9-809-009
REV: DECEMBER 7, 2009
NOAM WASSERMAN
RACHEL GORDON
Playing with Fire at Sittercity (A)
In August 2006, Genevieve (“Jeh-neh-veev”) Thiers, founder and CEO of Sittercity.com, looked over at Dan Ratner, Sittercity’s vice president and her boyfriend of five years. It had taken her six long years to build Sittercity into the nation’s leading babysitting Web service. Thiers had begun
Sittercity in 2001 in Boston as a way to connect babysitters and parents online, at a time when no one else had thought to manage caregiving connections via the Web. She had started the company right out of college while working full-time, but by 2006, Sittercity had sitters available across the country, was larger than all of its competitors combined, and Thiers still owned two-thirds of the venture. The company now had plans to add pet, elder-care, house, and tutoring services in 2007, and Thiers wondered what other challenges she and Ratner would face as she continued to grow her venture.
Born to Babysit
Thiers liked to joke, “As the oldest of seven kids, babysitting is in my blood.” At the age of 11,
Thiers and her twin sister began babysitting in her hometown of Langhorne, Pennsylvania. From the outset Thiers enjoyed babysitting. She saw it as a way to escape from home, meet new people, and
“raid a fridge that wasn’t mine.” At first they sat for children who lived on their immediate block, but by the time the two turned 15, they were babysitting throughout the neighborhood. To put parents at ease, Thiers would tell them about her own family and taking care of her younger brothers and sisters. Thiers quickly realized that “I was naturally good with people. It’s odd to be 11 and be able to reassure parents, but I learned very easily what to say to relax people so that they could enjoy their evening out.” The twins would often have a babysitting-packed weekend—two sitting jobs in one night plus a day job. Thiers remembers giving her sister a high five as they passed each other on the road going to their respective second jobs. Although Thiers and her sister “made quite a bit of money,” their parents, who were both teachers, insisted that the girls save their earnings to pay for college, which Thiers found mildly annoying.
In addition to babysitting, Thiers sang in her church choir. She liked singing and by 11 had started taking opera lessons, leading to a lifelong love and passion for the opera. Singing turned out to be a good way for Thiers both to earn money and to gain the trust of parents in her church. “I didn’t get paid for Sunday masses, but I made a pretty good amount of cash singing at events,” she recalled.
“Plus many parents who heard me sing at church were comfortable having me babysit their kids since I had touched them emotionally through music.”
________________________________________________________________________________________________________________
Professor Noam Wasserman and Research Associate Rachel Gordon, Global Research Group, prepared this case with contributions from Senior
Researcher Aldo Sesia. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2009 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
809-009
Playing With Fire at Sittercity (A)
When it was time to apply to college, Thiers looked forward to getting out of the house and to a break from being a twin and being one of seven kids. To prepare for the college entrance exams,
Thiers worked hard, motivated in part by constructive competition from her younger brother. The hard work paid off; she received a National Merit Scholarship. She desperately wanted to go to the
University of Pennsylvania: “I was enchanted with it. I liked the look of the school and that it was Ivy
League. I didn’t know what the singing program was like, but I knew that the English program, which is what I wanted to major in, was strong. I thought that I might minor in singing.” However, only her sister got accepted to Penn, so Thiers attended her second choice, Boston College (BC).
While at BC, Thiers continued to babysit, especially during her first year. “I had made friends with my two roommates,” she recalled, “but I didn’t have that much to do with the school. I found it difficult to adjust, because I was a bit awkward and just didn’t know how to fit in, though being placed in a triple room with two roommates felt very natural to me!” With extra time on her hands, she babysat for about 30 families on a regular basis. As a sophomore, she sang in several musicals, becoming more integrated into the college community. Yet she continued to babysit, and when she decided to spend her junior year abroad at Oxford University, she also elected to be a nanny.
When Thiers returned home that summer she bagged groceries to earn money, at her mother’s insistence. Encouraged by her college professor, Thiers decided to apply for the Marshall and
Fulbright scholarships in music. One month before graduation, she learned that she had received neither scholarship. It was a hard time for her, she recalled: “I had put all my eggs in one basket. I was crushed when I didn’t get either scholarship, but especially the Marshall after I found out that I missed getting it by two spots. I didn’t know what I was going to do with my life, but I wanted to do something big—not be a nine-to-five employee—and knew that I wanted to be away from home.”
Thiers applied for an editor job at IBM to take advantage of her English degree.
