TechCrunch Live took a virtual trip to Austin, Texas, and we had a great time, even if the tacos were missing. Called TC City Spotlight: Austin, the show featured an extended lineup of guests, including the CEO of The Zebra and its early investor, Morgan Flager, managing partner at Silverton Partners. Together, they spoke extensively on the growth of The Zebra, why it moved to Austin, and what brought Keith Melnick, its current CEO, to lead the company.
It's a good story that provides a unique insight into bringing on external leadership. Essentially, Melnick, an early Kayak executive, was hired by Accel to provide due diligence on a potential Series B investment. Still, then the investment firm hung its investment on Melnick taking the CEO spot. Some five years later, The Zebra is a unicorn, and Melnick is still running the company, which employs hundreds in the Austin area.
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Adam Lyons and Joshua Dziabiak started The Zebra in 2012. The company was born in Pittsburgh as part of Carnegie Mellon's Alpha Lab accelerator program. As it sought funding, the company connected with Texas investors, including Silverton Partners and Mark Cuban. The company was convinced to move its operations to Texas, where it's a cornerstone of the startup community.
Melnick helped start Kayak and worked at the company for 13 years, ending his tenure in 2017 as the company's president. As he tells the story, Accel recruited him to look at The Zebra, which was described as the Kayak for car insurance. The company was raising its Series B and Accel was debating about investing. So it only made sense to have the former president of Kayak look at the so-called Kayak for car insurance.
"Accel asked me to look at a few things for them in the past," Melnick said during the TechCrunch Live episode. "I knew travel, and I knew search. But I didn't know insurance, so I got educated in the market."
He discovered the huge market (and opportunity), he said. "I estimated at the time that the distribution market for insurance was about eight to 10 times the size of the opportunity we saw when we started Kayak. Like travel, there are huge amounts of consumer dissatisfaction, which I don't think surprises anybody who's shopped for insurance to see that highly fragmented market."
Melnick advised Accel to invest, and they came back and asked him to be the CEO. "They made me the proverbial offer I couldn't refuse," he said. But Melnick didn't only take over as the CEO; he invested his own money in The Zebra's Series B.
I asked him and Morgan Flager what advice they have for companies looking to bring on external leadership.
Flager pointed to the founders and said it could go one of two ways. It's either a negative thing or a learning opportunity.
"As a founder, you can view a CEO change one of two ways," Flager said. "It can either be, you know, I'm not cutting it, and I'm getting replaced, and it's a negative thing. Or, especially if you're a younger founder, they can say, 'Hey, I'm going to learn from someone who built a multibillion-dollar company and took it public."
"I think what made this work well was having founders at the company who didn't feel threatened," Melnick said.
To both Melnick and Flager, there's always another opportunity built on past experiences -- like handing over control and taking a co-pilot role.
"You have to put your ego at the door and be willing to learn from the old man," said Melnick, speaking in his typical self-deprecating style.
Flager advises founders in this position to look to the future and embrace the opportunity. "The next time you [the founder] come out with a new business, it's better, faster and stronger. In addition, you get the opportunity to build relationships with other managers and investors that come along with a very successful company."
As with the case with The Zebra, Flager points out, the other side of replacing the CEO is purely economic.
"We always knew the true aspiration for [The Zebra] was a potentially public $10 billion-plus asset. And it's also a marketplace. Sometimes with a marketplace, you have to get the marketplace built and the flywheel going before the business turns, and it's profitable. So you need someone who can go out to a sophisticated later-stage investor and raise the capital to realize the business's full investment potential."
To Flager, replacing the CEO is about realizing the full investment potential to the founders, too. It's about maximizing their investment, too.
"But, again, I think you need to be in the right frame of mind to accept that."
Watch the entire episode here, where we explore the challenges still facing the exploding startup scene in Austin, Texas.