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Why this services marketplace works more like a lead generator

This article is from an episode on Disrupting Japan. This is heavily revised from the original show transcript. For the full episode, go here.

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Zehitomo founders James McCarty (left) and Jordan Fisher / Photo credit: Zehitomo

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Many foreign companies enter the Japanese market with proprietary technology or a strong brand. But Zehitomo, an online marketplace for offline services, is using business process as an advantage.

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In this episode, we talked to Jordan Fisher, CEO and co-founder of Zehitomo, to get a closer look at the company and its business model.

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What is Zehitomo?

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In a nutshell, it’s a marketplace for local services, meaning the jobs that happen offline. Think photographer, plumber, personal trainer: all these scenarios where you’re connecting directly with a vendor or a freelancer offline, as opposed to a programming, design, or legal task that could be done through online crowdsourcing.

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One way that we differentiate ourselves is that we are a platform for professionals. The average job size is closer to around US$500. These are professionals that do the job for their living. Some of them do it as fukugyo or a sideline work, but the vast majority are small businesses, followed by freelancers.

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My co-founder James McCarty and I launched the service in 2016, but we had been talking about it, trying to work on it in stealth mode, since 2015.

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How does the platform exactly simplify things?

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One of the really frustrating things about local services is that it’s inefficient and nontransparent. If you want to hire somebody to take photographs of your wedding or renovate your kitchen, you have no idea how much that’s going to cost or whom to actually ask.

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And generally, what happens in Japan is you go through a series of different agencies that all take cuts in between. Then, you finally arrive at some sort of a packaged solution, which may or may not be what you’re looking for. Wedding venues usually charge around US$2,000 for a wedding photographer, and they get paid around US$300 in the end – it’s like 85% cut. It’s ridiculous.

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You would think that the internet has done a lot to change these things. But I think in Japan everybody loves what’s called tesuryou, or margin.

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The bottom line is that this doesn’t actually add any value to either side. If the problem you’re trying to solve is how to make a payment and then you take a margin off the top of that, that makes sense, as you’re facilitating a need. But in the case of local services, you don’t actually add any value to the requester or to the professional by taking a cut in between.

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I think there’s no good solution out there right now. When it comes to ordering a service, you need a custom set of requirements and you don’t know what those are unless you’re a subject matter expert. What we try to do is make it as simple as possible so vendors have all the information they need.

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One of the things that Zehitomo does very differently from other marketplaces is it doesn’t handle the payments. Why did you decide to do it that way?

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It wasn’t intuitive to us either at first, but we realized it is the right way. Handling the payments is a great way to stay in between the transaction.

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So, something like Upwork, a platform where you can hire people remotely, will stay in between by charging a percentage while actually adding value through the lifetime of your relationship with it. It will take screenshots every 10 minutes to show work progress, handle the non-disclosure documents, take care of the payments and processing, and automatically calculate the hours.

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I’d be happy to pay extra for that kind of management because it’s valuable for me. In the case of local services, however, clients meet the professional offline. Say, you want to hire a personal trainer once a week. On the second week, what’s your incentive to go through somebody else that’s going to take a 20% or 30% margin?

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We’re providing an agency solution in trying to get people to match. We are structured as a lead generation platform, which means when vendors bid on jobs, it’s a natural quality filter at the same time. We don’t have to worry about all the operations that the professionals are much better at than we are.

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How do you handle pricing?

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For one, we try to get the right information for the professionals. In the case of a wedding photographer, for example, we ask them what their budget is, what type of professional they’re looking for, and so on.

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If it’s a more expensive budget, it’s a more expensive lead. We basically calculate the lifetime value that we assume would work out for the professional if they were hired. In the case of a recurring job, we can say, “OK, on average, you’re going to get hired for a personal trainer job five times.”

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We basically have to reverse engineer their business to figure out where we can charge them.

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What did you do to stand out on the demand side?

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Looking at how we can add the most value in the market, we realized that the demand from everybody is getting new clients. That’s the number one concern. I think our platform solves it much better for them because they’re earning their own business, they can keep their own repeat, and so on.

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In the beginning, it was very hard. We went to our friends or friends of friends and invited them to our Facebook page. And one of the things we realized with local services is that it’s not a sticky experience where people are like, “Oh, today, I’m going to hire a photographer. Tomorrow, I’m going to hire a personal trainer. On Thursday, I’m going to hire my soundproofing specialist.”

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You have these needs when they arise. People search for something when they need it, and this is why we’ve been building out our SEO.

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When you look at repeat business, I think it’s much easier to say, “Hey, we can be the everything store,” instead of sticking to one or two categories.

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Zehitomo’s approach to selling leads rather than taking commissions is very interesting and at the same time quite uncommon in online marketplaces. But it makes a lot of sense when the marketplace is not selling a product that will be used again and again.

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Rather than spending resources building out the perfect workflow for kitchen remodeling or wedding photography, Zehitomo can focus on building a brand and attracting more customers. That said, its choice to grow broad and sell everything rather than to go narrow and focus on one market is a risky one.

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But Zehitomo is clearly doing something right, as its volumes and revenue show.