CarWoo: How An Upstart Gets Noticed

How does an upstart compete in an industry that’s over 100 years old?

In this interview you’ll hear Tommy McClung, co-founder of CarWoo, talk about how his company got attention at a time when it had more determination than money. From driving cupcakes to local car dealers to pulling publicity stunts to win over auto-buyers, Tommy and his team grew the number of dealers in their network and their revenue.

It’s all in the name of creating a business where car buyers get lower prices by making dealers bid for their business.

Tommy McClung

Tommy McClung

CarWoo

Tommy McClung co-founded CarWoo! so he wouldn’t have to haggle with dealerships when it came time to buy his 7th car in as many years. He is responsible for the overall direction of CarWoo! Prior to CarWoo! Tommy was a co-founder at IMSafer. He has a B.S. in Computer Engineering from Oregon State University. Tommy loves it when buyers walk away from using CarWoo! with the car they want yelling “Woooo!”

 

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Full Interview Transcript

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Here’s the program.

Andrew: Hey everyone. It’s Andrew Warner, founder of Mixergy.com, home of the ambitious upstart and home of the take three. This is our third try at the intro. So how if you’re an ambitious upstart and you’re new, how do you stand out, how do you get the world to notice you, and how do you grow your audience? Joining me to answer that question is Tommy McClung. He is the co-founder of CarWoo. CarWoo is a company that saves consumers on average they say $3,700 off the sticker price, by making dealers compete against each other. Tommy, welcome to Mixergy.

Tommy: Hi how are you?

Andrew: Good. So in one of those takes you were starting to tell us one of the stories of how you got attention. Here’s what I’ve got for today. We’re going to talk about how you built a marketplace from scratch, how you got attention for CarWoo, and we’ll talk about the story of how you went nearly broke, but found a way to recover and grow your business.

Tommy: Yep.

Andrew: How about we start with the Camaro story, then we’ll go back and fill in the gap and get everything else. What is the Caamaro story?

Tommy: This is one of those trying to get attention type stories. We had just launched the company, so there’s two things. Launching a company, there’s two different launches that you can do. One is, your product goes out into the wild and people can use. The other is a marketing launch, that you can and get attention, you get on tech launch or what ever it might be. I’m talking about the marketing launch, we actually launched the product a year before we actually announced that we existed so that we could build a marketplace. I will get to that in a minute. We launched, we got a lot of traffic and attention. A couple weeks had gone by, and we wanted to keep that momentum going and the World Series was going on. We are here in San Fransisco, so there was a lot of buzz about the Giants, and we figured hey what a better time to go and created some buzz, at this moment in time. We’ve always wanted to be tied to charities and doing good causes, and actually a lot of the people here at the company had either moms or sisters or grandparents that had had breast cancer and so it was actually right at the end of Breast Cancer Awareness month. We came up with this crazy idea to take a Camaro to both the San Fransisco Giants baseball game and then drive it all the way to Texas, to Dallas and then drive it out there to get attention out in Texas.

So what we did was, we buy this Camaro off of Craigslist for like $2,000 bucks. The idea was that you could come and sign the Camaro and make a donation to the Komen Foundation and at the end of it, we would take all the money and donate it to the Komen Foundation to either Dallas or in San Fransisco. So we buy this Camaro and the thing barely runs, like literally it’s a ’78, the front seat isn’t working and so we pretty much had to push it up to the San Fransisco stadium, and one of the challenges that we had was we weren’t officially endorsed by the Major League Baseball. You have to actually have to be endorsed to do charity fundraisers and things at these sporting events. We didn’t realize that, so we just did this. We pull up to the parking lot, and we’re trying to figure out how we can get a good position where a lot of people are going to walk by and so we just kind of took over this space that if you’ve ever been to the baseball stadium, is almost right in front of the stadium, and we put up all of this Komen Foundation information. We didn’t end up having anyone tell us that we couldn’t do it, so we just took the space and started doing the fundraiser. We got really good awareness from that. We actually ended up on the local TV station that night, where you know they saw that this company was doing something good, and they were trying to make the best out of some splash at the World Series and we told them that we were actually going to take this Camaro after we got all the signatures and donations, and we were going to drive it all the way to Dallas for game 4 or game 5 of the World Series.

We actually did it the right way when we got to Dallas and contacted the Texas Rangers, we got a hold of the Komen Foundation in Dallas and got their sponsorship and ultimate got a sponsorship and a close relationship with the Komen Foundation out of this. At the end of the day we ended up, Eric Landerhoe, my cofounder and I, the first problem was the Camaro wouldn’t drive. We had to find a way to get it all the way to Dallas. We had collected Thousands of dollars, I think, I can’t even remember what the number was, but thousands of people had come by at the San Fransisco game, lots of signatures and I actually think they’re still up on our site, if you go to carwoo.com/worldseries. There’s a bunch of pictures of all this stuff.

Andrew: Now that page actually, I actually checked it out, that page is dead, but you do have some blog posts on it I think.

Tommy: Oh yeah, I’ll have the guys get that back up.

Andrew: Yeah, they got to get that back up. Let me ask you this. I see all the work, and it sounds like a lot of fun, but how do you know that it helped CarWoo grow? How do you know that it had a measurable impact on your business?

Tommy: Yeah, I mean we look at traffic before and after that day, and they were up, and they continued to stay up. Measuring those kind of things is relative. The challenge that you run into, is if you are doing a whole bunch of things at the same time, it’s hard to tell was it this campaign or this PR stunt that actually made a difference. And since we were new, we could pretty easily tell that before we did this stunt and after we did this stunt the traffic was noticeably higher. People paying for the service was higher the whole work. I think that the easiest thing to do is, especially when your starting out. You have to do stuff like this, and it’s a lot easier to measure this stuff when your small because the impact it has is a lot bigger, you know today we have a lot more traffic and it would be a lot harder to take and say OK that’s making a noticeable difference, but early on in the early days it does.

