CarGurus CEO on Profitable Tech Startups, and Why Uber Is Road Kill

CarGurus might be the biggest Boston-area consumer tech company you’ve never heard of, but founder and CEO Langley Steinert is ready to change that.

Based in Cambridge, MA, the decade-old firm has grown to more than $100 million in annual revenue and around 300 employees, with much of that growth coming in the past couple of years. CarGurus’ website, which helps people search locally for deals on new and used cars, receives about 20 million unique visitors each month, Steinert said during a chat last week with Founder Collective managing partner Eric Paley in front of dozens of entrepreneurs, investors, and other members of the local tech community.

CarGurus has accomplished all of this with just $5.5 million from individual investors, including TripAdvisor co-founder and CEO Steve Kaufer—no mega venture capital rounds and no huge marketing blitzes. The company has been profitable for eight years, said Steinert, who previously co-founded and served as board chair of TripAdvisor.

In short, CarGurus is a classic Boston company—find a solid business idea, execute, stay frugal, and don’t toot your own horn unless you can deliver.

But now, Steinert (pictured above left) seems ready to start honking CarGurus’ horn more aggressively. Speaking at last week’s event was one small example. CarGurus also recently hired former Gazelle chief marketing officer Sarah Welch as its senior vice president of consumer marketing. “It’s her charge to change that,” Steinert said of CarGurus’ relatively low profile. “We see that as probably opportunity more than anything.”

Playing devil’s advocate, Paley needled Steinert on whether he thinks CarGurus could have grown faster if it had pumped more money into the business, especially the marketing budget. The model for most consumer software companies is to funnel millions into quickly acquiring users, and worrying about profits later.

“I don’t think there’s any wrong answer,” said Steinert, a former venture partner with Flagship Ventures. “People on the West Coast, I would agree, have a different style, which is raise a big round, shoot for the fences—which is great if it works. But if it doesn’t work, it’s not so fun.”

For a while, CarGurus wasn’t “profitable by much,” and it has reinvested a lot of its earnings into search engine marketing, Steinert said. “We could’ve invested in the brand earlier,” he said. “We probably should’ve.”

The counterpoint: “I sleep better at night knowing we’re profitable,” Steinert said. “Maybe that is why Boston is different than San Francisco.”

Steinert’s approach to running the business could pay dividends down the road when his company goes public, which he said is his plan. In recent months, tech IPOs have been few and far between, and the stock markets haven’t been kind to some tech firms that have gone public. But public investors seem willing to reward some profitable tech companies, as Acacia Communications’ successful IPO on Friday demonstrated.

CarGurus isn’t going public any time soon, Steinert said. “My goal is to put it off as long as I can,” he said. “As long as we continue to post great earnings and revenue growth, it’ll take care of itself.”

Here are a few more highlights from Steinert’s talk:

—Autonomous cars: Steinert said he doesn’t think autonomous cars will put CarGurus out of business. He thinks plenty of people will still want to buy their own cars, especially if they live outside of densely populated cities, where it would be much less convenient to rely on on-demand, driverless car services for transportation (like what Uber and others envision).

Rather, Steinert said, most people will use computer-controlled driving as a feature in the car, akin to cruise control. For many, “the car is an emotive purchase,” Steinert said. “It’s a part of your personality.”

Bonus provocative statement from Steinert on this topic: “I think Uber is road kill. I think Google has their crosshairs on Uber. They will come out with an autonomously driven, Uber-type service that you pick up your phone and order.”

—TripAdvisor’s secrets: Steinert, who left TripAdvisor in 2005, said the keys for his last company were raising “as little money as possible” and being willing to tweak or even scrap the business model.

TripAdvisor only raised around $4.5 million in outside capital, Steinert said. It was acquired by IAC-owned Expedia for $210 million in 2004, then spun out as a public company in 2011. It’s currently valued at over $9 billion.

But early on, the online travel search and booking site struggled to find the right business approach. It initially was a search engine that indexed other Web pages to accumulate info that would hopefully be valuable to travelers, Steinert said.

“TripAdvisor came within three months of running out of money,” Steinert said. “We had the wrong product, [one] that no one wanted to pay us money for.”

The company later incorporated user reviews, which have become its calling card and helped propel it to its current heights. “Our burn rate was so low that we could literally run on fumes for six months,” Steinert said. “We had enough runway to iterate and try a new business model.”

A similar thing happened with CarGurus, Steinert said, which began as a user review site for cars, similar to TripAdvisor. “It was a horrible idea,” Steinert said.

CarGurus switched to a business model that is more like Kayak for used cars. “We coded up some stuff and stuck it out there, and traffic started taking off,” Steinert said. “You need to come out with a unique product that has value to consumers.”

—Leadership style: Steinert takes a hands-off approach to running a company, opting to “hire great people” and then “give them great latitude,” he said.

He aims for one meeting per week with his employees, he said. “What I don’t want to become is someone who manages all the time.”

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