Two-Sided - The Marketplace Podcast: Recent Episodes
Sjoerd Handgraaf / Sharetribe
Two-Sided, the podcast about building an online marketplace business. Two-sided of course, because we’ll discuss Demand & Supply, but also the good side and the bad side, the easy stuff and the hard stuff, and how it looks from the outside versus what is really going on on the inside of an online marketplace. In this series, we sit down with marketplace entrepreneurs, investors and other brilliant minds who work with online marketplaces and two-sided platforms every single day. We will talk about starting, building, growing and scaling, and every stage in between. In each episode, we will do our best to uncover insights and wisdom you won’t find anywhere else. If you are into online marketplace businesses, you will be into this podcast.
A community can be a strong foundation for a marketplace. In the early days, it helps with onboarding initial supply and demand and creates trust. Later, it can form a powerful moat that defends the marketplace from competitors.
But building a community takes time and work and, most importantly, engaging in it yourself.
In this episode, Sjoerd interviews Gene Miguel, CEO and co-founder of Shortboxed, a marketplace for buying and selling comic books.
Gene and his co-founder have been lifelong comic book nerds. They both had day jobs in tech, but dealt comic books on the side and spent their days off at comic book conventions. They also started a comic book blog, around which slowly a community started to form.
As dealers, they experienced first-hand how poorly and inefficiently the entire comic book secondary market was run. That’s when they decided to build Shortboxed.
In this season’s final Two-Sided interview, Gene shares:
- How starting a blog helped them build the community
- How building in public with the community helped them onboard the first supply and demand
- What a double-bind marketplace is, and why Shortboxed uses that model
- How they faked many features by running them manually before automating them
A compelling story of a marketplace where passion is combined with a solid business case.
Sometimes, the story of the founder can be just as interesting as the story of the marketplace.
In the case of Trisha Bantigue, this is certainly the case. Trisha was born in the Philippines, raised by her grandparents, immigrated to the US at age 10, and paid her way through college by competing in pageants.
Today, she is the CEO and co-founder of Queenly, a marketplace for formal dresses. Queenly is backed by prestigious investors such as YCombinator and Andreessen Horowitz.
Though Two-sided does not focus on founder stories, Trisha's journey is pivotal in the story of Queenly. The idea behind the platform comes from Trisha's own pageant experience. And marketplaces in their early stages need non-scalable tactics; in other words, perseverance. Trisha had that in plenty.
In the latest episode of Two-sided, Trisha tells Sjoerd how Queenly got to where it is now:
- Launching the app and getting absolutely no traction for months.
- The difficulty of estimating your own worth as a first-time founder.
- The challenge of talking to investors in a way that makes them understand your vision and punctures their preconceptions.
- How to deal with incredible setbacks, and turn them around for the better.
Overall, a truly inspiring story for all of the marketplace founders listening
First-time marketplace founders often struggle to balance speed to market and marketplace quality.
On the one hand, launching an MVP as fast as possible is often the best strategy.
On the other hand, high quality and trustworthiness are essential, especially for peer-to-peer marketplaces.
Despite being first-time founders, Gaurav Singhal and Dirk-Jan ter Horst cracked this trade-off from the get-go. When they launched their peer-to-peer car rental platform in Singapore, their sole focus was to get to the market fast. Yet they had a clear vision for Drive lah’s customer experience from day one.
In the latest episode of Two-Sided, Gaurav shares his lessons on:
- Transitioning from a corporate job to entrepreneurship: both founders were working at the same corporation, where they conceived the idea over lunch.
- Testing potential features with manual work before building them – and spending lots of time with customers in the process.
- Launching fast with Sharetribe Flex without compromising on their customer experience vision.
- Working with regulatory limits: before Drive lah, it was illegal in Singapore for private individuals to rent out their car.
- Putting trust front and center: having raised their seed round one month before Covid, Drive lah was able to turn a potential disaster into a tailwind.
- Expanding Drive lah to Australia as Drive mate.
- And much more.
An enlightening episode, with something for everyone building a marketplace.
Marketplaces have conquered some industries earlier and faster than others. Besides home-sharing and ride-haling, one such industry is fashion. The European second-hand clothing giant Vinted was founded in 2008. The US-based Poshmark started in 2011 and is now a listed company.
One might think there are no opportunities left for new marketplaces in these pioneer industries. One would be wrong. In this episode of Two-Sided, Sjoerd talks to David Oates, CEO and co-founder of Curtsy. Curtsy is thriving in one of the most crowded spaces for marketplaces: reselling apparel.
On the podcast, David shares the most important lessons they learned since Curtsy was founded in 2015:
- Be efficient: Curtsy reached $25M in GMV with a team of six.
- Start with one niche: Curtsy started as a peer-to-peer dress rental platform for sorority students in Southern universities in the United States.
- Don’t force your business model on your market: it took Curtsy some time to find out people wanted to sell rather than rent out their pre-loved clothing.
- Have big bets on your roadmap: David finds it important that Curtsy doesn’t only focus on incremental improvements.
- Get the best advice available: Curtsy was part of Y Combinator, which is generally considered one of the best startup accelerators in the world.
A very entertaining episode, showing that even crowded spaces have room for new entrants with an innovative approach.
Jason Bergman thinks most marketplace founders underestimate the power of sales.
Jason is a big sports fan and has always loved working in sales. Before founding MarketPryce, he ran his own sports agency where he tried acquiring customers by sending Instagram messages to almost three thousand professional athletes.
The success rate of the Instagram tactic was pretty terrible. But the experience paid off big time when Jason co-founded MarketPryce, a platform for athletes to find marketing deals. MarketPryce has matched thousands of brands and athletes together. For finding both sides, effective direct sales has been a core strategy.
In the latest episode of Two-Sided, Sjoerd talks with Jason about:
- How most marketplace founders still underestimate the power of direct sales
- How a change in regulation grew MarketPryce’s market one hundred times overnight
- How MarketPryce modeled its user experience after Tinder.
A fun episode, giving a glimpse inside a relatively early-stage marketplace growing very rapidly.
Andrew Gazdecki loves building businesses. He was the weird kid in high school with an eBay store. He built and sold a job board in college. He used the proceeds to start another company, still in college, which he sold before the turned 30.
Andrew’s latest venture is MicroAcquire, a marketplace for buying and selling online businesses. The platform boasts a community of more than 150,000 entrepreneurs and raised $6.3m in funding last year.
In the latest episode of Two-Sided, Andrew talks to Sjoerd about:
- How his entrepreneurial journey influenced his approach to building MicroAcquire
- Making non-obvious bets
- The importance of loving what you do
- And much more.
A really inspiring episode, giving a serial entrepreneur’s perspective on building a marketplace business.
I'm talking to Dirk Fehse, founder and CEO of PaulCamper, Europe's leading marketplace for RV rentals.
Many of us have probably daydreamed about spending a few weeks on the road in an RV. Just get in the van, and park it wherever you want, and that's your home for the night. Dirk loved this too, and so much that he founded a company around it. It's a wonderful story, driven by passion, and started out really lean, as you will hear.
We talk about:
- How PaulCamper got started
- How Dirk built it piece by piece
- How they keep quality under control
- The quite remarkable way how they use insurance as an anti-disintermediation tool
- And how much work Dirk needed to do to get this insurance product into existence.
In business school, Emmanuel Nataf and his friends were bored. They were more interested in startups and tech than studying, and so they decided to start a company: a marketplace around services for self-publishing books. Had any of them ever published a book? No! Did that prevent them from becoming successful? Also, no!
We talk a bit about that journey, how they found content & SEO to be their best channel, and how they doubled down on that. We also discuss how Reedsy built a community to support the business and some interesting thoughts about financing your startup.
Knowing is half the battle, said the wise man G.I. Joe at the end of each episode.
This rings doubly true for James Younger of TempStars, a marketplace for temporary dental hygienists and assistants. Not only is James working on a problem that he knows really well, but he also made a point of getting to know as much as he could about design, web development, and digital marketing after the first version of Tempstars turned out disastrous.
We speak about that, and about how Tempstars got started, how they built a special algorithm to maintain quality, and how they plan to scale the whole of North America.
For this episode, I spoke to James McAulay, CEO & co-founder of Encore, a marketplace for booking musicians. We speak about how James combined his love for music and computer science into Encore. How they got started initially as a “LinkedIn for musicians”, then moved to a “managed reverse marketplace” model to ultimately transform into the online marketplace it is today. Many great stories and lessons to be learned from here.
We kick off the season with a deep-dive by Casey Winters, one of the most knowledgable and experienced two-sided platform people out there. Casey started at Apartments.com, helped Grubhub to IPO-ready, grew Pinterest to an enormous scale, and is now Chief Product Officer at Eventbrite. In between, he has advised a gazillion marketplace startups: Hipcamp, Faire, Airbnb, Uber, GoFundMe... It’s almost more difficult to name one that he hasn’t advised.
It is coming. Finally. Two-Sided Season 2. I know many of you have been waiting a long time. A big thanks to everyone who has reached out me since the first season, and let me or Sharetribe know how much they liked it. It has been a big motivator for us to continue. It’s later than expected, but good things come to those who wait.
And boy, are good things coming! I have already recorded some really terrific interviews and a few more in the pipeline, and I found myself learning a whole lot again, about network effects, prototyping, insurance as a service layer, low-frequency marketplaces, and many many more things.
We’re going to take it a bit slower this time and we aim to release one episode every two weeks. If you want to be notified automatically, subscribe on Spotify, Apple Podcasts or whatever is the platform of your choice.
Also reviews are still very much welcome, hit the 5 stars if you like it, and hopeful that will help us reach more people.
That is all for now, you will hear from me and some brilliant marketplace minds soon!
In this episode we look back at season 1. I distill five interesting takeaways that any early-stage marketplace entrepreneur can use, and I have picked out the most relevant outtakes from this season’s interviews.
Bryan Clayton, co-founder and CEO of Greenpal, tells the story behind Greenpal, the marketplace for lawn care, and how he transformed himself from a blue-collar entrepreneur into a tech entrepreneur.
Charles Adler, co-founder of Kickstarter, shares how Kickstarter began and how they grew organically while maintaining the quality and the vibe.
Jacob Wedderburn-Day tells Sjoerd about building Stasher fresh out of university and dealing with the pandemic in a travel industry marketplace.
Ryan Gills shares how Communo got started, why he thinks Fiverr & UpWork are in a race to the bottom, why they built a community that is about giving before receiving and how Communo is building for the future generations.
Kevin Lustig: [00:00:00] So we literally have a press release [laughs] from September 15th, 2008, you know, saying they were launching this platform, and we hoped it would be as consequential as, you know, Darwin stepping out 165 years ago this day onto the Galapagos. [laughs] Because what ended up happening was crickets.
Announcer: [00:00:24] Welcome to Two-Sided, the marketplace podcast. Brought to you by Sharetribe.
Sjoerd: [00:00:28] Hi, I'm Sjoerd, CMO at Sharetribe, and I am your host. In this episode, I speak to Kevin Lustig from Scientist.com, which is a marketplace for buyers and sellers of scientific research services. This was another of those gigantic B2B marketplaces that serves a trillion dollar industry that I had never, ever heard of. This has been one of the cool things, actually, of this podcast, that I get to discover all kinds of fantastic companies that serve industries I have no idea about in ways that I haven't even thought of. And this is also the case for Scientist.com, as you will hear.
They call themselves an enterprise gateway marketplace, and indeed, they do have an exceptional model. We talk about that, and we talk about the long journey they have been on since they got started 13 years ago. And basically, we talk about all things that have to do with how to build a marketplace for enterprise customers. This was another great talk, and definitely some very interesting stories, so, enjoy.
Hi, Kevin, welcome to the show.
Kevin Lustig: [00:01:40] Great to be here.
Sjoerd: [00:01:41] Hey, before we dive into the marketplace rabbit hole with Scientist.com, can you tell us, the listeners at home, me, a little bit about what did you do before you started Scientist.com?
Kevin Lustig: [00:01:53] Sure. I was essentially a, what we call in the United States, a lab rat. I spent about 18 years in the laboratory doing experiments with my own hands, developing new technologies, trying to make new discoveries. After that, I went into biotech, joined a company called Tularik, which was the first company spun out of Genentech. After that, I went off and I founded a company called Kalypsys. Which was a small biotech company. And it was really my experiences at Kalypsys that led directly to my and, uh, two other fellows founding Scientist.com.
Sjoerd: [00:02:29] All right. And could you tell us a little bit about what is Scientist.com?
Kevin Lustig: [00:02:33] Sure. Scientist.com is a two sided marketplace that connects buyers and sellers of complex research services. So just to give you an example, if a biotech researcher wants to make an antibody for the coronavirus, you know, in the past, they may have spent a year on their own time making that antibody. Today, what they do instead is they go outside to laboratories all around the world who actually do it for them, and they do it better, faster, and cheaper. So we're really a marketplace for medical research. And our mission is to empower and connect scientists and to make it possible to cure all human diseases by 2050.
Sjoerd: [00:03:17] All right. Wow, that is possibly the most ambitious mission we've had on the podcast so far [laughing] but that sounds really fantastic.
Kevin Lustig: [00:03:24] We're thinking very big [laughs]. We're thinking big.
Sjoerd: [00:03:26] Yeah. So you're saying, connecting scientists with scientists, in a way? So basically, you have supply and demand, someone could have two roles on your platform? Do I understand that right?
Kevin Lustig: [00:03:35] Yes. In fact, some people do. Although they're pretty rare. On the supply side, there are tens of thousands of research laboratories spread out all around the world, and they're often called contract research organizations.
Sjoerd: [00:03:50] All right.
Kevin Lustig: [00:03:50] And they do typically very sophisticated experiments. The average order value on a marketplace like this is typically in the tens of thousands of dollars. So when somebody's buying something, they're not going out and buying something for $50 and moving on, or coming back later to buy it again. They're basically buying a six month study that's gonna test whether their drug is active in an animal model for Parkinson's disease, as an example.
Sjoerd: [00:04:17] Yeah. And so you already gave one example, you know, someone would like to make a vaccine for the corona endemic. How does that work? Can anyone sign up on your marketplace?
Kevin Lustig: [00:04:28] Yeah, they can. Most of our business comes out of enterprise marketplaces that we build for large pharmaceutical and biotech companies.
Sjoerd: [00:04:37] All right.
Kevin Lustig: [00:04:37] But we also do run a public facing marketplace that's available to the little biotechs, that's available to academic researchers, that's even available to citizen scientists. I mean our goal, way back when we started this 14 years ago, was to help democratize science and make all of these sophisticated tools that are available today available to anyone that had ideas about how to use them.
Sjoerd: [00:05:04] Okay. So actually, I would like to still stick back a little bit 15 years ago, when you said, um, was it 15 years ago that you started this?
Kevin Lustig: [00:05:11] It was, it was 14 years ago, yes. I had the idea 15 years ago. So yes, about 15 years ago.
Sjoerd: [00:05:15] Yeah. So about the idea, how, could you tell a little bit more of, okay, I can understand the environment in which you got it. But can you tell me a little bit about how did the idea come into existence? Did you experience this pain point yourself? Did you talk to others? Can you tell a little bit about how did you move from, let's say, idea to validating the idea?
Kevin Lustig: [00:05:33] Yeah, absolutely. I had founded a company called Kalypsys, this small biotech company based in San Diego. And we had been very successful in raising money, we were very successful in doing business development deals that brought in money to the company. We built a building, you know, to house all of our scientists. But what we found was that despite all that money, our research wasn't going much faster than it had before we had the money. You know, we could do a little bit more, but not that much more. We became increasingly frustrated with the pace of medical research.
And then one day, we realized that there might be a completely different way to approach this problem. And, and that we really needed to turn the entire process upside down. Up until then, we had this philosophy that outsourcing was bad. That real scientists do the work in their own laboratories with their own hands. And we had really bought into that. And then one day, we realized that that was just completely wrong headed, and that if we could turn it upside down and perhaps create a platform that would allow a scientist to outsource everything but the genius, and that became our tagline over the past 15 years.
Sjoerd: [00:06:48] Yeah. So the idea's really that you take a very complex process, like an entire research timeline, I guess, like a ... sorry, I'm obviously not a scientist, as you will hear in the next couple of seconds [laughing]. But where you take your first idea or your first hypothesis, and then you go to some stage of testing, another stage of testing, third stage of testing, for example. And the idea is that you can sort of split that now up, you can sort of chop up the work and then outsource it to other people who are faster, better, have better material, et cetera, to it. Is that correct? Is that what you're doing?
Kevin Lustig: [00:07:17] That is ex- you got, you got, you hit the nail on the head. Right? When you think about the scientific method, it's about having an idea. The next step is doing the experiment to test that idea. The third and final step is analyzing the results of that experiment. And of course, based upon the results of that experiment, you've gone around the cycle once, now you come up with your next idea, do the experiment, do the analysis, come up with the next idea. And what Scientist.com does is allow scientists, in exactly the way you laid out, to go around that cycle much more quickly than they could if they were doing the work on their own.
Sjoerd: [00:07:55] I mean, that sounds fantastic, obviously. So how did you validate the idea? What was the first version of Scientist.com? I would be very interested to hear about that. Because it's not necessarily, even though they work on the, let's say, forefronts of science, a lot of academics and related are not necessarily open to the most, you know, technological changes or advances sometimes. So how did that work for you?
Kevin Lustig: [00:08:19] Okay, I'll keep the story fairly short. Scientist.com is an overnight success 15 years in the making, okay? [laughing] [inaudible 00:08:28] During those 15 years, we have had three serious business model pivots, and, and two near death experiences. I could probably speak for the next 10 minutes about those. But to really answer your question [laughs], so we actually started out, not as a marketplace, right? We were all working together at a biotech that I had co-founded where I ran R&D. And what we thought to build was a better CRO, essentially, we wanted to become a supplier of hundreds of biological tests and assays.
And so we actually, initially, for the first six months, we built a big lab and we bought and fixed all this robotic equipment, and the idea was that scientists were gonna mail us their compounds, we were gonna test them against hundreds of cancer cell lines, and then simple send them the data back. That was the initial idea. And then six months after building all of that-
Sjoerd: [00:09:29] Yep.
Kevin Lustig: [00:09:30] -we realized that there was a better idea in the making, and that there were actually hundreds, and we soon found out that there were thousands of companies all around the world already doing this, and we said, "Wait a minute, let's shut the lab down, and instead, create a marketplace that brings together all of these CROs from around the world and allows a scientist anywhere to interact with CROs, regardless of what country they're in."
Sjoerd: [00:09:57] Yeah. So what was the first version of the marketplace? Or the platform approach, then.
Kevin Lustig: [00:10:01] So the timing was exquisite. We launched the first version of the marketplace on September 15th, 2008.
Sjoerd: [00:10:11] Okay.
Kevin Lustig: [00:10:12] So in the United States, that is a date in history. It was the day that Lehman Brothers, the giant bank, went bankrupt, shut down, and what we call the great recession started in the United States. So we literally launched on that day.
Sjoerd: [00:10:26] Okay.
Kevin Lustig: [00:10:26] I remember vividly, because it was 165 years to the day since Darwin had stepped off the Beagle to start his groundbreaking work in the Galapagos Islands. So we literally have a press release [laughs] from September 15th, 2008, you know, saying that we were launching this platform, and we hoped it would be as consequential as, you know, Darwin stepping out 165 years ago this day [laughing], onto the Galapagos.
Sjoerd: [00:10:52] Oh my God.
Kevin Lustig: [00:10:55] Oh [laughs].
Sjoerd: [00:10:56] Oh. Wow.
Kevin Lustig: [00:10:56] Yeah. Because what ended up happening was, crickets. We called crickets. Basically no one came, no one bought anything, it, about three weeks after the launch, I finally called an old professor friend of mine and said, "Hey listen, we've launched the marketplace, it's been three weeks and we don't have any sales. Aren't you guys doing something that we could buy through the marketplace?" And then their lab then did, it was a fellow by the name of Gary Wiseman at the University of Missouri was our very first customer.
Sjoerd: [00:11:28] Okay [laughing] that's awesome. So, but can you tell a little bit about, how did you build the first version? Like obviously, I'm asking this, we have a slight bias because we're a marketplace software provider. But I still think it's an interesting question. Like what was your ... Did you hire a coder? Did you know people? How did that work?
Kevin Lustig: [00:11:46] Well I was really fortunate that I co-founded the company with two really talented scientists. One was a software developer by the name of Chris Peterson, another was an IT expert by the name of Andy Martin. And Chris Peterson, who's still with us today, is our CTO, is an absolute brilliant software developer. For the first five or six years, he and a few consultants, you know, created the first few hundred thousand lines of code. Now, obviously, he runs a team of about 25 software developers within Scientist.com.
Sjoerd: [00:12:18] Yeah.
Kevin Lustig: [00:12:19] So we were just really, really fortunate to have a software developer as a co-founder.
Sjoerd: [00:12:24] Yeah.
Kevin Lustig: [00:12:24] You asked about how we built it, we really focused initially on the supply side. All right? And what we did was, we went out and we found about 70 CROs in San Diego, people we could actually go visit in person. And we got them to join, right? So at least we had [inaudible 00:12:43]. In fact, I was going through my garage fairly recently and I found this old placard with the names and logos of all 70 on it [laughs].
Sjoerd: [00:12:51] Oh.
Kevin Lustig: [00:12:51] If everything ... Today, we have 3,400 and we grow by 30 to 40 every month. But back then, 70 was enough to get some interest from the first clients. So we started on the supply side. Based on that, we got a little bit of demand. And then of course, the users, the customers, started asking to use suppliers that we had not yet signed up. And that really became the way to sign up the next few hundred suppliers. We would reach out to them and say, "Hey, this customer at this organization, really wants to speak with you, you know, about potential work. Would you like to sign up at Scientist.com? It's free for you to sign up and use the platform."
And then we got, and then obviously, little bit of a network effect, you know, even, even very early on.
Sjoerd: [00:13:36] Yeah. So did you do anything to exploit that? Like did you, like, give a referral bonus? Or did you, like ... Because this sounds like a really nice, indeed, like a network effect, [inaudible 00:13:45] effect. Did you do anything to sort of motivate that more?
Kevin Lustig: [00:13:48] We did. We did exactly what you suggested. We, we gave out a thousand options. Whereas today it's gotten quite valuable, and should be very valuable in four or five years [laughs]. But we gave out a thousand options to anyone that would refer us with an email or a phone call into a new supplier, into a new CRO. And about 30 or 40 people took advantage of that, and that actually did help us sign up that first cohort.
Sjoerd: [00:14:15] That's one I haven't heard before, to give away options. That's pretty generous, a really interesting approach, actually. Yeah. Okay, so then I always wanna know, did you constrain the marketplace in one way or another? So you ... Because this triggered, also, because you said, like, hey, we signed up 70 in San Diego. You were not necessarily a hyper local marketplace, I'd guess. So basically, a scientist from anywhere in the world can order work from anywhere else in the world? I guess assuming that you can send the materials there. Did you do that constrainment in any way? Like geologically?
Kevin Lustig: [00:14:45] We did not.
Sjoerd: [00:14:46] Okay.
Kevin Lustig: [00:14:47] We did not constrain it in any way. But what we did find was that the CROs that were being most used by the clients were located primarily in the United States and in Europe.
Sjoerd: [00:14:59] Okay.
Kevin Lustig: [00:14:59] Uh, when people think about outsourcing, they always say, "Whoa, you're sending jobs to China, you're sending jobs to India, you know, the Asian Pacific." And that's just not the case in this particular industry. There are CROs located in Singapore, China, Japan, India, obviously, but the vast majority of them are located in Europe and located throughout the United States.
Sjoerd: [00:15:19] And you also didn't constrain by particular type of research? Or like a particular type of CRO? Like just to, as a reminder for people that have been listening, so CRO, what was it again? Contract research organization?
Kevin Lustig: [00:15:33] Yeah, exactly. Yes, I guess in that sense, we did. We really focused the business around anything a pharmaceutical researcher might use in pre-clinical development.
Sjoerd: [00:15:45] Okay, so-
Kevin Lustig: [00:15:46] So everything that happens up until that new potential therapeutic goes into a human is what we focused on. And the idea, from very early on, was pretty big. We, we do think big. We wanted to enable a single highly trained scientist, and this would have to be, obviously, an outstanding scientist. But we wanted to enable them to use our platform to run an entire drug discovery program from idea all the way to R&D, or, or concept to clinic is the other way it's often phrased. From their laptop computer, without ever requiring access, physical access, to a lab.
And I'm really proud today to say that that's exactly what we offer. Th- if you are a scientist, and you don't have a lab, you can use our platform to go from A to Z.
Sjoerd: [00:16:37] Cool, I had no idea that this existed. That's very cool. Then while you grew, [inaudible 00:16:43], this is, of course, an industry where the quality is extremely important, because you're relying ... You know, you're putting part of your scientific experiment in the hands of someone else, you'd need to make sure that they do what they do, I suppose? How do you maintain the quality? Or how did you maintain the quality initially? Or how did you make sure that people were happy with what they got [laughs]?
Kevin Lustig: [00:17:04] Yeah, well today, we obviously have a, a ratings system. You know, we had started out as an Amazon five star like system, and now it's net promoter value. But early on, we didn't have enough ratings to actually make that useful. Today we do, but back in the beginning, we didn't. So what we did, I think, was somewhat unique in that we ... And I believe it's also a lot of the special sauce that we have, something that makes us very special. We created a group within Scientist.com called the research concierge. And it's, today it's about 25 to 30 people, quite a number of PhD's and master's and, in science. And what they do is they oversee every single request that comes in from a scientist anywhere in the world.
