Nextdoor is backed by some of the largest and hottest VCs in Silicon Valley, including Benchmark and Greylock, which share LinkedIn, Twitter, Facebook, Snapchat and Uber as recent hits among them. Nextdoor is growing steadily and has raised some $200 million in capital. Nothing about this company isn’t a Silicon Valley and startup success story.
And yet, amid the current climate, Nextdoor is an outlier in almost every other way. It has grown slowly, not just relying on building local city-by-city network effects like an Uber or Postmates, but building neighborhood-by-neighborhood network effects.
It’s essentially vying to be another great social network, while Twitter and Pinterest struggle to grow, LinkedIn has already sold, and even Facebook is moving its bets on the future into mobile chat. It has not spent money to gain hypergrowth, like so many so-called “unicorns” in Silicon Valley.
And unlike Snap, it believes it will build a sizable business by building something that can be used for everyone. It values the 15 year old who may be looking for a babysitting gig, as much as the 90 year old grandma on the block. It is inherently anti-viral; it’s content not even relevant from neighborhood to neighborhood.
That graph above may make clear why it also doesn’t have meaningful competition.
Nextdoor’s CEO and co-founder, Nirav Tolia, is also not a young 20-something founder. He’s a guy in his 40’s who has failed plenty, and has three young kids at home.
I caught up with Tolia recently to talk about the company’s early days, it’s being out of sync with Valley all around him, and the company’s recent scandals around racial profiling happening on the site.
I started by asking what prompted him to start the company.
Nirav Tolia: It really even predates my business career. When I was an undergrad at Stanford, I saw how the Internet could render geography irrelevant. Growing up in West Texas, in a small city called Odessa, I was noticeably different because of my skin color, my name, my religion, some of my customs, and that was a challenging experience at the time. There were no other Indians around me. And Odessa was far from any other metropolis. I was relatively confined to my geographic surroundings. I couldn’t just pop up to the city for a dose of diversity. It was a six hour car ride away.
Being at Stanford as an undergrad and wanting to follow the Dallas Cowboys in 49er territory, I found the Internet and that made it so I was able to connect with people like me, no matter where they lived. It was very simple and humanistic. You could create your own community.
When I got older and got married and bought my house and began to have children, and I started to realize the Internet is so effective in making place irrelevant that in some ways we’ve forgotten the importance of place. When you have a home that is your biggest financial asset and you have kids, those things have place. Those things are not virtual. You have to take kids to school, you have to take them to restaurants, you go to the grocery store. All these things have a reliance on where you live. That’s when this almost lucky coincidence happened where Nextdoor emerged as an idea.
The whole reason I was attracted to technology was to create virtual connections, but in doing so the connections around where you live have suffered. Tech doesn’t have to force you to have an “either/or,” it could be an “and.”
Sarah Lacy: You guys are clearly doing well relative to most companies started in Silicon Valley, but you are not the darling of this era. Do you feel like Nextdoor is out-of-step with a lot of the ways companies have been created in the unicorn era?
NT: There is something about the strategy that we’ve taken, focusing on quality not quantity and authenticity not speed that doesn’t really fit into the media cycle that dominates the world today.
First of all, all of the content on Nextdoor is private. It’s not like Twitter where it’s discovered by a journalist and then a whole meme is created that generates a lot of press. We are dealing with real world communities, there is no platform virality or liquidity.
The thing that’s important to my neighborhood probably doesn’t have any validity to yours. It’s not universal.
We believe culturally that slow and steady wins the race. We are not trying for that pop that maybe I was when I was younger in my career, that I was obsessed with. We don’t have investors who are eager to sell out or a management team that needs to be acquired tomorrow.
It’s a huge challenge but it has massive benefits. Almost everyday we’ve made progress. From a metrics standpoint, every Monday we report the metrics and almost every Monday we have all time highs. So this is a slow and steady build. It doesn’t fit neatly into “the hot new thing.” It doesn’t spread like wildfire the way Snapchat or Instagram does. It’s not a fad or a trend or even that new or innovative, but it is very important.
Almost 90% of neighborhoods in the top 100 cities in the US are on Nextdoor. 30% of the neighborhoods in the Netherlands are on Nextdoor, and we’re approaching 30% of the neighborhoods in the UK. We have an idea that can be truly ubiquitous and that’s truly exciting and extremely rare.
There are few things that can touch everyone, from a mom who is 70 years old to a 15 year old kid.
