Tuesday, 19 March 2013

Startup Spotlight: Carhoots

by Penny Lin, Associate at Amoo Venture Capital Advisory, Feb. 13, 2013

Q: It is very nice to meet you, Lee. Let’s start with you. Tell us more about yourself, the team and the business idea you are working on?
A: Hello, I am Lee, the co-founder and CEO of Carhoots, a social car review and market website. We are solving two problems. The first problem is from the consumer side: the car buyer basically spends about 3-4 months on researching a car. So, what we do is we get all the data by experts’ reviews, images and videos, as well as social recommendations from friends, and we put all information into one simple destination. The second problem we want to solve is from B2B side. I came from automobile background.
One of the biggest challenges for dealership at this moment is that dealerships are basically massive websites like auto traders. Sales traders get massive amounts of volume and traffic for the site. The dealership starts to move the budget away, as the traders charge high price to dealership on the amount of visits. All the dealerships are looking to move away from auto traders and to get better return on investments. So they sell between themselves on the website called Trusted Dealers, which allows them to advertise for free. They challenge for that is the trust for the customer’s point of view is not really there. My website is giving dealers the opportunity for the vehicle for free for life, so there is no cost involved and benefit our visitors as well.

I co-founded the company with James, who leads the marketing and operations. He dropped out from wealth management career after a year or so, because he wanted to get involved in something a little more 'grassroots' and create from scratch. We lately brought in Dan who is our CTO. He gets a vast amount of experience on working and funding for startups. He's recently founded a company called Money2k, which is equivalent to Mint in US, currently gets 14K active users. So, we recruited him in November last year. We also brought one marketing manager as well. We are looking to expand our team over the next 3-6 months. So far, we have four people.

Q: How did the Carhoots idea come about?
A: The idea came from 3-4 years ago. I was involved in a similar startup that failed at seed stage. That was based around videos, instead of photos. Following about this idea, it had been about 6 months for me to search on the market, work on the business plan and see the opportunity in the market. After that, I got an opportunity to work with one car dealership. I used that as the opportunity to learn more about dealership, and the problems. Then I kind of had an idea planted in my mind, fully involved with social media to create the platform to help both car buyers and dealership. So, Carhoots was born!

Q: Could you give us more colors on the website, and how does it go so far?
A: We launched the very basic MVP in August 2012. At that moment we just got 50 visitors the first month, and we got 50K visitors in Jan 2013, and about 70K-80K visitors in Feb. The growth rate is about 70% week by week, and it is purely organic growth. We did not spend any penny on marketing. We tested the market channels, and spent about 500 GBP only in total. We focus heavily on social media marketing while our blog also attracts a lot of visitors, which allows us to gain attraction to get seed investment. We are looking for seed round fundraising, around 300K GBP to continue our growth over the next 12 months. We position ourselves at an exponential growth in year 3, when we expect 30 million GBP turnover, the hockey-stick growth.

Q: What does your business model generate revenue?
A: Our business model and revenue streams are quite similar to TripAdvisor, a classic consumer Internet model. The main revenue stream will be click-through. We provide reviews for cars or dealerships, where you will buy the car. We also provide you the opportunity to visit the dealership or visit the car manufacturers. We can also get every kind of cars for sales from all the dealerships in UK. The other revenue is display advertising. We give advertisers the opportunities to engage with to the social younger audiences, who are heavily engaged in the car market. Auto revenue channel includes three options. You can advertise your car for sale on the website for free, and you can pay to increase the visibility of your post. We look at data as well as we aggregate a lot of existing data from social channels. We collect a lot of data, which would be valuable for manufacturers, dealerships, or advertisers in auto space.

Q: Any key competitor in the market for your business model?
A: Two classified competitors – one is auto trader, such as motors.co.uk, and the other is publishing side for the auto reviews. We are positioned in the middle of both sides, and don’t really have direct competitors. We basically gain the market share from both. We don't see this is a competition with the auto traders or car review publishing. We really want to help this market while there are a lot of mistrusts in the auto buying experience between consumers and suppliers. Therefore, we want to bridge the gap between all parties and increase the trust level all around, so dealership, publishers, and consumers can all benefit.

Q: Are you targeting at specific countries?
A: We start with intention of local UK and then grow globally. It just happens that our platform is actually more successfully in US, where 80% of our traffic comes. 20% of traffic is from UK and other countries. Similar to TripAdvisor, we are a global business and go specifically in the auto advertising online space, which is a huge market, about $10bn market size. At the end of year 3, we target to have 0.5% market share, about $15mn. It is not a new growing market, but a very stagnant market. We are trying to be innovated. Nothing has been innovated for a long while. The last player to innovate in automobile space was eBay, and we are now trying to return and do something different in this space.

Q: The challenges you have faced during the business development process?
A: A hundreds of challenges and a hundreds of things I would have done differently now. Your naivety gets you to do things and make decisions because you don’t know the consequences. I made a lot of mistakes, one of which was paying a lot to get an early MVP. We basically paid the agency to do our site rather than hiring people to develop it ourselves. We raised money by our own in the early days, but actually we could have done it much cheaply. We quickly realized we could have gone down the path of making more mistakes learning from that, but impacted on the business. That’s the reason that we decided to reach out the accelerator program, and used the 3-month program as a way to reduce the entry barrier and to have right people around to minimize the risk of making big mistakes. The biggest risk for us would be that someone copies this idea. What we put in place to combat that is that we get very strong following communities, about 2 millions, engaged in our brand domains on the daily basis. If someone wants to copy it, he will find it hard to compete with us. People can always get competition. That is healthy for the business. We put specific strategy in place, which allows us to be well positioned to respond to the competition, and continue to be further ahead.

Q: We are aware that you just came back from a business trip to U.S. Do you have some interesting takeaway or feedback from this trip?
A: San Francisco gives you the sense that how small you are and how competitive the market is. I realized that how quickly we have to move and what it takes to be a successful business team. We need to bring on board that what type of business we want to be. So, it gives you a sense of urgency. The culture is very different over there. They are very open. The challenge in UK is that people are very reserved. We met a few people just completely passive. In UK, if you are startups, you would queue outside of the door to meet with VCs. However, in US, it is the opposite way round. The VCs are queuing to meet with these startups. We met one guy, who did basically what we had achieved in 3 months. He achieved it in 3 weeks – he built a MVP, got 200K visits to the site, and secured the funding, the seed round, within 3 weeks. I think in UK investors tend to be more risk-averse, but in US they want to see the product traction.

Q: What’s the next step for Carhoots, and how do you see Carhoots in 3-5 years?
A: Our next step is to get seed funding for Carhoots. We get very specific roadmap and good plan to show where we want to be and what we will do once we get the funding. Obviously, we need to go to US market where we get big presence, while no one is on the ground. We frequently fly over and back between U.S. and U.K. to grow the business, and develop and maintain key relationship and partnership, and to take over the market. All our relationships are mainly based in U.K. by far.

Our goal is to become the global No.1 online platform for car buyers. In 3 years, we want to take 0.5% global market share. We want to do to the car industry would be provided later in the travel industry – we want to start shopping, buying a car, using the car in every country. That is the scale of the business and the view is to become a billion dollar company in 3-5 years.

-- That’s very insightful information indeed. Thanks for taking out the time to speak with us.

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