Neil Patel

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Tim Stracke is the founder of Chrono24 which is an online marketplace connecting buyers and sellers of luxury watches. The company has raied over $200 million from investors such as Insight Partners, Global Founders Capital, and General Atlantic.

In this episode you will learn:

  • Turning passion into money
  • Failing more than once, and using those experiences to be a more successful entrepreneur
  • Focusing on the win, and never giving up

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    About Tim Stracke:

    Tim Stracke, Venture Partner, is an entrepreneur and business angel who focuses in particular on eCommerce.

    Tim Stracke Joined Target Partners as a Venture Partner in 2011.

    In 2001 Tim founded mentasys GmbH, which became Germany’s leading online price comparison service provider and which he subsequently sold to a subsidiary of Bertelsmann AG

    in 2006. Today, the former mentasys is now an essential part of one of the world’s largest shopping portals, based in Silicon Valley, California.

    Prior to founding mentasys, Tim briefly served as a consultant for the Boston Consulting Group in Buenos Aires. In 1999, he founded his first VC-financed company – a marketplace for gifts – at the age of 25.

    Since Tim’s exit from mentasys in 2008, he has taken stakes in 9 Internet companies in Europe and China, where he takes an active role as either a founding partner or active investor.

    Most recently he and another partner acquired Chrono24 GmbH, the world’s largest marketplace for luxury watches, as part of a management buyout. Stracke has served as CEO at Chrono24 since 2010.

    Tim holds a master degree in business engineering from the University of Karlsruhe and an MBA from Golden Gate University in San Francisco.

    Tim also advises entrepreneurs on strategy, finance and marketing/sales and is active on a variety of supervisory and executive boards.

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    Connect with Tim Stracke:

    Read the Full Transcription of the Interview:

    Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. I’m very excited about our guest today, not only because his journey is remarkable but also because I’m a big-time user of them. I love what they do, so I was very excited when he mentioned that he was up for doing this podcast, and we’re so happy to have him with all of us today. So I think that we’re going to be learning a lot about building and scaling. He’s done several businesses, some of them with success, some of them more with learning, and some with lessons that came along the way. But without further ado, I’d like to welcome our guest today. Tim Stracke, welcome to the show.

    Tim Stracke: Thanks for having me, Alejandro. I’m happy to be here.

    Alejandro: Tim, you were born in a small town in Germany, so tell us about your upbringing. How was life growing up?

    Tim Stracke: I had a super happy childhood, but I was also raised in a very entrepreneurial family, so my father was a kid of eight, and I think most of them turned out to become entrepreneurs. Also, my mother came out of an entrepreneurial family. Ultimately, she inherited the business that she and my dad ran. So talking business was almost like a daily habit in our family. So my wish to become an entrepreneur, I think, is older than I can think, and then like the situation that ultimately did happen.

    Alejandro: Did you know early on that you wanted to be an entrepreneur because of what you were seeing at home?

    Tim Stracke: I think it was more because freedom was always a huge driver for me. I could never really see doing what other people tell me to do, so I’m not good at following other people’s rules. But I think also the upbringing and seeing what my parents and grandparents did really helped.

    Alejandro: Very cool. And, obviously, entrepreneurship is really all about problem-solving. As they say: if you want something done, give it to an entrepreneur. And perhaps that may have influenced the fact that you went out and studied engineering—more problem-solving.

    Tim Stracke: Yeah. I always tried to solve problems; solving problems in all kinds of use was something I loved in my childhood. 

    Alejandro: And talking about your childhood here, Tim, as they say: ideas take time to incubate. They’re typically dormant, and we don’t know that they’re even there. It’s interesting how you are making a killing with your company, with Chrono24, which is all about watches, and we’ll get into that in just a little bit. But at 15 already is when you got your first watch and where that love for watches was present. How did you develop that love for watches so early on?

    Tim Stracke: I think before the love for watches, and maybe that’s even stronger, was the love of fine mechanics. I spent hours and hours playing with Legos in my childhood. Funnily, I know a lot of watch collectors who also spent a lot of time with Lego, so I think the passion and the love of fine mechanics and all things tech was the basis for that. Then I realized that you can have these beautiful mechanics, tiny and put together on your wrist. That was my love for watches, much more than the love for design or brands. It was much more the technologies that were in it and that initiated it. The design and the love for brands certainly came later, but the tech did it before.

    Alejandro: In your case, Tim, right after the time of being in university, you started your first business very early on. This was a marketplace for gifts, right around the bubble collapsing, so I’m sure that experience for you was very rich in terms of lessons learned.

    Tim Stracke: Yes, that was a super-fast truly executive MBA, maybe even an MBA on steroids, learning how to scale, learning how to build a business, but also learning what it means to fail and scale down to let people go, to make some tough decisions, and how important it is to panic early. I was lucky that I made a lot of my mistakes early in my career and had enough room for a lot of mistakes in my later entrepreneur years. 

