Brief Summary
This episode of This Week in Startups features an interview with Sarah Moscov, co-founder and CEO of Winnie, a childcare marketplace. Winnie has been growing rapidly and was recently ranked #275 on the Inc 5000 list. The episode discusses Winnie's journey, including its pivot from a general family-friendly activities app to a childcare-focused marketplace, the importance of product-market fit, and the challenges of raising capital in a changing market. The episode also explores the importance of transparency in the startup world, the need for more innovation in the childcare industry, and the impact of remote work on childcare demand.
- Winnie is a childcare marketplace that helps parents find daycare, preschool, after-school care, and camps.
- Winnie has been profitable since 2022 and is growing rapidly.
- The childcare industry is a $60 billion market in the US alone, and Winnie has a lot of room to grow.
- Winnie is focused on helping childcare businesses attract and enroll customers.
- Winnie is not actively seeking venture capital but may consider it in the future.
Winnie's Journey: From Family Activities to Childcare Marketplace
Sarah Moscov shares the story of Winnie's founding in 2016. Initially, the company aimed to create an app for parents to find family-friendly activities. However, they realized that parents were primarily using the app to search for childcare options. This led to a pivot, focusing solely on childcare, building a comprehensive directory of licensed providers across the US. This early work laid the foundation for the marketplace Winnie operates today. Sarah emphasizes the importance of trusting data and being willing to adapt to customer needs, even if it means abandoning initial plans.
Product-Market Fit: When Customers Can't Get Enough
Sarah discusses the concept of product-market fit, highlighting that it's not about growth alone but about consistent demand even when the founder is absent. She shares that Winnie's growth was initially driven by growth hacks and App Store features, but now the company experiences organic growth even when Sarah takes a vacation. This signifies true product-market fit.
Building a Database: Humans and Automation
Sarah explains how Winnie built its database of hundreds of thousands of childcare providers. Initially, they relied heavily on human effort, calling daycares and scraping information from websites. Over time, they developed automated systems, including one-click emails and integrations with licensing databases, to streamline the process. While the initial human-driven approach was expensive, it provided valuable insights for building scalable systems.
Inc 5000: A Numbers-Driven List
Sarah discusses Winnie's inclusion on the Inc 5000 list, highlighting its purely numbers-driven nature. Companies submit their financials, and only those with significant growth are selected. Sarah emphasizes the legitimacy of the list compared to others that allow for fabricated data. She also expresses a desire for greater transparency in the startup world, advocating for companies to publicly share their financials.
The VC Perspective: Sharing Too Much?
Sarah explains why many CEOs are hesitant to share their private financials. Investors advise against it, fearing that it could negatively impact future fundraising or sale negotiations. By keeping financials private, companies can control the narrative and potentially frame their growth story more favorably.
Winnie's Growth: A Proof Point
Sarah addresses the potential concern that Winnie's inclusion on the Inc 5000 list might set unrealistic growth expectations for future years. She acknowledges that maintaining such rapid growth will become increasingly challenging as the company scales. However, she emphasizes that Winnie's growth is a testament to the company's strength and its ability to navigate a competitive market.
The Importance of Specialization: Finding the Right Professional Services Firm
Stephen Estus, a principal at CLA, a professional services provider specializing in startups, discusses the importance of finding a firm that specializes in your industry. He emphasizes that working with a firm that understands the unique challenges and opportunities of your specific sector is crucial for success.
Competition in Childcare: A Rising Tide Lifts All Ships
Sarah argues that the childcare industry needs more competition and innovation. She believes that a rising tide lifts all ships, and that increased competition will ultimately benefit the entire sector. She welcomes competitors, even those who directly challenge Winnie, as long as they are focused on improving the industry and making childcare more accessible.
The Cost of Childcare: A Shared Responsibility
Sarah and Jason discuss the need for greater government and employer support for childcare. They acknowledge that parents are currently bearing a significant burden, both financially and in terms of time commitment. They advocate for a more collaborative approach to address the childcare crisis.
The Founder Demographics: A Missing Piece?
Jason raises the question of whether the skewed founder demographics in the childcare industry might be hindering competition. He observes that there are fewer companies directly competing with Winnie compared to other sectors with similar market potential. Sarah acknowledges the challenges faced by women in securing venture capital funding, highlighting the disparity in funding allocation between male- and female-led startups.
Winnie's Funding History: A Series A and a Convertible Note
Sarah details Winnie's funding history, including a Series A round in 2019 and a convertible note raised in 2021. She explains that the decision to raise the convertible note was driven by the frothy market conditions at the time. However, the subsequent market downturn and the company's focus on profitability led them to prioritize organic growth over further fundraising.
Investor Preferences: Flat Fees vs. Usage-Based Revenue
Sarah reveals that investors often prefer flat-fee subscription revenue models over usage-based models. Winnie's usage-based model, which allows childcare businesses to pay more when they have more spaces to fill, was met with resistance from some investors. This highlights the disconnect between investor preferences and the needs of Winnie's customers.
Sprig: AI-Powered Product Experience Platform
This segment introduces Sprig, a product experience platform that uses AI to analyze user data and provide actionable product recommendations. Sprig captures real-time product usage data through heatmaps, replays, surveys, and feedback studies, allowing companies to improve user satisfaction, drive revenue, and increase retention.
Private Equity and Winnie: A Potential Outcome
Sarah discusses the potential for Winnie to be acquired by a private equity firm. While she acknowledges that private equity investors are primarily focused on cash flow and profitability, she believes that Winnie's strong financial performance could make it an attractive target. However, her ultimate goal is to keep Winnie independent and continue running it as a standalone company.
