Managing Through the COVID Lens with David Kolodny and Phil Santoro of Wilbur Labs
Phil Santoro & David Kolodny built Wilbur Labs, a startup studio that has launched and invested in over 10 companies, including VacationRenter which achieved $600M+ in gross bookings within 18 months of launch. During a Xoogler.co fireside chat on June 18, 2020, they shared their experiences and learnings guiding their portfolio companies through the pandemic with the Xoogler community, moderated by Chris Fong, Founder of Xoogler.co, the ex-Google community that supports Google alumni startup founders.
During the session, they shared how founders can be thoughtful on how to launch new companies through COVID-19 and look at ideas and industries “through the COVID-19 lens” to decide how consumer behaviors and trends will change long term.
The below transcript has been abbreviated from the original video stream to make it relevant to a wider audience outside the Xoogler.co community.
Chris Fong: Everyone thank you so much for joining this special Xoogler Q&A session with Phil and David, Co-Founders of Wilbur Labs, a startup studio in San Francisco. I have been wanting to do this session since 6 months after they started this company frankly, I have been pounding literally on the door at their first office on Mission Street when I would visit them shortly after they left Google when it was only the 2 of them, so thank you for allowing me to do this session it’s an amazing learning opportunity for all the ex-Googlers and Googlers to learn from your experience.
I met both of them just as I was leaving and they were leaving Google as well, back in 2016, and have been following their journey. Whether it’s been inviting me to the office, or several occasions and events, I really got to go into the weeds and learn about their business. I’ve been honored to learn from them as well so thank you for letting me see all that from the early days and also been willing, and wanting to share during this COVID-19 time which is an extremely hard time and also a tragic time. Phil and David will be able to share more on what they have been able to do to manage their businesses. All of us clearly want to do our part in these times, not all of us can be front line workers but what all of us can do on a day to day basis is run successful businesses and hire more people. We hope you take a ton from this session but also think about how you can contribute and start businesses in whatever shape or form so you can contribute to today’s economy.
On that note, Phil and David I will turn it over to you to share more about your background and why you decided to leave Google to start Wilbur Labs, and we can go from there.
Phil Santoro: Yeah, absolutely. Hi everyone — I’m Phil, this is David. Before we start with our background I wanted to say big thank you to Chris and the Xoogler community for hosting us today and all the support over the last few years. Like you mentioned Chris, this has really gone back to day one for us, and the Xoogler community has been a big help throughout the entire journey. Big help for hiring, for finding advisors for our portfolio companies, and our first Xoogler session was before we left Google. Really appreciate it, thanks Chris.
David Kolodny: Thank you!
Phil Santoro: David and I met the day we started at Google back in 2013, we were in the same class. We were both on the ads side and moved around together to various teams. Three years in, after brainstorming ideas for about a year we decided to leave and start Wilbur Labs.
Wilbur Labs is a startup studio. We primarily build companies, although on occasion we invest in existing companies through our venture arm. First we look for big customer pain points, with existing companies that are under serving customers. From there, after extensive research and due diligence we launch a company to solve that problem. If there’s traction, we double down on our investment and scale as a standalone company outside the lab. If there isn’t traction, we dissolve the company and move on to the next. So far to date we have launched 5 companies across travel, eCommerce, and employment, invested in 7 companies, and in the next 12 months expect to launch 3–4 new companies.
Chris Fong: That’s awesome. When we first started discussing this session, we talked about what’s happening in today’s world. Clearly you run a fairly large organization, can you talk about what it has been like running Wilbur Labs over the last few months?
Phil Santoro: It’s been a long journey. We had early warnings in January due to our exposure to international travel. That’s really where it all started for us. We were monitoring what was happening and knew international travel would be impacted, on the demand side, likely for a while. The big question was, would it impact domestic travel? The thinking at the time was no, this shouldn’t have a huge impact domestically, but between January and February we saw a 50% drop in international travel demand. Five Zero. That wasn’t just one country, that was everywhere outside the US. At some point, once we saw the jump to other countries, we saw the writing on the wall and started bracing the entire portfolio for impact.
