See the full interview here or listen in to the podcast on iTunes or Stitcher, and check our event notes below.
BASTIAN LEHMANN: HIS JOURNEY
- Founder and CEO of Postmates
- Grew up in Munich, Germany.
- Tried raising money in 1999 in Germany, but discovered what you wear matters.
- Wore sneakers, but needed suits and ties and a great McKenzie background, but dropped out of college, which is unheard of in Germany.
Dreams are Born
- Wanted to be a movie director for as long as he could remember.
- Was the first thing he told his parents he would love to do, though he’s unsure as to why.
- At age 12 or so, he had a movie camera and he loved to do slow-motion videos with Lego.
- And this is way before the Lego movie.
- Enjoyed always telling people what to do. So he figured movie director does that to a certain degree as well.
- When he was fourteen or so, he knew he wanted to start a company in US, in the valley.
- In addition of dreaming to be a movie director, he dreamt of running a startup in Silicon Valley.
- Would read newspapers and would be inspired by the companies.
Don’t Let Schooling Come in the Way of Your Education
- Drops out of college to start a company called ‘seven-a-day’.
- Imagine a marketplace that has seven, curated products each day and the number of these items available in stock is limited.
- Price of items drops constantly throughout the day as people purchase them so at some point savings kick in, but not many items are left in stock.
- Betted on the fact that consumers would purchase their product except nobody did.
- It was 1999 and they figured not many people bought anything but books online, whereas they had lots of electronics and other stuff.
Cost of Bootstrapping
- Had ‘seven-a-day’ for only a year and bootstrapped it.
- Spend all of the money they got from their parents. So, had to shut it down and get jobs.
- His parents have a relatively thick skin when it comes to losing money, especially when it has to do with him, he says.
- Examples 1: got parents to invest in Apple stock which didn’t go anywhere for some time.
- Example 2: spend money on internet and other purchases for his fledgling business.
- So they were used to losing money with his ‘crap’ as he puts it. He has paid them back since… about a month ago.
Meeting Cofounders
- Fast forward ten years.
- Moves to London, UK from Germany to work for a consulting firm.
- Meets Sam while working as part of the development team.
- Meets Sean in the US as part of AngelPad cohort while pursuing their startup ‘curated.by’.
- Sean’s company was called ‘Hug Energy’.
A Brief History of Curated.by
- Meets Thomas Korte.
- Thomas tells them that he was sure that they would eventually figure out what they want to do, but if they come to the states, he would introduce them to the network that he had.
- For Bastian, this was a dream too huge that he had been working toward for too long to pass up.
- They get to AngelPad and realize ‘curated.by’ idea is ‘completely stupid’.
- That it’s not something they want to spend the rest of their lives on.
- Also, they had difficult time raising money.
Pitching Curated.by to Naval Ravikant
- They pitch him and he says, you seem like a cool guy but that’s never going to work.
- Curated.by is a curate tool that allows you to put predominantly content tweets of which you’re an expert into bundles and share it with other people.
- They thought it would be great if they gave consumers better tools to curate that information.
- Naval didn’t want to be a part it.
- Rather, he offered them to join his startup as mentor hackers.
- Offered them a million dollars in equity each. They declined.
- Bastian asked Naval one question: “What would happen to the money that they had raised from Thomas?” This impressed him because it’s important to not burn any bridges with investors.
Six Months Later: Postmates is Born
- Started working on Postmates.
- Naval is the first person they pitched.
- Showed him a prototype.
- He wrote a check for $250K in that meeting and he led their seed round.
- Lesson to remember: Resilience pays off huge and keeping in touch with people is critical.
Coming up with the Idea
- Keeps a ledger of ideas and some of them keep ‘haunting’ him.
- Postmates was one of those ideas that kept haunting him.
- Had the idea when he moved from Munich to London.
- Before his move, he packs the U-haul and sends it back to his parents place.
- Decides to settle in London first before taking all of his stuff to a new city and country.
- Discovers they forgot to take his snowboard.
- Trying to figure out how to get his snowboard to his parents place.
- Contacts UPS and FedEx and uncovers it would cost him a fortune. Not happy with this experience.
