How do you scale something 10x and then scale it again? The answer is surprisingly simple, and yet very few organizations have the discipline to do it. My guest today is Elan Mosbacher, Senior Vice President of Strategy and Operations at Spothero. In this conversation we talk about how Elan and his team made went about growing SpotHero to the largest mobile parking platform in the country.Elan has a ton of experience around building marketplace businesses, pursuing strategic partnerships and more. He’s also very thoughtful about the future of mobility in general, and we get into a pretty fascinating conversation around autonomous vehicles and where things are headed.
Manifold: I know when you first joined Spothero, you were primarily in a marketing capacity and your explicit mandate was to help them 10x. And then to do it again. And I remember you talking about how the things you did to 10x the first time were very different than the second. What were some of the lessons you learned trying to scale something that quickly?
Elan: Early on, the most important thing was to figure out who our best customer was. There have been probably 200 different companies in our space, and I think the thing that really set us apart was our understanding of our customer. We figured that out and aligned ALL of our initiatives around acquiring that best customer and making the experience as good as possible for them.
"The thing that really set us apart was our understanding of our customer. We figured that out and aligned ALL of our initiatives around acquiring that best customer and making the experience as good as possible for them."
Fast forward several years later, we see our best customers are still buying from us. And that's what made us really big relative to our competitors who didn’t focus on the best customer. Today they might be acquiring roughly the same number of customers every month, but don't have, three, four, five, six, seven years of people who joined their app, who are still buying.
Another big lesson is just about scaling yourself and scaling your team. As a leader of a start-up, you have to scale yourself as fast, if not faster, than your company. It's hard to do that when all you're doing is working on your company, you also have to work on yourself.
"As a leader of a start-up, you have to scale yourself as fast, if not faster, than your company."
For some people that might be a part-time MBA, for others an executive coach, or reading, or podcasts, or mentors, or board members. But it's really important to invest in yourself to make sure you're at least one step ahead of where your company needs to be.
Manifold: What did that look like for you? What were the areas you identifying as needing growth in and how did you go about doing it?
Elan: I think I probably used all of the above. I started an MBA part-time just before joining SpotHero, so I focused a lot of that time on how do I apply it to the job. Everything from, how do we figure out who our best customers are, to how to lay out a business plan to, how to manage our team, how to recruit and hire.
I also read a lot. I have a busy life so I'll go a month or two without reading, but then I'll read four or five books in a weekend.
SpotHero also had the very good fortune of assembling a pretty remarkable board. So having an opportunity to learn from board members, and during board meetings, and from other mentors has been really instrumental.
You have to find what works for you. You have to find a way to learn, outside of just doing your day-to-day job.
Manifold: Going back to the finding your best customers - it seems like that's a pretty common problem for start-ups. They take in some money, they have this mandate to grow really quickly, they end up putting a lot of that money into paid acquisition, and either it takes them a little while to figure out those users aren't sticking around, or they're not measuring the right things. They're mistaking top-line growth for product/market fit. How did you avoid that and figure out who those best customers were?
Elan: By the time we turned into SpotHero, we had a product that people used to find parking. We had decent product/market fit, but I asked Mark, our CEO, who is our best customer? I actually asked everyone on the team, who do you think our best customer is? No one really had a good answer.
So we started looking at who bought the most times, actually interviewing them. From there we sent out a survey, did some statistical analysis. We found there's a certain segment of customers who use us for a specific reason, and were like 13x more profitable than anyone else. In fact they were the only profitable segment at the time.
From there we focused on building out our parking inventory around the needs of that customer. We focused on channels to reach that best customer. Our sales and customer service focused around the best customer. With all that focus, we didn’t necessarily acquire the most customers, but we acquired better more profitable ones who are still with us all these years later.
Along the way we acquired one of our competitors who was not part of our SpotHero family but had a very different approach. It was interesting for us to look at how do we do things and how do they do things, and the differences. One thing was we had enough capital to focus on maybe more expensive channels where our best customers could be found. They were more capital constrained, so their approach was to find customers who were profitable on the first transaction. And when we looked into it, they did a really good job of building out inventory, and aligning their company around that customer.