So we actually, literally get involved in every request. And sometimes that just means taking a look at it to make sure the relevant information is there, that's, everything's being done correctly. Other times it means helping the scientists select the right CROs. You know, recommending a CRO that we know is high quality but also very cost competitive. And troubleshooting any problems that inevitably arise during the process. So we over- and we still do that today. And remember, every, the average R value of a purchase is about $30,000 on our website.
Sjoerd: [00:18:32] Okay.
Kevin Lustig: [00:18:32] So every time somebody's going on there, they're buying the, sort of the equivalent of a car. And so we always have someone there to make sure it's all being done in the correct way.
Sjoerd: [00:18:42] Yeah. So they are more like, can I say, if I wanna translate it to layman's terms, they're more like, sort of account managers somehow? Like even though they may not be assigned to specific accounts, but more like ... Or is that an oversimplification?
Kevin Lustig: [00:18:55] No it's not. In fact we, some of them are called account managers, and these are the people that [laughs] they go on the campuses, they meet with the scientists. Not obviously in the last three or four months, but before that.
Sjoerd: [00:19:06] Yeah. Does it happen for every sort of transaction that goes on? Because, like, I'm trying to ... What I'm getting at is that I'm trying to sort of get a sense of, like, are you a managed marketplace somewhat, fully? Is there, like, white glove involved in every supply and demand interaction? How does that go?
Kevin Lustig: [00:19:25] God, that's a good question. It is white glove, but the majority of the, we call them requests, for services, do not require much handholding at all. And there are areas on the site, human sample acquisition, for example, which is fairly self service. We put a lot of time and effort into making sure we had the highest quality suppliers.
Sjoerd: [00:19:50] Yeah.
Kevin Lustig: [00:19:50] And that they had been vetted and qualified.
Sjoerd: [00:19:53] But after that, not much is needed anymore?
Kevin Lustig: [00:19:55] Not much is needed. Yes, exactly. So I forgot to mention early on that one of the things we did very early, that people told us we would never be able to do, but which we did achieve, is to create a single legal agreement that all the suppliers could sign, and that all of the clients, the biotechs and the pharmaceutical lawyers would also sign off on. So we pre-established the legal agreement. We also act as a billing consolidator. So one of the pharmaceutical companies might work with a thousand CROs, but they don't pay a thousand CROs, they pay us, and we pay the thousand CROs.
So what we've tried to do is really eliminate all the paperwork around this complex sourcing. And make it so that a scientist can have what we hope is a eureka moment. They have a great, amazing idea, and that they can then start that idea, start the experiment that will test that idea, in under a week. Without a platform like that, it will often take about six months. If you have an idea, and you wanna go outside to the CRO, you don't get the results back, you know, for three, four, five, six months. With the Scientist.com platform, you don't know when you're gonna get the results back, depends on the experiment of course. But the experiment starts much more quickly than it would otherwise.
Sjoerd: [00:21:15] And actually, that's an interesting point that you mentioned, because you mentioned earlier that it's 30,000, the average order value. Obviously high risk, I guess, in theory for, uh, this intermediation. Are you taking a transaction fee? Or do you have a subscription model?
Kevin Lustig: [00:21:30] The primary source of revenue is a transaction fee. We typically charge between three and eight percent, depending upon the category.
Sjoerd: [00:21:41] That makes sense. Because then, my next question is, would be, like, so how do you make sure that that transaction happens over on the platform, right? And not off platform, especially there is a risk, usually, with marketplaces when, let's say, I'm a scientist and I have a CRO, uh, who did great work, and I actually have more of this work coming up on a regular basis. If you not provide anything else, there's not much reason for me to necessarily keep that transaction on the platform. So you already mentioned, like, billing consolidation. Are there other things that you do to sort of keep the transactions going through the platform?
Kevin Lustig: [00:22:18] Yes, we do. It's a really good question, and it's a nuanced answer, I think. The marketplace in many ways can be considered a three sided marketplace. I didn't wanna bring that up, uh, too early in our discussion. And because most of our clients, we- where the business comes from are large pharmaceutical companies, and these large pharmaceutical companies today, they have about 100,000 people, and they often have about a thousand people in procurement. And what they do is, they're working in 200 different research areas, and they put a few people in charge of each research area.
Sjoerd: [00:22:53] Yeah.
Kevin Lustig: [00:22:53] Now these people, then, often, get to determine how items within their categories will be purchased, okay? So procurement is the third side. You have the pharmaceutical researchers, that's one side, you have procurement, who's particularly focused on making sure that all the regulations are followed, and that they're getting good value, and then you have the suppliers as the third side. And so for many of our biggest clients, procurement has actually gone out in particular areas and told the researchers that the marketplace is the only way that you can acquire human samples, because it's the only way that pharmaceutical company can be 100% sure that when those human samples are delivered, that they were obtained from ethical suppliers in an ethical way. That the patient that donated the human tissue has actually given their permission to use it.
So basically, we have really used the compliance as a way to get recurring revenue, as a way to prevent the scientists from going off platform.
Sjoerd: [00:24:05] Yeah.
Kevin Lustig: [00:24:05] And that's, the model is different for each of the categories. In compound synthesis, the model we're using is quite a bit different, it's not really compliance-based, it's that we have a lot of data, that if you get three quotes from three qualified suppliers, that you can save on average about 50%. Now I won't go into the reasons why, but in that particular category, many of the procurement folks who run that category have told their scientists listen, we want you to use the platform, we know there's an extra 5% fee, but on average, we're saving 50%. So overall, it's just a fantastic thing for us to be doing.
And so we've come up with various category-specific strategies that make us very sticky, that give us recurring revenue, and that prevent the scientists from going off the platform.
Sjoerd: [00:24:56] That's really interesting. I, uh, I hadn't really considered that. I also haven't heard that much before, that indeed, that you'd have individual strategies for, let's say, categories within the marketplace. But that makes a lot of sense in your case. Yeah, actually, so I've glanced over the compliance part, but that's actually an interesting point. Because I talked on an earlier episode, I talked to Ruthie Amaru from Freightos, which is a freight platform, which has totally different industry, but which faces, like, similar problems about compliance. You know, you need to pay customs and whatnot, and certain products need to be travel in a certain way. And for them also, if I remember correctly, she called them standard operating procedures.
And for them also, that was one of the biggest sort of like sticky things, and one of the biggest sort of play chips that they got to keep people on the platform. I wanna come back to something you said earlier, so you now mentioned that for the big pharmaceutical companies, they have 100,000 people. And then, but earlier you said that, you know, the ideal is that, an individual scientist can order these things. So on your demand side, do you just have these big pharmaceutical companies, mainly? Or is there also a big chunk of the citizen side, as you mentioned before?
Kevin Lustig: [00:26:06] So we, I would say that 90% of our sales, which will hit about 300 million this year, comes from the big pharmaceutical companies.
Sjoerd: [00:26:16] All right.
Kevin Lustig: [00:26:16] We've built enterprise marketplaces for 24 of the top 30, 22 of those are exclusive to us. And we've been able, over the past five or six years, to take a category by category expansion approach for those pharma companies, and that's really paying off. But, we also signed about 70 biotechs, and these range from the big ones, like Moderna, Agios, BioMarin, to the smallest ones that you've never heard of.
Sjoerd: [00:26:47] I hadn't even heard of the first three [laughs].
Kevin Lustig: [00:26:49] [laughs] They've been in the news because they're working on COVID vaccines.
Sjoerd: [00:26:53] Okay, yeah, yeah.
Kevin Lustig: [00:26:55] That's where you may have heard of them. But what we have found, but only a small part of the business is coming from the biotech side, because we've found that they want something different than what we give to the pharma companies. And so our next big product launch is coming in August and it's going to be a new marketplace, and it's a marketplace really designed for biotech companies. And it will include not just the custom research services that we offer the pharmaceutical industry, it's also going to be offering reagents, lab supplies, consumables, consultants, as well as fractional accounting and fractional procurement.
Basically, a friend of mine calls it biotech in a box. So that if an academic has a great idea, has an asset, if a citizen scientist has somehow come up with an asset that they think can be made into a biotech, we're there and they can essentially outsource everything but the genius, their own genius.
Sjoerd: [00:27:59] Biotech as a service. Yeah.
Kevin Lustig: [00:28:01] Essentially, yes.
Sjoerd: [00:28:02] Okay. So you drop, you dropped a great term here, which I would like to talk about a little bit more, which is this enterprise gateway marketplace. Because I think this is an interesting situation that you're having, where you, if I understood correctly for when we talked before, is that you're basically building for those 24 big pharmaceutical companies, you're building their own sort of individual portal, right? Am I correct?
Kevin Lustig: [00:28:26] That's exactly how it works. It's all based on the same code. It's like a white label approach. But what we do is, we first of all create a private marketplace for each of the big pharmaceutical companies.
Sjoerd: [00:28:37] Yeah.
Kevin Lustig: [00:28:38] And then work with them to brand it, and they often come up with some clever name. Uh, Alexion came up with WARP, web accelerated research procurement, and they had a little picture of, like, a little, the Star Trek Enterprise [laughing] as their logo, uh, just to give you an example.
Sjoerd: [00:28:54] Oh [laughs]. Nerds can be nerds.
Kevin Lustig: [00:28:56] Exactly [laughs]. But most importantly, what we then do is we integrate into their existing finance systems, and their existing total ERP systems. You guys know them as SAP, and Ariba, and KUBRA. And so we basically streamline the financial piece, without getting around it. So in other words, everything can be done in our marketplace up until the point they hit, "I wanna buy this." Then, all that information gets packaged up in the right way, it gets sent over into their ERP system, they have checks and balances. If it's over a million dollars, a VP has to sign it, whatever it is.
Sjoerd: [00:29:38] Yeah.
Kevin Lustig: [00:29:38] And then the PO pops out the other end, that can be 12 hours, it can be a week, and then that comes back over to us.
Sjoerd: [00:29:45] What's a PO again? Sorry.
Kevin Lustig: [00:29:47] Purchase order. It's what you would-
Sjoerd: [00:29:49] Oh okay, yeah.
Kevin Lustig: [00:29:49] It's a purchase order, it's what you would send the supplier and its commitment to buy the item, buy the service, and then to pay at the end, essentially.
Sjoerd: [00:29:57] All right.
Kevin Lustig: [00:29:58] Now in addition to this financial integration, which is fairly deep, we also integrate into other IT systems. The most common are, nobody today likes to remember passwords. So they're so-called single sign ons, so you can just use your Google account to sign into your marketplace account, and we obviously set that up for everyone, because it just makes it easier for them to go and use the site. And then on top of that, what we do is we work with the pharmaceutical client to take all the information that they have existing about a particular CRO, about a supplier, and that could be ratings, it could be audit material, it could be background material.
And all of that information goes into the marketplace. And then we go to the suppliers and we say, "Hey listen, you could upload your marketing material, your reference letters, you know, anything you want into the marketplace." And so what we've created then is a place where scientists can go and get fingertip access to everything they need to make the best decision about how to spend that $50 and move this particular project forward.
Sjoerd: [00:31:09] Okay. Like I mean, this is sort of a late answer to my earlier question about how to make things sticky. I mean, like, integration with the existing software [laughs] system is probably the stickiest of all, because no one ever wants ...
Kevin Lustig: [00:31:22] So enterprise gateway marketplaces are incredibly sticky.
Sjoerd: [00:31:26] Yeah.
Kevin Lustig: [00:31:27] In the, since we relaunched in January of 2015 ...
Sjoerd: [00:31:32] Okay.
Kevin Lustig: [00:31:32] ... we have not lost a single client. It's that sticky. You can't just, like, you can't just shut it off and walk away, it's the place where all the information has been brought together.
Sjoerd: [00:31:43] Hey, because now, we've skipped a couple of steps of the evolution of Scientist.com, because I think this is a really advanced model, which sounds really interesting. We talked a little bit about it already. But how did you go from, you know, your first version, where you got the first order, you know, from 2008, up until now. That you mentioned already earlier, where you made a couple of big pivots. Could we talk about that a little bit? Like could you talk us a, a little bit about through the, the different pivots that you made? Because you didn't apparently just starting making enterprise gateway marketplaces. So what, what did you learn with your first versions?
Kevin Lustig: [00:32:16] So we launched a public facing marketplace, open to everyone, and no one used it.
Sjoerd: [00:32:22] Yeah.
Kevin Lustig: [00:32:22] And we were very lean at the time, you know. But I still went to a conference in 2010, and in the final moments of the conference, a gentleman with a nice British accent walked up to me and said, you know, please tell me what this is. And I could barely talk, I talked the whole time. And I said, "Well this is a marketplace for scientists, and it's where you scientists can go to access any CRO in the world." And at the end of my, my five minute description he said, "Okay, I'll buy it." [laughing] And I said, "Oh no, you don't understand. Uh, you can use it for free. There's no buying it."
And he says, "No, no, I'm from a large pharmaceutical company, I need a platform like this, and what I want you to do is to just build one for me and my company." And I said to him, "Well, would you pay us for that?" And he said, "Yes I will." [laughs] And so on that, literally on that moment, we pivoted to basically building an enterprise marketplace for, uh, our first pharmaceutical client [laughs]. We then worked for a year with this big pharmaceutical company and it was going incredibly well, they put 10 or 15 people on it.
We didn't have an agreement yet, but we worked on an agreement. We spent six months putting that in order. We all, we came to an agreement, it was all set, and they agreed to pay us $400,000. On the strength of that, I had gotten a Hollywood producer to pledge that he would put in a million dollars if we got this deal. And then on December 18th of that year [laughs], December 10th, I literally got an email basically just telling me that the deal was off.
Sjoerd: [00:34:05] Wow [laughing].
Kevin Lustig: [00:34:06] We call it the Christmas surprise [laughs].
Sjoerd: [00:34:08] Oh my God.
Kevin Lustig: [00:34:09] Because that was, at the end of December, we were running out of money.
Sjoerd: [00:34:12] Yeah.
Kevin Lustig: [00:34:13] And this was all going to be, the money we needed to keep the company going.
Sjoerd: [00:34:16] Yeah.
Kevin Lustig: [00:34:17] And fortunately, the Hollywood producer was an old friend. He basically said, "I'm not putting the money in now, but I'll loan you some money, and now you need to get two of these big pharmaceutical companies before I put my million in."
Sjoerd: [00:34:31] Yeah.
Kevin Lustig: [00:34:32] And I'm really happy to say that six months later, we signed up. Pfizer was first, J&J was second. He put the money in, you know [laughs] the money he had loaned us allowed us to make it to that point, and we had survived our first near death experience.
Sjoerd: [00:34:47] Wow.
Kevin Lustig: [00:34:48] And, and the product we built was not a, really an enterprise marketplace. We called it a research exchange, because it had no legal piece and it had no finance, no billing consolidation. It was simply something that would allow the scientists to reach out to any CRO, communicate with them, get a proposal, and then they would have to take the proposal off platform, and then buy it the usual way, through their ERP system.
Sjoerd: [00:35:14] Yeah.
Kevin Lustig: [00:35:14] So we survived with that for about three years. We made it to near profitability two years in a row. We had four of the biggest pharmaceutical companies actually join in this way. It looked like it was going incredibly well, but then we kind of stalled. We didn't sign up any new ones, and then we lost one of the four. Once again, someone who had told us, "Don't worry, we cut the check." And then the check never arrived [laughing]. Pharma companies are infamous for doing this, this type of thing.
Sjoerd: [00:35:43] Okay, okay, yeah. [laughing]
Kevin Lustig: [00:35:45] And then finally, we ended up meeting someone here in town, a gentleman and his wife, that had done incredibly well selling their company, and they set themselves up as a VC, they're called Bootstrap Ventures based in San Diego. And they said, "Well listen, why don't we go back to the original model, why don't we go back to the full marketplace model, put the legal in place, you know, put the billing consolidation in place, and maybe now is the time to try that model." And so we spent all of 2014, spent some of their money to make that happen. And then we launched in January 2015 and we have now been, let's see, it's 67 months straight of year over year growth, 22 quarters of year over year growth.
Sjoerd: [00:36:31] Fantastic. Was it so ... How, because I'm curious, of course, how, and I think most people who are listening who are, might be thinking about building a marketplace in an industry with mainly big players. Like pharma industry. How did you grow the demand side? Like, uh, you mentioned it took you, like, six months to sign up two, then a year or so, then you had four? Or was it two years? Now you're at 24? Like, can you tell us a little bit about that? Because I'm, uh, very interested to hear that.
Kevin Lustig: [00:36:58] Yeah, uh, boy. I guess the pharmaceutical industry, like most trillion dollar industries, moves incredibly slowly. We're fond of saying glacially slowly [laughing]. And I think our biggest strength has probably been our tenacity, the fact that we've been willing to stick it out for 14 years and wait for the industry to change. I mean I'd like to say that we're part of the reason they're changing, but I suspect it's more about older people retiring, it's more that most of us, in our private life, have gotten used to going to one place and using marketplaces to simplify everything, to get good deals, to speed up whatever we're trying to do.
So, you know, we built the demand side, you know, like I don't know, sort of like, one pharma at a time, one category at a time, if I even get more granular than that. There was no secret, except great customer service, you know, a good product, patience, and relationship building.
Sjoerd: [00:38:00] Yeah.
Kevin Lustig: [00:38:00] Let me give you an example. The guy who I worked with back in 2009 and '10, at this big pharmaceutical company, that didn't do the deal, he, then, left that company and joined up at AstraZeneca as somebody very senior there. And AstraZeneca in their first year maybe did five million in sales, the second year 10 million, the third year 20 million. You know, this year it'll do 70 or 80 million. It's just, get in, have a good product, build the relationships, and give outstanding service, and hopefully they will change with you.
Sjoerd: [00:38:35] Yeah.
Kevin Lustig: [00:38:35] Very difficult to get big enterprises to do anything fast.
Sjoerd: [00:38:39] Yeah. No, I mean, that's a pretty risky ... like at least, those are from my own experience with startups, trying to do business with bigger corporations. Okay, I've never been in such terrible situations like the ones that you just described. But I don't know who told me this. Someone said, in these situations where you had startups or new companies, and big corporations have one thing that startups don't have, which is time. And they'll happily throw another meeting at you, and 20 meetings deep, you're, to the first person who can actually make a decision. [laughing] And by that time, you've usually run out of money.
Kevin Lustig: [00:39:12] Yes.
Sjoerd: [00:39:12] Or [inaudible 00:39:15] yeah. But something interesting you said, actually, because this is something that I think Josh Breinlinger said from Jackson Square Ventures, that one of the reasons why sort of B2B marketplace and you're essentially kind of a B2B marketplace, if we were doing a broad colorization. Is that people have really, like one of the reasons why they are sort of now growing or coming up is that people have also gotten used to these things, like you said as well, in real life, right? You know that these things exist. Your private life, you're so used to these things can be consolidated into one place, so people just start to expect that, hey, why can't I do the same thing for work?
And I think the only thing that he also says, like one of the reasons has been a little bit slower in catching up is that this idea of other people's money, like, you know? You're spending the company's money, not your own, so people are slightly less motivated to try to save that, unless it's your own company. But yeah, that's cool to hear, that even though it's glacial, it's moving, and you have seen that. I mean, you're probably one of the oldest marketplaces I've talked to so far. Actually possibly the oldest one.
Kevin Lustig: [00:40:12] Yeah, it's hard for people to understand. So we were founded the same year the iPhone came out [laughing]. Which really s- you know, speaks to how big an impact the iPhone has had, right [laughing], just 13 years, or 14 years.
Sjoerd: [00:40:26] Yeah, yeah.
Kevin Lustig: [00:40:27] And so when we were initially dealing with these pharmaceutical companies, I can vividly remember a meeting going in, and talking to five, they must have all been 60 plus, 65 plus, and you know, trying to use Facebook and Amazon as an example to explain what they do.
Sjoerd: [00:40:49] Yeah.
Kevin Lustig: [00:40:49] And to discover that none of them knew what Facebook was. And this was in 2010.
Sjoerd: [00:40:55] Yeah.
Kevin Lustig: [00:40:56] And none of them knew what Amazon was. And when I dug a little deeper, it turned out that none of them actually used email. They would have their, what they used to call secretaries, now administrative aids, print it out for them, and they would read it.
Sjoerd: [00:41:09] Yeah.
Kevin Lustig: [00:41:10] Okay? Those people are now gone. They have retired, they've died, they've moved on. And now, you get people in their 50's and 60's who are familiar with the technology, who have been using it themselves for 20 years, who've had an iPhone for 13 years. And that's helped accelerate the change.
Sjoerd: [00:41:30] Yeah.
Kevin Lustig: [00:41:30] Now the other thing I wanted to bring up was, part of the reason it didn't grow as quickly as we had hoped is because many of the people we're dealing with in procurement in particular are fearful that we're gonna end up just replacing them.
Sjoerd: [00:41:45] Yeah.
Kevin Lustig: [00:41:45] And so it's sort of like, you have, you know, the person that's gonna be replaced has to vote about whether or not the company's going to be using this platform. And, and again, going back to the early days, there were a few times, particularly in Europe, in, around 2010, 2011, where people would stand up in talks I was giving and start screaming at me that I was gonna cause them all to lose their jobs, how could I be doing this? You know, you're a terrible person. I've had people stand up and tell me that.
Sjoerd: [00:42:20] Wow.
Kevin Lustig: [00:42:20] Not in the last five years. You know, so going back about 10 years, after that, it was a combination of people being against outsourcing and worrying that they could lose their jobs. And the thing is, there's some truth in it because what they do today in a lot of procurement is push a lot of paper around, put a legal agreement in place, put a finance arrangement in place.
Sjoerd: [00:42:41] Mm-hmm [affirmative].
Kevin Lustig: [00:42:41] Qualified supplier, well we do all of that, and it's already pre-done. And so those people need to move to a more, from a tactical role to a strategic role. And for the first time, they had one data reporting source, that can go and say, "Okay, on these campuses we're spending this amount of money in these categories." And by the way, we've compared the two campuses, and one of them's spending three times more with the same vendor, why is that? Let's dig into ...
Sjoerd: [00:43:08] Yeah.
Kevin Lustig: [00:43:09] ... why that is. But it takes someone with confidence. If you're somebody who's been in procurement for 20 years, that's your niche, you don't have the confidence to go off and be strategic, then we were a very scary proposition. No more today, because so many layoffs have happened, and it's, you know, as you said, everybody's using it in their private life.
Sjoerd: [00:43:30] Yeah. But do you do something to make it attractive for the procurement people to use it? Actually I mean, like, you already mentioned it from one day reporting. Reason that I'm asking is that I talked, for example, to Michael DeGiorgio from CREXi who are, have a commercial real estate platform. And they really took the brokers, who could possibly have the same reaction to their marketplace idea as you just described the, uh, procurement people. But instead, they made them sort of like the central piece of their marketplace. And, like, hey, let's build tools for these people so that they are more than happy to use them. And basically, the marketplace enables the brokers to use free up time from paper pushing and actually make more deals.
Have you taken a similar approach with procurement?
Kevin Lustig: [00:44:10] It's exactly what we've done with procurement, and that has primarily been around compliance, right? They used to have to manually go and validate each of the suppliers, you know, for each of the orders. And they would have to, you know, there was paper approvals, and what we've done is done a lot of that work upfront to make it easier to qualify the suppliers, and we've also put in place approval workflows. So if I'm a scientist, and I go in and I put in an animal model, and I say, "Hey, I want a quote on this animal model." Almost definitely that will be routed to somebody in procurement who oversees every animal model being purchased across the entire company.
They can then look at it, they can say, "I deny this." Or they can say, "I approve this." And they can then go on through the process. And that way they can go back to the scientists and get more explanation. So yeah, it, that's exactly right. We've built tools like that. And then we've also built business intelligence tools. We use Tableau reporting infrastructure, it's now a part of SalesForce, apparently.
Sjoerd: [00:45:16] Yeah.
Kevin Lustig: [00:45:16] But basically, it allows you to slice and dice all the data in many different ways, you know, at your fingertips, you know exactly what's going on, where and when.
Sjoerd: [00:45:26] All right. This make me a much, much better understanding of Scientist.com. Because like I said earlier, with the enterprise gateway and the, uh, I wasn't sure if I fully grasped this but I hope at least I have, I hope people listening as well. Uh, closing question. So, this has been a long journey for you [laughs], things have been going well. Other things have been going not so well. Is there one single thing that you now say to, like, I would have done this differently? And something that people listening can take as a lesson?
Kevin Lustig: [00:45:54] Maybe. Maybe. This is something that really has been, really came home to me just over the past year. So I, I would do something differently. I would not spend as much time trying to build outside partnerships to plug the holes that I believe we have.
Sjoerd: [00:46:14] Mm-hmm [affirmative].
Kevin Lustig: [00:46:15] Instead, we should've just built those things ourselves. Just done the hard work. And what I'm really saying is, like, we, you know, we made a decision that we wanted to go into, you know, the reagent space.
Sjoerd: [00:46:28] Uh-huh.
Kevin Lustig: [00:46:29] And then wasted a number of months trying to talk to the four or five companies that do reagent sourcing, and trying to integrate them into our platform and come up with an acceptable partnership scenario.
Sjoerd: [00:46:42] Yeah.
Kevin Lustig: [00:46:42] And it just didn't work, and it didn't work in any of the areas we tried over the past five or six years.
Sjoerd: [00:46:48] Okay.
