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Scott Painter and Parker Conrad

This Week In Startups - Episode #542
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Today’s awesome two-part episode is from Launch Festival 2015 with Founder/CEO of TrueCar Scott Painter and Cofounder/CEO of Zenefits Parker Conrad.
Key Takeaways - 4 min read
 
Top Quote:

“Even in the face of a boycott and the company almost dying, there was a real belief among the core group that we were going to make it.” 

– Scott Painter 
 
Key Takeaways:
 
Scott Painter Interview

On The Idea For TrueCar

There is a different way that we are going to buy cars in the future.
 
Technology plays a big role in that, but there is also a great role for entrepreneurs and a company like TrueCar to really help solve that problem.
  • TrueCar’s mission has always been very simple, which is to have a better way to buy a car.
TrueCar had been around for several years before they launched on stage at the Launch Festival a few years ago.

TrueCar has 4% market share and 10,000 dealers on the program, which is 1 out of every 3 dealers in the US. Scott believes they can eventually be a 30% market share company.

On Challenges

It is a highly disruptive concept to say you are going to sell cars differently.
 
There is a $550 billion new car market and a $500 billion used car market.
  • Nobody has been able to really solve it and bring it all together.
When TrueCar started publishing the prices that people were paying for cars it was highly unpopular.

Publishing the price they paid for a car was very provocative concept to car dealers.
 
TrueCar got boycotted in 2011 and at that time they were a profitable business.

Within about 60 days TrueCar lost almost 1/3 of all the car dealers on the program.

The company was completely tone deaf when it came to the issues of dealers.
  • It turns out that the issues facing car dealers are actually bigger than the problems facing car buyers.
On Truth

Scott has always believed that truth is a better way of doing business.

The delta between what one customer pays versus another can be as much as 30%.
  • So for a $50,000 product you might be getting $40,000 for it and another person might be paying close to $60,000 for it.
This is where all of the anxiety comes from.

Knowing that the data is there today, and TrueCar can use that as a real market dynamic to find a market-clearing price.

On Self-Driving Cars And The Sharing Economy

Scott is not a huge believer that the autonomous car is the goal.
  • It is really about reducing driver error. It is the idea that our cars will help us be safer.
Scott believes it will be difficult to have autonomous cars and non-autonomous cars sharing the road at the same time.

Scott also does not believe that car ownership is going away.

The issue is about affordability. If you can afford the car you will buy the car.

The used car market has remained very hot over the last few years because the new car market was constrained for a number of years.

On An Apple Car

It would be a huge undertaking (5-10 years) for Apple to make an electric car.
  • To do what Elon has done is pretty unlikely and remarkable.
Apple would come at it from a very different point of view with a “design down” focus, whereas Elon is coming at it from an “engineering up” focus.
  • It would be cheaper for Apple to buy Tesla than it would be for Apple to figure out how to do it on their own. 
Parker Conrad Interview

On The Idea For Zenefits

At Parker’s last company (SigFig) they were always too cheap and running out of money so they never hired anyone in HR.
  • The problem is you have around 20 different HR systems that your employees need to be set up in.
If everything was online and all connected and was one central place you could go to it would save everyone a lot of time.
  • This is essentially what Zenefits is.
On Monetization And Metrics
  • Jason mentioned that he switched to Zenefits last year amd the $100/employee/month he used used to charge went away, which equated to around $20,000 in savings per company.
Zenefits makes money in a bunch of different ways, but the biggest source of revenue is as a broker on your insurance policies.

There are about 800 employees now, and they are hiring about 100 people per month.

About 10,000 companies are using Zenefits now. The sweet spot is companies with 5 – 500 employees.

On Bringing David Sacks On As COO

Parker wishes he could take a lot of credit for landing David Sacks as their COO.
  • This is one of the great things of having an investor like Andreessen Horowitz (they spoke to David).
Parker thinks about his and David’s relationship more so partners than Parker being his boss.

There are parts of the organization Parker can carve out and David will run with, which he is doing a great job of.
Table of Contents (Full Notes) - 14 min read 

*You can use the table of contents links below to jump to that section only on laptop and desktop.*
Scott Painter Interview Parker Conrad Interview
Top Show Links

People Companies 
Scott Painter Interview
On The Idea For TrueCar
  • Jason mentioned that Scott came to the Launch Festival a few years ago and launched this concept called TrueCar
There is a different way that we are going to buy cars in the future.
 
