Optimize for quality and productivity in your marketplace with Josh Breinlinger (Jackson Square Ventures)

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Sjoerd Handgraaf: [00:00:30] Hi, I'm Sjoerd and I am your host and this episode. I talked to Josh Breinlinger. Josh was one of the earliest said oDesk, which nowadays is Upwork later. He was a cofounder of rev.com a marketplace for audio transcriptions. And nowadays he's managing director at Jackson square ventures, a venture capital firm. He also keeps a blog at www.acrowdedspace.com, which has some great content on marketplaces. And basically he just really, really loves marketplaces. So I had to talk to him. We talk about the role of quality. Business to business marketplaces, but also the opportunities and threats that marketplaces may have inthe current pandemic situation. I thought it was a very interesting conversation. I hope you think so too. And let's dive straight in. Oh, hi, Josh. And welcome to the podcast.

Josh Breinlinger: [00:01:23] Thanks for having me thrilled to be here.

Sjoerd Handgraaf: [00:01:25] Yeah. We talked a couple of times before I interviewed you also for our backstage series suites was really great. So nowadays you are a managing director at the Jackson square ventures, which has several marketplace companies in the portfolio. But before we dive too deep into investments, you weren't always an investor. And in fact, you have actually some serious working experience in several marketplaces, like oDesk and riff. Could you tell me a little bit about how that

Josh Breinlinger: [00:01:47] went for you? Yeah, for sure. So I grew up in New Hampshire, part of a nerdy engineering family, where everybody was an engineer. So dad went to MIT, brother, went to MIT and I followed in the footsteps and became a mechanical engineer initially. And I did that for about four years in Boston, but then one of my closest friends joined the founding team at oDesk way back in 2004. And shortly after that, he invited me to join the team as one of the founding members. And honestly, at first I was very confused because I was a mechanical engineer and they basically wanted me to run sales at this tiny little marketplace startup for freelance labor in Russia at the time.

Sjoerd Handgraaf: [00:02:27] Did people already call it marketplace then?

Josh Breinlinger: [00:02:28] So you'd be amazed how much. Internal debate. There was over whether or not we should call ourselves a marketplace in the end. I think reason won out and we did call ourselves a marketplace. So I joined in 2004 and you know, I still distinctly remember the very first sales call I ever made. I was probably 25 or something, and I was doing a demo of the oDesk platform. And the customer just took it away and they were like, Oh my gosh, this is amazing. And, you know, right from that first call, I was kind of hooked. I didn't really know the difference. And I was only 25. I didn't really know anything at that point, but the level of excitement about the ability to connect with freelancers anywhere in the world and, you know, do things like what we're doing now with. Screen-sharing and zoom, you know, none of those things existed back then. So I joined and I had just an absolutely fantastic five years at oDesk ran sales and then was kind of one of those early business generalist type. So I ran product community operations, marketing BizDev over my time there and just absolutely loved it and fell in love with marketplaces.

Sjoerd Handgraaf: [00:03:37] Is there anything that you already learned at oDesk that you still feel like, okay, this is something I always look for or like catches your eye whenever you look also at companies now.

Josh Breinlinger: [00:03:45] Yeah. There's a few of the obvious generic startup lessons. Like, you know, always hire the best and all those sort of things, but specific to marketplaces the thing that I took away the most, and one of the things that's just a constant priority for a company like oDesk, or obviously now Upwork. Yeah. Since the merger in public is this ruthless and relentless focus on quality and quality in a marketplace is one of the trickiest things. But it's one of my weird passions trying to understand and constantly optimize for quality. And I believe that if you're not careful, you can end up in a situation where you have this vicious cycle of quality. Where it just naturally declines over time. It invites all sorts of fraudsters into the ecosystem, or otherwise basically degrades over time. But if you design things correctly in your marketplace, you can actually have it be a virtuous cycle and quality continues to get better and better and better. And those are some of the most important lessons that I took away.

Sjoerd Handgraaf: [00:04:45] And then you went to rev, right? Like, what's that something you took to rev as well?

Josh Breinlinger: [00:04:49] Yeah. So with rev, after I left oDesk, I went to a company called ad role in the display advertising world for a little while. And then I sort of had a couple of years of kind of a transitional period, I guess, figuring out if I want it to be on the entrepreneur side or the investor side. Again, my close friend, Jason Chicola, who brought me into oDesk in the first place he was starting rev. And so I helped him get it started along with a few other friends and co-founders there and they've done phenomenally well, I was only active there for a few months, but I'm still on the board because what happened is I. Joined a venture firm. And I joined my partner, Greg Gretsch, who was the board member at oDesk, brought me into the venture capital world. And I decided that I really wanted to stay on that path.