Kevin Lustig: [00:46:49] So I think, you know, we talk about business development, people are always saying, "Well you wanna develop the business by doing partnerships." I have found that trying to do that has really been a, an incredible waste of time. And if I had to do it all over again, I would reduce the emphasis on that and increase the amount of effort we put on just building what we know needed to be built, and not relying upon someone else to do it for us.
Sjoerd: [00:47:13] All right. That's a great answer. Let's close on that. Thank you very much, Kevin, for your insights and your stories and your time. Any last things, where do people find Scientist.com? For, I mean, [laughs] it's in the name. But, like, any plugs?
Kevin Lustig: [00:47:26] Yeah, Scientist.com, that's it [laughs] just go there. That's our marketing site. And at any point, reach out to me through LinkedIn or through email, I'm happy to have the conversation.
Sjoerd: [00:47:36] All right. Thank you very much, Kevin. Have a good one.
Kevin Lustig: [00:47:39] Thank you very much for having me. I really appreciated being here.
Announcer: [00:47:43] Thank you for listening to Two-Sided, the marketplace podcast. If you enjoyed today's show, don't forget to subscribe. If you listen on iTunes, we'd also love for you to rate and give us a review. If you got inspired to build your own marketplace, go visit www.ShareTribe.com. It's the fastest way to build a successful online marketplace business. Until next time.
Sophie Adelman: [00:00:00] But I think people forget that all of these companies started off with humans going out into the streets and making that business work.
Speaker 2: [00:00:12] [music playing] Welcome to Two-Sided, the marketplace podcast, brought to you by Sharetribe.
Sjoerd: [00:00:24] Hi, I'm Sjoerd, CMO at Sharetribe, and I am your host. In today's episode, I speak to Sophie Adelman about talent marketplaces. Sophie has a lot of experiences with that. She was the first international hire at hired.com, a tech recruitment marketplace. There she led the expansion of Hired from the US into the UK, and after that, Sophie founded WhiteHat, which matches ambitious people with an apprenticeship at employers. We discuss how liquidity works in marketplaces like this, how all marketplaces basically start off as a managed marketplace, how important can be to educate one side of your marketplace, and the general importance of data; a terrific talk altogether, and again, filled with some real gems.
Uh, a quick note on the audio quality, so, Sophie sounds fantastic, but it turned out after the recording that there had been a small, uh, buzz on my side. Our amazing producer, Nemanja, was able to reduce it significantly, but at times, you might hear a strange light buzz when I'm talking. So, no worries, there's nothing wrong with your audio setup, and I apologize for any auditory inconveniences, but this just happens sometimes. Now, enough said, let's listen to Sophie discuss talent marketplaces. Enjoy.
[music playing]
Hi, Sophie, uh, welcome to the podcast.
Sophie Adelman: [00:01:47] Thank you for having me.
Sjoerd: [00:01:49] Hey, before we, uh, dive straight into all the marketplaces, maybe you can tell the people at home a little bit about your background, sort of, kind of up until Hired, because that's where I want to straight dive into a couple more questions.
Sophie Adelman: [00:02:00] Sure. So, I grew up in the UK, British born and bred, and I, I, I started my career, actually in conference production. I was a conference producer, was my first job, and which is a very entrepreneurial role. I did that for about a year, and then I went and worked in investment banking at Goldman for about 18 months. I have to be honest, I didn't really love that experience. It was in 2007/2008, so the financial crisis was a terrifying time to be starting your career, and lots of different ways, and I don't think it was the kind of opportunity that was the right fit for me and my skill set, but it was a great learning experience. And then from there, I went and worked at Egen Zehnder, which is an executive search firm, uh, doing so, searches, management appraisals, really understanding how companies are built, and how people think about talent and talent assessments, which has obviously been a thread throughout my career, and something that I, I feel very passionately about.
And then went off and did a, an MBA at Stanford. I can very happy to talk about my experience of an MBA. I think it's a very personal choice why people go and do that, but I, I had an amazing time, and I feel the lessons I learned from that are now coming into play, 10 years later. And then, before Hired, I actually worked in finance. So, I worked in investing for a family office/investment trust. So, quite an eclectic career in that regard.
Sjoerd: [00:03:21] Yeah. And then now, actually, with the addition of the MBA, I think somehow I missed that, because I was kind of surprised because I was doing some background research on you, and then, how did you get into hired, and I was checking and I said, "Well, that's quite a entrepreneurial position for someone who comes seemingly out of mostly investment banking, that's not a ..." It's usually the other way around that a entrepreneur goes somehow on the capital side, uh, rather than... So, maybe y- you could tell us a little bit more, like, how did you get across that opportunity?
Sophie Adelman: [00:03:50] Well, I think the Hired opportunity came from two fronts; one was, as you said, I was out in California for two years. I have a lot of friends who finished their MBA and went and worked at some of the most highly successful startups and scale ups that we've known over the last decade, so, the Ubers, these Lyfts of the world, and I saw them working in these very fast paced environments and just thought that sounds amazing, that sounds super cool. They're building companies. And that's what I've always wanted to do. I've wanted to build a company, I've always had that desire to be leading and developing people and building businesses. And, when I was at the investment trust that I was part of, I was actually helping build businesses within the business. So, I launched a headphone seeding business, I was involved in starting new businesses for the funds. And so, I got to scratch that itch a little bit, but not fully.
And then, the actual opportunity came about, because, before I went to Stanford, I actually did a summer internship for an organization called Atomico, which is a VC fund. Right back at the beginning, before Atomico was a really well known fund, there was, uh, five of us in a room, and, you know, got to, to see how startups worked, and both internally in a VC fund, but also in their portfolio companies. And so, when I was thinking about what I wanted to do next, I knew I wanted to build businesses, work in a high growth environment. I reached out to th- the Atomico team, and they told me about the Hired opportunity, and it just felt like it fitted perfectly with both my aspirations, and my experience having worked in the talent space. And so, I wrote a cover letter.
I didn't know anyone at the company, I wrote a cover letter, say, "These are the three reasons why I understand the problem you're trying to solve, and these are the three reasons why I think I'm the person to do it." And I got a call within a couple of hours from the CEO, and the rest is history.
Sjoerd: [00:05:37] Oh, wow. Yeah, that's amazing. So, so you got that chance, and you were the first international hire. Well, okay, now we know a little bit, possibly some of the market, or some of the businesses that you interacted with during the earlier ones had some kind of marketplace component, but I was watching, uh, one of your talks at the B2B Rocks in Paris from 2016. Okay, the topic of that talk was slightly about different things, but you said something sort of besides that I would be very interested in, the saying like, "Oh, well, we could have done a lot better on some things," and some of those things you mentioned were like, particularly the things that I'm interested in, i- into marketplace businesses.
Sophie Adelman: [00:06:10] Mm-hmm [affirmative].
Sjoerd: [00:06:11] So, how did that start? Like, did you go UK only, did it go Europe-wide straight?
Sophie Adelman: [00:06:16] No. So, UK only. And I think that's one of the important things with a marketplace business, that you need to be really focused. Building a marketplace is, is difficult. I think a lot of people think that, um, once you build a marketplace, it just sort of works, drives itself, and that's not the case at all. You have to drive that marketplace, and be looking at the supply/demand dynamics very closely all the time. So when I first started, I'd actually started as a client executive. So, I was running the UK market, but really, I was just boots on the ground. I was, you know, I was just hustling. I would be in Ubers all over London, I called it my mobile office. So, I'd get in an Uber, tethered my laptop to my phone, be doing my emails and calls in the back of an Uber going from meeting to meeting, and just hustling to get companies to start using this platform that nobody had ever heard of. So what was exciting to me was, when you look at my background, you can see I've got all these credentials for these brands, so it always worked for organizations where you said, "I worked at Goldman," and it kind of opened the door.
When I went to work for Hired, I had to build brands. I had to build the brands of Hired, but I also had to build the Sophie brands, you know, Sophie Adelman brand, I had to have credibility myself, because people were buying into me as much as they were into the offering. Because at that point, Hired was very early, and the platform was not fully, you know ... It wasn't fully built, and people didn't really understand how it worked. So, lots of what we were doing was educating people; educating them on why this was a problem for them, how this could solve the problem, how this is a better solution. And that's what I was doing. So, to start with, it was very UK focused, in fact, very London focused, and I was primarily focusing on the client side, and I had somebody in my team who was focusing more on the talent side, and we can talk a bit more about those dynamics.
Sjoerd: [00:07:58] Yeah. I just now realize, actually, while you're saying this, that we haven't even properly introduced what is Hired. I know it,...
Sophie Adelman: [00:08:05] [laughs]
Sjoerd: [00:08:05] ...you know it. So, because my next questions are going to be, indeed, all about demand and supply side, but maybe you could, in a couple of sentences, say, actually, what kind of marketplace, what kind of platform is Hired?
Sophie Adelman: [00:08:14] Yeah. So, Hired is a talent marketplace for technical talent, primarily software engineers, but also data scientists, UX designers, product managers. And it flips the normal recruitment model on its head. So, normally, when you're applying for a job, you apply for individual roles, and the, the company will then decide whether or not to interview you. With Hired, you actually go through a kind of vetting curation process up front. You apply to the platform, then they curate the top five to 10% of talent, and then companies go on and make interview requests to the candidate. So it puts the candidate back in the driving seat. It gives them the choice about which organizations they want to interview for. Now, that works because developers, and designers, and, and data scientists are kind of the ... They are in low supply, you know, the best people are in demand, and so, companies would make interview requests to them.
And it facilitates the engagement between those people are looking for a new opportunity, and those companies that are looking to hire top talent.
Sjoerd: [00:09:13] Yeah. And so, you mentioned that you went around all over London. So, you were trying to get, in this case, the demand side, and because of, for the purpose of this discussion, we would say that supply side is all of the workforce, or the, whatever that is, new candidates, and on the demand side, in this case, is the company. So you went first to the demand side, was the supply side already fixed, because I ... My experience with recruiting, especially developers that ... That is actually where there's a constraint of some kind, but in your case, it was different.
Sophie Adelman: [00:09:43] That is really i- important. So this is really important point as people are thinking about building marketplaces; you need to really quickly understand whether you're a supply constraint or demand constraint. And, with Hired, what we found because of the US market is, once you turned on marketing, actually finding good candidates was not difficult. Candidates really appreciate the value proposition which was, they don't have to apply to lots of different roles, they get to be in control, they got this talent advocate who was almost their careers coach who was supporting them through the process. They felt it was an opportunity for them to really showcase what they were good at, but also allowed them to define what they wanted to do, rather than being peppered the whole time by recruiters telling them, "Hey, I've got a Python job," when I actually want to go into, you know, Ruby development. So, it was an opportunity for the candidates to get back into control.
So, once we started turning marketing on, supply just came, and we didn't have a problem finding supply in general. And, I'm, I'm talking in general, because I will i- later on talk a bit more about the nuances of supply/demand, and, and so, of the nuances of different liquidities within marketplaces, but, as a general rule, we will supply rich and demand constrained. So, actually getting companies who were going to pay the fee to, uh, recruit candidates, was the constraint in our world.
Sjoerd: [00:11:01] Yeah. And, did you know this already when you took the job, or was it something that you sort of learned while sitting in an Uber?
Sophie Adelman: [00:11:09] Yeah, so, I, I mean, I had the advantage that the business had about 45 people, they've been going for about 18 months, two years by the time I joined, and it was operating in two markets by that point, so, New York and San Francisco. So, they had seen that experience of turning supply on through marketing, and then focusing on the demand side. However, you didn't know whether or not that was going to be exactly the same in the UK market. So, the key thing for us was, let's go and get companies to buy into the idea, get that demand in place, switch on supply, and hope that the supply would come. And, luckily it did.
Sjoerd: [00:11:46] Yeah. And, um, when you say like, uh, marketing to get the supply on board, what kind of channels did you do to get the candidates on board?
Sophie Adelman: [00:11:54] So, it was a lot of sa- performance marketing, lots of marketing on Facebook, and LinkedIn. Once we had candidates in place, there was a lot of referral based marketing, so, candidates would refer other candidates, and, and if those candidates got hired, they would get a cash incentive. We have large email databases, so we had a ways to segment those candidate pools, and actually email them once we knew that candidates have maybe taken a new job, and two years out, we could actually email them again and say, "Hey, are you thinking about your next opportunity?" So there were lots of ways for us to continue to nurture that candidate pool once we'd built it, but, initially, it was all through marketing.
Sjoerd: [00:12:34] Yeah. You mentioned earlier that you would like to go in a little bit about the different kind of liquidities, um...
Sophie Adelman: [00:12:39] Mmh.
Sjoerd: [00:12:39] ...within the marketplace. I would love that as well, because this is the kind of deep dive that we're in for here. So, how do you see this?
Sophie Adelman: [00:12:46] So when you think about supply and demand constraints in marketplaces, once you've defined that your businesses maybe demand constrained or supply constrained, you know where to focus most of your energy, but normally, in a marketplace, you don't just have one product, right? So, you know, yeah, when eBay started, they have those like little furry animal things, and that's all they sold, and so, it was like these furry things, and people who want to buy these furry things. I can't remember what they're called, like Beanie Babies. Beanie Babies, that's what they're called. And then they expanded, right? So, they went from Beanie Babies to some other kind of collectible item.
Sjoerd: [00:13:18] Yeah. So would you say that, like, it's often talked about, you have like geologically constrained, you have the size constraint, and this is like the category constraints? Yeah.
Sophie Adelman: [00:13:25] Right. So, the way I would think about it is, so you have products and geos, right? So ... And each, when you're thinking about the products, and the geos, each one of those squares within that matrix is actually its own little marketplace. So you can think about supply and demand between candidates and opportunities, and in different geos. Actually, it's three sided in many ways that regard, but, but each one will have a k- liquidity ratio between supply and demand. So you need to think about that when you're building it out, and sometimes that will mean making decisions about not moving into new geos, because that will create more complexity, sometimes that will mean cutting the number of products that you offer, in our case, you know, we offered software engineers, data scientists and designers, but ... And, uh, product managers.
We found that software engineers had high liquidity, whereas UX designers didn't, but actually, when you broke it down by different geos, you might find that central London had high liquidity, but East London did not. And so, you just need to be really sensitive to these things, and think about the constraints that will affect your product being delivered to the market. And in our case, when you think about talent marketplaces, you have the issue that people only travel a certain distance to a job. So you need to be very conscious of what those constraints are within your marketplace.
Sjoerd: [00:14:44] Yeah. And so what you're trying to say, for example, coming quickly back to the beginning of what you just said, when you talk about these squares that you have, geo on one side and products on the other side, and you have those liquidity ratio within those particular squares, is for example, UX designers in Hempstead or something like that.
Sophie Adelman: [00:15:02] Right. And you'd be looking at the supply/demand dynamics between that. So, how many roles do you have within, uh, full product designers within the Hempstead, and how many candidates do you have, and what's the ratio between them? And then you'd rack rate, so red, amber, green, whether or not you had high or low supply, and then make decisions about whether to invest more in an area or not, or remove that area, geo or product.
Sjoerd: [00:15:24] And how did you measure that? Did you have a data scientist on board, or ... Because it sounds incredibly complex.
Sophie Adelman: [00:15:30] There's no such thing, very complex, because you just ... As long as you've got the data ... So, the key thing when you're building out a marketplace is to be tracking, you know, having good audit trails of what people do, but also be, early on, building the infrastructure to be able to collect the data on the supply and demand and the different characteristics, so then you can use a business intelligence tool, a Tableau, a Looker, to be able to, you know, cut and dice the data. Now, actually, these ratios are quite simple to calculate obviously, once you have that data in place, but I think this is one of the things that people need to get more and more comfortable with, and we were very comfortable with at Hired, is everyone in the team had the ability to cut and dice the data using Looker. And we all got very good about manipulating the tool. And so, I would look at, you know, the jobs that we had on the platform, and I'd be able to look at the supply, and I'd be able to then call up my colleague in San Francisco, and say, "Hey, we're really light on Python developers. Hey, can you do a campaign about Python developers [inaudible 00:16:27] lot's o' jobs."
And so, it allowed you to pull those levers. And I think one lesson that I've learned from now working in two marketplace businesses, is, you need somebody who's always thinking about that supply/demand dynamic, and you're always constantly adjusting between the supply and the demand. It's a fine balancing act, which is what makes it fun, because you're not just bashing one thing, you need lots of different tools the whole time.
Sjoerd: [00:16:47] Yeah. Like, I always like to quote, um, Simon Rothman, who says that, like, liquidity isn't the most important metric, it's the only metric, like for a marketplace.
Sophie Adelman: [00:16:55] Yes.
Sjoerd: [00:16:56] Uh, we see that come back like again and again at Sharetribe, especially with ... That's one of the sort of earliest advice we try to give that ... And they try to make that square as small as possible, and fix it within those constraints, and then go out. So, I'm always happy to hear that that is actual advice that people have got. All right. So, cool. Like that was your Hired adventure. I think we went really nicely deep down the marketplace rabbit hole, which is fantastic. Nowadays, you're doing something else. Could you tell us about that?
Sophie Adelman: [00:17:22] Yeah. So, I left Hired at the end of 2016, and joined by co-founder Euan, to build WhiteHat. WhiteHat is on a mission to build an outstanding alternative to university in order to s- democratize access to the best careers, build a diverse group of future leaders. So, it's another talent marketplace, but it also has the element of [da-ji 00:17:46] training people to become future leaders through an apprenticeship model. So, we do three things at WhiteHat; we have our marketplace, which is how did you connect the high potential talent to companies for these apprenticeship opportunities, and I can talk more about that, but just to explain the second, the third part, the second part is, we then actually deliver the training in partnership with the employers to help people to become software engineers, digital marketers, data scientists, you know, business people within an organization, right at the beginning of their career and throughout.
So they do these long duration apprenticeships, really innovative, very applied learning based, really what we all need in order to continue to develop ourselves through our careers. And the third piece is community, because if you're going to build an outstanding alternative to university, you need something that gives the university experience that people get, of building friendships, building social capital, building professional networks, the opportunity to develop a growth mindset and build confidence. And so, our apprenticeship offering also incorporates a community offering where we do talks, we have inspiring talks, we have social events, we have sports teams, it's a very active community. So these are three things we do, but I know we're in primarily focusing on the first part, but if you think of that as being part of the facilitation of how do you get diverse talents, and by diverse talent, I mean, people from all backgrounds, including, particularly socio-economic diversity, I think that's the biggest, you know, blocker for many people to be their best self to realize their potential, and we connect those people to great companies to start apprenticeship opportunities.
Sjoerd: [00:19:22] Wow, that sounds amazing. I mean, I can totally ... I can see that specifically in the UK. Of course, there is class difference in many countries, especially across Western Europe, but my experience of, with the UK, that is where you have the private school system, and the public one is actually the private one, and then there's the state one, which is the public one.
Sophie Adelman: [00:19:40] That's correct. So, public means Eton, Harrow, these kind of, you know, elite schools, and then, yeah.
Sjoerd: [00:19:46] Yeah. How did this idea get started?
Sophie Adelman: [00:19:48] So my co-founder, Euan, came up with the idea of how do we reinvent apprenticeships? And when we got together, we sort of re-invented that into the idea of how do we build an outstanding alternative to university with apprenticeships as a mechanism to do that, but not the only solution? So the ambition is bigger than that, the ambition is given university doesn't provide either employers, or young people, or people throughout their career with the skills they need to be successful in their careers today, and in the future as the future of work changes, how do we build an alternative model, an alternative pathway that's equally as prestigious to the best universities, and actually give people better alternative path? So that's where the idea kind of came from.
Sjoerd: [00:20:31] Yeah. So WhiteHat is building the new future for work, so how does WhiteHat see that future?
Sophie Adelman: [00:20:36] We see people doing very different jobs in 10 years time from the ones they do today, and therefore, as a workforce, we need to be constantly up-skilling and investing in our people, so that their skill sets match the needs of employers. And I think the onus now goes on to companies to actually continue to invest in people's development. Historically, it was a responsibility of the individual to train themselves, that actually what they were going through with academic training, and then once they hit the desk, on their first job, they actually had to learn how to do the job. So, in many ways, we all did an apprenticeship, it just wasn't structured and such, and there was huge variability in terms of the amount of training and support that we received. Now, in the future, and actually, I'd say the future is today, people are now starting to require that ongoing training development. It's just something that Gen Zed, and millennials really care about, which is, how are you going to develop me? How are you going to set me up for success for the future?
And companies recognize that by investing in the skills, not only do they close that gap in terms of skill set that they need, and the availability of talent, they create retention opportunities for their staff, they're really investing in the future productivity of their teams, and it will allow them to actually be much more innovative in the future. So, for us, future work is all about skills and training and development, because we expect that, you know, in 10 years time, 80% of the jobs that exist, don't exist today.
Sjoerd: [00:21:59] Yeah, I can relate to a lot of the things that you're saying. I mean, I studied, actually, English language and culture, then cultural analysis, so full on liberal arts or humanities degree, ad now I'm like marketing. So, it ... There's a connection somewhere, but yeah, I did not get trained for this job through institutional education in that way. That's really interesting, because, I saw last year a presentation f- on the marketplace conference, by ... She's called Florence Aretz, works for Adevinta Ventures, and she actually said kind of two things that now resonate with what you're saying. So, first of all, she's saying that the linear career path, it's gone.
Sophie Adelman: [00:22:34] Mm-hmm [affirmative].
Sjoerd: [00:22:34] Uh, so people like, just because of the way the job market is progressing, like becoming more and more flexible, people will very likely, and especially in the, the younger generation will very likely start one, two or three careers, not just one. And then also indeed, because of this works becoming more and more flexible, but are, actually, the candidates or the workforce likes that or not, it just forced, basically, t- training on people of like basically comes from both sides. It's not just that the generation wants, but also to sort of ... I can't recall the numbers, but like the average career that someone has with the company has like, I don't know, like, gone down by 80% over the last 10 years or something like that. Yeah.
Sophie Adelman: [00:23:12] I think it's something that most people stay, on an average, two to three years at a company. I think it's the idea that you will stay in the same company for your whole career is basically disappeared. And even if you do stay in a company for a very long time, your job changes. So, I think one of the reasons that people stay at companies like Google and Unilever is because every 18 months, their job completely changes, and they have to relearn. They have to develop new skills, and that's exciting and engaging. So, we've got to continue to be investing in people's skill sets.
Sjoerd: [00:23:41] Yeah, no, I can relate to that. I mean, my dad's retired from the same factory where he has worked for 50 years, like literally,...
Sophie Adelman: [00:23:47] Wow.
Sjoerd: [00:23:48] ...which is ... I mean, but this has happened in like one generation, and I can see that, indeed, like institutional education did definitely not catch up with that development for that particular aspect. So, how is WhiteHat constrained, coming back to the Hired situation? Are you supply constrained, or supply, in this case, meaning the candidates, are you demand constrained in terms of the employers? What's the situation with WhiteHat?
Sophie Adelman: [00:24:09] So we are demand constrained. Again, similar thing as, uh, with Hired, that is about getting companies to start engaging with apprenticeships, and trying to hire this young talent, because, it's something that they haven't really done before in the past. So, a lot of what we did early on was education, you know, what is an apprenticeship? Why do you need to build a pipeline of talent? How does this help improve your diversity metrics? You know, how do you assess for high potential when somebody doesn't have a degree? Because most companies just use a degree as a checkbox to say, "Oh, this person is going to be good enough to join my company." Well, we all know that academic success and professional success are not correlated.
You do ... I think, Ernst & Young did a big study where they actually looked at their apprentice group and their graduate group, and they looked at their performance during their accounting exams, and they found the apprentices actually outperformed the graduates. They also tend to stay longer. So, I think we can so quite happily point to the fallacy that somehow, if you are academically smart, you're going to be good within a role in the business. And I think most people would agree that most of the things they learnt were not from their academic environment. So, w- we are definitely more demand constrained in that regard.
Sjoerd: [00:25:28] And how do you, how do you go about solving that currently?
Sophie Adelman: [00:25:30] As I said, it's, it's a lot of education. So, we have a large and, uh, growing sales team. We're really focused on how to help companies understand, not just the value of what we offer, but the need that they have as an organization to invest in their future workforce, invest in their current workforce, because apprenticeships are not just for young people, y- you know, leaving school, but also for people throughout their career. So, how can they use that concept to develop their people? And so, it's the piece of, "Let me understand the problems you're trying to solve as a business, and let me show you how we as an organization can support you in achieving those goals," whether that be, you know, ha- building a more diverse team, whether that be closing the skills gap, whether that be training their managers, there are ways to solve that problem through an apprenticeship approach.
Sjoerd: [00:26:18] So, in Hired, coming back to Hired, you basically had a platform that you could sort of pick up and take to the UK and get started, with WhiteHat, you founded that company, so I'm very interested, obviously, also, because of the background of the company who was bringing this podcast to everybody, what was your first version of, of WhiteHat?
Sophie Adelman: [00:26:36] Very manual. So, one of the things I was going to say about marketplaces earlier on is that, all marketplaces, when they start to facilitate it, they got l- ... A lot of people think that they just work, but actually, behind the scenes, you've got people who are doing this matching, because, i- in, in a marketplace, it's all about getting the supply matched to the demand, with the demand matched to the supply, and helping them find each other, and make that connection and for the transaction, whatever the transaction is to occur. So, when we first started, we didn't have a platform. We had a very basic website with a form that people could fill in, both for candidates and for employers, but people still actually just called us up. So we had an e- ... You know, phone number on the website, and people would just call up and say, "Hey, I want to do an apprenticeship." Very limited inbound from employers, so, again, that was how do we go out and generate that demand? But on the supply side, it was either young people calling, or their parents calling, and then we'd take them through our vetting and curation process.