The Convertible Note: A High Cap and a Variable Interest Rate
Sarah discusses the terms of the convertible note raised in 2021, revealing that the cap was significantly higher than Winnie's Series A valuation. While this was advantageous at the time, it has created a potential downside as the note has not yet been converted. Sarah also mentions that the note carries a variable interest rate, which is a factor to consider in the future.
Profitability Discipline: Keeping Costs Low
Sarah explains how Winnie achieved profitability despite its rapid growth. She attributes this to a focus on cost control, including reducing headcount and eliminating unnecessary expenses. She emphasizes the importance of a lean team and a culture of collaboration, which allows Winnie to achieve more with fewer resources.
The Impact of Google: Organic Search vs. Paid Marketing
Sarah discusses the changing landscape of search engine optimization (SEO) and the increasing reliance on paid search engine marketing (SEM). She acknowledges that Google's shift towards a more pay-to-play model has impacted Winnie's business, but it has also created opportunities for the company to grow its brand and reach a wider audience through email marketing, video advertising, and direct brand searches.
Pricing Leverage: Supply and Demand in the Marketplace
Sarah explains how Winnie's growing network of childcare providers has given the company pricing leverage. As more providers rely on Winnie to reach parents, they are willing to pay higher fees to access the platform's audience. This highlights the importance of maintaining a balance between supply and demand in a marketplace.
Remote Work and Childcare Demand: A Changing Landscape
Sarah discusses the impact of remote work on childcare demand. She observes an increase in searches for part-time care, drop-in care, and flexible scheduling options. This reflects parents' efforts to reduce childcare costs and adapt to hybrid work arrangements.
The Gender Gap in Remote Work: A Worrying Trend
Sarah and Jason discuss the gender gap in remote work, highlighting that women are disproportionately represented in remote work arrangements. This trend is likely driven by the societal expectation that women shoulder a greater burden of childcare responsibilities. Sarah expresses concern that this could lead to women stepping back from the workforce, further exacerbating the gender gap.
Winnie's Indirect Impact on Childcare Costs: Increasing Capacity
Sarah explains how Winnie indirectly contributes to reducing the cost of childcare by helping providers run at full capacity. By connecting providers with parents seeking flexible care options, Winnie helps them fill empty spaces and generate more revenue. This, in turn, allows providers to offer more affordable services and expand their operations.
Licensing and Safety: Winnie's Focus on Licensed Providers
Sarah clarifies that Winnie only works with licensed childcare providers, including home daycares. This ensures that all providers meet minimum safety standards and are vetted by their respective states. This approach minimizes legal risk for Winnie and provides parents with greater peace of mind.
Scaling Winnie: Revenue Use Cases and Future Growth
Sarah discusses Winnie's future growth plans, emphasizing the importance of identifying revenue use cases before investing in new features or expanding into new markets. She highlights that Winnie has a proven track record of success in identifying and capitalizing on customer needs.
The Future of Winnie: Bootstrapping vs. Shareholder Interests
Sarah acknowledges that while Winnie could potentially operate as a bootstrapped company, its current shareholder structure necessitates considering the interests of all stakeholders. This means that future decisions regarding fundraising or expansion will be made with the company's overall growth and shareholder value in mind.
The Importance of Good Investors: Winnie's "Amazing" Investor Base
Sarah expresses gratitude for Winnie's investor base, highlighting their commitment to supporting families and children. She believes that Winnie's investors share a common goal of making a positive impact on the childcare industry.
Private Equity and Moral Responsibility: A Question of Capitalism
Jason raises concerns about the potential for private equity firms to prioritize short-term profits over the well-being of those they serve, citing examples of private equity acquisitions in healthcare and senior care that have resulted in staff cuts and reduced quality of care. He argues that businesses have a moral responsibility to their customers and employees, not just their shareholders.
HubSpot's Automatic Upgrade: A Customer Service Nightmare
Sarah shares her experience with HubSpot, which automatically upgraded her account to a higher tier without her consent. While she acknowledges that the upgrade was technically outlined in the contract, she criticizes HubSpot's lack of transparency and communication.
SAS Pricing and Negotiation: A Founder's Perspective
Sarah discusses the increasing challenges faced by startups in negotiating SAS pricing and contracts. She highlights the need for careful budgeting and a willingness to build solutions in-house to avoid unnecessary expenses.
The Future of SAS: Build vs. Buy
Sarah emphasizes the importance of considering the "build vs. buy" decision when evaluating SAS products. She advocates for startups to explore building solutions in-house whenever possible, especially in light of rising SAS prices and the availability of AI-accelerated programming tools.
Lenina Khan and the FTC: Innovation vs. Antitrust
Sarah weighs in on the debate surrounding Lenina Khan, the head of the Federal Trade Commission (FTC), and her role in blocking mergers and acquisitions. She argues that while it's important to prevent the consolidation of power in the hands of a few large tech companies, it's also crucial to ensure that startups have viable exit options. She expresses concern that overly restrictive antitrust policies could stifle innovation and limit opportunities for startups to grow and succeed.
The Need for Innovation Policy: A Call for Clarity
Sarah emphasizes the need for clear and consistent policies that support innovation and startups. She criticizes the lack of clarity surrounding the current presidential candidates' positions on these issues, highlighting the importance of understanding how their policies will impact the Venture ecosystem.
