Photo by Tom Fisk
Stan Markuze was one of three co-founders who decided to take something analog and bring it into the digital age. They took in-person live auctions, made them digital, and built a marketplace. They built a company valuable enough to yield a 7X multiple on revenues.
The Model
You may be familiar with the notion of impounded vehicles, but you may not realize that 20% of those impounded vehicles never get picked up. For years that meant that every other Wednesday in San Francisco, for example, there would be a live auction at 10am for 100-200 vehicles. Those who could make it there broke down into an interesting cross-section of buyers:
- Dealers: they would buy the best cars, rehab them, and sell them on
- Hobbyists: they love projects and fixing things up; they would buy the classic fixer-upper…in this case it might be a car that was otherwise fine but was involved in a collision (which was why it got impounded in the first place)
- Scrap dealers: they showed up for the worst of the worst vehicles, because even those would yield them money in terms of the scrap they could salvage
You can see right away, it wasn’t just the auction itself that was analog…the buyers were too!
The Solution
Stan and his partners realized that digital versions of these auctions could yield a far larger pool of buyers in the general geographic area of the municipality where these vehicles were stored. If they could also create a marketplace with less friction, they could stand to gain from every sale.
The model they settled on was simple: buyers paid 15% of the final sale price, sellers didn’t pay anything. Joyride (the name Stan and the team decided on) charged your credit card that 15% when you won the auction, so the business was cash flow positive right from the beginning, allowing the partners to take a basic salary.
Scaling
As we alluded to earlier, it wasn’t just the auction that was analog, but the buyers were too. They had been going to these auctions for years and were not the most tech-savvy demographic. In fact, as it turns out, a lot of them didn’t even own a personal computer. But almost all of them had smart phones.
So Joyride built a software that was easily accessible by smartphone and also paid a company to call up every single one of the customers that had always come to the live auctions to come over to the new digital world. A few of them balked, saying they weren’t going into the brave new world, but the overwhelming majority came over, and Joyride was on its way to developing a marketplace of buyers and sellers.
One of the partners had developed good relationships with three municipalities (one of them being San Francisco) so the company was able to get off to a good start. But if they wanted to truly scale nationwide they would need help from an investor or they would need to be acquired.
The Buyer
As it turns out, John, one of the partners, had previously helped build and sell a towing management software company. That company was developing an end-to-end solution they could sell to cities, which would take care of towing/impounding/selling, and Joyride looked to be an attractive piece of the puzzle. They made an aggressive offer, and the team experienced a great exit. As noted above, it went for 7X revenue, and at the time Joyride sold, they were doing in the low 7 figures per year. The structure of the deal was part cash, part stock (in a new company), and part earnouts, all over 4 tranches. The team ended up hitting three out of the four tranches, missing the most ambitious final tranche, but ended up being very satisfied with the deal.
Lessons
As always in these case studies, we look for lessons we can all take away. Here are three from this one:
- Analog to Digital is a great business model. How many existing businesses are there that still live in an old-fashioned format but could become digitized? Joyride started and finished its journey just in the last ten years, showing there’s still opportunity out there if you are willing to look.
- Make it easy for customers to change. The type of demographic that goes to these auctions weren’t “tech bros.” Joyride knew that and accommodated them by building software they could use on their phones and by calling them each personally and walking them through the onboarding process.
- Balance ambition with cash when selling to a strategic buyer. The reason a strategic buyer wants to acquire you is because they want to build something even more valuable and are willing to put expertise and cash behind it, and sometimes you’re part of that expertise, which means you can get paid on the journey as well. But beware of being overly ambitious or allowing the acquirer to set unreasonable targets, as we saw in the unpaid 4th tranche in this situation.
At Apex we are in the marketplace creation business too! We have thousands of qualified buyers looking for a good business. Do you have one you’d like to sell? Reach out today.