s Launch” (sounding big-time)

Not just for scrappy startups

Huge companies can still user street teaming
in the retail market, big companies like Adidas are doing it (to bring people into their shops 200 meters from their corners). Redbull does it as well (giving away free Redbulls)

Conclusion

They plan to do it indefinitely
What matters is the one-to-one connection and the community you get to build around the product

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