Technology plays a big role in that, but there is also a great role for entrepreneurs and a company like TrueCar to really help solve that problem.
  • TrueCar’s mission has always been very simple, which is to have a better way to buy a car.
Buying a car usually happens when good things are happening in your life (getting married, getting promoted, you are moving, etc.), but it is a high anxiety moment and it shouldn’t be.
 
TrueCar had been around for several years before they launched on stage at the Launch Festival a few years ago.
 
They were operating as a B2B company called Zag, but they then launched as TrueCar and came out with their direct to consumer brand.
 
At that point they were around a $10 million a year revenue business, and revenue for 2014 was a little over $200 million.
  • They also went public in May 2014.
TrueCar has 4% market share and 10,000 dealers on the program, which is 1 out of every 3 dealers in the US.
 
They are seeing 60,000 transactions originating on the platform every month.
 
Scott believes they can eventually be a 30% market share company, but this will take some time.
On Challenges
It is a highly disruptive concept to say you are going to sell cars differently.
 
There is a $550 billion new car market and a $500 billion used car market.
  • On top of those businesses you also have financing and leasing (how you will pay for the car), peace of mind (warranties, road side assistance, etc.), insurance, maintenance/repair, refueling, and accessories.
This results in an ecosystem that in some way touches about 20% of the economy and it is highly inefficient.
  • Nobody has been able to really solve it and bring it all together.
When TrueCar started publishing the prices that people were paying for cars it was highly unpopular.
 
The idea that you can be a first time car buyer and be an expert in 60 seconds or less is really what TrueCar is about.
  • TrueCar is a very big data driven marketplace that touches about 2 billion different data points every day.
They are trying to bring together an ecosystem between the manufacturers, car dealers, and customers.
  • They are trying to triangulate all of those and bring them together at the same time.
Publishing the price they paid for a car was very provocative concept to car dealers.
 
TrueCar got boycotted in 2011 and at that time they were a profitable business.
  • So they went from being profitable to being very unprofitable very fast.
Within about 60 days TrueCar lost almost 1/3 of all the car dealers on the program.
 
TrueCar was a consumer driven company that was focused on solving a problem.
  • People would hear about TrueCar and say, “I love it. Dealers must hate you.” That is exactly what happened to them.
The company was completely tone deaf when it came to the issues of dealers.
  • It turns out that the issues facing car dealers are actually bigger than the problems facing car buyers.
Consumers believe that car dealers make about 20% profit when they sell a car when in fact they make closer to 2%.
 
They may not feel bad for them, but there is a moral to the story.
  • Fundamentally, TrueCar believes that truth is a more profitable business.
A lack of trust is friction, and in the car business friction is something that can be measured.
 
It costs money to sell a car because people don’t have trust.
 
When you can introduce trust through objective data you can lower the cost of selling and retain more margin.
On Truth
Scott has always believed that truth is a better way of doing business.
 
He also believes that great companies solve real problems, and this is a real problem.
 
He loves the car business, but is also a data geek.
  • For Scott, this was the perfect challenge because he understands it.
Even in the face of a boycott and the company almost dying, there was a real belief among the core group that they were going to make it.
 
Scott chose cars because he understands it.
 
It starts with a car as an appliance that is fungible and mass-produced that is predictable from one to the next, but yet you can have a very different experience by going from dealer A to dealer B.
 
The delta between what one customer pays versus another can be as much as 30%.
  • So for a $50,000 product you might be getting $40,000 for it and another person might be paying close to $60,000 for it.
  • This is where all of the anxiety comes from.
Understanding that and building a brand around the fact that TrueCar now has the transaction data that allows them to study that market live and in real-time is really the issue.
 
Scott grew up on things like Kelly Blue Book, which was started by a car dealer in southern California who was a market maker that put a price on a car.
  • It wasn’t based on transactional data.
Knowing that the data is there today, and TrueCar can use that as a real market dynamic to find a market-clearing price.
  • They believe this is a great place to start but True is much bigger than TrueCar.
To the extent that you can be a beacon for trust in a really murky market (like auto), you can not only go in to different adjacencies (like TrueLoan, TrueLease, TrueQuote, TrueTrade, etc.), but you can also go geographically and also look at other big categories (like homes, insurance, healthcare, financial services etc.).
On What A TrueHealthcare Would Look Like
Scott mentioned that they need to succeed in what they are doing currently so they have to stay focused, and they are really in the early days of that.
 
