May 27, 2016 ยท 11 minutes

In the pantheon of mythological startup beast analogies, what to call Thumbtack?

An anti-unicorn? An inside-out unicorn? An inverted unicorn? We once called Frankenstein’s unicorn. (Whatever that means.)

The exact animal metaphor eludes me. But I actually mean it as a compliment. If a “unicorn” was originally coined to describe something rare and unique, perhaps Thumbtack is its own kind of unicorn.

In a time when a record number of companies achieved $1 billion valuations based on eyeballs, growth potential, and unsustainable burn rates, Thumbtack achieved a $1.3 billion valuation last year via very different means: Surprisingly large revenues, a burn rate of just a few million per month, and five to seven years of runway, according to interviews with the company and those close to it. Revenues that we are hearing are in the range of $100 million a year, with gross merchandize value of “well over” $1 billion per year.

Perhaps more shocking: CEO Marco Zappacosta says the company has raised every round with the exact same clean terms. Put another way: That $1+ billion price was earned, not gerrymandered.

What makes that revenue number so hard to believe? Almost no one seems to be using the service. $100 million in annual revenues-- the high end of the range I’ve heard in several weeks of interviews with those working at Thumbtack, pros using it, investors, other entrepreneurs and Thumbtack itself-- is less than half the revenues of, say, Postmates and a tiny fraction of a company like Uber.

But it’s remarkable for two reasons. The first is that Thumbtack is doing that without any broad, mainstream name recognition or brand. And the second is how much of the customer acquisition is organic. You’d be hard pressed to find many other consumer Internet unicorns that are this little known and have up to seven years of runway.

In an era of eyeballs over fundamentals, Thumbtack is all fundamentals and no eyeballs.

But is that as good as it sounds?

* * * *

There’s no real news peg for this story other than my own curiosity, although given how 2016 is shaping up, Thumbtack’s approach to date should draw the envy of unicorns everywhere. I started looking into Thumbtack a few weeks ago out mostly out of my own confusion: Literally the only time I heard it referenced in San Francisco was by one of its investors talking it up. And one of those was Jason Calacanis, a man who talked up Zirtual days before it closed shop.

Thumbtack isn’t widely used. There’s no city where it’s “a verb.” Many on demand companies struggle to work outside of San Francisco, but Thumbtack isn’t even hugely popular in San Francisco. It never gets name dropped in TV shows. If you search for Thumbtack on Twitter or look for reviews of the service on Google, not much comes up. Quantcast puts its monthly uniques at less than 1 million. (Although Thumbtack counters that’s wildly off.)

And in on demand, early adopter San Francisco, I’ve never heard of someone else using it. A lot of times, I figure I haven’t heard much about a company, because I’m not the demographic. But in this case, I am exactly the demographic. Zappacosta describes his ideal user thusly: A mom who owns her own home, has a couple of kids and is in the 35-55 age range. He may as well have said her name should also be “Sarah.”

I used it once out of sheer curiosity. I sought a cleaning service-- not exactly a fringe request for a site trading in professional services. I got exactly one bid on my job. They did a fine job. Still, I could have found more using the Yellow Pages. “We are still supply constrained,” admits Zappacosta. “We don’t want to spend more money bringing customers to the site when we’re constrained on suppliers.” Their stated goal shows how constrained they are: They dream of regularly providing three quotes for every job. Contrast that to how many Ubers and Postmates get blasted a potential job.

That certainly sounds like a would be market place that hasn’t cracked the all important chicken and egg question.

Indeed, from the outside and based on all anecdotal evidence, Thumbtack-- with its free food, splashy offices, and $1.3 billion round lead by foreign investment firm Baillie Gifford-- seems the posterchild of an overvalued, overhyped product of 2015.

On the inside it’s another matter: The shockingly high revenues based on such low penetration has investors excited that maybe Thumbtack will be the company to crack local, small business advertising on the Web-- something that Yahoo, Microsoft, Google, Yelp, Zaarly, Groupon and so many thousands of other companies have tried and mostly failed to do. I spoke with several early investors who were so bullish on the company that given the chance to sell their shares in the $1.3 billion round, they declined.

Their view: Thumbtack’s surprisingly high revenues and comparative low burn and gargantuan runway are a hedge against the way almost every other unicorn in the “gig” economy has been built.

* * * *

If you’ve read one of a handful of profiles on Thumbtack you know the mythology of the company: It spent years languishing in the desert with no one wanting to fund it. Some 42 rejections when they tried to raise a Series A in 2011. Zappacosta says it almost went under several times, and only didn’t because of the stubbornness of a team of six or so people who didn’t take salaries for years.

“It was pretty shitty,” Zappacosta says of the time. “But no one would concede that the problem wasn’t real. What we lost faith in was ourselves, not the idea.”

No doubt many VCs wondered why this team would be able to tap into all that massive local, small business purchasing power in a way that so many Internet giants hadn’t been able to. And for what? To be a souped up Angie’s List at the end of the day? A company trades well below a $1 billion market cap?

And then -- hallelujah!-- a macro venture market where nearly any idea that entailed helping people be their own boss intervened. After a slow start, the company has raised a whopping $273 million, most of in the roaring year of 2015.

Thumbtack’s most high profile investor is Bryan Schreier of Sequoia Capital. He was attracted to the company not because it looked like a modern Angie’s List, or even a better done Craigslist as another investor described it. But because it looked like a vertical search engine.

