Starting & Scaling Fiverr With Micha Kaufman | EM Group Chat #212

How big are we here? I don't know if you guys know Fiverr. I think it has been around for 16 years. It's my fourth company. Actually, being an entrepreneur is my second career. I actually started my career as a lawyer, specialized in IP, so mostly patents, infringement litigation, trademarks, technology transactions, investments. As I said, fourth company. Fiverr launched in 2010. Happy to talk about the company if this is of interest, if you don't know the company, but otherwise I'm not going to repeat the pitch. The company has changed massively over the years. And I think that some of the things that I've been pitching for in the past 16 years have been materialized in recent years. Obviously, the appearance of AI is changing stuff for us, for the job market. We're probably going to cover this. But anyway, I mean, if there's any other introduction, I'm happy to make it.

2010 was an interesting moment in time. If you backtrack to it, ideas are all about timing. We all know this. And what was interesting about that moment in time was the fact that 2010 was just at the wake of the recession of '08. And it was also the year when millennials joined the workforce. Which was really an interesting convergence of things. On the one hand, millennials are the last generation where their parents preached that they need to hold on into good jobs and stay for as long as they can because it provides stable careers. The same parents lost their jobs in '08. And so that became kind of a conception that was invalidated. So that was one. And the other is it's an always connected generation and that was a generational change that was then accelerated by Gen Zers and soon, you know, Gen Alpha. And my thought was that the very basic constructs of the job market are going to be upended. And I was lucky enough to be right about this, but like I'm half right about everything, so but in that case, I was lucky and that actually turned out to be correct. In 2010, freelancing was about 20% of the American workforce. It's now about 50. So this tells the story in a way. And the very basic notion of Fiverr, which again is something I'm preaching 16 years and I think it's just accelerating right now, but I didn't have that much audience at the time, was this idea that the job market and the way we value work is shifting from time-based, you pay per hour, to outcome-based. You pay to get something done. You don't care how much labor is put into it as long as it's the right skill and it makes sense financially. Like you can all of you can learn Photoshop. But if someone offers you something for 50 bucks, it just doesn't worth your time to learn Photoshop to do something. Okay, so it's a nice arbitrage of skill and time and effort price. So those ideas were kind of the backbone of Fiverr. But what was also very, as you think about this notion of moving from time-based to outcome-based, we've pioneered this idea of what I called at the time service as a product. And what I mean by that is unlike e-commerce where you have a SKU system, think about Amazon or eBay, where you have super well defined. Look, if I put this on sale on Amazon or eBay or Craigslist, it's an iPhone in this case 16 Pro Max. It has a very well defined standard. And it's the same product wherever we sell it. But services, when you think about services or skills, they didn't have a system, a standardized SKU system to define services. And the idea was to create that, which was a shit show. Seriously, it was really hard. And but this was the task and this was what we wanted to do. So, these were the kind of the pieces of the puzzle that we tried to put together, which later became what we know now, which is a horizontal marketplace, 800 categories, infinite amount of skills, infinite amount of offerings, super easy browse, search, buy experience. But this was really a huge huge undertaking in time. And I remember the maybe 20, 30 people the first 20, 30 people I told this idea to told me that it's either stupid or just too crazy, which just energized me more to do it, to be honest. But today it's more of a common concept. And again, don't get me wrong. I was very lucky to be able to pull this through and luck is, you know, it's preparation meets opportunity. So it's very much about timing and timing was right in hindsight and the rest is history.

Why you why now? Yeah, right.

The approach of being horizontal is more about not being a one-trick pony, meaning are you able to create a relationship with your community of customers over multiple needs. And this was really attractive. And in the beginning, I'll be honest, as I was sitting in my home and trying to envision what are the types of things that people or skills that people are going to be offering, I came up with a list of maybe 150 things. Like, this was as far as my imagination went through. I believe that we ended up the first day of launch with thousands. And what became tens of millions of different offerings. So, and we started from like six big verticals that we envisioned. Which then became like 11 verticals with 800 different categories and many thousands of subcategories. But this approach allowed us to entertain customers over a very long period of time, which changes the way you think about flywheel effects and how you think about retention, how you think about engagement, how you think about relationship, how you think about the function that you feel that you fulfill into the business cycle of your customers. And having those relationships allows you to do all kinds of funky stuff like, you know, moving from just organic acquisition of customers to inorganic or paid and build these interesting models of lifetime value to cost of acquisition or time to return on investment and things that allowed us to really extrapolate the organic growth and fuel it and accelerate it.

