Founder & Executive Chairman, CARGURUS INC
Founder Dialogues with CarGurus Founder Langley Steinert
CarGurus is an automotive shopping website that uses data, technology and community to help consumers find the best car deals ...
About E. Steinert
Langley Steinert, founder and executive chairman of CarGurus, has described the company as a shopping platform that uses data to rank car listings by price relative to market value, labeling them as "great deal," "good deal," "fair deal," "poor deal," or "overpriced." He has stated that the company had about 20 million unique visitors a month in the United States and more average daily traffic than competitors such as Autotrader, Kelly Blue Book, Edmunds, and Cars.com. Steinert has said that CarGurus had been profitable for eight consecutive years as of 2016 and 2017, and that this profitability allowed the company to control its own destiny without raising large venture capital rounds. He has noted that the company's board consisted of longtime associates rather than investors demanding short-term returns. Steinert has discussed his background as a co-founder of TripAdvisor, which he said raised only $4.5 million in capital before reaching a $9 billion market cap. He has expressed a preference for being in control when starting companies and has described himself as a leader rather than a manager. On the automotive industry, Steinert has stated that mobile traffic had grown from about 40% to 65% of CarGurus' traffic over two years, and he has argued that eliminating dealers entirely would be a mistake because they provide service and a tactile buying experience. He has said CarGurus had no plans to sell and expected to become a public company.
Transcript (132 segments)
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Eric Paley0:11
Well, hello everybody. Welcome. I'm delighted to have you here. My name is Eric Paley. I'm with a venture fund in town called Founder Collective. I'm lucky to have some of my teammates in the room. I see David and Gorav from our investment team. There they are. Joe and Toma who helped organize the whole event. Toma, can she wave? There she is. We are a seed-stage venture capital fund here in Boston. I've been an entrepreneur in Boston since 2002. I love this town and I'm very proud of all the great things that are going on here. But I often find that people just don't know of all the amazing things going on in Boston. That was the inspiration originally for doing Founder Dialogues. When I was an MBA student here, I could hardly name three companies in Boston, even though I was a startup guy and I love tech. It just was a community that very quietly goes about its business and does incredible things without getting the stories out there. I wanted to make sure we're getting the stories out there because I think if you want to inspire the next generation of entrepreneurs, you have to show them this generation of great entrepreneurs. So that was the inspiration for this event. We are now on number 15, I think. The hashtag for tonight is #FD15 and we'd greatly appreciate a few tweets so you can make anyone who didn't show up feel like they missed something very important. That's the background of why we're here. I got to do a few thank yous. KPMG has been a great supporter. James is right here, James Cohen from KPMG. Thank you. We use them, by the way. We highly recommend them. I've noticed in this era of startups, it feels to me like a lot of our companies start doing audit way too late for a whole bunch of reasons and then later it turns into a problem. So I recommend you get to know these guys and take that stuff seriously pretty early. I want to thank Accomplice. I'm not sure if anyone's here from Accomplice, but they helped us get this space. This is a new venue for us. They recommended it and I'm very grateful to them for that. We actually have our next Founder Dialogues already scheduled. It's the first time we've ever done that. I give Joe Flareity credit for that. The next one will be August 1st with David Cancel of Drift and HubSpot and Performable and a long list of great cool Boston startups. Before that, I want to thank Patty Chen who always does our food. Hopefully Patty and Mark are still here. I don't know if they are, but thank you to them. We recommend Patty Chen's Dumpling House if you haven't been. Dumpling room. I think I have it slightly wrong. So with that, let's turn it over to talking about Langley. I'm going to give a brief introduction of Langley and then we're going to dive right into questions. You could argue that Langley is Boston's most successful serial entrepreneur. He's created two companies that I'm going to choose to say are both worth over a billion dollars. We don't really know exactly what CarGurus is worth, but we'll talk about some of the facts there. Before CarGurus, he founded TripAdvisor, which I think would be undisputedly Boston's largest consumer tech company at this point. He went to Georgetown. Kind of unfortunate given, you know, he ultimately loves Dartmouth. But he took one single course in computer programming. I don't know if that tilted him in this direction, but he's done a lot in technology since then. He worked a few years on Wall Street. He did leveraged buyouts. He absolutely loved it. Maybe not. Bus lines to ball bearings or something was the range of things you did. He got his MBA at the best school in the Northeast, Dartmouth College at Tuck, and decided he was going to go into software. He came to Boston to one of its most storied tech companies at the time, Lotus Corporation. He worked with some other startup companies before joining Paul Graham, the founder of Y Combinator, at Viaweb, although he wasn't the founder of Y Combinator at the time. He took a job he didn't love in venture capital. We may as well talk about that because I love what I do in venture capital. So we'll find out what it was he didn't love about that. He met Steve Kaufer, who is the co-founder of TripAdvisor. He founded TripAdvisor. Today it's worth $9 billion. Probably another story in Boston that doesn't get as much attention as it deserves. After selling TripAdvisor for more money than you probably needed from the standpoint of not needing to work, you went out and decided you were going to do it again. He got himself into a townhouse with a dozen engineers and started again. That was the founding of CarGurus. Today it's over 300 people, over 100 million in revenue. I know you don't announce numbers, so that's a pretty old number. A little bit over. Maybe a lot over 100 million in revenue. It is hiring like crazy. If anyone's interested, it's a pretty amazing company. If you're in our portfolio, then don't be interested, but everyone else. With that, let's thank Langley Steinert. Thanks so much for doing this with us today.
All right. So CarGurus is a 300-person company with over 100 million in revenue. But I talked to many, many people who don't know anything about CarGurus. Not yet. But why is that? It's a pretty big company for many people even in town here not to know. Why is that?
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E. Steinert5:20
We see that as probably as opportunity more than anything. We get, I believe the last statistics I saw, we have about 20 million unique visitors a month. And the last statistics I saw, comScore data, we have more average daily traffic than Autotrader, Kelley Blue Book, Edmunds, Cars.com, or any of our competitors. So we seem to be reaching some consumers. Probably the best answer would be that we haven't yet, I stress the word yet, done more kind of mass media marketing. Today the company has been focused more on building a great product, building word of mouth. We do some pretty aggressive search engine marketing. But we haven't done more broad-based marketing yet. Sarah Welch, who's in the audience, just joined us recently from Gazelle and it's her charter to change that. I think you'll probably be seeing more mass media marketing from us soon.
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Eric Paley6:20
This is a bit of a theme. I had Chad Lawrence from SimpliSafe before and before that I had Niraj Shah and Steve Conine from Wayfair. It seems like Boston companies wait a long time before they start investing in branding and then you see West Coast companies that right out of the gate, and we're not talking about mass media, but do a lot of publicity, a lot of branding. What do you think about that strategically? Have you made the right choice there? And if so, why?
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E. Steinert6:48
I don't think there's any right or wrong answer to that question. I think it's a question of style, control, and iterative evolution. When I was at TripAdvisor with Steve, we had a philosophy which was to, we used to joke with Steve that he was probably the cheapest guy I've ever worked with in my life. We had to beg him to allow us to buy a laser printer. Literally we had to beg him. But when we first started TripAdvisor, we were really frugal and the focus was let's get to profitability as quickly as we can. Let's not necessarily worry about world domination. Let's try to get to profitability and then we'll scale from there. That's been the same philosophy at CarGurus where we were focused from day one on small iterations to get to profitability. Once we got to profitability, and we've been profitable for eight straight years, never missed a month, it has allowed us the flexibility to get more aggressive in marketing. But probably more importantly, it allows us to have control of our destiny because we haven't raised a monster $60-100 million venture round. The board of directors for CarGurus actually is, I jokingly refer to them as friends and family. I've got Steve Kaufer from TripAdvisor. I've got the former co-founder of eBay Motors. These are people that I've known through my life. We still have a very spirited board meeting, but there's no one on my board who's pounding the table to say I need a 3x return in my five-year time span. We're more focused on the long haul and how to build a big company. To circle back to your question, that's not necessarily right or wrong. You can go raise the hundred million if you want and it does happen. Facebook turned out okay and Twitter turned out pretty well and Pinterest has turned out well. So it can happen.
