Spotify
Apple Podcasts
Google PodcastsMike Evans of Grubhub & Fixer joins Nick to discuss The $2 Billion Pizza Order, The Founding Story of Grubhub, Why NPS Sucks, and How Fixer is Transforming Gig Work. In this episode we cover:
- How Grubhub Started with a Pizza Order
- Why Marketplace Founders Should Cheat
- NPS as a Flawed Metric
- The Advantages of W2 Employees & more!
Guest Links:
The host of The Full Ratchet is Nick Moran, General Partner of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.
To learn more about New Stack Ventures by visiting our Website and LinkedIn and be sure to follow us on Twitter.
Want to keep up to date with The Full Ratchet? Subscribe to our podcast and follow us on LinkedIn and Twitter.
Are you a founder looking for your next investor? Visit our free tool VC-Rank and we’ll send a list of potential investors right to your inbox!
Mike Evans joins us today from Chicago. Mike is a serial entrepreneur and pioneer in the gig economy space as co founder of GrubHub, which IPO’d in 2014, with a valuation of $2 billion after GrubHub, Mike co founded Fixer, a New Stack portfolio company to offer high quality speedy and transparent handyman help. He is also author of the book hangry coming out later this year. Mike, welcome to the show.
Thanks for having me, Nick.
It’s good to see you. As always, you know, tell us the story of your background. I’ve heard it before. But for the benefit of the audience, you know, how did how did your background lead you to founding GrubHub?
Yeah, so I wanted a pizza.
That’s it.
That’s pizza has, like, it’s not the whole story. So yeah, I wanted to pizza and pizza was hard to get, there’s this thing that nobody believes even still, which is no one wants to use the phone, nobody wants to call a restaurant, and get put on hold, and then give their credit card to probably a 17 year old who’s
going to answer it and write it down on a piece of paper and then charge it through some credit card machine or something. Nobody wants to go through that process. And so and I didn’t want to do that, and actually, at the time, it was even hard to find all the restaurants that deliver it to you. So it started as delivery guide, quickly evolved into online ordering. And then I sort of had a tiger by the tail and it grew from, I wanted a pizza and ordering pizza was hard. And I made it easier for myself. So we were doing it a million times a day. And so that was the story. And there’s a lot between point A and point B there.
That’s the initial idea is I just was trying to solve a problem for myself. And that problem was inconvenience. It was just hard. The process of ordering was sticky. And you know, it’s that sort of writ large with the ideas. And even just yesterday, I was having a conversation with Josh, who’s a fixer. And he said, you know, what I was reading recently is that the login credentials for your website needs to be handled by a growth team, not by a security team. Because the security team will make sure that the website is really secure. But we’ll go through and make sure that the login is easy. It’s pretty good. Customers do not want hard. They don’t want it. They want it to be as easy and frictionless as possible. And so that’s really what the whole impetus of GrubHub was made became something more than that. But that was the start.
Got it. And before that you’re an engineer by training? What’s your what’s your background like?
Yeah, I worked at the AI Lab at MIT, where I got my degree in computer science, electrical engineering, undergrad and master’s degrees there. And so worked on AI for a little while, and then came to Chicago and worked at a website here. Because there’s no money in AI, which is funny nowadays, because like, all you have to do is put it on an on a slide and an investor will invest in you even if you have no idea what AI actually is, even if you actually have people doing the work in the background like Mechanical Turk and Amazon. People will still call it AI. But at any automation.
That’s representative is AI.
Yep.
Yeah. And so I have a software background. And so when I when I wanted to solve that problem for myself about getting a pizza, because Because calling by phone was it was hard to find the right number, it was hard to call that number. I wrote the software myself from the start. And so so one of the questions sometimes I get is how do you find a technical co founder? And like, I have no idea. I was the technical co founder.
So what was the timeframe on this? And you know, what were the first initial steps that you took toward, you know, ultimately launching a business here?
Yeah, so it’s 2002. The first step was I got home, I took the 151 bus home and Chicago, jammed up against the armpit of some stranger and was like, I can’t cook tonight. And so that motivation turned into that night, my wife and I had Lucky Charms because we did not have good eating habits, and still do not. And then that turned into motivation to write the version 0.1 of the website, which was really just a food delivery guide to start. That was the start, it took about a year as a hobby, maybe 10 months to a year as a hobby where I was just sort of playing with it making the delivery guide work. Before I finally got to the point where I was like, You know what this is, I started getting some Google rankings and some at the time, MSN rankings, some before even being existed. And that started to work pretty well. Part of it was just technically it was a little bit ahead of its time in terms of being able to type in an address and find the restaurants that deliver to you. And then my business partner, Matt, who this is where he joined me, you know, he ended up selling the restaurant because he really wanted to be involved. So he stopped signed the first restaurant and then once I had that proof of concept we had I had a check for $140 for like a premium listing. I was like great. It’s a business, not a hobby. I made some money. So I quit my job like a week later, and then got to sales for selling for dummies book at borders. That border still existed. typing. And then I just started signing up restaurants or walking to restaurants and signing up restaurants with a for a monthly fee just for exposure.
And the delivery again.
Yeah, so it was still just the delivery guy, just what restaurants delivery to me, it wasn’t online ordering it. And so that was the first year of the business. So the first year was a hobby. Year two was a business, I was making probably like 30 grand a year personally took no investment in the business. And then selling restaurants is really hard. But doing things like search engine optimization, and search engine marketing, those things were maybe a little bit more in my wheelhouse, because I have a technical background. So I started doing more of that. And then I realized if I charge per order, instead of a subscription fee, all I had to do was double the number of people using the website to double my revenue instead of sign up twice so many restaurants. And because I kind of hated sales, I switched from the from the supply side to the demand side and started trying to get more orders. And that’s when it really took off revenue tripled as soon as I did that. And then it really started escalating quickly from there.