So, for the first, I would say four, maybe five years, 100% organic, like word of mouth, most of it. And when you think about the word of mouth, it sounds pretty straightforward, but I don't think it's obvious because none of it is obvious. But you think about this and you think about customers. You think about customers that are getting something and saying, 'Oh my god. Like you wouldn't believe what I just did.' But a lot of the word of mouth actually came from the supply side. Meaning those who offered their skills, who participated in creating this flywheel effect and created tremendous amount of noise. Now, granted, we gamed it a little bit. So, we created these incentives. We created mechanisms where you incentivize people to be a little bit more proactive about their success, to be more involved, which is not obvious. But that created this flywheel effect where more supply brings more demand and the same goes for quality, meaning the more high-quality supply you bring, the more high-quality demand you bring. And this coincided with, you know, the beginning of social media and things that today are maybe less obvious because the signal to noise is a little bit more problematic. But this flywheel effect where we didn't spend a dime on marketing. But we did spend tremendous amount of energy in creating a community, which I actually think it's more than a community, it's a movement. It's a cultural thing where you talk about this idea of like maybe it started from like the culture of getting rich fast or like, you know, putting your skill to a test. But it became something that for us was really important as a cultural moment where we can have like-minded people share their experiences, empower each other. Sometimes you have these super successful people on the platform. We want them to inspire up-and-coming talent. And the same went with businesses. And so we did all kinds of things like which are less obvious, like offline events where we closed a bar in New York and we just invited freelancers to come in and have a drink with us. And it turned out that half of the people that turned out to these events were actually customers and not freelancers. And we said, 'What the hell?' But it turns out that the persona or the profile of a freelancer in a micro business are pretty much the same. They're both entrepreneurs. They're struggling. They're feeding each other. They're helping each other. And there was this something really interesting about the success which fuels itself. And they exchange ideas. They exchange best practices. They're highs and lows. And this was really something that was in the founding basics of the business. And then over time as we got the dynamics of this flywheel together it was pretty obvious that we can start being more proactive on like putting marketing dollars on either brand marketing or performance marketing. But do it very picky and very deliberate through this mechanism where you have a short TROI or time to return on investment on a net basis on every cent that we deploy out there gets back to us in a very short amount of time. And then the multiples, the LTV to CAC, the lifetime value to customer acquisition is multiples over a period of time. But this also goes back to this idea of a horizontal marketplace where you can entertain customers over long periods of time, so for many of their needs. Become a, you know, create the trustworthy platform to engage on and so forth.

First 9 years, crazy. Half of it was super organic. I make it sound like it was fun. It was super hectic. There were terrible moments where we thought we were lucky enough to succeed organically, but success was like we were very close to having success killing our own business. In many occurrences. I can tell horror stories where I thought the business was done. Competition was crazy because once you have something that succeeds, everybody wants to copy you. So, we had thousands of copycats and you need to make a decision if you are going to be obsessive about engaging with the competition or you're obsessive about running as fast as possible. So, that whatever happens, they always need to run you and you'll outrun them and so, you know, just move on and they'll die on their own. 9 years into it, that was 2019, I took the company public at the New York Stock Exchange. That was still a moment in La La Land where, you know, interest rate was negative, which is an aberration of, you know, if you studied economy, you know that it doesn't exist. But it did exist at that moment in time. The company was small. We were doing, I don't know, maybe 90 million dollars in revenue, and we were losing about 16% on EBITDA. Crazy rollercoaster as a public company. We went public at a market cap of about 650 million dollars. And then now the company does over 400 million dollars in revenue with like 20% positive EBITDA. So we're printing a lot of free cash flow. The company trades at like 400 million dollars, which is a joke, but in between that 650 and what's now 400, we were trading at 11 and a half billion dollars. So really like the public market is basically a pendulum. It either undervalues you or overvalues you, but it rarely fairly values you. Because it's a little bit of a herd mentality with investors, and most of them are very short-sighted. And if you view this as a grading system or a scoring system to how well you're doing, then you're going to be miserable. So I wouldn't recommend this to people that measure themselves by, you know, the stock price. But as a business, I mean, it has grown tremendously well. Became very profitable. You know, becoming a public company is a moment. But beyond just doing a V on a like whatever you have a checklist of things you want to do and one of them is taking a company public. It's a cultural moment for a team. It changes the way you, the team dynamics, the culture of the company. It's a crazy ride. And also, I mean, just building a company over a decade and a half is not obvious. Like you need to challenge yourself to ask if you have the energy to do it. You have the talent to do it. You're interested, you're motivated. What motivates you? Because it moves from just being about, you know, success and money and whatever to being to challenging yourself to do things that weren't done before and break your own boundaries. So it's been a really interesting and a super crazy journey. And I'm still here, so it says something about, you know, how I do this ceremony of validating if I'm the right person for the company, I have the right energy. And I do this, it's a ceremony that I do every year. I'm still excited. I don't know if, you know, most people don't know this. But this year we're actually, I don't know if celebrating is the right word for it, but we're, you know, 2026 is marking 100 years to the 9-to-5 way of working in the 5-day workweek. This happened 100 years ago and the dude that changed that was Ford. And this came with the assembly line. People used to work 7 days a week and hours were whatever you're, you know, told to work. And this is changing. I'm really intrigued about who's going to determine or at least put the infrastructure for what's going to be the way people work in the next 100 years. And I think we're pretty well positioned to be that company or at least that's my aspiration. So, and this is interesting enough.