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Eric Paley8:51
You worked with Sarah before, right? You could have hired her when you had 20 million in sales. Instead, you waited till you were many multiples of a hundred. That was my talk about. But I want to just understand that because I think it's a repeating theme even among the really successful companies in Boston that they don't do a lot to publicize themselves early. Is there a mistake there? Is there an opportunity cost in that in any way or no?
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E. Steinert9:15
Again, I don't think there's any right or wrong answer. For us, build a great product, get the word of mouth going, be really aggressive in search engine marketing. Obviously it worked for us. Seems to work for us, but again, it's not necessarily right or wrong. People on the West Coast, I would agree, have a different style, which is raise a big round, shoot for the fences. That's great if it works, but if it doesn't work, it's not so fun. If you're an entrepreneur and you've raised a hundred million dollar round and things don't go so well, you're probably not going to have a job for very long. I personally like when I start companies, be it with Steve or on my own, I like to be in control. If you know the history of TripAdvisor, we only raised in the history of the company like $4.5 million of capital. Let that sink in for a second. $4.5 million of capital and the company has a $9 billion market cap. CarGurus, I'm proud to say and I think it's been publicized somewhere, we raised about $5.5 million of capital in the history of the company.
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Eric Paley10:26
And why were you so much less efficient?
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E. Steinert10:26
I didn't have Steve with me.
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Eric Paley10:32
You should have million dollars in laser printers. All right. So let's go back a whole ways. Let's bash on banking for just a minute because if there's anyone in the audience who's even thinking about a career there or consulting, why did you hate it so much?
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E. Steinert10:42
Let me talk about why I fell into it in the first place. I was a senior in college at Georgetown University. How many of you have seen the movie Chitty Chitty Bang Bang? If you haven't seen it, you really should see it. There's a scene in Chitty Chitty Bang Bang where these two little kids are playing with their toys and in runs this wagon with free toys, free candy, and the kids become mesmerized and they unfortunately fall into the trap of getting into this wagon and they're carted off and never heard from again. That's kind of what happened to me in college when the cart came into school and they talked about the fancy dinners and how you're going to change the world and you're going to be captains of industry. I unfortunately fell for it. I got stuck in that wagon and never heard from again for three years. Investment banking at that point was kind of the hot thing to do. Go to Wall Street, advise captains of industry, work on sexy projects. The reality of the fact is I got to Wall Street and I proceeded, I'm not kidding you, my first 365 days I did not have a day off. I worked every weekend. Most nights I was working till 3 in the morning. Usually I was working on some deal for some company that I didn't even know the name of, building some massive model to try to predict how much debt we could put on the company. It was tough work. I didn't really enjoy it. I kind of had this epiphany in my second year that I had to get out of there. I didn't ever want to do that kind of work again. I didn't want to work in an industry where I didn't have a passion for something, where I didn't wake up in the morning with excitement to go to work because I dreaded going to work, believe me. I started my career in this building working for Monitor, hating work every day. I've given this speech at Dartmouth, at Harvard and MIT where I plead with undergrads to please, please, please resist the allure of McKinsey, Goldman, fill in the name of the company, and go work for a company where you produce something and where you have a passion for what you do. Honestly, I tell my own kids this now, if you don't do something you're passionate about, you'll never be any good, regardless of the money.
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Eric Paley13:08
So you go to Tuck, you graduate, somehow you decide you've got to get into software.
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E. Steinert13:14
The one thing I did take away from working on Wall Street was that I was really fascinated with what you could do with a spreadsheet. It was really amazing what you could do with a spreadsheet. You could model an entire industry on a computer screen and with some varying levels of accuracy even at 5 a.m. You could get some sense of where this company could go. I was fascinated with software and I knew one thing I did well was when I came into business school at Tuck, I knew I wanted to go into the software industry. I was bound and determined. Pretty much everyone else in my class wasn't. I was the only guy, I think when I graduated from Tuck in May or so, I'm pretty sure I was the only person in my entire class who didn't have a job, let alone the only person in my class who wasn't making over $200,000 a year. I went to work as an assistant product manager at Lotus. I think when I started they weren't able to give me a full-time offer. I think I was like a part-time consultant. I worked for basically, I forget what my salary was, but it was measly at best. But I knew that's what I wanted to do for a living and I loved it. I loved working with developers. I loved creating products. Even today, I love what I do for a living. I talk to my kids and they sometimes ask me, 'What do you do at work?' I find that a funny question because I really don't think what I do is work. I love what I do. To be clear, there are some days that aren't always fun. We can talk about that in a second, but for the most part, I love what I do for a living. Honestly, making money is kind of the end result that isn't really the goal. It's creating great products. The biggest high of all is when you go to a cocktail party and you're talking with some friends and they say, 'Hey, where do you work?' When it was TripAdvisor, their eyes would light up. They're like, 'Oh my god, that's the coolest product ever.' That's the biggest high of all, talking to a real consumer that uses your product and seeing their excitement.
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Eric Paley15:20
I love TripAdvisor, by the way, I use it all the time. So tell the story of how you ended up leaving Lotus because I think it actually speaks a little bit to...
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E. Steinert15:26
I had this wonderful VP I worked for and she was great. She really was. I'm not saying this in any way in a critical manner, but I remember my first review, she sat me down and she said, 'You're doing great work. You really are. But I need to talk to you about one thing you're doing that you've got to stop doing.' I was like, 'Sure, what is it?' She goes, 'You've got to stop coming in on Sunday.' I'm like, 'What do you mean? What's wrong with that?' She goes, 'Well, it's just kind of weirding everyone out. You come in on Sundays and everyone wants to know why you're coming in on Sunday.' I was like, 'Well, part of the answer was where I used to work, I'd come in on Saturday and Sunday. So coming in on Sunday is like kind of loafing off a little bit, but I was excited about what I was doing.' I didn't think that was such a bad thing. That was kind of inkling number one. Inkling number two is on my own time I wrote a business plan for a graphing product because I thought the graphing module in Lotus 1-2-3, the spreadsheet that probably no one's ever heard of at this point, or even the graphing product in Freelance, which is the product I worked on, was pretty miserable. I thought there has to be a better product. If you're really into doing graphs, there has to be a better solution. I wrote this whole business plan for creating a whole new product line at Lotus with a dedicated graphing product. I wrote the plan. I gave it to my boss and the GM of my division. That set off all sorts of tidal waves. She kind of took me aside and said, 'Let me just give you the ropes here. To become a full product manager and have your own product, that will happen with time, but it's going to probably be four or five years.' That was it. When she told me that, I was like, 'I'm out of here.' It'll really become a big company. She was being very nice. She wasn't trying to be critical. She said you've got to pay your dues and it'll come. I was like, 'That's not how I work. I'm about meritocracy. If I have a good idea, let me run with it. Don't gate me and tell me I have to wait four or five years.' That was when I began to look for startups.
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Eric Paley17:22
Does that speak to how you manage today? When people come in the room, it doesn't matter. They've been there six weeks.
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E. Steinert17:30
You'd have to ask the people who work with me. I would hope they would say yes. I'm pretty hands-off. I hire great people. I give them pretty wide latitude. I try not to micromanage. I literally have one meeting a week. I sit with my management team from noon to typically 3:30 on Mondays and we go over what are the priorities, what are the problems, what can we tackle as a group. Then that's it. In the best of all worlds, I don't want to just go run. Go do what you need to do and check in with me if there's a problem. I've got plenty of things I'm trying to accomplish myself. What I don't ever want to become is someone who manages full-time. I don't like managing. I like to do stuff. I want to go do deals or go meet with customers or talk with developers about products. I don't want to be managing people.