Andrew: Do you remember how much of a difference it made, how much of an impact it had?

Tommy: I would say maybe 20 percent to our traffic.

Andrew: And what was 20 percent back then? Was it 200 hits a day?

Tommy: Yeah, what did you say?

Andrew: What was it back then, are we talking about 200 hits a day came because of this?

Tommy: Yeah, something like that, at the very early days it was something like that. I don’t remember off the top of my head, I would have to go back and look at the actually numbers, but when your trying to get those first people using your product, 200 extra people to your site a day makes a big difference. The other thing that it did for us that measurable is we now have a pretty great standing relationship with the Komen Foundation, which by the way it takes a long time to get that, and we kind of just forced our way into that, and we’re really grateful for all the help that we got from them. Kind of helping a scrappy startup get through all this. And it kind of set us in a direction where we realized that we can be a for profit organization and we can actually do some good. We are going to continue to do stuff like that, because if you can serve both your customers and your business and also at the same time do things for charity, we think that’s a big part of what we can do.

Andrew: It was also good for getting attention within the tech community. That’s how I first found out about you guys, that’s when I heard that, oh these are crazy guys that can always find ways to get attention, meanwhile it was probably one of the first things that you did for getting attention, but it seemed like, because of that one incident that in our minds you had a track record for this kind of stuff.

Tommy: And a story that you probably haven’t ever heard of, we had to get attention with dealers as well, and part of this marketplace dynamic is you know, making sure that you have enough supply, so that when a customer comes by and says hey I want to buy a Toyota Corolla, you’ve got enough Toyota dealerships to actually get them to compete against each other. So we were in Y Combinator, and part of what they tell you are all these crazy stories, like the guys at Air B and B flying back and forth to New York and living with their customers to figure out exactly how to build a product for them. We felt like on the dealer side of the world, none of us came from automotive. We felt like we needed to get very close to dealers. So, one weekend during Y Combinator we were driving a ’92 Astro Van, and we filled it up to the top with Krispy Kreme doughnuts, boxes of Krispy Kreme doughnuts, and we drove around to, in three days, 52 or 53 car dealerships in the Bay Area and personally introduced ourselves and gave these guys a one page flyer about what we do and what the service was going to be, and why you should pay attention to it. I don’t know what it is, but these car dealerships like doughnuts. We did the exact right things, because they were going pretty nuts over what we were up to. There are small things, like it doesn’t even matter when you’re a small company and you’re just getting out the gate. These grassroots kind of feed on the street things, you have to do them, and there’s no way around it. You’re not going to get to the point where your interesting until you do this stuff so you just push through it and you do it. It actually ends up being quite a bit of fun and you learn a ton about your customers and you learn the stuff that they’re going to care about and the only way to really do that is to have conversations with those people.

Andrew: Did you end up getting dealers to sign up as a result of the doughnut tactic?

Tommy: Absolutely.

Andrew: You did, how many?

Tommy: That was the first set of dealers that ever signed up for the product, so we would take the doughnuts in and we would say hey here’s what we do. All you got to do is log into the website and sign up and we’ll start sending you traffic, and so the doughnut bribe, or whatever you want to call it worked. I think out of the 52 dealerships maybe half of those dealers to start saying that yea sure I’ll give it a try. And then we kind of knew what kind of buyers we could send through the product because I would say OK we have 5 Toyota dealerships so I’ve got a list of 500 people that signed up for a beta, I’m going to take the three Toyota people and I’m going to put them through the product to learn exactly what we can learn from them, that is the story of about how we go the marketplace going, was our doughnuts for dealers is what we called it.

Andrew: By the way how many dealers do you have today?

Tommy: Today we have over 6500.

Andrew: And how many total in the country?

Tommy: 16,000 or 17,000 depending on which numbers you look at and how many GM dealers have like folded shop. Depending on how they’ve lobbied the government to have dealers in or out. The number fluctuates somewhere between 16 to 18,000 so we have about a third. About a third of the dealers are using the product now.

Andrew: Let’s get to your story, how you started, and along the way I’ll ask you questions about some of these other tactics that you got for getting attention for yourself, including twitter, including the auto show, including the Craiglist story, and so many others that I’ve got here. he idea, in fact before the idea, what were you doing just before Carwoo?

Tommy: I was a founder of another startup called I am Safer.

Andrew: What’s I am Safer?

Tommy: I am Safer was a parental control product where parents would be able to use a tool to see if sexual predators were coming after their kids online. I was an engineering tech guy at that company VP of engineering, and responsible of all of the technology, but I went through the entire life cycle of fundraising to acquisition in about d18 months there, and you kind of get hooked on being an entrepreneur after you go through something like that. So the company the acquired us was based in the UK and I had relocated to Portland Oregon and I was living there and had worked for them for about 10 months. I just kind of got the itch to go start another thing. My co-founder Eric Landerhome and I started kind of thinking of different ideas of what we would do, and in the middle of all that, I went to trade in my old car for a new one because my wife and I had our second child. I was driving a Mini Cooper and a Mini Cooper with two kids does not really work. Even with one kid by the way it’s pretty tough to make a Mini Cooper work. I went through the process and had all the bad experiences, dealers haggling with you constantly, and negotiations, and then I experienced a lot of fragmentation of the research side.

