A startup is a temporary organization formed to search for a sustainable*, repeatable and scalable business model.
– Steve Blank (*Ash Maurya helped me with “sustainable”)
Mantra
This is my #1 lesson learned. Regardless of the situation, the first questions that come to mind when considering any course of action is
- Is it sustainable?
- Is it repeatable?
- Is it scalable?
Used Car Pivot Scenario
For AnotherSocialEconomy’s used car vertical, we experimented using Google Adwords for our used car Customer Channel. We had a daily budget of $10 for our English Campaign & $10 for our French Campaign, both set to the greater Montreal area. Initially, our Cost Per Clicks were around $2 but after some tweaking & some special sauce we got them down to $0.72. (Read the documentation. It’s all in the Quality Score!) And within 10 days, we actual “sold” a car. Not bad, eh? That’s the good news.
Based on our Customer Interviews, we wanted to validate our hypothesis that car dealers would be willing to subscribe to our lead generation service, once we proved we can deliver leads – despite spending one tenth (ultra conservative) of what they’d spend on their monthly advertising.
Business Model
Revenue
The beta would be free but with the understanding that dealers would pay a monthly subscription of $250 – which includes 25 free Proposals. After that, it would be $10 a Proposal. Since many managers also were skeptical of their sales reps being able to deal with the emails, we’d also offer a Managed Service for double the price.
Costs
We were spending less than $600 a month on creating Demand. But there were hidden costs. Each new Consumer’s email address had to be validated. Then each new Demand had to be qualified since most of them were for something like “BMW 335i”.
From the car dealer’s perspective, we wanted more than a URL and “Have your customer call me” response. We wanted them to take advantage of the situation and offer some incentive for the Consumer to contact them. We wanted them to think like a “Nordie”.
Lesson Learned
Is it sustainable?
No. The Car Dealer Pivot Customer Channel was simply too expensive to sustain with the current Revenue Model. However, while none of the dealers wanted to pay subscription fees, most were willing to pay a finder’s fee which could justify the Adwords expense.
Is it repeatable?
No. The Car Dealer Pivot was simply too complicated. Our original idea was to go after Consumers looking to buy something more precise – like a “Wii Super Mario game”. Something that a retailer either has in stock, or, doesn’t. There’s just too many variables in used cars to repeat the process in another vertical.
Is it scalable?
No. The Car Dealer Pivot required a lot of manual intervention on both the Consumer side, as well as, the Retailer side.
Bad Pivot?
No. The Car Dealer Pivot was not a bad move because we learned a lot. For example:
- Customer Development: We should have interviewed more dealers. Although we did have enough Early Adopters to launch the beta, we should have qualified them better. We didn’t want to take any money until we knew we could deliver qualified leads. And when it came time to “sign” they crapped out.
- Customer Channel: We learned a lot about Google Adwords and I think we got pretty could at it even after only a few weeks. I still think it’s a good channel for us to find Consumers. Our biggest oversight was the dealers’ unwillingness to participate. We still don’t understand why someone making commission on a used car won’t reach out to a local prospect.
- Unique Value Proposition: We should have stuck to our original vision of connecting Consumers who know exactly what they want – like a “Wii Super Mario game”, to local Retailers who either have it, or, don’t have it in stock.
- Get Out of the Building: We definitely got out of the building. We definitely exercised our bits.
- Problem/Solution Fit: Every Consumer we spoke to outside of the Building can identify with the Problem/Solution. However, that’s not the case for used car dealers (Retailers). Their Solution requires the Managed Service which, unless funded by the car Manufacturers, is simply too expensive for us to pursue. And while we have a Pitch for that, even “validated” by a few insiders, we already learned our lesson and choose to move on.
Up next
Stay tuned as I drill-down into my My Prezi Startup Lessons Learned.