Deal Radar 2010: Guru.com

Is the freelancing model unavoidable? Guru.com thinks so. The company, which aims to give small and medium businesses (SMBs) access to expert talent anywhere in the world for short-term project help, points out that small businesses employ 80% of the workforce in the United States. As these businesses slowly begin to hire again, after about two years during which 8.4 million jobs were lost, Guru.com does not believe that cash flows and income will rise very quickly. Using freelancers may be the most practical way for these businesses to continue to operate without hiring full-time workers right away.

Inderpal Guglani is the CEO and founder of Guru.com. A student of financial markets and mass psychology, Guglani was born into a family of entrepreneurs. A native of Kolkata (Calcutta), India, he worked as a certified personal accountant before coming to the United States to attend Carnegie Mellon in the late 1980s. Prior to founding Guru.com, Guglani worked at FedEx Ground, where he led an expansion strategy that extended the company’s operations nationally. His experiences at FedEx helped to formulate the concept of creating an online services marketplace.

He founded Guru.com in 1998 as SOFTmoonlighter.com, which was followed by several spin-off sites that were consolidated under A2Zmoonlighter.com. Initial interest came from full-time professionals who were looking for additional opportunities. Perhaps not surprisingly, businesses were at first lukewarm on the idea: even as they wanted to hire talented moonlighters, they did not want their employees moonlighting. In 2004, A2Zmoonlighter.com acquired the assets of Guru Worldwide, Inc. and branded itself as Guru.com. It now claims to be the world’s largest online marketplace for freelancers.

Guru.com is focused on segments where there is demonstrated demand for technology, creative arts, or business skill specialization, such as IT consulting; software development, Web development, professional services, and marketing firms; creative agencies; publishers; entrepreneurs and startups; and non-profits. The skills in demand naturally fluctuate, but Guru.com project postings are primarily in the following groups: Web sites and e-commerce; programming and databases; writing, editing, and translation; and graphic design and multimedia.

There are approximately 2 million businesses in the United States that operate as one- or two-person shops. Guru.com says that these businesses may each be spending an estimated $10,000 annually on freelancers, resulting in a total addressable market of $20 billion in the country. Worldwide, this figure might be extended to $50 billion to $60 billion. In 2007, Evalueserve Research predicted peer-to-peer outsourcing to grow as a $20 billion market by 2015, with a cumulative annual growth rate of approximately 26%.

Buyers of Guru.com services consist of a variety of businesses and range from Fortune 500s to single-person startups, but the majority of interest in services is from small and mid-sized companies. The service is free of charge for businesses operating as employers on the site. Freelancers pay fees using a subscription-based model. Individual Freelancers may register as either a free (basic) member or a subscribing Guru member. Small freelance businesses or shops may register collectively under a vendor subscription.

The cost of subscription varies by the skill category in which the freelancer wishes to post a profile – skills in greater demand bear a slightly greater annual subscription cost. Additional fees are levied on project transactions, with different project fee percentages charged depending on whether a freelancer is a subscribing member and whether she chooses to use Guru.com’s escrow services.

In 2009, approximately 80% of all money paid through Guru.com to freelancers came from U.S.-based employers and the remaining 20% primarily from companies based in the United Kingdom, Canada, and Australia. The United States also dominates the Guru.com freelancing pool, albeit to a lesser extent, accounting for 51% of freelancers. Twenty-six percent were located in India with additional significant international presence among freelancers in Canada, Pakistan, Ukraine, the United Kingdom, Romania, and Australia.

Guru.com became cash flow positive in November 2001. Final 2009 revenue numbers are pending but indicate approximate revenue of $24 million, holding steady on 2008 numbers. There was a 28% increase between 2007 and 2008 revenue.

The company was originally funded and financed primarily through personal savings. Guru.com received $500,000 in funding from Fairview Funds in 2000 but bought back this investment in May 2006. The company also became cash flow positive after less than three-fourths of its venture capital round was used. Since then, Guru.com has sustained the business model and staff with its revenue.

Guru.com plans to grow three main ways. Increased usage by existing members of course represents organic growth. The company expects to continue to leverage their feedback and suggestions for product innovation, retention and growth. Guru.com will also make new acquisitions as the economy gets going again; it plans to begin leveraging an aggressive marketing and advertising strategy while building upon the niche-focus of its scalable platform and partnerships. Finally, the company will actively look to engage with select partners who have a common interest in promoting successful freelancers or who can see their own products benefit through the use and success of the freelancers who are their product specialists.

During the heydays of the dot-com era, Guru.com had many competitors, including Ants.com, HelloBrain, Elance, Bullhorn, FreeAgent, and Guru Worldwide Inc. As mentioned above, the company acquired the assets of Guru Worldwide Inc. All of the other competitors except Elance folded in the dot-com bust. But older niche competitors, such as The Alternative Pick for designers and photographers, remain. Elance, Freelance.com, GetAFreelancer.com, and iFreelance.com are all sites that have freelancers across a range of industries. Other sites are more specialized; this site on pragmatic outsourcing gives a fairly comprehensive list. oDesk is a later entrant to this group.

A criticism that is often leveled against the freelance marketplace model is that it takes overt advantage of labor arbitrage and offshoring. Another criticism, as we saw in the profile of 99designs, is that it commoditizes workers with special or specialized skills. Guru does have customers whose main goal is to save costs and thus want to hire in a low-cost country. But the company aims to move beyond labor arbitrage and prevent worker commoditization (and in doing so differentiate itself from the competition) by focusing on helping clients to find freelancers with highly specialized skills. Guru.com also has a quality assurance guarantee and ranks freelancers using a proprietary quality score based on freelancers’ ability to attract customers, generate earnings on a customer-by-customer basis, and retain business over time.

This quality score is meant to address concerns about freelancer credibility while sidestepping the problems of using feedback ratings. Guru.com observed that employers would abuse the feedback system by, for example, threatening to leave a negative comment if a freelancer did not do extra work for no pay. The intensity of the competition meant that one negative comment could seriously damage a freelancer’s reputation, even if that person had a history of successful projects. Guru.com puts feedback into context by presenting it alongside performance data that has been collected over time.

No one knows for sure what the recovery of the U.S. and international labor markets will look like over the next few years. But the growth of freelancing and freelancing sites, chronicled recently in the media with headlines such as “Freelance Nation: Why Permanent Jobs May Not Come Back” (Daily Finance) and “The Disposable Worker” (BusinessWeek) may indicate a major cultural shift akin to the disappearance of the man in the gray flannel suit.

Related Readings
Top 15 Tips For Bootstrappers
Deal Radar 2008: Elance.com
Deal Radar 2008: oDesk

This segment is a part in the series : Deal Radar 2010