So when I was trying to find out what car to buy, there’s so much information out there about, you know, you’ve got 500 sites that have you know, what features a vehicle has on it and what you should think about. And then TV advertisements berating you with commercials about why you should buy the Honda Civic or the Toyota Corolla and then ultimately I go through that, bought my car, and I thought that was the most ridiculous experience that I have ever gone through. There has to be a better way to solve this problem. And my co-founder Eric had recently bought a car as well. He did it completely differently. I kind of did it the old fashion way, where I went to dealerships and talked to each one of them and negotiated myself. He actually didn’t talk to a dealer at all in his entire experience. He went online, he was buying a Mitsubishi Lancer Evo which is kind of a specialty car, they use on track days quite a bit. And in Portland Oregon where we lived at the time, there was only one Mitsubishi dealerships in the entire state, and so he went down there and the guy wanted to charge $6,000 over MSRP because he had cornered the local market and he didn’t have any competition. So Eric jumped online started looking at forums and searching and found a dealer in L.A. that was selling the car for $2,000 or $300 over invoice and even with shipping the car to Oregon he saved something like $6,000 or $7,000. So we realized that there was this opportunity to improve the buying experience for consumers and figuring out which dealer you want to buy a car from, make sure you get a really great deal and at the same time making sure that you get to leverage this entire network. The internet these kind of local barriers to go away in a lot of ways, so with those two things and the bad experience that I had and the good experience that Eric had, we say that people should buy a car. And in reality a lot of people were buying cars this way, but doing it all by themselves. They would email dealers they would phone call and they would put them up back and forth against each other. They would keep a spreadsheet and they would track which offers they had from different dealers and they were doing this. But there really wasn’t a service that a customer could go to and have this be a simple painless experience, which is what we are trying to do.

Andrew: So what the first thing that you did?

Tommy: We incorporated, when we had the idea, no the first thing that we did was that we came of with the name, and we realized that finding a good name in automotive was going to be pretty challenging because there’s so many people trying to sell leads, every really good domain, you know cars.com or autos.com they just didn’t exist. So we spent probably two or three days just searching for, you know, we want to have this excitement sentiment we wanted to have it feel like it was going to be fun. And we went through, I can’t even tell you how many different searches on Go Daddy and the other things to find one. I was sitting there, and I just said car and I don’t know what’s the sentiment when you drive off in a new car, woo. So I typed in car space woo and what you got were a whole bunch of results from people that had just bought a new car woohoo. Like they were super excited about it, and I just smooshed those two words together, went up on Go Daddy and bought the domain for like 9 bucks.

Andrew: Get out, a six letter domain that’s easy to spell, carwoo was available for under 10 bucks?

Tommy: Yeah, it was the cheapest plan so we grabbed it and to be honest with you, the name matters. We got kind of lucky in this case, I think that the name existed and we had all the different .nets and .orgs and all those things were available. But it really set up the company from the beginning to have a brand that we really wanted to foster and build. We’ve had tons of conversation about are you a platform, are you a consumer brand? And it goes back to the very first decision that we made to the name, and had we picked auto buying platform.com or something ridiculous like that, we would have set ourselves up to go that direction. But instead we built a name that was fun and existing that we think consumers will really rally around and from day one we wanted to be a consumer brand.

Andrew: All right. So you get the name, what’s the first thing that you build out?

Tommy: Well, I think the first thing that we had to do was understand what we were getting ourselves into. We did not understand the dealer world. Like I’ve mentioned this before, so we kind of had the concept in our heads. Like hey you go to the site and say what you want to buy and there should be a whole bunch of dealers that want to come sell you a car. And because of that there’s a marketplace dynamic and buyers should end up getting really good prices. That was the original concept, but we didn’t really understand how dealers worked at that moment. I had a good friend that was a car salesman, that actually sold me the car that I bought, when I came up with the idea. I asked him if I could come spend a couple of days just sitting in his dealership and watching how they do business. I think with out having done that we would have missed the mark completely because we learned a lot of things about car dealers. Number one these are some of the most savvy business people you will ever meet. They are in business to make money, a lot of them treat customers with a high level of respect and there’s a couple of bad apples that have given them a bad name over the years. They are very analytical they look at their profit margins, they understand tracking customer funnels, everything a good internet person would do online to build their business. Car dealers do it in a very, very different way.

Andrew: How do they do their funnel?

Tommy: Typically what they do is, they will have classified listing that go out on a bunch of sites, but generally what happens, their inventory or the products they sell are a driver to a lead submission. So a customer goes to, you know, a site where their vehicle inventory is listed, they click a button and the customer fills in their contact information for the dealer to call them or email them back. So that’s the first step of the funnel for them is getting the customer to say hey I’m interested in getting some information from you. But from that point this is where it kinds of falls down for the consumer, and I’ll talk about that in a minute, but the dealer will then work that lead and the next step is to get that customer into the store. They feel like if they get them into the store they have such a higher probability to closing that customer to buy a new car that, that’s the number one driver is to get the consumer into the store.

Andrew: Okay.

Tommy: Now what their looking at is, I bought 100 leads this month, how many of those did I convert? And what were the tactics that I used to get to convert those? They actually have some very sophisticated CRM tools that they use, that help them track source of lead, quality of lead, there’s scoring technologies ,that go into the this stuff so that they can bubble up the leads are the most quality to work on first. And really trying to focus their time and energy, so if they get 100 leads on average from a third party they’ll close 2 to 5 percent of those. So there’s a lot of work involved in taking 100 potential buyers down to 2 or 5 they’re going to spend $30 some thousand dollars.

Andrew: I’ve got to do an interview on just how car salesmen close deals, because this is a high value, high priced tag item that they have to close often within one conversation or one day. I’ve got to do an interview and learn how they do it.

Tommy: Actually we have a guy that’s a dealer in residence, who actually I think six or seven of our employees are ex car dealers, so if you ever want to do that I’ve got some people that could talk about it.

Andrew: I’d love it, I wonder if they could be honest though. Because if you guys are working with dealers can you really be open about some of the tricks that dealers use? I’m not sure that you should be.

