Creating B2B2C Marketplaces Lessons from Wonolo - Jess Lee, Sequoia; Yong Kim, Wonolo

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Hi, I'm Jess Lee, partner at Sequoia Capital and a board member at Wonolo. This is Yong Kim. He's the CEO and co founder of Wonolo, which is an on demand staffing marketplace. They help blue collar workers find jobs and shifts at a variety of different kinds of companies from places like Tesla all the way to startups like Choose. So the topic we're going to talk about today is creating B2B2C marketplaces. Yong has a lot of experience with that and lots of lessons that he's learned along the way about from Wonolo. But before to kick it off, maybe we can start with tell us a little bit about your story, which I think is really fascinating and maybe how it ties to the story of Wonolo.

Great. Thank you so much for having me today. So I am originally from South Korea and I came here when I was 15 years old by myself. And this was early 90s, way before the days of the Internet. And aside from learning the language and adapting culture, one of the most difficult things that I struggled with was to find a job. So if you imagine early 90s, no Internet, no LinkedIn, no indeed. The only way for me to find a job was either through local newspapers. There's the job section. So I would open the newspaper and start cold calling for jobs, or go down to the town and walk around and just drop into any shops or stores that have the hiring signs on. And I remember being rejected by a restaurant as a dishwasher because I couldn't speak the language and I didn't look the part. And that experience really stayed with me throughout my career. And fast forward 25 years. There has been a lot of innovations in the HR tech space overall, but a lot of the innovations have happened for people like you and me, largely white collar, skilled workers. But if you look at the underserved non skilled labor side, which is 50% of our demographic of workforce, things have been largely remained the same. If you look at how Amazon hires hundreds of thousands of warehouse workers during the peak season, there's lines and lines of people just waiting, going through the paper process, manual process, and that's the reality of now. And what's happening on the company side, like companies like Amazon, Tesla, they're constantly struggling with getting jobs filled. So why is it that there are so many hourly underserved blue collar workers that are not having proper access to these jobs available and then companies that are struggling to find workers. And the problem of that mismatch problem is because both sides are relying on 60 year old legacy staffing industry which is about $500 billion and they haven't changed at all. And everything's manual, very cumbersome process. And that kind of gave us real passion to solve this problem and really be the voice of underserved blue collar workers to help their lives a lot more efficient and better. And that's kind of how everything got started.

Very cool. I remember when we first met Wonolo, the Sequoia team, we thought, wow, this is a huge underserved $500 billion market. The product that you're competing with is pretty outdated technology or really pen and paper and phone calls or in some cases waiting outside Home Depot or in a line to get a job. So the product that you'd built was killer. And the third thing that really struck us was how like mission driven you AJ and Jeremy have been, how like they still go and do jobs on weekends, which I think is really pretty incredible. Like Yang has gone and packed meals at the airport to serve for, you know, the flights that, that many of us take. So I love the passion. I also. The other thing that kind of struck me about you was sort of the humility and the, the willing to be honest and down to earth about the struggles of founder life. You recently wrote a blog post about was how, how much of a struggle it was to in the early days of Wonolo to raise the series seed and the A and especially I think in Silicon Valley where people tend to be a bit more like I'm crushing it all the time and sort of feeling the pressure to look like you're doing really well. Like you were very honest and very authentic about how, how hard it was to raise money because you were a B2B2C marketplace as well as various other reasons. Can you talk a little bit about that?

Yes, absolutely. So this was 2014 and we were just getting started and we were gaining traction. So we had a few initial set of customers and then we had started building out the pool of workers, we call them Winolo ers. And then we were seeing really good traction from the revenue perspective and from all the metrics that we had, the numbers were looking actually really, really good. So we went to raise capital, seed and Series A subsequently and we had a really hard time. So I personally cold called about 100 different cold called and emailed about 100 different investors. The challenge that we had was that the investors that we met were either consumer focused or enterprise focused. But we are, as you can imagine, we are B2B on the demand side. So we are Reaching out to Tesla of the world. So we have a sales team that's calling into these companies to bring on these jobs. And then on the supply side, the worker side, it's B2C. So we're a combination of the two. So whenever VCs would talk to us, the VCs would be either coming from the consumer angle or the enterprise angle. And the VCs that are coming from the consumer angle, they would look at our numbers and look at kind of the supply side and say, why is your churn so high? So comparing the best in class consumer play, we were not doing well. Same thing on the enterprise side. They were looking.

Keep in mind the churn for this category of workers is something like 100% or more every year.

