Chip Perry transformed AutoTrader from fringe start-up to industry leader Featured

8:01pm EDT April 30, 2011
Chip Perry transformed AutoTrader from fringe start-up to industry leader

When Chip Perry moved from Los Angeles to Atlanta in 1997 to start AutoTrader.com for Cox Enterprises, he was given a one-page business plan, significant financial backing and an empty office and told to go for it.

“It was the Wild West days of early startups,” says Perry, the company’s president and CEO. “It was before the meltdown of 2000, 2001. There was tremendous capital flowing in that formed a bubble that burst. There were many different ideas about how the Internet could participate in the automotive industry, and we were there with a clean sheet of paper.

“How would we build a service that consumers would want to use and dealers would want to use and create a source of competitive advantage that would sustain the company through the early years and help it have a foundation from which to scale?”

From the beginning, he didn’t want to have a company where people bought and sold cars online — he wanted it to be a marketplace to help people locate vehicles and provide more comprehensive information than newspaper ads provided — the transactions themselves would happen offline. But from that simple vision, he had to build a business that could scale.

“To scale a company, once you discover a successful model, it requires very careful year-over-year execution of a plan that needs to change every year,” Perry says. “One of the ways we were able to grow was we created a new plan every year. We called it the ‘Annual reinvention of AutoTrader.com.’”

Creating a new plan every year has taken AutoTrader.com from nothing when it started to more than $700 million in revenue today. While it’s not easy to come up with a new plan each year, it’s the key to ensuring you create a scalable business.

“Every year we reinvented ourselves by setting new objectives,” Perry says. … “Our vision to dramatically improve the way people buy and sell cars was consistent. Our vision to be the best car-shopping destination and the best advertising vehicle for marketers, that was constant, and the business model of enabling our sellers to advertise to consumers for this pay-for-placement style was constant. But many of the details around exactly how to execute that strategy changed every year.”

Solicit ideas

If you want to create a new plan every year, you have to start with getting plenty of new ideas. At AutoTrader.com, the ideas from Perry’s 2,000 employees don’t go into a suggestion box and die. They’re parked in what Perry calls the “innovation garage” as they wait to be reviewed.

Encouraging employees to submit ideas is one way that he gathers possibilities for his strategic plan.

“One of the hallmarks of successful companies is being open-minded and receptive to ideas for improvement from the employees, who are closer to the work than the executives are,” Perry says. “It’s kind of built into your DNA. Either you are or you aren’t receptive. You have to be curious and receptive and then be willing to work with it. Then you need to set up a pattern and a tempo of consistency on this topic. If you do it once, and it goes away — a flash in the pan idea — it becomes not effective. If you do it every year, you’ve been doing it for 10 years, people come to expect it, and it becomes part of the culture.”

The main way he does this is through a comprehensive annual survey of the employees. The survey addresses culture-related questions about their jobs and how they feel about the company, but they also have an opportunity to provide input.

“If you were the CEO of AutoTrader.com, what would you do to make the company stronger?” Perry says. “We ask that question every year.”

He typically gets about two 3-inch binders full of ideas — single-spaced and using both sides of the paper. But when those ideas come in, he also communicates back to them a clear message.

“We also provide employees with a response,” he says. “This is what you told us, this is what we heard, and this is what we’re going to do with your input. Every year, we tell them, ‘This is what you told us last year and this is what we’ve done about it.’ Then we ask on the survey, ‘Do you think we did a good job of acting on the things that you told us last year or not?’ People can become very cynical about surveys if you don’t take them seriously.”

In addition to listening to employees, Perry also goes to clients and consumers for input. Three to four times a year, he has dealer advisory meetings where he takes dealers off-site and shares with them where AutoTrader.com is at and what plans the company has for improving services. He asks what they think and listens to their feedback.

He does the same thing with consumers. They come into a lab they have in the building and use both AutoTrader.com and competing sites and they ask consumers what they like about each and what they don’t like about each. They also ask what unmet needs they have in the car-buying process.

Prioritize

As the market leader, Perry never has a shortage of opportunities or ideas to explore, but the next step to creating a new plan every year is to actually figure out what to incorporate and what not to. He uses an initial litmus to determine if an idea is even worth considering.

“Our true north — the beacon that guides us — is, ‘Does the idea help the consumers shop for cars easier?’” he says. “Does the information make it easier, more convenient for them to locate the car they want to buy and be smart about how they’re going to buy it, and if it helps consumers do that and if it helps a dealer or manufacturer be more efficient about how they explain their offering and influence car shoppers, we’re interested in it.”

If it fits that, then they have to dig a little deeper to see which ones can be most beneficial.

“It’s important to be as objective as you can and gather objective facts and information,” he says. “One of the things we try to do is whenever it’s possible, to go out and do some research about the potential impact of an idea, so we’ll go talk to consumers and dealers and manufacturers and ask them for their guidance on how valuable they think it is, so research is a very important part of it.”