So there are multiple ways to attack things. But whatever approach you choose you need to align all your efforts toward that customer archetype. I will say though that I think our focus on that profitable customer, even though they were more expensive to acquire, allowed us to become much bigger than them over time because of the repeat business. And now we have the best of both worlds because we have the customers who are really sticky, but we also have this great channel with customers who maybe only buy once, but they're profitable on the first transaction.
Manifold: Are you targeting those people in different ways with different messages? Or are you using the same messaging and you just realize that some of those people are going to look like this, and some of these people are going to look like this?
Elan: So the tricky thing there is the highest volume bottom of the funnel channels most start-ups use, like search, actually acquire the worst customers. And the trickiest channels, the most expensive channels, the riskiest channels, are the ones that are probably the best customers.
"The highest volume, bottom of the funnel channels most start-ups use, like search, actually acquire the worst customers. And the trickiest channels, the most expensive channels, the riskiest channels, are the ones that are probably the best customers."
So that was a challenge for us. But by having that insight into our best customer, we had the conviction to spend on offline, and on other more expensive, harder to measure channels early on. We still do a ton of SEO, paid search, those types of things. But those customers for our business don't repeat as often.
Manifold: That sounds like a big turning point for the company. When you're bringing that to your board, I would imagine things like your total addressable market (TAM) look smaller. It might impact the projections that were made earlier on. That pitch of “we think our most profitable customers are this sliver of the market, and acquiring them is going to be a lot more expensive.” Aside from having great board members, are there strategies you used to paint that story in a compelling way?
Elan: I think there's been two periods of time where we went through that. One was on the advertising side - how do we invest in these more expensive channels?
The other was on the product side. We actually developed a product called SpotHero for Business, which honed in on a customized version of our product for a really strong audience and very strong customer segment. In both those cases we had that conversation.
On the advertising side it was pretty simple. A simple formula of, stacked rank, ROI by channel is really helpful. Basically what's the lifetime value, what's the customer acquisition cost, what's the payback by channel? Where are we going to get the most efficiency? Where is the LTD impact ratio best? Where are we going to get the most volume? If we realize that the highest LTD customers are going to come from slightly more expensive channels, that's fine as long as the ROI is there. There are some pretty proven frameworks to at least have that discussion.
The other piece we did is have a set amount of our budget, say 80%, allocated to proven channels. And then 10% to 20% was to try new things. Some of those would be expensive, and some of those would not be that measurable, and some of those would be kind of crazy. We didn’t really count that money against ourselves, because we knew at any moment we could shut that off if it wasn’t working.
On the product side when we said, we want to make a major investment to improve the product for our best customer, the feedback from the board was, “Why didn't you do this six months ago?” So that was a pretty easy sell as well.
I think the main lesson there, in terms of incubating a start-up within a start-up was having a separate P&L. Operating as two different entities.
If you are always looking at the trade-off between a really big thing and a small thing, the ROI on the big thing in the short term is always going to be better than the ROI on the small thing or the new thing in the short run. So bifurcating those two projects was definitely a big thing that we've done to help us set ourselves up for success when trying new things.
Manifold: You've talked about the need to avoid copying what other people do. In the marketing or “growth hacking” community, there's a ton of content around tactics, lots of “Uber did this one trick, so you should too.” And I know you feel like that's probably a misguided approach.
Elan: I would say start with the why. It’s perfectly acceptable and expected to learn from others. To look at who's done it before and figure out what they done that could work for us. The mistake is copying tactics without thinking about the strategy behind it.
We often look at analogs of companies in mobility or that are further along in their journey, looking at tactics to evaluate if they fit within our strategy. And that's okay. But I've seen companies that just copy the competitor. If you're not in a leadership position and you're trying to catch up by copying what the leader does, it isn't going to help you very much.
"If you're not in a leadership position and you're trying to catch up by copying what the leader does, it isn't going to help you very much."
We target drivers. At one point we hired some folks to stand at the exit to one of the highways in Chicago with a big sign saying “Use SpotHero” with a promo code. A few days later someone doing marketing a totally different vertical told me their CEO saw it and was wondering why we don’t do sign flippers too. Well, we're targeting drivers a few minutes away from parking and we want to remind them. This is a great tactic given our audience and our strategy, but that's not your target audience. Why would you copy that?