Yes, Amazon is like 400%. So they're just constantly churning. So the enterprise VCs would look at our business and say, your sales cycle is very interesting and it's very difficult to tell what your CAC is and what your LTV is. So a lot of them would pass. So we have to really find an investor that really understand the complexity of the business model and then the power of what the potential LTV could be and then also really believe in our mission based nature. Where we really wanted to become the platform that can stand up for blue collar workers. So that part that we really struggled but finally found an investor. But we didn't raise a lot of capital and we had to be capital efficient eventually. When we raised Series A, it wasn't a big round, but we were excited and we were under a lot of pressure to start scaling quickly and we made a critical mistake in that we ramped up our sales headcount too fast. I know some of you have been in the earlier session and how important it is to scale sales in a methodical way, but we didn't know. So we just hired a whole bunch of reps. We didn't have the right support ops process and then we were going after many different types of customers, small all the way to enterprise. And by doing that we were burning through a lot of cash very fast and then we were not seeing the results that we wanted. So about six months in of building this huge sales team, we were faced with a situation where we were almost running out of money and then we were not showing enough results to go raise more capital. So we had to make a very, very, very difficult decision to basically let go of the entire new team that we had built and go back to basically score zero of where we started with. So we started the year with 15, 20 people. We built up to like 40 and we were back to 15 and then we had less capital remaining. And the lessons that we learned from there was that in a B2B2C marketplace, it is critical for you to understand what the CAC really is and then what the potential LTV is, and then really figure out which specific customers or set of markets that you want to go after and really win it. And when we looked at what really drove our unit economics from the LTV to CAC perspective, we realized that it was the mid market. So not the small businesses, not the large business, but it's really the mid market that had relatively short sales cycle but had really strong LTV and then consistency around using our platform. And that's where we decided to go all in. And that was the moment when we started seeing traction back again. And then the second lesson that we learned was that when you're scaling really fast, you tend to underplay the cultural aspect of it. People tend to think that culture is like a fluffy word. And everyone talks about culture as having a ping pong table or cater lunch, but it's actually a lot more powerful than strategy or planning because at the end of the day, culture dictates how you do things across the company and unless everyone is aligned on that, it's very hard to do. So those are kind of the two key takeaways that I learned from raising Series A. Having to go through a lot of layoff and then having to build back again.

And then I think you went through that period of layoffs and finding sort of the right customer and really nailing what worked. And then Wonola really started to scale. And then I think when we met, that was like 12 months later.

Yes.

And then so Sequoia came in and preemptively led the Series B. And since then you guys have been doing great. Can you share a little bit of the, sort of the wisdom, the advice that you have for B2B2C marketplace founders or just marketplace founders in general? I think you've already shared two things. Culture really matters. And then know your customers deeply, like which segment and figure out which segment like really works for your unit. Economics. What other, what other advice or thoughts do you have for marketplace founders?

So the complexity of the B2B2C marketplace is that you're almost building two businesses altogether. Right. So you have the demand team that looks like almost like a building an enterprise or SaaS type sales organization. And then on the supply side you have consumer like growth Driven, you know, marketing, you know, growth marketing driven organization. So if you have very two different types of organization trying to work together and then you have the internal ops team that are trying to facilitate the two, there are several complexities that can arise from that. So for example, let's say that you are trying to hire a VP of product, right? So should the VP of product come from the enterprise background or the consumer background? It's really tricky, right? So same thing with VP of marketing. Should this person have the B2B side of experience or B2C side, more performance marketing or growth driven marketing? And it really comes down to which side really drives the marketplace and where you have the more friction. So in our case we are like very much the worker focused and we never deviated from that. And what that translated into the organization was that we would do everything for the workers and then we would bring in product person that's focused on the 10 world side and marketing person focused on the 10 world side. But initially that thesis didn't work out because the reason why wonola words come to our platform is to find a job. So the way for us to really serve our workers is to bring jobs. So even though our thesis was that we are supply and worker driven market to serve them right, we had to put all the focuses on driving the demand. And that kind of resulted in how we do things and how we drive our metrics and building overall organization. So that was one thing. The second thing is that there is incredible aspect of the timing. So on the demand side, the usual, the typical sales process, sales cycle takes about three months for mid market, anywhere from one to three months. And on the worker acquisition side it just takes a day to get them through the top of the funnel or onboard them and then get them start picking up jobs. So you have this timing issue. So what happens is that we would start having a conversation. So Tesla, great example, they'll say hey young, you know, we have a serious needs in Chicago and we need you there and can you start you know, building up your supply pool? And we'll say great, we're gonna do that. So we will go out and then build up the supply pool in the location nearby Tesla. And it takes about a day or two, maybe three days. In the meantime, our sales team is working with onboarding Tesla, you know, the users. And that process just takes a while. So we would have all these workers waiting for jobs to come out and the jobs are not there and then they're churning and then by the time jobs are Getting posted and available, we have to go out and recruit again. So there's this constant challenge of timing and get to the liquidity point where you don't have to deal with timing back and forth. There's just like a lot of brute force grid type work that's required. And we have internal mantra around full court press and it's just very, very challenging business. But once you get to that liquidity, everything else becomes very smooth and much easier. And that's kind of where we want to strive for in all the markets that we're in.