Now, if they filled out the form online, at the beginning, it was incredibly manual, it was, what had they done previously, what do they want to do, what their competencies do they display? Have they had any work experience? Have they had, you know, any leadership experience? What, what do they do? And then we'd actually invite them in to a physical assessment center, essentially, to assess them in the first iteration we've done on paper and spreadsheets on Google, and we have the rolls up on a whiteboard, um, in the, in the office. And then we had the candidates in a spreadsheet, and we'd manually do the match, send the email, and it would be all done like that. Now, what's great about that is, if you can build a business where it is, you've got a supply/demand dynamic, it is a marketplace, but you can actually generate revenue without any technology, then you know that you have the ability to develop something that will be more facilitated, and you can invest in building that marketplace.
Now, I, obviously, because of my Hired experience, I had an idea of what I wanted the back end of that system to look like, how I wanted that matching process to work, how I wanted to create efficiency in the candidate vetting, in the employer vetting, in the connection process, and building that data architecture behind. But at the beginning, we didn't have the money or the resource internally to do that, so, then we had to start building out so th- an online application, a platform process, and that was sort of V2, and now we're probably on V25, but V1 was very manual.
Sjoerd: [00:29:03] Yeah, fantastic. Like, it's great to hear also, in a earlier episode, where I talked to Charles, who, who you also know from Florence, and he'd told me a similar story that their first shifts, uh, matching also happens in Google Sheets,...
Sophie Adelman: [00:29:17] Of course.
Sjoerd: [00:29:17] ...uh, which is fantastic. Yeah.
Sophie Adelman: [00:29:18] If the right way ... So, I have pictures of that. So, sometimes in, you know, when I'm with the team, you know, what we've developed on the product and tech side, because I look at half the product and tech team the way it had, as well as some of the other teams, and when I show them where we are today, I also remind them how far we've come by showing them the original spreadsheets and how we calculated all these different metrics manually.
Sjoerd: [00:29:39] Well, you say, of course, but it's not actually that logical. Like I think many people, maybe especially people who y- you could benefit from a prior experience, and, and working at a bit more with startups, and maybe realizing that the idea is probably more important than the initial execution, but I think, often people, and, and we see that also a- at Sharetribe a lot, people are very ... They would like to build Uber in a day, you know,...
Sophie Adelman: [00:30:02] Yeah.
Sjoerd: [00:30:03] ...with everything including SMS notifications, geolocation, any kind of thing. So, I'm actually ... Yeah.
Sophie Adelman: [00:30:08] But I think people forget that all of these companies started off with humans going out into the street and making that business work. I mean, with ... I had friends at Uber, and when they launch new markets, they'd literally go around and find cab drivers and talk to them and convince them that this new startup was something they wanted to do. And I think at the end of the day, it's all about sales, but you have to, you have to show this product market fit before you can start spending money on building product. And, and importantly, if you build a tech product before you understand what you need, and what dynamics you need to develop and generate, and the efficiencies you need, and what the priorities would be, you learn that building something doesn't actually work. So, I actually think that those organizations that don't start by using spreadsheets and whiteboards are missing a trick, because you learn a huge amount, and it a- allows you to, to know when pain points are in your process.
Sjoerd: [00:31:02] Yeah. And it, it, it really ... We always sort of hammer on this idea that, well, you need, first, need to validate this idea somehow. So, it doesn't happen until you basically the first transaction happens,...
Sophie Adelman: [00:31:11] Mmh.
Sjoerd: [00:31:12] ...which is a nice segue into my question, uh, what was the first transaction for WhiteHat?
Sophie Adelman: [00:31:16] So, we worked with a lot of very small companies early on, before we started working with the Santanders and the, the Skys, and the, you know, Googles of the world. We worked with very small companies. We had to build our reputation. So, I think the first placement was with a company called Servest, I think that's right, in facility needs. I can't remember exactly. And we went on to law firms and small tech companies. Quite frankly, at the beginning, it was just anyone who was willing to take on a, an, a young apprentice, and invest in their development, and then we learned along the way. And I think you have to start with low risk. I think the companies that start by trying to win the big deals straight off the bat with these big companies, are setting themselves up, up for failure, because, those big companies require a lot of support, a lot of account management, they want things to be bespoke, and you can actually refocus your entire team to build something for that big client.
Whereas, if you can establish yourself and say, "No, this works for lots of small companies," then you can actually go to the big companies and say, "No, no, we built something we, you know, works, you need to adapt to us." And that's more how we work now. We are the experts, and they, they start to sort of listen to our advice.
Sjoerd: [00:32:30] Yeah, but of course, it's, it's taken you a couple of years to build that position, like what you s- mentioned also with the education and everything.
Sophie Adelman: [00:32:36] Yeah.
Sjoerd: [00:32:36] Hey, this was s- super insightful. I got so much out of this already. I learn everything e- every time I learned something new, and I really like the idea of these squares thinking. So, thanks for that. Time for a final plug for the people in the UK, I think, isn't WhiteHat UK only for now?
Sophie Adelman: [00:32:52] Yes, we're only in the UK right now, but the plan is to, to move to the US early next year. So ...
Sjoerd: [00:32:57] Oh, wow. So, where can people find WhiteHat?
Sophie Adelman: [00:33:00] So, if you go to whitehat.org.uk, and if you're a company that's looking to take on apprentices, then you can click on, on the employers tab, and somebody in the team would love to speak to you about the different kind of apprenticeships that we offer to both young people, bringing on new talent, because I know a lot of companies aren't hiring right now. So, something to keep in mind for the future, but also, if you want to invest in your existing talent, even if that's furloughed, which a lot o' companies are doing right now, you can actually start somebody on an apprenticeship during their furlough period, and it's a great way to keep people engaged, and active, and developing their skills while they're on furlough. So, it's very timely right now that people are able to invest in their development.
Sjoerd: [00:33:38] All right. Thank you very much, Sophie.
Sophie Adelman: [00:33:40] Wonderful, thank you.
Speaker 2: [00:33:41] [music playing] Thank you for listening to Two-Sided, the marketplace podcast. If you enjoyed today's show, don't forget to subscribe. If you listen on iTunes, we'd also love for you to rate and give us a review. If you got inspired to build your own marketplace, go visit www.sharetribe.com, it's the fastest way to build a successful online marketplace business. Until next time.
TS_Michael_Master
Michael DeGiorgio: [00:00:00] And I kind of, in the back of my mind, thought, "If nothing else, you know, this'll be a platform that we can transact on ourselves if people didn't want to use it."
Speaker 2: [00:00:13] Welcome to Two-Sided, the marketplace podcast, brought to you by Sharetribe.
Sjoerd: [00:00:24] Hi. I'm Sjoerd, CMO at Sharetribe, and I am your host. For this episode, I talked to Michael DeGiorgio, founder and CEO of CREXi, a marketplace for commercial real estate. This is an area, uh, [laughs] as you'll hear, which I knew absolutely nothing about, but it turns out to be an actually fascinating industry which was ripe for some serious disruption, as you'll hear.
I talk with Mike about how to build productivity tools for one side of the marketplace and also about how, instead of getting rid of the middleman, which is something that you often see when marketplaces enter a space, CREXi actually embraced the middleman. This is a really intriguing talk, and I think there are some great insights in here for anyone building a marketplace business. Enjoy.
Hi, Mike. Welcome to the podcast.
Michael DeGiorgio: [00:01:17] Hey, Sjoerd. Really nice to be here. Thank you so much for having me.
Sjoerd: [00:01:19] Yeah. I really appreciate it. Hey, before we dive super into the [inaudible 00:01:23] world of CREXi, can you tell the audience a little bit about who you are?
Michael DeGiorgio: [00:01:27] Yeah. My name's Mike. I was born on the East Coast of the United States. Started my career about 11 years ago now in commercial real estate. I started it at a company called Auction.com, where we were trying to change the way people bought and sold both residential and commercial real estate.
Uh, I was one of the first people on their commercial division, so I was really trying to take commercial real estate transactions online and to online auctions, uh, where I got a pretty good sense of the ecosystem, the software available in our space, and some of the deficiencies in our space.
Uh, I spent about four years there, had 10 different roles while I was there, did everything from broker deals to be an auctioneer on auction day, and oversaw multiple different teams, uh, during my run there. And then, left about five years ago to form CREXi.
Sjoerd: [00:02:11] All right. So there was already effectively a marketplace, Auction.com?
Michael DeGiorgio: [00:02:15] It was really just a different way to transact. It was, uh, taking the traditional process, which is, you know, very manual, and bringing it to an online auction. Auctions were still, at the time, were a known way of transacting commercial real estate and residential real estate, typically for distressed real estate. Uh, what we did was really just bring that auction part online. The rest of our process was, uh, still very much like a broker.
Sjoerd: [00:02:39] All right. Yeah. Was it a big operation?
Michael DeGiorgio: [00:02:41] So when we started, I was, you know, maybe one of the first five people on the commercial division. My, after being there for about three years, we had raised a large round from Google Capital. We raised $50 million at a 1.2 billion valuation. The company grew to 1,000 plus people [inaudible 00:02:56] during my time there. And then, I left. So got big over time.
Sjoerd: [00:03:00] Yeah. And so, you left, and then immediately after, you started CREXi? Or did you leave really to start CREXi?
Michael DeGiorgio: [00:03:07] Left to start CREXi. I was pushed by a former mentor of mine, uh, over drinks one night, to kind of, threw a, lobbed a question at me asking what I would do if I could go kind of out on my own. And I responded by telling him, "I think there's a way to bring, really, everything about commercial real estate, leasing, transacting, data, online in an intuitive way that's not out there, and I would go start that company." And he became my first investor, and I left my career behind about a month and a half later to go start CREXi.
Sjoerd: [00:03:36] All right. So basically, you are this, well, let's say, hardcore real estate veteran. And during your time at Auction, you were just thinking, "Ah, we could do this so much better." Is that what happened?
Michael DeGiorgio: [00:03:48] Yeah. I think especially, you know, at first, I was very bought into the vision. I think over time, as I learned how the transaction works for real estate really well, I probably sold 600 commercial real estate properties during my time there.
Sjoerd: [00:04:00] [laughs] Wow.
Michael DeGiorgio: [00:04:00] As I kind of started to learn the different ways commercial real estate was sold and really started to get to know some of the software that was available to us in the space, because we still used other software platforms to help our process, I started to see that there was none I really believed in, and there was a much better way of doing it. And a lot of them were really, you know, antiquated, kind of web 1.0 version technology that I thought could be enhanced and taken so much further than it was. So I set out on the journey.
Sjoerd: [00:04:27] And could you share a little bit, like, what were the things that you're like, "Ah, this is, you know, we, first thing I'm going to do at CREXi, this is what we're going to do. Like, this is how we are going to be different from Auction.com and whatever other things were out there?"
Michael DeGiorgio: [00:04:40] Yeah. I guess in its most simple form, you know, Auction.com was really putting people in a box. They were forcing, if you wanted to use it, you had to transact in an auction. And I started to learn pretty quickly that oftentimes, I would sell the property prior to the auction, more traditionally, or after the auction, because the deal wouldn't sell in the auction, more traditionally after the auction.
And there's just so many different ways to transact commercial real estate. And there's also a lot of tedious processes involved in transacting commercial real estate that would take half your day and really get in the way of just you getting a deal done.
And so I, I really thought, you know, the two basic things were, most importantly, let's build some tech to solve some of these pain points that, you know, maybe used to take a half a day. I could take it and make it a couple clicks of a mouse.
And let's make it more flexible so you didn't kind of get forced to transact in an auction only. I thought, over time, you know, that can be an offering we have. But let's make it really flexible so that you can transact in multiple different ways on the platform.
And I kind of, in the back of my mind, thought, "If nothing else, you know, this'll be a platform that we can transact on ourselves, if people didn't want to use it." So that was kind of our backup plan, was let's build something where, if I had to go start transacting real estate again tomorrow, I would be able to transact better than I could without this platform that we were going to build.
And the hope was people saw the value in that, the time saving in that, the different, you know, advantages of being able to use a platform like ours, and everybody would start to use it. And we'd get the whole industry there together. And if we didn't, you know, we had, we at least knew we could transact on it and make it big that way.
Sjoerd: [00:06:10] Yeah. So did you rely mostly on your own expertise or, and experiences, or did you do user research before, like, hey, because you're saying basically, you mentioned two sort of different points. One is the, the way transaction happened. And then you also mentioned that, hey, we're going to build this platform which basically, like, software tools, right? So which one did you start with? Or did the first version contain both of these things already?
Michael DeGiorgio: [00:06:33] Yeah. We spent about nine months building the first version, and it definitely contained both. Part of transacting is some of the tools. You know, you need those tools to transact more efficiently.
So really, in my mind, even though they were tools to help run your business more efficiently, the business we were in was transacting commercial real estate. So we spent the first year nearly just building out the MDP and getting it out there in a way that we felt comfortable and confident releasing it.
And we brought, uh, a combination. You know, we brought a l- to answer your second question, we obviously had a lot of ideas ourselves from our days of transacting and brought a lot of people onto the team fairly early to kind of help formulate the idea.
And then also would constantly be bringing in commercial real estate brokers, commercial real estate owners that we knew real well, to run ideas by and get a feel for what they thought of what we were building.
Sjoerd: [00:07:20] And, uh, could you give an example, you know, for people [laughs] like myself who don't know anything about selling commercial real estate? Like, what are some of those pain points that you were solving for them, the daily work ones?
Michael DeGiorgio: [00:07:30] Yeah. I mean, it sounds real simple, and I'll start more on the transactional side, but when you're selling commercial real estate, unless someone emails you or calls you, you really don't know who's interested in your property.
So just bringing transparency so that if someone looked at the property, you knew who that person was, why they were looking, how long they spent looking, and you could connect with them really easily through a message online or, or call them really quickly.
After you talk to that person, you're using some kind of CRM system or Excel to take notes on your conversation. A really easy way to enter those notes.
And then, uh, you know, another kind of basic one is real, seemingly really simple, which I think was part of the beauty of it. On, like, a Friday, you would have to then go take all of those notes and summarize it and send it to your client and say, "Hey, this is all the marketing I've done. These are the people I've spoken with. This is who I know is interested in it. This is the feedback I'm getting."
And you'd send these, like, overview reports for all the deals you were trying to sell, every Friday. And I figured, you know, let's make that a click of a mouse. So not only do you know real time who's looking at your property, but you can also supply them with information.
And a lot of the document signing and the process of, like, signing a confidentiality agreement and exchanging documents to get the buyer to know more about the property, who that buyer was, all the notes you had, you literally, and all the marketing you've done, you literally hit a button at the end, and it spits out that report for you to send over to your seller or client so that they know exactly how effective, you know, the sale is going.
Sjoerd: [00:08:53] Wow. That sounds like a huge time saver. Like, are there any, because, like, there's a couple of ways that marketplaces often start out. And one of the things is called, like, the single player mode, I don't know, or SaaS enabled mode, where you start first as a kind of software tool with exactly these kind of productivity improvements, and then later, actually get people to the marketplace or to whatever is the, the platform.
Did you have people who only used one of the two? For example, who only used, you know, who, they only come there to sort of generate those [laughs] Friday documents, for example?
Michael DeGiorgio: [00:09:22] Yeah. I think that's another thing that we did intentionally in the beginning, kind of went towards our theme of not forcing anybody to do anything any certain way. But we built it to be able to do all of these different things.
And we knew if one part of it was valuable to the supply side, we really focused on the supply side, particularly the brokers. The brokers control the supply. If we could just make one part of this better for a broker, they'll start giving us their supply.
And you've got to kind of figure out, you know, which side of the marketplace you're going to get first, and, and we focused on the commercial real estate brokers and the supply. And we didn't force them to use any particular part of it.
You know, there was a lot of other functionality built in that I didn't want to bore you guys with, but as long as they saw value in one of them, the chances they'd start giving it a try and using at least that one part of it, those chances were high. And if they found a lot of value in it, slowly over time, they would use more and more of it.
Sjoerd: [00:10:11] Could you say that it was one of, like, your growth tactics, just, like, building a super good productivity tool that gets, in your case, the supply on board?
Michael DeGiorgio: [00:10:18] Yeah.
Sjoerd: [00:10:19] And then, hopefully, more of that stuff will trickle through in the actual transaction.
Michael DeGiorgio: [00:10:23] That's right.
Sjoerd: [00:10:24] Yeah. Were you charging anything for the use of the platform, even if you wouldn't transact on there?
Michael DeGiorgio: [00:10:28] Not at first. At first, we decided, you know, one thing I thought always was, you know, our goal was just to get everybody transacting in one place, everybody doing their leases in one place. If you do all that really well, there's so many ways to monetize it. And so we were really confident in that thesis, so we decided in the beginning to just keep it free and get everybody there as quick as we could.
And still, even now, you know, the ways we monetize now don't get in the way of hurting the marketplace effects. Nothing that we monetize gets in the way of people wanting to use it and getting a lot of value out of it for free.
You know, that's one thing early on that I could probably suggest to a lot of people out there, is if you're going to charge something, make sure whatever you're charging, it's worth 10 times that amount. [laughs]
And if you're, you know, for us, it was, we know this is valuable. We know it's worth something. If we can make it free, everybody's going to have to use it, because it's worth a good amount of money, and it's free. You know, it's kind of that why not proposition.
Sjoerd: [00:11:18] Yeah. Yeah. If you can scale it in a nice way, then it's not really that much of a problem for you initially.
Michael DeGiorgio: [00:11:24] Yeah. And then, another thing we were really, um, forward thinking on was ensuring that when we brought that supply, that we also built tools that let the supply bring their own demand. So really, by us letting the supply side use it for free, it got us demand for free, too, because we had all these tools within that would really incentivize the broker to want to bring their own buyers and bring the demand side of commercial real estate to the platform also. So that was a big one, too.
Sjoerd: [00:11:48] Okay. Let's unpack that a little bit, because that's really interesting, because that's always, I think, the, you know, one of the network effects that anyone with a marketplace or two sided platform is looking for. You know, you bring one side on board, and because there is so much of the one side, whether it's supply or demand, the other side also comes. And it becomes this, this [inaudible 00:12:04].
So how does that work in the commercial real estate industry? So just to sort of break up CREXi a little bit. So on the supply side, you're saying, are your brokers.
Michael DeGiorgio: [00:12:12] Yeah.
Sjoerd: [00:12:12] And on demand side is anybody buying?
Michael DeGiorgio: [00:12:15] And now, leasing too. Yeah.
Sjoerd: [00:12:16] Oh. Leasing as well. All right. And so is it common, then, that they have just a set group of buyers? Is that a common occurrence?
Michael DeGiorgio: [00:12:23] Yeah. Each person, each broker definitely has their own supply side set of users. And if you can incentivize them through the platform to bring their users to us as opposed to sending them somewhere else, you know, obviously, that kind of springs forward that other side of the marketplace that you need to get there.
Sjoerd: [00:12:38] All right. [laughs] Yeah. That kind of get rids of most of my questions, because my next question was going to be, how did you bring demand on board early on?
Michael DeGiorgio: [00:12:46] Yeah. It was really through, initially, just making sure we drove the brokers who were using it, the supply side who was using it, to, uh, bring their own demand. Then they obviously, now, get comfortable with the site, and you start building features for them, too. And so they start to look around and see all of the supply on there, and they have a good experience. They stick around. So there was a bunch of different features we built to incentivize brokers and help brokers get their own buyers to the site.
Sjoerd: [00:13:10] And how do you, because, like, potentially, there is a problem that if I'm a supplier and I bring my demand on board [laughs] that, okay, once they get on board, do they get exposed to other supply? Or do you do it so that they only see from the person that they already knew? Because of course, you get into this problem that you might be competing.
Michael DeGiorgio: [00:13:28] Yeah. It's definitely something that made us a little nervous at first, but obviously, we didn't force any of the, you know, supply side users to bring their own demand. And we were kind of curious how it would work, but it ended up being something that they saw a lot of value in doing.
Just to point back to that one feature, for example, you know, if you can click a mouse, and it creates a report, and you can send that report on a Friday to your seller, I'd much rather all of the people I'm going to drive to that property all go to this one place where I can just hit a button and it be, as opposed to having to add them to that report and still get to that manual work, now you have, you know, if you drive them to CREXi, you click that button, they're all there.
So that's, you know, one of many, many examples of why it was advantageous, uh, for the supply side to bring their buyers. It was definitely something we were curious, will they do this? For all the reasons you just suggested. But thankfully, you know, people saw a lot of value in it, and a lot of them did. And, and way, way more do now.
Sjoerd: [00:14:16] Yeah. Ah. Fantastic. And when you got started, did you constrain the marketplace by any location initially? Like, did you only do a particular part of the US? Or did you go domestic wide from the start? Did you do anything like that?
Michael DeGiorgio: [00:14:31] Not intentionally. So the first person who pushed me to go start CREXi, that I referenced earlier, uh, and kind of was our first investor, he's a big owner of commercial real estate. I think he owns about $6 billion of commercial real estate across the country. So when we first launched, he gave us our first four properties to sell. [laughs] So that was how we launched-
Sjoerd: [00:14:49] [laughs]
Michael DeGiorgio: [00:14:49] ... with four properties for sale, and they happened to all be in Texas. This guy I'm referencing is out of Texas. So, you know, with the four properties in Texas, you could start calling other brokers in Texas and probably get a little bit more of a chance of getting them to say yes to this, uh, new concept, this new idea, this new marketplace, you know, and kind of say, "Hey, look. We got these four. You know, why don't you add your stuff?"
And so, you know, there was some ways we did it that way. But other than just kind of building off, once you got a yes in a certain market for a certain property type, you could kind of jump on that and expand on that. But really, there was no strategic focus other than that.
Sjoerd: [00:15:21] Yeah. Because often, there's this liquidity problem, right, that you have to get both demand and supply that are matching. And so I could imagine, but this is with my limited knowledge [laughs] of commercial real estate market, that you would go sort of indeed, maybe, state by state or even, like, big city by big city. But you went sort of all in in the beginning, all the way. Or did I get that right?
Michael DeGiorgio: [00:15:43] Yeah. That's right. On the leasing side, we took a little bit more of a, uh, market by market approach. You know, by the time we turned leasing on, we had so much recognition in the brokerage community, and a lot of the brokers do both sale and lease. They'll lease property out, and they'll sell property for certain clients of theirs. So thankfully, we were able to get a lot of, uh, momentum early for the leasing side.
But on the transaction side, if you're looking to invest in a property that's going to make a certain return a year, and you're looking for a certain tenant, you know, you might be open to five or six different states. Some people might be open to the whole country.
So on the transaction side, where we started, it's not a very local market. It's more about what's your return? What's the property type you're looking for? What's the investment size you're looking to make? And if it fits that criteria, you're a little flexible, typically, on, on where the property is located.
Sjoerd: [00:16:28] Yeah. No. That makes sense. Yeah. All right. How did you go about getting the first version out? Because you're obviously more of a sales guy, I sort of deduct, more a business guy. How did you go around finding your team? Was this with a buddy? You know, you said you build nine months the first version. How did that happen? Like-
Michael DeGiorgio: [00:16:46] Yeah. Good question. So I had a, a really close friend located here in LA that I had known for a long time, and he was a tech CEO. He had a startup that he was in the process of selling. And he was kind of pushing me, more in a friendly way, to go start CREXi for at least a year, and talk to people he knew and VCs he knew, and kind of told me he could introduce me to the right tech people to get the thing built. And we would always kind of just, like, play with the idea.
And I always thought, you know, it was more important for me to get, like, a really significant player in the commercial real estate space to kind of back us, too. And so once my friend in Dallas decided he wanted to back us, I called my friend in LA, and he helped put me in touch with, uh, a guy who became a good friend and a cofounder of the company, who was a CTO of a company that had just sold to Apple.
And he was able to put some people on the engineering team that were just world class. And, you know, there was a little bit of a language barrier. You know, they were all Russian early on, but, uh, we all became really close. And they're still here today, and they built that first version out for us and still are leading the team.
Sjoerd: [00:17:45] Oh. Wow. So is it any company we might know? You said being sold to Apple.
Michael DeGiorgio: [00:17:49] The company was called Burstly, so TestFlight-
Sjoerd: [00:17:50] Okay.
Michael DeGiorgio: [00:17:50] ... was one of the products that they had.
Sjoerd: [00:17:51] Yeah. The app testing thing?
Michael DeGiorgio: [00:17:53] Yeah. Yeah.
Sjoerd: [00:17:55] Oh. Wow.
Michael DeGiorgio: [00:17:56] So that was one of their three products. They were tools for mobile app developers. TestFlight was their marketplace where you could test the app once you built it. And then, they had, I want to say, like, a data concept underneath their umbrella, too. But those were the products that he oversaw. He was CTO of the company Burstly that had those three products, and then they sold to Apple.
Sjoerd: [00:18:12] Okay. So you got, I mean, that's great that you got a seriously experienced tech team on board who didn't go, I don't know, buy the service from someone [laughs] or something like that. Yeah.
Michael DeGiorgio: [00:18:22] I really, uh, you know, there was a lot of similarities, believe it or not. We weren't building tools for mobile app developers, but we were building tools for commercial real estate brokers, and then we were building that into a marketplace, where TestFlight was their marketplace. So it was a lot easier and a lot less sophisticated tools we had to build for the commercial real estate industry than the tools he was building and his team was building for mobile app developers. So that ended up working out really well.
Sjoerd: [00:18:46] Oh. Wow. Okay. Cool. That's really nice. One question I had, actually, because, so, as mentioned, on the supply side, we have the brokers. On the other side, we have investors or, or buyers.
