Wednesday, January 16, 2008

Investor Sentiment Ch 2 - Dealing with the Status Quo

In the process of raising funding for Local Motors, we have met with all kinds of investors and received all variations of feedback. Like any venture prospect, we are met with a raft of questions of a similar sort:
1) What is different about your business?
2) How will you sell a car that can compete with Lexus, BMW, Honda, Cadillac, etc?
3) Isn't the US the absolute worst place to start a car company...shouldn't you be in India, China, or Bangladesh?
4) If your idea is so good, then why hasn't it been done already?
5) Who do you think you are? Henry Ford?
6) People like to buy cars on impulse, that is why dealerships keep so many in stock. If you don't have cars in stock, you won't attract most customers, will you?
7) Doesn't this require a HUGE amount of up front capital?

These are all good questions that we are prepared to answer...well, all except #5, because no one could ever be like Henry Ford...and not all our cars are going to be black!

Nonetheless, when we answer these questions with the findings of a plan based on several years of research and planning, we are still destined only to convince a select group of investors who are willing to back our idea. I would say that I am generally content with this distribution of believers and non-believers, but every so often I just get so fired up about someone not "seeing" our plan, that I cannot stand by without at least a mini-rant.... and this is one of those times.

Let me give you some exact quotes from recent anonymous potential investors that reacted negatively to our plan:

"I've got to say that I'm a bit skeptical that this industry can be changed by a start-up. There's just way too much complexity, scale-economy, and infrastructure inertia involved. In fact, I've been trying to figure out for my entire career how I could get involved in a lucrative venture in the automotive industry.....And, given the inertia and resistance-to-change that I've witnessed thus far (by the American car companies as well as Japanese), I can see why VC's have been hesitant to invest in the industry to date. [Local Motors ideas] are all great ideas and, I believe, most will be implemented eventually. But, I think it's going to take huge amounts of capital and a much longer timeframe ..."

"Unsolicited advice: I would not claim "firsts" for your company until it is running: I have been involved with 5 "disruptive" car company plans and financing groups quickly become weary of such claims. Disruptive concepts are easy to come up with in this industry: to actually make cars is harder...."

"Making cars is a business for big boys and it is not easy, I am not optimistic that a start-up such as yourself has any real chance of making it to market."

......and the list goes on.

While there are specific responses to each of these critical comments, I prefer to fight fire with fire by asking an even simpler raft of questions. "If this is such a good current industry setup...."

1) Then why did GM post the 2nd largest EVER quarterly loss in history of 39BN in 3Q07?
2) Why did Ford post a 13BN loss in 2006?
3) Why do customers trust the quality of Japanese and German cars more than American?
4) Why did Cerberus just buy Chrysler?
5) Why is auto union membership at the lowest level in decades?
6) Why do customers almost universally not trust dealerships for good service value?
7) Why does Factory Five have 7,000 cars on the road and over 100MM of sales in 12 years?
8) How did Home Depot make it into business?
9) How could Starbucks charge $5 for a cup of coffee?
10) How could Eastman Kodak have ever been challenged?

.........and the list, also, goes on.

OK, just a little rant, and I probably shouldn't care so much to convince people that are immovable, but I just cannot resist trying. I guess that is why I was crazy enough to see this idea through.


Jeff Jones said...

Mr. Ford's idea for commonality yielded savings in materials, development, and production alike, but back then simply owning a car was a status symbol. Today, Local Motors believes that designing and building a car will be the new symbol!

Local Motorhead said...

You got it!

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