The Opera Singer’s “Masterpiece”
Three days before graduation, Thiers came up with the idea for Sittercity. While posting flyers for an upcoming music-department event, she ran into a very pregnant woman putting up flyers advertising for a mother’s helper/nanny. Thiers gave the woman her own contact information, but it was a hot day and the woman looked uncomfortable, so Thiers also offered to post the woman’s flyers as Thiers put up her own. While putting up posters across the campus, Thiers suddenly had a thought: “Wouldn’t it be interesting to put a listing of all of the babysitters in the country in one place?” Excited by her idea, she ran back to her dorm room to do an online search to see if such a service existed. Her search, using words such as “babysitter” and “sitter,” turned up sites for Babysitters.com and Sitters.com, but neither seemed to be an operating business. She decided to reserve her own domain. “I wanted something that had the word ‘sitter’ in it. I was trying to help parents in the city find a sitter, and then I just put the two words together to get ‘Sittercity.’” Discovering that the domain name was not already registered, Thiers immediately called her father to borrow $120 to purchase the domain. “I was completely broke since I had just paid a huge tuition bill. My father gave me his credit card number but told me not to tell my mother,” she said, laughing. Sittercity.com was born. Thiers imagined the site as something that would connect babysitters and parents.
The excitement continued for Thiers the following day when she received and accepted a job offer from IBM. “I didn’t see it as a choice between doing a start-up or working for IBM,” she said, “but rather I would work at IBM as I was doing this ‘big thing’ on the side.” Thiers began working for
IBM’s Lotus division editing technical manuals but soon found that she disliked it. However,
2
Playing With Fire at Sittercity (A)
809-009
working there gave her valuable insights: “I realized that I didn’t like the big-company mentality, that I was more at home tinkering on my little project,” she said. “I felt very disassociated from the company, like I was part of a big machine in which I had no idea where I was going. I realized that I needed to understand the big picture to be motivated.” After work, she devoted her energies to getting Sittercity up and running. In contrast to her IBM job, she explained, “I saw Sittercity as a mission, not as a company. To me, it was more a work of art.”
Thiers spent her free time in the summer of 2000 writing her business plan with some help from the Boston office of the Small Business Administration (SBA). (For excerpts from the business plan, see Exhibit 1.) Thiers’s evolving vision for Sittercity was for it to be a posting site for parents and sitters that would be less costly and more efficient than using an agency to find a sitter. Sitters would register their information—college, sex, age, rates, hobbies, references, contact information—for free; parents would be required to join the site by paying a monthly fee that would enable them to do online searches by filling in their babysitting needs and receive a list of available sitters who best matched their search parameters. After parents got a sitter’s contact information, it was up to them to follow up with the sitters directly.
The SBA arranged three meetings with potential investors—two venture capitalists (VCs) and one angel—but none went particularly well. Two of the meetings were in coffee shops and one in a downtown boardroom for which Thiers bought her first suit. She recalled the reactions to her idea:
I got laughed out of the room. They said, “It’s just a babysitters’ club!” They thought it was
“cute” but it wouldn’t work. They thought I was young, and it didn’t help that I had no idea there was a dot-com crash going on. They didn’t talk with me seriously, didn’t take me seriously. Another problem was they were all older men with grown children. They were removed from the marketplace need. They couldn’t see what I was talking about.
By the fall of 2001, Thiers realized that if Sittercity were to become a reality she would have to build it herself. Her family had been dismissive of the idea, preferring the stability of the IBM job, though her twin sister (who had attended Wharton and was now a consultant) did provide some guidance about business issues. Thiers remembered:
My family didn’t take the idea too seriously; they were used to my being an emotional artist, walking around the house singing at the top of my lungs. I didn’t reach out to other businesspeople because I didn’t see Sittercity as a business endeavor—that would have been too boring. I didn’t think of myself as an entrepreneur; instead, I was on a mission to do something big and beautiful. I wanted this to be a masterpiece. Being on a “mission” is much more exciting and dramatic. For me to be motivated, it had to be big. Opera singers don’t like doing small and boring things; everything has to be dramatic and big for us.
To get the business up and running, Thiers decided that she needed to build a site, recruit sitters, and find parents. “I had no money other than my IBM salary to start the site,” Thiers said. She turned to two college friends and offered them $5,000 each to build the Web site from her site-design sketches. To recruit sitters, she began putting up posters at local Boston-area colleges. “The flyers said
‘Make $10–$15 an hour at Sittercity.com. Sign up now,’” Thiers remembered. “I got a lot of blisters since I had printed up 20,000 flyers to post, but I also got very strong student response.” Thiers also recruited sitters by hosting events at local colleges that advertised Sittercity as a way for students to make money. Her most successful recruiting event was at Simmons College, an all-women’s college, where she recruited 150 sitters in one night. She collected students’ information on paper and then transferred the information to the site. Students provided such information as availability, rates, experience, and willingness to travel. Thiers did not screen the sitters before posting their profiles. “I didn’t see the point of doing extensive background checks on the sitters when I knew that parents
3
809-009
Playing With Fire at Sittercity (A)
would want to interview sitters anyways,” Thiers remarked. “When I had worked for the nanny agency in England, I had realized that doing background checks substantially added to the cost but did not add much value, as parents always wanted to interview sitters themselves.”