Got it. So I was in college 99 to 2003. I feel like there was something called Takeout Taxi at the time. Did you ever come across this?
Yeah. So interestingly, one of the things that people said at the IPO is like, well, there really hasn’t been many competitors. And I would say at the time I lost online ordering there was there was about 100 competitors, really, we’re not the first it was a very competitive market, there was a lot of people trying to do it. And there’s this sort of blind, like, oh, GrubHub was the first and then and then competition started like with UberEATS and DoorDash. But actually, there was order up fooler delivery.com takeout taxi dining in, you know, the list goes on and on. You know that company that’s that has like the little mail packet flat, like you get a bunch of coupons in the mail like that. Yeah, they were probably one of the first to to create online ordering as a product that they offer to their restaurants. And then there was a company called quick order, which was they powered online ordering for Domino’s, and then but then also had their own independent service. So there was over 100 of these companies.
Was it still competing with nonconsumption? Largely, though? Or did you carve out some unique differentiation versus the incumbents?
What was the difference? So there was a variety of differences. But the thing that really mattered was the consumer experience was better on GrubHub. Everything from the login to the transaction to the food actually showing up, all of that happened quickly. And then we really push type I really pushed hard on like the restaurant row effect. So I wanted to have, it wasn’t enough to have an a restaurant that had on an order you had to we had to have a certain percentage. And so we found we found that the minimum percentage was a percent of the restaurants in an area had to be signed up. And but the ideal was like 25%. And this was true throughout the course of the business is that every time we signed up an additional restaurant, the number of orders per restaurant went up knocked down. So rather than diluting the number of orders that were going to individual restaurants, the higher percentage restaurant, we had actually had a multiplicative effect on the number of people that were actually
placing orders. So we were very pleased to work with density on the supply side, created a better consumer experience, which is why we started attracting customers. And then that was all early in the business, this sort of stage to the business was when that first set of competitors had sort of fallen by
the wayside another another crop jumped up. And that was campus food and seamless. And Groupon and LivingSocial dove in to the online ordering space. And the thing that really differentiated us at that point was customer service. So we started to started to really focus on this idea that people there was this thing that happened that was totally absurd, just not non rational, which was when the food when the food was good people like man GrubHub tasted great. And when food bad people would say GrubHub was terrible. We weren’t making the food. So the first instinct the knee jerk reaction was to be like to educate the market educate. So just say, hey, like, we don’t make the food. And and I realized actually, that is a real that’s gonna be really hard to convince people that we’re just a connector, so don’t like that. We don’t want to convince people that first of all, it’d be hard. Secondly, like, careful you ask for that’s not, why don’t we instead say, Okay, let’s just send good food, which sounds ridiculous at first, at first glance, but we introduced into the sorting algorithm for the website, the restaurants that consistently had the best ratings and had the highest repeat purchase rates. And we down ranked the ones that had bad experiences. So we actually started delivering better food, by virtue of the fact that we were through our sorting algorithm by just leaning in on the good restaurants. We also created a best practice instead of best practices that we shared with restaurants that were struggling to do well with that. And so then we ended up being a better experience. And so we ended up with really high customer loyalty. So on average, on average, our customers are ordering more than once a week. So on our average customer is ordering 58 times a year, which a lot of businesses would kill for that right. And, and so that’s it was really just the the loyalty and frequency of the diners that drove the competitive advantage in the middle term of the business.
So back to the initial term, right, you’re going out and acquiring customers, for the first time, you mentioned that you switch the business model to monetize on on the consumer side. So that must have made it fairly riskless for the restaurants, except that it could be noisy, it could be problematic, if it doesn’t work, you know, it complicates their life. So so how were you able to go about acquiring the supply side in the early days, when GrubHub was more of an idea, as opposed to like a viable business?
So I write about this in my book quite a bit. This is like the first three chapters of the book. So I tried everything. I tried everything from a sales perspective, I tried live demos, I tried paper, I tried, I tried everything. The thing that worked, I, it’s great. I tried, like, you’re gonna make this much money, you’ll make this much margin, you’ll get this many new customers later, all these different things. The thing that worked was, you know what, you’re an entrepreneur, I’m an entrepreneur, take a chance on me. That was the thing that signed up restaurants, the first 100 restaurants, I’d say 90 of them were people who I just begged to take a chance on emotion. Yeah, well, not emotion relationship, and have a relationship, you’re appealing to their boss.
And false when you come face to face with any other human being you have a relationship, okay? And relationship sales is about understanding that you have to listen first. And then once you understand a person’s needs, if you can, saying that you can meet those needs, and then asking for the money that that’s that is a sale, listen, to understand needs, meet the needs, ask for the money. Those are the three steps of sale, if you start with meet the needs. Before you listen, the sale fails 80% of the time. And so it was a relationship sale. It was it was I listened to them. I heard their struggles. And then I made a connection with them where I’m I’m an entrepreneur, you’re an entrepreneur, and then I asked for the money, like, you’re not sure, I’m not sure. Take a chance on me sign up. So that was the first at restaurants that didn’t work for the salespeople I hired because they couldn’t say that right. And so they had a lower close rate. The second most effective message was what you just hinted at, which is, hey, look, we don’t make a dime unless you make $1. And so it was a low risk sale. But there’s a third piece that’s that sort of hidden that was like the one of the primary things in the early days, which was retention, we found was a restaurant was willing to sign up. But they would cancel even though the money it didn’t cost them anything. the hassle of having to having having to have a provider, even a zero cost provider that didn’t actually provide anything that didn’t actually meet any of their needs was enough to be like, I don’t want to deal with this. And so we had to get an order per day per restaurant for that. That was like the big indicator about whether somebody would cancel or not. Okay. And then as what we realized was, the faster that first order came in, the better. So we ended up having spent a lot of energy and operations to make sure that when the salesperson signed up a restaurant on Thursday, on Thursday night, they got their first order. And when we weren’t thinking about it took us about two weeks to get a restaurant live. And then once we realized how important it was to retention. We got it down to three hours. We switched signups to iPads. We actually got Kindles, because Kindle said all come out and they were super cheap. And so there was a lot of operations that went into the retention.