Tommy: You know, I think in general this industry, they auto dealer industry is really working hard to reestablish their reputation, and I think at the end of the day the most important thing that’s happening in the dealer space right now is reputations. Yelp, googleplaces, there’s a site called dealerrater.com, cars.com just release a dealer review site so that consumers can come in and review their dealer. I think in general the internet is forcing a lot of those tactics to go away. There’s a couple that I can tell you, that are pretty funny, one of the classic ones is, and this is part of the reason we built the company. When you go in and fill out one of these leads and say hey I’m interested in a Toyota Corolla LX with leather and what ever options are on it, it’s pretty tough to get a dealer to tell you they don’t actually have that car in inventory, because if they say they don’t have it, then they’re just going to go somewhere else. One of the tactics that they would use, is to say sure we’ve absolutely got that car in inventory come on down and I’ll sell it to you. But when you get there, oh I just sold it. That car I just sold it to a customer, and that’s a tactic that they use all the time. And they’ll even write it up on their board, and say see if was on the board they’ll strike it out and say look you just missed you’re opportunity, I just sold that car. That was a story that was told to me by our dealer in residence as something that they would do a lot, because the incentives are misaligned, right, when a customer goes to fill out a lead online, what their looking for is information. They want to see what price they have to pay to buy the car. And they want to know the dealer actually has it. But the dealers incentive is misaligned. They’re incentive is to get you to the store to sell inventory that they have, and even if they don’t have the car they still want to get you there. So there’s a lot of games that were played in the lead space that I got duped into when I went to buy my car. And that’s why we came up with the concept of carwoo, was to really attack that specific problem, which is customer wants information, dealer wants to sell a car, how do we bring those two things together that work for both parties?

Andrew: Okay. And the was carwoo works right now is, I want to buy a car, I tell you guys what car I want to buy, I pay you guys, it’s not much, less then 100 bucks. I’ve got the prices, $19 or $49 bucks. Then dealers submit their price, what they would want me to pay for it, and I guess depending on how much I pay it’s either blind or not, either they see each others bids or not, I get all the bids. And obviously I take the one, well not maybe not so obviously. I take the one I like. I was going to say obviously the cheapest one.

Tommy: It’s not actually, and interesting thing that we’ve learned is that over 52% of the time, the lowest price from a dealer is not the one that the buyer chooses.

Andrew: Why not?

Tommy: There’s so many factors involved in a car purchase. I actually look at four different quadrants that make up a car purchase. One is does the dealer have the exact vehicle that I want to buy? nd a lot of times they don’t, they’ll have a car that close, maybe the colors different.

Andrew: I see, if I want black and they give me a great price on silver, I may not be so eager to take that price.

Tommy: Right, the other is price, price is certainly a factor. Distance, how far away that dealership is plays a lot into the equation. If the dealer is 3000 miles away, but his car is $1,500 cheaper, I might be willing to drive 300 miles to pick up that car. And then the last and most important thing that we’re seeing is the professionalism and reputation of the dealer, actually make a huge difference. So if a dealer treats courtesy and respect, you ask a question on our site, he answers in a timely fashion, he answers with the information that you were looking for. All that does is build credibility in a consumers mind that when I go to the dealership, that experience is going to be taken from online to offline and I’m going to experience that when I go to the store as well as what I’ve experienced with it online. We’ve built a ratings and reputations system for the consumer so that after they’ve experienced a great or a bad experience with the dealer they can leave feedback. And that factor is becoming one of the major reasons that I buyer would choose dealer A over dealer B, even price can be slightly different and they’ll choose reputation over price in many cases.

Andrew: I can see that, I would. All right. Take me to the period when you guys almost went broke with carwoo, what happened?

Tommy: We were in Portland, we launched the company in Portland Oregon, well not launched we incorporated in Portland Oregon, and we had done this two or three months of bootstrapping kind of coming up with the concept building the first prototype, but during this entire time, we had quit our jobs and we were no longer employed, we had a couple of consulting contracts that we were working on. They were kind of up and down, the consultants dilemma, is keeping good quality contracts so that you have a steady income. And we were really focused on carwoo, so we didn’t want to have to much consulting work because if we had too much we weren’t going to be able to focus. So we were trying to balance our income versus being able to work on this. Me and Eric are both parents, I have two kids, he had two kids at the time. And you have to have money to keep your kids going, and we didn’t make a lot of money on our last exits so it’s not like I could indefinitely fund this myself. There was a time limit. We had six months that we had to get this thing taking off or we had to raise money or we had to do something. So we were in Portland, and Portland Oregon the climate for fundraising in Portland is tough regardless of what time it is, you know, recession or not. But we had happened to build carwoo, or come up with the idea of carwoo like a month before the entire economy collapsed. So were sitting in Oregon where it’s really hard to raise money, the automotive industry collapsed and we’re sitting there thinking maybe we made a really bad decision here. It turns out that was a great time to start the company because there was a lot of opportunity, but we were consulting and contracting and in the meantime we’re choosing which bills we’re going to pay and which bills we’re not going to pay so that we can continue to work on this. I actually had gotten a couple of job offers during the time, and I remember Eric and I sitting down next to each other one day, and I had this job offer and it was a lot of money, and it would have solved all of our financial problems. I told him that I could work on the product at night after I was done working, and we finally sat down together and said this is never going to work if we don’t commit full time to it. So I actually turned the offer down after I had already accepted it, two days later I was supposed to show up for work, I called them and said never mind I’m not coming, and at that time we were getting pretty close to the end of our funds. Something that I don’t recommend to people is don’t stop paying your mortgage.

Andrew: Did you stop paying your mortgage?