Vertical search engines-- for the uninitiated-- were even worse investments in the post-Google era than companies aiming at small business marketing. With a few exceptions like and, most of them failed to get any traction. It turned out Google was still a better alternative.

There was yet another reason no one wanted to invest early on: Thumbtack eschewed the normal playbook of rolling out city-by-city or focusing on, say, one professional group first, like Postmates focused its logistics on food but can actually deliver you all types of things. Thumbtack would just be everywhere, in every category now.

In the on demand world such a broad horizontal play has been a doomed playbook. Zaarly was also trying to help find local professionals and despite investors as splashy as Michael Arrington, Kleiner Perkins, and Ashton Kutcher, it failed. TaskRabbit is still around, but it was easily eclipsed by other vertical sharing economy plays like Uber, Lyft, and Airbnb.

VCs simply didn’t buy it. Ironically, that reinforced the strategy, Zappacosta says. Without funding, Thumbtack needed to spend as little as possible, and it worried that focusing on one area, say, helping you find a contractor or a plumber, would mean almost no repeat business unless something else broke.  And rolling out markets city by city is expensive. Without more funding, the company simply couldn’t afford it. And yet, the broad strategy was a big reason that Thumbtack couldn’t raise money.

That initial catch-22 is why the company is so uncommon today. It is spread incredibly thin through every county in the United States and nearly every category of professional. Zappacosta says there’s a paying Thumbtack professional in every single county, in fact. That winds up adding up to a lot -- “well over” $1 billion in services being bought and sold on the site.

And yet, there’s no clustering. “Our biggest category is just 4% of our business,” he says. He turned around his laptop to show me real time bids for jobs coming through the site. I looked down the list and there were cleaning services, personal trainers, plumbers, handymen, makeup artists, photographers, but almost none were repeated more than once.

When I argued this seemed like an exhausting way to build a marketplace, he added with a shrug: “You get to call us a masochist at least.”

We spent a lot of time debating whether this broad strategy was a feature or a bug of Thumbtack. Schreier makes the point that it’s like Google early on. No one knew anyone who clicked on those paid search links, but spread across the breadth of the world and the Web the clicks they got added up to a lot of money. There’s tremendous value in now building a recognized brand on top of that. And given Thumbtack’s existence of an actual business and balance sheet, that should be comparatively easy.

Thumbtack has grown organically, because its value proposition is simple: “Customers want to pay money for services. We sell revenue. People will pay for that,” Zappacosta says.  Pros pay when they get leads. They can accept them or not, and they don’t have to pay if they don’t want to bid on a job.

On the one hand, it’s impressive that 75% of its professionals were coming in via unpaid, organic avenues. The company got some 250,000 paying pros without a sales force, Zappacosta boasts. But on the other hand, this is a company that has raised more than $200 million in the last year alone. It’s a company with five to seven years of runway. Imagine what that growth would be if he threw even a modest sized amount of cash at growth. Many investors and entrepreneurs would argue with that kind or organic growth already, the company could be so much larger with some investment in growth.

When I made that argument, he shrugged again: “They are going to go out of business, and we are not.”

The biggest risk to the strategy is customers coming once, not getting a bid and never coming back again. As it seeks to build more of a consumer brand this year and bring more pros on the site, this is the single biggest balancing act the company will have to achieve. Zappacosta acknowledges the company doesn’t handle this well now. Thumbtack needs to at least provide a list of local professionals or point users to them, without eroding the value of the paid service. It’s something the company is working on, he says.

There are other growing pains. Some professional forums complain about the quality of the bids that come from Thumbtack, and that a customer will post a job, they’ll bid on it and pay Thumbtack a commission based on that posting, only to have the customer haggle them down on price. Thumbtack needs to play close attention to such gripes.

This may seem strange to those outside the Valley, but Zappacosta’s fear of going out of business was refreshing. In an era of companies who always think more money is around the corner, Zappacosta raised a shit load when he could and is -- compared to most unicorns-- stuffing it in his mattress. Sure, he offers free food and Thumbtack is moving into even fancier San Francisco offices. It offers its employees quarterly Thumbtack bucks to spend on the service. There are perks. And yet, it hasn’t over-hired. It has just 400 employees, spread between San Francisco and Salt Lake City. It has exactly one person in communications, and he rarely asks her to pitch anything.

Part of this is the scar tissue from running a company no one wanted to fund for so long. Part of it is confidence this is a huge market if he can manage not to fuck things up. And part is simply this: “I don’t think I’m going to have a better idea for a company,” Zappacosta says.

The lone chest-thumping thing Thumbtack seems to have done is declaring that $1.3 billion valuation last year. When I asked why, he didn’t have a great answer other than recruiting and everyone was doing it. “To some extent it’s a dumb vanity game,” he concedes.    

There’s another way Thumbtack differs from the better funded, freer spending unicorn elite. Zappacosta isn’t just disdainful of the tactics of the rest of the sharing economy. He’s disdainful of the whole schtick that the “gig” economy is the future of labor. “It’s basically just Uber and Lyft right now and that should not represent the future of work,” he says. “People should be using their talents and skills, and you should be empowered to make money off of those. [Driving a car to make extra money] isn’t empowering small business. That isn’t a career and we shouldn’t be modeling the conception of work around it.”

He adds that using talents and skills gives you a hell of a lot more job security than being an Uber or Lyft driver too: “You aren’t going to automate your plumber.”