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Eric Paley18:25
So you leave Lotus, you have several adventures that unto themselves are all pretty interesting, and then you get introduced to Paul Graham, who becomes pretty legendary. What were your impressions of Paul Graham at the time when you were joining Viaweb? And that turned out to be a pretty hot company unto itself. Tell us about Paul Graham.
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E. Steinert18:51
Brilliant. Brilliant, opinionated. Those probably the two I would use.
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Eric Paley18:57
Does it shock you how impactful he's become?
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E. Steinert19:04
Yes and no. No in the sense that Paul is next to probably, it's probably a tie whether Steve Kaufer or Paul are two of the smartest people I ever met in my life. His pure intelligence is probably not a surprise factor why Y Combinator has been so great. I also think his connection with young developers, they look up to him for good reason. He's one of them. He's not one of those, I don't know who I'll pick on in the VC world, but if a typical VC walks into a room, typically wearing what I'm wearing, we can use wearing VC outfit. That person probably won't have been a coder. They probably oftentimes haven't even started a company. They're an ex-investment banker or whatever. If you're a 28-year-old or 26-year-old from MIT, it's not real clear that you're going to gravitate to that person. As opposed to Paul, who's a Harvard PhD computer scientist who, if you know anything about coding, is a legend unto himself just from his blog and his coding ethics. He's a legend. He's one of them. They trust him.
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Eric Paley20:17
Joe Flareity and I were today having a debate about whether Mark Zuckerberg leaving Boston or Paul Graham leaving Boston was a bigger loss for Boston. How different do you think?
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E. Steinert20:30
I was always surprised if Paul left Boston. Boston has all the components for great startups. You've asked me this question. Scott Kirsner has asked me this question. Why is it that we don't have more great companies in Boston or why would you ever start a great company in Boston? I always find that a strange question because first of all, Kayak's been started here. Kayak, TripAdvisor, Wayfair, HubSpot's in this building. I'd like to believe CarGurus. There are great a lot of great examples of companies that have done it. There's great technical talent. Harvard, MIT, Brown University, Wellesley, Dartmouth, Cornell. Some of the greatest technical talent in the world is right at your doorstep. Probably most importantly, there's no competition. If you're trying to start a company here, as I have, and you're trying to retain great technical talent, there's some people you have to compete with like HubSpot or Wayfair and ironically, my old company, TripAdvisor. But you're not up against 60 companies and you're not constantly being bombarded with recruiters trying to poach your developers. The talent's here, there's less competition. There's plenty of capital, there's plenty of VCs. I continue to wonder why people even want to talk about this topic.
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Eric Paley22:03
Maybe because Paul left. I don't know. So we can stop talking about that and talk about after Viaweb sells. You end up joining Flagship, which at the time had a different name, One Liberty Ventures. You're going to be a venture capitalist.
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E. Steinert22:15
I'm going to try it. I'm going to see if I like it.
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Eric Paley22:15
But you really didn't like it.
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E. Steinert22:21
I didn't like it. No. That has nothing to do with Flagship because Ed Kenney who's the partner there was very gracious, gave me a lot of great opportunities and all the partners there were very nice to me. This is not a condemnation of Flagship or One Liberty as much as just the general industry wasn't a good fit for me. I'm trying to say this without offending any, I'm going to come after you a little later so go for it. I missed doing, if you're a VC, first of all, being in the venture capital industry is really hard. I learned a couple things. Number one, the venture capital industry is really hard work. You're marketing a commodity. Money, everyone's got money. The money coming out of your fund versus Sequoia versus Matrix, it's the same money. It's a commodity. Marketing commodities is really hard work. I don't like marketing commodities. I like marketing things that have a really wide point of differentiation. That's the first point. Second of all, most days are actually kind of dull. You have 10 meetings and probably 10 of those meetings are just clunkers. Mind-bogglingly boring. You're typically like 15 minutes into the meeting, you're like, 'Okay, how can I get out of this meeting?' I used to have a little game I'd play with my assistant. I was like, 'Can you call me in 10 minutes if I give you the signal, can you get me out of this meeting?' It's really hard. You do a lot of boring meetings. You're marketing a commodity and occasionally you might find a great company. I did. This is part of the story. I was a partner at Flagship, a venture partner, and I got wind of Steve Kaufer. Paul Graham, who is the founder of Viaweb, called me up. I don't know if he called me up or somehow I had an interaction with him and he said, 'You really ought to go meet with this guy Steve Kaufer. He's creating this travel search engine thing and I think you guys might hit it off.' I went and had lunch with Steve and I was fascinated with Steve. I was fascinated with the idea. I started out as an investor in TripAdvisor.
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Eric Paley24:28
So you convinced your partnership to put money.
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E. Steinert24:34
Yes. Flagship invested some money, seed money, the first money in TripAdvisor. As part of the deal, I became chairman. I worked with Steve, but I was kind of like a two-day-a-week chairman. About a year into it, I kind of turned to my partners, 'Guys, I think I want to go do that. That's a lot more interesting than what I'm doing now.' Steve was nice enough to let me come on board as co-founder and chairman. To be clear, Steve was CEO from day one. Tell us about that dynamic. This founder chairman and founder CEO. How does that work? And by the way, doesn't every MBA require being CEO? I thought that was part of...
I was smart enough to know that Steve needed to be CEO. Steve deserved to be CEO. We had an agreement like I'm just here to help. You're the CEO. Believe me, there were many aspects of that that I understand what a blessing it was. Being CEO is not always a lot of fun. There's a lot of crap you have to deal with on a day-to-day basis that in retrospect and even when I was doing it, I was like, 'Oh, that's great. Steve's dealing with that. I'm going to go work on this partnership. I'm going to go work on this deal. I'm going to go work on our first deal with Travelocity or Expedia or how to build up the PR machine.' I had lots of interesting things to go do. But to be clear, Steve was CEO and thank god he was. He is one, perhaps next to Paul, the smartest people I've ever worked with. One of the, easily, no this is no knock on Paul, but Steve is one of the greatest people I've ever worked with both technically and just as a human being. He's still on my board. He's on my board at CarGurus. There's not a board meeting that doesn't go by when Steve doesn't say something where I'm like, 'Oh man, wish I thought of that.' He's unique. He's a great technologist. He's a great business person and just a great human being.
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Eric Paley26:30
In the world of Boston tech, TripAdvisor is probably the outlier of outliers. Kayak's pretty good. TripAdvisor is 5x the value of Kayak. What would you say were the core success factors of that company? What did you observe when you were there? The answer goes on and on and on, is very long, but what really stands out to you if you look at the lessons, if you were giving a talk to a classroom of entrepreneurs just about TripAdvisor, what are the...
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E. Steinert27:02
The same talk I give about CarGurus. The lessons, I give this top 10 things to think about if you start a company. Number one, I tell people is raise as little money as possible. Iterate your business plan as often as possible. You already had this Founder Dialogues with Steve, so this is kind of old news, but TripAdvisor came within three months of running out of money. We had the wrong business plan. We had this search engine that actually indexed other web pages. We'd pull up New York Times articles or Fodor's articles about Paris. There was no user review in the entire product to begin with. We had the wrong product that no one wanted to pay us money for. We were like, 'Oh my god, this isn't going to work.' Thank God we were able to iterate. Our burn rate, this gets back to raising as little money as possible, the burn rate was so low that we literally could run on fumes for like six more months. We had enough runway to iterate a bunch of different things to try a new product, a new business model. Thank God it worked. Same thing with CarGurus. Actually, we started the company with like a user reviews for cars. Wouldn't it be great if we created a site where people could read user reviews about cars just like TripAdvisor? It's a horrible idea. We got about a year into it or a year and a half into it. Repeat the whole playbook. Exactly. At some point you said, 'This is never gonna be anything.' I huddled with my developers just like we did at TripAdvisor. Said, 'God, folks, we got to try something different here. This isn't going to work.' We did the same thing. We iterated this different concept of, 'Well, what if we did like what Kayak does for cars? We did this price engine where we could help people find the lowest price cars. Maybe that'll work.' To be clear, we had no idea if it was going to work. We coded up some stuff and threw it out there and lo and behold, the traffic started taking off just like TripAdvisor where we started this concept of user reviews and then we were like, 'Well, we could also create these dynamic commerce links that deep link into Expedia and Travelocity and maybe they'll pay us some money.' Bam, it took off. In that sense, the model is still the same. If you can figure out a way to bring value to the consumer, user reviews or price in the case of car. To state the obvious, you need to come out with a unique product that has value to consumers. If you can create a big audience around a topic that is monetizable, you've got a business. In the case of TripAdvisor, that was selling leads to Expedia effectively or whomever. In the case of CarGurus, just explain exactly how the monetization works.