Sjoerd Handgraaf: [00:05:33] Yeah. One more question about Dan versus now, were there things at the time, conventional wisdoms around marketplace businesses that

Josh Breinlinger: [00:05:40] are no longer true or

Sjoerd Handgraaf: [00:05:42] as well as

Josh Breinlinger: [00:05:42] things that are still very much true. Know, this is 15 years ago now, but the conventional wisdom back then was to do yeah. Things that look more like Craigslist or eBay, this, these open listing marketplaces. Don't try to. Manage quality. Don't try to get involved. Don't have a managed marketplace. And that dynamic has obviously completely changed. So more and more of the marketplaces that you see today are taking much more ownership of the quality problem. They're a fully managed marketplace and lifecycle, and they really want to deliver and be responsible for the quality of the people, the goods, the services, whatever it is that they're pursuing.

Sjoerd Handgraaf: [00:06:21] Yeah. So that's pretty interesting because I always think about Thumbtack. When I hear about this, who's still took

Josh Breinlinger: [00:06:28] a sort of Craigslist approach

Sjoerd Handgraaf: [00:06:30] by not being

Josh Breinlinger: [00:06:31] geographically constraint or

Sjoerd Handgraaf: [00:06:32] category constraint. How do you feel about Thumbtack and that perspective?

Josh Breinlinger: [00:06:37] So Thumbtack has done well and reached very real scale. I do think they have their work cut out for them on the quality side, because it's not an easy service and site to use. It's not always where. You know, the best plumber doesn't necessarily want to be bidding on jobs on a place like Thumbtack, but they have an exceptionally smart team and they're really working at all those angles. So, you know, I have confidence in them, but the other thing that this whole coven situation has sort of forced people to discover is that in many ways, horizontal marketplace is much more resilient than a vertical marketplace. You know, if you're selling bread machines or toilet paper, one of the categories that's expanding like crazy right now, that's probably fine, but there's obviously tons of verticals that are way down and a place like Thumbtack. That's a horizontal or a place like offer up where I'm on the board is. A horizontal peer-to-peer mobile marketplace, where you can literally find anything from sporting goods to cars, to furniture and iPhones, and some categories are growing up. Some categories are going down, but as a whole, it's actually seen record engagement right now.

Sjoerd Handgraaf: [00:07:47] Yeah, that's true. Yeah. I hadn't even thought about that. Of course. Like no one ever thought about a situation like this and tried to build this into their business model, but that's definitely a great situation for them. So now you're at Jackson square ventures. So I already mentioned a little bit about that. I love the quote of Thomas Edison on the page. It says opportunity is missed by most people because it is dressed in overalls and looks like work. So you say Jackson square ventures is antihype. Could you explain a little bit about that? I just love that quote.

Josh Breinlinger: [00:08:12] Yeah, thank you. That's all right. So Jackson square ventures. We're on our third fund, about 440 million total under management. And we do early stage SaaS and marketplaces broadly. So some of the companies you'll know are things like DocuSign offer up seismic. We've been very fortunate to be a part of some phenomenal companies, what we mean by anti hype. And I think we're the only venture firm that talks about this, but, you know, first of all, you can look through the whole portfolio and you won't find any. Crypto or drones or scooters or things like that. And. That's not because we're not interested in them. It's because we truly have no idea what's going to happen there. And so that's not where we focus. What we think about is, you know, first of all, everybody seemed to two by two, you can be consensus or non-consensus and you can be right or wrong. And the way to make lots of money in investing is to be both. Right. And non-consensus, so that's kind of accepted as a general rule in investing and we believe the hard part is okay. So how do you do that? And that's where we start to get into looking at things like the hype cycle. And so, you know, there are investors that invest super, super early. And I would say if you've seen the Gartner hype cycle, that's kind of the technology trigger. That's like frontier investing and we have a ton of respect for people that do that. But then you go through the peak of inflated expectations and frankly, that's where I think most investors place their bets and that's where we actively back off. And we don't want to be in that area. We want to be in a point where it's non-consensus and lower hype. And so we tend to look at things that are massive existing markets, so already well established. We also like companies that are using well understood technology. So there's not a massive amount of technical risk. And so frankly mobile is still to us. One of the most exciting technologies, it's not new, but it's very, very well understood. And then the last component is we like weak and fragmented incumbents and. If we have all those three things, we believe that's a really strong recipe for success. And that's how we do it.