Did you ever hack the CAC by doing a phony order on that first day that dissimulate as if you know, a customer had ordered.
Salespeople definitely placed orders at the restaurants. Which is not that’s that’s a legitimate order. I mean, I’ve ordered Fixer before, because I need things fixed to my house. I don’t put an asterix on those. I’m the toughest customer that they could get. Right? It’s because I’m very hard on our own our own product. But yeah, for sure. You do whatever you can to get that first order to a restaurant that first day. Now, another thing that we did actually is this was this became true later on, you know, the sorting algorithms algorithm for the restaurants is mostly based on what they paid a little bit based on quality. But there was one exception, which was when a restaurant signed up, they they were the top listing until they got their first order as soon as they went live. So one of the things we did is we just we just put that restaurant, front and center until they got their first order.
You know, like was there an attempt to try and deliver orders through GrubHub in a form factor and through their system in a way that didn’t look super different than orders they would typically take I mean, I imagine most orders would come through on the phone, but not requiring them to adapt and change their entire process by Picking up a sheet from the fax machine or looking at an email, you know, that can help streamline and reduce friction to your earlier point at the top.
The very start when we switched to online ordering, what made me I was at BTS bagels, which is a place on tui, new to the north side of Chicago. And I noticed he had a fax machine. The guy’s name is Eric and Eric had a fax machine in the back, not in the back, just behind the cash, the cash register. And I thought, I think I’ve seen a lot of fax machines, I’ve been signing up these restaurants. And so the first first online order, you know, I had already been scanning menus and typing them out for SEO value. And so I actually like created an experiment where I just took those or those already digitized menus, put up an online ordering interface using them and then just started faxing orders. And it turned out that something north of 90% of restaurants had fax machines. So with fax the order, and then I built a phone system that would call the restaurant say hey, you just got to fax type in the number on the bottom to confirm that you’ve received this order. And so that was the start. But you know, I’ve been involved with a lot of marketplace businesses. And one of the things that’s sort of universally true, is if if you don’t provide enough activity to matter to their bottom line, they will ignore you. You can’t get the calendar of availability from a salon unless you drive north of 40% of their business. And so marketplace businesses
that don’t do enough on the for the supply. They don’t get attention, right. So at first it was a little bit of attention grabber. But we did get pretty quickly get to the point where we were driving over 50% of most of our restaurants business, which is wild, right, like that happens. That happened well before the IPO for the restaurants in Chicago. And so yeah, at first there was a little bit of a like blinking light, like, Hey, pay attention to us. But then the thing that really drove adoption in the long term was just being significant to the business in terms of their bottom line. Yep.
And then how about the other side of the market? Right? How did you build awareness with consumers and you know, build up that volume of, of demand transactions?
Yeah. So marketplace, businesses, where you have a demand group that you need to work with and a supply group they need to work with, you need to cheat, you need to cheat one side, you have to have you and by cheat, what I mean is you have to create value for either the demand or the supply. That’s not dependent on the other side being there yet. So what we did is we cheated on the supply side. And the way we did is we got all of the menus in an area and we scanned and digitized them all. So you could get any menu for any restaurant that delivered on our website. And so that before there was any online ordering. And so that did two things. Yeah, it made it valuable for the people who came to the website, because there was information that they found valuable. And it made it indexable by Google. And so Google was sending us traffic through SEO. And so we we cheated by creating value for the consumers before we had signed up a single restaurant. And this actually became part of our market launch playbook where we go into a city and get all the restaurants, menus, put them online, usually about 60 days before we started doing our first consumer online ordering. And then we’d start signing up restaurants. So we get to that 8% critical mass, or at least we had some online ordering. So by the time we like officially launched and started doing online ordering, for consumers, we already had something really valuable. And so when we did an advertisement on radio or whatever, we had something that a consumer could come down what we call them diners, not consumers, but a diner can come and, and really get a lot of value before we even did any sales. And that meant we we captured a lot of consumers pretty quickly, which then was the value for the restaurants.
Love it. Would you get menus from restaurants that didn’t deliver as well?
No, no, that was that was a pivot we attempted early. Like in the middle of the business. That was a pretty bad failure. Literally in Chicago and San Francisco. I walked the entire city, picking up menus, there was no like trick to this. I didn’t like I didn’t crowdsource it. I couldn’t I couldn’t send I couldn’t ask the restaurants to set like they didn’t want to bother with me. And so the only solution was like, just walk the city and eventually we ended up hiring Craigslist folks to do that. There was one particular person who we we had a codename for him. His name was shoe leather, because he just liked walking and he just like watched most of the cities of America for us just picking up menus. But we wouldn’t say his name anywhere because he didn’t want any of the other competitors to snatch and he ended up becoming a salesperson and being really great. But yeah, getting those menus was a was it was a bit of a hack to get the share value on the supply side before the consumers even showed up.
