In this episode of "Acquired," hosts Ben Gilbert and David Rosenthal, along with Rover.com founder and CEO Aaron Easterly, delve into the story of Rover and its merger with DogVacay. Aaron shares insights from Rover's early days, including the company's focus on data and marketplace analytics over PR, which later contributed to their efficient customer conversion and repeat booking rates. The discussion also covers the strategic decision for a "hard cutover" post-merger, moving all DogVacay users to the Rover platform for enhanced data usage and marketplace efficiency. Aaron emphasizes that despite Rover's success, the journey is ongoing, and the company continues to strive for growth and profitability.
"You know, and I've experienced dogs eating stuff that they shouldn't eat. Dogs jumping over fences. You didn't think it would be possible for them to jump over?"
This quote highlights Aaron Easterly's personal experiences with dogs, which likely informs his understanding of pet behavior and the needs of dog owners, relevant to Rover.com's services.
"Welcome to season two, episode nine of acquired, the podcast about technology acquisitions and ipos. I'm Ben Gilbert." "I'm David Rosenthal and we are your hosts."
These quotes serve as the opening lines for the podcast episode, establishing the hosts and the topic of discussion.
"Today we are talking about a very important company. Without this company existing, there would be no acquired and it's likely that David and I never would have met. Today's episode is about Rover.com and their merger with dog Vacay to consolidate the grand rivals of the dog sitting wars."
The quote emphasizes the significance of Rover.com in the context of the podcast and the personal lives of the hosts.
"Now, Aaron, there are many rumors circulating that you were the youngest GM ever in the history of Microsoft at age 29. Can you confirm?" "Actually, I can't. I don't know if that's true or not. I was a very young GM for Microsoft at the time and there's no one that's younger than I'm aware of, but I don't know if that's true."
These quotes discuss Aaron Easterly's professional background and the rumor about his age when he became a GM at Microsoft, highlighting his early career achievements.
"Yeah, I love all animals, but I'm very partial to dogs. And I was owned for 14 years by a four pound fluff ball named Caramel." "And we are sitting here in the rover office in Caramel's Den, named for Caramel, with a portrait of caramel up above Aaron on the wall here."
The quotes illustrate Aaron Easterly's personal connection to dogs and how it is reflected in the Rover office environment.
"Our next sponsor for this episode is one of our favorite companies and longtime acquired partner, Pilot for startups and growth companies of all kinds."
This quote introduces Pilot as a sponsor and highlights its services aimed at startups, emphasizing the importance of outsourcing non-core activities for growing businesses.
"So Greg dragged me to meet with some of the engineers that were on the team over the weekend, that he wanted some help evaluating whether or not he should invite them on to kick off a prototype program."
This quote describes the early involvement of Aaron Easterly in evaluating the potential of the idea pitched at Startup Weekend, which would later become Rover.
"So we initially looked at third party estimates of market size, and the answer there, depending upon what you looked at, you could kind of get to three and a half in some sources, maybe six to 8 billion in other sources."
This quote discusses the challenges of estimating the market size for a service like Rover, which includes transactions that are not traditionally captured in industry statistics.
"A pitch we put in the commercial market and just said, and there's some gravy on top in this shadow market segment, which looking back was just really dumb because as we found out a couple of months later, that gravy on top is actually ten times the size of the commercial market."
This quote highlights the initial oversight in assessing the market size, where the shadow market was undervalued and later found to be much larger than anticipated.
"And this is so fun because once Aaron joined, we were convinced there was a big opportunity here."
This quote reflects the enthusiasm and validation felt by the team when Aaron Easterly joined, reinforcing their belief in the venture's potential.
"For me, life in general is about having fun, challenging experiences that actually have a unique impact where you're contributing something that's different than what other people could contribute."
Aaron Easterly explains his personal motivation for joining the venture, emphasizing the importance of engaging in work that is both challenging and impactful.
"Actually, about seven years. Now, our legal name is still a place for Rover."
Aaron Easterly discusses the history and continued legal use of the company's original name, "A Place for Rover."
"I was an active sitter for the first several years. I think I still have over 100 reviews on the site, so probably booked close to 1000 nights of care."
Aaron Easterly shares his personal involvement in the early operations, highlighting the hands-on approach taken to understand and improve the service.
"Rover is really to thank for many, many things that have happened in David and my life since meeting."
Ben Gilbert expresses gratitude for the impact Rover has had on his and David Rosenthal's professional journeys.
"I think we made a list of the top five worst ideas that our vc funded in that year."
Aaron Easterly comments on the negative public perception of the business idea, despite its eventual success and the emergence of similar ventures.
"Our view, though, is that most of the economies of scale in this business weren't going to come from just pure scale. It was going to come from the use of data on the back end."