For those of you that don't know what CarGurus does, CarGurus is a shopping platform that allows consumers, no matter how they search anywhere in the United States, whatever cars they want, we will do the math for you in terms of finding which cars are priced lowest below the market. I'll juxtapose it to our competitor, Autotrader. On Autotrader, you can do the same search. They'll give you the same 1300 Ford Focuses in Boston, but they're going to order those cars based on honestly who pays them the most money. You're going to wade through four pages of sponsored search results before you even get to the cars that might be of interest to you. Ours is a completely different model. We order those cars not based on who pays us the most money, but based on which car is priced the farthest below the market. We literally put on every listing 'Great Deal', 'Good Deal', 'Fair Deal', 'Poor Deal', 'Overpriced' I believe are the monikers. That's what's become our claim to fame. Consumers, unlike going to our competitors, actually get great insights into the true value of the car. To draw another analogy, it's kind of like Zillow for cars. That's why we've gone from essentially zero to 20 million unique visitors a month. People are craving that sort of transparency in the auto shopping experience.
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Eric Paley31:03
Let's dive into that a little more because we see a lot of companies that come to us where the product is pretty intriguing as user experience, but they never get discovered. It's not as simple as we created a better pricing algorithm for price discovery and all of a sudden 20 million people came to us. They don't come overnight. Translate that. How would you advise somebody who, like you guys, have created a good value proposition for consumers? They're not getting discovered. How did you overcome that burden?
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E. Steinert31:28
Some of the guerrilla marketing tactics we used was PR. Amy Mueller's in the audience. She's been our PR maven from essentially day one. We were really aggressive about using different cuts of the data, doing kind of clever press releases around some of them, honestly pretty inane. Top 10 cars for Fourth of July. The irony, not to get off on a tangent, is that the more in-depth the analysis, the more groundbreaking, the less the press will pick it up. The more kind of simplistic and straightforward it is, the more pickup it gets. It's really mind-boggling how much press you can get out of doing data-driven releases. We get a ton of press. We still do. That's number one. Number two, at both TripAdvisor and CarGurus, we were really aggressive search engine marketing folks. Totally homegrown. We weren't hiring some agency. For those of you that don't know much about search engine marketing, what we did really well at both places is what's called mining the tail. Going for keywords that no one would ever think about. The most search traffic follows a curve where what's called the head is the really kind of the duh terms like in our case 'Ford Focus'. Everyone else is going to be bidding on 'Ford Focus'. But if you bid on the terms that are the little tiny terms that no one would ever think about, like '2012 Ford Focus LE aluminum wheels Gloucester Massachusetts', no one's going to bid on that. You have to have huge scale. It's almost like running a hedge fund for keywords. We bid on 51 million keywords a night and we built the architecture to track that consumer all the way through our site, figure out how much we make, how much did it cost us, recalculate the bids every night. It's a big math problem and it's building software for marketing. It's like running a big math model for keywords. There's a lot of knowledge we have, some of which I brought over from my last life at TripAdvisor, but if done at scale can be very efficient. We don't lose money on search engine marketing. We make money on marketing, which most of my competitors are losing money on marketing.
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Eric Paley33:47
Talk about how you chose this category. You're not a car guy. You weren't a travel guy either. But you met Stephen, you were inspired. This one de novo, you decided I'm going into...
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E. Steinert34:00
I had a big non-compete for travel, so I couldn't go back into travel. Otherwise I would have gone right back into travel. Travel really is like the perfect storm for where to build a great e-commerce company because it's a huge category. It's research intensive. The transaction is done online. There are a ton of transactions in terms of transactional value. I knew I couldn't go into that. I looked at real estate and autos. I knew I wanted to do a research intensive website around commerce. I looked at real estate and autos. Rich Barton had started Zillow, so I wasn't about to go tangle with Rich Barton. I began to hone in on autos. A big category, a lot of research. If you make a mistake, it's a painful one because you're not going to buy another car for four to five years. A lot of money. With all due respect to my competitors, because some of my competitors are really big companies, Autotrader I think does over a billion a year in revenues. Clearly they're doing something right. But I didn't think there was a lot of innovation in this category. Even today, I would argue there hasn't been much innovation. I saw a big category, research intensive, not a lot of innovation going on. Looks pretty good. That's how we picked autos.
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Eric Paley35:11
And how did you get conviction on it? What was the process of...
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E. Steinert35:17
I didn't get it for about two and a half years. Believe me, there were moments where I thought this isn't going to work. The only true form of conviction for me was when we turned profitable, which I think was like in...
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Eric Paley35:33
That is a bit of a high standard for conviction.
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E. Steinert35:33
That is the goal. To be clear. If venture capitalists use that conviction standard, we'd never invest in anything. Well, maybe it's old-fashioned, but that is the goal. I sometimes chuckle when I see someone take out a press release that says we raised $60 million. That's in my opinion nothing to be proud of. That just says you gave away 25-30% of your company and your exit strategy just went up like 5x. Anyone who comes along to offer you money, you just have to now say no to because you need to have an exit 5x that before you can leave.
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Eric Paley36:10
Let's talk about the raising money thing. Obviously, there were many points along the way you could have chosen to raise money. You raised angel money at the beginning.
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E. Steinert36:18
On CarGurus, I have to put this in context. I understand very much that I was lucky enough to have had a really good win with TripAdvisor, as did all the TripAdvisor mafia that funded CarGurus. Steve, myself, some friends and family, some people I know who all did really well in TripAdvisor. We just passed the hat around. We funded it. That's a pretty unique situation.
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Eric Paley36:46
But $5.5 million isn't much, especially given how far you guys have gotten. I don't know too many entrepreneurs that have that money sitting around.
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E. Steinert36:53
No, but I just think, to me it's like, same question I asked about Sarah before. At 20 million, no doubt lots of VCs would have wanted to give you growth capital. At 50 million, lots of VCs would want to give you growth capital. You've probably had people knocking on your door the entire time you've been building this company and you've pretty much said no the entire time. You eventually, it took a very sort of late...
Absolutely. The reason why we haven't taken on any other capital to date is a) we haven't had to because the company's been generating cash for six, seven years now. Secondly, all the investors, including myself, don't need the money back, don't want the money back. The IRR in our money is ridiculous. There's no other alternative asset class that I could ever find that I can get the kind of IRR I've got now pre-tax. I've literally had this lecture with someone from, oh I won't mention the name, some growth equity firm called me. Just for yucks, I picked up the phone and was kind of toying with the person saying, 'Tell me, is there an asset class where I can get a 130% pre-tax IRR?' No. Okay, then why would I ever sell stock? That's kind of the answer. But again, it's a unique situation. This is specific to the folks who call hoping to give some liquidity to founders and stuff and not necessarily capitalize the company, but give liquidity. You guys have largely said no. That makes total sense.
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Eric Paley38:18
So let's talk about that profitability. You said eight years of profitability. Do you think you could have grown faster if you reinvested more aggressively in the business? Was there an opportunity cost to emphasizing that so much? If not, boy, that really makes a big statement about the foolishness of the way we're all investing in our companies. Feel free to call us fools.