We immediately went into protection mode and focused on protection of people, and protection of the portfolio. On the people side, our operations team has done an incredible job at ensuring that our people are all well taken care of every step of the way. Outside of protecting our employees, we realized early there were a lot of people that would be in pain and impacted beyond what we could imagine. We came together quickly as a team and made a large donation to two local food banks in Oakland and San Francisco, and through one of our companies, Vitabox, donated over 1,100+ bottles of hand sanitizer and Clorox wipes to local hospitals and food banks. This was the end of March, this was in the thick of it when everything we knew was crashing down, every one of our businesses was getting attacked from different angles, and to be able to use what we have built to have a small positive impact around us was very motivating and really brought the team together. You touched on this Chris, but that’s a role that businesses can have. Not everyone is on the frontlines, or able to save lives during this, but every business, every person can think about “What can I do?”, “What can we do?”, and do that.
On the portfolio protection side, every company mobilized to either deal directly with COVID-19 impact, or to focus on critical priorities to keep growing, because if you keep growing you can offset some of the damage. David and I, we cleared our calendars for a long period and scheduled meetings 7 days per week with some company leads to help get through this. It was all hands on deck, across the entire company and entire portfolio. Every team really stepped up, we’re super proud of everyone. Really for us it became, how can we take learnings from one company and share it with another. Because this thing didn’t hit all companies at the same time, it hit travel first and then hit eCommerce and employment and some other industries we are in but it wasn’t even across everything.
The single biggest factor in why the COVID-19 business impact is unprecedented is the scale and breadth of impact. This ripple effect which has already gone through parts of the economy and will continue to go through other parts of the economy, is something that no modern society has ever seen. Many companies and industries can afford small drops. 20–30% drops are painful but common with past recessions. Very few companies can afford everything dropping to zero for any significant amount of time. It’s unclear where this will go, there’s a lot of unknowns, but what is clear is that there’s significant damage and there’s more of that to come in the future.
Having said that though, we have a very positive outlook on creating new companies during this time. This is a time where consumer behaviors are changing and evolving at a faster rate than ever before. There is a huge opportunity to think about trends that were happening before, but now are going to happen much faster. There were emerging trends that would have taken 5–10 years to mature, and now they are maturing overnight. As far as an opportunity to start a company it could not get better than this because every single person can sit down, think about what the future will look like in a few years, and build for that. We think this might be the biggest opportunity to build companies, ever.
Chris Fong: This might be the biggest behavior change in modern history, frankly, right? Everyone is forced to be able to use their phone to order food, and get delivery. There’s so many different ways to think about it. Given that you have an existing portfolio and they continue to grow, how are you starting to think about starting new companies now?
David Kolodny: For our next batch of companies, we aren’t looking at the short term consumer impact that’s going to come from this. There will be plenty of mask companies and D2C high end hand sanitizer brands, and that’s great but it’s not what we’re interested in. What we want to do is take all the ideas we were looking at before, as well as a number of new ones, and put them through what we call the “COVID lens”. We’re trying to map out how consumer behaviors are changing years out, not just in the short term.
It’s very meta because we are in a video conference now, but video conferencing is a perfect example of a market that has accelerated at a magnitude faster than anyone could have expected. If you look at video conferencing, like Phil said, there was 5 years of adoption that happened in 5 weeks. While this trend will partially subside, we believe much of the growth will remain, and it has created the perfect opportunity for companies like Zoom. We don’t use Zoom due to security concerns, however their story is amazing. In the past, their team has probably been tired of endless comparisons to Skype, Google Hangouts, Microsoft teams, the list goes on. But the bottom line is a wave of new customers came in and they were looking for an easy, simple-to-use video conferencing product, and by just executing on product and marketing Zoom was able to capture the lion share of that growth. Zoom is unique in that they existed pre-pandemic, except the principles of why that happened aren’t unique to Zoom. We think this applies to multiple other industries where you have a lot of growth in customer demand, the product hasn’t had the time or investment to catch up and so all of a sudden there’s a huge delta, and companies which can be built to solve for that.