One other example. In 2015 or 2016, there were all these on demand apps for everything. There was on-demand valets, on-demand food. All these apps popping up. And they were spending a ridiculous amount of money on Facebook app installs. The cost of app installs is crazy now. But we had all sorts of people saying we should do it too. But we kept trying it, and it kept not working, and at a certain point we just stopped. It’s just not the right channel for us.
So understanding what you're trying to achieve and aligning the tactics to what you're trying to do is important.
Manifold: When you do have a mandate to scale aggressively, it does seem like one of the perceived advantages of Facebook, Google, etc. is speed to scale. You can scale quite a bit before saturating that channel. So with some of these other channels like outdoor, that seems a lot harder. How does that fit into the mandate to 10x something - are those channels able to get you all the way there, or do you still have to supplement with some of the more common channels, to make up the deficit?
Elan: I think it depends on what kind of business you run. There are really successful businesses that spend almost nothing on marketing, growing through the product and word-of-mouth. There are other businesses that rely entirely on one channel, so it depends.
Back when we were in a crazy growth phase, we were trying to decide whether we should spend or not on a channel. And that that point, the decision was if we don’t spend we lose, if we do spend, we might lose. So we spent.
In terms of channel, it really depends on your business. In most businesses, certainly marketplace businesses, there’s usually one or two primary channels. Often that’s Google or Facebook, which is why they’re so valuable as companies. But other companies have different channels.
There are things you can do inside of the product as well, refer-a-friend or conversion rate optimization or whatever. But there's rarely one silver-bullet. Usually it's one, or two, or three primary channels, and then a whole bunch of other tests and optimizations. Things that work for a day, a week, a month, a year, and then kind of go away.
Our business is a little different because we're a marketplace business and we're also based on geographies. Sometimes we’re advertising to customers, but it’s actually less focused on volume of consumers and the profitability of those consumers. Sometimes it's actually about filling the merchant or the supply side of the business.
The more customers you get the more inventory you can get. If you're starting a new vertical or geography, you want to acquire a bunch of customers and enough supply to keep them happy, even if it’s not super profitable. It’s similar to Uber - when they started a new city, they paid drivers a minimum amount until they got enough demand that they didn't have to do that anymore.
Manifold: Let's talk a little bit about marketplaces. That's a challenging model for a lot of people. What are some of the other lessons you've learned trying to build out two sides of the marketplace at the same time?
Elan: Ten years ago there wasn't a ton of information about this, and the chicken and egg problem was the big question. But these days it’s actually pretty well documented. One of our investors, Insight Venture Partners, has this document called the Periodic Table of Marketplace Businesses which talks about all the metrics you have to look with example benchmarks.
One of the things that served us really well was focusing on liquidity over geography, meaning start with one geography or one vertical before you try to scale. I like to use Facebook as an analogy for this. Facebook started at Harvard, got saturation, then moved on to Ivy League schools, then east coast, then colleges, then high school, then adults, then businesses. Whereas some of their competitors were open to everyone from day one.
"Focus on liquidity over geography. Start with one geography or one vertical before you try to scale."
We were only in Chicago for several years, and in fact our business was bigger in Chicago than any competitor who was national. We only really expanded beyond Chicago once we got the playbook down, and as a result we were able to move much, much, much faster when we launched in new markets.
It's very easy to spread yourself too thin if you try to go too broad in the beginning, so that's probably the biggest lesson learned.
In terms of chicken or egg, in most businesses you want to focus on the supply side. The merchant is the one who is more patient because a merchant. They realize it might take a while to get a ton of value out of your platform while you build up demand. But consumers will go to your site once and you don't have what they want, they're going to leave pretty quickly.
Manifold: One of the channels that is a little less commonly talked about is partnerships. I know you've been pretty aggressive about pursuing those. How do you think through which types of partnerships make sense? There’s opportunity cost in getting those things set up. What decision making criteria do you use to evaluate what makes a good partnership versus a bad partnership?
Elan: In the last decade or so of doing this I've often started as the first marketer in various start-ups. Inevitably after two or three years, you get to this point where you're like okay, I've got Facebook, I've got Google. What's next? And it always ends up being partnerships.
I mentioned earlier the importance of mentors and finding ways to learn outside of the day-to-day. An old mentor of mine who spent a lot of time doing business development recommended a book called The Sumo Advantage. Really good book, and it basically outlines the business development process for start-ups.