To generate revenue, Thiers planned to charge parents a membership fee, but she did not know how much to charge. She held a focus group of about 75 moms with the Newton Mothers’ Forum, a local mothers’ group for whose president Thiers had babysat. She bought pizza and asked them to fill out paper surveys about using an online babysitting service. About 60 people returned completed surveys. Answers about pricing were all over the map. She remarked, “Some people would have paid $100 and others zero for a babysitting matchmaking service. In the end, I just took the average, which was $40—which was also what someone might pay for a typical babysitting job—and went with that.” She decided to charge parents a $39.99 subscription fee for the first three months and then an additional $5 for each additional month. To register on Sittercity, parents went directly to the site and filled out a form that asked for their name, e-mail address, description of their family, and a personal statement. Once parents completed the form, they had to mail their payment, as the site still could not accept electronic payments. Paying the fee gave parents access to the babysitters’ contact information. Parents contacted babysitters on their own and negotiated rates directly with the sitters.
On September 1, 2001, the site went live. (See Exhibit 2 for a screen shot of the site.) That day,
Thiers got her first paying customer, a Babson College professor whom she had met during one of her outreach events. To jump-start the site, Thiers shifted her previous babysitting clients (30 families) into the site’s database, but she still needed more parents. Thiers offered movie tickets to any parent who referred another parent, tried to get the word out by talking to mothers’ groups, and shared Sittercity info with a Boston-based resource and referral center for area parents. “I did an enormous amount of talking to people anytime someone mentioned they couldn’t find a sitter.” By
January 1, 2002, the site had more than 1,300 registered sitters but only 166 registered parents.
Singing and Matching
In addition to her job at IBM and building the Sittercity business, Thiers continued to pursue professional opera singing. She took singing lessons and joined a small opera company that performed in suburban Boston. A typical show ran six to eight weeks. Thiers would go to the opera company after work, bringing her laptop to work on Sittercity during rehearsals.
At the end of 2001 Thiers decided to register with Match.com, an Internet dating site, for two reasons: to study Match.com’s model to see what might apply to Sittercity (Thiers envisioned
Sittercity as a “dating service” for sitters and parents to find one another), and to go out on a few dates herself. She received an e-mail from a fellow Match.com member, Dan Ratner. The author behind the well-written email intrigued her and the two began dating. She recalled, “I fell in love with Dan by Date 3, but I didn’t start talking about Sittercity until maybe Date 6. I pulled up the site, showed it to him for about an hour, and explained the business model.” She later learned that Ratner, although polite at the time, had his doubts about whether Sittercity would succeed. Ratner recalled:
“I wasn’t a dad, so I had never been through this whole issue of trying to find a sitter. I wondered if there was really anything to it. At the time, I had seen a bazillion trivial dot-com ideas implode. I wondered if this thing really had legs or whether it was just another silly optimistic business plan.”
For Thiers, holding down a full-time job, launching Sittercity, performing opera, and dating was a challenge. “Daily 8 a.m. to 9 p.m., I spent 50% of my time on IBM, 35% on Sittercity, 15% on the opera, and I worked Dan in on the edges and after 9 p.m.,” she said, laughing. As the two continued
4
Playing With Fire at Sittercity (A)
809-009
to date, Ratner became Thiers’s informal technical support. He had been involved with several startups, often in a technical capacity, and he frequently drew on his technical background to fix the site.
As she got to know him, Thiers learned a lot about his past entrepreneurial experiences. Ratner had graduated from college in 1997 and had been hired by an engineering firm. However, he soon discovered that he wanted to be an entrepreneur. Ratner said: “The right thing to do was spend a couple more years at the engineering firm, but there was so much froth going on and my ability to be patient just wasn’t there, so I left. I knew that I was probably skipping a step when I left my company.” He tried to build a professional-services firm but found that his heart was not in it:
“Ninety percent of what I was doing was either selling or managing, which I'm fine with doing, but it wasn't where my passion lies. My passion lies in technology and in its application, and how it can actually be used to make a significant change.” Soon after, an acquaintance contacted him to see if he might be interested in joining forces. It was tempting to stay solo, but in the end, Ratner decided to take on cofounders: “The advantage of flying solo is that you can get an awful lot done very quickly.
But it's like that old argument about what's better, a kingship or a democracy. Most of the time, the king is not a good king, and then it’s much worse.” Along with a third partner, they decided to form a digital subscriber line (DSL)–based Internet provider in 1998.
The partners realized that in order to grow their capital-intensive business, they would need outside investors. Their seed investor was RMS, the Ratner family’s investment firm, which invested
$250,000 in the company, soon followed by a $5 million investment from well-known VCs. Ratner reflected on some of the lessons he learned during that time:
I was astonished at how little due diligence the average fund would do before they would produce a term sheet. It was a relatively short decision cycle between when we talked to investors and when they actually became our partners. Fundraising was a major distraction from the business, so it’s good that it was quick.
However, in 2000, Ratner, along with one of the other cofounders, decided to sell his share of the business. He explained:
The investors wanted to go in one direction and I wanted to go in another. Someone had to step away. At that point, I realized that you need to do your own due diligence in advance, to figure out if your investors will be a good fit. With an investor, you're just as married to them, if not more so, as you are to your actual partners. You have to understand how their investment structure works and what a “win” is for them, what their goals look like, and make sure they align with yours. Otherwise it's not likely to end up good for you.
