If the company could attract car buyers as customers by promising to help them pay less money for new cars, it could then attract dealers by providing them with leads on those thousands of serious customers. Then, as the dealers competed against each other for the customers' business, prices would fall, deals would grow sweeter, and even more car-buyers would flock to the service.
TrueCar was well-financed and it formed partnerships with giants like American Express and USAA, but a funny thing happened on the road to disruption. The $676 billion car dealer industry struck back. As Painter told me in a recent interview, "[TrueCar] came right to the brink of definitive failure, for sure," and lost $50 million in 2012.
A little over a year later, however, TrueCar rebounded. Big time. One third of U.S. dealers now use its system and made 400,000 deals with TrueCar customers during 2013, up from 223,000 the year before.
How did the company do it? The story demonstrates clear lessons for any founder who hopes to achieve scale and become an enduring business leader.
More money? More problems.
Painter had founded other Internet companies in the past, including CarsDirect, so he had little difficulty raising money, so to speak. But TrueCar needed data on car deals and for automobile dealers to play along.
By late 2011, the model was falling apart. Some dealers slashed prices, hoping to make money on service contracts and manufacturer incentives. Others questioned why they should contribute to a system that drove down prices and quit the network in droves.
According to Reuters, TrueCar had 5,700 dealers on board at the end of 2011, but 2,600 left only two months later. The Federal Trade Commission is investigating whether the exodus was the result of "fair market pressure or illegal collusion."
In the meantime, Painter faced a personal challenge. While he wanted to lead TrueCar as it grew, he was aware that most founders leave their companies once they reach scale. "TrueCar is my life's work, my career," he said. "Who are my mentors? Who are do I look to? They're Jeff Bezos, Sergey[Brin] and Larry [Page], Michael Dell--people who did make the leap."
Fix the right things for the right people.
As dealers departed, TrueCar's research unveiled a surprise about what its car-buying customers truly wanted. They weren't concerned with paying the lowest price. They wanted to make sure they weren't being ripped off.
That realization helped TrueCar begin to solve dealers' and customers' problems. Today, its model no longer encourages dealers to bid against each other in real time; instead, it offers customers parameters on what a fair deal might look like for different cars.
As Painter describes it, it's more a matter of trying to remove inefficiency and distrust from the process, instead of trying to squeeze the last bit of margin out of the retail auto sales business. "Our customer is both the car-buying consumer and the dealer selling cars," Painter said. "The way we serve them is different, but it's by finding the common ground."
Make money or change the world?
The change is recognizable in TrueCar's marketing. I first learned about the company in the summer of 2011, when I was shopping for my first new car in a long time. Back then, the company's website promised consumers it would help them "research new car prices and find the greatest savings."
Visit TrueCar's consumer-focused site now, however, and the promise is that "car buying has never been easier. On its dealer-focused site, you'll find a different promise altogether: "TrueCar helps Dealers sell more cars profitably."
Having recalibrated its position and created a process that seems to be working, TrueCar needed a new kind of leadership. At the most basic level, an established organization's leader has to focus on making a process work well for the long-term, while an entrepreneur focuses on disrupting the established processes that other organizations employ.
As my co-author Jon Burgstone and I put it in our book, Breakthrough Entrepreneurship, a new venture needs an assertive leader, someone who can drive a team to follow his or her vision, use his or her methods, and meet his or her goals. A more established organization needs an empowering leader, who builds consensus and squeezes knowledge, wisdom, and drive out of the team while laying the groundwork for long-term success.
"For us, so much of the early stages of the business was about me standing in front of my team, and my investors, and saying, 'We're going to do this,' and get motivated," Painter said. "At some point that doesn't matter anymore, when you already have a product in the marketplace."
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