There's a few ways I think about this. The difference between sales and business development or partnerships is this: with sales, you generally go to someone and say, I'm going to do this, and you write me a check. With business development or partnerships it's generally we'll do this thing together to serve our mutual audience. So you have to think through who the customers are whose lives we're both trying to improve with different solutions. Where’s the symbiosis?
Another thing to think about - when you're really big everyone wants to do a deal with you. But when you're small, how do you get attention? In a partnership, the smaller company is usually looking for customer acquisition and the bigger company is usually looking for a stickier product or more retention.
If I'm Salesforce, I'm looking for all the other software companies to plug into my marketplace, so that when people use Salesforce they also have all the other tools they need. If I'm really small business, I want Salesforce's customers, so I plug into Salesforce in order to get a small fraction of the companies that use Salesforce to also use my product too.
When you're a start-up, the approach I’ve found is to say “Hey BigCo, there's a feature set missing in your product. I can make your product stickier, increase your LTV and differentiate you from your competitors.”
For SpotHero, we look at the segments or verticals of companies targeting similar audiences. Who has a big audience of drivers? Well, car companies and navigation and mobility type apps and eventually autonomous vehicles. Then we look at who the leaders are in that space. Then we work to figure out the mutual value prop for our customers. Then we pitch and see where things go.
Most recently we did a partnership with Waze in the City of Chicago. One of the challenges Waze had was their GPS works really well when there's cell reception, but if you're driving in a tunnel or an underground road, you don't have cell reception, or GPS doesn't work. The problem for us was there were drivers in Chicago who were trying to park in garages that were underground and it was really hard for our customers to find those garages.
So we partnered with Waze and introduced them to the City of Chicago. We installed Waze beacons in all the underground roads in Chicago. And now they have a better product for their audience, and our customers are able to find the garage they want to park at, and the City of Chicago has better traffic flows and all the benefits of having navigation work.
Another partnership was with Google Assistant. That was announced at CES, and Google announced that though Assistant and eventually Android Auto, you'd be able to buy coffee from Starbucks, or buy a parking spot with SpotHero. That's another example of more of a product innovation.
We've done distribution deals where we partner with folks who plug into our API so they can offer parking to their audience, and we've done deals with smaller companies where we take their technology and plug into our app to it stickier and better for our audience. Those are all examples of partnerships and ways we've approached it recently.
Manifold: Changing gears a little bit, you and I have talked several times in the past about this idea of mental models. You talked earlier about reading and ways that you've tried to level up yourself, and I know you’ve tried to cultivate a different way of thinking, or thinking about how you think. How have you gone about doing that?
Elan: There are a lot of frameworks I like to use depending on the situation.
One of the questions that I like to ask myself is “What would Elan five years from now do in this situation?” That really forces you to step outside of short term thinking and I’ve found it helps me operate at my best.
A slight variation on that question when trying to evaluate two different things to do is “what will matter in five years?” Am I going to remember being at that event, meeting that person, closing that deal, or am I going to remember that I was Inbox Zero today? So that's two variations of a question I use on a personal level.
In terms of team decisions, the framework we use there is to try to think in extremes. On one hand do we shut this project down? On the other hand, do we have every single person in the company focus on this project? On one hand, do we have no resources, on the other hand, do we hire the best person in the world to go do this? By pushing the boundaries initially, you tend to get comfortable with some kind of decision in the middle. So that's often how I think about strategy and where we want to spend our time.
On a company level, one of my favorite frameworks is based on a book called Predictable Success. Once you've done this a few times, you start to see patterns and the evolution of a start-up, and you're like oh, yeah, it's always this way. Predictable Success is a framework that talks about that evolution.
Imagine an arch, like a rainbow, and at the bottom there's survival. Call it trying to get to product market fit. And many companies never make it past there.
If you do, phase 2 is called fun. When you’ve figured something out and you’ve got funding it’s fun. The founder has some money in the bank, they maybe get a salary, they're in the press, their friends are like, oh, maybe you're not as crazy as we thought. You hire a few people, you get an award, all that fun stuff that comes with getting funding or actually getting paid by a customer. You have a handful of people and everything is great.
