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Software For Auto Repair: With New Funding In Tow, Estify Sees Big Opportunity In An Unsexy Market
The collision industry probably doesn’t rank at the top of the “Sexy Markets” list for startups, but sometimes the most obscure, fragmented and pulchritudinously challenged industries can offer the most opportunity to those willing to grit their teeth and immerse themselves in the mess. Estify, a graduate of Amplify LA’s business accelerator, is doing just that. Co-founders Jordan Furniss, Derek Carr and Taylor Moss went looking for the most unsexy market they could find, with bonus points awarded for both size and level of inefficiency. They quickly found their Shangri-La: The collision and auto repair market.
But the co-founders are web developers and designers by trade, and, knowing that this put them at a disadvantage in an industry where engineers are scarce and trust is crucial, they immersed themselves. After months of talking to shops, owners, mechanics, parts providers and insurers and identifying the biggest pain points, they began developing Estify.
Sure, the startup may not become a billion-dollar company, but this is a great, quick lesson for entrepreneurs: It’s impossible to avoid failure, but before you start building an app or product, take time to understand the market you’re tackling, what it’s problems are and how its businesses work. Go be an apprentice if you have to; it’s the least you can do, and a step that points you in the right direction.
While the auto repair industry may be unsexy, Furniss tells us, it’s also probably likely that the town or city you live in has at least one auto repair shop. In fact, there are about 45,000 in the U.S. today, the co-founder says, and most of them are using the same tools for inventory, interfacing with insurance companies and data entry they have for years.
The company is also expanding its potential addressable market by not only going after the 45,000 repair shops, but by offering its service to the whole pipeline, Estify wants to reach the 200,000 shops, insurance companies, independent appraisers and parts providers out there. To do that, the startup has built a suite of cloud-based services that aim to help make shops, and related service providers a way to increase efficiency and save money.
By helping collision repair shops automate the data entry process, among other things, Furniss claims that the company’s SaaS product can save these businesses up to two hours on every estimate they process — something repair shops have traditionally done manually. The startup recently emerged from limited beta, and had been testing the product with a handful of early customers, so it doesn’t have many paying customers yet.
However, Furniss says that the company spent its long beta period attempting to validate its pricing model and functionality and has been encouraged by the feedback. In one weekend, he says, the founders received emails from over 100 different shops that wanted to use the product, with a handful of them offering to pay for a full year in advance.
To help it push forward with a full-scale launch, add to its current team of six and start selling more broadly to repair shops, insurance providers and parts dealers, Estify recently closed on a $800K round of seed capital, led by ff Venture Capital, with participation from Romulus Capital, REES Capital and Amplify.LA.
As to what Estify actually does? At launch, the startup will be offering a suite of web services containing three main products, which can all be managed and viewed through its web-based dashboard. The first tackles what Furniss says is one of the biggest problems faced by repair shops — called “rekeying.” Essentially, rekeying is the process of duplicating the estimate that the insurance company originally wrote into the collision shop’s own estimation processes.
“It’s almost hard to fathom for those with tech backgrounds,” he says, “but these two systems don’t communicate and there’s no data bridge between them, whatsoever.” The process can add up to two hours to the estimate writing process, so Estify tries to solve this by allowing shops to bridge the gap and eliminate the redundant work of “rekeying.” The second product, Reconcile, tackles a similar pain point, in that it helps repair shops be more efficient about how they deal with estimates and the interface with insurance companies.
Virtually every collision shop has to work with insurance company, Furniss says, since they are typically the ones paying for the work. Of course, insurance companies want to spend the least amount money on each repair as possible, while the shop generally wants to be as thorough as possible and get paid for the parts and work.
“There’s a whole negotiation process that takes place with every repair and then what the insurance company says and what the shop says,” the co-founder explains, “need to be reconciled down to the penny.” This is a tedious process and shops spend hours on it with each repair, because if they don’t, they stand to lose $1,000 per repair, on average. So, the startup gives shops software to reduce this process to something that can happen in seconds, allowing them to make more money per repair while saving time — at least that’s the idea.