Tommy: I stopped paying my mortgage, because I wanted to do this. It was important to me, and so for a period of a couple of months, I didn’t pay it. At this point, I’m getting close to the house being lost, ultimately one night Eric and I were sitting around and saying look we’re going to have a hard time raising money in Oregon, maybe we ought to just go find jobs, and I was drinking a couple of beers. I said screw it and I applied to ycombinator, and this is the moment of time where everything kind of changed for us, and two weeks later we were down in Palo Alto having interviews with Paul and Jessica and that night they told us that we were in. If you get into ycombinator you don’t get a lot of money, you get $15,000 or $20,000 so Eric and I had to figure out how to get $15,000 last another three months so that we could hopefully get to the end of ycombinator and raise around of financing or have the company profitable. So we ended up telling our wives that we’re going to move to California for the summer, you guys are going to have to what here, your not going to have any money to spend, so you’re going to have to tighten up everything don’t spend a dime. And we we’re fortunate enough at that moment to have a couple of the Angel investors that we had been talking to in Oregon after we got into ycombinator, said look we’ll invest some money. So I think we raised $50,000 so in total we have $60,000 to last the entire summer, build a company make sure we didn’t run out of money and literally our bank accounts were negative, and a lot of credit card debt at the moment that all of this was going on.

Andrew: How was your credit rating impacted by this?

Tommy: It was pretty bad for a long time. It took, it’s taken me over a year and a half to get it back up to where it was, and the best thing you could do, good piece of advice, is just pay off all those debts, and your credit rating magically goes back up to where it was.

Andrew: Those marks are still out against you, but it does improve.

Tommy: Well, it does show that you can recover, and I think, I don’t know if this is true or not, but there was a lot of people going through a lot of hard times during the recession. I think people are realizing that there are a lot of people that struggled during that period. By the way in Oregon at the time, it wasn’t like there was jobs being thrown at us left and right, it was a pretty tough time, nobody was hiring. We kind of felt like we were in a position where we were either going to go broke or maybe find a job, or we could take destiny in our own hands and build this company and see if we can do it ourselves.

Andrew: I want to make sure to get it all in there, we’re now halfway through and a lot of my items on my list here haven’t been covered. What happens in this three magical months at ycombinator that turns things around?

Tommy: Focus, number one.

Andrew: What do you mean? What were you getting rid of?

Tommy: Well, if you have kids, you know that you could spend time with your children and your wife.

Andrew: I see, so now that your at Y Combinator, you don’t have the kids during the day, you don’t have to come home at night an dread stories, you have three months of just hermit type focus.

Tommy: So we knew we had to be cheap and lean through this ycombinator experience, so first thing you have to do is figure out where to live when you go to ycombinator, and we had looked at apartment rental listings on craigslist and they were $3,000 a month for a couple of guys could live in a place. Well that’s going to eat into the funds really quick, so we spent two or three weeks looking for a place to live. I was on craisglist one day and I’m like I wonder if there’s any commercial spaces that would allow you to live in your office, residential you could love there. So we found this listing on craigslist, that was $1200 a month, it was on the border of East Palo Alto, which if you’ve ever been to East Palo Alto it’s not the nice half of Palo Alto. And they said it $1200 a month and you can live here. We didn’t even see the place and we said were going to take it, we showed up and it was the most run down place you’ve ever seen, but we actually lived in the office that we worked out of. It was literally an office space with offices and cubes, and we lived there for the entire summer. So I think we just focused.

Andrew: What else, focus is good, what else got you to turn your company around?

Tommy: Well the company was doing fine, it was just going to take time, we just had to be able to focus on it. The idea was solid, the product was solid, the consumer proposition, value proposition was good, the dealer proposition was all in line.

Andrew: Did you have enough dealer to, how many dealers did you have at that point?

Tommy: This we had maybe 10, and they were all in Oregon.

Andrew: Ten dealers and you can actually say that the business is fine with 10 dealers? You’re not going to bring in any revenue.

Tommy: Well you’re in this phase of building and we knew that it was going to take us some time to build the product, but we had been doing consulting and contracting to keep the lights on, as that’s going on you’re not spending as much time as you could. At this moment we had three solid months were we did nothing, but live and breathe this product, this experience, everything. We took probably a good six weeks to finish the product when we got into YC, we did our doughnuts for dealers tour where we drove around and gave doughnuts to 53 car dealerships in a couple days, got a bunch of dealers to sign up. In the marketplace you’ve got to get consumer demand so we were leveraging twitter very heavily to find out when people were intending to buy a car, it’s actually pretty interesting when somebody wants to buy a car, they’re very chatty about it on their social network. So we leveraged that in our language analytical background from our last start up.

Andrew: Let’s talk about that, that’s one of the items on my list for how you guys got attention in the early days. So you were watching twitter and you said, there’s certain things that people say that indicate that they’re about to buy a car. We can’t go and monitor everyone’s twitter feed in order to do this, how did you do it then?

Tommy: Actually, you can through the search API, well you don’t see everybody, but you see a good number of them. I actually have to give Brandon Watson, CEO of I am Safer, a good friend of mine, he called me one day and said dude have you gone onto Twitter and search for new car, and sure enough if you go search on Twitter for new car there’s person after person saying hey I need a new car, I want to buy a new car, or I just crashed my old car I need a new one. And so we saw immediately that all these people were telling us that they were in market car buyers, so being hackers that we were, we found ways to reach out to those people. At the time Twitter was not really focused on the at replies and looking at that as potentially scamming or spamming or what ever. And to me it didn’t feel spammy either, because the person just said they were buying, I want to buy a new car, and we would come to them and say hey there’s a great way to buy it. So we built a whole bunch of Twitter stuff to go off and look at this and then respond to these people, and we drove the first 500 or so with that.

Andrew: 500 or so customers paying $19 minimum.