    Alejandro: I’m sure that being exposed, as well, to that moment, to that type of market cycle because everything that goes up is going to go down eventually and up again later on. Right now, we live in an era where not a lot of people remember what happened during that time. So out of being exposed to that bubble bursting and to what happened, what did you learn about businesses and dealing with market cycles, too.

    Tim Stracke: First of all, the tech bubble in 2000, and then the burst of the bubble was just the first one. The second one was also the financial crisis in 2009. That was actually at a time when we kicked off Chrono24. I think I take things a lot cooler today, be it the super-high valuations that we’re seeing right now, but also seeing markets crashing. I know that both, like the top markets, will come down eventually. But also, in a crisis, the markets will come back, and I think that gives me a little more coolness than what some super-young founders have today. I don’t even know if this is always good, but at least I can probably sleep a little better during a crisis than as a first-time founder.

    Alejandro: Of course. After the turning page with the first business, you went with your second one. With the second one, you went through the full lifecycle because it was acquired by Pangora. In this case, what you guys were doing was a market engine for price comparison, but I think what you learned here was going through the full lifecycle of raising and exiting, but then also, perhaps, really learning the impact of dilution. What did you learn about dilution during this journey with Mentasys?

    Tim Stracke: The business was ultimately sold for a nice amount of money, which might sound really small today. I think the business was sold for $40 million. But I was so heavily diluted at the time that this was more like my personal outcome. It was not really life-changing; it was more cart-changing, as I sometimes jokingly say. But I also got another important lesson. That business ran an engine providing data, a white-label solution for a price comparison engine. We helped a lot of the top European price comparison engines to run the business. We would provide data and sometimes provide the entire frontend to run the price comparison engine. At the time, when we ran that business, some of the top price comparison engines were sold for a large amount of money. I think there were six or seven of them selling for more than half a billion dollars. I think the first one was Kakao, acquired by Yahoo for close to $500 million. It was won at 75. Then a few others came along also in that category. Shopping.com ultimately went public and was purchased by eBay. It was a next-tag price runner. The German [9:46] in its peak probably was more than a $1 billion valuation. And it seemed that we did all the work, that we did most of the engineering and data management. But our business was far from the valuation, so I realized how important it is these days to own the customer. Back in the day, the shovel makers often made more money than the gold diggers, but here, it seems that the shovel makers were not the lucky ones in the end. But to really make a difference and create value, and this is not only about personal outcome, but also to create value and make a difference for the customers, my feeling was that you really need to own the customer. Two years after I left the business, I was in a lucky situation to have a little bit of financial liquidity so that I could take a year off. It was the same thing with my business partner, so we had time to rethink, “What’s the next big thing?” We both had a passion for watches. Being able to take a year off and think and go into the right next category was ultimately the most valuable piece that I got out of my first business—much more valuable than the financial proceeds. And, of course, the learning and also the network of great people that we could then bring in our next venture.

    Alejandro: In Chrono24, which is your latest baby, and probably your biggest success to date, the way that you went about it was a little bit, not the traditional way, which is more like building the pipes from nothing. Instead of doing that and competing against someone that was already established, you decided that it was best to acquire an existing platform. Tell us about that thought process and why you decided to go that path versus starting from nothing.

    Tim Stracke: First was the idea. I spent hours and hours in the early 2000s between 2000 and 2008 on a colorful auction site searching for watches, and I always had the experience, “This is not the final solution. This is not as good as it could be to search, browse for watches, get inspirations, and buy these watches.” Then when I was thinking, “What could be next?” I wasn’t super successful with my previous businesses. The first lesson was, “Let’s not aim for a super strong financial success. Let’s aim for a super fun experience and for a game-changing product that is fun for us running it and fun for our users to use it. That made me think and decide to go into watches. I loved the category. I was thinking, “Is this something I could do for ten years without any financial success?” And it was a clear yes. Then we looked around, and besides eBay, we found another business that was pretty ugly. It looked super basic, and that was Chrono24. Then we contacted the people, and it was a very lucky situation that the guys running it, that even at the time was a global business or a global platform. It wasn’t even really a business, but it was also a global platform. The guys lived 30 minutes away from my home. So I could call them and even jump in the Metro and visit them. I remember the guy that ran it at the time showing me 11 slides of that business. On every single slide, I was super impressed by the traction and the numbers that they already had. On the very last slide, he suggested the purchase price. So the good news was that he was willing to sell, but the bad news was that the price was almost 10x of what we originally thought we would need to pay for this super simple platform. But traction was a lot better, and we all know this: in marketplaces, these are winner-takes-it-all businesses. You really want to be the winner early on and then try to defend your market position. The decision whether we wanted to compete against them and buy out the platform and the brand, at the time, took us six to eight months because we just didn’t see the prices being realistic. I have to be honest. It was my cofounder who convinced me that this was probably the cheaper and fastest route to success than competing against them. I was more on the team of, “Let’s take a deep breath and compete against them. What they have built, we can build this in a few weeks. From a technological point of view, we were probably right, but from market traction, bringing together supply and demand at the same time, looking back, it was definitely the right decision.