He then joined his sister’s start-up as the chief technology officer and vice president. The company, Driveitaway.com, was a site that specialized in remarketing off-lease and off-fleet cars on the Internet. It was not the first time that Ratner and his sister Stacy had worked together; she had also worked with him at his first start-up. Although Ratner acknowledged there were some risks working with his sister, overall he felt comfortable with the situation.
There's been a long history in my family of working together, at every scale. My grandfather—the patriarch of the family—took it to an extreme with an almost utopian view.
When you came to dinner at his house and everybody drove, when you left, you took whichever car was at the end of the driveway. There wasn't a question of money between family members.
In general, I think family-run businesses perform better than non-family-run businesses.
Certainly when it is a family-run business, if there is a partnership breakup, it can get much more ugly. But at least in my experience, a breakup is less common with families because you
5
809-009
Playing With Fire at Sittercity (A)
have a better idea of what you're getting into. Also, when you are an entrepreneur and you’re starting a new business, to think that you are ever going to wall off your personal and your professional life is unrealistic. I think it is very manageable as long as everybody goes in with open expectations and well-defined roles.
In 2002, Thiers asked Ratner to join the Sittercity advisory board.
Sittercity’s Next Cities
By January 2002, Sittercity had been live for four months and Thiers was still Sittercity’s sole employee. The site pulled in monthly revenues of roughly $1,600. Monthly costs were $900 and consisted of copying flyers, printing brochures, and mailing information to local mothers’ groups.
In March 2002, Thiers noticed that she had gotten 17 parent registrations from New York and 13 from Cleveland, out of a total of 262 parental subscribers. Further research revealed that these 30 registrants were commuters to Boston from Cleveland and New York. “At first it seemed odd to me that commuters would sign up for a babysitting site,” remarked Thiers. “But then I spoke to several of the new parents and learned that they had found out about Sittercity through their work colleagues so they decided to sign up for sitters in their hometowns.” Thiers decided to expand
Sittercity to include New York City and Cleveland, and immediately flew to those cities to recruit sitters by putting up flyers in the new markets. “It was important to me,” she explained, “that when parents signed up for the site they felt like they were getting access to a lot of sitters. I didn’t want people to sign up and then find out their city only had five sitters.” To get parents to register in these new markets, Thiers also ran small print ads in local papers, targeted mailings to mothers’ groups, and posted information about Sittercity on online posting boards.
In May 2002, IBM laid off Thiers’s entire division. Although Thiers had thought that she would eventually leave IBM to focus on Sittercity, she had not expected to leave so quickly. Ratner observed:
The biggest inflection point for an entrepreneur is when to quit the day job. She was fortunate enough to have the decision made for her. And not only did IBM whack the entire division, but when they did, they did it in the most gentlemanly way possible, by giving them a very nice six-month severance package, which gave her the opportunity to have some options. I sat down with her and said, “What do you want to do? Do you want to get serious about this business or look for another secure day job?”
Thiers decided to devote herself full-time to Sittercity. With articles about the site in newspapers like the Boston Herald and the Cleveland Plain Dealer, it had started to receive some publicity. By summer 2002, the site had grown to 2,600 sitters and more than 620 registered parents across all three cities. The live site had basic sitter profiles as well as reference and parent-feedback sections.
At the end of 2002, Thiers noticed that Babysitters.com, Sittercity’s first major direct competitor, had launched its site. She learned two key facts from perusing the site: that Babysitters.com had been started by a former director of AOL’s Small Business Product and Business Development unit, and that it had a model different from Sittercity’s since it charged both sitters and parents. Thiers decided to start monitoring the site on a regular basis.
On the personal front, Thiers made the decision to move to Chicago with Ratner, who had grown up there and wanted to return home. She had wanted to keep singing, so she applied to several master’s programs in opera and had been accepted at Northwestern University, located in a suburb of Chicago. Thiers recalled: “All the signs seemed to point toward Chicago now that I wasn’t working
6
Playing With Fire at Sittercity (A)
809-009
at IBM and I had gotten into school there. The site was easily transportable, so I could move.” Thiers started full-time at Northwestern in the fall of 2002. Classes were in the afternoon and evenings, giving her the mornings to work on Sittercity. She also did a fair amount of Sittercity work at school.
It was a hectic time, she recalled: “I would sit in a practice room with people doing scales next door and people would be phoning me about the site. I would tell them that we were next door to an opera company. I did a lot of running back and forth between classes.” After classes ended for the day,
Thiers would go home to do customer service, marketing, and public relations.
Gaining Momentum
The site hit 650 Boston parents in January 2003; at that “tipping point,” illustrated in Exhibit 3,
Thiers began noticing that while revenues rose, acquisition cost per parent started going down due to word-of-mouth publicity. Although still in school, Thiers managed to launch the site in six more markets: Chicago; Dallas; Providence, Rhode Island; San Francisco; Seattle; and Worcester,
Massachusetts. Thiers explained: “We launched in Providence and Worcester because of their geographical proximity to Boston. In the other markets we had actually gotten e-mails from parents asking us when we would be in their cities. Based on that, it seemed possible to build those markets.”