Aaron Easterly explains the strategic focus on data and marketplace mechanics, rather than just scaling, as a critical factor for success.
"All this stuff matters a lot more to vcs than it does to me at the time."
Aaron Easterly contrasts the VC perspective with his own, emphasizing the importance of focusing on the business rather than the competition.
"Dog Vacay got a much faster start, did a much better job with initial pr and marketing and graphic design, had a group of well known valley investors and got out to a fast start at one time LA and New York, which are large markets, dog vacay was six times our size in both of those markets."
This quote highlights Dog Vacay's initial competitive advantages, including strong PR, marketing, and investor backing, which led to their early lead in significant markets.
"Looking back, ultimately, I wish we had done a little bit more in PR in the early days. It took us a while to make up the ground on SEO, for example, and domain authority, so we could have been a little bit more balanced."
Aaron Easterly reflects on the balance between backend optimization and public relations, suggesting that Rover could have benefited from a stronger initial focus on PR to build awareness and online presence.
"Our conversion rates, as new customers new needs were hitting the marketplace, ended up being much higher over time than our competitors."
David Rosenthal explains how Rover's investment in data science and backend analytics resulted in higher conversion rates, which was crucial for their long-term success compared to competitors.
"And the important thing to note here is you think about the equation of cost to acquire a customer versus the customer lifetime value."
Ben Gilbert emphasizes the significance of the cost-to-acquire-customer (CAC) versus customer lifetime value (LTV) equation in marketplace businesses and how funnel optimization can impact this.
"You're not actually a customer until they complete the transaction."
David Rosenthal clarifies the definition of a customer in a marketplace business, emphasizing the importance of transaction completion in the customer acquisition process.
"Brent's a co CEO, but the best manager I've ever met, the best developer of talent I've ever met, the best operator I've ever met."
Aaron Easterly praises Brent Turner's managerial skills and his impact on Rover's executive team, highlighting his role in the company's success.
"The conversation around putting the companies together actually started in year one."
Aaron Easterly reveals that merger discussions with Dog Vacay started early in Rover's history, indicating a strategic approach to consolidation in the marketplace.
"It just becomes hard."
Aaron Easterly discusses the increasing complexity of merger discussions as companies grow and more stakeholders become involved, illustrating the challenges of private company mergers.
"Entrepreneurs typically have a pretty high faith in themselves and their ability to get it done."
Aaron Easterly comments on the entrepreneurial mindset and how it can make merger negotiations difficult, as each party believes strongly in their own vision and capabilities.
"What do you do?"
Ben Gilbert raises the issue of how to handle two sets of investor preferences in a merger, pointing out the complexity of combining downside protections from different funding rounds.
"For me, there's two simple questions. Do you have conviction on the deal terms, like, is it a good deal terms? Do you think there's going to be more value than what you're paying, whether you're paying in equity, cash, whatever? And the second is, do you have conviction around the post close plan? Can you actually execute it?"
The quote outlines two critical questions to consider when evaluating M&A deals: the quality of the deal terms and the feasibility of the post-close plan. The speaker stresses the importance of having confidence in both aspects to ensure a successful acquisition.
"In this case, we decided to do what we called a hard cutover. So basically, we were going to migrate all dog vacay customers on the demand side, all their sitters on the supply side, over to the rover platform, and basically execute a shutdown of the dog vacay technology and probably the office."
This quote explains the strategic decision to fully integrate the two companies by transferring all customers to one platform and discontinuing the other, highlighting the intention to streamline operations and avoid prolonged integration.
"We thought all this through in advance, and we got agreement from Dog Vacay that we weren't going to close on the deal unless both sides could mutually agree upon the post close plan execution plan, integration plan."
This quote emphasizes the importance of having a clear, mutually agreed-upon post-close plan before finalizing a merger, as it is critical for the successful execution of the integration.
"The answer is yes. A lot of people suggest valuing these types of deals on strategic value. Your multiple as a public company would be higher with the consolidation, and that's not how we did it."
The speaker acknowledges the strategic value of the acquisition, particularly in terms of marketing cost savings and data coverage, but also highlights the importance of basing the valuation on tangible benefits such as incremental revenue and cost savings.
"We got done in about half the time and exceeded the goals on the successful sitter migration, successful owner migration. It was well executed and we had given stay bonuses to people in Santa Monica because there was uncertainty around whether or not there's still going to be a job."
This quote describes the successful execution of the integration plan, which was completed efficiently and with positive outcomes, demonstrating the effectiveness of the hard cutover strategy and the value of incentivizing employees during transitional periods.
"Just to be clear, our view is that we haven't achieved anything yet. We're still a money losing startup that may be more on the late stage side, and there's a lot of work to do."
This quote reflects a humble and forward-looking attitude, emphasizing that despite past achievements, the company must continue to innovate and grow to achieve long-term success.