Ernie Garcia | Crain's Indianapolis

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Ernie Garcia

Background:  

Carvana launched five years ago in Atlanta to sell, trade-in and finance used cars online. Buyers can go to a location and pick up their purchased car from a glass and steel building that operates like a vending machine, or they can have the car delivered. The Phoenix-based company delivers cars to 37 markets around the U.S. and began trading on the New York Stock Exchange in April. Carvana launched in Los Angeles, its largest market to date, on Sept. 6.

The Mistake:

Before launching Carvana, I founded a startup several years ago called Looterang. This was the heyday of deal sites like Groupon and LivingSocial. Even though the digital-discount space was booming, it was already clear there were cracks in the model.

To refresh your memory, these startups angled for attention with hefty bargains on everything from restaurants to massages. The idea, of course, was to draw consumers to businesses they might not otherwise visit. But that was only half the equation. To make the model sustainable, curious bargain-hunters had to be converted to repeat customers.

And therein lay the problem: Creating loyal customers was a tall order given the enormity of the discounts being offered. Why would anyone pay full price for a service they’d previously gotten for 80 percent off? I wouldn’t.

So, we thought, why not try a new way? The idea was to offer much smaller markdowns on products and services, enticing people to check them out while giving them enough reason to keep them coming back for more. What’s more, we wanted to smooth the entire transaction process by weaving discounts seamlessly into the payment process. No need for anyone to fumble for their phones to dig up a payment app, let alone present crumpled coupons to befuddled servers. Looterang was born, and we couldn't wait to show both consumers and companies a better way forward.

But, despite my best intentions, the company didn’t work. There were too many parts of the business we knew nothing about. We had to learn how the payments infrastructure worked, how to connect to point-of-sale systems at restaurants and service providers. We had to develop sales teams and collections processes. And all that was just to support the consumer-facing technology we really wanted to build. There were too many things we didn’t understand, too many industry players we didn’t know. We just couldn’t make it work.

All entrepreneurs are probably a little too optimistic or they wouldn’t be entrepreneurs.

The Lesson:

After Looterang’s demise, I turned to a business I was much more familiar with: cars. We started Carvana in 2012, sold the first car in 2013, and earlier this year, we went public.

What was the difference? With Carvana, we were better prepared for more of the problems, worries and hurdles that came our way. We started the business with a deep knowledge of the industry that proved invaluable as time went on. We knew who the main players were; knew where to seek partnerships; knew the best sources for funding. We didn’t need to guess which audience to communicate with for each part of the business and we weren’t surprised by the problems that came our way. Today, the business is going incredibly well and we couldn’t be prouder of the business we have built and the customer experiences we are able to deliver.

That’s not to say things have been perfect along the way. I’ve made my share of mistakes with Carvana, and there have been plenty of exhausting days here. (Dealing with an opening in Atlanta was more than a little hectic given our company’s headquarters in Phoenix). But this time, I’ve been better equipped to weather difficulties.

All entrepreneurs are probably a little too optimistic or they wouldn’t be entrepreneurs. This is true even when you know a business well. But when you embark on building a business in an industry you don’t understand, that optimism can be fatal because you aren’t prepared for the problems you will face nor are you well-equipped to solve them. The key is recognizing that optimism inside yourself and knowing that everything is going to be harder than you think along the way. You have to tackle problems that look easier than you are ready to tackle, and ensure you bring more funding to the table than you think you’ll need. You’ll be wrong along the way, but if you plan for it, you give yourself a chance to be right in the end. 

Photo courtesy of Ernie Garcia

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