The third area Estify attempts to help shops increase efficiency has to do with parts. When a car is being repaired, a shop gets its parts from various providers in the area, often dealerships, which usually happens via phone and fax. Naturally, faxing the list of parts a shop needs to dealers until finding the right part is, well, time consuming, slow and inefficient.
To help speed the process up, Estify’s service automatically pulls the list of parts from shops and sends them out to a network of part providers, geographically targeting the proximate dealers. Instead of calling or faxing, dealers can just respond online, saying they have the part and can send it by such and such a time. Besides helping repair shops get better answers more quickly, Furniss says, the idea is also to create new opportunities for parts providers.
To monetize, the startup has opted for a monthly subscription model, allowing shops, dealers and insurers to use any combination of the three, paying for what they use, with the monthly rate falling somewhere between $99 and $500. By the industry standards, Furniss says, “we’ll be able to do fairly well revenue-wise if can get a couple thousands customers on board — at least that’s where we want to start.”
It may be obscure and it may not be sexy, but as long as Estify continues to apply the K.I.S.S. principle to its software and product development, it could turn out to be a fairly attractive business. By removing some serious pain and friction from critical processes and operations these businesses deal with on a daily basis and doing that with a web-based solution, Estify can be scalable and potentially tap into some decent margins.
As it rounds out its feature set and adds more features that have wider application beyond repair shops — and builds out mobile offerings — it can expand its functionality and potentially reach a wider audience and bigger market. And one that isn’t exactly saturated with competitors. At which point the collision repair and parts industry doesn’t sound so bad after all.
Estify at home here.
Where Webvan Failed And How Home Delivery 2.0 Could Succeed
Editor’s note: Peter Relan was VP of the Internet Division at Oracle, founding head of technology at Webvan from 1998 to 2000, and founder of the YouWeb Incubator program in 2006 and the recently launched 9+ accelerator program. Follow him on Twitter @prelan.
Webvan is well-known as the poster child of the dot-com “excess” bubble that led to the tech market crash in 2000. Business schools around the nation study Webvan’s overly ambitious rush to the biggest IPO to date in Silicon Vally, as a prime example of what to avoid doing while scaling. Ironically I recall guest teaching the first case study on Webvan at Stanford, the day before the market crash in 2000. While it’s true that the impatience to go public helped steer Webvan off a cliff, the once darling company made two other critical, but often overlooked mistakes.
Are those mistakes being repeated a dozen years later in the slew of activity — even excitement — in the home-delivery space? If not, why? Is it simply a matter of investors needing a decade to reconsider home-delivery plays? Or is there more to it? Are today’s home delivery specialists realizing that they can avoid these mistakes to slowly but surely conquer an untapped market?
Mistake No. 1: Wrong Target Audience Segmentation And Pricing
Webvan’s go-to market strategy in each city was: the quality and selection of Whole Foods, the pricing of Safeway, and the convenience of home delivery. In other words, it was a mass-market strategy (unlike Whole Foods which is an upmarket strategy). The target audience therefore was not selected to be “price insensitive.” If you advertise yourself at Safeway pricing, you will attract a price-sensitive audience. Whereas those who go to Whole Foods are more price-insensitive: They believe they are getting a higher quality of selection and product, so price matter less.
The customers who would have made Webvan profitable were those who said, “Wow, I can get quality selection and products delivered to my home: heck I’ll pay anything for that.” Yes, that’s a smaller audience than a mass-market audience, but after all, even smartphones started out as a tool for stockbrokers and corporate executives before becoming mass-market devices. Webvan should have priced at least 30 to 40 percent higher and ignored the customers who didn’t want to pay those prices. A company must be clear on what it is providing and price for it – Webvan was providing a luxury; an ability to order sushi and organic fruits directly to the home, and thus it shouldn’t have tried to compete with Safeway’s prices.