- So he started calling local courier companies and they gave him weird quotes and time frames.
- Two days later, a friend calls him and says, you know, I’m driving up to Berlin. You just want me to drop this off at your mom’s place – and that’s how the idea emerged.
- Decided to create a user-friendly App so your friends can carry stuff for you because they’re already travelling to that destination.
Definite Optimists have a Long-term Vision
- Bastian believes that an interesting thing often happens when you have an unshakable idea: given your euphoric state and excitement of discovery with all sorts of possibilities buzzing through your head, you can over project the frequency of use of these things.
- He recalls thinking that if it’s that easy, people will just do it using Postmates.
- This is dangerous, he believes, especially, if you start with an idea and get married to a specific thing too early.
- Took them four years and couple of iterations to figure out that it’s not the use case that would actually grow Postmates fast.
- Rather, at some point, they figured out it was prepared food.
Finding the Problem to Solve
- Started looking at the idea from the angle of delivering things within your city.
- Still had not figured out the most frequent inventory in a city to deliver every day.
- Turned out to be prepared food.
- Bastian said, “It wasn’t as if they woke up one day and said it was prepared food.”
- Customers guided them.
- Thinking about the product in its ultimate form can blur critical first steps.
- Ultimately, Postmates will be a delivery service for everything.
- But to get there, they uncovered what they had missed in the beginning: start with prepared foods and go from there.
Original Launch: Discovering Your Audience
- Signed up every existing messenger company in SF on the platform; it was around 25 to 30.
- Ran around pitching and demoing merchants one-by-one. Initially, this did not work.
- First version: beautiful product.
- Looked like a notepad and designed for merchants.
- Talked to hundreds of merchants in SF and determined that the biggest pain point for them was not being able to deliver products to customers.
- So, Postmates designed an app that would do this for them.
- Signed up every single furniture store in SF.
- This was three to four years ago.
- Merchants were excited to use the app.
- So, they build the app for them.
- Nothing happened.
- Not many stores actually used it; rather, some use it once in a while.
- Instead customers downloaded the app and as a pickup, they entered a store or a restaurant. And in the description field, they typed a shopping list and submitted the request to Postmates.
- They had to cancel a lot of these orders simply because they didn’t have any payment infrastructure in place.
- Realized they had built this product for the wrong audience.
- Should’ve built it for the customer.
- They didn’t see this need at all, initially. They only saw it from the merchant side.
Pivotal Shift Brings Good Tidings
- On the very first weekend, they sold $10K worth of merchandise.
- Gave Postmates messengers prepaid gift cards.
- Ran into issues trying to buy $10K worth of gift cards in $100 denominations.
- Cops got called to the scene.
- Credit card transactions to buy these gift cards declined.
- Went to dodgy places to buy more gift cards to meet demand.
- Distributed these to the fleets of messengers.
- At the time, they didn’t have another payment method.
Recruiting Original Messengers
- Ads at university and college boards.
- Craigslist
Key Learning about Recruitment
- Didn’t pay attention to the first batch of recruits, but they should have; that is, they didn’t pay enough attention to the supply side until 18 months to two years into it.
- There was a time when it was impossible to get a Postmate to accept a delivery.
- Until they started hitting bigger numbers and tractions, they didn’t care about the supply side; that is, they didn’t make it a priority to understand who messengers are as individuals.
- From monetary compensation standpoint, they always cared about them.
- But, they neglected for about eighteen months who they are and what drove them.
Building Product Experience
- Have a metric that helps to identify after ten deliveries the ‘power’ Postmates versus ‘irregular’ Postmates.
- Trying to understand the first 10 deliveries.
- Improving experience for Postmates on the Postmates platform.
- Focusing on design and understanding and measuring around those first 10 deliveries.
- Now have 20+ channels for supply side acquisition rather than just relying on craigslist.
Five years to Overnight Success
- They knew ‘on-demand’ space would be huge.
- In 2011, when Postmates was born, there were lots of signals pointing to this new world where everything would work at a faster pace.
- Had no idea how much impact on-demand space could have on commerce.
- Looked at the status quo and compared how the world worked and how it used to work.