Tommy: The $50 plan. They would come in and, you know, for us that’s a huge deal, 500 customers when you have nothing in the marketplace where you have no dealers on the other side. That was the first part of getting the marketplace going, was getting enough consumers so that the dealers would get interested in it. And we charged consumers, and we still do to this day, because it indicates that they are actually serious about buying the car. So the dealers would like to come participate on this product because the consumer has raised his hand and they know they don’t have to spend as much time vetted through 100 leads to get to the 2 to 5 that are actually going to pay. I think that what we did on Twitter, I think there’s a huge business for Twitter in buying intent in general, I know they’re working on this. We have a couple of friends that live and breathe Twitter, they work there. They really want to figure out how to make that a realizism for people and at the time we had come up with a very very interesting way, in our minds, to look at this high priced item, and then people are just telling you that they want to buy it, so we would reach out to them and talk to them about it.

Andrew: And your system would auto fire off a re-tweet or a reply tweet at them that said hey check out CarWoo. And they would go over there and buy?

Tommy: That’s right, and they would go to the site and they would sign up and it was good for about two months, before twitter really started to ramp up their security team. And then once they started doing that it got a lot harder to do it. I agree with them on why they’re doing this. We’re actually doing things on Twitter and Facebook in a very genuine way. A personal relationship actually goes a lot further on Twitter or Facebook.

Andrew: What do you mean, how do you do that:

Tommy: Well, it’s personal engagements with each person as opposed to some automated response. So if a persons talking about hey I’m interested in a Toyota Corolla, asking them genuine questions about what’s the most important thing or have you seen this article about the Toyota Corolla and really engaging them so that you become a knowledgeable resource. Actually helps you as a brand much more then firing off at replies, it takes a lot more work a lot more time, we actually have a person dedicated to social media that kind of engages with people. It really does pay off and I think it’s kind of an untapped market at least in automotive, an untapped customer acquisition thing in automotive that we’re spending a lot of time and energy on right now.

Andrew: We understand that, so at say $50 per sale it’s still profitable for you to have one person monitor social media and respond to people individually within social media and eventually you close enough of those sales that you cover her.

Tommy: Well, we have a lot of other ways that we get traffic now, through partnerships and affiliates.

Andrew: But just specific way, this does it?

Tommy: No, I mean today that’s part of it.

Andrew: No I mean, sorry does it pay for itself?

Tommy: Well, in general it’s hard to measure that, because social media is also customer support channel, it’s a brand promotion channel, it’s a distribution channel for content, I mean there’s so many different things that you can do for social media. In general it’s hard to quantify, like we’re spending x amount on social media and it’s returning this. But we see tremendous growth in that space, like our Facebook accounts and our Twitter accounts are growing very rapidly, and we get a lot of customers that reach out to us there, that’s kind of their primary mechanism for customer support so, I think everybody that’s building any sort of ap knows very quickly that Twitter and Facebook are a tremendous asset for you, for customer acquisition plus also for customer support.

Andrew: Okay. So Twitter is getting you new users, you are doing doughnuts to get you’re initial dealerships. What do you do to grow the dealerships beyond you’re personal reach?

Tommy: This is where we kind of an eye opening realization in order to scale this business we were going to have to have a marketplace that was nationwide outside of Silicon Valley and were going to have to scale this across the country. And the way that we were doing this by the way was, when a customer would come in and say I want to buy, we may or may not have had enough dealerships to satisfy their need, so me and the other two co founders would basically, you know, it’s a Toyota Corolla buyer in Viejo, California, we had a list of them and we would personally get on the phone and call them, and we would solicit them over the phone to come in and use the product. We would then say here’s how you sign up, here’s how you communicate with them, and hopefully they can take off and do it on their own. We did it through brute force to be honest with you, and we realized that in order to scale this, a lot like what Groupon has done with small businesses, we have about a 15 person team that actively focuses on dealer recruitment and engagement, that now that we’ve raised six million dollars, that’s a part of our business. The key to our success has been kind of brute forcing our way through that part of it.

Andrew: Interesting. So at first you were essentially getting a lead which is the customer saying I’m willing to pay to be sold. You then called up all the dealers who should be servicing that lead and said I will give you a free account to my site and I’m going to tell that there is someone right now who wants a deal from you. All you have to do is go in and log in and sign up. What was your close rate on that?

Tommy: On the dealer side of that it was like 90%.

Andrew: 90% I’d imagine.

Tommy: I mean there’s no friction on the dealer side, we don’t charge dealers anything, we charge consumers, it’s really kind of a membership to be honest with you, as opposed to you know, just a fee to search for a car, and it’s a communications platform between a buyer of a car and a network of car dealers. We don’t get involved in the transaction, it’s really a marketplace, so the dealers can talk directly to the consumer over chat, or even over the phone. We just launched a feature where they can actually talk to them over the phone, but at the end of the day the consumer wants two things, they want simplicity, they want and easy way to reach out to all these car dealers. And the other, there’s actually three things. They want to get a good deal, and they don’t really want to sell their personal contact information off to 15 dealers who are going to personally call and email them constantly. So CarWoo keeps the consumer anonymous throughout the entire process, so the email is not shared, the customer’s phone number is never given to the dealer. In that way we can protect what the consumer looks for, and really that’s what they pay the $50 for is to use the service to protect their privacy, communicate with a whole bunch of dealers directly. CarWoo, we don’t really have to do anything, because the marketplace on the dealer side works itself out.

Andrew: What size revenues are you guys doing now?

Tommy: We don’t talk about that stuff publicly, I appreciate the question though.

Andrew: For the record, you and I talked before hand and we said if there’s anything about revenue you feel uncomfortable with, don’t share it.

Tommy: Yeah, we’re growing, and when you have consumers who are looking to buy cars, it’s a big ticket item, it’s a long game. This is not going to be a Twitter or Facebook style growth curve, it is going to be a very steady progressive month over month growth business where they may be an elbow in the curve, but we’re very pragmatic about how long it’s going to take us to build this into a major consumer brand.

