Not every business journey goes according to plan
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“There are 31 million cars on U.K. roads and eight million are sold every year,” says Tom Leathes. “We have really only just got started.”
Leathes is co-founder of Motorway. Launched in 2016, the company provides a means for car owners to sell their vehicles to dealers using a market comparison system. Put simply, the user puts his or her car on the site where it is seen by a community of dealers who are invited to bid. The car owner then sells to the highest bidder. To date, the site has around one million registered users and Leathes is looking forward to healthy growth in an online comparison market that he knows well.
But as he acknowledges, things don’t always go according to plan. And having experienced one significant business failure after a run of successes, he says the lessons learned have been applied to Motorway.
Back in 2011, Tom Leathes and co-founders Harry Jones and Alex Buttle sold their U.K. price comparison site, Top 10 Broadband to Uswitch, a larger company offering similar services in the utilities space. The sale marked a culmination of sorts. Since 2005 the three-person team had been building, and subsequently selling, profitable websites in sectors such as office property and financial services. Their broadband comparison site was not only their most complex venture in terms of data aggregation, but also their most successful, with a turnover of $16 million at the time of the USwitch deal.
“But the next move didn’t turn out so well,” Leathes recalls.
The Venture in question – hotel booking, site, Top 10 Hotels – was launched hard on the heels of the sale of Top 10 Broadband. On paper at least the prospects were good. Leathes, Jones and Buttle had an acknowledged track record and were able to attract VC cash (something of a novelty) to support the development of the project. In just a month after the service was launched, the newly-minted company took revenues from zero to $1 million. Fast forward three years to 2014 and Top10 Hotels .com raised $8 million in Series B funding and was preparing to scale up. A few months later a decision was made to close the operation.
And as Leathes explains, the failure of the hotel booking businesses taught him some valuable lessons around the potential pitfalls of bringing a new company to market.
The Big Picture
“After the sale of Top 10 Broadband, we were overconfident,” he acknowledges. “And we wanted to enter a market in which we could build a significant business.”
The travel market seemed like an obvious contender. Millions of people were already using hotel booking sites, so there was clear demand. Equally, there was a considerable amount of competition but the Top 10 Hotels team sought to differentiate their offer in two ways. It was to be mobile first. And rather than simply offering comparisons, it would make recommendations, meaning that users didn’t have to scroll past dozens of options. “Our goal has always been to make products that are a delight to use,” says Leathes.
Be 10 Times As Good
So what went wrong? “We didn’t understand the power of our competitors, “ says Leathes. “We thought we could offer a better experience and I think we did. But you can’t take on a company like, say, Booking.com by being twice as good. You have to be 10 times as good.”
Or you have to think latterly. “Really the way to take on a Booking.com is to launch an Airbnb,” he adds.
Product Market Fit
Competition wasn’t the only factor. The approach of the Top 10 founders had also changed. In the early days, there was no venture capital cash available. The three-person team studied the market, looking for gaps that weren’t being served. For interest, an early venture (LoanKey) provided leads to financial services companies and was eventually sold for $1m. That provided seed money for a site that aggregated available serviced office space. In both cases the company established a product/market fit before spending or raising large amounts of money. It was all very organic.
That wasn’t the case with Top 10 Hotels, not least because the availability of venture capital cash meant that money was being spent at the outset before the venture had found its market.
And as Leathes acknowledges, one of the key points of difference – mobile-first – came under pressure as the market incumbents developed their own mobile strategies.
So after the Series B round, it became apparent that growth in the company’s sales was flatlining, making it hard to see a route to profit. The difficult decision to close was made. “Our only option would have been to raise more money,” says Leathes. “But how would we have done that with revenues flatlining.
All this has fed into the approach that underpins Motorway.co.uk. The founders initially went back to basics, hiring a developer to create a minimum viable product, that could be used to attract dealers and sellers. Only once this was done, the company raised seed money and began to ramp up its operation. Having since secured £15m in funding from LocalGlobe and Marchmont Ventures, it now has 70 people on the payroll. 20,000 cars sales have been facilitated, thus far.
So why is this a better prospect than the travel market?. “The car market is huge but it’s a market that undisrupted.” Or to put it another way, it’s easier to carve out a space in a market worth £60 billion a year without coming under pressure from incumbent competitors.
Leathes and his partners began their careers by funding segments of the online marketplace where there was demand for better services and they have sought to apply that formula to Motorway. Will they succeed? The company says it has established product/market fit and is on course to double sales by 2020. In the longer term much will depend on used car sellers embracing the comparison/marketplace model.