- Future probably isn’t going to look anything like the past.
- So, they have a deep believe in themselves rather than believing the space will be good.
Raising Rounds: Trials and Tribulations
- Had a great time raising a seed round.
- Recruited some really smart investors in the seed round.
- Then had a really tough time raising Series A.
- Eventually, Founders Fund led the Series A.
- Institutional investors have totally different approach to investing then angel investors.
- Angel investors care about a team of super smart people who are deeply passionate about a topic and they are telling a convincing story as to why their company will be one of the forerunners if this ‘on-demand’ space happens to get really hot.
- Bastian says that this is all that you probably need to raise a seed round, an angel round.
- With Institutional investors, it’s more due diligence. Simply knowing that ‘on-demand’ space has an exciting future isn’t enough, whereas for angel investors, it is.
- When they first approached institutional investors, a lot of what they were talking about hadn’t happened yet.
- By the end of 2012, when they raised their Series A, they didn’t have any Starbucks, Wallgreens, Chipotle, and similar strategic partnerships.
- They didn’t have millions of deliveries.
- They didn’t have tens of thousands of couriers or hundreds of thousands of dollars in sales on the platform.
- It was still Postmates Team just talking about it.
- For institutional investors, it was a lot for them to simply believe: (a) the ‘on-demand’ space would develop and (b) Postmates would be one of the company’s that would lead this space.
- So, you have the same guys running around; the product looks great; but, the volume is very low and there are no sizable partnerships.
- In Series A, they were too early.
- Had almost no competitors.
- Very few data points to look at.
- A VC firm put out a term sheet that wasn’t very favorable.
- They told Founders Fund that they had a term sheet
- Founders Fund then put out one that was clearly better and that’s how the deal happened.
- So, ultimately, Founders Fund had to whole-heartedly believe in the team. And they did. And thus they led the Series A.
Investors Never Say ‘No’
- They never say ‘no’.
- They say let’s keep talking.
- Nobody says ‘no’.
- That’s the old rule.
- And that’s the most frustrating part because nobody ever says ‘no’.
- They just say that’s cool. Keep me updated.
Marketing: Word Of Mouth
- 80% of their traffic is through word of mouth.
- Spend a little bit on marketing.
- Hard to track word of mouth versus actual marketing campaigns.
- At the very beginning, what Postmates offered customers couldn’t get anywhere else.
- They had an early adopter circle of people who used it and spread the word.
- There was no substitute except to do it yourself.
- You point your phone at a store; you see a menu in the best case scenario or you type it in and 28 minutes later, you get prepared food.
- Had first-mover advantage.
Looking Ahead: Future of this Market
- It’s going to grow.
- Bastian says, he doesn’t know it himself, but he thinks ‘on demand’ services could go one of two ways: (1) we could see a future where there is one or two destination apps or websites where you go to get things, sort of like how Amazon is today in the world of commerce; or, (2) it could be a more distributed version that could lend itself more towards a platform play as in a Paypal or an infrastructure for deliveries.
- But which of the two or if the two could co-exist, he’s unsure of yet.
Postmates Growth
- By December, they’ll do a million deliveries a month on the platform.
- This year (2015), company will grow 8 to 8.5x.
- They are over half-way to their goal.
- Just under 14,000 Postmates doing deliveries in 30 cities, and launching in more cities soon.
- Made money from day one.
- Almost from the start, they’ve had a positive gross profit margin, and they usually like their gross profit margin anywhere between 15% and 20% at any given month. Sometimes there is some seasonality in there.
Bastian’s Take on Mismanaged Marketing Spend
- Had pitched to partners at VC firms who had no idea how to get to gross profit when they looked at the financials of a company.
- So there’s probably truth to unicorns failing as a result of mismanaged marketing spend and growing solely due to marketing efforts without show for positive gross profit margin.
- Important to closely look at unit economics to derive value from it.
Future of Postmates
- It could be a utility.
- A button to purchase products. You push it and products are delivered.
- Something that’s reliable, that’s part of a city, that’s part of a community, that’s part of interactions, that’s part of commerce.
- It’s not so much swinging for the fences, but more like becoming an infrastructure that a lot of people can use.