Starting an Internet Marketplace
Interview with Jonathan Swanson, Co-Founder of Thumbtack.com
Jonathan Swanson is working on the ebay equivalent for the service industry, Thumbtack.com. Read about the challenges of becoming an internet entrepreneur.
Thumbtack.com was founded in 2008 to create an online marketplace for local services.
Tell me about your current business. What are you doing exactly?
At Thumbtack.com, we are creating a trusted marketplace where consumers can find, compare, and book local services. By making it easier, more affordable, and safer than ever before to purchase services, we aim to transform a broad swath of the service sector much as eBay and Amazon have done for products. We know this is an ambitious goal but we believe the transition to transacting services online is inevitable and imminent.
What were you doing before this, and is this your first business?
Before Thumbtack I worked on economic policy at the White House. It was a thrilling experience, and something I had hoped to do since I was in high school. I got to work on range of issues such as financial markets, health care, and Social Security. Before working at the White House, while I was in college, a friend and I started a non-profit in DC that engaged young people in grassroots politics.
What advice would you give to somebody else who wanted to start a similar business?
It's important to be optimistic, have a sense of humor, and be able to live with a large amount of uncertainty. Start ups are an enormous amount of work, you face constant hurdles, and there's lots of uncertainty, so you really have to believe in the idea and have an optimistic constitution, otherwise it can be quite a rollercoaster. I love the thrill, but it's not for everyone.
Did you write a business plan? Was it an effective tool for you?
We did spend time writing a business plan, but it was exclusively helpful for internally developing our idea. Not a single investor, VC, or start up competition has asked for a business plan. The structure of a business plan forces you to think about your idea from a number of different angles which is helpful at the brainstorming phase of the start up, but it's important to remember that the business plan is a means to an end (fleshing out your idea), and not an end in itself. We haven't updated our actual business plan for a while now, but it's taken new forms - power point presentations for investors, press releases, talking points when we talk to journalists, etc.
Did you operate your business from your home? What were the challenges and benefits to this strategy?
We are based out of a three story home in San Francisco. Three of the employees (including me) live here and the other five commute to work. Working out of a home has a number of benefits - we can have a chef come in and cook our meals for us, we installed our own home gym for employees, and we have great views of the Bay. And, most importantly at this stage of our company, our rent is substantially less than it would be at a standard office. That said, we'll eventually outgrow our house and when that happens it won't be such a bad thing to have a more distinct separation between work life and social life. In the meantime, I'm enjoying my commute to work (two flights of stairs).
Did you have a partner when you started your business? How did you select a partner?
We have a number of partners at Thumbtack.com, and they all bring something different and important to the table. Starting a business entirely by yourself sounds really hard, and I imagine a lot less fun.
Have you outsourced any portion of your business? Has that worked for your business?
We have outsourced many of our rote tasks with great success. We have found Amazon's Mechanical Turk and oDesk extremely helpful. Mechanical Turk has a very liquid market for completing very monotonous, rote tasks. Their tagline - "artificial artificial intelligence" - is quite apt. Need to review 10,000 pictures to make sure they are appropriate? Mechanical Turk can get it down overnight, for a price that is nearly inconceivably low. For more challenging requests, we've hired a number of assistants in the Philippines. We're in the process of automating more of our customer service - we've got too much which is a great problem to have - and I'm looking for a remote worker now who can help handle our easy customer service requests. About 80% of our customer service can be outsourced, but the tricky questions and bug reports will always be handled in house because it's important that we're sensitive to customer requests so we can adapt our product accordingly.
How has your experience in running the business been different from what you expected?
It's been an enormous amount of work, long hours, extremely challenging, and deeply rewarding - but I expected that. Most surprising has been how much starting a company is like dating. You spend day and night with the same small group of people, so you get to know each other really well. It can be pretty hilarious at times.
Jonathan, thanks for sharing your business tips with other entrepreneurs. Thumbtack.com sounds like a really innovative service. How big to you think it could be?
The local service space, though enormous, is highly fragmented, fraught with inefficiency, and largely transacted offline. Consumers spend more than $500 billion on local services every year, yet existing local service marketplaces serve either just a limited niche of services or only provide consumers with reviews or wanted ads.
How do you solve the problem, where others have failed?
Three main obstacles have, until recently, prevented the rise of a vibrant marketplace for local services:
Chicken and egg problem: How do you balance consumer and provider acquisition, when each depends on the other? One of our competitors has attempted to overcome this challenge with the human matching of wanted ads. We do that as well, but we think it is woefully insufficient. Instead, we've also spent the last year recruiting providers into our database so that we launched with 15,000 providers already using Thumbtack. With a few mouse clicks, users can find any type of help they need, from the ordinary (tutors, hair stylists, handymen, caterers) to the quirky (rap teachers, cartoonists, belly dancers, henna body artists). We appeal to these providers by offering them a number of business marketing tools that are useful, independent of the network effect.
Trust: You care about the reputation of someone you're dealing with on eBay when you purchase a used iPhone, but trust and safety are 100x more important when the person is coming into your house or taking care of your children. Thumbtack aims to establish itself as a leading consumer and safety advocate in the local service market by automatically vetting each provider as well as offering additional consumer protection tools including identity verification, criminal background screens, professional license checks, and customer testimonials and reviews.
Quality of product: Designing a marketplace for services is far more complicated than marketplaces for products; offerings are not discrete and price discovery requires a dialogue between buyer and seller. This makes the quality of the product extraordinarily important. We have put over a year of work into designing our marketplace to make it flexible and sophisticated enough to accommodate a large segment of the local service marketplace.
How are you different from your competitors?
Traditionally, companies trying to create a website to cater to the service sector have modeled themselves off of directories (Yelp, Angieslist, and plenty more) or classifieds (craigslist, Oodle, and again, plenty more). Moving these offerings online has completely changed the economics of these industries, but they haven't improved the product from the consumer's perspective. Does Yelp make it any easier to schedule and book a hairdresser? Does Craigslist feel like a more trustworthy way to find a babysitter than the local paper? We don't think so.
Thumbtack is moving beyond the traditional directory or classifieds model and creating a genuine marketplace for services, a place where you can evaluate the trustworthiness of a service provider as well as the quality of their service. And we're creating a platform that supports all elements of the transaction: searching, contacting, scheduling, and paying.
Sounds really interesting, Jonathan. I wish you and your "house-mates" a long and successful run.
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