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E. Steinert38:44
I think the only thing we could have done differently, and that's why Sarah's on board with us now, is we probably could have invested in the brand earlier, and we probably should have. Some of our board members have said, 'Gee, you are profitable. Yes, you do get a lot of traffic from various sources, but you really ought to be building your domain direct traffic because that becomes your asset that no one can ever take away from you.' We get a lot of domain direct traffic already, but it's never as high as you'd like it to be. In retrospect, that's probably one of the things we should have done. But pretty much, when I say we were profitable over the last seven or eight, we weren't profitable by much. We were reinvesting every conceivable dollar back into marketing, mostly search engine marketing. As a result, we've grown at a breakneck pace. Could it have been faster? Yeah. But I sleep better at night being profitable. Maybe it would have been, that is a tangential topic. Maybe that is why Boston's different than San Francisco. I sleep better at night knowing that we're profitable and I don't have to worry about raising that next round of capital. To put it in human terms, when I hire an employee, I want to be able to know that there's a spouse and kids behind that. I don't ever want to have to lay them off. I sleep better at night knowing I can make my payroll. I don't have to worry about raising that next round and everyone who works at my company is set for the near future.
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Eric Paley40:20
It's fascinating to me because that is very old-fashioned. It's certainly old-fashioned. It's certainly very Boston. But I also wonder often whether all we do with a lot of capital is magnify the problems as opposed to really get to what matters in these companies. Sometimes you don't have $5 million to start out and we're lucky enough to play at that seed stage where people clearly do really need that capital. I do wonder with a lot of, this doesn't apply if you're in the medical device business or you have to do drug trials or you're doing hardware routers where you've got to create inventory. That doesn't work. But if you're doing web-based applications, which has gotten cheaper and cheaper, I'm not really sure why you need to raise $50 million. I don't get it totally. So I'm going to quote you on something I hope you don't mind. You said, 'I could give a what you think, not to me.' What can you prove? What does that mean?
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E. Steinert41:16
I got that trade from Steve, Steve Kaufer. The best way to run a company is to follow the data. Everyone's got an opinion. One of the phrases we have in our company is opinions are like religion. Everyone's got one and they think it's better than the next one. When I'm in a meeting or I'm talking to someone, I really don't give a what they have what they believe. Tell me what they can prove. Do you have the data to back up what you're claiming? Or even if you have a hypothesis, have you gone to do the A/B test to prove whether it works or not?
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Eric Paley41:53
And is everyone empowered to just go do that?
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E. Steinert41:53
Not only is everyone empowered to do it, but even my ideas get shot down all the time. Stuff I think is just brilliant, the A/B test comes back and says I'm an idiot. I live by the same standard. There are no sacred cows.
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Eric Paley42:11
Much simpler if you run a company. I know it sounds simple, but it's surprising how many companies don't do it. So let's go to the tension about it. What role does instinct or gut play there? There is no instinct for gut. What about at the beginning?
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E. Steinert42:27
Well, my instinct was wrong. We started a company that had the wrong product, so clearly that didn't work. But then we iterated quickly and incrementally, tested, and drew the data back. One of the beautiful things about running a web company is you can iterate things quickly if you have some scale. So in our case, we have 20 million unique visitors. We can run an A/B test in like six hours and tell whether something's got any traction or not. One of the things we do, and I think Steve talked about at your last talk with them as well, is we run these things called 404 tests. Some of the usability folks in the crowd will probably gasp when I talk about this, but oftentimes we'll have an idea for a product and instead of writing a functional spec, doing focus groups, getting the functional spec approved, writing the code, and nine months later shipping something, we'll do what's called a 404 test. We'll do a call out on our site somewhere that'll have a call to action for that, and we'll measure what the click-through rate is. If the clickthrough rate is below an acceptable range, we'll think, well, no one's interested in that. If the clickthrough rate is high, we'll say, 'Wow, looks like someone is interested in that.' So instead, before we even write the code or even spec out the product, we'll test with our consumers to see if they have any interest in it. To be clear, just to allay everyone's fears, we do it within like four hours on a small part of our traffic. We have a landing page that says, 'Sorry, this is under construction. Come back soon. But you can assess.' Sorry for inconveniencing you, but you're able to assess the interest.
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Eric Paley43:56
And figure out, you speaking of writing the spec, designing the feature. You're not wild about product management, which is where you started your software career.
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E. Steinert44:02
Yeah, I was a product manager. What's the philosophy there? You have 300 people and I think no product manager. There's an evolving story to that one. So I would say up until about a year ago, that was true. We didn't have any product managers. We would hire engineers who were empowered to think of the product, write the product, ship the product, and do the whole soup-to-nuts experience. The benefit of that is you tend to recruit greater—you know, great engineers. Great engineers want to work in that. They feel very empowered. The worst case is—so I'll pick on IBM. Well, I'll pick on Lotus, right? At Lotus where I used to work, we would write a functional spec of 25 pages including wireframes, go do focus groups, get it approved, and then start writing the code. That honestly in this day and age is dehumanizing for a developer. Now, having said all that, we've reached a point as a company where we're 300 employees, and that's beginning to strain a little bit. We are actually beginning to bring in carefully some product managers to help—not necessarily tell developers what to write as much as act as an interface with all the other parts of the company, because we have so many parts of the company now. It used to be me and eight developers, and we'd go to Cambridge at Harvard Square, come up with some ideas, have some pizza, and go back and write the code. That doesn't work anymore. With 300 employees, we have 160 people in sales now, I don't know how many in marketing, we have a PR group, we have customers, we have investors (soon to be more investors), we have finance, we have budgets, we have a lot of people that need to know about this stuff. So typically, the way we're positioning it with our dev team so that they don't become disenchanted with the whole process is to say, 'Listen, there are all these constituents who need to know what's going on. Look at this as a benefit. Here's someone who's going to communicate everything so you don't need to deal with it. You don't need to go deal with sales, marketing, or PR. This person is going to take that off your plate.' I think if you position it as such, it's actually a benefit and not a curse.
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Eric Paley46:05
You said a minute ago, soon to have more investors.
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E. Steinert46:11
Yes.
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Eric Paley46:13
Can you comment on that?
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E. Steinert46:16
No. I would have been remiss if I didn't ask. I will say that we will go public. It probably won't be for a while. I mean, my goal is to put it off as long as I can, but I understand that at some point we have to go public. The IPO market right now could really use a fast growth, highly profitable... yeah, I've been told that IPO would be very good for everybody. There haven't been very many innovation years.
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Eric Paley46:41
Well, let's talk about something public investors wouldn't like. Let's talk about your cocaine business model. What does that mean?
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E. Steinert46:49
So, both at TripAdvisor and at CarGurus... well, maybe they'll love it actually, but anyway. Typically, the way we work with our dealer community—I'll stick with CarGurus and not evolve back to Trip Advisor, but actually, let me start with Trip Advisor. When we first started Trip Advisor, Steve had created this great product, and I was many times trying to figure out what do we do with this traffic. So Steve had the idea of actually crawling Expedia's entire site without even asking them and putting these contextual links all over the site. So if you're researching the George Sank in Paris, there'd be a contextual link that would deep link you into Expedia's site. We did all this without asking even their permission, put it up live, and started blasting traffic at Expedia. We literally got a phone call like two days later, and they were like, 'First of all, what the hell are you doing? Second of all, no one gave you permission to do it, by the way. Can we have more of that?' So it worked. That's kind of the idea: give the customer what they want, tease them with the traffic, and then present them with the bill. It's kind of what we've done at CarGurus, where any dealer can be on our site for free. This is where we're different than our competitors, by the way. Any dealer can be on our site for free. They get free traffic, and we have a lot—I think like 60% of our inventory is from dealers who aren't even paying us money. The way the relationship goes a little bit like this: we'll send you free traffic, but what you're going to get is there'll be no phone leads. You're going to get an email lead from us that'll say, 'E. Steinert 33 369 at CarGurus is interested in your car.' You won't get the customer's email address. So the dealer is going to get a sense of our scale. And believe me, we can blow their doors off with the scale we send them. They'll get a general sense of our close rate—how many of these leads turn into sold cars? If you can prove those two dimensions, they are hooked. They're like, 'Oh my god, you're helping me sell like 10, 12 cars a month.' Like, 'Okay, I give up. I want the phone numbers. I want the email addresses. How much do I have to pay you?' And as a result, we're signing up hundreds of dealers a month.