Each time Sittercity launched in a new market, she repeated her process: fly to the city to post flyers for sitters as well as parents, and meet with as many mothers’ groups as possible. She sent targeted mailings to mothers’ groups and new-parent resource centers in each city, and posted information about Sittercity at relevant sites. Thiers used revenues from the site for each expansion.
Based on the early skeptical reactions to Sittercity, Thiers had initially decided to keep working on the site on her own. However, seeing that Thiers was becoming exhausted from her nonstop activities, Ratner now urged her to hire a part-time employee. She posted a position on Monster.com and hired someone to work part-time doing marketing and customer-service work. She had thought that the employee would work out of Thiers’s apartment and from home, but Thiers soon found that arrangement difficult to manage. Moreover, the employee was young and inexperienced, and she left the company in May 2004.
Ratner continued to help Thiers with the site. Whenever the site broke down, Ratner would step in and fix it. In addition, he helped Thiers add several new features, such as picture uploads and a job-posting board. He also offered Thiers advice on how to set up and maintain the site. Over time,
Ratner gained confidence in the site’s prospects, “because of the amount of passion Genevieve put into it and the fact that she has limitless energy and a total lack of fear.” He continued:
At least as important, she also had the time to learn how to get through roadblocks. You don’t normally have a four-year run up to the starting line like she has had. No matter how smart you are, you need a certain amount of time, not just time to absorb but to make mistakes.
With Ratner helping on the back end, Thiers was able to focus her efforts on marketing and PR.
“I’m a performer at heart,” she said, “so I loved doing PR and evangelizing.” She enjoyed talking to customers and hearing about their experiences. She managed to get a TV appearance on a CBS morning news show after faxing press releases to them on a regular basis. She soon learned that her company was a PR darling. “There were tons of reporters who were moms who needed sitters and had nothing to help them. So we constantly got PR from reporters who were mothers using the site. I was on TV segments where the anchor would go off on how great the company was, and by the time she finished, the segment was over and I had only answered one question.” Parents were enthusiastic about the service as well. One parent wrote on the site, “I posted a babysitting job at 10am, and by
7
809-009
Playing With Fire at Sittercity (A)
1pm, I already had a babysitter at my house for an interview. By the end of the next day, I had over
30 responses from babysitters. Sittercity is a great resource. Thanks!”
By the fall of 2004, Thiers felt that the company was beginning to take off. The site had been completely redesigned by an outside vendor and Ratner had performed all the back-end work to add new functions. He added message boards and interactive tools for polling and surveys, and made the site much more robust. (See Exhibit 4 for the updated site design.) There were now more than 50,000 sitters in 15 markets. Time magazine named Sittercity one of 2004’s “50 Coolest Websites,” and
Sittercity’s variation of speed dating, “SpeedSitting,” received a lot of press attention. At SpeedSitting events, sitters and parents would meet one another for five minutes and then move on to the next partner. At the end of the event, sitters and parents would write down their preferences and be matched. Thiers continued to appear on dozens of morning TV shows, iVillage signed her up as their
Babysitting Expert, and her weekly online column offered parents babysitting advice and answered questions. The company moved into its first real office in June 2004, coincidentally located next door to Ratner’s venture with his sister, Stacy. Soon after, Stacy Ratner began working with Thiers on
Sittercity.
When she completed her master’s program in spring 2004, Thiers wondered how she would be able to keep opera in her life. Together with a former graduate-school classmate, she founded an opera company, OperaModa. Funding for the company came from private donations, Thiers and her classmate, and Dan and Stacy Ratner. A local school donated the use of its auditorium. The company performed Kirke Mechem’s opera version of Molière’s Tartuffe for its premiere in October 2004.
Rehearsals were six days a week. Thiers remembered, “Sittercity was growing, but here I was producing and singing in a production of Tartuffe! I knew it was nuts on some level, but it was the only way I saw that I could keep opera in my life in a way that would satisfy me.”
Competition and Capital
In addition to keeping her eye on Babysitters.com, Thiers regularly checked Craig’s List to see how many sitters and parents were posting there. In 2004, Thiers noticed that Craigslist had created a child-care category. The development worried Thiers:
Although Babysitters.com continued to be our main competitor, I didn’t worry about them very much. I would go on their site once a month to track the number of sitters and to estimate the number of subscribers based on the number of jobs posted. There were other competitors, but they were either mom-and-pop sites or more geared toward the nanny market. However,
Craigslist felt different since it had an established user base and strong name recognition.