Andrew: I want to get back to the tactics that you use, so that my audience has them in their business. I’m wondering about the business model here, if you work so hard to get a customer to come in and pay you once, a one time fee, it’s not a recurring fee. And the next time that they’re going to have to go through this decision making process wont be for at least a year and more likely, what is it three years before people in this market go back and buy a new car?

Tommy: Correct.

Andrew: That doesn’t, it seems like there something missing here, it seems like it’s a whole lot of expense for no recurring business.

Tommy: I think the thing you’ve got to look at though is we’re at the beginning here and the new car purchase itself there’s a lot of things that go around that transaction, insurance, finance.

Andrew: Are you doing that now?

Tommy: No we’re not, but I mean if you think about, if you would ask that same question to Twitter, when they originally launched they didn’t make a dime for six years, because they knew they had to build to critical mass before it became very, very compelling on a lot of different fronts. So we look at this as a long term place, it’s a marketplace, and when you have the marketplace running there are so many opportunities for you to make money, where it might be that we have a product where you can reach out to multiple insurance companies and get offers from insurance companies when your buying a new car. There’s money to be made there, there’s the trade-in, and trade-ins generate a massive amount of profit in general and so there’s a lot of money to be made there. There’s also finance, where there’s money to be made. So we look at what we’re doing today as kind of getting the fire, and the logs in the fireplace, and then we’re going to, as we grow and get more usage we can pour more into it.

Andrew: Okay. So we talked about how you got dealers, let’s go back to the other side of this. It’s interesting with the marketplace you have to just keep pinponging and going back and recruiting both sides. How about Craigslist? That’s something you told me earlier that use to get.

Tommy: One of the things that we realized is that there’s a lot of people going to craigslist that are looking for cars, and we have dealers that want to sell cars. Dealers will actually post their listings on craigslist all the time, and we have experimented with this, and it’s actually been one of those things that we’ve probably pushed the limits on that we’re actually backing way off on now. Which is we would post Toyota Corolla or what ever, come to carwoo and we’ll connect you with a dealer. We actually did that in a way, if you look at some of the comments on TechCrunch, a lot of that stuff got out there, like inadvertently a whole bunch of posts got up on craigslist, it drove a tremendous amount of traffic. But we realized that it was probably not what we wanted as a company to be known for so we’ve actually since scaled way back on the amount of that, that we’re doing. And this are the things that you think about, you’re like hey there’s a lot of people on craigslist, we should put a post up and see how that works, and you start doing it and all the sudden your getting traffic, and you’re like we should do more of that, and then you realize wait a minute we might have gone to far, and we’re getting some emails from people saying hey you shouldn’t be posting so much on craigslist. Which I 100% agree with, we don’t want to be known as the companies that spamming craigslist by any stretch of the imagination.

Andrew: You had a great answer in TechCrunch comments, hey we’re a start up we’re always trying new things, obviously we see that this one didn’t work out quite so well and so were going to readjust and reexamine. And you did. What you did at the time though, was it seems like you created an auto system, you automated the process of posting on craigslist, lots of different car models and makes, and I think pictures, but the one that I saw just had a screen shot of carwoo, and essentially if your doing a search for that car, you’re going to come across this auto generated page, it has a picture of carwoo you’re supposed to click over to carwoo and ask for the car, and that’s what it was.

Tommy: Yeah, and so, you know it’s one of those things that we tried and it’s actually been harder to turn off because some of it was pro-grammatically done and so we’ve been doing our best to shut it down, it actually takes quite a bit, because there’s actually people involved in doing it so we’re changing the way that we’re doing it, you’ll see a different version of it. In general we want to provide consumers with what their looking for, and in this case we realized that we were, people would click on that and think that they were going to get a vehicle listing. And in reality what they were getting was come to carwoo and you can work with dealers. So we’re adjusting the way that works, and working with our dealers to bring that. So that if a dealer has something that their interesting in getting up on craigslist through us we will provide that back up to craigslist so it’s a legitimate listing.

Andrew: If a dealer, by the way Tommy, I love hearing this stuff, I’m glad that your not holding back and unlike the comments on techcrunch I’m curious about how people come up with creative ideas, and this is just part of the process. So I see the first version, can you explain the second version, how you’re doing that?

Tommy: I can explain it, but its going to take a while.

Andrew: To explain it?

Tommy: You have to know the guts of our system, and I might be telling a little to much if I dive into detail. But ultimately what I’ll say is craigslist is a great source where people are looking for products, and what you want to do is provide them with the product listing that they’re looking for. So if we venture back into the craigslist space what you’ll see is a product listing for what customers are looking for. And how we do that on the back end is a big complicated mess of dealer engagement and them verifying yes that we can do it, but it’s not something.

Andrew: I’m going to leave this out then, were going to have another interview in the future I know it and at that point we’ll look back, maybe it’ll be ten years from now after you’ve sold the company or after it’s done really well and your public, and we’ll sit down well talk about what you did in the early days, today being the early days. So let’s move on now to the other side of the pin pong table. The dealers, what do you do at auto shows to get attention and to get people into your marketplace?

Tommy: Well, actually this is just something that we’re experimenting with now, there’s auto show throughout the country, like one every week in a different city. There’s really good attendance, a lot of people want to come to see the new cars that the manufactures are pushing out. And so as of next week there’s a show in Dallas, and we’ll have a traditional booth there. We’re actually going to be talking to consumers directly about what our service is and we are going to be signing them up at the show to use the service at a discount. So we’re actually going to be using the square IPad connector and if they sign up at the show they get a discount and they can go use the product. Because a lot of those people are in market buyers. So the trick is when your looking for somebody that’s looking for something specific you’ve got to be where they are. If you look at what we did on Twitter, they’re talking about it. If you look at what they did on craigslist, they’re searching for it. If they’re at the auto show they’re interested in what ever the cars are. So what we tend to find ourselves keep doing is gravitating towards the places where consumers would be raising their hand and saying their in market, or their talking about it. And I think ultimately to compete in this space you can’t just spend autotrader style money where you spend a hundred million dollars on TV ads, and that’s what you do. Maybe at some point we get there, but today we have to do things that are crafty.