Part of what you talk about with us being “out of step” may go back to the fact that Nextdoor is a pivot that me and my co-founders Sarah Leary and Prakash Janakiraman made. This company was founded upon the failure of another company we started. That may be part of why we haven’t been as outgoing about what we are doing and its progress. We are always at least emotionally more tentative, given we started a company that didn’t work out, and out of the ashes of that failure came Nextdoor.
That gave us the humility, and it gave us a kind of tenacity. It gave us this internal drive to make sure what we were building had real legs. Not something that might be a trend that goes up fast, but can come down fast as well. That’s shaped the strategy.
SL: You’ve referenced a few times in this conversation the contrast in how you are building this company, and how you may have built one in your 20s, and how failure and experience has shaped it. I know you also have three kids under the age of five. I feel like you are emblematic of this new entrepreneur– like Evan Williams or Max Levchin– who have built companies as those workaholic 20 year olds and want to still build companies but aren’t totally convinced that’s the only way.
There seems to be a real battle in Silicon Valley right now between people who insist you have to be that young guy in his 20s with nothing else in his life, and founders who are proud that they are engaged parents, have hobbies and friends and think that makes them better.
Do you recognize this cultural tension in the Valley?
NT: Well, I think even your best friend Travis Kalanick fits into this. He’s older and Uber isn’t his first company. Jeff Bezos is the most notable one. Evan at Apple, the leadership team has been there for 15 or 20 years, they aren’t spring chickens.
But the meme has been– and I bought into this in my 20s– that you need to be that young founder. I don’t come from a place of “what’s the ideology of a successful entrepreneur?” and believe you do the most with what you have.
I don’t say that now that I have kids I’m better positioned for success, nor do I think I was before I had kids. Both were just the facts of my existence and the challenges in front of me. I think you can win either way, but it is a fact that effort and the amount of effort you put into something is a factor in success. We’ve got tons of employees — the majority– that are in their 20s and work is their priority and they can spend all weekend in the office. The majority are in that mode. But I’m not. And that’s neither because I believe it makes me more successful or because I believe it makes me less successful, but because I have other things in my life that are priorities.
Certainly, it is easier to understand something like Nextdoor if you are connected to your community. I have found that college kids who don’t really have a neighborhood find the idea hard to conceptualize. So I’m not sure that we even would have come up with this idea had we not be situationally where we were.
But you play with the tools you have, and those change over time. Now, the tools I have are experience and deep relationships with folks I’ve worked with — in some cases– for over 15 years. I have many failures that hopefully I’ve learned from.
Back then, my tools were all the time in the world to spend on my company and an unbelievable optimism that compelled me to take huge risks. I could fail miserably and it didn’t matter. I didn’t have to pay bills or have mouths to feed.
The thread that is more common is that I love creating things. I didn’t see as a phase in my 20s or 30s or 40s. I saw that as the thing I love to do. I do it differently now, but I don’t do it with any less passion.
SL: You and I have talked for years about all the potential things Nextdoor would be good for, from preventing a crime to asking your neighbors if any of them have a ladder you could borrow. Some of the surprises of where a community takes you can be fun. But some can be ugly. Recently, you guys had some negative press about racial profiling taking place on Nextdoor. How do you think about your responsibility with what happens on these mini-communities?
NT: We always come back to one word: Community. Being focused on an authentic local community and everything that entails. That entails hosting a BBQ or forming a neighborhood watch group. All of our focus is on measuring whether those communities are stronger because of Nextdoor. If we think of ourselves like a mirror of what goes on in local communities, there are lots of good things and lots of not-so-good things.
The interesting thing with the racial profiling story is that we didn’t stop with “Oh we are just a mirror.” We are a mirror, yes, but when we see an opportunity to make those conversations happening on our platform more constructive we will take it, even if there is a business risk.
People may not like it if we create more accountability behind what those words are, but it was something we felt was a defining moment for the company.
You’ve heard the whole, “We’re a platform not a publisher,” thing and that’s true and that’s backed up by law, but even if you are a platform can you — with your tools– help your member-base create better content? The trend has been let’s remove any kind of flows or hoops that people have to jump through, let them just create as quickly as possible. We are doing the opposite. [Editors Note: For more on what Nextdoor did, go here.]
Someone writing that a dark skinned man is breaking into a car isn’t racism but it’s racial profiling. By creating more accountability and overhauling the crime and safety info on our site, not only can we make a difference in our content but hopefully how people view this issue.
This was a defining moment for us and I’m proud of the way the company stepped up. The changes we made have reduced incidences of racial profiling by 75% in content that would be described as racial profiling. And it was already a very small number. How many times can your roll out a feature that has a 75% impact on something. This has shaped our company. We will fight hard against this.