Love it. Yeah, I remember now that you said I remember seeing images of these little trifold menus on on the website way back in the day before everything was digitized. And you know, actual text you could just see the the actual menu itself.
Some of them weren’t even focused. That was I had the scanner next to my computer Actually, after the first like five winner menus, I didn’t even do that. And we hired Jack, who was our graphic designer. He’s the one who created the GrubHub brands. But, you know, when I hired him, he was working at Haagen Dazs. And he was like, he had a graphic design degree. And I was like, Can you scan and crop menus for me, and that’s that was like his whole job for the first year of the business. And he ended up creating a, you know, a brand that was used in a Superbowl ad, because the opportunity that sort of comes along for people who work in startups is like that, like, you start out doing something ridiculous, like scanning and cropping menus, and then you end up creating a brand that’s used in the Superbowl. So it’s, yeah.
Amazing. So So Mike, your business was geocentric. You and I were talking about this before the interview. But you know, how did you know when a region was working, and when it was time to launch in new cities.
So at first, it was hard, right? At first I did Chicago, I didn’t really have a plan. And then San Francisco, I tried, it didn’t work, because for a variety of reasons, which I didn’t really understand till later. And then and then as we launched markets, we got better at it. But the thing that we learned after doing four or five markets was get the menus first, get them up super early enough that Google would index them, and you start to get traffic for humans tried starting sales. And then once we started sales, there was a threshold of 8% of the restaurants, we call that critical mass, we needed to get 8% of the restaurants live by t equals zero by launch day. And then the market grew from launched to like self sustaining is sort of the way we thought of it at around 20% of the restaurants were signed up. And then and then from there, it was just a matter of they made ever increasing margin, the more restaurants we signed up.
Got it. You talked before about, you know you experimented with with getting menus for for restaurants that did not deliver. I’m curious, were there any major or even minor pivots that you went through as a business that you had to make a big shifts and make a difficult change in order to kind of break through and make the whole GrubHub model work?
Yeah, I think early on, I spent a lot of time thinking about partnerships. And, Nick, you and I talked about this a little bit board meetings. So the one we had a partnership with the sun times where we provided, which is a newspaper here in Chicago. And we provided the restaurant delivery guide for their for their website, and it was branded as a Sunday, it was a white label branded, sometimes saying and the reason was I wanted to get the newspapers, inbound links to drive SEO. But that partnership costs a tremendous amount of energy and effort and technical time to just get it up and running and to keep it running. And it feels like there was 100 Different things like this, where I tried all these partnerships, I tried different types of guerrilla marketing, I tried, I tried different things with other entities. And in the end, I came to this conclusion that all partnerships are a waste of time. If you’re trying to get consumer signed up, there’s nothing better than going and asking consumer directly to use your products, and then getting them to ask their friends. And so direct marketing to consumers and referral marketing. Over time we became ever more focused on that’s the only thing that matters. partnerships come about for two reasons. One, either there’s some entity that has access to a lot of consumers that you you’d like to get access to them and you try to work out a deal or two people see that your company is successful, and they kind of want to ride your coattails. Neither one of those actually drive transactions like and so I I’m sure there are exceptions, and they’re the exceptions are pretty, pretty meaningful, right? When when they work, but I wonder if you’re more likely to win a lotto than actually set up a partnership that actually drives things. And so one of the pivots was when we just put the blinders on and started ignoring this attempts to work with other companies to drive consumer adoption. Now, this is a construct to consumer advertising brands business. This is very different from a SaaS company or a b2b company or an enterprise sales company. Those are all very different. And even on the sales side, we tried to work in partnership, we tried working in partnership with Cisco, we tried to work in partnership with this never came to fruition but we tried to do partnerships that Aloha which the POS systems, which are the things that you put type your order into in the restaurant, and we tried everything and in the end, man if I if I just not if I had just been more like the business letter. I mean, it grew fast anyway, but I think it would have grown quite a bit faster if we hadn’t wasted all that time and energy.
Interesting. Yeah, found if we’ve had four successful consumer startups, and each of them pursued some partnerships early, and none of them had success with partnerships. They just wasted a lot of time and then they’ve kind of given that advice to our other founders, but I have seen it work on on the b2b side and usually it’s in channels sales where both entities can increase their top line by By working together, but haven’t seen it work much on the consumer side. You know, Mike, I’m curious, what advice would you give to marketplace startup founders in regards to scaling?
Yeah, so the first thing is cheat, you have to cheat the chicken and the egg problem, do not try to solve it through brute force, you have to find some value for one sided for one or the other side of the network, that’s not dependent. On the other side. If you cheat, you have cheating, find something that’s valuable to consumers that doesn’t rely on you signing up supply, or something that’s valuable to supply that doesn’t rely on you signing consumers. And that’s a hard, that’s a tall order. We did it with the menus, but there’s you got to have some hook that proved creates value early for one of the sides, one of the marketplaces that’s not dependent on sales. So that’s sort of step one. Step two is the obvious one, which is the more supply that you have, the more value has to create for the demand. And the more demand you have creates more value for supply if you cheat in terms of the chicken and the egg
problem. The other problem, the other issue, as long as your business is designed, well, that should take care of itself. And then I guess the other thing I would say is, if your product is really good, and demand benefits from supply and supply, demand, and it benefits demand, then every time like a board member or investor tells you to spend more on marketing, just say no products drives adoption, then then you don’t look at GrubHub and DoorDash. And Uber Eats right now, they charge enormous fees to consumers. And they charge enormous fees to restaurants. So one would think, hey, maybe they’re highly profitable, but they’re not highly profitable. Because all of that money is going for these ridiculous consumer acquisition costs north of $160, to acquire a consumer. So all of that costs the consumers and suppliers, it’s just going to Google in the end, it’s all just going to Google to make them margin, you cannot win a competitive fight by spending more for customers, you have to either have a higher conversion rate, or have a higher retention rate or have a higher referral rate, you have to have something that means your spend on Google is somehow more efficient than your competitors. And that I’m not saying don’t spend on marketing, I’m saying don’t race to the bottom in terms of your margin, by giving it all away to to, to consumer acquisition costs.