But then as you work your way up the rainbow, at the top of the rainbow is this thing called predictable success. That's where you set a goal and you hit it, and you set a goal, and you hit it, and you can think about some of the world-class companies today that are probably there.
There's this middle stage between fun and predictable success called white water. Imagine you're rafting and you hit these rapids where there's bumps in the road and things get a little hard. And maybe in life maybe that's your teenage years where you're struggling with who you are and what the world looks like.
You start to get big enough where the people you had early on who worked hard and learned fast but maybe hadn't done it before aren't necessarily the right people anymore to lead a team. Sometimes they are, but often they aren't.
Things start to break. The process that you built for communication when you had two people, or five people, or 10 people doesn't work for when you have 100 people, or 200 people. The technology you built when you had a few customers doesn't work anymore when you have millions of customers.
White water is really about getting the right people, processes, an technology in place so that you can get to predictable success and operate like a world-class business. The reason I like that framework so much is it provides context. It’s a really good tool for communicating to your team about why things feel like they do.
When you start to hit white water, it can be tough. Team members say things like “It's not as fun as it used to be.” Or “I don't get to spend as much time with the CEO anymore.” Or “Why'd you hire this experienced person to be my boss?” Those are all real pain points that can kind of kill a culture. But if you're really transparent and communicate with your team about where you are on the journey, giving people context can help a ton.
The other thing it’s helpful for is communicating to new team members. You bring someone in and they look under the hood and ask why this process in place, why things are such a mess. And I can just say “If I had optimized my process for communicating with 200 people when we were two people, I would have never earned the right to be here. I would have never gotten through survival and fun, into this white water phase. I've hired you to build the process to get us from white water into predictable success.”
Manifold: Most of your recent experience at least has been operating in hyper growth mode. But I know in a previous life you were involved at an incubator. For people in a corporate innovation group or a similar incubator type situation, any advice you would give to increase the chances of success there?
Elan: Yeah, I was at Sandbox. It was really a neat place at the time because on the same floor you had people in venture capital, and these entrepreneurs in residence starting businesses, and people running the businesses. So it was this really neat mix and it was a really great opportunity to learn.
When you're first getting a company off the ground, it's really hard to do a lot of things well. You have to pick one. You live and die by speed, momentum, and traction, and change, and testing.
All these things that are really the antithesis of a big company, where you want to be slow and careful, and not make a mistake, and not lose your job, and not mess up, and not upset your customer, not ruin your reputation.
Like I said before, putting a wall between those two with different P&Ls, different teams, different goals, different evaluation criteria, is really helpful.
Manifold: At SpotHero you've elevated your thinking, or broadened your thinking. It was about helping people find parking, you've executed on that really well. And now a lot of your thinking these days is about thinking into the future. About what the future of mobility might look like, and how changes in transportation impact a business like yours. What you think the future of transportation looks like? And secondly, how do you make decisions at a strategic level with something so fuzzy? How do you place bets?
Elan: We're in a really interesting time for transportation. If you think about the tech world, the 2000s were about the web and SaaS and user generated content and social networks. The last decade has been focused on mobile. I think there's going to be a pretty massive revolution in the next decade or so around transportation.
SpotHero started at the beginning of the mobile revolution. With the thought “Why do I have to drive downtown and circle around the block, and not know where to park, and not know how much it's going to cost, and have to pay cash?” All these things felt very outdated for a mobile world.
Our business has evolved from selling parking on a website, to a mobile app. But as we think about the future much of parking will be driven by API. You're going to use a variety of interfaces - a computer in your car, a smart speaker in your car, another mobility app you use to get around, or perhaps even the car parking itself. So that’s what we’re working to position ourselves for.
In terms of transportation in general, there are a lot of challenges. Cities are getting denser, and if you look at data around population and urbanization, cities are going to be way more dense in the future than they are now.
Traffic has gotten way worse over the last few years. Ride share is a huge part of that. There are so many cars now that commutes are 10-30 minutes longer in some cases than they used to be. That's another major challenge.
Another challenge is consumer expectations have changed. People are no longer willing to stand at a bus stop, not knowing when the bus will come. People aren't willing to deal with a cab not accepting a credit card. Expectations around how transportation should be have changed. But because of the infrastructure, and government regulation, and all sorts of crazy things it takes longer to change transportation then it does to change our expectations.