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Eric Paley49:05
So tell us a little bit. You shared with me a story of what the script is like for the sales guys when somebody calls up and says, 'What the hell are you doing?' and 'I'm not going to pay.'
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E. Steinert49:11
Yeah. When we first started—to be clear, just to let everyone know, it wasn't all yucks and giggles. In the first couple of years when we came out with this great deal, good deal/bad deal moniker on the inventory, a lot of dealers called us up with some language I can't repeat here: 'What the hell are you doing? Who the hell do you think you are? You're judging my inventory. I didn't give you permission to do that.' So typically, after we calm them down a little bit, we trained our sales department to say, 'Okay, tell me the name of your dealership.' So it's, you know, Amy's Ford in Lexington. 'So I just want to confirm you want me to remove your inventory from our site. Got it. Great. Amy, before I remove your inventory, I just want to remind you that last month we sent you 50—well, 25 email leads and 25 phone leads.' Typically there's a silence on the other end. 'Really? Yeah. No, I can tell you the VIN numbers and the customer's address, customer's name if you want.' 'Really? Yeah. Okay. Well, so you still want me to remove that?' They're like, 'No, no, no, don't do that. But can you tell me how can I get more of that?' So they turn into customers at that point.
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Eric Paley50:27
Which brings me to what I understand to have been sort of one of the most dramatic moments in the history of the company, right? Which is your largest partner at one time.
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E. Steinert50:33
Yep.
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Eric Paley50:33
Before you guys were going to the dealerships, it was Cars.com. And you were sending—they were 80% of your revenue.
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E. Steinert50:40
Around a little bit less than that, but pretty big. Certainly if you're going public, you wouldn't want to tell that story about one customer being that much of your revenue. And they decided to turn you off. So this is a funny story. I was in the Denver airport with my wife on February 14th—it's her birthday, by the way—and I was going to Colorado to go skiing. It's going to be romantic, a great weekend. I'm with our kids, it's our annual trip to Colorado to go skiing, and I'm changing planes in Denver. I checked my email and there's an email from the number two at Cars.com—not the CEO—and he basically is like, 'Listen, hate to break it to you, but we're getting divorced. We're not going to work with you anymore.' I was like, 'Oh my god, this is bad. This is like 70% of my revenue, poof.'
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Eric Paley51:29
And how many years in are you at this point?
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E. Steinert51:31
Like four or five.
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Eric Paley51:33
And how big is revenue?
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E. Steinert51:35
North of 50 million. So sizable real money, 35 plus million dollars gone. We had to scramble to see, can we go dealer direct? Can we build a sales force to sell these leads direct to dealers ourselves? I remember taking three people from our content group, I took them aside and was like, 'Listen folks, I'm not sure if this is even going to work, but you're going to call up some dealers and see if you can sell them some leads.' I turned to one of them and said, 'Listen, if it doesn't work out, you can go back to content. I promise.' So they started calling dealers, and within like 7 months we had replaced a lot of that revenue and had full line of sight to break even. I was like, okay, that worked.
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Eric Paley52:29
Some of it is you really had the market power, right? You had the consumers.
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E. Steinert52:33
We had the traffic. Yeah. But it's not inconsequential. As we've learned, dealing with small merchants is challenging. It's not like when I was at Trip Advisor dealing with Expedia or Travel Velocity; we were typically dealing with a Sloan MBA with a quantitative mind who could think about conversion rates and margin mix and all those good things. In our business, we're dealing with small businesses—car dealers—some of whom are very sophisticated, some are not. It's not at all the same type of relationship.
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Eric Paley53:13
So you have more salespeople than you have engineers now.
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E. Steinert53:16
Yes. By a factor of like four, as a result of that shift in the business. Which is a little bit opposite of what the general belief system is right now.
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Eric Paley53:26
Really smart developers, then.
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E. Steinert53:28
So the answer is efficiency of developers. But in all seriousness, that's one of the things I learned as a product manager at Lotus: one architect can outcode like 10 junior engineers. So it's always better to hire the most senior bright people you can find, because a typical board member who doesn't understand might say, 'Well, just hire more developers.' But there are diminishing returns to hiring more developers because the more spaghetti code you put in, the worse it's going to get, and it's going to devolve into a big mess. If you hire great people from day one, you can get a lot more done. At some point you need to keep adding developers, but our standards both at Trip Advisor and CarGurus have been very high. I don't know what our interview rate to hire is, but it's probably like 15 to one. It's hard to get a job at our company. But as a result, we have really good developers. And we are hiring more if anyone's interested—hiring developers, but only good ones.
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Eric Paley54:37
You guys have scaled very fast. What were some deeply held beliefs that you had to shift as you scale the company?
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E. Steinert54:43
Yeah, that's been hard. One of our board members told me, and it's been true: scaling from zero, one employee to 100 million in revenue and 60 employees—that was hard. But actually going from 100 employees to 300 now, soon to be 800, is harder. It takes a completely different skill set. Managing that amount of people is really hard.
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Eric Paley55:14
What have you had to give up that you care about?
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E. Steinert55:18
Pretty much everything. Just kidding. Well, bringing in product managers, for example, is a big shift. But to answer your question, how do you do it? You hire great people. I have a great management team, I empower them, I get out of their way. What will never work, and I hope I've been good at this, is you can't meddle. You cannot get involved in the minutia. I can no longer get involved with what's the font on that page or what's the pitch on that PR piece.
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Eric Paley55:51
But Steve Kaufer still writes code, right?
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E. Steinert55:56
He does. Yeah. So maybe you can. I don't know. He's a better man than I. But yeah, it's difficult. To answer your question, there are issues around integrity, making sure everyone's working hard, hopefully having fun. We've tried to build an environment at our place where there's not a lot of bureaucracy. We have a general dislike for meetings, so we try to minimize them as much as possible. You walk through our space, it's more kind of lends itself to ad hoc meetings where people just get together and fix a problem. You don't need to have a meeting with 10 people in it. So I think it's a place where people can come enjoy work, get stuff done, feel like they're making a difference. That helps us with our recruiting.
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Eric Paley56:49
We talked a lot about the stereotypes of Boston and how you disagree with them. Let's talk about the stereotype of MBAs. The tech community has been pretty anti-MBA.
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E. Steinert56:58
Yep.
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Eric Paley56:59
You have one.
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E. Steinert57:00
Right. When I started Lotus, everyone told me, 'Don't even tell people you have an MBA.' So true. I think you should go to business school because you want to gain access to a tool set that'll help you be a better business person. But you shouldn't go to business school because you want to have a stamp on your resume that'll validate you, because no one cares about that. They care what's coming out of your mouth—or hopefully out of your brain. At Goldman, they care. Well, I don't know. Maybe. If you want to go work at Goldman, you have other issues too.
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Eric Paley57:33
Do you hire MBAs?
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E. Steinert57:36
We do. And they've done really well into roles increasingly in product management, sales leadership.
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Eric Paley57:55
Will you play speed round with me?
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E. Steinert57:57
Sure.
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Eric Paley57:59
All right. Steve is very hard to trip up on speed round, but I don't think I'm going to trip you because I don't have as obvious a one. What car do you drive?
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E. Steinert58:08
I drive a Cayenne.
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Eric Paley58:12
Okay. And just tell me what comes to mind when I throw these names at you. Autotrader.