Great. I think we have about five minutes left. So if anyone has questions, we're going to start taking Q A. Yeah.

Sort of quality of workforce, especially inventing and validating employees. Especially when you.

So folks couldn't hear that the question was about how do you validate and vet the supply side.

There are many ways to control and solve for that. There's the before and then there's the after part. So the before part is that we ensure that the types of jobs that we bring to the marketplace is very uniform in nature. So it doesn't matter whether you do the job, I do the job. As long as you and I have similar credentials and background and certain traits, then we can do the job really well. So we really focus on jobs that would require that kind of labor force. We focus less on the screening and onboarding because what we have realized over the years through just combing through a lot of data points is that it's just really hard to predict who who's gonna do the job really well. And we see that even in our own recruiting. Right. Like how do you know if this engineer is gonna work out well or salesperson is gonna perform? Even after you go through very stringent recruiting process, it's just hard to tell. But what's easier to do is once you have seen the worker's performance, then you can make a quick decision on whether this person is gonna work out or not. So we focus a lot on the post. Like after first job has been done, if this person is really good and we think that there is a huge LTV associated with this worker, then we will go all in, make sure that this worker feels like they're part of the community. If it's not going to be great, then we have a process to weed them out in the right humane way. So that's kind of how we allocate our focus. So probably less on the onboarding screen side, but a lot on the post. The job has been done.

Over There. So what are your primary acquisition strategies.

On the supply side? Because you mentioned you're having to launch.

Really quickly, responding to the demand signal for a contract.

Yes, we. So in newer markets. So in the markets where we are not present, we use multiple different channels. So one is obviously the traditional kind of growth marketing channels. The second is we also leverage Craigslist or traditional job sites. And then the third is we work with community organizations. So there's unemployment agencies or job training facilities that have workers available right away. So we would use kind of the three channels and then once we have certain level of liquidity in the market, then it's largely referrals. So words of mouth or referrals through the app.

Yes.

So you mentioned a lot of the workers are blue corner.

Right.

So do they know how to use computers or sit another way? So you're trying to use the digital platform to onboard those workers. How do you feel the gap that they don't know how to use computers or some of them don't know how to use computers?

Yes. So we on the lower side, we are 100% mobile only. So what we have found is that about 80% of our workforce, they do not have laptops. Right. But they have mobile devices and believe it or not, they're very tech savvy and we try to make our onboarding process very simple. So we haven't had the issue of kind of the skills gap.

Can you comment on some of the roadblocks you run into trying to get get small businesses?

Yes. So in early days we did go after small businesses and what we have found was that it wasn't the right segment for us at the time and still is not the right segment. And I'll tell you why. We observed that it takes about the same amount for our sales team to go after smaller customers as medium sized customers. And when we acquire a small customer, their behaviors are very episodic, very ad hoc basis and it's very unpredictable. So the overall size of the LTV for smaller customers just wasn't enough to make, you know, compensate for our CAC and associated with it in the future. Yes. Once we get to certain scale and then once we have really owned kind of the mid market, then we can get into the small business. But the go to market strategy will be different, it will be more self serviceable. Pricing point will be different as well. But when we try to go to market on the smaller business the way we were doing, we just couldn't make the unit economics work. And then there was just a Lot of hand holding. Right. So we had a restaurant that wanted a dishwasher, and then they got the dishwasher. So we matched them to the Wonola War. Wonola War actually had a great rating, but the restaurant was very picky, and they would constantly cancel workers without even seeing them. And he created very much negative, you know, NPS experience for Wonola. And. And this is a very small LTV customer. So from that perspective, it just created a lot of friction. So we decided to kind of stay away from the smaller customers and then just focus on what we are really, really good at. So that's kind of where we are.

I think we have time for. I think one more question.

So you talking a lot about the cac. Stefan from Upwork was here a few hours before, taking us through the number of challenges and adaptations they had to take in terms of their business model. Can you explain? Have you been going through a lot of changes regarding how these businesses are thinking?

So.

So you're asking if they've had to pivot the business model the same way that Upwork has had to? Yeah.

So in terms of our business model, I think we have largely stayed the same from day one. So our business model is that we don't charge on the worker side. So unlike Upwork or unlike other marketplaces, we truly believe that this should be free for workers. Instead, we go after the customers because they have a big balance sheet and big pocket and budget. So our pricing is very simple. Companies decide on how much they want to pay workers, and then we negotiate on the fee, the markup on top of it, and then the fee. We experimented with various fee structures, but the current structure, which is just agree on one price, that has proven to be working really well. And the reason why we keep the pricing very simple is that it just reduces the friction during the sales process. And yes, we will continue experimenting on how we structure the fee or pricing in a way that it makes it stickier for customers. But so far, our business model has been just based on one fee.

Great. I think that's all we have time for. Thank you guys very much. And thank you, Yong.

Thank you so much.