The first step Scott would take in addressing the healthcare system would be to privatize it.
  • The government is not the right way to go in terms of figuring out how to solve healthcare.
He would also shine a light on the cost structure.
 
What they do at TrueCar is a really good example because they educate and empower consumers by giving them data they never had before.
 
Knowing what everybody else paid for your car is the only way to know what is a fair price.
 
It is not MSRP or invoice because every dealer has a different cost structure, and many dealers are willing to sell cars at a loss.
 
The same kind of opacity exists in healthcare, and it should start by showing what everyone else is paying and getting.
On Scott's Previous Company Build To Order
Scott raised quite a bit of money for his custom car company called Build To Order.
  • It was really about understanding the problems with how cars are sold which starts with the fact that we have a “build to inventory” system not a “build to order” system.
In a build to order system you get to take all of those efficiencies back in to manufacturing.
  • This is what Tesla has done from the ground up, which is to not build a car until there is demand for it and a customer has placed an order.
That efficiency hits the bottom line for the consumer, and that was the whole idea behind build to order.
 
The industry really needed an external catalyst like an alternative to the internal combustion engine with the electric car.
  • This took somebody like Elon to take that kind of a risk.
The build to order system was operating on the premise that the auto industry has evolved to a point today to where the things that go in to a car are being done to a larger degree than ever before by the supply chain.
 
Build to Order was an idea that you can have a mass customizable car.
On Self-Driving Cars And The Sharing Economy
Scott is not a huge believer that the autonomous car is the goal.
 
It is really about reducing driver error. It is the idea that our cars will help us be safer.
  • This is a great byproduct of autonomous technology and a focus on that goal.
Scott believes it will be difficult to have autonomous cars and non-autonomous cars sharing the road at the same time.
 
Scott’s 20-year plan does not involve autonomous cars, and he doesn’t really think it matters.
 
The technology is going to get better and better.
  • You will get in a car and have a very hard time getting in a car accident, and that is a great byproduct of the technology.
He does not believe you will be getting in cars and they will just be shuttling you off.
 
Scott also does not believe that car ownership is going away.
  • The car industry is at an all-time high with 17 million units sold.
The issue is about affordability. If you can afford the car you will buy the car.
  • However, you won’t drive drunk anymore and if it’s convenient you will take an Uber to the airport.
The used car market has remained very hot over the last few years because the new car market was constrained for a number of years.
 
There was a shortage of late modal used cars, prices have gone up, and that market has been robust.
  • Now new cars are almost more attractive to buy than some used vehicles, and as a result the market has grown.
The market will continue to grow, and the way we buy cars will change.
 
There are two things that keep you between getting another car.
  • One is the high anxiety and high friction process, which is what TrueCar is solving.
  • The other is how you pay for the car.
The sharing economy does not mean the end of the new car business.
On An Apple Car
If Apple were to make a car you would see that coming from a long way away.
  • It takes 5-10 years to get a car to market.
Scott is also a big fan of electric cars. He thinks they are fun to drive and incredibly remarkable with the newness of the experience and technology involved.
  • There is room for both cars in the market.
The electric car market is still tiny and has a long way to go with a huge opportunity.
 
It would be a huge undertaking for Apple to make an electric car.
 
To do what Elon has done is pretty unlikely and remarkable.
 
The things you have to do aren’t just money or design related.
 
Apple would come at it from a very different point of view with a “design down” focus, whereas Elon is coming at it from an “engineering up” focus.
 
It would be cheaper for Apple to buy Tesla than it would be for Apple to figure out how to do it on their own.
  • They could overpay dramatically and still get a sweet deal.
Scott thinks the price would be even higher than $75 billion.
 
It is a very big leap to say that Apple will take that success in tech design and be able to transfer it to car manufacturing.
Parker Conrad Interview
On The Idea For Zenefits
Zenefits was started a little less than two years ago.
 
At Parker’s last company (SigFig) they were always too cheap and running out of money so they never hired anyone in HR.
 
Parker and his co-founder were dealing with a lot of these pain points around having a small company.
  • They spent a few hours each month getting people set up in payroll, enrolled in health insurance, etc.
Parker really resented these couple hours of doing this stuff.
 
The problem is you have around 20 different HR systems that your employees need to be set up in.
 