It’s a challenge in today’s environment, right? Because if you’re a startup that isn’t uniquely differentiated from everyone else, if you’re trying to address a big problem, and you have some competitors, there’s a lot of ventured out dollars floating around and you know, those that take a lot of venture dollars, and in turn give those to Google in the form of advertising. They’re gonna grow faster. And it may be a leaky funnel or a leaky bucket, but at least the optics would appear that one has momentum, whereas, you know, the other is growing much more slowly. And methodically.
Yeah, I mean, I think to some degree, you know, investors take a portfolio approach, they will, they want to, if they invest in 10, businesses, they expect six of them go out of business, two of them will return the what was invested, one will return 3x. And then hopefully, one will be a Grand Slam or some set of ratios related similar with that. So what I what I’m talking about is taking a marketing approach that spends up to the efficient frontier, where you’re not spending more per consumer than LTV, basically, once you start hitting diminishing returns, that are really steep stop spending on that channel. And that happens fairly quickly, a Google probably happens in the 25 to $45, consumer acquisition costs sort of range, not the 150 $160 that a lot of VCs nowadays might see it as acceptable depends on how much revenue you’re generating on the back end, for sure. And so taking the approach of like product first, marketing, conversion second, and then only spend as as is efficient, requires finding or convincing investors that what you’re going to do is you’re going to change the ratio of you might not be the Grand Slam, but you’re way more likely to be a homerun, you’re way more less likely to be the zero, that doesn’t return anything, because you’re being thoughtful about your approach. And I got to tell you, a lot of VCs don’t like that message, the idea that you your business is less risky, as opposed to more likely to have a huge return. Most VCs don’t don’t appreciate that message. And I’ve had several shut the door on me because I gave that message. And so it’s I mean, it can be tricky. It can be tricky. But it mean, this as the CEO, you have to have some competence. And once investors spend more you have to say, counsel, like it sounds like you got to know your audience, but you can’t let the tail wag the dog.
Right. Yeah, you can’t let you can’t just, you know, serve up exactly what investors want to hear. Because you have to have some conviction and some contrarian thoughts about how your model can work.
Yeah, absolutely. I like contrarian thinkers a lot. I mean, I am one, hopefully.
So that’s why we’re working together. You know, talk to me a bit about NPS Do you believe in it? And you know, what’s your Northstar on determining A customer willingness to pay.
Oh, can I get my soapbox out first about NPS? I frickin hate NPS. And here’s why. Let me take a step back and take a step back. I’m gonna tell you a story about two burritos. And this this story is in my book hangry which is coming out here in a few months. And you can go on Mike evans.com and sign up for a sign up for the pre order link. Please go do story of two burritos there’s there’s Garcia’s, which is a great Mexican restaurant in Lincoln Square in Chicago, and Carbone, which is a great Mexican restaurant on the south side. Garcia’s had the highest rated burrito on grub hubs network, and Carbone had the highest repeat ordered burrito on Grubhub’s network. Which of those two burritos is better? It’s not the one that people say is the best. It’s the one that people actually order the most. So let’s talk about MPLS. There’s a cult following around the idea that you should ask your customers if they would refer you, which is an interesting and useful signal. But you know, it’s a better signal, asking your customers to actually refer you and measuring how many actually do because not only is it a good signal, it actually drives more customers, I cannot get my head wrapped around the idea of asking a customer what they might do instead of actually asking them to do it. And yeah, I mean, it’s the same thing behind market research. If you’re thinking about starting a new startup, and you ask 100 people, if they might if they would buy your product, 100 of them are gonna say yes. Everybody says yes to that question. versus asking 100 people to actually buy your product and seeing how many do which is going to be like, three, it’s not going to be so true. And get that number three up to 20. And you’ve got a real business, right? Getting 1000 People say they would buy you or 1000 people say they would refer you or 1000 People say that your burritos the best burrito is none of those signals are as powerful as 20 Actually ordering, or 10 actually reordering that burrito, or five customers X are referring your business. And so this is the thing that we do at Pitzer, we don’t measure NPS and I tell you we’ve had investors turned us down for this reason. They’re like you don’t measure NPS. And I’m like, Guys, please just actually ask your customers to refer you stop with the theoretical. Alright, I’ve got off myself.
I love it. I mean, we just recently featured another founder from our portfolio very successful founder Kevin Frechette, a fair market, raised his B round from GGV and Insight. And he was talking about this concept of earned revenue over NPS. And it’s earn revenue is a metric that measures how much referral business your customers have actually brought in to your business, not just their intent to potentially, you know, suggest to their friends that they should buy weight.
And another thing is the other problem with NPS, no one that’s ever measured has ever gotten below 85%. I’ve never seen anyone ever report a low NPS number, even like, so there’s something about the measurement that like either people do it in a biased way. Or I just I also just don’t believe it when people tell me they have high NPS. Yeah, that’s a good point.
That’s a good point. Or I’ve seen, you know, founders will exclude a cohort, they’ll be like, well, you know, the product was broken or whatever, during this cohort. So we excluded that from the NPS. It’s kind of funny. So Mike, you know, I started investing.