    Alejandro: In this case, what ended up being the business model of Chrono24 for the people that are listening to really get it.

    Tim Stracke: This was a very simplistic, not even a marketplace. It was more like a classified business. Dealers could pay a few ten-some—I think the biggest package was 129 euro and put as many watches as they wanted on the platform; nothing else. It was a very simple model, but people loved it. People already had a huge trust in the platform even though there was not a lot of support, neither on the sell-side nor on the buy side, and this is something that we then continuously built over the last 11 years.

    Alejandro: In terms of capitalizing the business, especially after what you had learned with your previous company, how did you go about capitalizing the business?

    Tim Stracke: Since the purchase price was 5x or 10x of what we thought, we couldn’t pay it ourselves, so we had to bring in extra capital. At the time, this was in the midst of the financial crisis. It wasn’t even that easy to get capital for that acquisition. But luckily, we found a few befriended angels through friends and family and one super small institutional investor who was interested in the category and would like us as a team and was willing to give us a little bit of money, so that we could finance the buyout. Derrick and I also put money in, and we all together purchased the platform. But since then, we have wanted to keep it small and fun. I still meet employees from time to time to tell me, “Hey, Tim. I remember our interview when you promised us that we would not be more than 15 employees at the top and run a small ship.” Today, our entire group is more than 500 people working for us.

    Alejandro: Wow.

    Tim Stracke: So this is a promise that we definitely did not keep.

    Alejandro: I hear you. Up until now, how much capital have you guys raised to date that is publicly disclosed?

    Tim Stracke: In the first four years, we have not raised capital at all. We made the business profitable as soon as possible, and this was also one of my deep wishes after being unprofitable for the previous ten years, quarter after quarter. I wanted to run a profitable business. Once the business was profitable, it completely changed my mindset on how to run a startup. Before being profitable the previous ten years, I always thought, “The exit, the ultimate sale of the business, is the final goal.” But all of a sudden, as the business was profitable and still growing, I never thought about an exit anymore. I thought, “This is fun; this is cool.” But after being in the journey for three or four years, we also realized that our risk profile didn’t match with the potential anymore, so when we had our strategy summits and meetings twice a year, we always kept saying we should open an office in Hong Kong. We should open an office in the U.S. We should invest in a lot more marketing. At the time, we didn’t do any marketing. “We should invest in content; maybe you should even consider running a campaign. Maybe we should even build a production facility that can physically repair and service watches and take trade-ins of private sellers who prefer to trade-in.” The business was profitable, so we didn’t need money. This was 2014 when we started to approach investors, and at the same time also a lot of investors approached us. Given our growth profile and our financial profile, not needing any money, everybody wanted to. Almost everybody that we talked to was open to investing, so we had pretty much a free choice. At the time, we picked inside partners from New York because they liked watches. They truly understood marketplaces, and they also had a strong network in the United States, and we liked the people a lot. So they were the first ones who came in, but they didn’t invest a lot of money in the company. They all did a little bit of secondary, so we sold a bit of our shares. That changed our risk profile, which I think, the long term was also very important for us. Money that has been invested into the business so far was really limited. Either the money is still there, what has been used for acquisitions, but we never had a strong [20:27]. I think over the last 11 years the accumulated burn is less than ten million euros. The total amount invested—and, by the way, this includes [20:38]; it’s still the bank account, especially from our latest round. It was more than 100 million euros, but also including secondary, the total amount invested in the company was 200 million euros. This was not the final burn. 

    Alejandro: Got it. That’s a lot of zeros, Tim. Good stuff. What I want to ask you now is, in terms of the business, if you were to go to sleep tonight and you wake up in a world where the vision of Chrono24 is fully realized. What does that world look like?

    Tim Stracke: As we say in our industry, we really want to democratize buying and selling watches. If you want to buy a pre-owned watch, it’s not that easy. You can go to a store, and you might be lucky that this store has 150 or maybe even 200 watches, but usually, they don’t have more. They just cannot. This is a lot of working capital and a lot of security issues, so very few offline stores have that availability. But if you want to have a pre-owned watch, and you have some preference about the brand. You want a certain model. Maybe you even want a certain age. Let’s say you want a watch from the day of the year of your birth. Maybe you want a certain status: not too many scratches. It should have a little bit of patina. So you need a huge selection so that you can find what you exactly want. At Chrono24, we have, by far, the largest selection of watches. We have 500,000 watches. I think in terms of transparency and selection, this is where we are very close to our region. But to make the transaction even easier and even safer, we offer a lot more services around the value chain. Chrono24 is already a global platform, but when it comes to China and Japan, we have just started. We support the language. We have some dealers from these countries, but these markets have not reached the size that we ultimately seek. I think in the long term, it’s a geographic expansion and having conquered all markets and services around the value chain. I would still say that Chrono24 is a very simple and trusted service, but we could imagine a lot more services alongside the value chain. I think there is still a lot of homework that needs to be done to help buyers and sellers to make this journey even easier and more comfortable, and even more global.