Andrew: How about one other crafty example?

Tommy: Let’s see, I’m trying to think about another thing that we’ve done. Here’s a good example, we have another part of our business is business development partnerships, and we realized very early that this automotive space is full of online automotive it’s kind of a network of people that really know each other already. There’s not a lot of companies, there’s autotrader, kelly bluebook, and the lead gen providers and all these people. The first thing that we did after we raised our seat round, was we recruited a top notch biz dev guy out of one of these automotive companies that knew the entire world here. Guy by the name of Alex Chew who works for us, used to work at a company called Dealix, used to help buy leads from these traffic sources. We actually have a pretty large affiliate network of automotive sites that send us traffic and we rec share with them, and actually that’s a really, really good source of traffic. It’s more traditional kind of B2B sales though, he’s doing calls with other companies to work on traffic relationships. I think the key thing there was finding the sources of traffic that would produce the most results, so you know if you look at where somebody would fill in their contact information for a lead funnel. A lot of people don’t want to do that, so we worked with a lot of those companies and said hey if somebody doesn’t want to fill out the form they’re probably concerned with the privacy, so why don’t you send that traffic to us and if we convert them we’ll do a rev share back to you. So I think looking again at sources where consumers were, that’s another thing that we did that was crafty or creative was to look at where traffic was flowing already and figure out how to insert the conversation and this way we did it through business development as opposed to anything else that we might have been doing.

Andrew: Sounds like affiliate programs are really big for you guys. You manage your own affiliate program?

Tommy: Yeah, we do. It’s all kind of personal relationships right now.

Andrew: What’s your rev share?

Tommy, It just depends, it depends on the partner.

Andrew: Oh I see, so there’s not a standard affiliate program that people can [xx].

Tommy: No it just depends on the, because different partners have different traffic quality and there’s all sorts of different variable that go into it.

Andrew: Okay. Why don’t you do it based on sales and offer 50, 40, 25, or 60 percent of the sale that you make?

Tommy: That’s what we do, I mean.

Andrew: Oh even though you’ve got a sale where somebody’s put up a credit card and has paid your saying sometimes that quality is different.

Tommy: Sometimes the quality is different. Or sometimes the conversion rate to actually buying a car is different, so there’s different things that we have to look at when you go down that path.

Andrew: I see. What else do I have, I have Paul Graham on the list. I’ve talked to lots of entrepreneurs here, who’ve said that Paul Graham’s helped reshape their business with one or two key insights. I think that you mentioned earlier the Air B and B guys, maybe it was in take 2 or take 1 of this interview were he said go to New York and learn by living with your customers, how did Paul Graham influence you that your investor?

Tommy: You know I think that it was his statement like make something people want. I think ultimately if you use that as your mantra that your not ever going to go the wrong direction because your going to constantly follow the customers and what they’re asking for is what your going to build.

Andrew: So how did that do, how did that influence you? Because it sounds like you pretty much had your model before you came in there, you created something that the only way that people would want it is by putting it out there. How did being here?

Tommy: I wanted it to start with so that was the first thing.

Andrew: Sorry?

Tommy: I wanted it myself to start with, so that was kind of the first thing, but I think once we figured out where we wanted to go, there’s a lot of fine tuning that has to happen. For instance, a good example is phone calls, from the beginning we assumed that there’s no reason why a car buyer would ever want to call a car dealer. What’s the case that you would actually want to pick up the phone and call a car dealer, but after we spent enough time talking to customers and how they were using our product, there’s always a moment in time where it makes sense that I’ve got a question that would be so much quicker to get answered if I just picked up the phone and call this guy, so last week we launched a feature called click to call where the consumer can click a button and what happens is we use Twilio to connect the buyer and the dealer and we keep the buyers phone number away from the dealer so they can feel free to call him without giving up their personal information. That’s an area were that focus on what customer want, we probably never would have done that had we not spent so much time listening to and watching and analyzing and looking at all the deals that had come through the product. Where they would fall apart if they ever did would be in areas like that.

Andrew: Okay. I think that’s everything that’s on my list over here, we’re going to have come back in ten years and find out what your doing right now that’s especially crafty and interesting.

Tommy: Yep.

Andrew: Brandon Watson, who introduced us, he’s now at Microsoft where he’s building the new mobile platform, what do you think of the Windows phone that he’s putting.

Tommy: You know I think that the Windows phone in general has a huge amount of potential. I’ve actually used it quite a bit. I think that the thing he’s doing there is challenging, you’ve got Android and IPhone, the big dogs in the space, but Brandon’s a crafty guy, and if anybody that I know can make a dent he’s a guy that can do it.

Andrew: I’d love to have him on here to talk about what he’s doing to promote Windows phone, but I don’t think he can talk about it right now. We’ll have to come back with him in ten years. The night that you and I met at south by Southwest, you might have seen he gave me a Windows phone 7 as a gift. I played with it, that thing is beautiful, it actually makes my phone look a little small. I just need aps for it. Otherwise I love it.

Tommy: Yep, that’s his job up there too, he’s the developer marketing guy, so his whole job is to make sure there’s enough apps. I learned a lot from Brandon when he was the CEO at I am Safer, he continues to advise us in different ways, and he’s just one of those guys that you always want to know. He’s a good man.

Andrew: Yep, and I’m grateful to him for making the introduction. I’m grateful to you for doing three interviews here, two failed attempts for technological reasons, and one that really worked out great, and I appreciate all the time that you gave us.

Tommy: Yep, thanks Andrew.

Andrew: You bet. Thank you all for watching.

Tommy: Bye.

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