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This ex-Googler got backing from Peter Thiel and Max Levchin to build a LinkedIn killer
Pete Johnston's plan to build "the world's most badass recruitment engine" could put a dent in Microsoft's (NASDAQ: MSFT) plans to wring money from LinkedIn's 500 million users.
Johnston, a former designer for Google (NASDAQ: GOOGL) and ad giant M&C Saatchi in London, and his backers, including PayPal (NASDAQ: PYPL) co-founders Max Levchin and Peter Thiel, are betting that managing contract workers will one day become as valuable to corporations as hiring and paying their own staff.
The start-up, formerly known as Lystable and now renamed Kalo, charges 3 percent of what its customers pay to contractors they hire through the platform. It's a bet on the growth of the freelance economy.
A report out this month from consulting firm McKinsey suggested that the gig economy will be here sooner than later. The study said 20 to 30 percent of workers in the U.S. and Europe already do "independent work."
For his part, Johnson said that "we know who they are, what they worked on and have access to their financial data."
But before he and his 50-person start-up take on the world's largest software maker, Johnston first has to get used to a new name for the company, which until last week was called Lystable .
That name had an air of exclusivity — as in, you needed special qualifications to be "listable"—and Johnston wanted to move away from that. So the company asked the 50,000 freelancers registered on its website to come up with ideas. Johnston also hired a consulting firm that came up with another 30 names.
Yet the company's new moniker came not from either of those sources, but from a much more serendipitous process.
Johnston earlier this month looked out onto San Francisco Bay, and saw two ships passing each other. As they crossed, the name of one was truncated to Kalo — and the proverbial light bulb went on.
"It was an emotional decision," says Johnston.
Managing freelancers is a mess
He got the idea for the company while sitting in his Dublin apartment in 2014. He'd been working for a Google design unit in London that had just seven staff employees, but used more than 150 freelancers per year.
The process, run on a platform made by "a large enterprise software company" he declined to name, was worse than cumbersome.
Workers often were not paid quickly — and thus not exactly happy when Johnston and his co-workers asked them to come back for another project.
At first, the software was designed to identify workers and assign them tasks.
But those two steps weren't enough, Johnston said, as "the (freelance) process would then go into this dark place" when it came time to pay them.
So the company, then based in London and still called Lystable , built a payment module, started charging a fee, and began signing up customers including Google, Airbnb, Expedia and The Economist.
Soon Johnston, a native of Belfast in Northern Ireland, moved to San Francisco, convinced two marquee investors to back him, and opened a new office in this city's Financial District early this year.
Microsoft's LinkedIn deal as validation
"This is the sweet spot," Johnston told CNBC, while pointing to a group of silos he's drawn on the white board of the only conference room in Kalo's new headquarters.
The silos represent various back-office functions now run largely by software from tech giants like SAP, IBM and Microsoft.
Putting together back-office data on contractors "is the key to building the world's most badass recruitment engine," said Johnston.
His talk of silos echoed one of the rationales given by Microsoft when the software giant acquired the professional social network LinkedIn for $26 billion last year.
"Today, all the information a professional needs to be successful are in silos," according to a presentation Microsoft prepared to explain the deal.
"By connecting all these apps and data, we can create more connected, intelligent and productive experiences," Microsoft said.
Yet Johnston believes that managing contract workers will become more valuable as their ranks grow, and that "any company that tries to manage them like staff workers is going to run into problems" like those he saw at Google's London office.
He added that Microsoft's LinkedIn's deal validates his business model, but is confident Kalo can measure up.
"Do I think they'll attack the freelance market and build a module as fast as us? No," Johnston said.
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