Usually, with marketplaces, when they come to disrupt an industry like this, they take out the middleman. In your case, the middleman would be the broker. But you have sort of made the middleman the centerpiece on your supply side.
I'm thinking that, like, is there a fear from the brokers that at one point you will out compete them, you will take over? H- Has that never been the intention? How did you solve for that?
Michael DeGiorgio: [00:19:19] Yeah. I think, you know, we really focused a lot of the functionality and tools on the broker themselves. I think that's also where a lot of the platforms that existed in the industry or were popping up in the industry went wrong. They were all immediately trying, let's just take over. Let's get rid of the brokers. Brokers, we don't need brokers.
You know, I don't believe that thesis at all. Our approach has been, let's make brokers able to do three times as many deals as they used to be able to do. Let's save them, you know, most of their overhead a year.
Brokers are still very necessary in a transaction, whether you're selling a property or leasing a property. You know, we wanted to change their world a little bit, just in the fact that, like, some things that took them a day a week or an analyst or four people on their team in support role, you know, let's take away some of their needs for support roles. Let's get them actually doing what they do best, getting deals over the finish line. You know, and negotiating that last kind of piece of a contract with the buyer and getting the best price and maximizing the best price.
I think no matter how smart CREXi's technology gets, and it's really smart, you know, getting someone on the phone that knows that industry, knows that space really well, knows that market really well, knows who the tenants can be, knows how to increase rents and can really advise and move the transaction further than tech can, is still a critical, critical piece.
And I see that being the case forever. You know, is there a world where it looks a little different? To me, that world looks different just from the fact that brokers can do, you know, 10 times as many deals a year. Right now, you know, like, a lot of commercial real estate sells in the United States each year, but, you know, it should be way more liquid. You know, why does it take five, six months to sell a property?
If you put a platform like CREXi involved, you know, it should take weeks or a month or two months at most to sell a property. The more liquid you can make commercial real estate, the more comfortable people are going to be buying it, the more transactions you get each year, and ultimately, then, the more money brokers can make. And there's really no need to go after them. We wanted to partner with them from the beginning, and that's how we see it needing to be.
Sjoerd: [00:21:08] Yeah. And then, th- that sort of leads into my next question, because obviously, we are talking major transactions here. Like, this is not like [laughs] many other marketplaces where you order an Uber or something like that. So then, I immediately, the question pops up, like, this intermediation or platform leakage or platform brokerage, whatever you would like to call it, what's the situation with that for CREXi?
Michael DeGiorgio: [00:21:30] I think, you know, that's part of why we didn't want to force people to use it a certain way when we built it. You know, we wanted to build it so that if you wanted to embrace tech to its fullest, you could fully transact and run your business as a buyer, as a broker, as a seller, as a tenant looking for space. You could fully run that process online.
But we didn't want to force that issue. There was no need for us to force the issue. You know, we can add a ton of value without the whole transaction fully taking place on CREXi.
And for brokers that aren't comfortable with it, you know, how much value is it that within a week, you got paired with the right buyer and were able to get that buyer to transact on a property and earn 100, 200, $300,000 fee? You know, just the fact that we got the buyer there, real time, got the broker to connect with that buyer way before that buyer was able to get onto the next deal or the next broker, how much value we add in that moment is significant.
And to us, it wasn't always about forcing everybody to transact online. I think as our technology gets smarter and as the industry gets more comfortable with it, that'll happen. But I thought it was the wrong approach to say, "For us to be successful, everybody's got to do it the way we think it should be done." You know, that's not how we wanted to build it. We wanted to build it so it could be done any way they want it to be done and that we always add value no matter what.
Sjoerd: [00:22:40] Yeah. So then, my question is, how do you make money?
Michael DeGiorgio: [00:22:43] So right now, we make money a few different ways. First is, uh, we have a subscription for the brokers using us to sell and lease properties. So there's a free version. A lot of the tools I mentioned early on and a lot of the functionality from the beginning is free. But our paid version is an enhanced version of CREXi, gets them more leads, more exposure to buyers, a little bit more feature functionality to make their worlds easier. So that's the broker subscription model.
The second way, and this is a little bit newer, is now that we have all this data on all of these properties that have transacted, and all of the activity on all the properties that transacted, and markets and which way markets are trending, and which way different property types are trending, and how pricing is trending, we now can package a data offering that can really, really enhance a buyer's ability to feel comfortable making an offer and going and buying a deal.
So we p- now have a data offering that the brokers get as part of the paid version, but that buyers, appraisers, lenders, all can pay for. And then, you know, we can charge, you know, pennies on the dollar versus everybody else, because we're aggregating that data just by the activity we see on CREXi already. So our data product is a subscription as well, and that's our second version.
And then, third, we have two ways that we earn fees on deals transacting. We have an auction platform now, so there's a fee involved if the deal sells. We only get paid if the deal sells, but you can now run your full auction through CREXi.
We also have something called CREXi Elite, which is basically a supercharged version of CREXi that, if the deal transacts, we get paid a small fee, and it's success based. So the buyer or the broker, the fee only happens if we transact. So it's riskless in some ways. You know, there's no risk to trying it.
Sjoerd: [00:24:15] Wow. That's [laughs] [inaudible 00:24:16]. I have a couple of questions about this. So, first of all, the last part where you said it's fully risk free. So is that not the case in regular, like, real estate buying, selling, that happens outside of CREXi? Would you need to pay upfront to get an auction up and running, for example?
Michael DeGiorgio: [00:24:32] Yeah. I mean, depending on the platform you use, and this is part of what I thought was broken in the industry before us, you know, you have to pay to list the property. You know th- on some of the incumbent just listing platforms, if you wanted to list a property on their marketplace, you have to pay just to list it.
You have to pay to market it. You know? You got to put signs on the property. You got to put it in the local newspaper. You got to send mailers. You know, literally, the industry was still sending mailers, flyers in people's mailboxes. All these costs you have to do upfront and can cost significant amounts of money. You know, go pay for a drone video. Go pay for pictures of the property.
And then, the other software that we solve for, too, a lot of that's all upfront. So if you're on our Elite or auction platform, you know, all that stuff is paid for, and you only, you know, we can drive all the traffic you need and service all the other kind of functionality you need. And you only pay us if the deal sells. But, yeah. A lot of that stuff's all upfront.
Sjoerd: [00:25:20] So you also offer marketing services? Or you just mean just simply getting it on CREXi and the, and the existing demand is part of your marketing services?
Michael DeGiorgio: [00:25:28] Just getting the demand, our existing demand, to the right deals. So if you're paying us, we know who the buyers are. We know what they're looking at. We know to make sure they see your deal first. A lot of little ways to drive the demand that we already have to the properties.
Sjoerd: [00:25:41] Yeah. And then, will you ever, I mean, I could see a way, for example, drone videos or those kind of things, is there a future where you sort of add up a service level so that, you know, you connect them with people who can make these drone videos, or you have some sort of basic package to say, "Okay. Just give us the address, and we'll send someone there?" Everything gets online. All of the information needs to be there. Videos. Everything?
Michael DeGiorgio: [00:26:04] So we already offer a lot of that stuff. We definitely see it turning more and more [inaudible 00:26:08] into a platform, where if you're someone that offers that kind of thing, you know, you can offer your service through CREXi, and we can take a little piece. I think that's, you know, definitely on the roadmap in the near, not too distant future. But a lot of that stuff you mentioned is already offered. We already have partnerships in place and the ability to do that stuff for them.
Sjoerd: [00:26:23] Yeah. And so is the idea, basically, to just grab more and more of the process onto CREXi and really tie people into CREXi?
Michael DeGiorgio: [00:26:32] Yeah. I mean, we want to be the aggregator. We want to be the all in one platform for all things leasing, data, and transacting commercial real estate. Lending, even, too. And we're, we're in conversations with a lot of major lenders across the country to be able to offer, uh, loan options once the property transacts, get you the ability to get a loan at the lowest, you know, rate possible and best deal possible. And, you know, we want to bring it all together in one place, and that's what we're working on.
Sjoerd: [00:26:56] Yeah. The question I had about, because, like, uh, you know, one of the pillars that marketplace also often brings is this idea, actually, well, it's an interesting thing, because marketplaces both bring it and sort of require it, is this level of trust. I can imagine that, especially with these kind of huge, huge transactions, so much relies on, okay, reliability of the offering, et cetera. You know, how do you produce trust within the CREXi platform?
Michael DeGiorgio: [00:27:20] Just a lot of detail into the product. There's a lot of layers of protection and privacy and kind of, uh, controls that we put in place to really give the industry the ability to really dictate who sees what and when and how things are done. I think, you know, really, how we've addressed that is just making sure we built it into the product to allow them to, you know, do it in a way that they feel comfortable.
You know, for example, some brokers will want, you know, if you're selling a property, for example, uh, the rent roll is a really important piece of information. You know, if I have five tenants, you know, if it's a multi family building and there's 10 tenants, you know, are they paying? What are they paying a month? How long do the leases last?
You know, that rent roll that explains what th- every tenant is paying. Some brokers are okay with everybody seeing that, and some brokers aren't. And some brokers have certain rules that they want to put in place before they're going to allow that information to get into a buyer's hands.
You know, we've really carefully thought out how to build that into our software so that they can run it any way they please, and I think that's really, you know, the, the thing we do and that's separated us the most is just putting that careful thought into it, and then also making sure it's intuitive and easy enough.
You know, it's not the most tech savvy group of users [laughs] you'll ever find, so everything we do has to be really intuitive and really simple and make a lot of sense. And I think that's, you know, another strength of ours.
Sjoerd: [00:28:34] Is it so that with an industry like this, it's kind of big, but it's also rather small? And so often, I've seen in other of these kind of marketplaces that y- you get some kind of community idea. Is something like that happening in CREXi as well? Is there, like, a CREXi community?
Michael DeGiorgio: [00:28:48] Absolutely. And we've even built that into the software now. So if you're a broker, you can create a profile page. So if you're a person who's thinking about selling, you can go and research who the right broker is to list my property based on their prior success.
So basically, now there's, you know, that whole LinkedIn component, call it, where everybody that's on CREXi can have a profile page and talk about their, you know, careers and, you know, what they're capable of executing on in terms of either selling or buying or leasing a property. You know, now we're even allowing people to, uh, share news articles they write, blogs they write, so there's a whole sharing component we've built into it.
So community is one of our three pillars. Our three pillars are, uh, marketplace, technology, and community. And those are the real things we focus on, is state-of-the-art tech and data, the most robust marketplace, a- and that community part, too.
Sjoerd: [00:29:34] Yeah. You know, was that something that you had in mind? You now mentioned it's one of the three pillars. Was it something you had in mind beforehand, or was it something that just sort of organically came along?
Michael DeGiorgio: [00:29:45] I don't want to claim that I had all the answers by any means, but, you know, myself and the group of us that I brought on pretty quickly, the vision that we had for what needed to exist, in our minds, a lot of this stuff was on that early roadmap. It really was. You know, I thought all of these things were important, all these ideas were important. And now, you know, looking at the platform, it's pretty cool, because you've seen that whole thing kind of become a reality.
And we're still in the early innings. You know, it doesn't do everything we envisioned it doing in the beginning, but, you know, we [inaudible 00:30:12] pivoted, and really, a lot of the things that we thought in the beginning needed to exist in the industry are the same things we've built, like these things we talked about.
Sjoerd: [00:30:18] Yeah. In some marketplaces, community is a really great way, also, of getting more supply and demand on board. Do you see that as well, on your side?
Michael DeGiorgio: [00:30:25] Definitely. You know, like, an example is, like, a broker, as they put their profile together, they can tell us about and tell the industry about deals they've sold in the past, right? So this is one example of many, but now that we have that profile, and brokers are going to fill it out, they want to go back and tell us about every deal they've sold for the last 20 years.
You know, that's a lot of really good data that we now can use to enhance our marketplace and enhance the experience in our marketplace. So feeling part of that community just makes them more engaged, makes it a more regular thing that they check. And, yeah, that's a big piece of it.
Sjoerd: [00:30:57] Okay. So community, important driver of growth. Could you identify any other big drivers of growth in the sort of journey you had so far, that you said, "Okay. Hey, we did this?" You know, whether it's a new feature or a way of presenting things?
Michael DeGiorgio: [00:31:09] I mean, there's so many. There's so many. I can't pinpoint one that really set us apart more than the others. I think it's the kind of collection of all of it, uh, in one place that's really been the growth driver.
You know, people even ask that as, as we've gone out and raised money and talked to the VC community. You know, what's, like, that one moat you have? You know, what's that one thing that's going to separate you? And I really that the one thing is the collection of hundreds of things, thoughtfully built out, you know, really strategically, really intuitively. And bringing it all under one roof, I think, is really what's helped us grow as fast as we have.
So many times early on, even when we were free, brokers would say, "I would use you guys, but it's got to be able to do this, this, and this." And, you know, hearing that enough and then really analyzing what this, this, and this was that we wanted to focus on, and building that in and being able to go back to that same person, you know, a month and a half later and say, "Now it does those things." You know, that's something the industry wasn't used to seeing and really hasn't been offered in the past. So I think it's the collection of all of the little things.
Sjoerd: [00:32:07] I ask this question because sometimes, something really nice comes out, but also, as someone with a, like, a growth background, it's a compound thing. It's, like, indeed, like consistent, small things placed upon small things, small things that eventually start driving it and sort of multiplying it really fast. No. Great answer. I totally buy that.
Actually, an interesting point you brought up. So how do you consider new features? Because you said early in the interview that, well, you have your own experience. You brought a lot of the brokers on board. So if you get requests like that, how do you handle those? You know, how do you weigh those? And how do you select whether or not you're going to buy it?
Michael DeGiorgio: [00:32:43] I think, you know, the one thing we constantly ask ourselves is, "Does this fit into the bigger picture?" We'll never do something that we think doesn't help us become the company we want to become over the next 10 years, so we think really long term. And as long as it doesn't sacrifice, like, what we're trying to build, who we're trying to become, and go against any of, like, the values that we have of, uh, things we believe in and think are important, we add it to the list. And then it's just about prioritizing that list and moving it forward.
Sjoerd: [00:33:07] Great segue to my, sort of one of the final questions. Uh, what is the 10 years view for CREXi? Could you tell us a little bit about that?
Michael DeGiorgio: [00:33:14] I think it's really some of the things you touched on before. You know, it's just the pieces of commercial real estate transacting and leasing and data that we don't offer, building it into it and continuing just to build upon what we've already built, and getting the whole industry here.
You know, I think it sounds simple, but, you know, we have a data offering. We want it to be the state-of-the-art data, you know, the smartest data, the most usable data, the easiest to use data. I mean, we want to make that world class.
The community aspects of CREXi that we're starting to build in and have built in already, you know, we want to really build upon that community aspect. Parts of the transaction that maybe people are hesitant to bring online, you know, we really want to bring a lot of that transaction online. We see a lot of benefits to being able to do that. And not everybody's doing it yet, but getting more and more of the industry to embrace that and, and really bring the full thing online.
There's so many, so many little things. I hate to use the same answer I just used, but just trying to make sure it stays simple and stays kind of true to what we want it to be, but adding in all the components that we know are still ahead of us.
Sjoerd: [00:34:10] What would be one of the things that people are not yet bringing online that you are going to bring online? Can you share one?
Michael DeGiorgio: [00:34:16] I mean, I, they all are already online on CREXi, it's just they're not all using it.
Sjoerd: [00:34:19] Okay.
Michael DeGiorgio: [00:34:20] Yeah.
Sjoerd: [00:34:20] So how much of the market do you think you're capturing right now?
Michael DeGiorgio: [00:34:23] Uh, in terms of, like, parts of the, like-
Sjoerd: [00:34:25] Ah. Sorry. Yeah. So I mean, like, what percent roughly of the brokers are currently on CREXi, and what could you possibly get online?
Michael DeGiorgio: [00:34:31] ... Yeah. So on the transaction side, we probably have half of the brokers that focus on transacting commercial real estate using CREXi. And about half the listings, half of all the properties that are for sale are on our site in some capacity. It's really hard to say what percentage, like, fully transact, are online or not, at this point.
And then on the leasing side, our leasing product's a little newer. You know, we launched that about a year and a half ago, whereas we've had the transaction side out now for four and a half years. On the leasing side, we probably have, you know, a good 15%, 20% of the market so far.
Sjoerd: [00:35:02] Okay. Not [laughs] bad in one year. And any new markets? I mean, you're now in the US only, or are you global?
Michael DeGiorgio: [00:35:09] We are in the US only. We do have some very big international investors now who are big commercial real estate players across the globe who definitely want to one day push us international, and I think we'll definitely get there.
With that said, you know, there are buyers all over the world that want to buy properties in the United States. So we definitely have, on that side of the business, a lot of international people using CREXi to come purchase and invest in property. A lot of people like to own property here in the States.
And then, because CREXi is an open marketplace that's free, and brokers can come as long as they're the exclusive listing broker, list properties for sale or for lease, and start using the free version on their own, we do have some properties in, in other countries, uh, that have been added that we haven't really focused on, but it's happened. But it's not been a focus of ours.
Sjoerd: [00:35:50] But have you had any transactions outside of the US?
Michael DeGiorgio: [00:35:52] I'm sure we have.
Sjoerd: [00:35:53] Okay. Yeah. All right. Hey, Mike. Thanks very much. This was super interesting. Really helpful, also, for me to just understand more and more about business to business marketplaces. Any last plugs? Where do people find CREXi? Where do people find you?
Michael DeGiorgio: [00:36:06] Yeah. I mean, crexi.com. C-R-E-X-I dot com, uh, is our website. You can find it all there. You can find us on Twitter or LinkedIn, Instagram, Facebook. We're on all the social platforms, too, but just crexi.com. Real simple.
Sjoerd: [00:36:19] All right, Mike. Thanks very much.
Michael DeGiorgio: [00:36:20] Thank you so much for having me. I really enjoyed it.
Speaker 2: [00:36:24] Thank you for listening to Two-Sided, the marketplace podcast. If you enjoyed today's show, don't forget to subscribe. If you listen on iTunes, we'd also love for you to rate and give us a review. If you got inspired to build your own marketplace, go visit www.sharetribe.com. It's the fastest way to build a successful online marketplace business. Until next time.
Sjoerd Handgraaf: [00:00:15] Welcome to two-sided, the marketplace podcast brought to you by Sharetribe.
Sjoerd Handgraaf: [00:00:23] Hi, I'm Sjoerd CMO with Sharetribe and I'm your host. I'm actually very excited today because this is the first time that I can say to at least some of you welcome back because we dropped the first few episodes last week and the response has been absolutely amazing. And if you're one of the people who heard those and came back, thank you so much.And also thank you for the fantastic response we've gotten so far. Now let's dive into the episode. So in this episode, I'm talking to Charles Armatage. Charles was actually a doctor and training to go into emergency medicine, but then decided to radically change his career to start a marketplace for independent nurses and elderly care.
Well, Charles will tell us all about that. And it's a very interesting story, but he'll also show us the importance of talking to your customers before actually building your huge product. You know, spoiler alert, their first version failed hard and how to build relationship and have trust in such a delicate Margaret.
Again, I've only had fantastic episodes so far, and this one is no exception. So sit tight and listen to Charles story
Charles Armitage: [00:01:27] about Florence.
Sjoerd Handgraaf: [00:01:36] Hi Charles. Welcome to the show.
Charles Armitage: [00:01:38] Thanks very much for having me.
Sjoerd Handgraaf: [00:01:39] Hey, I checked out a little bit of your background. I saw that you're trained as a doctor and well, I think we'd like to know a little bit more about you. So can you tell us a little bit about what you did before you ended up at Florence?
Charles Armitage: [00:01:51] Sure. So, uh, absolutely. So it was a, a doctor in the UK and a number of different specialties, but it kind of was settling in on emergency medicine and then laterally surgery. So was pursuing a career in trauma surgery, but still relatively, kind of early on in that journey. It takes quite a long time to get to.
You know, the end of being a trauma surgeon, but yeah, so worked in a lot of places, worked in London a lot on the South coast and up in Scotland and then some other funny places around the world, like South America and Africa and places like that.
Sjoerd Handgraaf: [00:02:21] That was too boring for you or what was the reason why were like, Hey,
Charles Armitage: [00:02:25] sure.
I'm sorry. Is that something that was a bit boring actually. So I could talk about this forever, but the thing about medicine is that, um, you know, you get moments of absolute, huge adrenaline rushes and amazing thrills. Also punctuated by quite a lot of time, grinding your head against quite a challenging system.
And you can spend a lot of your time doing paperwork and filling out. You're not necessarily having a massive impact. And certainly that the impact you're having isn't exactly scalable. You were kind of an equals wide and there's only so much you can do really to make a change. And so
Sjoerd Handgraaf: [00:02:54] were you always into tech that you're like, I'm going to start a startup for like, maybe you can tell us a little bit into the origin of Florence.
Charles Armitage: [00:03:02] Yeah, for sure. I mean, I've always been kind of interested in tech and I was like new shiny things, but essentially, you know, learn more and more about myself. And my drivers is kind of my goal and the journey, but essentially I just like new things and maybe I've got a slightly short attention span. So always kind of looking for something new on the horizon.
And I was working in. London at the time in emergency medicine and was really enjoying their job. But at the same time, it was kind of investigating things on the size. And one of the things I noticed and it's kind of a pervasive problem throughout healthcare in the UK and actually most of the world is, you know, the biggest challenge is staffing.
And how do you create a solution to some of the biggest challenges we face as a society, which is, you know, looking after an aging population and providing the staff to do that in like a safe and high quality way. So I was messing around with some ideas in this, any department, trying to kind of build an app for me and my colleagues to swap shifts and, you know, work more effectively between us.
And obviously like couldn't build it because I'm not technical. And it started kind of the idea going and didn't really come to much. And then I met my cofounder, Dan, who is from the military, but I guess comes from the other side of the fence as well. He manages a care home group. Well manage the cat and group in London.
So it was having challenges, finding staff to look after their residents. And we met, we were introduced by a mutual friend and kind of started bouncing some ideas around. We both had ideas in the kind of space of how can we use technology to bring together this supply and demand in a more intelligent way and, you know, high quality cost effective, all these kinds of great things.
And then we just started like, thinking about it and it's right. Single map. And you know, the rest is history.
Sjoerd Handgraaf: [00:04:40] Yeah for the people at home. So could you tell us a little bit about what is Florence exactly.
Charles Armitage: [00:04:45] Sure. So Florence is the online marketplace for flexible staffing on demand staffing in the cat section UK.
So what we do is we have a platform that connects care homes to nurses and carers looking for extra shifts. And I guess, traditionally the problem in the UK cast actor is a massively understaffed industry. So. It was around about 120,000 vacancies in UK care sector. So what ends up happening is a huge proportion of shifts.
About 10% of all shifts in calc care in the UK have felt both. Temporary workers, flexible workers.
Sjoerd Handgraaf: [00:05:18] Is that elderly care only or health care.
Charles Armitage: [00:05:21] Yeah. So when I talk about car I’m talking about elderly care in the community. So in town homes, nursing homes, not necessarily the health care sites, which is more the NHS, and there's a bit of a differentiation of the UK.
What ends up happening is about 10% of this workforce is temporary, is flexible and it's managed. Pre Florence was managed by traditional recruitment agencies who were really fragmented offline processes. You know, one man and his phone kind of with relationships with individual workers or homes and bring these two people together.
And, you know, whilst. That's a model as well. For very long time, it was hugely expensive for the care sector. So billion spent every year just on the kind of the agency models in the middle. And there's just so much that could be done with technology to improve those engagements.
Sjoerd Handgraaf: [00:06:02] Yeah. And so Dan had experienced that problem himself.
Charles Armitage: [00:06:05] Yeah. So he was the chairman of this nursing home that couldn't find nurses. And on the other side was a doctor who would occasionally work these flexible shifts in the NHS and, you know, weekends or holidays. I, you know, want to get an extra share for a bit more pocket money. And whilst I knew there was a shift down the road, I'd have to call up my recruitment agency and get sent to Birmingham and, you know, turn up and get thrown the keys and told, you know, that they'd be back in 12 hours.
So it was January, a really poor experience and I needed a better way of doing it. Yeah.
Sjoerd Handgraaf: [00:06:33] And so you said, Dan is your co founder, is he a more technical person, even though he ran the
Charles Armitage: [00:06:38] care home? No. No. You've even less technical than me, which is quite fascinating. So,
Sjoerd Handgraaf: [00:06:42] so how did you get to your first one? Was Florence
Charles Armitage: [00:06:45] 1.0.
Yeah. It was a bit of a disaster really
Sjoerd Handgraaf: [00:06:48] tell us that sounds super interesting.
Charles Armitage: [00:06:50] Well, I mean, it's always, I think it's ever not a disaster, so we. I remember we had a little bit of cash to start off with. Don't very much at all. And neither of us really knew anything about, you know, how to build a product, how to talk to users, anything like that.
So we kind of thought, well, this, this problem, and we need this platform to do a hundred things. You know, we needed to manage the whole life cycle and all these different things, and we need it done in the next two weeks. So we only want to spend this amount of money on it. And so, you know, you go to the internet and ask the internet if.
Someone can do that for you and someone somewhere puts up their hand and says they can. And, you know, we ended up spending few months, quite a lot of money to get, not even anything approaching an MVP that worked, and that was a bit stressful, but it was a really good learning point because what we then did is in that process, obviously you start speaking to users and, you know, I went and sat on a cow for a few months and drove some nurses to shifts and things like that.
