Why you should care
The company is at the bleeding edge of the new work economy.
Jonathan Swanson slept in a closet for two years. That’s something to boast about in startup land, of course, and the founders of Thumbtack seem to enjoy invoking that era: a few 20-somethings in a San Francisco house trying to make something like the Amazon of local services, turned down by investor upon investor but keeping the faith, and Swanson, the co-founder and president, falling asleep every night under a canopy of trousers and shirts.
Does it matter that the closet was a walk-in? That the house was a three-story townhouse atop a hill near San Francisco’s Buena Vista Park, and that a chef came once a week to cook healthy food for them? Or that Swanson had the kind of CV — Yale, the West Wing, admission to Harvard Business School and Stanford Business School — that sort of ensures a bounce back from failure?
A big question right now is whether Thumbtack can build a large-enough network of pros.
At any rate, it’s all origin myth now that Thumbtack has raised some $130 million over the past year, including a $100 million round led by Google Capital in August, which the company says it didn’t even need. Google just wanted to get in on the growth, it says. The “biggest startup you’ve never heard of” aims to fix a problem you’ll know well if you can’t find a reliable plumber or are a reliable plumber: It provides a platform for consumers to solicit local services, from housecleaning to dog-walking and DJing. And it aims to help people who provide those services — Thumbtack calls them “pros” — find clients.
Others have tried to tackle the problem of local services before. TaskRabbit, once another hot startup, recently revamped its business model, according to The Wall Street Journal. And while Yelp and Angie’s List have long compiled listings and reviews of service providers, Thumbtack says it’s more than a directory — it’s a connector that eliminates the hassle of sifting through listings.* Already the company brings its pros an annualized $1.8 billion in business, Thumbtack says, and that’s just a smidgen of a potential market that Swanson estimates as at least half a trillion dollars. A big question right now is whether Thumbtack can build a big-enough network of pros, especially before Amazon and others swoop in, as anticipated.
Politics was obviously another way to change the course of history, but Swanson had seen how that worked.
Swanson, a 32-year-old with blond hair and a baby face, is happy to acknowledge he’s received a lot of support, even during long periods when the company seemed to be limping along: His father worked in IT during the days when computers filled entire rooms, and his older brother — who attended Stanford Graduate School of Business — had advised Swanson to forgo b-school and start his own business instead. (Swanson’s brother was an early investor.)
But he is also clearly driven. At Yale he was a political junkie with a West Wing internship that he parlayed into a postgraduate job offer, and by his mid-20s he was Deputy Associate Director of the National Economic Council in President George W. Bush’s administration. He slogged to get there, in part by founding a nonprofit devoted to social security reform. (The end goal: individual accounts rather than government management.) Marco Zappacosta, at Columbia and a few years younger, worked with him on the “super-dorky” nonprofit, too, and when Zappacosta ended up at the White House one summer in college, the pair started brainstorming ideas for another venture. One thing was certain: It’d be in business and tech, not politics.
“If I was way smarter I’d want to be a philosopher,” Swanson said the other day in a glass-walled conference room at Thumbtack’s sunny SoMa headquarters. In college he was taken with men like John Locke, who would “have an idea and it would change the course of history.” Politics was obviously another way to change the course of history, but Swanson had seen how that worked. Business — and startups, especially — had a serious advantage. “The benefit of startups is that they’re not constrained by political realities,” he said. So long as they don’t run into incensed hoteliers, like Airbnb has, or taxi associations, like Uber has.
Unlike those companies, Thumbtack operates in a world with few “entrenched interests,” in Swanson’s words — the world of small businesses and independent contractors. If you’re soliciting a service, you post online, describing what you want and when you need it. If you’re a pro, you can see these solicitations and pay a price — between $3 and $15 — to bid on them. If the consumer accepts your bid, you have a deal.
The business model generated some blowback from would-be pros who haven’t found success.
In marketing speak, Thumbtack is a “lead generator”: It is in the business of selling potential customers (leads) to contractors. It doesn’t disclose its revenue. But it seems a big challenge has been showing pros that its service is worth paying for. Right now, the company faces more customer demand than its pros can fill. And, perhaps more worryingly for Thumbtack, the business model has generated some blowback from would-be pros who haven’t found success: The Better Business Bureau reports that many complaints about Thumbtack concern the quality of the leads it sells.
To be sure, the BBB gives Thumbtack an “A” rating overall, and plenty of contractors have found success on Thumbtack. One of them is Jonathan Johnson, who owns a photobooth company based in Hartford, Connecticut, called SnapSeat Photo Booths.** He credits Thumbtack for 90 to 95 percent of his business, which is growing fast enough that he’s looking to buy another photobooth. Some of the leads he gets on Thumbtack aren’t high quality, and only about one in 12 of his bids results in a job. But the cost of acquisition is well worth it, he says — about five percent per gig.
Swanson acknowledges the system isn’t perfect and says the company is working on a few solutions, like a business coaching center that will help pros better market themselves. It’s considering “educating” customers, too, so that they don’t expect unreasonably low prices. But generally he defends the model as “the most performance-based marketing solution that these pros have” — far cheaper and more efficient than the Yellow Pages, certainly, but also better than banner ads and cost-per-click models. “You don’t pay for clicks, you pay for introductions,” Swanson says. And for now, he says, the model is better than one based on commissions, in which pros would pay a fee to Thumbtack only after the deal was closed. In an early test of a commission-based model, the results were lackluster: With “no skin in the game,” he says, service providers had no incentive to give clients high-quality quotes, but plenty to send emails about services they never asked for.
Swanson says he thinks mostly about other challenges, like how to become the category killer and world changer Google and company seem to be betting on. “Google didn’t invest for us to become two times larger, or five times larger,” he says. Which is why there is much more to be done.
*Yelp declined to comment. Angie’s List did not respond to a request for comment.
**Correction: A previous version of this article misstated the name of SnapSeat Photo Booths.
***This OZY encore was originally published November 23, 2014.