Have you ever experienced a company that didn’t have a broken product? Our products broken? God loves? Right, it was broken. There’s no such thing as a not broken product. They’re all broken in some way.
Yeah, that’s a good point ever evolving, right? Yeah. So Mike, I started angel investing in Chicago in 2013, moved back to Chicago from out west. And it was shocking. The financing environment here was shocking. At the time. I remember going to an angel meeting and talking about convertible notes. And nobody at the meeting knew what our cap was on convertible notes. And the number of VCs in town, you could count on one hand. So I am suspecting you did your seed round somewhere between Oh, four, no, six. You know, how were you?
There was oh, seven was? Okay. Yeah.
So how were you able to raise those initial rounds of funding and who did you raise from?
So we raised from Origin, Origin Ventures, the company had, I had been running it for four years. By the time we raised financing, and we made we’re making a million in revenue. And we’re profitable at the time that I raised financing. So largely, we skipped the seed round, and we were doing a series a but the, I think that we would have been we would have gotten a better term sheet if we had just gone out to Silicon Valley, for sure. Because that that was like a real meaningful, positive business. Aside from the fact that Silicon Valley investors didn’t want to fly to Chicago to do board meetings. So that would have been hard to get a Series A or C You’re seriously depending on how you how you perceive it at the time. But origin was really good for us. They invested a lot of time and energy and making sure the business evolved in the correct way. And I learned a lot from them when that was happening. And so it took a lot. And we won the University of Chicago’s New Venture Challenge. Prior to that, when we had a million dollars in revenue, profitably, and had won a competition, by the time we finally got a VC in Chicago to invest in us.
No angels before that? Like, wow, okay. And so if we fast forward here, you’re pitching on sandhill. Road, it’s 2010 timeframe, you take an $11 million series see from Benchmark, and I know you got term sheets from Battery, Sequoia and Benchmark. At this point in the business, did you feel some leverage shifts? And ultimately, how did you decide to partner with Bill Gurley and folks at Benchmark?
I mean, when you when you go to Silicon Valley, and the partners, the partnership and Benchmark moves their meeting up so they can get in front of Sequoia, you know, you’re probably onto something.
Right. And, and we got term sheets from from both of them and from battery, right. And we had meetings with insight, or with Accel and with we had a lot of meetings to be on them. I felt something shift in that we had about, I think if I remember correctly, around 15,000 restaurants on the platform by then we were growing, we were profitable prior to taking that we were profitable prior to taking the Series A, we were profitable. Before we took the series B we were profitable for Serie C, we were profitable for Series II, we were profitable for the IPO. Right, and we were profitable for several quarters after the IPO. So like the business was not run for growth at all costs kind of mentality. There was always a mix between Okay, doubling every year, get the margin positive. Like we we were thoughtful while making the business a going concern, which was a typical for startups. It’s a it was a typical band. It’s a typical now, right? And, yeah, we had we had a ton of leverage, we had a successful business. The other thing that happened that was happening simultaneously with raising that financing was we got our iPhone app out in the first 100 apps. We were one of the very first on the App Store. And part of that was because I don’t know if you remember the iPhone version one came out, there was no app store on it yet. The apps didn’t come till about a year later. But that first iPhone came out, you know, I had it from the store that first day. And I had a jailbroken and cracked the second day. And we wsere writing apps for it. Day three, a year before the the App Store came out. And so we went through a few iterations of the iPhone app before the App Store was even launched. So when they did launch, we were very fast to get our app up. And that helps. I mean, at the time, we had a whole campaign started with with Apple where they were going to advertise us Zoey Deschanel was going to be the be the spokesperson. And then they got shelves for Siri dammit. It was really annoying. It was really annoying. But but still like having, you know, we had the first online ordering app up on the App Store. And then very quickly, within weeks, there were four or five others, but all the other ones weren’t connected to the huge restaurant network that we had already built. And so it wasn’t just an app, it was an app that worked. So I mean, that that really fueled huge growth, post seriousIy, to the point where we actually never spent much of the money like the the $11 million. Like, we also within within a week of the 11 million, we raised 20 million from DAG, which does follow on investments for Benchmark and Sequoia. And so we had $31 million in the bank. And it never dropped below, like 25 million, like we were 22 or something like that, like we got profitable really quickly, then again, after taking that investment.
So then how the decision to go public, you know, what drove that decision and talk to us a bit about the process and sort of the relationship was seamless, and how that affected you know, the valuation?
Yeah. So we went through the process of going public did all the filing went through the entire thing with the SEC. And then the day that we were going to make that filing public are given already leaked, but we like to the press, but the day we were actually officially going to make it go public, and then start the roadshow like the next week. I mean, we it was literally that day, like we had somebody sitting across from the SEC, a lawyer ready to go bring the fight and bring the papers in. During the negotiations with Seamless about whether or not we would merger and I gotta tell you going to file for an IPO in 10 minutes is a great bet now it makes for really good negotiating leverage. Because Seamless couldn’t go well because we were national. But we were going to have trouble going public as Seamless was so strong in Manhattan where all the investment bankers were so you know, it was it was the as Bill Gurley likes to say it was the it was the fight of dueling, but blowfish, both sides trying to be like no, we’re bigger. No, we’re bigger. And so eventually it was a merger of equals close to a 50/50 split. And then it was at that time so we went through the merger, I ran the merger and that A time we we then failed to do the IPO as a combined company in 2014.
Got it. So I read the prologue to your book, and you have a pretty illustrative story about a cockroach infested motel room and your decision to ride your bike across the country. Tell us a bit about your Forrest Gump experience and how you made the decision.