What's AI? Just, not sure. Haven't heard of it. Look, I'm half joking. And the reason I'm saying I'm half joking is we're all, I'm assuming and sorry if I'm all like over generalizing, but probably if you've tuned into this discussion, you're probably a geek at some level. And we're all sure that whatever we're exposed to, our jargon, the things that we obsess about, everybody else in the world obsesses over. The reality is very far from it. And so, you know, AI burst into our lives in the form in which we all know it, which is mostly LLMs and RAGs. Because AI has been around for like 40 years. We've been using AI in its earlier incarnations for at least a decade. It was called machine learning, it was whatever. But essentially AI has been around. What was really this first asymptote was LLMs. And the way LLMs were introduced in our lives was in a very radical way because it was free for all, essentially. Which made it one of the craziest launches in history. But the thing is as much as AI empowers us, it empowers all of us at the same way. Meaning we all have access to the same AI. It's not like premium AI that only the rich and famous and the biggest companies can afford. It's everyday people. So, on the one hand it makes us more powerful, more efficient. But it makes all of us more powerful and efficient, which means that it gives none of us any advantage. Right? And so what is the advantage? And why certain people or companies are doing more than others? It is not because of technology because you have the same access to the same technology. It's how you use it. It's how you instruct it, is how you build it, is how you hack it, is how you connect different technologies together. It is how fast you can move by utilizing technology. And so this was my understanding. But the fact that we have access to technology also gives the responsibility of maximizing the usage of this technology on the one hand, how we operate as a team, and how we use this to increase our velocity, and the quality of what we do, to the benefit of how we work and the product that we build for our community, but also use technology to empower our community to be more effective, faster, better, and so forth. So, that's on the one hand. The other hand is it has changed the nature of the things that people are interested in or willing to pay for. So, if you think about the Genesis story of Fiverr and the go-to-market of Fiverr, Fiverr started from simplistic, pretty cost-effective microservices for micro and small businesses. If I'll give you an example, you would start laughing. I'll give you an example. I'll hire someone for 20 bucks to remove the background from one of my images. Which you can do in a long click on photo now. But it was worth it because it was hard. Now, what was considered to be hard back then is nonsense these days. So, like everything moved up into the right. And what it has changed for Fiverr is it's starting to eliminate low-skill, small-scope services, and it is moving the focus into high-end skills and larger scope type of tasks. So, it's changing the function of what we do, what our talent does, what our customers are coming for, and we're changing with it. Okay? So, that's kind of the change, and obviously the halo effect of it, and this is going back to being a public company, is that the public market is trying to understand who's going to be around in 2 years. Is SaaS going to be around in 2 years, or is it done? Our marketplace is going to be around in 2 years or not. Is e-commerce in the way Amazon is doing it going to be around? Because today you go on a marketplace and you browse and you look for stuff. Tomorrow it's going to be your agents saying, 'Oh, just buy me something.' And your agent is going to go on Amazon and buy something. So, like everything is changing, and every business needs to go with it. I think that there's a massive fear of dislocation of businesses, and I think the public market is really, really concerned that SaaS businesses, marketplaces like us, with labor, now it's cyber, are not going to be around, or are going to be materially impacted. And so, this is why they're being super, you know, bearish on these, and they're waiting to see what's going to happen. Now, I'm not stressed about it. But everybody is looking to see how the world is going to rearrange. So, that's the very short of how AI is impacting us.

On a radical thinking, if