And you know, you speak to people and you. Kind of comes through realization yourself that actually what I need to do here really to solve 80% of the problem is a very, very simple product. And actually we ended up kind of rolling back to just a Google sheet where the nursing homes would go into a Google sheets and put in that shifts.
And then 10 nurses that we'd found five such originate. I would say, yeah, interested in that one, that one, that one. And then that was it. There you go. You got a platformer. So
Sjoerd Handgraaf: [00:08:04] you got a platform that didn't work at all, and then you thought, Hey, what's actually the basic feature that I need. And that was just purely
Charles Armitage: [00:08:12] show availability.
That's it.
Sjoerd Handgraaf: [00:08:14] In a way to express the interest or something like that.
Charles Armitage: [00:08:16] Yeah, exactly. So you've got a platform and I remember taking it to this nursing home because I'd find out list of loads of nursing homes in London and told them this is kind of mad cap idea. One of them was that they were interested in giving a shot.
So I went out and I was showing all the staff around this and I was going okay, cool. So this is how you post your shifts. It was just like completely dysfunctional, like non-functioning product. Yeah. And then we just realized that. Actually, what is it they need to do. They need a place where they can put their availability or what they need.
And then on the other side, you need somewhere for the workers to be able to go in and say, claim that I'd like that one. Thank you very much. Then everything else, you just do things that don't scale and manage it offline. So whilst day one, we were like, we need to have a payment infrastructure in there.
That was like a day, one requirement. You very quickly realize that actually you've done, you know, and we just sat there hammering, you know, internet banking, paying people, and that was fine for quite a long time. Okay.
Sjoerd Handgraaf: [00:09:05] So would you say that that's one of your sort of biggest learning? So I guess that's something, the reason why I come back to this, because this is something that we also see a
Charles Armitage: [00:09:11] charity
Sjoerd Handgraaf: [00:09:11] type all the time.
Of course there's always feature missing, but we often see people have indeed long list of features and then. We really try to engage in the conversation as, but okay. But the point is it's, what's the thing that you really need. Like if you would have to strip everything down.
Charles Armitage: [00:09:27] Totally. I mean, I still made that mistake all the time is you're like, right, we need to do this new thing.
We need this new feature because without this new feature, this isn't going to provide value. And you know, you're always looking to that next new feature, but then realize that actually you just speak to people and find out really, what is it they're trying to achieve? What is the job they're trying to do?
You arrive at a much more elegant solution? Yeah.
Sjoerd Handgraaf: [00:09:47] Fantastic. And that was obviously playing very well into our product, but I want to go too deep into that, but yeah. Okay, cool. So first version, Google sheet, how did you get, even with the Google suite version, how did you get supply and demand? Like how did you get the first people on board?
Charles Armitage: [00:10:02] Well, by this time we were lucky enough to have, are now. Uni, who is kind of first guy in the door who really kind of, you know, taught us everything and kind of put us in the right direction. So, you know, he's fairly weathered guy. Wouldn't mind me saying it, but he's done this a few times, so he kind of knew what was going on.
Yeah. So how did we get the first customers? Well, on the demand side, on the care home side, I found a list of all the care homes in London, and I sat down with a phone and just called them all up. One by one and just called school three to one, you know, had 20 shifts a week. They needed to fill. So, you know, promise them that we would kind of bend over backwards, trying to make it work.
And ultimately ended up having to put a huge amount of elbow grease into the relationship early doors because the product didn't work. But, you know, in that relationship, building that unscalable relationship building, you learn a huge amount about your customers. You can make a great sort of place for developing your product.
And you could also get a lot of get out of jail free cards just by building that relationship. And then on the other side, for the demand side for the nurses, we did a similar thing. So we, you know, went around Facebook and called in some favors and found some core nurses too. And I got, I still, you know, some of them today, unlike some of them are still with us, at least in the first five nurses are still using Florence, but there was one or two.
I definitely didn't have the best user experience to start off with.
Sjoerd Handgraaf: [00:11:19] Okay. Was that the product or was that just because the shift didn't work out for them?
Charles Armitage: [00:11:23] Well, I remember the first shift. On Florence. It was, you know, weeks and months in the making. And there's this girl called Maeve who is obviously delightful person.
And she was just so patient. So we carved a week through these full starts, where we were like, okay, cool. This shit is going to work. They do get canceled last minute. And. No, you'd have to disappoint nave. And then finally it was a Saturday night and they needed a shift and then to post it and now you've got it and she wants to shift.
And I was like, I had over heels, so excited. I think I was out for dinner or something. It was kind of basically on the phone side all the way there. She was really excited, went in to do the shift and then at the end of it comes out and go, you know, I found out the next morning, so how was it? She was like, Oh, it was really, really difficult, but you know, really hard, but I'm happy to go back yet and have to do it again.
And I was like, that's fantastic. And then I found out the cow. Oh, it was, you know, it didn't go very well. You know, it was challenging. I remember being very challenging and I went full, but they were like, Oh, we, you know, they're getting all these cold feet, all this kind of stuff. So that's a, you know, explained the needs.
You can get back. I remember it being very challenging thing, but anyway, you leave. If you're out loud, I need to send you some flowers. Cause you, uh, you got off the ground.
Sjoerd Handgraaf: [00:12:27] Yeah. I can imagine that in this business, like being able to trust what's coming from both sides actually like super important. Right.
I mean, if the nurse would know that, okay, Hey, this place is not really great at working with temp nurses, for
Charles Armitage: [00:12:40] example, because it could be,
Sjoerd Handgraaf: [00:12:41] you know, not pointing blame on either side. Yeah, sure. If the other way is like, Hey, well, this is just not a great nurse for this particular environment. How do you solve for that now?
Like, do you get more of these situations
Charles Armitage: [00:12:52] still? Totally all the time. And I think, you know, we're dealing with a really precious commodity, which is people, and you're bringing people together, which can be both very magical and high value thing and can lead to like really great relationships going forward.
It's super satisfying at the same time can also lead to, you know, very challenging situations and moments, quite a lot of risk, especially in healthcare where. You know, you're dealing with vulnerable people. So if bad things happen, things go badly quickly. So controlling that quality piece is really important.
And especially when you're doing things at scale, it's very hard to do that on like a one-to-one basis. And, you know, you can't operate a tech platform if you don't have those systems and processes in. So, you know, basic things like. Putting in reviews and feedback within the platform was really useful for us.
And, you know, being able to surface user behavior very easily to the other side of the marketplace. So, you know, we have a challenge with let's say, care homes, canceling shifts, right? That's a terrible experience for the worker because, you know, they've cleared their diary for 24 hours to go and do a shift at a cow, and then the cow cancels it.
Now that can happen. And you know, you don't want to punish people for that, but if it's kind of repeat behavior and sometimes it is, you need to find a way of making sure that platform is self policing and stopping that happening.
Sjoerd Handgraaf: [00:14:01] Yeah. Have you, for example, have you kicked off a nursing home? Like, Hey, the notice is a fourth time you're canceling.
Charles Armitage: [00:14:07] Oh, for sure. Yeah. And the other side as well, I guess, and again, that can be a really emotional thing because you know, you get close to your users and the team know the users pretty well. So, you know, there's always, you have to put quite rigorous processes in place to say, right? Well, these are the rules, you know, this is the governance, the platform that if you do this behavior, you know, You say, if you cancel a shift within 24 hours for the start time three times in a month, then that's it.
I'm afraid that you've had your chance. And you've just got to be really clear communicating that. And educating the users about how to behave well in the ecosystem.
Sjoerd Handgraaf: [00:14:36] Yeah. Hey, actually, one thing early on that I fixed probably the most interesting question, actually that most people aren't insistent is like, we did the Google sheets.
You call people on the way to the shift, but then once you start growing or once you sort of move to the next step, The did you in any way sort of constrain your Margaret place? Because usually that's what they say. You know, you should either go in one location or I guess you are already sort of vertically constrained, like you were in
Charles Armitage: [00:15:00] the
Sjoerd Handgraaf: [00:15:00] elderly care category, I guess we could say.
So did you do it as well? Like did you start in London or.
Charles Armitage: [00:15:06] Yeah. So we started festivity in West London, hyperlocal marketplace. So you know, that people don't want to travel more than, you know, half an hour to a shift. So that limits your geographical constraint and, you know, day one. Now let's say you're trying to pick up an Uber in London and there's one driver and one rider in the whole of London.
Well, marketplace doesn't work. Does it. So achieving that point of liquidity as quickly as possible is essential. And it's ultimately the main task we kind of know, anecdotally is coming more and more evidence based as we grow, but. The platform works organically when you've got about a hundred shifts per week and about 60 workers to do those within a one hour sort of travel time radius.
Okay. And it's just kind of what we've arrived at as I kind of success metric. And at that point, you know, shifts gets posted by care home and it gets filled in a suitable amount of time, but the right work with the right skill set now, Day one again, not know what we know now, you know, we went into, if I'm a nursing home, I might need to blows different staff types.
I might need a nurse. I might need a care worker. I might need a cleaner, a chef, whatever it is. And we kind of went in expecting to provide all of those staff types day one, and certainly both nurses and care workers. And we realized quickly that by spreading ourselves thinly across both nurses and care workers, we were really, really impacted user experience the platform because.
All our efforts, you know, are those early stages, your time and efforts are really, really valuable. So spreading them too thin. He was really deleterious. So we actually fairly soon into the process probably three months had we actually decided to stop doing care workers. And we said, well, actually, we're just gonna concentrate on, do one thing.
Well, which is matching nurses to nursing shifts in care homes. And dominate that in one small chosen market. And then we gradually went to London and then took us months and months to go to Southeast and then a year to go to our second city. And then by that time, we kind of started to work out how to make the machine work.
We went across the country and we've only recently re-installed care workers on the platform because we wanted to reach that liquidity point for nurses in nursing shifts across the country. Before we went on to the next thing.
Sjoerd Handgraaf: [00:17:03] Coming back to the like expanding my geo from
Charles Armitage: [00:17:06] like my location. Like, did you have a
Sjoerd Handgraaf: [00:17:07] kind of playbook that like, okay, how do we, you mentioned that, Hey, we need, you know, a hundred shifts, just a magical number.
Did you have some playbook? Like how to get there?
Charles Armitage: [00:17:15] You know, again, we're kind of constantly iterating on that one and to say, we've got a solution. I wouldn't say we got the solution. I remember. We went to our second market, which was Manchester. And by that time we were a team of maybe eight people still very scrappy startup.
We like, okay, cool. So how do we launch a new market? Like how do we do this? So we all went and gone, Airbnb Manchester and, you know, printed off. Made some tee-shirts and printed off some flyers and went around the hospitals, trying to like fly nurses out again. It was just like a, really the Airbnb we had was in like just the roughest part of town.
And so, you know, you go to sleep at night, it'd be like, you know, gunshots, whoever. And, uh, it was quite fun. It was a pretty good team building moment. But I remember we, we spent a week up there as a whole team. Like going around nursing was knocking on doors, following nurses, have we set these really ambitious targets that by the end of the week, we'd have this many workers on the platform and it's many care homes and we, you know, Might've had like one worker or something like that.
So we realized, well, that doesn't actually work. So we kind of went back to London and we kind of debriefed to build it and kinda went from multiple of a digital strategy out. She then, you know, using the channels will be kind of new that we're working. So, you know, paid social media marketing. So Facebook is really big channel for us, for, for nurse acquisition.
And then just kind of grew organically from that. We do have a bit more of a playbook now, you know, we have a sort of like timeline, right? If we're gonna launch in this area, we want to put marketing on here and then team might assist many days. We want to put the sales team in there and then team on assists, many days, we want to have this many workers, all this kind of stuff, but there's always improving on that.
Sjoerd Handgraaf: [00:18:42] Yeah. So, because that's interesting because. If I wouldn't have known as I would think that like, Oh yeah, in person it's gonna work really well for this, because this is so much trust based. You need to understand that like, yeah, these people are really true to word. They respect me as an employee, et cetera, et cetera.
And so you are saying actually that X person wasn't as successful as social media marketing. So Facebook for you is
Charles Armitage: [00:19:04] more efficient. Well, the in person relationship is super important. And to this day we have a big team of people out on the road, seeing cat homes all the time, you know, just going in and having a cup of tea and building relationships really, really important.
Sjoerd Handgraaf: [00:19:17] Yeah. But that's for the supply side, right? Or sorry, at the mine side
Charles Armitage: [00:19:21] on the supply side. Um, it is also important when, you know, bringing the community into the office and, you know, building those eventually it's really important. But what we noticed was that Sunday in this Manchester trip, right. Firstly, how do you find nurses?
You're like, okay, where do I find nurses? Okay, well, I'll go to a hospital, you go to a hospital and you realize that all the nurses in the hospital actually really busy doing important stuff and don't want you giving them a flyer, telling them to sign up to an app. So. There's absolutely no intent of that user at that point to be looking for work or joining the platform.
So whilst you can maybe speak to them and try and sell to them,
Sjoerd Handgraaf: [00:19:53] you have other probably either like late for their shift or they just had a 12 hour shifts. I just want to go home.
Charles Armitage: [00:19:58] Exactly, exactly. Exactly. Exactly. Actually, we found that you can much more easily access people with that intent to potentially get both new products when they're more comfortable at home, rather than the neck covenant in blood.
Well, whatever that makes sense.
Sjoerd Handgraaf: [00:20:11] You already mentioned. So, okay. Nurses easier to reach that side through Facebook, social media marketing, and you refer to Eddie now that, yeah, on the other side, like where the care homes are, the personal relationship is really important. Are you still, if you go now to a new city, how would you go about getting new care homes on board?
Charles Armitage: [00:20:30] Well, there were fewer of them than the workers. So we kind of have a bit more of a salesy process to that. So, you know, you get a list of all the columns in the area and you maybe do some email marketing to them that works a bit, you know, you pick up the phone and speak to them. That works a bit, what marks most and what's best is, you know, referrals.
So if you can get a care home manager to speak to another cat who manager and let them know that for once the good guys, then that's pretty helpful. What's the story you tell them then, like,
Sjoerd Handgraaf: [00:20:55] what is the benefit like for the nurses? We've sort of established already that, okay, this is, this is a great pocket money.
Or maybe even we can go into it a little bit later and what's on the plan for 40 nurses, but what's the story that you tell the care homes, like what's the benefits that they get from using Florence?
Charles Armitage: [00:21:10] Yeah. I mean, it depends who you're speaking to. So the care home market is such that you have kind of very small individual providers who owner-operator run all the way out to quite big corporate chains.
Identifying your, the needs and desires of the person you're speaking to is super important. So am I speak to a care home manager? The thing they design most is that if they're getting a nurse in for a shift and night shift at 8:00 PM, that key thing is they want to make sure that when they're at home at 8:00 PM, the evening that nurse turns up and is safe and effective to run the cat home for the night.
That's it. So reliability and quality, two most important things. Now, if you go to maybe the nursing home owner or the finance team, then it's much more potentially about the bottom line or insights or, you know, operational efficiency. So you maybe have to adapt your message a little bit more to that audience and that if you go to the HR team, then it becomes much more around training and compliance and quality.
So different people have different drivers there.
Sjoerd Handgraaf: [00:22:03] So, do you offer that training and compliance? Is that part of your platform?
Charles Armitage: [00:22:07] Yeah, I mean, I don't know how much, um, maybe you'll talk about this basic cause it's quite pay well, it's the sort of Sharetribe, narrative hit, but you know, one of the key things is, you know, you're building a marketplace, avoiding disintermediation is pretty key and keeping people on platform is super important now for us.
The cost of acquiring a care home or a nurse, the CAC is pretty high. If he needs to get a pretty decent LTV out of them for it to be worthwhile. Now, what is it that keeps people in the platform now we're super averse to punishing people for off path from transactions. So if a care home to nurse want to work together, Full time off platform, then we're like fantastic.
You know, a happy customer is much more important than any sort of referral bonus or fee or whatever it will tend to put on fee or whatever now, but you still kind of want to keep people in your ecosystem as much as possible. And to do that, you need to ask the question, not what's stopping them leaving, but what's keeping them locked in.
So that's when you start to have to bring in value outs, like, okay, well, as soon as payments are in the platform, then that keeps people sticky to some degree. One thing it's really important in healthcare is. Compliance and the regulator. So knowing that the nurse who's turning up for the shift is safe to do so.
So they're trained, they have the right experience. They have the right background checks, the right word, checks, insurance, all that kind of stuff. So massive part of our job at Florence is to take these pool of nurses and CareWorks register, put them through that onboarding process to curate their profiles and make sure that they are.
Compliant and trained and then kind of to the cap flight would be like, look, he is a worker so long as your question is, do we manage the training and compliance a hundred percent?
Sjoerd Handgraaf: [00:23:37] Yeah. Okay. That's super interesting because that's what we need. Like I had that question line up as well. Like, do you have this intimidation?
Well, obviously you do. And then what do you do to keep them on a platform? So that's what you do to keep the nurses on the platform and as well as the care arms, of course, because that guarantees the quantities. But is there anything else that you add on top of just the transaction that you're like.
Charles Armitage: [00:23:56] This is a sticky feature. Yeah, totally. So, I mean, that's something that we started to think about recently and it, you know, as you grow and scale, it becomes less about acquisition and more about retention, right? So, you know, when you've got 10 users and if you turned 10% of them a month where you just need to find one more user, it's not too much of a problem, but if you've got 10,000 users, each on 10% of them every month, That's a thousand users.
So as you scale, that retention number becomes massive. So a lot of what we're thinking about at the moment is how can we provide value to both of those parties, supply and demand out with that core transaction that keeps them locked into that engagement. So, one thing we've released a release tomorrow sheet.
Is a tool for the care providers to manage their own staff in that. So we say to them, Hey look, and you see lots of marketplaces kind of have taken this move quite successfully and said, look, you use Florence maybe four times a week to get a nurse in, but you have tens of your own staff that you struggle to kind of manage flexibly or put into shifts like.
How can we give you the tools to manage that yourself? And that means they're interacting with the platform all the time. It's not just the one manager is it's everyone in the care home. And then suddenly you're locked in. That's on the demand side. And then on the supply side, you know, one thing pain point we've really noticed for our workers, our nurses and care workers is that training and professional development is really poorly done.
In that flexible nursing workforce. And they have a regulatory requirement to professionally develop and demonstrate that, but not really any kind of good platforms that help them do that. So we've built Florence Academy, which the outset is an eLearning platform for them to upscale the professional develop.
But ultimately it's going to become a lot more as we build the community in that, to enable them to interact together with each other, learn and develop from each other. Support each other, gather feedback, the core clinical skills. And ultimately we want a nurse or care workers to have their Florence profile is, you know, their validity, their badge, and their professionalism.
And it's got that kind of work history in there.
Sjoerd Handgraaf: [00:25:46] Yeah. And not even, because I think that's something you can even turn around to acquisition as well. Right? Like, it's nice to keep it as a retention, but like that sounds like potentially also a great tool to be using without even using a transaction. But if you can offer good enough software
Charles Armitage: [00:26:00] totally.
And I think that's the thing. So let's take that Academy piece, right. So we actually initially built it to not help with onboarding and compliance requirements. Cause we were spending loads on external training providers. We're like, well, let's just build it ourselves. Do that. And then what we realized is that people that engage with us stickier.
So we got a better LTV from them. It's working as an amazing acquisition channel that as your paid social media spend cost per user goes up as it always does. We need to start thinking about more inventive ways of acquiring users and it's kind of working together.
Sjoerd Handgraaf: [00:26:29] Yeah. Because it sounds like a fantastic way, like on the nursing side, if you can be like, is there in the industry paid services to do the schooling, I guess, serious,
Charles Armitage: [00:26:37] right.
Because
Sjoerd Handgraaf: [00:26:38] you could become, I imagine you could become some kind of free competitor that service, like, Hey, you get this for free. And then also you can eventually work through the platform.
Charles Armitage: [00:26:47] Is that something you've considered? Yeah, it totally is free. So definitely we believe firmly in the democratization of learning and development.
So that professional piece will always be free for work. It's definitely, but actually where, you know, maybe a little bit platform or marketplace Matt, so we're thinking, well, how can we turn that Academy now into a platform? So. How can we bring, yeah. We've already got these ecosystem of workers who want to learn and professionally develop, and we can fulfill some of that with our own content, but then how can we let other people bring their own content or other training providers bring their own thing into that environment?
So, yeah. Wow.
Sjoerd Handgraaf: [00:27:20] So you're going to run four businesses.
Charles Armitage: [00:27:22] We haven't, we haven't done that yet. We haven't done that yet.
Sjoerd Handgraaf: [00:27:24] Well, it's funny because we always say I'd like, or at least I regularly referred to Margaret plays. Well, basically, you know, you're building two businesses, but you're going to now build four businesses.
I got, I kind of to a secondary marketplace are all, no, maybe three though. One, one side is still the same.
Charles Armitage: [00:27:37] Yeah. That's an interesting point because you know, one hand you go with the question of. Hey, what can we do to provide value to our users that makes them want to stay in our ecosystem? And you've got all these great things you can do to find value.
And actually, this is a common dilemma I have with my cofounder, Dan who's like, we need to do everything and we need to just keep providing value to people and to bring them in. Then the corollary to that is then the question of, you know, if you try and do everything almost, you're not going to do, you can do everything badly.
So it's then trying to work out where to make those bats and where to invest. When you look at someone like Uber, you know, fairly well known market place to them quite on time to diversify from that core offering as cab rides.
Sjoerd Handgraaf: [00:28:15] Yeah. And it's also taking them quite a long
Charles Armitage: [00:28:17] time to become profitable. So, I mean,
I
Sjoerd Handgraaf: [00:28:18] wouldn't necessarily look at them as an example.
I mean, what's the situation with foreign, so you don't need to tell me if you're profitable or not, but do you have funding?
Charles Armitage: [00:28:26] Like we're nowhere near profitable. I think we'll wait for your charitable venture forever. No. So we've done a few rounds of funding. We did a. A series a investment almost a year ago now led by some guys called Sikh who are great, fantastic, fantastic guys who do a lot of investment achieved on demand, uh, staffing marketplace across the world.
So they bring quite a lot of expertise to say, which is great. And so, you know, quietly burning through that money, trying to grow and scale as quickly as possible and, you know, optimize our unit economics ahead of our, you know, next for it.
Sjoerd Handgraaf: [00:28:56] What's your five year plan, like coming back to what we discussed earlier.
So you're now UK, right? Am I correct in that
Charles Armitage: [00:29:02] or a bit still any in like a very small vertical of health. So yeah. That's the next big question for us is do we take the current model, which is. Nurses and care workers to care homes and take it to a new geography and said the U S where I know that market pressures are the same and more or less we could replicate what we do here in the U S or would you take the user base and the team and go into a different vertical in the UK?
So the obvious thing for us to attack as the NHS, because it's massive, 1.3 million staff, you know, billions of billions of pounds a month, a year spent on. Temporary workers, but the challenge there and it comes back to that point around liquidity is, you know, you go and provide the solution to a hospital and you need to go and provide them with a solution that matches, you know, in a care home, more or less, any nurse can work.
Any nursing home shifts, then you go home shift. Now, if you go into hospital, you need to have pediatric nurses, ICU nurses, surgical nurses, about five and six, about seven. So this whole different taxonomy of specializations of workers, which provides a bit of a product problem, but mostly provides a liquidity challenge.
Because you need to have those a hundred intensive care nurses or a hundred pediatric nurses, not just a hundred nurses. So we haven't worked hard. I'm pretty convinced that it would be that from a market that market place dynamics point of view, it would be easier to go to the U S with all its different regulations, different laws, whatever.
And replicate our current model lab and it would be to try and expand into that really diversity title in my system is the NHS.
Sjoerd Handgraaf: [00:30:32] Yeah. That's an interesting question, indeed. Yeah, I have no, because I have zero understanding of like what all the legal parts involved or even just the medical knowledge. And I can see that at least from where I'm standing from is sort of social welfare state that is Finland healthcare in the U S.
Seems like there's a lot of money involved. So obviously there's a huge opportunity and it also seems extremely fragmented so I can see really good benefits for the marketplace there.
Charles Armitage: [00:30:56] Yeah. Yeah. Apparently the American state might do business with the breasts though. So that might be a challenge. Okay.
That's interesting.
Sjoerd Handgraaf: [00:31:03] Yeah. And do you still have a category in the UK that you want to attack next? I mean like there is of course, like a wide range. Now you just added, you now have care workers and nurses. Is there an Otter category you can feel at, without ruining the techsonomy of the marketplace?
Charles Armitage: [00:31:18] Yeah.
Yeah. So I think the next step in the, in the UK is then say, right, we've know about pretty liquid supply of nurses and care workers. I'd rather than going straight to the NHS, which is super complex, there's kind of steps we can take on the way that, so maybe we start to look at, you know, mental health care or.
No learning disability care or care at home is not something we're interested in. Why is that? Well, I mean, it's really challenging market for one. So if you just look at it from an economics point of view, the acquisition costs of the consumer. So providing care in someone's home are really high. And their lifetime value is by definition.
Probably a bit limited because they need cash and they're either going to get better or pass away or go into a longterm care facility. This is a broad brush, but largely it's applied versus that. So you sell to an institution, B2B sale, where. Okay. You have pretty high CACs, but you'll, you know, you sell to a nursing home that might be there for if you do well, 10, 20 years.
So doing, you know, shifts many shifts a week, so the unit can always stack up a bit more cleverly. And then also just from a risk perspective, as well, providing care in someone's own home comes with like big regulatory risk, operational risk. You know, if someone doesn't turn up, it's bad enough nursing home, but at least there are some other people around.
