New Venture Lab: Equipping Christian Entrepreneurs

Test your entrepreneurship skills.  Read through the profile below and try to determine whether or not you think this startup survived.  The outcome (or the current status) is shown below:

The Idea:

Concept: Car dealerships want to move cars, but what they really want is to service them. Not only are the margins on parts and labor particularly juicy, servicing increases a dealer's chances of selling its customers their next car.

 

Founded in 2000, the candidate had developed software that coordinated the maintenance process at dealerships. (In geek-speak, this is called customer relationship management, or CRM, software.) Customers specify how they prefer to be contacted (by phone, mail or e-mail) and the types of services they want, and the software automatically triggers an invitation. It also allows customers to schedule their appointments online and request such things as the first-available appointment on Saturday morning. Dealers are able to track customer use, tailor special promotions and track which efforts worked the best. Initial tests showed that the software paid for itself within 60 days.

 

Competition included software giants Automatic Data Processing (nyse: ADP) and Reynolds and Reynolds (nyse: REY), as well as a handful of smaller firms, including Dealer Voice, Call Command and Autobytel RPM (nasdaq: ABTL). Despite the crowded field, the company had managed to achieve some tangible success: Four of the ten largest independent auto dealerships used its software, and another four were evaluating it. (General Motors (nyse: GM), Ford Motor (nyse: F) and DaimlerChrysler (nyse: DCX) were still holding out.)

 

Funding: The company has raised about $2.1 million: an initial $1 million from friends and family, $370,000 from the founders, $200,000 in debt and another $500,000 from private investors later on. By May 2005, the company was looking to raise an additional $2 million to bolster marketing and tweak the code.

 

Management: The sales-oriented chief executive and chairman of the board has spent over 30 years in the automotive industry--including 11 years at Audi of America, where he developed a nationwide dealer network, and 13 years at ADP. The chief operating officer has 20 years of experience in the medical device industry, 17 of those at subsidiaries of Bristol-Myers Squibb (nyse: BMY); an engineer with 28 medical-device patents, he also launched his own venture-backed, medical-device company. One of the company's major investors and advisors is an ex-chief executive of one of the Big 3.

The Outcome:

Founded in 2000, the company (which will remain anonymous) developed "customer relationship management" software that coordinates the maintenance-scheduling process at car dealerships. (Dealers like moving cars, but the margins on parts and labor are juicier; servicing also increases the odds of selling customers their next car.)

 

The software allowed customers to schedule appointments online and dealers to tailor special promotions and track which efforts worked best. Competition included software giants ADP (nyse: ADP) (where the startup's chief executive had spent 13 years) and Reynolds and Reynolds (nyse: REY), as well as smaller firms like Autobytel (nasdaq: ABTL). Four of the ten largest independent auto dealerships used its software; General Motors (nyse: GM), Ford (nyse: F) and DaimlerChrysler (nyse: DCX) were holding out, despite the fact that one of the company's main investors and advisers was an ex-chief executive of a major car manufacturer in Detroit. The company had raised about $2.1 million (including $270,000 of the founders' stash), mostly from friends and family, and a year ago was looking to raise an additional $2 million to bolster marketing and tweak the code.

 

In this case, the company had a strong management team and financially committed founders, but it faced fairly stiff competition and had little patent protection.

 

While the company managed to release an upgraded version of its software, it is still short on cash for marketing and other critical activities. One reason: expense control. Even in lean times, managers took better than average salaries. A few strategic partnerships would give investors confidence--say, if Valvoline agreed to cover dealer installation costs in exchange for an ad in every e-mail sent to customers reminding them to schedule a service appointment. Management flirted with a few deals, but none have panned out.

 

Worse, the company's chief asset--its nifty software--still has no patent or trademark protection (see radar graph). It turned out that the inventor of the software had signed contracts with the company that allowed him to collect royalties even if the company made significant improvements to the original code. This, too, turned off potential investors. The company has since tried to secure patents despite its golden handcuffs.

 

By all rights, the company's future is hazy--especially if its cash-flow problems continue and it can't boost its marketing efforts and ignite sales. The good news is that its ex-bigwig from Detroit continues to pound the pavement and sign up more dealerships. He also poured in another $250,000 of his own money to keep the company alive. Who knows? It might even thrive.

Source: Forbes.com