I’m tired now. Yeah, I mean, I started the company in my apartment. And the IPO seemed like a great finish line to me, you know, the one of the challenges the company was starting to have, I could see it coming that public investors were going to drive quarterly, quarterly earnings return, that demanded that we grew at a certain rate, which meant all the stuff I just said around being operationally efficient, and marketing efficient was going to go out the window, and it was just going to chase growth. And because of that, the customer service differentiation went out the window to and the quality and so because of that, it just became a commoditized product. And I could see, I could see the writing on the wall. And I was like, I don’t know how to fight that. From a public investor standpoint, unless like I have, you know, 20 or 20% of the company, I are in control of the board. But I had been planning on leaving at the IPO. And so I left. And then I spent three months just riding my bike across the country trying to get my head on straight. There’s, there’s something about being on a private jet, and investment bankers telling you that you’re the best thing in the world, that’s just really easy to believe, right? And wealth changes people. And I don’t necessarily think it changes people for the better. And so I wanted to like, sort of get back to like, what is it I’m going to do with the rest of my life. And so that’s why I took the bike ride across the country, it was great. I mean, everyone should, it seeing the country at 10 miles per hour was, it was amazing. You know, the stuff you see on TV, about strife and conflict and division, you don’t see it. When you go from town to town, you see people being kind and thoughtful and generous and accepting. There’s a lot of anger, sure, like around like Job outsourcing and the people two towns over. But I just experienced this amazing amount of kindness and generosity and compassion as I just went from town to town. And it sort of made me an underlying the kind of person I want it to be, which is, it’s just hard going through an IPO getting a bunch of wealth, like having created this huge company, it can be hard to sort of stay grounded. And so hopefully I’ve I’ve had some success with that. But part of it was just seeing the country at 10 miles per hour and talking to people.
Amazing. So you had the ride the long ride, and you took some time off. And then you launched fixer, you know, congrats on a sensational quarter. By the way, it’s been a nice ride, no pun intended. But tell the audience a bit about fixer. And you know how it’s different from typical gig economy companies.
So Fixer is a tech enabled service company, which is a fancy way of saying that we’re really homeowner focused in terms of people want to be able to use remote control to get stuff fixed in their home. And they don’t, they want to click two buttons, and they want somebody show up, who knows what they’re doing to fix the things that are broken. And so that’s what we provide. And the the trick to it, in addition to the software fancy software we written is that we have w two employees, we trained from scratch, to do the work. And so because we have highly retained highly skilled workers, the x the what actually happens in the home is things actually get fixed, right. And when somebody and we actually show up on time, and it’s, it’s hard to do that with a gig economy model, because you really don’t know the quality or the consistency of the people that you’re sending into somebody else’s home. And so we thought, with a lack of supply of skilled workers, if we open a training program and train people ourselves, and we can control how people work, and when they show up, and get people who are really committed to quality and to end with a really great work ethic. If that’s what our workers have, then the consumer experience is gonna be great. That’s the headline. The details are it took us five years to figure out how to actually make that work in the midst of a pandemic. And so now now that we’re here, you know, the company is growing extraordinarily fast, faster than GrubHub ever did. And we’re like, we’re on our way. We’re in five cities, and we’re on our way to becoming a national, the national brand for handy people. And it’s, it’s not a typical playbook. Most startups don’t think I’m gonna I’m gonna hire 40,000 w two employees to do this work. But like for us, we’re like, Yeah, let’s do it. Let’s, let’s, that’s the differentiation, let’s, let’s get good at hiring people to get good at retaining them. Let’s create policies that make people want to work here. And let’s just double down on that on being a people friendly. And then it’s an impact business in that the people who come and work for us, you know, it’s an entry level path into the trades, but the economic mobility for the people who come and work for us is very high, you know, a person goes from, you know, starting with us and a trainee trainee may start with us between 40,000 A year and 45,000 for that first year, but it can very quickly get Up to 6570 $75,000 a year, within the first couple of years of, of working, and that’s, that’s great, that’s a great entry, it’s a heck of a lot better than going to work at McDonald’s, right. And it’s a heck of a lot better than being a GrubHub driver, to be honest. And so that’s what we’re trying to create is is an alternative to going to college that’s a really good economic mobility path and creates a good consumer experience.
So Mike, it sounds complicated. And it sounds expensive, right? Like, if you have w two employees, the assumption is the service level is higher. But there’s reasons why lots of these big tech companies like the Ubers of the world, they don’t, right, there’s utilization challenges. And it can be more expensive to put somebody on your payroll and pay them a fixed period, if if they’re underutilized. You know, how do you pull this off? How do you keep utilization high service level high in margins in a place that they’re strong enough that you know, you can produce some real margin dollars with the model?
Yeah, I think there’s a huge difference between between drivers, and skilled laborers, out of 350 million people in United States, what 80 million of them can drive or 90 million or 100 million, something like that. I don’t even know what the numbers are. But it’s not hard to find people who already have the skill. And so that works for gig economy, because a lot of people have the skill. Being a trades person takes a much higher level of skill, and there isn’t, the supply of them is not sufficient relative to the demand. And so the our approach is we’re going to train people from scratch. And so when you invest in people, the thing that limits scaling is not how fast you can acquire them, but how well you can retain them. And so since retention is the key number for us to be able to scale quickly, it doesn’t lend itself well to a gig economy model. And so when you look at a lot of those other those other gig economy things, one of the things it’s hard for the workers is they don’t improve their skills over time, like they don’t become more marketable as a worker, they don’t they don’t have economic mobility. And so that I mean, that’s the fundamental behind our business. So is it going to be as high margin as, as Uber or GrubHub? In terms of it costs us a lot to have those workers? Well, at first glance, the answer is no, because it costs us more to actually provide the service, right. But because we have a service that’s differentiated, we don’t have to spend as much on marketing as they do, right, we don’t have to spend $160 to acquire a new consumer, because the work that we do actually works, and we get that earned revenue in the back end, we get people who refer and repeat. And so the margin comes from not having to spend as much money on marketing, even though the the actual providing of the service is a little bit more expensive.