She decided to create a list of competitor sites that she would review on a monthly basis, and to adjust her strategy. “I wasn’t sure what was going to happen,” Thiers remembered, “but it reinforced to me that in order to keep my first mover advantage I needed to figure out how to move into other markets effectively.” Thiers and Stacy Ratner began to think about expansion and how to take the business to the next level, and they realized it would take capital. Over the next three or four months,
Thiers spoke with several angel investors. Eventually, Dan Ratner suggested that she speak with
RMS, the investment firm run by his family. (See Exhibit 5 for an overview of RMS.) Thiers and
Ratner decided that he should approach RMS first, and if there was interest, Thiers would make the final pitch. Although Ratner’s family owned the firm, investment professionals hired by the family independently made the final investment decisions. Ratner said: “It is family money, but it is not like you go in there, say your name is Ratner, and get the money.” He explained the firm’s philosophy:
8
Playing With Fire at Sittercity (A)
809-009
We do things in a closely held fashion whenever we can, for several reasons. If you keep things clean in the beginning of your venture, you can avoid the biggest of all the risks, which is the distraction of raising money. You can lower your due-diligence threshold. But also, a disproportionate amount of gains always go to capital as opposed to labor, so it’s valuable to have your own capital involved in your ventures. And with RMS, they give angel-like terms as opposed to institutional terms.
Thiers remarked, “Even though it was Dan’s family, I definitely had to pitch them and sell them and provide a lot of documents, financials and a business plan. But I remember when I met with
RMS, I thought, ‘They are the ones.’ It just felt very natural.” Ultimately, the pitch was successful and
Sittercity received a one-time investment of $500,000 in January 2005 in return for common stock representing one-third of the company ownership, no liquidation preferences, and the condition that
Sittercity start a five-person board with at least two members chosen by the investment group. As partners in RMS, Dan and Stacy Ratner gained some upside in the deal through the investment group’s stake.
Thiers was ecstatic and excited about the prospect of forming a board of directors. She felt that the board would be invaluable for getting the company up to speed financially as well as helping her understand how to take advantage of a board. Her funders chose two directors with strong financial backgrounds and Thiers chose the other two directors. (See Exhibit 6 for biographies of the board members.) She asked the CFO of the Pritzker Fund, whom she had met through Ratner, and a woman from the Women’s Business Development Center in Chicago with whom Thiers had worked. “The board became our virtual CFO,” she remarked. “They were very supportive of a young CEO and taught me how to use a board strategically to think about the big picture rather than share the daily details.” Ratner also commented, “This was a board that was really in Genevieve’s court. It was 100% friendly—more like a board of founders rather than investors.”
The new funding enabled Thiers to make several significant hires. She sketched out a rough hiring plan. Thiers remembered, “At that point I was thinking, ‘Hiring and managing people is a new thing for me. I definitely don’t want to come out of the gate and have the wrong hire.’ So initially I decided to hire people I knew because it felt less risky.” Her first hire was a former opera classmate who came on board to help with the overwhelming number of customer-service requests. “But I realized quickly that to get the best people possible I would have to go outside my network.” Her next hire, a director of marketing, came through CareerBuilder. To maintain and develop the site, Ratner hired a part-time programmer who had consulted for Sittercity.
The Boyfriend Comes Onboard
In late 2005, Ratner joined Sittercity as vice president, completing his evolution from outside advisor, to unofficial board member, to bringing in RMS as an investor, to becoming a full-time hire.
Although Ratner had other professional options, the decision to work at Sittercity was easy for him:
I saw it as a perfect storm. It seemed to me that the company was at exactly the stage where my skills would be most applicable. I felt like I had a good understanding of the model and that the challenges they were facing I had done before: scaling a team, scaling technology, raising money, redeveloping the message, developing new products, creating a diversified company, and doing a national rollout. I really felt I could help. And the opportunity to work with both Stacy and Genevieve was very, very appealing. I took a very generic title—“vice president”—so we could see where I would fit in.
9
809-009
Playing With Fire at Sittercity (A)
Although the two had worked together informally on Sittercity since early in their relationship,
Thiers and Ratner still experienced a rocky transition as they became, in Thiers’s words, “a couplepreneur.” Thiers described herself as “psycho aggressive” and Ratner as “a bit more conservative.” Ratner’s first two months at Sittercity were difficult for both of them. “By working together, our relationship was suddenly under a microscope,” Thiers explained. “We fought a lot.”
“It was a challenge,” Ratner admitted. “When we fought about something at work it carried over into our personal life, which was draining at times.”
Learning to work together took time. Ratner said:
I had to get used to the fact that people have different personas in the different areas of their lives, a personal persona and a business persona. Sometimes it was hard to figure out what level of familiarity to bring to the office; familiarity that would be fine at a personal level doesn't work at a business level. I'd say something to her that frankly would not be appropriate for me to say to her in her capacity as my boss. Also, I might have made it tougher because I came on like a locomotive because to me my coming on board seemed so obvious.
The transition was harder for Genevieve than for me. There are three parts to your life: family, friends, and business. Genevieve was risking two of those while I was only risking one.
Also, although I had a passion for the business it wasn’t something that I had spent the last five years of blood, sweat, and tears building.
Moreover, Thiers had to juggle working with both Ratner and Ratner’s sister. The siblings had previously worked together on other ventures and were very close both personally and professionally. “At times,” Thiers recalled, “it almost felt like I was double-teamed.” They also struggled to find a well-defined role for Dan Ratner.
