Bill Oesterle just wanted an easier way to renovate his home. Angie Hicks was a bright young intern. From answering phones to half of a Billion dollars.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us. But we’re highlighting ads we’ve written and produced for our clients, so here’s one of those.
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Dave Young:
Welcome back to the Empire Builders Podcast, Dave Young here alongside Stephen Semple. And we’re just talking about businesses and what are the little pivots that they made along the way that turned them into empires, from mom and pop kind of things? And today, Stephen, you told me we’re talking about Angie’s List.
Stephen Semple:
That’s right.
Dave Young:
I think that there’s a person named Angie involved in this story.
Stephen Semple:
That’s correct, Angie Hicks.
Dave Young:
Let’s hear it. They haven’t been around forever and they’ve made some interesting pivots as well.
Stephen Semple:
Yeah. They’re actually now called just Angi, if you were to go to the website to pull them up, rather than Angie’s List. But yeah, they were founded in 1995 by Angie Hicks and Bill Oesterle. And in 2011, they went public on NASDAQ. And 2013 they had 2 million subscribers. And in March of 2021, IAC, who’s also the owners of Home Advisor, bought the company for $500 million. And it’s estimated they do about $350 million a year in revenue today.
Dave Young:
Wow.
Stephen Semple:
Yeah.
Dave Young:
That’s rags to riches.
Stephen Semple:
Yeah, it sure is.
Dave Young:
So they’ve been around longer than I thought.
Stephen Semple:
They predate the internet, really, like 1995. And that’s the other part that I found surprising. It’s like, 1995? No one was online in 1995.
Dave Young:
Tell me more.
Stephen Semple:
Yeah. So Bill had this small private equity firm, and he had hired Angie to work there as an intern. So she worked there for a year as an intern. And after the internship, Bill reached out to hire her. He said, “I have this idea, but what you need to do is you need to move here to Columbus.” And he’d raised some money. And he said to her, “You need to commit to doing this for a year.” And Angie describes herself as very risk-adverse and not at all entrepreneurial, so she wasn’t sure if she should do this. So she asked around for advice. And what I love was the advice her grandfather gave her. And her grandfather surprised her, because her grandfather is very conservative. Here’s what he said. He said, “Well, what’s the difference between being 22 and looking for a job and being 23 and looking for a job?”
Dave Young:
Not a whole lot.
Stephen Semple:
Right? So she was like, “Well, that makes a lot of sense,” so off she went, because really what’s the risk? A year later, you’re looking for a job. What’s the difference? So the idea that came about that Bill had for Angie’s List landed because of Bill’s experience renovating his home in Columbus. He had recently renovated a home in Indianapolis, and he had used this local service called Unified Neighbors. So somebody had this service called Unified Neighbors, which was really a list of who was good and not good in the home improvement space.
Dave Young:
That’s been a huge problem for people over the years.
Stephen Semple:
Absolutely. And he just assumed that, when he went to Columbus, that Columbus would have a service just like that. And what he discovered was, it didn’t. And what he discovered was most places don’t. So he saw this as an opportunity because this didn’t exist. And so what they decide they’d do was start their own, that they would start this business. So step one was they called people that they knew, and their first offering was this $19 yearly membership. Now, remember, this is 1995. There’s only 40 million users on the worldwide web. Most users were using it once a week. So this was not a web-based business. They literally started by phoning people and saying, “Hey, Dave, who do you know who’s really good in the home services space? Oh, and Dave, would you also like to be a yearly member?”
Dave Young:
The membership was for consumers.
Stephen Semple:
Yes.
Dave Young:
A business couldn’t buy their way on.
Stephen Semple:
Not initially, that’s correct.
Dave Young:
Yeah.
Stephen Semple:
That’s correct. So the first idea was that. And literally one of the first lists that Angie got was from a buddy of Bill’s who gave Angie her church list, her list of all of her members from church.
Dave Young:
All these people, ask them who they use.
Stephen Semple:
Yeah. And how it would literally work, Dave, if you were a member, you would pick up the phone and you would call in. And Angie would answer the phone and you go, “Hey, Angie, I need a plumber. Who should I use?”
Dave Young:
Oh, wow.
Stephen Semple:
Yeah, Angie literally answered you the phone and gave you the name of the plumber. And in the first three or four months, she was going door-to-door to get memberships. And she was miserable because success was one or two memberships a day. And what they realized, this was not a marketing plan that was going to work long-term.
Dave Young:
I mean, there’s only so many doors Angie can knock on nationwide.
Stephen Semple:
There you go. So they decided to advertise. Now, this was, again, mid-nineties, so community newspapers were still a thing. So they took out this little two by three ad in the back of a neighborhood newspaper. And this grew them by a thousand members in the first year. And they also decided to go back and buy, remember Unified Neighbors in the other town? They went back and they bought Unified Neighbors. So they now had two offices and Angie’s driving back and forth. Three years in, they open a couple of other markets. They’re now in four markets. Bill has left the private equity and is now working as the CEO full-time on this business. But Angie is completely, she’s burned out, and she decides she needs to take a break and go to business school.