One more example that we have from our studio: we sent out a term sheet last week for a mobile on-demand company which we have been in talks with for months pre-COVID, but now are more excited about. The deal hasn’t closed yet so we can’t go into specifics, however one big reason we are so excited about it is because overnight, there was a 5 year shift of on-demand adoption that was compressed into 5 weeks. My parents, in a personal anecdote, before this year had never used food delivery apps in their life. And now they have, and I’ve heard that type of thing from multiple people and the numbers show it. Mobile on-demand, as a category, now has a larger addressable market, it’s easier to attract users, and this makes it even more attractive than it was a year ago. This is one of those areas where we think adoption has outpaced product and that presents a lot of opportunity.
Chris Fong: One of the key pieces of this session is sharing some industries that you think will do even better now. Mobile on-demand is one of them. Can you share more about how you are looking through the COVID lens with other industries?
David Kolodny: Definitely. We’re looking at a number of opportunities but I’ll highlight a handful top of mind for us that we’re active in now. These are spaces that are not new, we have been interested in them before, but we are now more interested in them given all the recent trends: Telemedicine, Online education, eCommerce, Insurance, Mobile on-demand.
I’ll touch on a couple details on why we like each of those as well. For telemedicine and online education it’s fairly obvious, these have seen huge growth over the past handful of months and we really like these spaces because we think the ceiling is absolutely massive. In these spaces there’s still a huge delta between what customers’ needs are, and what companies are solving.
In addition, eCommerce. eCommerce in nearly every category is still fairly small relative to most channels. Through our eCommerce portfolio company, Vitabox, we have seen the growth that they have had since the beginning of the year. We have been amazed by how mind boggling the growth in demand has been and we’re very bullish on the space and how much room there still is.
For insurance, we believe many individuals and companies will be insurance shopping in increasing amounts following all the carnage from the pandemic. There will also be a lot of people changing policies or carriers.
Mobile & on-demand I already touched on, the larger addressable market plus the increase in users just makes this even more attractive going in.
These are just a handful where we are actively looking at now. In the news, there is a lot of focus on companies solving short term needs, but if you look past the fog and think long term, it’s clear how many verticals and industries look more exciting now than they did 5–6 months ago.
Chris Fong: I want to merge a few questions that came in around non-traditional options of funding. Can you share how some of the other folks on the call should think about either funding themselves or how to launch a business they can fund themselves, and share more about how you have been able to do that?
David Kolodny: For context, we have been fully bootstrapped since the beginning, and we haven’t taken $1 of funding yet. Generally when you bring up different funding sources you get polarizing responses. Some people say, “you need to take Venture Capital funding, all Venture Capital funding is good”. Then you get folks on the other side that say “all VC is bad”. The reality is, that’s the wrong way to think about it, like most things. The reality is every founder and every company should look at their unique situation to decide what is right for them.
For us, we think backwards when we’re building any company so we look at where we want the company to be year 1, year 2, and year 3, and all the different work streams, every resource, everything that we’ll need to get the company there. Through that, we’re able to answer some of these funding questions ourselves. For instance, if you’re starting a company in a highly competitive, but low margin space like ride-sharing or food delivery, you’re going to need capital and a lot of it. It’s a winner takes all situation. Whereas if you’re starting a marketplace with no physical inventory you can probably be scrappy. For some businesses, there is some logic to pushing things as far as humanly possible before knocking on the door of VCs because not only will you get to retain more equity of course, but perhaps more importantly you know what’s working and what’s not so every dollar that comes in will be invested more efficiently and you have a better sense of where you are going.
Chris Fong: The second part of that question, you mentioned the part where you start your own businesses but also invest in some businesses. Can you talk about how VC meetings work now based on your own experience?
Phil Santoro: We can’t speak about the process for VCs, but our process for investing has changed, and I have heard this is a similar trend, every investor has the same problems now. For us, it has changed because this is just a different environment from 6 month ago so it has to change. It’s really a matter of us spending time with our portfolio, helping them through the fires so they emerge strong. Protecting the portfolio is the number one goal right now, so this just means we have less time to look at new opportunities, less time to meet with people or look at deals.