Sjoerd Handgraaf: [00:10:10] Yeah. Actually about mobile. So in about offer up, actually that mentioned before, because I think that's a super interesting situation coming a little bit back to also what I tried to touch on earlier with the thumb tech thing, because like, well, I'm obviously simplifying, but like this sort of attempt at reinventing Craigslist, but not so much by going through vertical, but by some different medium, so many other companies have tried like here in Europe, I think there's 10 of them that some of them still going strong. I think lollipop is one. I'm sure you've thought about this. Why do you think that they nailed it? Like what did they do really, really well.

Josh Breinlinger: [00:10:38] So more than anything, Nick, the CEO and founder was just relentless and for a long time, it wasn't working, but he just kept at it and kept iterating and eventually found a way to get very high liquidity on a small local level. And so he started in Seattle and was able to get very, very high liquidity and in just a tiny, you know, a few zip codes. But that's all we needed to get things going and really prove that there was going to be this virtuous cycle. And there was going to be increasing liquidity. The, exactly what you hope for with network effects, more users, more liquidity means they post more items means they sell more items and you could really see the beginning of that flywheel spinning just on a very small scale. And then, you know, of course the rest is somewhat history over the last few years and they've done exceptionally well.

Sjoerd Handgraaf: [00:11:29] So we already touched a little bit about on what you mentioned also with offer up sort of being a COVID resistance. Of course, now it's crazy out there. Nobody expected this let's start actually. What, something you said, you mentioned a bit before, so like how should existing marketplaces adapts to this? And then I would like to also hear a little later, like, you know, which marketplace have opportunities here.

Josh Breinlinger: [00:11:49] For sure. So I think in this period, probably all seeing the hammer and the dance, you know, in this section of prolonged, you know, post COVID world, I think there's two things that marketplaces are going to be particularly good at, which is one flexibility. Because of the notion of increased flexibility is at a premium, right? You saw all the travel companies and airlines loosen all their cancellation policies and things like that. So that's going to continue to be at a premium and I believe marketplaces can do that very well because you might be able to. You know, buy and resell and put things back into the marketplace, flywheel. If it doesn't work out for whatever reason. So those things I think marketplaces can handle well. And then of course, there's just going to be a simple safety component and everybody will rethink how they. Ensure everyone's safety in the process, and there's a lot of things that everybody can do there. And there's also just going to be a lot more segmentation. So, you know, even a company like bus.com, where I'm on the board, and it's kind of like an Expedia for charter buses as well. You know, pretty obviously cancellation skyrocketed when this whole thing happened and people aren't doing group travel, but as things reemerged, there's new opportunities that we can go after. And so. You know, think about commuting to work, you know, do you want to take mass transit or would you rather take a private shuttle that has a procedure of. Disinfection and health checks and everything like that. And so there's, we don't know what they are yet and we'll all figure it out together, but I think it just means that companies need to be as agile and adaptable as ever, and really be able to pivot very quickly when they see new opportunities like that emerge.

Sjoerd Handgraaf: [00:13:28] Yeah. It's just a square of screen is still investing.

Josh Breinlinger: [00:13:32] We're certainly still investing, you know, fortunately we closed our third fund, the middle of last year. And we actually just hired a new partner as well. These been on board for I think, three weeks and I haven't seen him in person in two months.

Sjoerd Handgraaf: [00:13:47] Yeah, because so one thing I sort of skipped over about something that I'm still really curious about, because I know that you have some really great ideas about this. You already not mentioned like the sort of broader Jackson square ventures approach to finding a good company, but I know that you have a couple of things that you really like to see in the marketplace. I know for example, productivity is one. Could you tell a little bit more about those rules? Because I think they're super interesting for people listening.

Josh Breinlinger: [00:14:09] Yeah, generally speaking, I really like cost savings as a value prop. I believe that will always work for all time. You know, there are other value props that people can present, but for me, cost savings is just like, you can't go wrong. If you save people money, you know, that's a winner. And so the way to save people money is to just make some process that's really inefficient much more efficient and improve productivity of everyone, and then you can cut costs. And so that's what I look for in a lot of different marketplaces, you know, especially in B2B marketplaces of which there's a lot of talk about. One of the things that I think is a little bit of a change is. Yeah, the former conventional wisdom was, Hey, a marketplace could come in and then eliminate all these middlemen. And that's the way that you would improve productivity because you just take out, you know, some 20% of the pie and then the marketplace can take that well, in a lot of established industries, that's just not the right approach. So, you know, if you think about Zillow and Trulia and one that I'm on the board of craxy, which is a commercial real estate marketplace. They don't try to eliminate realtors. They embrace them and give them a platform that makes those realtors much more efficient. And those are the companies that have been successful in a lot of B2B marketplaces.