Dave Young:
Okay.
Stephen Semple:
So she goes to Harvard. But she did find it weird going there because you’re going to this business school after having been working and building this business. She found it really… Which I can actually relate to, because when I was in university doing my bachelor of commerce, I had a business. So I had this full-time business I was running and going to business school. And yeah, it is a little bit weird because there’s certain things where you were like, “Yeah, it doesn’t really work that way.” But anyway, she does business school. And after graduating, she’s not completely convinced that she wants to return to Angie’s List.
So she interviews around and sees what’s out there and decides, no, you know what? I want to go back to Angie’s List. So when she was gone, Bill had hired a CFO and they had built out this complete business plan. And so when she calls, they basically say, “Hey, we can’t take you back. We can’t afford you.” And she basically says to Bill, “Screw you, I’m returning. I’m one of the founders of this business. I’m returning.” So it’s 1999 and they decide to go online, because what they noticed was there was growth happening in the online space. It’s still pretty small, but it’s exploding. So to give you an idea, in 1999 there’s 150 million people online worldwide. By 2000, it’s 407 million.
Dave Young:
Yeah.
Stephen Semple:
So it’s still not a lot, but it is in that explosive period.
Dave Young:
Yeah.
Stephen Semple:
And the first thing they do online was like what a lot of people did. It was really a brochure on a page. But one day they realize half their signups are coming from the website, so maybe they should put reviews online.
Dave Young:
Ah, okay.
Stephen Semple:
The idea was this community of trust really before the sharing economy. Let’s face how 1999, they were being very early and innovative on this. And one of the things that they decided that they needed to mimic in terms of look and feel and touch was journalists, which meant it didn’t even occur to them that reviews would be anonymous. There was no such thing as an anonymous review. Reviews would be open. And not only that, the company you’re reviewing would be allowed to respond.
Dave Young:
Okay.
Stephen Semple:
Because they wanted it to have a journalistic feel. Because here’s how Angie described it. When you think about home renovations, there’s a high cost of failure in the decision. And it’s at a time when you know the least about buying. In other words, high cost of being wrong here, I know nothing about construction. I’m spending a lot of money on it. And if it goes wrong, it has this really big impact and there’s not a good source of information out there.
Dave Young:
Yeah.
Stephen Semple:
So that’s the gap that they were filling. And as soon as they went online, it allowed them to scale to national.
Dave Young:
Sure.
Stephen Semple:
In the 18 months, they opened 100 markets. But what they did, not only did they do online, but they still did because, again, online it wasn’t like people were finding them online. They advertised locally, people went to the website to sign up. And what they did was they started with small markets before large markets. Because a small budget, as you and I know, Dave, a small budget and a small market you could move the needle.
Dave Young:
Yeah.
Stephen Semple:
So they would go small market, small market. And it didn’t matter where the markets were because it was online.
Dave Young:
Yeah.
Stephen Semple:
Small market, small market, small market. And then when they had enough markets and they had a big enough marketing budget, they then went to the large markets. And I’ve always argued that if you had a national online business, this is what fascinated me about Angie’s, said, “If you had a national online business, the way to grow it would be advertise in small markets and then move from small market to small market.” So they did exactly the thing that I’ve always argued would be the way that, if I had an online business, I would be growing it. Be advertising in these small markets.
Dave Young:
It all scales. It’s not like you need brick and mortar in those small markets. You’re just an online presence.
Stephen Semple:
Correct.
Dave Young:
So you don’t have to open an office. You don’t have to do all the things that you would normally have to do to expand into a market. And the thinking would be if you were brick and mortar, yeah, you’ve got to go where people are. Go to a mass market.
Stephen Semple:
And what you and I know if you’re going to a market like Toronto to even just scratch the surface, you got to spend a million dollars. If you go to a town of 250,000 people, you can have a big impact with a 40, $50,000 marketing budget.
Dave Young:
You’ve still got a critical mass of these home service providers that you can review and rate.
Stephen Semple:
Absolutely.
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
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Dave Young:
Book your starter session on this podcast’s website. Just visit theempirebuilderspodcast.com and click on get started. Let’s pick up our story where we left off. And trust me, you haven’t missed a thing.
Stephen Semple:
So they did this whole idea of advertising, offline advertising, did small markets before they moved to big markets. But the original idea was built on their own need. It was built upon the frustration of Bill going, “How come there’s no list here of really good home services companies?” But the other part I found that was interesting is, even when they decided to model it out and put reviews on the site, it was journalists that they modeled, which led to the decision of reviews can’t be anonymous and people need to be able to respond to those reviews.