The second thing for us is that as David mentioned we have this COVID lens, and now we need to look back at every deal we were looking at before and every new deal, and think what are the short and long term impacts of COVID, and more importantly how are the changes in consumer behavior affected by that. These two areas in combination, just mean that we can’t look at as many deals as before. We have put, let’s say, half of the deals on hold. That’s not to say everything is on pause, the good ideas will float to the top. An example David mentioned we extended a term sheet last week and we’re targeting a very fast close due to some positive consumer behavior tailwinds.
If I was raising money right now or thinking about raising money, it’s a great time to start a company but it might be challenging to raise. You may need to push further without raising, which isn’t a bad thing. If you do want to raise now, just make sure you can push past the noise. You should also really think about your business through the COVID lens and really have a strong answer for “Why me?”, “Why now?”, and “How is my business better now vs 6 months ago?”. Because, you’re competing for time and people who are investing just have less time naturally right now.
Chris Fong: That makes sense, and that follows through to one of the other submitted questions talking about which business or services will actually ramp up more. What have you seen already or what do you think will do better in the coming months?
David Kolodny: We have spent time with our direct portfolio, we have spent time with our investments, also talk with other founders, and the impact in terms of breadth is everywhere. There’s likely a small pocket that really benefited from this, you know, eCommerce, food delivery, remote productivity software, there’s a few categories that have benefited. Then there’s a few companies that have been directly negatively affected, travel, events, restaurants. The 80–90% between those two are impacted somewhere between slightly bad to decimated. Even if they don’t know it yet. We view this as still early and there will be aftershocks. Businesses will still go under, there’s a lot of lag on some of the impact, plus the ballooning unemployment problem — so a lot more impact will come.
In addition, we have an employment company that will publicly launch in a couple months, the team is working hard on that. Other employment companies are focused on employers, our company is focused on being the first job-seeker first platform. Through that we have an interesting layer of insights into the macro economic trends in the country. We have been surprised that with 45 million unemployed you would think there was a ton of activity and hunger for jobs? While that should be true, people don’t want to leave their house, there’s a looming health crisis, and there’s more temporarily unemployed benefits. All of this makes people less eager to apply and we have been very surprised by it. This company has access to most of the jobs inventory in the US, and back in January we had 13 million open jobs in the US on our platform, roughly. Now there’s 5 million. You have 45 million unemployed and 5 million jobs, it’s easy to see that there’s no person or company immune from this.
We don’t know what will come back first and it’s impossible to know, but in the case of VacationRenter for example, this all hit and travel came to a screaming halt. We were then hoping that there would be a growing trend of people staying in vacation rentals. Since then, the team executed extremely well in navigating this crisis, and then there was a wave of interest for people going to drive-to destinations, staying in secluded rentals and just getting away on a trip. As a result of that, VacationRenter is now at all time highs, growing fast, and we could have speculated on the trend but to know when that would happen? It’s impossible to know.
For us, we’re less interested in what will come back first so much as the trends over time.
Chris Fong: That’s incredible and that makes sense people are looking for these bigger locations to stay in outside of San Francisco, etc and using VacationRenter. Any other thoughts on VacationRenter, how you manage that business through these times as they were one of the businesses which were hit first?
Phil Santoro: Travel has been absolutely crushed because of refunds being driven by cancellations and also lost demand. It’s interesting because today, you couldn’t go back to Starbucks and say “Hey I bought coffee in January and I would like a refund due to COVID-19”. Right? It doesn’t work like that, however, travel does work like that. Anyone with a trip in March, April, May, June, etc they booked these in the past, sometimes 1–2 years ago. So, now you have a situation where travel companies are having to issue refunds and pay back revenue they generated years ago that they thought was safe. This wasn’t just a 10, 20, or 30% drop like other recessions or during 9/11. Cities are locked down, hotels are closing, flights are getting cancelled, and so a lot of travel companies for a period, maybe even currently, have had revenue drop to zero.
