How we built a business out of recession - chapter 35 - the wild goose chase continues
The story of CitNOW*
This is the 35th chapter about CitNOW, the company started from a kitchen table in Winnersh, Berkshire. If you’d like to read from the beginning, here’s a link to chpt 1. Each chapter is a 5-minute read. It’s an early draft of a book.
CitNOW was founded by Andrew Howells and Donna Barradale in 2005, although it was only registered in 2008. In February 2018, we sold the company to Tenzing, a UK private equity company, and it has been sold again since.
There is a certain arrogance when a successful company tries to expand beyond its home market. Expectations are high, accompanied by a presumption that it will automatically perform well, with a few tweaks here and there. The expense of local language support and the significantly higher cost of new hires, an irritating inconvenience.
The internet is littered with high profile failures, including Tesco to the US ($2 billion loss), Walmart to Germany and Japan ($1 billion plus $1.6 billion loss), AirBnB to China and the closest I could find to CitNOW, Hailo in the US.
Founded in London in 2011, Hailo was a mobile app that connected taxi drivers with customers. Within a year of its launch, it expanded into Ireland, Canada, and the US. Two years later, in 2014, it exited the US market. In 2016, it was acquired by a German competitor called myTaxi, ending the brand.
Hailo’s failures included not accounting for the new local culture. While they had worked closely with taxi drivers in the UK, they couldn’t reproduce the relationship with US drivers. The marketing expenditure to compete was also huge, especially when their deep-pocketed, well-funded competitors were Lyft and Uber.
The reason why some well-known supermarket brands have made such expensive mistakes is entirely because of their deep pockets and presumably a continued flawed belief that the losses being incurred at the time were an unfortunate but temporary arrangement.
You could argue that we were luckier, our hand being forced much sooner when sales didn’t materialise in a timely fashion.
Initially, the board decided that going east was a much better expansion option than going west. This meant that Europe was very much under consideration rather than the US. Given all the positive BMW success we’d experienced in the UK, perhaps we were a little unlucky with our first foray into Germany.
I would argue that a German company with a similar proposition would have fared much better the first time. This is not because of any product advantage but rather because of dealer behaviour, the more likely forging of stronger relationships with a local company that would largely avoid any not-invented-here syndrome. Pickings might have been smaller, but the accumulated knowledge through experiencing failure would have eventually benefitted them.
That might sound a bit odd. But the truth is the few dozen dealers initially recruited into paid pilots in the UK started as a much bigger number. Many dealers politely explained that this wasn’t something they were interested in at the time. It’s the polite brushoff which doesn’t really tell you much. Through experience, I knew the honest answer nearly always lay with the ability of the Sales or Aftersales Manager, easily identified through body language and a few questions. It’s hard to hide disdain, fear and incompetence. Even harder if you don’t speak German.
The biggest objection to going west was Colin and especially Michael (our Stirling-based shareholders who ran software development). They had previous experience with US software laws and knew how easy it was to be tied up in litigious knots when the company could least afford the subsequent legal costs to unpick them. The playing field was fairer in Europe or anywhere else we were being encouraged to go outside the US.
Entertaining China was just seen as an extension of what we were already doing in Japan. We decided to explore further before realising that Japan's slow start would be terminal. There was no decline because there were never any sales in the first place.
It was clear that Alistair thoroughly enjoyed his newly discovered frequent flyer status. At the height of our Asian goose chase, he spent at least a week a month in Asia, announcing to the board that his long-haul sacrifices should be rewarded with at least some additional holiday concessions because he was losing weekends through travel.
Three factors finally ended platinum card flyer status.
It eventually became clear that the only way we could survive in Asia was with the help of a distributor. It wasn’t something new to us, and potentially, we might recoup our losses eventually.
We already had a successful relationship with Tony in Ireland, who acted as our reseller north and south of the border. There had also been various discussions with several South African distributors. I’d even done some business in the very early days with an ex-BT** bod in Australia, who’d set up a few pilots before we even had an app.
The distributor chosen to solve our Asian woes was in South Korea. They had automotive relationships in China and Japan. They also agreed to hire our one remaining Japanese employee, although we continued to pay her salary for some time. The deal cost us more money, but at least now, our Asian folly was finally contained to a diminishing red line on the spreadsheet.
At the height of our indebtedness, Steve, our CFO***, reflecting on the situation in our small, shared Wokingham office, where space was now at a premium, remarked that he was sure gold could be found in hills far closer to home than in Japan. Never a more accurate observation was spoken; ironically, the place turned out to be Telford long after Steve had gone. It’s about an hour from where Alistair lived.
Gordon was tasked with maintaining Asian relations, clearing odd weeks in his schedule when the distributor had arranged a few significant meetings with dealer groups and the odd manufacturer. He also tried to make new connections through his extensive UK relationships. It didn’t take Gordon long to discover a potential Australian partner who started making sales almost immediately after being appointed.
With Asia now under control, there was more time and money to focus on markets closer to home.
Aside from those unrealistic sales forecasts, we were still puzzled about what had gone wrong when we first entered the German market.
It turned out that there was a simple explanation. The people we’d chosen to employ were not senior enough. We assumed that more expensive employees weren’t needed because Alistair and Gordon were available for significant decision-making meetings. Even though many Germans speak English, we were still handicapping ourselves.
The better solution was to hire country managers for our primary European markets, including Germany, which we did with the help of Chris**** and his impressive list of candidates he’d worked with at GM*****.
The third factor was escalating costs in our home market without the supporting sales uplift. We were haemorrhaging cash, and it had to stop.
*CitNOW was our company’s trade name before we sold it in 2018.
** BT is short for British Telecom.
***CFO, Chief Financial Officer
****Chris, a senior consultant and ex-GM was initially employed to attend board meetings, effectively acting as our non-executive chairman.
*****GM, General Motors