Dave Young:
It’s been obviously wildly popular, and especially I think with consumers. But you and I talk to a lot of home service companies. We have clients. And they’ve not always been the biggest fans of what we call aggregators like Angie’s List, because-
Stephen Semple:
Yes.
Dave Young:
… they end up being gatekeepers that aren’t always fair.
Stephen Semple:
So Angie’s built something very successful by seeing this gap in the marketplace. But yes, if you’re now a home services company and you’re not part of the Angie’s List network, now, what you can do for free or you can pay to be on. But here’s the other thing is it’s usually not a recommendation to one. It’s a recommendation of here’s four really good plumbers. And now that consumer calls those four plumbers and you’re competing. And look, who owns the customer wins.
Dave Young:
Yeah.
Stephen Semple:
And what happens in something like Angie’s is if I don’t have a plumber that I feel good about, I’m going to go to Angie’s List and Angie’s is going to give me a plumber.
Dave Young:
Yeah. You’re going to go somewhere.
Stephen Semple:
You’re going to go to Angie’s, you’re going to Google plumbers near me. And basically, what happens is when you rely on those networks as a home services company, you’ve basically abdicated the responsibility of marketing your business to Angie. Where if you market your business yourself building the type of ads that we talk about that make you thought of first, liked the most, and deeply trusted, guess what? That person’s going to come directly to you and circumvent Angie.
Dave Young:
Yeah. Well, Angie’s and so many of the others, boy, they not only give the consumer here’s a list of people, but they also then, now they’re selling leads? The home service company has to pay Angie to get leads that Angie has also sold to their competitors. So when you look at it from the viewpoint of the home service company, now you’re much better off finding your own leads.
Stephen Semple:
Yes.
Dave Young:
People that think of you first and like you, than taking a lead that was sold both to you and two or three of your tightest competitors, and now you’re all fighting for that client and you’re all underbidding each other. And that can be good. I mean, obviously that can be good for the consumer. If I can get home service companies bidding for a job, I might spend less money, but I also might get the worse job.
Stephen Semple:
What Angie has done, though, is filled that need in the marketplace. And if you think about it, it’s if I don’t know who to use-
Dave Young:
Yes.
Stephen Semple:
… Where can I go to get something? And part of the reason is is a lot of the businesses in the home services space have not promoted themselves well directly to the consumer and want to rely-
Dave Young:
If at all, yeah.
Stephen Semple:
If at all. But as soon as you do that, it means you are now subject to this to being part of Angi and things along that lines. Now, here’s what’s also interesting about Angi, is they are still continuing to advertise offline. They run national television commercials to attract those people to their site so that they can be the gatekeeper. They want to be the gatekeeper to the home services business. And what you want to be if you’re in the home services business, that’s not the best place to be. You actually want to control your destiny and market directly to the consumer.
Dave Young:
One of the most interesting lessons from this is probably not the one that Angie would intend for us to learn from it. But it’s, if you’re going to build an online company still nationwide, your best bet is to get on mass media so that you become known and you’re the gatekeeper, right?
Stephen Semple:
Yeah.
Dave Young:
The business model is, it’s almost like the service providers are actually looking at Angie to leverage their marketing budget for them.
Stephen Semple:
Yes.
Dave Young:
Right? So they’ve taken away control. But yeah, you can probably get some business by joining Angie’s List and letting them do their mass media and get customers, get people that have projects that you need to do because you don’t have the resources to do a mass media campaign in your city.
Stephen Semple:
And here’s the secret edge that a company like Angi has, or any online business that wants to look at advertising offline. The secret edge that they have is what you and I both know, David, is not every media market is the same price. There’s inexpensive media markets and there’s expensive media markets. There’s big media markets, and there’s small media markets. If you’ve got a small budget, what you can do is go, “I’m going to the least expensive small media market,” because it doesn’t matter where you do it.
Or even if what you want to do is test the idea is go to a small market so you can run the test with a small budget. And then, once it works there, you just go to the next inexpensive small market and pick off those 20, 30 small inexpensive markets first. It is a secret asset that online businesses have that they are not taking advantage of. And look, if you’re out there and you are an online business, you want to figure that out and you want to figure out what are the inexpensive media markets? Give Dave and I a call, we’ll walk you through it.
Dave Young:
Easy.
Stephen Semple:
Easy.
Dave Young:
An interesting topic, Angie’s List.
Stephen Semple:
Yeah.
Dave Young:
And what we call the aggregators. But maybe surprising lessons there, so I’m glad you brought it up.
Stephen Semple:
What I loved is the thing that I’ve been saying to businesses is exactly what they did, which I found really interesting.
Dave Young:
Thank you, Stephen.
Stephen Semple:
Thanks, David.
Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app, and leave us a big, fat, juicy five-star rating and review. And if you have any questions about this or any other podcast episode, email to [email protected].