Mistake No. 2: Complex Infrastructure Model
Webvan decided to build its infrastructure from scratch. I was responsible for the hundreds of engineers who built the software algorithms to make five miles of conveyor belts in our Oakland Distribution Center (DC) transport 10,000 totes around the DC daily. After conveying the item to automated carousel pods, which would spin like juke boxes to transfer the item in question into the tote, the entire process would rinse and repeat until the order was completed and integrated at the shipping dock. Additional real-time inventory management algorithms would make sure that if a customer ordered milk on the website, it was currently in stock; software algorithms would route delivery vans to multiple delivery stops while minimizing drive time; and software on Palm Pilots in drivers’ hands would deal with real-time delivery confirmation or returns.
Combining mistakes Nos. 1 and 2 was a dangerous cocktail of the lower margins of mass-market pricing, and colossal capital expenditure associated with complex infrastructure. This cocktail, combined with mistake No. 3, pushed Webvan over the edge.
Mistake No. 3: Too Much Money, Expanded Too Fast
This is the more well-known and final mistake. Most people view Webvan’s capital raise of $800 million as excessive and ill-spent. The pressure to “grow big fast” in those days blotted out all other considerations. This desire for massive, immediate growth was so intense that we started launching in new cities on the thesis that the unit economics of home grocery delivery would be profitable. Our DCs and vans rolled out in the Bay Area, Seattle, Chicago, Atlanta, and each city’s capital requirement was well over $50 million just to start. We touted our 26-city expansion plan, signing a $1 billion Bechtel contract to build several state-of-the-art warehouses worth more than $30 million each.
Today the most popular acronym in the valley is MVP (Minimum Viable Product). In the dot-com era it was GBF, or Get Big Fast. The problem was the Bay Area model was taking a long time to iron out, and in the meantime, all our cities were burning through the cash. Our entire strategy depended upon the reassurance that the Bay Area model would inevitably become successful. Maybe it would have eventually succeeded, but we would never find out: With the market crash of 2000, capital dried up and the company was starved into a forced asset sale to Kaiser Permanente in 2001. The infrastructure in Oakland, as well as the software systems, were bought by Kaiser in order to deliver drugs and supplies to its hospitals.
Are Today’s Home Delivery 2.0 Startups Doing It Differently?
Instacart and Postmates are both avoiding the infrastructure model mistakes. They are leveraging the existing infrastructure of grocery stores, not building their own infrastructure. They focus on two areas, delivery and customer service, and concentrate their resources on excelling in those departments. Good start: Mistake No. 2 avoided.
Instacart prices its items very cleverly. Rather than charging a delivery fee, they simply “mark up” the prices on the items so the “real” prices are not visible. In a certain sense they are following the target audience and pricing mantra I think Webvan should have used: They are focused on convenience-oriented customers who will ignore the mark-ups. Those who follow and remember the hundreds of prices of grocery items are not likely to be their target audience. Plus they charge a small delivery fee of $3.99, which in itself is not enough to pay for the unit economics, but along with the price mark-ups it probably works. And they have an Instacart Express model like Amazon Prime, which makes sure that if you order enough and subscribe for $99/year, delivery is free. Sir Michael Moritz of Sequoia was on the board of directors of Webvan, so he knows the math well and is an excellent adviser to Instacart.
From what I can tell, Postmates doesn’t directly mark up prices, but it recognizes that delivery economics is very central to overall unit economics. So they charge a delivery fee based on their proprietary algorithm for determining how “expensive” your delivery will be. It’s a classic “service platform” model, like AWS almost, where they build in a margin per delivery requested. That way they won’t lose money on orders overall, even though any particular order may not be profitable.
Instacart and Postmates have studied the history of home delivery. They are avoiding mistake Nos. 1 and 2 that Webvan made. Now only two questions remain. How profitable will their models be? And how quickly will they expand nationally. Stated otherwise, will they avoid mistake No. 3? Time will tell. I would love to hear your opinions.
[Images: Shutterstock, Flickr/Mark Coggins]
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