Over time, they developed ground rules that helped them manage these issues. Ratner explained:
“Don’t vent to one another. Be prepared for a rough start. Have a disaster plan in place.” The disaster plan was an informal agreement between Thiers and Ratner that if their personal relationship ended or there were problems working together, Ratner would step away from the business. “You have to figure that out early so you don’t have to fight about it later. This is Genevieve’s business, and I’m here to help her.” He continued:
We developed something we refer to as “the Geneva Convention.” When we have a disagreement, we have to write it up and copy the entire executive team. That forces us to get other people involved and to stay focused on the issues at hand rather than on each other. We also decided that we should hire a strong executive team that can handle sensitive issues, and to be very forthcoming when talking to potential investors about our personal relationship.
For me, it was a little surprising to find that being a couple as an entrepreneur is different from working with another family member, because at least with another family member you don't actually live together. You can get a break.
To ease his transition into the company, Ratner worked hard to develop both personal and professional relationships with the other employees. “Luckily, there ended up being some immediate needs and I ended up filling those immediate needs. It seemed to be working, so I just kept going.”
Thiers said, “Eventually, Dan integrated into the company, after which it didn’t seem odd that he was with Sittercity full-time. We needed time to learn to trust one another in our new roles. After a difficult beginning, we were on our way to becoming a ‘two-headed monster’ where we would finish one another’s sentences.”
10
Playing With Fire at Sittercity (A)
809-009
The site grew to more than 100,000 sitters and just over 11,000 registered parents. (See Exhibit 7 for parent registrations from 2001 to 2006.) Between late 2005 and the summer of 2006, the company grew from five people to 12. The additional people helped take some of the load off Thiers, but also became a management challenge. She said, “I had brought in ‘rising stars’—young people who would be able to grow with the company. But they were simply too emotional about the business swings of the company. It took too much of my time and energy to manage them. I felt as though I needed to find more senior ‘rock stars’ to help me take the company to the next level.” However, things soon became even rockier when the company’s staff began shrinking as many of its initial hires left to pursue other ventures or start families. One of those who left was Stacy Ratner. Dan
Ratner said, “Stacy decided that it was the right time to do a nonprofit she had wanted to start for a long time. Also, we ultimately decided that having all three of us in the venture was a little bit too close.” By the summer of 2006, Sittercity was down to six people. (See Exhibit 8 for an organizational chart.) “It was a really rough time,” Thiers explained. “But I actually welcomed the opportunity to hire anew rather than replacing people.” The new team could help Sittercity carry out its plans to expand into pet sitting, elder care, house sitting, and tutoring services. Thiers also felt that a stronger executive team would be more willing and able to stand up to her and Ratner, and be able to deal with their close relationship. Thiers still owned two-thirds of the venture, but Ratner would own a small stake were he to convert his convertible-debt holdings (bought in several tranches) into equity.
Amid all of these changes in the company, Thiers and Ratner became officially engaged in
February 2006 and planned to wed in October 2007. As they headed into their future life together, what would the future hold for Sittercity?
11
809-009
Playing With Fire at Sittercity (A)
Exhibit 1
Excerpts from Sittercity Business Plan
Excerpt 1 -- Business Profile
Sittercity is America’s largest, most accessible, and most affordable option for parents searching for short-term child care. With thousands of users, it is currently well-positioned to dominate this exciting, largely overlooked market niche. Sittercity Inc. owns, maintains, and operates the Web site Sittercity.com, the first online service specifically devoted to allowing parents and college babysitters to find each other. Using Sittercity.com, college-age babysitters post detailed sitter profiles, including their times of availability, references, transportation capabilities, languages spoken, and more. Parents then become members of Sittercity in order to gain access to their local sitter pools. Parents can post jobs for babysitters or search the database using criteria in the sitters’ profiles to find the perfect match. While the primary focus of the service is babysitting, the site also includes profiles of pet sitters, house sitters, elder-care sitters, and sitters willing to perform general housework.
Since its launch, Sittercity has expanded and begun to diversify. Starting in May 2002, it launched Sittercity
Events, a program that allows event coordinators at colleges and corporations to use Sittercity’s database to have affordable child care at employee outings, college reunions, church gatherings, parties, and other events. Individuals can also use Sittercity Events to staff weddings, bar mitzvahs, and even larger dinner parties. For an additional fee,
Sittercity’s corporate office will recruit the sitters, do background and reference checks, and fully manage the child care at the event. Sittercity’s Events program has staffed Boston events requiring more than 100 sitters, and is expanding the program to its other markets.
Sittercity now serves Boston, MA, Providence, RI, Cleveland, OH, New York, NY, and San Francisco, CA. It currently provides parents with hundreds, at times thousands, of sitter options in their metro areas. The company plans to continue expanding to approximately five more markets across America to gain a national reach. The combination of an untouched niche, a successfully tested company model, and an experienced, disciplined team will ensure that this expansion will be a success.