Yeah, I was gonna ask, I know, you’re not a fan of NPS, you know, what have the reorder rates been for Fixer?
It surprises investors to find out that one, somebody uses our service, having us come every month is a reasonable thing to do. Most people wouldn’t think that a handy person services a 12 times a year kind of a product. It absolutely is it actually needs to be more than that. Because when the mother in law’s coming over, the list gets long. And so we go a few times in a month. And so it’s good. I mean, our customer retention is very high and our referral rates are, are good, could be better.
It’s amazing how negligent I’ve been in my own home for periods of time, because, you know, I don’t have the right tool to fix the door hinge for instance, or, or the know how, and so many of these things accumulate and frustrate either myself or my wife. And you know, we have helped cleaning that the home, you know, every couple of weeks, and now that Fixer exists, it’s it’s like, it makes the home experience more delightful, and less frustrating. Because things are actually fixed. You know, regularly, homes break, constantly, things are breaking.
And there’s this shifts between that happened somewhere at Gen X, or maybe later, which is What tool do you need to get a pizza? Do you need a pizza? Do you need an oven and a pizza? Stone? No, you need GrubHub? What tools do you need to get from point A to B? Do you need a car? No, you need Uber? What tool do you need to fix your drywall? Do you need a like a mud knife? And a bucket? No. You need fixer like fixer is the tool. Yeah, now, you still got the thing fixed in your home. We were just the tool.
And I think there’s a shift like in the mentality where I don’t have to be able to do everything by myself. Just having the mental load of like, Oh, I’m going to order a GrubHub or I’m going to order an Uber or I’m going to order a Fixer. That is the work that you have to do and then you can focus on on doing the things that you really want and are good at instead.
Yeah, I never told you this, but I moved out of an office in Naperville some time ago and I pulled this sticky whiteboard paper off the wall and it took the drywall with it. It was a mess. I don’t want to tell you how much my office landlord wanted to charge me for that but quick fixer and you know in I think it was about an hour hour and a half. You know, very inexpensive fix and we’re good to go. I got my full security deposit back. So thank you. Mike is there, you know, you talked about this makes you really happy? I should do a testimonial. Mike, you know, you talked about this menu hack that you had in the early days of GrubHub. Is there an equivalent for Fixer?
You know, we believe that the supply of skilled workers is is insufficient relative demand. But to train to train people from scratch, you need experienced people and so that the hack early at Fixer was pay experienced fixers a lot to come and work for us so that they could then train novices. And that we, when we go into a new market, we just pay more. And that’s that’s the hack, which usually dollars is not the hack, but dollars towards a creating, creating a system that can be self perpetuating and growing by itself. That’s the hack that we’ve done.
Mike talk about the long term vision for Fixer. And what you’re planning to build here.
Our ridiculous goal is for Fixer to reboot trade education in the United States. And if we get to the point where we have 40, 50, 60,000 workers who are going into people’s homes and creating quality fixes and installs for people, and it’s a revolving door of 15,000 people who leave every year to go start their own electrician company, or plumbing company or roofing company, and 15,000 new trainees come in, and we are in a meaningful way, increasing the number of trades people that this country has, and creating economic mobility for them, that success for the business. You know, people ask me, like, what are you going to IPO, you’re going to sell the Thumbtack and I said this in the board meetings, like I’d be happy to buy Thumbtack, we’re not selling to anybody. Our exit strategy is be the 800 pound gorilla. And I make no bones about it. This is this company is going to be very large.
Mike, if we can feature anyone on the show, who do you think we should interview and what topic would you like to hear them speak about?
You know, you just have to Vijen. Who started Tide. What is now Tide Cleaners was Pressed. Yeah, just launched a new VC. And, man, he’s feisty.
Okay. Well, he’s good. He’s great. I had dinner with him last week. He’s superstar. Awesome. We’ll do. Mike, do you have any tools or hacks that are a secret weapon?
You know, the thing that I’ve discovered in the last couple years is more and more people at our organization have virtual assistants who work about 10 to 15 hours and handle a different various set of things. I thought about the idea that every software developer should have an executive assistant to or a virtual assistant, just to, you know, be a multiplier on the amount of productivity that they have. And I think that’s true for executives as well. You know, I think a lot of people view executive assistants or virtual assistants as a luxury, or a sign of inefficiency. But I think there’s sort of a, an effort multiplier. And so I think I’d say that’s my that’s one of my sort of secret weapons, is make sure you all your team is appropriately supported with assistance. Awesome.
Finally here Mike, what’s the best way for listeners to connect with you and follow along with Fixer?
Yeah, so go on MikeEvans.com. And sign up for the pre order link for Hangry. You know, I’ve got a book where I talk about all this stuff. I think it’s pretty funny. Some of my editors think it’s pretty funny. We’ll sit with you and think when it’s finally done, which is going to happen in 13 days, I submit the final book to the publisher. So yeah, if you go to Mike evans.com, you can sign up for that pre order link and see, you know, follow me through the publishing journey.
Well, the man is Mike Evans, the book is hangry and the business is fixer, Mike, always a pleasure.
Thanks for joining us today. Really enjoyed the conversation and and thanks for all the insights on the founding of GrubHub.
Sure, thanks. Good talking to Nick.
Transcribed by https://otter.ai