It's kind of smooth things over, but if someone doesn't turn up to five care and someone's home, then it really is a bit of a disaster. All right.
Sjoerd Handgraaf: [00:32:32] That makes sense. Now, because I just actually read through the interesting piece. I don't know, have you read marketplace 100 whole like list of articles by
Charles Armitage: [00:32:40] a
Sjoerd Handgraaf: [00:32:40] Andreesen Horowitz
Charles Armitage: [00:32:41] and Andrew Chen?
Sjoerd Handgraaf: [00:32:42] Yeah. Yeah. So they did this whole study and there were a couple of articles around it. And one thing that I just keep
Charles Armitage: [00:32:47] getting back to, because it's
Sjoerd Handgraaf: [00:32:49] still sort of blows my mind, but we often say indeed like, Hey, well, good marketplace ideas have either like high frequency or a high transaction value. And they have both or either one or the Otter.
And actually what came out of that is that
Charles Armitage: [00:33:01] I'll say the marketplace
Sjoerd Handgraaf: [00:33:02] top 100, something like 60 or 70% has an either actually they are these really infrequent, like fairly mid to low transactions and it can work if your acquisition model is really good. So referral is a really big one there. And if the market is huge and that's actually what got me thinking now about this puppet again, in my head, when you say the whole camera, cause I would assume that home care is still.
A huge market. If you can somehow make the unit economics work there indeed through referral, just being by an extremely known brand that you don't have to actually pay. You don't have to get them through paid acquisition. This
Charles Armitage: [00:33:34] might actually work for you. Yeah, totally. I think that's what draws a lot of moths to the flame.
Cause it is a massive market and I tell it the way some people approach that she was on there in the States. Yeah, they have a very clever approach thing. So they started off providing B2C care where they like manage the CAD, you know, when it did the care assessments and care plans and put people in manage that whole process, which is great.
And then they realize, wow, this is actually gonna be really challenging scale because we need to actually have a team everywhere. So to be able to go in, because when a customer signs up, they need to have send someone in to go and go like, well actually, what sort of care does this person need? That's gonna be really challenging to do.
So they said instead, but well, across the country, There's loads and loads of these fragmented care agencies who, what they do really well is offering very person centric care and those relationships, which are really, really important. Right? So if you're looking for care for your mother, you know, it's all very well being able to manage it through an app, but actually the most important thing is the relationship with the person who comes through the front door.
And there were loads of people out there doing that really well. So what they've done is instead of saying, right, we're going to directly provide the care. We're going to take a step back and we're going to say we're actually the marketplace that connects that consumer to the care provider, and we're going to be the ecosystem and the platform of which that relationship runs.
So we'll still manage all the transaction bookings, the compliance, the training, and all that kind of stuff. But the actual human capital is managed by individual care providers. And that's pretty good model. I think.
Sjoerd Handgraaf: [00:34:54] Yeah. Is that a model that you're looking at? Because I was actually wondering, we haven't even touched on, I'm assuming that Florence is making
Charles Armitage: [00:35:00] money through some
Sjoerd Handgraaf: [00:35:01] kind of fee on the transaction.
Am
I
Charles Armitage: [00:35:03] right? You mean, have
Sjoerd Handgraaf: [00:35:04] you considered other ways where you could capture more value by capturing more of that
Charles Armitage: [00:35:08] process? Well, totally, totally. So, you know, some of these other things about not so much Academy on the work side, but, well, okay. For example, take Academy on Flora's category on the work side, which we use to professionally develop and train our workers.
Well, Doesn't take too much to then go to a care provider care home and say, you've got 200 workers here that all have the same personal professional development and training requirements, Florence Academy to train and professionally develop them. And, you know, you charge a subscription model on that.
And so we're investigating some other stuff like that at the moment. And ultimately we would love to get to the point where. We're getting some good recurring subscription revenue from care providers because they're using our products to manage their own staff pool. And then when they have the gap and when they have the requirement, we can pass you in a, a worker.
And also last thing, the most important thing, there is the insights of the data out of that. So if you know, More of that human capital life cycle. You're capturing in your users, especially on the demand side, the more insight and data you have into how that market works. And it means it gives you super powerful.
You know, it gives you a great ability to then do a load of thing. So plenty of supply, much more detergent need to send people to training in the right way. It's really, really very baffled. Yeah.
Sjoerd Handgraaf: [00:36:16] Was it something that you thought about beforehand? Like,
Charles Armitage: [00:36:18] Hey, what can we do with the data that this will generate?
Yeah. We always thinking about that, but we haven't come up with like a super monetizeable solution is so right. So what we can do is we can use our data to drive a lot of decision making. So loads of decision making within the business, but it's not like, for example, the cost of the case would be, if you're collecting actual patient data or resident data, then you do have a pretty powerful, well, that can be used to do a lot of things.
Yeah. I'm still waiting on the call from Google to look anyway, but alright.
Sjoerd Handgraaf: [00:36:54] Hey, last question actually, was there anything you would have done? So you've like, you've told us you've come a long way. You, you started as a doctor, you saw this problem. You paid for an app that didn't work, move to Google sheets.
Charles Armitage: [00:37:07] Scale it's
Sjoerd Handgraaf: [00:37:07] London or West London, London, Manchester. Now the whole of the UK, we just went through. What else you can do? Could you name first of all, what you would have done differently? One thing that you're like, Oh, I would never do that again. And then also one like, okay, this was my biggest success. I would recommend any marketplace entrepreneur to
Charles Armitage: [00:37:26] do this first.
So I think, you know, there is loads of failures that, or things that we could have done differently that we've recovered from. And so, you know, you can learn and move on and, you know, classic example would be trying to build a product in an echo chamber without speaking to users, classic one. Also, he hasn't given us any longterm damage and there are very few things.
I think you can, I might eat my hat on this, but there's not that many things you can do early on that are mistakes that you can make that are, you can't really recover from, with the exception of early decisions you make around things like co-founders cap tables and your founding team members. And in a number of those domains, we've been incredibly lucky and got it right.
But in a couple of them, we've got it probably a bit wrong and made some mistakes. So. One bit of advice, there would be, especially when you're thinking about early stage founders, co-founders advisors, especially. Early investors deals, all that kind of stuff. Just be very, very careful and very specific about what it is you're actually looking for because equity seems really, really cheap early doors, but, you know, percentage points, early doors, which seem like not very much, it seemed like a hell of a lot further down the line.
Okay. That's really solid advice.
Sjoerd Handgraaf: [00:38:40] And then what is your success story?
Charles Armitage: [00:38:42] They're like, Hey, this worked out so great. Such a good position or such a good tactic or strategy. I don't know. I think maybe slightly that's the kids answer the question, but I think, and maybe it's slightly cheesy, but the thing that I look back and go like, Oh, well that's really good.
Is the team around us, the team around me in terms of like, The success story so far, and the pleasure I've got so far, it's definitely like finding and bringing those people together because I just maybe sit here and do the occasional podcasts. They're the ones that actually make stuff happen. So it's that the easy answer.
Sjoerd Handgraaf: [00:39:13] That's all right. That's that sounds really good. I mean, it's actually a very good point about, because I think in this podcast, often we go into so much down the technical rabbit hole and just think about processes and then software stacks and tactics and not exactly around the
Charles Armitage: [00:39:25] people. So I take that.
Sjoerd Handgraaf: [00:39:27] Yeah. Very good. Thanks. Very much. Hey, this was it for us. Thanks for joining any final plugs.
Charles Armitage: [00:39:33] Well, if you're a nurse or care worker or deed a care home in the United Kingdom, and you can get to Florence, keto, UK, and sign up, but you're probably not. If you listen to this podcast.
Sjoerd Handgraaf: [00:39:42] All right,
Charles Armitage: [00:39:42] thanks a lot.
Cheers. Thank you for listening to two sided the marketplace podcast. If you enjoyed today's show, don't forget to subscribe. If you listen on iTunes, we'd also love for you to rate and give us a review. If you got inspired to build your own marketplace, go visit www dot dot com. It's the fastest way to build a successful online marketplace business until next time.
We talk to Ruthie Amaru, CEO of Freightos, the world's biggest marketplace for freight. We’ll talk about how to serve fragmented markets, with complex workflows and middleman. We talk about how to get supply onboard before having demand, about building for trust and loads of other great things, especially for B2B marketplaces.
We sat down with Josh Breinlinger to dive into his long history with online marketplaces. Josh was early at oDesk and Rev.com and has invested in several marketplaces while working in Venture Capital at Jackson Square ventures. We talked productivity tools, being anti-hype, and quality in the marketplace.
Sjoerd Handgraaf: [00:00:23] Hello and welcome to two-sided. I am Sjoerd CMO at Sharetribe, and I'm your host. And this episode I talked to Lenny Rachitsky. He first founded his own marketplace company, then sold it to Airbnb, worked there for seven years until last year. Since then he has been writing fantastic content about marketplaces, which you can find at lennysnewsletter.com.
I talked to him about his time at Airbnb about his framework for evaluating which marketplace to invest in, why Shopify still has a lot of work to do with their new shop app. Why Neighbor the Airbnb for storage might just work, but most importantly, we talked about how to kickstart and scale a marketplace business.
I really enjoyed talking to Lenny and I hope you will as well.
Hi Lenny, welcome to the podcast.
Lenny Rachitsky: [00:01:17] Thanks for having me.
Sjoerd Handgraaf: [00:01:18] Like I already mentioned in the introduction, so you worked a long time at Airbnb. Nowadays, you read a lot about marketplaces. I'm curious what got you first into online marketplaces. I dug a little bit into your history and I saw that Localmind was maybe the first one.
Can you tell us a little bit about that?
Lenny Rachitsky: [00:01:35] Yeah, you bet. So Localmind was a company that I started in 2010. I was working as an engineer before that for about 10 years, engineering dream manager. And I always had this goal of starting a company and it was randomly in Montreal visiting a friend at a conference, and we were talking in this idea for what Localmind turned into kind of spring out of that.
And so I moved to Montreal to start this company and stayed there actually for eight months and then moved to the Bay area. And with the company was all about, was. It was around the time Foursquare was really popular and everyone was going to check it in. And there's all this data around location and where your friends are at and where you're spending time.
And so we had this idea, what if, what if we could connect people that are at any place in the world with people that want to know what's happening there because everyone's got this phone in their pocket. There's a way to reach them. Now there's all this data about where people are and if they opt into, but if we could connect people at a place where people want to know what's going on at that place, and that's what Localmind was.
You open up the app, you choose a place that you're thinking about going to, and then you ask questions and we route it to somebody there. Right now that's check in on Foursquare, Google or Facebook or someone that knows a lot about the place and that's what it did.
Sjoerd Handgraaf: [00:02:43] And then questions like, you know, who's deejaying or like what's on the menu?
Or like those kinds of things.
Lenny Rachitsky: [00:02:50] Yeah. The most popular was like, how long has the line at this club? Is it busy at this restaurant? Or like, yeah, that kind of thing. And in the end we found it wasn't a big enough problem for people, so it wouldn't last as a standalone business. And that's how we ended up selling therapy and B.
But it was fun and it might be possible now. It might be worth trying to have some time.
Sjoerd Handgraaf: [00:03:10] Yeah. What's your, something with Localmind, because it is a kind of marketplace, but was there something that you learned there that you still feel like, Oh yeah, that is a huge lesson that I learned there.
Lenny Rachitsky: [00:03:18] I rarely look back at local.
Mine is kind of building a marketplace, but it definitely was, and we should probably spend more time on this, but I'd say the main takeaway is a marketplace, maybe like 90 I don't know, maybe 99% of the success of a marketplace is the same as the success of any business, which is just, does anybody even want this thing?
Is this actually solving a problem for anybody? And so with Localmind, we basically eventually realized this is not a big enough problem. People wanting to go out and really needing to know what was happening at a place. So most of the learning there is just how could we have earlier knowing that this is not a frequent enough problem for enough people and maybe just a course or not.
Sjoerd Handgraaf: [00:03:58] Yeah, because now while you were saying this, my question that was straight coming to am I like, okay, is there any other way you could have validated this without actually building a whole product?
Lenny Rachitsky: [00:04:07] Yeah, maybe like we could have had text messages or something initially. But you know, it wasn't years of work and we built it pretty quick.
Maybe the other lesson that's interesting is one of the more common ways to build a marketplace and to bootstrap a marketplace is to piggyback off of an existing network. Like the way Airbnb allegedly is, Craigslist and Uber, and a lot of other companies use Craigslist. So what we did is we bootstrapped off of Foursquare's data.
We basically let you connect your four square account, and then we knew about every check in that you made, and as soon as you checked it on Foursquare, we had you. At that location in our app, and that made it a lot easier to scale. And with the work that I've been doing recently, looking into how the marketplace has worked, that's one of the more common strategies that worked back then and still works.
Sjoerd Handgraaf: [00:04:50] And then, so Airbnb bought Localmind Was it like an acquihire? Did you then straight move into Airbnb?
Lenny Rachitsky: [00:04:57] It was not technically an acquire. They acquired the whole company. All of us went over except for one person who decided to do some different, and they bought us as a team and they wanted us to. Work on a specific need that they had at that time, which was based on, so at that point, the kind of the strategy of the company was focused around what was called snow white snow white frames, which there's some articles about this.
And the way that worked is Brian, the CEO over the holidays, red. Walt Disney's biography, and he learned as he was reading that, that the movie, snow white, was the first animated feature film. And to make that possible, they have to use storyboards in order to kind of map out the story. And when you make a storyboard, you basically map out the key frames of a story to understand where it goes and how it all fits together.
And what Brian kind of realized while he was reading it as a trip on Airbnb is just like a story that unfolds. There's a beginning, there's a middle, there's an end. And what he ended up doing is hiring a storyboard artist from Pixar to come work at everybody full time and to map out the story of an Airbnb guest and an Airbnb host.
And so if you go to the office at Airbnb on CDs frames on the wall, and it's something that folks look to when they're thinking about what to focus on, how to think about the user. And so this happened right around the time they acquired us. And the reason they wanted us to work at Airbnb is they wanted us to nail the, I'm out and about in a city.
What should I do? How do we make that experience amazing? And they wanted to make every one of those key frames amazing. At week. And so they acquired us, focused on that problem, and we ended up building something that ended up not launching later. But that's its own story.
Sjoerd Handgraaf: [00:06:33] Yeah. So what's your journey within every MBA?
So you started with that then for you moves into growth.
Lenny Rachitsky: [00:06:40] Yeah. So first we built that, then we moved into building a community platform for the host community. To help them connect with each other and share stories and tips and tricks. So we built out what we call the groups or maybe groups, and then we moved into just building courthouse tooling.
And then that morphed into both kind of a combination of host quality work. So I led a team that built things like the super host program and a few other programs that launched around that time. The review system helped make some changes there. And then in parallel, we worked on, or our team worked on a product called instant book.
That made it a lot easier to book on Airbnb. So that was two and a half years of my life growing in some book. And then the last thing I did is for two and half years also was leading the supply growth team at Airbnb and then moved to the product. So originally as an engineer, I moved into product. And so I was doing all that as a product manager.
Sjoerd Handgraaf: [00:07:27] Yeah. And so for those who don't know, instant book was to move to direct booking. Right. Rather than having to wait for approval from a host and as a growth lever, it was huge. Right?
Lenny Rachitsky: [00:07:37] Yeah. I'd say looking back, if we didn't make that bet, Airbnb would be in much worse shape. But there's a lot of work and very nuanced and.
Tricky, but it worked out really well.
Sjoerd Handgraaf: [00:07:47] So would you say, is it because I had a question here, which I'm not sure applies, but would you say that you've been running growth teams because you're often associated with the growth part? I mean, I know you're a product manager or like most recently there, but would you say that you've been running growth teams?
And the reason that I'm asking this is because I'm really curious to hear. Like because you've been there, I mean, it's a relatively long time for that kind of company, and so I'm curious to see how different was it to run a growth team when you started towards the end?
Lenny Rachitsky: [00:08:17] I would say maybe the last three or four years of my time at Airbnb of the seven I've worked on growth growth in quotes.
Prior to that, it was not growth. It was things like the quality of the marketplace, just like core product for the host community. The community stuff I mentioned, and then for the last couple of years, focused on conversion of the guest experience, host supply, things like that.
Sjoerd Handgraaf: [00:08:41] You mentioned, I think it was in the below the line podcast, which was a lot of, I think inside Airbnb talk because Ellis had also been in Airbnb.
But I think something that I really, really like to bring that out is that Airbnb had basically a non-existing data driven culture, or like data-driven wasn't really a thing at Airbnb. When you joined in 2011 2012. And not for a long time. Right.
Lenny Rachitsky: [00:09:11] Yeah. So I think part of that is it was still small enough for her.
There's only so much you can do with data. There was just not enough data to make conclusions around. That's part of it. I think part of it was like, I don't know how long ago was that? 2012 like eight years ago. And so a lot has changed since then. A lot more people understand how to run experiments and work with data and build tools that make it easier to work with data.
And so yeah, that was, I think that was part of the reason. But yeah, so when I came into Airbnb. There was not a clear sense of why or BB was growing. And what we were doing and the impact that was having on growth, which is mind blowing
Sjoerd Handgraaf: [00:09:45] because there's so much like survivorship bias. I think we're like, you know, there's so much myth and legends around these, like what do you already kind of refer to that earlier, like the legit Craigslist hack?
And it's so refreshing to hear that. Well, actually, you know, like it worked and there were some suspicions, but nobody was like quite clear on why except for the fact that it was probably in magnificent product.
Lenny Rachitsky: [00:10:07] Yeah, that's exactly right. There's like a sense of what's working, what's not. But if you were to try to go back and be like, okay, these three things were extremely important and these three things weren't.
It's really hard to say and yeah, and to your point, I'd say a lot of the reason Airbnb was successful is it was just a really great product and experience, and that's why word of mouth is so strong and it's a lot of the reason people came back to it. There's still a lot of stuff you had to get right at the beginning to make anyone even aware it existed.
And to get hosts onto the platform, which we'll probably talk about, but yeah, it was not obvious what we should be doing and what we were doing that week. That was continuing to drive growth.
Sjoerd Handgraaf: [00:10:42] Yeah, I did not at any way. I mean to say it was easy. I mean like marketplaces are notably hard and for every beat it was no different.
But I just liked that because nowadays, if you would start a company of that size, and you know, if at let's say 12 people, you haven't hired a data engineer, people are like, well, do you even know what you're doing? And it's kind of like nice to hear it. Well, you know, if you just focus on the product and the experience like.
Coming back to the snow white story. You can get a long way,
Lenny Rachitsky: [00:11:10] although I will say, I wonder what would've happened if Airbnb did do that earlier, and if they were able to prioritize that kind of dive earlier and started to say, who knows all these counterfactuals, what would it happen?
Sjoerd Handgraaf: [00:11:22] Yeah. Who knows? Who knows?
So that was an Airbnb. Nowadays, you're doing a lot of things. You're advising marketplace startups and you're writing your own newsletter, and we're going to do a heavy plug on this because that is some seriously good contents. We can do a plug in the end as well. First, a quick medic question. Why do you think there is so little content on marketplaces if you couldn't compare it, for example, software as a service SaaS businesses, like right now you wouldn't start a newsletter.
I mean, the whole reason why we're starting this podcast because I feel that there isn't any podcast who is specifically around these kinds of businesses, even though so many of the startups are having these kinds of mechanics. Why do you think that is?
Lenny Rachitsky: [00:12:01] If I had to guess, I think it's maybe pun intended.
I think it's just a lack of supply. In terms of how many marketplace companies there are compared to SAS companies. So if you think about like how many huge marketplace companies are there, there's maybe Uber, Lyft, Airbnb. Alibaba is the biggest, and like maybe eBay part of Amazon. And then if you think about how many big like subscriptions cloud SAS companies are there, there's so many more.
You know, there's like Salesforce and Twilio at LaSeon zoom Workday. And so I think it's because there's fewer marketplace companies and then SAS companies. There's fewer people coming out of those companies that have lessons to share and learnings. And I think there's just less people to talk about them.
Sjoerd Handgraaf: [00:12:46] Yeah. Because I have another theory as well as that. I think that a lot of marketplace businesses don't realize that they're a marketplace business. Like we get that all the time at Sharetribe, where we, you know, I go out to events to meet people there, or we get prospecting and day, you know, very simplistic example.
But of course the very popular marketplace has always like second hand clothing and they see themselves as a fashion business. And so when they look for business advice. They just look for fashion, business advice. They don't realize that, you know, they're a marketplace basis or they are matching demand and supply or any kind of these things.
Lenny Rachitsky: [00:13:17] That makes a lot of sense to me. Like when I was at Airbnb, I was not like looking up how to marketplace businesses work and how do we grow a marketplace business. I was just, how do we make this work? How do we make like the thing that we're working on work in practice and not like the theory of what this kind of business is.
And so I think to your point, people often don't think about it as this like umbrella type of business. Until they either leave a company and just like read pontifications about anything. That is probably part of it.
Sjoerd Handgraaf: [00:13:47] Yeah. Well that's how we can make change with this podcast. Absolutely. So how do you recognize a great marketplace idea?
Lenny Rachitsky: [00:13:53] Yeah, so the way I think about this, and I have my little list that I'm going to use because this is often hard to remember.
Sjoerd Handgraaf: [00:13:59] Yeah, go ahead.
Lenny Rachitsky: [00:14:00] Yeah. But the way I think about it, there's two parts you should be thinking about. One is. We talked about this earlier, is this like just a good business in general?
And then I'll talk through what I look for there. And then is this a good marketplace business? And I'd say most companies fail, not because they're a bad marketplace business, but because they're just not a good business in general. So most of my evaluation is just like, is this good at all? And then there's just, what are the attributes that will make this work as a marketplace?
So within the first book, is this a good business in general? There's about seven things I look at. The first most important is just like, is this something anybody wants? Does it have any sort of product market fit? And so what I look for there is, is their attractions, their early amazing feedback is retention high.
That's the most important metric if you have that. So one is, is this something anybody wants to, is the market big enough for this to become a really big business three years? Why this team and where are they the right team to build it? What's unique about their insights or their experience. Then why now?
What's changed about the world or technology or the market that allows for this to exist now? The next is just what modes do they have? What's going to keep somebody from coming in and just squashing them and winning? And then how strong has just the business model in general. So the reason software is eating the world is because the business model is amazing.
The margins are really high. You can scale it efficiently. You don't have to raise tons and tons of money. And then the last piece is just they have a growth strategy. Do they know how they're going to grow? Because that's often taken for granted. So that's the first bucket to helps me understand, is this a good business in general?
And then is this a good marketplace business? So the first piece, similarly to the previous bucket, is this something both sides of the marketplace want? Because unlike a regular business that's not a marketplace, you have to find product market fit on both sides. You have to make supply and demand happy about what you want.
And so on the demand side, the question you want answer is, is this better than the alternatives? That's maybe not a marketplace company. And then on the supply side, the key question I look for is, is this meaningful income for supply? So like, can I make enough money to make this worth my time? So for example, here being be on the one side, travelers want amazing places that are cheap to stay around the world.
People with homes want to make some extra money. Both sides want that. And you can match those things up where it's enough money on both sides. Maybe an example of marketplace that didn't work is something I think about is a company called cherry. Which was car washes on demand where they come to you and they wash your car, and so on the one side, sure, I'd love someone to come to my house and wash my car for sure.
And then on the other side, sure I can make money in wash people's cars, but the problem is the amount of money you have to charge to make that business work is too high. And so people don't want to pay that much. I forget what it costs, but they don't want to pay so much for someone to come to the house and wash their car.
So that's an example of customers don't want that.
Sjoerd Handgraaf: [00:16:43] Yeah, indeed. Like you've mentioned in your previous buckets to thing, like the time is now because like I'm gonna straight hop into sort of a topical thing, but like not too long ago, this Margaret has got an investment from Andreesen Horowitz called neighbor.com which is like.
The Airbnb for storage, and I don't know about you, but I've seen that idea quite a couple of times. Why do you think, I don't know. And do you think they're going to make it this time? If so, like what has changed, why now this might be possible? Have you looked into that one?
Lenny Rachitsky: [00:17:13] Yeah, I really liked those guys actually.
I've chatted with them on and off and I really liked what they're doing, so I think we can almost use this as going through the kind of the checkmarks of things that I look for in a marketplace. Let's do it, but just maybe to describe a neighbor is, it's basically like Airbnb for storage. It's just like a cheap way to store your stuff and then ends up being in people's houses.
And so people make money storing things in their homes and their garages wherever. Right? Yeah. So if you think about this first question of, is this something both sides of the marketplace want, people want storage that's already a business. And then on the supply side, people want to make money storing things.
So then the question is, can you give people enough money and can you make it cheaper than the alternative? And I think they've, they're doing both. Well, from what I understand, it's cheaper than a self storage company. And I think it's so easy for supply. It's even. Use it that even if it's not tons of money, I think enough people will be interested in it.
So I think it checks that check box
Sjoerd Handgraaf: [00:18:05] because I would be straight worried about supply because I have a garage, but I don't have any space. Yeah. And I think I read once a postmortem from some other company who tries to do that and they said like, well, most people with like storage facilities don't actually have space.
Lenny Rachitsky: [00:18:18] With like a garage or
Sjoerd Handgraaf: [00:18:20] anything like, I don't know what kind of stuff people store with neighbor, but like, because my immediate worry would be okay, like it's supply constraint because it's hard to find those. Then it's in order to make it cheaper than those self service one, you don't have a huge margin to actually put on a transaction.
