April 12, 2011 Leave a comment
In the life of an organization, it’s easy to reflect back at certain foundational events that either resulted in a new level of organizational development and success, or just the opposite in the case of failure. But they are “foundational” because their occurrence contributed so significantly in either a positive or negative direction. While there are numerous important wins or losses that are memorable and significant along the way, especially in a startup, these foundational events are set apart based on their epic significance.
At TrueCar, there have been at least 2 such events over the past 3 years. The closing of our first Venture round of financing in 2008 and merging with our sister company Zag in 2010 to create TrueCar, Inc. Well, we just had another one announced Monday that I believe could lead to a tipping point for TrueCar – A partnership with and equity investment from Guthy-Renker, the leading international infomercial producer. The most notable of their product partnerships is Proactiv, the acne treatment system that has grossed over $800M. This partnership with GR involves a large equity investment from them that will help fund a massive brand development and advertising campaign for TrueCar. It speaks to the potential for success that the experts in this process are confident enough to invest capital and put their own skin in the game.
Why is this so significant for us and why now?
First, why now? The past several years we (Zag & TrueCar) have been quietly and gradually building our product and brand and have been gaining share of automotive retail with little to no marketing spend. We’ve instead grown through large partnerships with companies like USAA, AAA, Consumer Reports, American Express and others as well as a robust PR machine that has helped build a foundation for the TrueCar brand, both in the automotive industry and with consumers. But PR and distribution partners will carry you so far, to really scale the brand you must have widespread, household awareness which can be incredibly expensive. However, in order to spend marketing dollars to acquire customers, there has to be a positive ROI on that investment, meaning for every dollar spent on marketing, more than one dollar must be generated in profit. That’s a tough equation to make work unless the product engine is converting customers at high rates. This is an oversimplification, but suffice to say that we now have the engine in place that enables a positive ROI on paid customer acquisition. So, the time is right.
Second, why is this significant? A partnership, including investment, with a leading brand-proliferation company like Guthy-Renker enables a mass introduction of TrueCar to consumers that would be almost impossible to achieve otherwise. It has the potential to make TrueCar a household name among consumers. It enables us, now that the “product engine” is built, to immediately and rapidly build the TrueCar brand nationally as the new and only way to purchase your next vehicle. If our conversions (website visitor who purchases through our program) stand up, this will not only be a large cash outflow to pay for the marketing, but also a hugely profitable partnership due to the revenue generated from paying customers who see and respond to the advertising programs. It’s also significant because this widespread, infomercial approach has never been done before in automotive retail, and we believe auto is ready for this type of innovation. That could lead to an important first-mover advantage.
Only time will tell whether this will be an epic foundational WIN or LOSS. But it will certainly be foundational.
What were your “foundational” company events that defined success or failure?