You pair that with the fact that travel companies have a lot of paid marketing and paid acquisition. They can’t go back to Google or back to Facebook and say, “We paid you $100,000 for ads in January but all those customers canceled due to COVID-19 so can we have our money back?”, Google and Facebook sell clicks, they don’t guarantee performance. That two punch combination where the revenue was pulled back, sometimes revenue from 1–2 years ago, but all the expenses remained, that impacted a lot of travel companies, including us, and it’s still a risk going forward.
The approach we have taken, in travel and otherwise, is to acknowledge there will be impact and separate what you can and cannot control. For what you cannot control, you can’t ignore that, you can’t pretend it’s not there, you can’t hibernate from it, you still have to monitor what’s going on but you shouldn’t focus on what you cannot control. The focus should be on what you can control — which is likely a lot. Most businesses out there are facing negative impact, the difference in outcome will be driven by what companies do with what they can control. For us in travel, if we go back to March and April, we couldn’t control all the bookings that happened before then, we would just have to take that loss. But we could control going forward, so we built a lot of prediction models and forecasts to make sure we weren’t overleveraged on marketing compared to the current cancelation risk.
We could also control what people spent time on, this was not the time to have people focus on small impact, maintenance items. This is a time to add growth to offset the impact, and that’s absolutely something we could control. We think the seatbelt sign will remain on for a while in travel, possibly 6–12 months, but at least right now we have seen a huge uptick in short term rentals and some other areas of travel.
Chris Fong: Let’s turn this around and talk about how you manage a team, but also stress, for both of yourselves and also the entire company. There are things you can control and can’t control. Everyone has stress and is probably sick of looking at a camera these days on virtual meetings, how do you manage stress for you and your team?
Phil Santoro: For the team, we have tried to make this as seamless a transition as possible. Every single person, globally, is likely dealing with some level of increased stress and they’ve had that since January or February or March. For our team, we have tried to remove any stress we can, whether it’s meal delivery, getting the equipment for your home office to make sure you have the right set up. The last few days in SF before working from home, we let people take whatever from the office. All the inventory checks, that didn’t matter, everyone take what you want and run for it to set up your home office, and whatever you don’t have we’ll take care of that, order and ship it to you so you can set up the perfect work environment. There’s things like that, where at a time when there’s a lot of stress a lot going on, you can remove some of that from the team.
Also making sure people aren’t worried about things that don’t matter at the company right now. There’s a lot of work, people have long to-do lists, we took the 2020 OKRs and threw them out the window pretty early and really made sure everyone was focused only on what mattered: covid-19 impact or updated business priorities.
For David and I, when we talk with founders, we usually ask if they want to spend the next 5 years of your life working on this. Which by the way, 5 years is not much time, we have been doing this for 4 years and we have a ways to go before we hit the vision we had at the beginning. That is an important question. I know for myself, and for David as well, there isn’t a single place we would rather have been during the last 6 months. It has not been easy, and this also doesn’t solve every problem but it’s a really important starting point to have.
Besides that, it’s really important to enjoy the process and not try to rush to some destination. Don’t stress about some exit, milestone, it’s a long journey. It’s a fun journey, but a long one. Those two points won’t solve all problems, but if you are doing what you want to be doing and you enjoy the process, other issues are smaller in comparison.
Anything else David?
David Kolodny: When all of this really hit, in March, Phil sent me a great tweet that said “Whenever you’re feeling down, just remember that at least you’re not the founder of a travel company”. We had a good laugh at that and that was great because that was right when we were in the trenches dealing with things left and right. If anyone on this call is in a directly impacted industry, which I’m sure there is, I don’t think motivation has been an issue. There have been so many problems that it’s really been action mode, and I feel that way.
For stress, we read about this all the time: companies are defined by these key inflection points and crises, and that’s absolutely true. It’s also true individually for any person or leader for a company, it’s really those moments that matter most. With that perspective it allows you to zoom out a little bit and takes the stress out. Everyone on the team has embodied that knowing that we’ll look back 5 years from now thinking that this was a wild but very critical time. As a result, you end up leaning into it instead of always wondering what is next.
Chris Fong: Phil you have talked about launching a business and starting businesses during a recession, having managed a business then. Can you talk about some similarities and differences managing a business in 2007–2008 and now?