    Alejandro: In your case, especially with what you’re seeing, where is the world of watches heading? Now, you see Apple watches kicking in more of the digital aspect of it, so where do you think watches, as a whole, are going? Do you still think the Swiss-made classic is going to be the prominent one, or where do you think this market is heading?

    Tim Stracke: This market is definitely heading to pre-owned. When you buy a watch, and this is not only a watch; this is other goods. You not only want to have a watch; you want to have a story. You want something that has a purpose for yourself. I would say that a luxury watch is probably one of the most durable consumer goods. I always tend to say that in 100 years from now—you and I probably know how quickly 100 years pass, and I would assume that in 100 years, obviously, you and I won’t be there, my children won’t be there anymore. My wife won’t be there; probably even the house we’re living in won’t be there, but I’m convinced that my watch collections will still be alive, hopefully, on the wrists of my grandchildren or great-grandchildren. Owning something with such a long future, and maybe even a super-long legacy, is such an antagonism in today’s world where everything is being thrown away after a few years or even less, even my phone, fashion, everything is coming and going, but the watch is still there. This longevity of that thesis also translates into an industry that’s not changing super-fast. The most successful brand in this category is, by far, Rolex. You almost don’t see any innovation. Innovation might be a new color that they introduce or increasing the diameter from 38 to 39. I really like this in a super-fast-moving world having one category that is super, super traditional, and I know that these watches have been around for 100 years, and I’m convinced that even 100 years from now, I can still get a repair, get a service. I’d love to have this craftsmanship, this beauty, and also this belongingness to a certain brand on my wrist and belonging to a certain group. Any question regarding the smartwatch—this was a big question five years ago when the smartwatch came in. Is it going to replace the luxury watch, or will the luxury watch prevail and not let the smartwatch in? As we see it today, the smartwatch is a success, but it’s a completely different value proposition and a completely different product. It doesn’t show the time. It’s a tech device. It’s a computer. It’s a messaging device. It’s a health device, and what we see is that especially the Millennials, people today between 20 and 30, who have not worn watches for a long, long time, all of a sudden are wearing watches again. And especially in markets with a super-high smartwatch penetration, we also see a correlation where the luxury watch demand is growing rapidly. For example, the United States is the mark of the strongest penetration in smartwatches, and also right now, the fastest-growing market in luxury watches. It seems that the smartwatch is not replacing the luxury watch; it’s more a gateway for a luxury watch purchase after having a smartwatch for five to ten years.

    Alejandro: Got it. Imagine, Tim, that I put you into a time machine, and I bring you back in time to that moment where you actually created your first business. If you had the opportunity of sitting down with that younger Tim, now you have three companies under your belt—an incredible wealth of knowledge that you’ve been able to gather over this time. But if you were able to be there with that younger Tim and give that younger Tim one piece of advice before launching a business, what would that be and why given what you know now?

    Tim Stracke: If I would circle it down to a single word, I would probably say: focus. I think the one thing that was always hard for me, and I see this being hard for many entrepreneurs, is to focus on a single compelling value proposition and only do that and do this better than everybody else in the world. If you do something, no matter how small, how niche this is, if this is something you do better than everybody else in the world, you will be super successful in the long term. One of our investors always says, “Success is a marathon of sprints.” So you need to run for a while. It can take a long, long time, but focus on one thing. If you believe in this thing that this is a strong value for your customer, and if you are better than everyone else in the world, people will find you and buy your product.

    Alejandro: I love it. Tim, for the folks that are listening, what is the best way for them to reach out and say hi?

    Tim Stracke: Probably the best way is to look on LinkedIn. That’s my social media presence where I’m most active, so it’s: Tim Stracke on LinkedIn, and you might be asked for my email address. You can also send me an email: tim@Chrono24.com. Feel free to reach out. By the way, we’re always looking for passionate people who want to help us to change this industry in our Hong Kong office, in our New York office, and also, if you’re in Germany. If you love tech, if you love data, and you love watches—by the way, which is not a must—then we are always super curious to get to know you.

    Alejandro: Amazing. Well, Tim, thank you so much for being on the DealMakers show today.

    Tim Stracke: Thank you so much. Thank you for having me, Alejandro.

     

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