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E. Steinert58:18
This is where you shouldn't say what you want to say.
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Eric Paley58:26
This is how I got Steve. I said Trivago and he kind of flipped. Speed worthy competitor.
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E. Steinert58:35
Cars.com. No, all seriously good folks. This is a funny story. When we were a big customer of Cars.com, I got a phone call from the CEO's executive assistant. She says, 'Mitch wants to have lunch with you.' I was like, 'Wonder what that's all about.' So I said, 'Okay, yeah, I can make it three weeks from now on Wednesday.' I flew out, and before I flew out I asked, 'Can you give me some sense of what this meeting's about?' She said, 'Not really.' I thought, 'This is not going to be fun. They're going to fire me or something.' So I got to the meeting with Mitch, we had lunch, and the whole lunch he was just like, 'Tell me about your kids.' Such a nice guy. Spend time with him. 'Tell me about what you like to do.' The whole time I'm thinking, 'What is the point?' It didn't hit me until I was on the plane home. I realized, that's just how it works in the Midwest. In Boston and San Francisco, they want to know, 'What's the term sheet? What's the deal? Why are we here?' They don't need to know about you. But in the Midwest, they won't do business with you without that ingratiating. It's something probably more of us should do. He wanted to know what I was made of, what my moral fiber was before he got too far into business with me. I thought that was kind of cool. They're good folks. I have less negative things to say about them than Autotrader.
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Eric Paley1:00:16
True. True. You didn't say anything negative about them. I didn't. Like TrueCar?
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E. Steinert1:00:22
Poorly run company. Just do a histogram of their market cap and you'll see what I mean.
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Eric Paley1:00:29
Apple Car?
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E. Steinert1:00:35
That whole autonomous car thing. Someone in the investment community asked me recently, 'Don't you think the whole autonomous car thing is going to be the end of your business?' I responded by saying, 'First of all, no. I think autonomous cars is going to be an evolving feature in the car. Think about cruise control, automatic braking. You can get a car that drives itself on the highway, but you can't lose sight of the fact that a car is an emotive purchase. It's a passion. Why do people buy Cayenne and other people buy whatever? It's a part of your personality. I just don't believe that people are going to want to share a car. There's a segment in the city much like Uber. Uber, by the way, is like roadkill. I would be very scared if I were Google—I mean Uber—because I think Google has their crosshairs on Uber and they will come out with an autonomously driven Uber-type service that you'll just pick up with your phone and order. That segment will continue to explode. On-demand cars mostly in an urban setting can continue to explode. But your person outside of the city still wants to have that car. I don't want to wait six minutes. I've got my stereo set up the way I want it. It's my car. It's an emotive thing.'
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Eric Paley1:02:12
All right, so I'll stop the speed round because we weren't that good at speed rounds together anyway. But you talked a little bit about at some point you'll take the company public. Do you want to be a public company CEO? How do you think about that?
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E. Steinert1:02:23
I don't look forward to it. No. I value my privacy above all, so being a public CEO is not something I look forward to. But I look at it as part of life's challenges, another thing to have done.
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Eric Paley1:02:43
You have a good friend with a lot of experience there.
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E. Steinert1:02:46
Yeah, Steve. Believe me, there's not a day that goes by that I don't get some great piece of advice from Steve. He's given me some good advice on that front. As he's counseled me, as long as I have a great management team and a really good CFO—which we just recently hired—it'll be fine. More importantly, as long as we continue to post great earnings and revenue growth, it'll take care of itself. But yes, we will someday be public.
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Eric Paley1:03:14
Well, I for one hope to see another Wayfair, HubSpot quality IPO here in Boston. So I'm looking forward to that. I'm happy to open the floor now to questions.
A
Audience Member1:03:42
Hi, how are you? Thank you very much, by the way. That was absolutely an amazing lecture. It was really great. My question is this: I run a startup here in Cambridge, and as a co-founder, you're trying to figure out how to build a team and build a culture. What are the best lessons that you think would be applicable here to build a culture that really grows and sustains for scalability?
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E. Steinert1:04:05
Yeah. We didn't touch on it, but having a co-founder is a huge plus. I did not have a co-founder when I started CarGurus, and that's been harder—it was harder and continues to be harder than I had ever imagined. At Trip Advisor, I had Steve, or Steve had me. Not unlike a marriage, when you've had a bad day, you've got someone to talk to. When I've had a bad day at my company, for the most part I have no one to talk to, so it's hard. That's where a spouse feels incredibly burdened. You go home and start talking, but my wife only has so much sympathy. So having a great co-founder is really important. Obviously having a profitable company helps too. Try to make it fun. We've done a reasonably good job at our place. We have perks—because we're profitable—we do free lunch every day, catered lunch. Once a quarter we do what's called Fun Friday, where we shut the company down and go kayaking, play pool, or go bowling. We have the obligatory foosball and ping pong room. Probably most importantly, we touched on this earlier: creating an environment where people feel empowered, that anyone can come up with an idea or approach me and walk into my office and ask a question, so it doesn't feel hierarchical. People feel like they can make a difference. If it's a fun place to work and they feel they can make a difference, people are going to want to work there.
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Audience Member1:05:58
Hello. Thank you very much. My question is: I want to try to understand the industry since you have been working for so many years. What's the change during the last 20 years you have seen in this industry, and what are new trends and new opportunities in the future?
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E. Steinert1:06:19
So what's changed in the industry in the last 20 years? In the car industry? Future trends. That's a big question. I'd say the biggest trend, and this is a bit of a statement of the obvious, is mobile. I continue to be shocked at the growth of our mobile traffic. Two years ago, the percentage of our mobile traffic was like 40%. Last time I looked about a month ago, it was like 65%. That does not include iPads; it's just pure mobile phone. So if you're developing anything on the web, the desktop is dead. Don't even bother. It should be almost pure mobile experience. That's probably been the biggest. If it's true for car discovery, that's one of those things you'd think someone might say in front of a desktop. Again, my hypothesis would have been wrong. I would have said 40% mobile, but then people need to come home and do intensive research. I was on the T the other day and looking around, everyone was on their phone. It's a sad commentary on our lives. But none of you are looking at us right now, that's actually better. So mobile is probably the biggest thing that surprises me.
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Audience Member1:07:45
Can you talk about your time at Trip Advisor and now starting CarGurus, and what that's done to your family life and how you've navigated that? Maybe some of the sacrifices people in your family have made.
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E. Steinert1:08:05
To juxtapose it with the life I described as an investment banker, I pride myself and the culture at Trip Advisor and CarGurus that number of hours does not correlate to intelligent work. I work hard at CarGurus, but I don't work crazy hours. I do a little bit of email on Sunday night. I come in at weird hours. I probably won't be at my desk till 9:30, maybe even sometimes 10 in the morning. I like to help get my kids out the door, go running. Frankly, I can miss the traffic if I come in late. I get my personal life and exercise in, then drive in, and I go home around 7:30. The most important thing is I don't expect anyone else in the company to work crazy hours either. I don't think you need to. It's about working smart, not necessarily long hours.
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Eric Paley1:09:11
I love that you've got this tiny hint of guilt about getting to work at 9:30. That's such a good statement about you. That's the banker gene that has not gone away.
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E. Steinert1:09:20
Yeah, those are scary days.
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Audience Member1:09:22
How does the intensity of building a startup versus a more typical job affect family?
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E. Steinert1:09:35
I don't think it's hard for me to answer for them, but I think I'm pretty good about compartmentalizing it and not letting it spill into my home life. My kids get a great kick out of pointing at the owl whenever we travel. I've only pulled the TripAdvisor card three times. There's a funny story: we landed in Rome, all wickedly jetlagged—my wife and my three kids. We carefully picked out this hotel and specific joining rooms. We got to the front desk at five in the morning in Italy, and the guy couldn't have been meaner. He said, 'You'll take whatever rooms I give you.' I shouldn't have done it, but I said, 'Ever heard of TripAdvisor?' He said, 'Of course.' I said, 'Well, I co-founded the company.' My son turned to me as we walked away and said, 'Dad, did you see the blood rush out of that guy's face?' I said, 'I'm done with you.' My wife went to the pool while they sorted out our rooms, and the guy ran up to her saying, 'Madam, madam, we figured out the problem.' We had this ridiculous room, it was embarrassing. So I've only done that three times. But it works really well.