Excerpt 2 -- Target Markets
Sittercity currently serves five markets: Boston, MA, Providence, RI, Cleveland, OH, New York, NY, and San
Francisco, CA. It would like to expand its services to include five new markets: Dallas, TX, Denver, CO, Chicago, IL,
Los Angeles, CA, and Seattle, WA. These cities have been carefully chosen using a formula that examines population, suburban and city income, family density, and average entertainment expenditures. Sittercity plans to expand to these markets over the course of one year. When it completes this expansion and has achieved a critical mass of parents in these markets, it will attempt a national expansion.
Excerpt 3 -- Analysis of Year One Target Cities
Total
Population
% of Families
Average Family
Income
Average Family
Size
Direct suburbs with Income
Over $40,000/year
Chicago, IL
2,775,275
61.13
$37,729
2.59 people
17
Seattle, WA
536,408
49.06
$42,970
2.03 people
10
Dallas, TX
1,107,915
57.91
$37,478
2.37 people
11
Los Angeles, CA
3,598,252
62.11
$46,807
2.88 people
13
492,157
50.22
$35,445
2.10 people
12
Denver, CO
Source:
12
Company document.
Playing With Fire at Sittercity (A)
Exhibit 2
Source:
809-009
2001 Sittercity.com Home Page
Company document.
13
809-009
Playing With Fire at Sittercity (A)
Exhibit 3
Source:
14
Revenue versus Costs, Boston Market Only, 2001–2003
Company document.
Source:
2004 Site Redesign
Company document.
Exhibit 4
809-009
-15-
809-009
Playing With Fire at Sittercity (A)
Exhibit 5
Overview of RMS
RMS is a private investment corporation that makes and manages direct investments in businesses on behalf of the Ratner family. Previous investments have been in a variety of sectors, including real estate, nanotechnology, e-commerce, and telecommunications. RMS does not accept unsolicited investment proposals and invests in areas in which family members feel they have distinctive expertise or relationships.
Source:
Company documents, case authors.
Exhibit 6
Biographies of Sittercity Board Members
Robert Gephart is vice president of RMS Management Company, an integrated family office that provides financial and personal services to every generation of the Ratner, Miller, and Shafran families. Mr. Gephart has been at RMS since 1992. He received a BS degree in finance with honors from Slippery Rock University of Pennsylvania in 1992. Mr. Gephart completed the H & R Income
Tax Program in the same year. In 1999, he completed the Certified Financial Planning curriculum at
John Carroll University.
Bruce Geier is chief financial officer of RMS Management Company, an integrated family office that provides financial and personal services to every generation of the Ratner, Miller, and Shafran families. Mr. Geier has been with RMS Management Company since January of 2004. Prior to joining the RMS family, Mr. Geier was in the role of director of finance with an independent health system in western Pennsylvania. Preceding his role in health care, Mr. Geier was employed with a regional accounting firm for six years where he obtained senior management status. He is a graduate of
Slippery Rock University. Mr. Geier is a member of both the American Institute of Certified Public
Accountants and the Ohio Society of CPAs.
Kelly Smith Mizeur is the director of financial training at the Women’s Business Development
Center in Chicago, IL. The WBDC provides counsel to women business owners on financial matters and access to capital. Ms. Mizeur has worked at the Center since 2000. Prior to working at the WBDC,
Ms. Mizeur held positions at the Bank One Corporation, the First Chicago Community Development
Lending Division, and the American National Bank & Trust Company of Chicago. Ms. Mizeur holds a master’s degree in urban planning and policy from the University of Illinois at Chicago (1992) and a
BA from the University of Notre Dame in business administration, finance, and business economics
(1996). Ms. Mizeur also volunteers with the Northside Community Federal Credit Union, the State
Treasurer of Illinois—Advisory Board for Women, the CRA Coalition Woodstock Institute, and the
University of Notre Dame Alumni Association.
Penne S. Silverman has been the chief financial officer of PFMC, LLC, based in Evanston, IL, since
2000. As CFO she is responsible for all financial management and reporting, tax planning and compliance, estate and trust services, and investment oversight and reporting, including the firm’s private equity and venture capital investments. Prior to PFMC, Ms. Silverman held positions at Ryan
Enterprises Group, LLC, and Arthur Andersen, LLP. Ms. Silverman received a master’s degree in management from Northwestern University’s Kellogg Graduate School of Management in 2000 and a master of science in taxation and bachelor of science in accounting in 1985 from the University of
North Texas in Denton, TX. Ms. Silverman has been a certified public accountant since 1987.
Source:
16
Company documents; case authors.
Playing With Fire at Sittercity (A)
Exhibit 7
Source:
809-009
Sittercity Paid Parent Registrations, 2001–2006
Company document.
17
809-009
Playing With Fire at Sittercity (A)
Exhibit 8
Source:
Sittercity Organizational Chart in Early 2006
Company documents, case authors.
Notes:
[1] Left during the first half of 2006 to start a nonprofit
[2] Left during the first half of 2006 to start a family
[3] Left during the first half of 2006 to attend law school
[4] Left during the first half of 2006 to pursue a modeling career
[5], [6], [7] Left during the first half of 2006 due to family moves
18 