Sjoerd Handgraaf: [00:15:28] It's this one, some moderate people call this like SaaS enabled marketplace where you somehow you onboard to supply. Like the existing supplies are basically the real source in this case is somehow get or not truly the supply, but somehow they're still part of the supply. You onboard them by giving them great tools to be more efficient, productive, et cetera, and then sort of lock them into your marketplace. Or am I now reading into what you're saying?

Josh Breinlinger: [00:15:50] Yeah, I think that's absolutely part of it that that can be one approach. The other. And so, you know, you provide great software, make people more efficient, they're willing to pay for it because they can increase their business and everybody's happy. But for most marketplaces that I see, I think the important thing to understand is that the product is the liquidity, right? It's not about a really pretty user experience. It's about the interactions that you have on our marketplace. And so. You know, in the real estate world, the product is leads or in a used car marketplace. You know, if you're trying to sell a used car, it doesn't really matter that much what the app looks like. It matters. Did you find a high quality buyer really quickly? And so if someone can come along and figure out how to aggregate that demand quickly, Then you have something phenomenal that people will pay for. So, you know, a lot of times embracing them means just simply getting them more leads or getting them more business, which is ultimately what most people want.

Sjoerd Handgraaf: [00:16:47] I remember from the last time that we spoke, you said something so great about business to business marketplace, which is that one of the reasons why it hasn't taken off yet other people's money. Could you explain this one more time? Because I love that idea.

Josh Breinlinger: [00:17:00] So, you know, one of the things, when I was at oDesk, I used to sell to large companies and the pitch was like, Hey, you can save tons of money and you can scale globally and quickly and all these great things. But it's not easy. It's actually a fair amount of work. And Upwork is expanded to Hayden over there was doing a phenomenal job, making things better and better and easier, but that wasn't a compelling pitch because the cost savings didn't really work as well. When, you know, nobody was seeing it firsthand, you know, their option was, Hey, I could just hire someone locally, pay four times as much money, but it will probably be a little bit easier for me to manage. When it was a very small business or an individual that was spending their own money, they're extremely motivated by cost savings. So, you know, sometimes into the B2B world, the cost saving pitch doesn't work quite as well. You need to couple that with, I just see what is make their job easier somehow. So, you know, that can be by like dramatically increased convenience or turnaround time or a quality angle. My belief is the cost savings always. Need to be there, but it's sometimes not enough when it's purely a B2B setting. Yeah.

Sjoerd Handgraaf: [00:18:11] And there seems to be a division on a cause I've talked to a couple of investors in this space that for B to B marketplace, some people believe that that works best if you have an expert in the field. So someone who has worked in that while other people say, well, you know, domain knowledge is something that can be acquired. And where do you stand on

Josh Breinlinger: [00:18:28] that? I'm more in the camp of domain, knowledge can be acquired. And I think to drive pretty radical change, oftentimes it's nice to have a completely fresh perspective and someone that doesn't know how it's supposed to work. So they just reinvent it, how they think it should work. And I think those are many of the most interesting cases. You know, Alto pharmacy was founded by a group of people that had almost no experience in the pharmacy industry. And they've done exceptionally well. You know, craxy on the other hand, did have a ton of real estate experience, but, you know, I think oftentimes what I love about marketplaces is a lot of times the changes are like a match type of, you know, instead of the buyer picking the supplier, maybe the supplier should be picking the buyer. Or instead of pricing as a percentage of the transaction, maybe the right approach is make it all free, but charge a membership. And a lot of times it takes that completely fresh perspective to really try these big business model changes. And so I think that's often a benefit to having someone that doesn't know what they're doing when they start. All right. Great. Well,

Sjoerd Handgraaf: [00:19:29] this is great. Thanks a lot. Do you have any less lessons for people who are about to start a marketplace who are really early stage? What do you think they should look at?

Josh Breinlinger: [00:19:37] You know, sometimes I just browse through the Bureau of labor statistics to think about interesting opportunities or browse through, you know, taxonomies on places like offer up and stuff like that to see what's odd. But, you know, I think one thing more now than ever that I'm increasingly excited about is what marketplaces like Etsy do, which is really empower a new type of entrepreneurship and, you know, Etsy enabled. Millions of users to create their own business. And we need things like that right now. So I think that there's great opportunities there and you know, there's, people are motivated and if we can empower those individual entrepreneurs, the world will be in a much better place.

Sjoerd Handgraaf: [00:20:19] Alright, let's end on that. That was fantastic. Thanks a lot, Josh. Thanks for coming. And we'll be in touch.

Josh Breinlinger: [00:20:24] Awesome. I'll chat about marketplaces anytime. 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.