If everything was online and all connected and was one central place you could go to it would save everyone a lot of time.
  • This is essentially what Zenefits is.
Most of the time Zenefits is connecting to other systems.
 
They are not an insurance company, but they manage your relationship with the healthcare companies.
  • This is the same for payroll companies.
On Monetization And Metrics
  • Jason mentioned that he switched to Zenefits last year amd the $100/employee/month he used used to charge went away, which equated to around $20,000 in savings per company. 
Zenefits makes money in a bunch of different ways, but the biggest source of revenue is as a broker on your insurance policies.
 
The carriers pay brokers and those rates are built in structurally to the system so it doesn’t really change the end consumers price.
 
Zenefits has also built a lot of technology around the connection of these systems so there is less paper pushing on Zenefits’ end, which makes it more efficient.
 
There are about 800 employees now, and they are hiring about 100 people per month.
  • They have hired Mike Leary who used to run recruiting for SAP, and he has embraced the scaling project.
About 10,000 companies are using Zenefits now.
  • The sweet spot is companies with 5 – 500 employees.
You would definitely want to have a dedicated HR person once you get to be a larger organization, but what you ideally want is someone in HR who is really strategic in who to hire/promote, how to think about performance, etc.
  • It is not ideal for that person to be spending all their time doing the administrative and paper-pushing role.
  • So that person could use Zenefits for this.
What happens with Zenefits is people hire HR a little later in the company life cycle, but when they do hire someone it is a person who can be a real advisor to the business.
On Why This Hasn't Existed Before
The reason this hasn’t existed before is because there is a lot of complexity around the insurance side.
  • No one has really given a bear hug to that part of the business before.
One of the pieces of advice that people give startups that is wrong in Zenefits case is to focus and do one thing.
 
A lot of companies have focused on one spoke in this hub and spokes ecosystem, which has resulted in all of these other companies ending up with 20 different systems (one for payroll, insurance, 401K, etc.).
  • You need a company that brings all of that together and unifies it.
Salesforce for employment is an interesting analogy for the Zenefits business.
On Fundraising
Zenefits raised $66 million about one year ago from Andreessen Horowitz.
  • At that time the company was valued at $500 million.
At a certain point they will probably go out and raise money again, but nothing that is currently underway.
 
Parker spends 99% of his day on the business.
 
Much less sexy parts of scaling a business is where Parker spends all of his time, and he doesn’t spend very much time at all thinking about fundraising.
  • This is until a certain point when they will be in fundraising mode hardcore for a few weeks.
On The Hub And Spoke Model
There are many different systems that have a nexus with the employment record.
  • There are so many that it is impossible for one company to do all of them.
It really does make sense for there to be a hub and spoke model for all these different systems that you need to set people up in.
 
Ideally, you would have one place where you say you have a new employee. You input their information and hit “go”.
  • This would be a system like Zenefits that would just take care of everything like compliance, paperwork, and getting them up in running.
This is the vision of Zenefits.
On Bringing David Sacks On As COO
Parker wishes he could take a lot of credit for landing David Sacks as their COO.
  • This is one of the great things of having an investor like Andreessen Horowitz.
  • Parker felt like David was handed to him on a silver platter.
Andreessen had been talking to David and he was somewhat interested in joining the company.
  • Lars and Marc spoke with him extensively.
It was a little bit of a layup for Parker, and David was really excited about the business.
 
Parker was thrilled to have David on board.
 
Parker thinks about his and David’s relationship more so partners than Parker being his boss.
 
Growing a company for any CEO is overwhelming and scary on the best of days.
  • On the worst of days it is that plus deeply depressing at the same time.
Zenefits has had some rough days.
  • Parker likes to say that the arc is really long but it bends in the right direction.
  • This is what it is like growing a startup really quickly.
There are parts of the organization Parker can carve out and David will run with, which he is doing a great job of.
  • This leaves Parker time to focus on other areas.
On Technology In Insurance
One of the problems Zenefits runs in to is that the insurance companies operate with technology that is based in 1986.
  • They are working through a community of independent insurance agents who are mom and pop shops around the country with no technology.
The good news is that Zenefits is forcing insurance companies to build really good technology systems to integrate with them.
  • They are working with the 25 largest carriers in the United States to build electronic integration points for them, which reduces the paperwork.
Zenefits’ biggest challenge is getting new clients set up because there is so much that they need to do to connect up the insurance side of it.
  • Once they get through that point it is really easy.