Phil Santoro: Sure. I started my last company in February 2007. 10 months before the Great Recession, which was probably the worst time to start a company in the last 2 decades. Just as we were ramping up, just as we were hitting our stride, we got hit by this tidal wave. Ad payouts fell, companies that owed us money went under and customer spending decreased. This is a different situation, this is a much worse situation, but there are some parallels.
Everyone has heard this but cash is king. Cash was king during the great recession and cash is still king right now. The reason for that is, cash allows you to weather the short term, but more importantly, cash is what allows you to be offensive when everyone else is being defensive. While every competitor or company in your space is on the sidelines trying to figure out what is going on, you can be out there investing in the long term, you can be serving customers better so you are stronger when a recovery happens. A recovery will happen, it’s bad now, it may be bad for some time, but a recovery will happen.
Another big similarity is the fear of the unknown. Back in 2007–2008, if you remember, no one knew where the bottom was, no one knew what the recovery was going to look like, no one knew what obstacles there might be on the way up. The same is true now, so as a founder it’s really important to think through different scenarios and think five steps ahead and plan for emergencies. Even if you hope, or think they won’t happen, at least plan for it. There’s a book I really like, by Andy Grove, former CEO of Intel, it’s called Only The Paranoid Survive. Really good book in the past, even better book now. When good news comes you can usually just accept it. When bad news hits, you need to have planned for it.
Those are the two similarities. In terms of differences, like we’ve talked about the scale and scope and ripple effect of this is way different from 2007.
Chris Fong: One final question regarding your approach to product market fit. What learnings should everyone else have as theft think about their own process when they launch a business?
David Kolodny: I’ll talk about the systematic approach we take to launching companies and then touch on product market fit.
As Phil touched on first we look for big customer pain points and where existing companies are under-serving customers. We take these pain points, develop them into ideas, and store them in a database of potential companies that we are constantly adding to.
For any idea we explore we do a concept evaluation, which is our version of a very practical business plan. Ultimately, after doing due diligence to assess market size, customer pain points, and talking with experts in the space, we make a decision on if we are the best people to solve this problem. If it checks those boxes, then we launch a company from the lab, iterate, and hire a leadership team of domain experts to run the company. From there, the next phase is product market fit.
Every company is unique and market fit is a general term, you might be familiar with Eric Schmit’s famous quote “Revenue solves all known problems” and we proudly adopted that at the studio, and Phil has also coined “Revenue solves all unknown problems”, like a global pandemic. The reality is that when customers are voting with their wallet or with their time, that is the best measure of product market fit. If they won’t do one of those two things then you probably have some other issues.
For us, we’re trying to take bold ideas and turn them into market leading companies, and that means that they will need to stand on their own two feet. They will need to be generating revenue. We don’t expect that companies will be profitable out of the gate, except we do, from the get go, have an eye towards unit economics, break-even point, and sustainable growth. That’s how we think about product market fit but it may be different depending on the kind of company you are building.
Chris Fong: One question just came in on how people can work with you in the future, in terms of the best way to reach out for their own ideas to to work on your ideas. What’s the best way for people to reach out?
There’s a few ways. We have open job postings at the studio and for our portfolio companies. We’re always adding to those so there will be new postings rolling in over the next few months. If you see any on the site reach out and we can connect you with the hiring manager for that role.
Second, if you’re interested in any of the areas we mentioned, and I can mention again:
- Online Education
- Mobile on-demand
If you’re interested in any of those we would love to hear from you. We work with people all the time on building internally, advising, or consulting. Like we said we love talking with people who know more about an area than we do.
Third, if you are passionate and have an idea in an area outside of those spaces but that fits the profile for things we have talked about, we would also love to talk. We have worked with people before who had an idea outside of an immediate area we were looking at, but with a lot that resonated, so we ended up building together. If you want to build out of our studio please reach out to discuss.
Chris Fong: Thank you Phil and David for sharing your insights and best practices with us today.
Phil Santoro: Thank you Chris!
David Kolodny: Thank you! Great speaking with everyone!