And then finally, like the frequency, you know, if you store something, you'll do that like once a year or like, I dunno, two times per year with seasonal.
Lenny Rachitsky: [00:18:44] Well. Yeah. So I think with frequency, it's a subscription service. So even if you only store something once, it's going to charge you every month forever.
So I think that gets around that problem because you don't have to bring them back every month to buy more. Yeah. Yeah. And then on the supply side, if it's like worth it to you to make, I don't know, 25 bucks a month or 50 bucks a month, maybe you'll clear up some space in your garage. So that's the question.
Is there enough money that'll incentivize you to create space slash are there enough people that don't have your problem that have space. That can, you know, store something for whatever, 50 bucks a month. So that's an open question, but I wouldn't be surprised if there's enough people with space that.
Can you use some extra money? And then on the frequency piece, so there's always been this theory that there's kind of these two things you want to look at, and this is one of the attributes, so we'll skip ahead to this, but you want it to be high frequency and high average order value. So those are two key things to look for.
You want it to be something people use all the time and that they spend a lot of money on. And the more of both you have, the better. And so I think the assumption has always been you need to have at least one of those, right? And ideally both. But just recently, maybe a month or two ago, Andreessen Horowitz put out this really cool reports looking at the top hundred marketplace companies, and one of the posts they put out by Darcy hooligan, that's how you pronounce his name, is he basically went through the top hundred and figured out which ones are high frequency, which ones are high average order value.
And what he found, and it's really surprising that one, not a single company, is both in the top hundred that's both high frequency and high average order value. And also more than half were neither of those friends, more than half were not high frequency or higher average order value.
Sjoerd Handgraaf: [00:20:23] So would read that post because that blows my mind.
So yeah,
Lenny Rachitsky: [00:20:26] that's how I felt
Sjoerd Handgraaf: [00:20:27] when I saw it. I'm like, so stocks you dose. Yeah,
Lenny Rachitsky: [00:20:29] yeah, exactly. So one is just, there's actually a big opportunity if you can't meet those things. But you have to get a bunch of other stuff. Right. And so the post has all the details, but it's things like you need to have an efficient way of acquiring supply because you're not making a ton off of each user and things like that.
And then, Oh yeah. I think the other is you have to have a big market for this to be possible.
Sjoerd Handgraaf: [00:20:50] Yeah. Because you need volume because the income per transaction is so incredibly low that he really need, yeah. Yeah.
Lenny Rachitsky: [00:20:56] So like cameo is one example that he talks about is. Where you get a celebrity to make a video for you, like flavor, flavor, people like that.
And so it's like 50 bucks or whatever. People use it like once or twice a year, but they seem to be doing all right.
Sjoerd Handgraaf: [00:21:09] Yeah, just imagining flavor flavors sitting in the garage, like suicide videos in an hour. Funny. Yeah.
Lenny Rachitsky: [00:21:16] There's some crazy stuff in there. Alright. And then let me maybe cover a couple more attributes of things.
Yeah, absolutely. So we talked about just like, is this something people want. We talked about high frequency and high average order value. Another is, is supply highly fragmented. A couple of these come from bill Gurley who is a partner of benchmark, put out this really great list of things you've looked for marketplaces.
So a lot of this is kind of building off of stuff he's done in the past. And one of those is, is supply highly fragmented, which just means like if I wanted something, can I just go and get it myself? Or is it like very hard to find? Yeah, so an example, Airbnb, it's hard to, for me to go find a home to stay in when I traveled to Italy.
Yeah, I'd have to like search on gray clusters. I don't even know how it's possible. This is like an airline. There's like a few airlines and I just go to their website and book them. So there's no need for someone to aggregate them. So that's one is supply highly fragmented. Another is the relationship between supply and demand.
Non-monogamous. It's just means when I use your site, am I done forever or do I need to come back and keep using it over and over? So it's kind of like Uber versus like a nanny is the way I think about it. When I use Uber, I don't want the same mover every time. I want whoever's closest to me. Yeah. As a nanny, I use it once I found my name and I'm done.
Sjoerd Handgraaf: [00:22:29] Yeah. No need to bring their business to the platform with those kinds of transactions. Hmm. Yeah. Like, because then the risk of this intermediation or platform leakage or increases.
Lenny Rachitsky: [00:22:38] Yeah. And so maybe I'll, let me do the last few real quick just to finish up there and we can move on from
Sjoerd Handgraaf: [00:22:43] this. I mean, this is great.
I think everybody listening will be very happy to have their list once and for all. So.
Lenny Rachitsky: [00:22:49] Cool. So what's your point? Is there a reason to stay on the platform to avoid disintermediation? Like why would I use your site to book this thing versus just kind of going directly? It's usually things like there's insurance policy or it's just like really easy to use because of this.
Another thing that I try to look for is are you paying through the platform versus paying directly? Like would there be be you're paying Airbnb and then Airbnb pays the host versus I just pay the person when I arrive. And I think this is partly why Craigslist is slowly getting disrupted more and more is.
All the transactions happen offline so they don't make as much money through it. And you can only grow so big without being able to do that. And then maybe the last one is just, is this better than the non-market place alternative? Like there's nothing magical but a marketplace other than it's more efficient way to run a business.
And so if there's something that provides a better customer experience, that's not a marketplace. That's going to win. It doesn't matter what you're doing. So that's something I look for. Yeah.
Sjoerd Handgraaf: [00:23:43] All right. Thanks. That's super insightful actually right now, like just coming back quickly to what sort of kicked this question off, investing into current situation, Colgate, the whole endemic sort of odd situation that we're in now.
How do you evaluate, are you evaluating investment in certain categories that are affected or do you have any specifics on stages or experiences that have changed basically? I mean, do you see opportunities for marketplaces now or are you judging like marketplaces differently because of what's going on right now?
Lenny Rachitsky: [00:24:12] I'd say the main thing that I think is going to change, and I don't know, like I'm not, I'm no expert on macro economics and. Things like that. But I think the main thing that'll change as we've already been going through this mode of the software eating the world, and I think with this is going to lead, is just to more of that and even an acceleration of software eating the world with things like, you know, working remotely more, being online, more buying things online, more collaborating online.
And so I think just the trend of more and more software taking you over non software businesses and most marketplace companies are software businesses. And so I think they automatically fall into that trend. And so I don't know if there's anything specific within the marketplace segment, but I think in general, marketplace businesses are in a good place.
Mostly just because they're software businesses.
Sjoerd Handgraaf: [00:25:01] Yeah, but not because they're a marketplace specific in any
Lenny Rachitsky: [00:25:03] way. I don't, I don't see anything specific, but they're better off than a lot of other types of businesses for sure.
Sjoerd Handgraaf: [00:25:09] Well, I mean, yeah, I was just thinking like, I don't know. Have you, I assume you heard the, the Matias of scale episode where Brian Chesky was saying that they lost like 1 billion worth of bookings in like 14 days or somebody like that.
They refund that grade.
Lenny Rachitsky: [00:25:22] It's not a great time. That'd be just,
Sjoerd Handgraaf: [00:25:25] have you listed that one.
Lenny Rachitsky: [00:25:26] I haven't listened to that, but yeah, but I'm a similar to Brian. I'm a believer that travel will come back, but you know, when you ask anyone what they want to do, if they had all the money in the world, the number one answer is always I travel more.
And so I think travel is kind of a part of human nature and something we always will come back to. To me, it's just a matter of how long. Until we get back to it and yeah, and how long it takes. But I'm optimistic about the future of travel.
Sjoerd Handgraaf: [00:25:49] Yeah. Dove, absolutely. I didn't mean to say that, but I mean, I can totally recommend the pause cause like I obviously haven't worked with Airbnb and never spoke to Brian and I don't have undecided praise for everything every be necessarily, but like the podcast was fantastic.
Like that was like true leadership. Like I've felt very sort of felt serious like after that, like, Oh, this is going to be great. So that was can recommend it.
Lenny Rachitsky: [00:26:10] Yeah, I will check it out.
Sjoerd Handgraaf: [00:26:12] Yeah. So this was an idea. So do you have a marketplace idea? Next thing is to kickstart and scale of marketplace business.
Now, that also happens to be the title of a fantastic collection of content that you dropped on the world last year. Maybe you can tell us a little bit about what you did because you've done a ton of amazing research for it. But then most of our audience is probably early stage or even idea stage.
Could you explain the three phases that you sort of discovered and then specifically like could you talk us into a little bit more detail through phase one?
Lenny Rachitsky: [00:26:42] Yeah, you bet. It's maybe a little background on this work. I left Airbnb me a year ago at this point and I started writing a little bit about what I learned and answering people's questions about what are right and wrong in ways that.
I think we're teetered at being successful. And I found that one, I didn't have all the answers to all these questions. People are sending me, and two, as weird that people are going to rely on just kind of this one experience of Airbnb. And so I started talking to founders and early growth people at all of the biggest marketplace companies to learn partly for myself and partly to have better answers for people that were coming to me.
And what that ended up leading to is animal like hundreds of hours of research. And interviews and synthesis of what kind of emerges from all of these interviews, from all these founders and groups of people. And so I ended up talking to 17 different companies, maybe 24 people at all of these total for what worked, basically to get these companies off the ground.
And so, you know, I talked to people at Uber and Thumbtack and. Lyft and TaskRabbit and door dash Angeles and Etsy, and basically every major marketplace company, and turned it into this kind of thing. It was 800 blog posts, and the way it broke it up is kind of these three phases of kick-starting our marketplace, scaling your marketplace, and then a part I haven't written yet that will come someday evolving your marketplace.
And so within phase one, which is around kick-starting your marketplace. It's essentially how to crack the chicken and egg problem, which is one of the key problems that marketplace has faced initially and were most of them died. And so there's an interesting, like maybe the most interesting learning out of this work is just that there's essentially four steps that every marketplace goes through to get started and to crack the chicken and egg problem.
So the four, I'll go through all four and then I'll kind of dive into each one. So the four steps turned out to be constrained your marketplace to the smallest kind of the minimal viable marketplace. Then concentrating on one side of the marketplace, supplier demand, then build supply, and then build demand.
So that was the four rough steps. And so to dive into each piece, constraining the marketplace, basically the first thing you want to do, and every marketplace did this except for one, which is kind of interesting, is find a way to reduce the size of your marketplace to either a market, say like New York or a category, say like antiques with Etsy or.
Ikea furniture with task rabbit, and every marketplace did this except for Thumbtack, which very strategically decided not to. And the reasoning they had is to the point we talked about earlier, the frequency of use was so low. How often do you need a plumber or an electrician? They were just afraid people wouldn't use it often enough.
And so they're just, okay, we're going to have every type of service that we're going to go everywhere to create this flywheel. And it worked out for them. But the feeling I got from folks is they probably should have constrained and would have been a lot easier. To get started if they had actually picked one segment or one market.
Sjoerd Handgraaf: [00:29:38] So did they go like U S wide so they didn't even constrain the geo?
Lenny Rachitsky: [00:29:43] Yeah, exactly. Oh wow. Yeah. And it took them a long time to make it work. And in theory, they would have moved a lot faster if they started in like at least a state, maybe a city, but it worked out. So you never know. So you know, that's one.
Maybe that's just a step back a bit. It's important to. When I talk through this stuff, just to remember that this is just like what worked for all these companies. It doesn't mean it's going to work for you and it doesn't mean things are going to work just as well as they did in the past. So that's just an important point.
Sjoerd Handgraaf: [00:30:12] I think you've written a nice disclaimer on your blog, right?
Lenny Rachitsky: [00:30:15] Yeah. I forgot to add the disclaimer, but that's an important one. The other is all of them have really strong product market fit, and so none of this is going to work if you don't have something people want. Coming back to that point again. And so just always kept that in mind.
Okay. So step one is constraining the marketplace. Basically picking a market or category to focus on. And then step two is figure out which side of the marketplace to focus your energy on. And it's either supply or demand. And maybe the second most interesting learning from this work is that 80% of the biggest marketplace companies.
Focused on supply first and almost exclusively.
Sjoerd Handgraaf: [00:30:47] Was it unexpected for you?
Lenny Rachitsky: [00:30:48] Yeah, I didn't imagine being so kind of lopsided. And when you look at, there's only three of these 17 that I talked to you about it focused on demand first for all three. It was really obvious that supply was easy and not a problem, and that's why they focused on demand.
So the examples are with Rover, they found that supply came really easily. And I think it's mostly because. The value prop to dog walkers was make 50 bucks for watching a dog overnight. Anytime you choose, if you want to do it or not. So it's a really compelling value prop. And similar with TaskRabbit, make meaningful money.
You choose when you choose what jobs and it's not that hard work. So I think that's the core to when supply is not a problem as even your value prop is extremely strong and like a great pitch. And then the third company that also focused only on demand initially was. Zillow and the way they bootstrapped supplies, they basically used existing data that already existed of all the homes in the U S and just put that online.
And so they just bootstrapped supply really easily like that. Not sure how easy it was, but they just did it and then they were able to just focus on the demand side. So those are the only three. Yeah.
Sjoerd Handgraaf: [00:31:56] Coming back to the point that you made with local mine as well, right. A great way to start a marketplace is to utilize existing data and build on that.
Lenny Rachitsky: [00:32:04] Yeah. So that actually gets get transitioned to the next point, which is how to drive your supply to create your supply initially, and in this kind of piggybacking strategy is one of those levers, but it turns out that the most common lever for early supply growth. Is just sales drive sales, like
Sjoerd Handgraaf: [00:32:21] people reaching out to supply on the phone.
Lenny Rachitsky: [00:32:24] Yeah, exactly. Or door to door or email. So a few examples. Door dash, just like go into restaurants, pitching them on door dash or open table. They just went around similarly to restaurants with like a desktop under their arm. To demo what they could do for them. And even Airbnb, the early folks just found homes that they wanted to put on Airbnb and call them, or I don't think they did door to door.
I think that they called her, emailed them and convince them to go on Airbnb. So I think 60% of the companies I talked to that was maybe their, either a top lever or second to number one lever. Yeah, leather fairly supply group. Alright. So that was an interesting learning. The second most common lever is piggybacking what we talked about, where you go onto an existing network.
And pull people off that Airbnb allegedly did that with Craigslist from tech, did that with other places. So that was on supply. And then on the demand growth, which is the last part of this chicken and egg problem, the number one lever that helped early marketplaces grow was actually word of mouth.
Which was just people talking about how awesome it is and wanting to tell their friends about it.
Sjoerd Handgraaf: [00:33:25] Yeah. Was there anything anyone did to sort of, because word of mouth is sort of notoriously hard to track, right? It just happens, but did you hear of any sort of great tactics that people employ to, you know, once they figure that out, that's like, okay, how can we facilitate this to best?
Lenny Rachitsky: [00:33:42] The main thing that I've seen happen when you find that word of mouth is an important lever for you is to build a referral system, which sits on top of an existing word of mouth. Growth driver and creates more incentive to tell people about it. Yeah, so I haven't seen any tactics to increase word of mouth.
Word of mouth just comes from your product is awesome. People want to talk about it, but referrals accelerates that even further. That's the main takeaway there.
Sjoerd Handgraaf: [00:34:05] Yeah, I got a great question from someone I reached out to ask like, Hey, what should I ask? Do you have, just as a sort of like a piece of candy to this podcast episode, like, do you know of any like non-scalable tactic that you've seen the marketplace is used lately in these early stages that like, wow, let us, not could be under any of these levers, but like that's something, just an idea so brilliant that you're like, Oh, that is, you know, it wouldn't make it to phase two, but that's great to get kick.
Sorry.
Lenny Rachitsky: [00:34:31] That's a really good question. What's the one that comes to mind is subsidizing your supply is John the supply side? So Uber and Lyft, when they first started to make sure that enough supply, they paid their drivers just like a salary to be on the road. So it made no economic sense for Uber or Lyft, but it created enough supply where people downloading the app always had enough cars on the road.
Sjoerd Handgraaf: [00:34:51] Yeah, definitely not scalable. Like definitely hit the non-scalable Pontians
Lenny Rachitsky: [00:34:55] and CRE. So there's this concept of single player mode. That open table is famous for where they, so with this marketplace, you basically have to figure out how do you make it useful to both, to the other side before one side is there.
So like how do you make Jordache useful to people wanting to eat before any restaurant is there? How do you make it useful to restaurants before any people are there? It's an open table. Their strategy, which very few companies have employed. It turns out, yes, let's just make something useful just to one side, just to the supply side, which was a reservation system, and then build up all the supply and then wants demand.
It gets online, there's all this supply there. So that ends up being really effective when you can pull it off. But it's also not scalable and rarely used is what I found.
Sjoerd Handgraaf: [00:35:34] Would you say that that's the same as what people notice called like the SaaS enabled marketplaces, right? Where you sort of build a tool that you can even pay for it.
And then on top of that I kind of like, I don't know, kinda like what up five soon, which up maybe, I dunno, like,
Lenny Rachitsky: [00:35:47] yeah, that's exactly right. Casey winners, if you know him, he wrote a really cool post that talks about this whole idea and something he points out is. A lot of companies that start off as a SAS business starts to think about, how do we turn this into a marketplace?
Yeah. And it ends up being a lot harder than, than people think. So the key there is if you want to do that, just plan it from the beginning. More as a strategy to get to the market place, not as, Oh look, we can add a marketplace on top of this. As it turns out, it's not that,
Sjoerd Handgraaf: [00:36:14] yeah. Now that we're here, like let's talk about Shopify shop, like taking Casey's, because of course I know Casey's work.
Taking that lesson into mind, like how do you think that's going to play out?
Lenny Rachitsky: [00:36:24] So it just makes me think a little bit about is Patriot who, and I talked to them about this research, one of the stories they shared is that. They initially thought they were a marketplace. They thought that they're going to connect artists and creators with people that want to support artists and creators.
And so that was their initial business and they had this whole discovery. Roadmap and way for people to find creators and pay them, you know, like a few bucks a month to support them. But what they found is that people on the demand side just didn't want this. Nobody's like out there looking for people to pay money to.
But on the creator side, they really wanted this. They wanted a platform to accept patronage and. And make money and make a living. And so what they realized is, okay, we want to be a marketplace. We want to send demands to all of these creators, but there is no demand. People don't want this. And so they moved away from that and they became just a SAS platform, just like the best way for creators to make a living and accept payments.
And so it's interesting because now they pitched themselves as the Shopify for creators. And I hear that like Shopify for X all the time now because Shopify is doing so well. And so it's funny now that Shopify is. Going the other way. I'm like, ah, let's actually turn that as that marketplace. Yeah, and so that's the question is, is there going to be anybody that actually wants what they're offering and is it going to be better than the alternative, which is basically Amazon and Google, and I think it's two things to say.
Yeah,
Sjoerd Handgraaf: [00:37:49] obviously speculating and I think they have done like remarkable things in the past, so I wouldn't put it past them, but I've been also thinking about it a little bit, and it also reminds me of something that bill Gurley actually very recently tweeted about that this, I think it was a general motors or like some company who has this Maven.
Which was kind of like an Uber where they just owned part of the supply, which is like transferable to this idea of Shopify that well, they own the supply already. You have the supply on board. And I think bill Gurley's point was that like in any marketplace, like suppliers, table stakes, like where you make really the differences to demand generation, and I see that that's going to be problematic.
And I think also that's what about Casey said on Twitter that. Getting the demand rights is going to be probably the biggest hurdle here.
Lenny Rachitsky: [00:38:36] Yeah. So we got, I was in a little mini debate with bill early in that tweet because another friend of mine looped me in cause he's like, Hey, but Lenny says this over here.
I understand. Yeah. So, so bill Gurley was saying is in the end, I think what he's saying is like, demand is the most important thing. Which longterm. Absolutely. If you don't have customers and you don't become the place that customers go. Then you're not going to win. I think that's what he was saying, which for sure.
That's absolutely right. The more of the market you own and the more you can aggregate all demand to your site, the better you're going to do. I think the trick is early on, it's not necessarily that early on, you may have to focus on supply first in order to even build anything that's going to last or draw any sort of demand.
Yeah, so based on what I've seen that I, I don't know if he would disagree with this. Sometimes you've been focused on supplier early on to make something to get the flywheel going. But long term, you're only going to be extremely successful if you own the customer and you win the market, which I will not disagree with.
Sjoerd Handgraaf: [00:39:37] Yeah, so five, it's still some work to do there, but very interesting move. I didn't expect that because I had literally just been listening in preparation for this podcast to, well, one of the parts is for both. You and Casey were on a kind of recall the name where I think you really. Explicitly discussing that?
No, no, no. They're not going to do this because,
Lenny Rachitsky: [00:39:55] yeah, I think patron had the same issue. Actually, this just reminds me of, as patrons become more and more successful on Patrion, the last thing they want is for their patrons to be targeted. And since to other patients. But as a marketplace, you need to do that because you make money by people coming back and using it more and more.
And so they had this kind of weird incentive that weren't aligned with their creators. Shopify is going to start getting into that a little bit where the biggest Shopify shops are going to be like, Hey, why are you sending my customers to these other shops? Even if they're not competitive, you're just like, you're not helping me anymore.
Cause their whole pitch has been, we're invisible. We're behind the scenes. Nobody even knows what Shopify is. It's just my store, and now they're going to be channeling people away. So I think it's going to upset their creators and then they also have to do something they've never done, which is drive demand and build a consumer product and a brand.
Which I haven't done, but I'm so impressed with Shopify as a company and I wouldn't count them out. No. Same here. Yeah.
Sjoerd Handgraaf: [00:40:55] And surely, you know, we're not anyone from Shopify listening. Surely you've thought about this before you invested into this whole thing, but like. It's nice to speculate.
Lenny Rachitsky: [00:41:05] I don't know.
Shopify.
Sjoerd Handgraaf: [00:41:06] Yeah. Great. Well, I think just covers more than enough material for people to give real listen to maybe listen to it again because I think we covered lots of stuff. Do you have any other advice for marketplace entrepreneurs who are really like at the beginning of their journey? Like let's say early product pre-product
Lenny Rachitsky: [00:41:21] yeah, I'd say one just like focus on making something people want more than, is this a market place that will work.
Cause that's where most companies fail. That's just one I always come back to is this something people will want and pay money for it and come back to the marketplace. Question secondary to is when you look at what other marketplace companies did, it doesn't mean it's going to work for you. This is just like how things have been in the past and growth channels change and costs change and don't assume that what worked for others were worked for you.
Don't just like do X, Y, Z, I'm assuming to work. And then three is something that I think about a Sarah Tavel who's also a partner at benchmark. Has this metaphor of trying to build a white hot center in your marketplace, which is essentially just like something that's working really well, even at a tiny, tiny scale.
And only once you feel like they've got that working, does it make sense to expand and start growing? And so my advice there is just try to find something that is working well, where there's. It just feels like this is a working supply is meeting demand. People are happy, they're coming back. So you want to look for something like that.
So I'd say those are the main three things in my mind when I think about just general advice.
Sjoerd Handgraaf: [00:42:28] Yeah. So the last part is really about sort of like having a super narrow focus where you have like high liquidity, high transactions fee or frequency.
Lenny Rachitsky: [00:42:36] Exactly.
Sjoerd Handgraaf: [00:42:37] Yeah. Focus. I mean, it's so like at Sharetribe. We try to help people as much as we can when they come to us with ideas, but people are so eager to conquer the world that it's very difficult to be like, well, you know, just, just, maybe try this in your neighborhood first, like that shouldn't teach you enough.
So yeah, I totally agree with that.
Lenny Rachitsky: [00:42:53] That's really against human nature.
Sjoerd Handgraaf: [00:42:55] It is seemingly. Yeah. Hey, thank you so much for joining us and for spending time.
Lenny Rachitsky: [00:43:01] That's great chatting marketplaces.
Sjoerd Handgraaf: [00:43:02] I agree. I could go on even though it's past midnight. Where can people find you? Where can people find your newsletter?
Where can they actually, I know. Read back your
Lenny Rachitsky: [00:43:11] posts so easy. Lenny's newsletter.com and then on Twitter, just Lenny Sohn, L. E. N. N. Y. S. A. N. All right. Thank you.
Sjoerd Handgraaf: [00:43:21] All right? That was it. I really hope you enjoyed that Lenny was kind enough to offer all listeners a special 20% discount on his newsletter. Go to https://www.lennyrachitsky.com/sharetribe to get the 20% discount.
It's a fantastic newsletter. I can't recommend that enough.
Lenny Rachitsky: [00:43:41] Thank you for listening to two-sided, the marketplace podcast. If you enjoyed today's show, don't forget to subscribe. If you listen on iTunes, we'd also love for you to rate and give us a review. If you got inspired to build your own marketplace, go visit www.sharetribe.com, it's the fastest way to build a successful online marketplace business.
Until next time.
Hi and welcome to Two-Sided, the podcast about building an online marketplace business. My name is Sjoerd, I am your host and also the CMO at Sharetribe, which is the company that brings you this podcast. We decided to call it Two-sided, because of course we’ll discuss Demand & Supply, but also the good sides and the bad sides, the easy and the hard parts, how it looks from the outside versus what is really going on inside of an online marketplace. In this series, we sit down with marketplace entrepreneurs, investors and other brilliant minds who work with online marketplaces and two-sided platforms every day. We will talk about starting, building, growing and scaling, and every stage in between. In each episode, we will do our best to uncover insights and wisdom you won’t find anywhere else. I promise you that if you are into marketplaces, you will really enjoy this podcast. So please, subscribe to get updated on the latest episodes, and if you know someone else who might be interested in this topic, don’t hesitate to share this with them!