Michael Flaxman is the CEO & co-founder at Priceonomics, a Y Combinator alum. His goal is to find tell consumers what prices they should look for when they want to buy whatever it is they want to buy. I mean, there are hundreds of things you can research through their website. We got to talk about how it works, the YC experience, chair arbitrage, and what comes next. For more from Michael and the guys at Priceonomics, check out their blog. Their blog has some great articles; I link to two specifically below.
What’s your pitch for Priceonomics ?
We are the price guide for everything. You know how you can figure out what your car is worth on Kelley Bluebook? We can do that and we do it better than them. But it’s not just cars. We’ll also tell you what it costs for bikes, boats, sunglasses, RVs, and planes. Basically anything you sell on eBay or Craigslist or in the real world, we know what it’s worth.
So how does it work?
We price everything algorithmically. There’s no human interaction involved in any specific price guide. The site works by crawling the web. We index all the transactions we see online. We’ve done it for hundreds of millions of them. We’ll take unstructured text from them and determine what it means. A transaction we might find would be an iPhone 4S for $400. From that, we’ll figure out it’s the iPhone made by Apple and it’s the 4S model. We know the price, location, and date. We aggregate that with all our other information, and then we can see a nice bell curve of all Apple iPhone 4S’s. We’ll see what the average price is and how that’s trending over time. That’s always been the core of what we do. What we’re starting to do more of is showing people “Oh hey, would you like to see the iPhone 4S coming up for sale in your area?” Maybe it’s something you want to buy. We can do that for any other product too.
As mentioned, you’re a Y Combinator graduate (YC W12). Their application process is famous. How was your experience getting in?
It’s exactly as advertised. There aren’t any special secrets or advice you’ll hear from me that you can’t find anywhere else. First, there’s the application that you just find online. It’s really long, but it’s quite helpful. It forces you to think through your business. The closest thing we have to a business plan is our YC app. We never made a PowerPoint or wrote a full plan, did market sizing, or anything like that. That app asks you really hard questions. I recommend that people go through it whether or not they’re applying. They’ll be better off for the experience. Anyway, we got past that and we were super excited. We got down to Mountain View for our interview. It was only ten minutes long, so that’s stressful. And, there are now so many people interviewing that you don’t interview with all the partners anymore. We were the first batch that met with a subset. We just interviewed with three partners that I think were randomly assigned. That was it. We got in and we met the rest of the partners on day one.
On your blog, you put together an awesome post talking about your fund raising experience and I urge readers to visit it. In it, you were labeled “The Closer,” so first off, congrats on that. You closed the post by thanking YC for everything they did. What was your time there like?
Something that’s not totally clear on the outside is how hard those guys work. There are a lot of partners at YC and they all work really hard. They’d literally watch our presentation, film it, and send it back with comments saying you did this right, don’t do this, and change that. One of the things that surprised me most, even though it’s not directly related to funding, was about a new blog post we put out. We didn’t publicize it or anything yet. Ten minutes after it was live, Paul Graham sent out an email pointing out some typo six paragraphs in that was really minor. He’s just really on it. They all are. That just shows how hard they work all the time, for all the companies. At the end, they’re introducing you to investors, helping you on the pitch, but during YC is where the real value is. You say to them “I got this idea, I want to build this.” They’ll say “Show it to me,” then say “That’s the coolest thing ever!” or “That’s not such a good idea, don’t waste your time on it.” They’re really honest but in a helpful way. The direction of where to take the product, what to do about fundraising, I mean, that can take forever and we took almost no time. They did all the legal stuff too.
We mostly got to focus on building a product, and didn’t have to think fundraising until the very end. We also got this just instant credibility. For most companies, from day one, it’s all about money. You’re just an idea and in a super scary place. In YC, you have a little money from them, and you’re not immediately concerned about having to pay the server bills with your credit card. And I can’t stress enough this credibility. You go to talk to an investor at Demo Day, and you’re all of a sudden this legitimate thing. That means we get to spend all of YC building something cool.
On your About.Me page, you’re a self proclaimed “Econ Dork turned Silicon Valley Entrepreneur.” How did you get into startups and entrepreneurship?
I’ve always had a passing interest in entrepreneurship. I took a bunch of courses during college and it was my first job when I was twelve. I always had that interest, but got a management consulting gig out of college. It was very corporate and wasn’t exactly exciting. I didn’t love my job and just came out to California to build a startup. I was the first employee at Thumbtack.com, the marketplace for local services. I wasn’t really making rational decisions at the time. I didn’t want a corporate job and I was really excited about this company. I took this completely blind leap of faith and had no idea what I’d get into. I totally loved it. I found myself working all the time and not because I was forced. I loved this uncertainty and risk. It was great to just try something out. If it didn’t work, it didn’t matter. You just tried something else out. About three years after that, my co-founder Rohin and I came up with Priceonomics and thought “Let’s go for it.” At the very beginning, we approached Omar and he was into it too, so we launched.
In one post, Rohin talks about arbitraging the price of chairs and turning a small profit on it. While you’ve said that’s not a business model you want to pursue, what is the long term goal?
We found out the chairs were heavy and bulky, and people were flaky. There was a lot of nitty gritty work involved. We made a decent amount of money in a short period of time, so I don’t want to turn my nose up at that. But it wasn’t for us. We’re still figuring out what’s best.
People come to us usually when they want to buy, and sometimes to sell. When they’re looking up prices, it’s usually because they’re about to purchase something. That’s the best user to have, someone with the intent who’s ready to go. In terms of what model’s best for that, we’re not sure yet. We could show users all the products at the underlying sites, like at Craigslist, help them buy it, and collect some affiliate fee. We could offer to connect them with each other. If someone wants to buy and someone else wants to sell, we can connect them, like eBay does. It could be a lead generation thing. If someone wants to buy a car, we can go to a dealership in the area and say “Here’s an active customer.” We could do a data thing. We have really, really great data. We actually just released a Priceonomics API and we’re excited to see what people do with it. It’s early for us though, that’s what the next year for us is about.
Right now you’re hiring some developers and engineers. Hiring is a crucial task for startups, to the point that Fred Wilson is doing a series for MBA Monday about it right now. What’s your philosophy on hiring?
Get the smartest people we possibly can. Engineers are really unique and they replace the roles of so many other people. It used to be you’d hire someone to do the ad buying. Now you hire an engineer to build a system that buys ads on Google using stats and with no human involvement. That’s a small example. Engineers just wear so many hats. Whether it’s some system for email marketing, something to crawl the web, or figure out prices, or send alerts. Engineers are the core. We’re all about really smart and talented engineers. We think we have a cool problem to solve. They like when we tell them we’ve got hundreds of millions of data points and all kinds of scaling issues. Plus, the front end is cool. We need to figure out how to convey our message in a useful and easy way too.
What or who influences you the most?
I mean, Paul Graham is really inspirational, very helpful and accurate. Steve Jobs is amazing for me. No one would have been able to predict how successful Apple would be. He just saw an opportunity and went after it. I’m not these guys obviously, but their approaches are powerful.
What’s your favorite startup that’s not you?
I think Thumbtack is great. It’s a marketplace for local services run by about twenty people in San Francisco. It can help you find anything you need from a plumber to a babysitter, gardener, or handyman. It’s growing super fast. I’m obviously biased because I worked there for three years.
Outside of that, I think Uber is really cool. I’m also a fan of Twilio. I think anything that makes the lives of others easier is really great.