In terms of the future, I think it’s important to remember that just because something is said in the press doesn’t mean it’s going to happen. When people started to talk about autonomous vehicles the headlines were like “Parking's dead because autonomous vehicles will be here next year.”
But autonomous vehicles aren't going to be here next year - it’s going to take time. And when that does happen, are they going to be in perpetual motion, driving around the streets 24 hours a day? No. That would only cause even more traffic and congestion. The biggest cost associated with autonomous vehicles will be them being on the road and the wear and tear, so that doesn't make any sense.
Then the headlines became, “I'll take my autonomous vehicle to work and then it'll just drive back to my personal garage.” So then traffic gets even worse - instead of one leg back and forth every day, there's two legs back and forth every day.
If you're actually an inside of the industry, and you talk to car companies and you talk to autonomous vehicle companies, they're all highly interested in a few things.
They're interested in navigation. How am I going to figure out where the car should go?
They're interested in entertainment. When someone's in the car or the car's driving itself, are they going to be entertained during that period of time?
And they’re interested in parking. Where's the car going to park, where's it going to get charged and where is the fleet going to get cleaned and taken care of.
Going back to ride share, it has become so popular and so cheap that it's actually not pulling that many people from driving. It’s pulling a lot of people away from public transit. Why take a subway in New York which is hot and crowded if for an extra dollar you can be in a Via for example.
Waze carpool announced they're expanding nationally. Their thesis is the cost to improve the infrastructure to accommodate all the people and cars to fix traffic is insane. But what if you just rode to work with your neighbor, or someone in your community, and had people share cars when they're going from work to home and back and forth.
So I think you're going to see a lot more innovation around how we get smarter about getting around, whether that's on a scooter or car autonomous vehicle.
Manifold: In terms of autonomous vehicles, you mentioned it's not a year away, There was a ton of press around pilots, and it seems like a lot of those have either gotten more modest, or they've been shelved entirely. For folks that aren't following the space, what are some of the challenges that have to be addressed in order for the autonomous thing to become a legitimate reality from what you understand?
Elan: One is the technology. There's a reason that autonomous vehicles are becoming relevant now, because there's a handful of technologies that have emerged to make it possible. But there are still some technology things that have to be solved.
There is infrastructure and insurance and regulation, For example there is this concept of “duty of care”. As a driver you have to do your best to keep everyone else safe. But what if you're a machine? What if you're a car being driven by an algorithm, what does duty of care look like?
Ethically, or morally, how do we program these algorithms so if you have to make a trade off between hitting person A or person B, how do you make that decision? So there's some things that as a society, we have to figure out. That's a big one.
There's others. The average car is on the road for 11 years. So let's say tomorrow, autonomous vehicles are everywhere. What are you going to do with your car? If you still have your car, it's going to be cheaper and more convenient for you to just use your own car, because you have it. And if everyone tries to sell their car at the same time, there's going to be an amazing amount of supply of used vehicles and low demand, so there's some things that are going to happen there. There's a natural evolution that's going to take time.
I think there’s going to be use cases where autonomous vehicles make a lot of sense, but there's some where it doesn’t. If you're a senior citizen, part of a retirement community in a suburb of Arizona where there's not crazy things happening on the road and maybe you can't drive, autonomous vehicles are amazing. The risks are relatively low. But what happens when there's three feet of snow in Chicago? Or you're in these places where there's real world challenges that are pretty complex. So those are some of the things people are thinking about.
Manifold: What about scooters? You mentioned urbanization and how cities are going to get a lot more dense. How do those fit into your picture of the future of mobility?
Elan: In the last week I've been on a plane, I've been in a car, I've been on the train, I've used ride share. Chicago doesn't have scooters yet, but I've tried them out in other cities. So I think we're entering a multi-modal world with transportation. The more options or ways to get from place A to place B is really a good thing for the world.
It seems like everyone has their niche. If you're 50 miles out of the city, you're probably going to want to take the commuter train in. If you're 10 miles out of the city, you're probably going to want to drive. And if a neighbor or two or three are down at one time you're probably going to want to do ride share. If you're going half a mile to a mile, scooters are really interesting. They're not going to take you 15 miles away, but they might give me five more minutes in the office every day if I can get from my office to the train faster. So I think there's a place for all of them.