SL: You were founded in 2010 and you’ve raised more than $200 million in capital. Where are you in terms of building a business.
NT: We are always going to be focused on growth. By the end of 2017, 50% of the households in the Bay Area — from Gilroy up to Mendocino County– will be using Nextdoor. I don’t think there’s anything that comes close to that from a local media standpoint, not TV and not newspapers.
The Bay Area is the strongest, but all of our metro areas are growing. Growth is going to continue to be a priority. We have a near term path to having 100 million active members in the US alone. It’s only tens of millions now, but we see that path. To put that in perspective Snap has 60 million to 70 million in the US and Snap is a juggernaut. Twitter has 30 million domestic active users. We can be bigger than that. Now we have to focus on building a viable business.
We are big enough now that it makes sense to help revitalize local businesses and connect neighbors with local businesses. Along with international expansion, that’s our next focus. It has taken us a long time to get this going in the US, but we have ambitious hopes for the rest of the world. After just a year, Netherlands grew much faster than the US and the UK is growing faster.
Now we have to go to Latin America and Asia and the rest of Western Europe. We’ve almost got to start from scratch in those markets. We started generating revenue in the middle of the third quarter of last year.
SL: So is it just online advertising? Because you look at a company like Yelp and they’ve succeeded but growth is hard. Digital advertising is 85% consumed by Google and Facebook. It seems to me the reason LinkedIn did well was it had other revenues from premium services.
NT: We will be a lot more like LinkedIn. Most of the direct payments they got were from recruiters, we will have similar subscription revenues from local businesses.
SL: Can you give me an example of what that would look like?
NT: In a couple of weeks, we are going to launch a new monetization feature. It’s pretty simple in that it feels like content to members and it’s around real estate listings. You’ll start to see those in the feed and in the daily digests.
In order for the agent to be able to promote those listings, it makes sense to charge a subscription fee to the real estate agent. That’s a different kind of monetization than an “ad,” but one getting double-digit percentage click thrus, because members see this as content. “A new home for sale two blocks away” might be interesting because you are trying to figure out what your house is worth. Or someone wants to move but in a close radius because they’ve put down roots. So that’s content that can be monetized. And for the real estate agent there is no better way to reach a neighborhood. It’s not like you go to Google to search for homes you don’t even know are for sale in the market. On Facebook you can buy against zipcodes, but Facebook isn’t about what neighborhood you live in.
That’s an example of a monetization opportunity that has high engagement, high click thru rates and they spend a lot of money on online advertising.
Zillow does $1 billion in revenues and has 2.5 times the market cap that Yelp does. And that’s real estate is just a vertical for us. Another vertical for us where the “ad” is more like content, is employment listings.
In most of the country, if someone is looking to hire a cashier or waiter or receptionist, you put the help wanted sign in the window if you want to reach people in the neighborhood. It starts to feel more like classifieds than a pure advertising platform.
SL: You’ve invoked local news a few times here, both in terms of the business model you are describing and your local reach being greater than TV or newspapers. A lot of people feel like the lack of good local news is bad for the country, and a lot of people have failed trying to re-build it. Do you ever envision getting into the content business, the professional content business not just the user generated content business?
NT: We just started to integrate local media into our feeds, with KQED (San Francisco-based public radio) and certain SF newspapers. We have lots of other professional content creators who are now posting snippets of news stories inside Nextdoor. We are a distribution platform for local news, just like Facebook.
SL: Would you ever actually pay for it?
NT: That’s not something we understand. We understand community. We wouldn’t pay for content, but we want to provide a way for content creators to make more money. The problem for a lot of these local news services is they don’t get enough users visiting, because they are spending all their time on Facebook. We have an opportunity to be a little bit of a clearing house. Let’s say Eater does a profile in your neighborhood, that should definitely show up on Nextdoor, because you may not remember to go to Eater everyday. That’s where we have an opportunity. 34% of our members use Nextdoor 15 times a month.
Sarah Lacy is the Founder and CEO of Chairman Mom and Pando Media. She's been covering technology for nearly 20 years, previously for BusinessWeek, TechCrunch and many other publications. She's the author of "Once You're Lucky; Twice You're Good: The Rebirth of Silicon Valley and the Rise of Web 2.0" (Gotham, 2008); "Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos" (Wiley, 2011) and the forthcoming "A Uterus Is a Feature Not a Bug" (Harper Business, 2017). She lives in San Francisco.