Why we chose growth over profitability for Car Next Door

Why we chose growth over profitability for Car Next Door

When I founded Car Next Door five years ago, I had a five-year plan. Most importantly, the plan was to build a peer-to-peer car share platform that in five years’ time was having a real positive impact on the planet, by reducing CO2 emissions from our wasteful “one person, one car” mentality. And secondly, the plan was for that business to be making a profit.

I knew that the chances of building a start-up and making it a success in Australia were small - we’re far from the funding of Silicon Valley, and even some of the greatest ideas fold for lack of capital. But I and my co-founder Dave Trumbull were very determined to succeed.

Five years on, we’ve raised over $10 million and created a community of 80,000 members sharing over 1,400 cars, utes and vans, with over 9,000 trips booked each month through the platform. And we’re still making a loss.

When we tell people that - whether it’s our staff, families, loyal members, or our board and shareholders - they sometimes ask why. Or maybe they don’t actually ask, but you can see the look of confusion / pity in their eyes. So I wanted to explain why we’ve chosen this path.

Because here’s the thing I didn’t expect: at a certain point, you can choose whether to take a profit or not. And when profitability finally became an option, after years of hard slog, it actually felt like a cop-out.

We’re certainly not the first to choose growth over profit - just look at Uber, Airbnb and Airtasker for examples of marketplace businesses that are burning through cash to reach ambitious growth targets. But what are the factors that would lead a founder, having been in a position to break even, to choose not to run the business at a profit?

It’s because when you finally reach the point where the business earns enough to cover its expenses, you’re faced with a choice: start returning profits for shareholders, or invest in growth. Others will make a different choice, and I’m not criticising that decision in any way. But when faced with this choice, I decided that I’d rather be growing a company with a world-changing impact than taking a profit. In fact, I would rather grow it much faster, by not only re-investing our earnings back into the business, but also raising money from investors to help us grow.

Growth is a particularly strong imperative for Car Next Door, because we are a network business. Our peer-to-peer platform lets people rent their cars out when they’re not using them, safely and easily. And, like the classic example of a telephone network, or Facebook, the value of our network to each car owner and car borrower depends on how many other active users there are. If you are renting your car out, you want plenty of borrowers on the platform to book and use it. And if you’re looking to drive a car, you want plenty available to choose from.

Because we are working to build a big, active network and highly liquid marketplace around a new type of service, there are two main ways we can allocate our growth spend:

  1. Spend on development. Hire the most and best developers we can find, and make the product so good to use that people will use it again and again and tell others about it. At Car Next Door (as at tech businesses of all sizes), hiring more talented developers is a constant goal. We’ve now got 8 software developers who work with Ruby on Rails and Javascript, and are hiring more.We’re now able to build new features and improve the platform much more quickly than we could just a few years ago, when we had only three developers. We’ve invested a lot of time, energy and money into the platform already, and we’ll keep investing - because every improvement in features and user experience means more people who find Car Next Door actually use it, and those people who try it are wowed and tell their friends.
  2. Spend on marketing. Paid marketing is essential for growth: not just for getting that customer on, but for the amplification effect that each new customer brings. Each person who joins Car Next Door through paid marketing is another person who can talk about it and increase our word-of-mouth reach. After five years of testing and experimenting with different forms of marketing, we know what works well and what doesn’t, and how to get the best returns for our marketing spend.

These two items make up a big portion of our expenditure. We could cut either of them and become profitable today - and we’d still grow at around 50-60% a year, just on referrals. But we’ve got big plans. Our mission is to free people and the planet from the ‘one person, one car’ mentality. We want to have a real impact on the pollution and waste caused by our current patterns of car ownership. And we want to do it fast.

So given the choice between taking a profit and growing at 50% a year, or investing the money into growth and growing 130-200% a year, I choose growth.

Car-Next-Door-48-Will-Davies
Will Davies, CEO & Co-Founder of Car Next Door.

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