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Audience Member1:11:04
The day you decided to start, what are the next set of things you did that day?
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E. Steinert1:11:11
One of the things I should have done, and I was talking to a friend recently who changed jobs, is taken six months off and gone windsurfing or just chilled out. What I didn't do: I went literally from leaving Needham to starting here the next day. In retrospect, I wish I had taken some time off to decompress and go golfing. But I dove right back in. It all seemed to have worked out.
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Eric Paley1:11:43
I did the exact same. I think it's like an entrepreneur's gene. You just can't sit still. Same mistake, same regret.
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Audience Member1:11:53
Question: you have multiple scale stages of scaling. First, let's say you got 500,000 users—how did you get those? From there to 20 million, how did you scale? Where did you get the content, because it looks like owned by dealers, and you can get the feeds. So the question is how do we get the inventory? The inventory is the easy part. Scaling—first, like any web business, you need thousands or millions of users before you can say it's a successful business. So the first stage of scaling, how did you scale to a level where you say it's a sustainable business model? Once you determine that, how did you take it from there to 20 million? You didn't raise money, so you used some growth hacking techniques. What were those?
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E. Steinert1:12:52
I think the question was around how did we scale the business and what issues did we run into. The number one thing if you're doing a web company is obviously audience. If you don't have audience, you don't have anything. This sounds like a statement of the obvious. A lot of people have asked me, 'Who does your SEO?' Because we get a lot of free traffic from Google, Yahoo, and MSN. The answer is consistent with the one I gave at TripAdvisor: you build a compelling product and monitor a couple of key ratios. More importantly, you build a compelling product. That sounds obvious, but there are so many people who sit and fret about how to optimize for Google. That's the completely wrong thing to do. If you fixate on that, you'll start doing stupid things, and Google will penalize you. But if you build a great product that's unique and has great consumer statistics, there are a couple of things we track carefully at our site. We release code probably three or four times a day. We're always doing A/B tests to track session duration, bounce rate, and general consumer happiness. The two we track the most are bounce rate and session duration. Bounce rate is if someone comes to that first web page and leaves without viewing any other pages. If you have a high bounce rate, probably north of 30%, that's really bad. Google can measure these things, and they'll notice if people come and leave quickly. Session duration is another one. If someone has an eight-minute session duration, it means they're pretty engaged. If they have a 10-second session, that's bad. We track a lot of things, but we're always tracking the consumer experience. If you do that, the search engines will be good to you, but more importantly, the consumer will have a great experience and tell 10 friends. Word of mouth is probably the most effective form of marketing ever. I've seen numerous companies go out of business because Google changed their algorithm around the way they were manipulating it, crushing their traffic, and VCs weren't excited anymore. It killed the business.
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Audience Member1:15:48
I'm in the early stage of my startup and have my first angel meeting this month. You started to touch upon this in the speed round talking about your competition. I'd love to hear how do you talk to your investors about your competition? Is it a 'I'm going to chew them up' sort of conversation, or poking holes in their game?
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E. Steinert1:16:04
At our board meetings, we haven't talked about our competition at all. I did an interview with Entrepreneur magazine recently, and they asked what influence my mother had on me. I told them one of the best things my mom taught me—she was the head of the English department at my high school. I was always pretty competitive, and she said, 'Stop worrying about what that person's grades were or your class rank. Focus on your own work. Focus on yourself.' I have the same philosophy at our company. I don't spend a lot of time worrying about what my competition is doing. I worry about what I'm doing and what our company is doing. Are we addressing our customers' needs—both our consumer customers and our dealer customers? If we're killing it in those two dimensions, the rest will take care of itself. I would urge you not to spend a lot of time on it. You need to be cognizant of them, you can't work in a vacuum, but the more you internalize what you're doing and how you're addressing your customers' needs, the rest will take care of itself. For what it's worth, I think investors ask about competition more to understand your differentiation than to hear you bash your competitors. Bashing shows a certain immaturity. I think that's really why they're asking the question.
I've been honestly surprised at how little competition we've seen in our sector. Part of that has to do with the heritage of some of our competitors—they're traditional media companies that evolved onto the internet and aren't really pure technology companies. They've been hindered by having a big install base they had to maintain, like Polaroid and Kodak with digital cameras. In our case, when we did this controversial 'good deal, bad deal' rating of dealer inventory on behalf of the consumer, the backlash from the dealer community was vicious. Cars.com or Autotrader would never even think about doing that. Autotrader has a billion-dollar revenue line; they're not going to jeopardize that for some crazy idea about putting a judgment on a dealer's inventory. So we were blessed because we didn't have that history to maintain.
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Eric Paley1:18:51
Maybe two more. So this is fantastic. Entrepreneurship versus a job. Can you give the challenges back and forth with it?
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E. Steinert1:19:04
That's easy. I was up at Dartmouth giving a talk to their entrepreneurial network, their big 50k contest. I was telling the undergrads, being an entrepreneur is so much better than having a job because what's the worst thing that happens? If it fails, you go get a job. Some pros and cons. The pros are no one tells me what to do every day. I get up in the morning and do what I want. I have ultimate flexibility to go watch my kids' lacrosse games. If I need to go at 4, I go. No one tells me not to. I have a lot of autonomy. The bad side is it's a 24/7 job. You're always on. You don't get a day off. You're always worrying and thinking. When I'm running, I'm thinking about it. When I'm taking a shower, I'm thinking about it. I see that as a pro, but some people aren't wired that way. If you want to go home at 5 and shut it down, that's probably a sign it's not for you.
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Eric Paley1:20:32
Take a minute and talk about the responsibility of leadership, because I'm not sure that's something everybody loves or wants.
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E. Steinert1:20:38
As I said earlier, every employee we hire has a spouse and kids. That's a lot of responsibility—300 times three or four, 900 people depending on you. You have to be able to deal with that. Thank god in our case we're really profitable, so I don't worry about that too much anymore.
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Audience Member1:21:08
You talked about loving to work with good people. I was wondering, what does 'good people' mean? Honest, conscientious, hardworking? If there's one trait that makes someone worth hiring or mentoring, what is it?
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E. Steinert1:21:30
I'm always looking for curious people. When I interview someone, I always want to hire the person with the smartest brain power I can find. I probably don't even care if they've worked in this industry. At TripAdvisor, we constantly got resumes from people who had worked at Travel Velocity, Expedia, or Worldspan. Invariably, there's a lot of baggage that comes with that. You can't bring a fresh perspective. A lot of the best people we hired were from Bain or BCG—people who could come in with an analytical mind and attack it with different ways of looking at it. Adam Edos, great hire, runs product at TripAdvisor. So to answer your question, curiosity is what I'm always looking for. Are they the kind of person who wakes up in the middle of the night and jots down ideas? Are they going to question everything and not necessarily use the standard solution to a problem?
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Eric Paley1:22:47
Well, if anyone's in the market for a car, use CarGurus. Go to CarGurus. If you're looking for a really cool job, there's a good company to check out. They are hiring everywhere. Malin is here, she'd be happy to talk to you. I just want to say thank you to Langley. Thank you so much. Really appreciate it. The one favor we ask: we do a free event. Hopefully everybody really enjoys it. Whether or not you enjoy it, you're going to get a survey tomorrow. We pick our guests from the survey. We change a lot of things based on the feedback. Please give us feedback. It's not long. We really do value that. Thanks for coming out. Thanks for being a part of it. Appreciate it.