Perry says sometimes it’s not easy to quantify the benefit associated with a new idea, but that’s where research comes into play. Ultimately, he wants to move on ideas that provide the biggest bang for the buck — affecting his consumer audience as well as his advertising clients.

“We try to make our best estimate or guess about the benefit to the consumer and dealer and try to quantify the amount of value that the idea provides to our customer and the amount of revenue the idea could produce,” Perry says. “We make our best guesses and then we prioritize accordingly. We also weigh in the cost and effort and complexity of implementing the idea — some are easy and some take months and months of work.”

Another way Perry prioritizes ideas is to rely on the people in his organization to help him.

“Gain multiple perspectives from inside the company from different sources,” he says. “Having a diversity of ideas and perspectives to debate the merits of different ideas is very important.”

When all the ideas come into the innovation garage, Perry doesn’t let them sit around for long periods of time.

“The suggestions get organized by department, and the department heads read them and use them to create his or her action plan for their department,” Perry says. “Then that action plan is communicated to the employees in that department.”

At the department level, ideas are reviewed and absorbed in about a week after all the information is gathered. A comprehensive report goes out to all the employees about the compiled results.

“Within a month, we’re back to our employees saying, ‘This is what we heard, this is what we’re doing, and you’ll be hearing more at the department-level soon,’” Perry says.

Then the department heads determine how the suggestions provided can roll into their goals that will help the company achieve its goals.

Taking all the input from the research, he then works with his team to rank order what opportunities to pursue.

“We’ve let our common sense guide us in how to create processes in the company that generate ideas, research them as objectively as possible, debate them from multiple perspectives, try to quantify benefits and then ultimately make a judgment call about where is the most bang for the buck,” Perry says.

Test pilot

Once ideas have been vetted and align with the company’s goals, then the last phase before implementing them into your strategy is to test them.

“A willingness to take risks and experiment is very important, because the good ideas stop coming if people think there’s no chance it will ever get implemented because they’re viewed as too risky,” Perry says. “You have to be willing to experiment, make mistakes and iterate toward a better solution in order to promote an innovative environment where people feel safe to make suggestions that are outside the box, and then the company has to be willing to methodically test and evaluate them.”

The key is to start small.

“The good approach is to try and test an idea in a portion of your business,” Perry says. … “Test in a portion of your total-served market and then observe success and problems and try to iterate and evolve toward a better solution before you roll it out.”

At AutoTrader.com, when it wants to try out a new idea, it is tested in one or two markets. For example, one offering AutoTrader.com has been working on is a tool that offers a seller an instant offer on their car. Sellers describe it, and then dealers can make offers to them, which are contingent on the car matching the description provided. If a seller sees an offer he or she likes, he or she can go to that dealer, have the inspection, and then get a check on the spot. Dealers like it because it brings in prospective buyers. Sellers like it because they can get an offer fast.

“You do your best job you can in launching something new like this, but by definition, it’s not perfect,” Perry says.

You have to look at what works and what doesn’t work and how you can improve the program to make it better.

“If it works, we figure out what does it take to scale this idea up and make it easy for consumers to use and adapt nationwide,” he says. “If it involves little training, we can roll it out very quickly. Consumers adopt things that are good for them very fast.”

In this particular case, it started in two cities in late 2009, and now it’s in 200 markets across the country, and there are now upward of 80,000 instant offers each month through the site.

“It was so popular that we pulled forward and accelerated the launch plan,” he says. “There’s an example of one that takes off. Then there’s other things that take longer or stumble.”

For example, AutoTrader.com has many customers with low credit ratings, but the company wants to be able to serve those people, so it has been working to help them find dealers that really serve that segment of the market. It’s a tool that Perry has had trouble finding the sweet spot that meets both the dealers’ needs as well as the customers’. But because it’s a great need in the market, the company will continue to refine it and make that process better.

Sometimes ideas just aren’t feasible at all. This was the case with auction-style listings AutoTrader.com did with eBay back around 2000. While it might be interesting to bid on a car online, what Perry and his team realized was that when you couldn’t see the car in person and inspect it and test drive it, consumers generally weren’t willing to pay more than wholesale.

“Most dealers are not interested in selling cars to the public for wholesale prices — they sell retail, that’s how they make money,” Perry says. “So if consumers only want to pay wholesale, why should (dealers) participate?”

When an idea works, it gets implemented into the plan, and the greatest thrill Perry has is being able to celebrate it and thank the person who suggested it.

“We present ourselves as an open-minded, flexible company that can change over time,” he says. “We can’t implement every idea tomorrow, but I can’t tell you how many hundreds of ideas our customers have given us, and it’s a lot of fun when you get a chance to call them up and say, ‘Remember that idea you gave us three or four months ago? It just went live on a national basis.’ That’s very exciting.”

How to reach: AutoTrader.com, (866) 288-6872 or www.autotrader.com

The Perry File

Education: Civil engineering degree, University of Virginia; MBA Harvard Business School

First Car: Perry paid $350 in 1975 for a turquoise green, 1965 Plymouth Valiant with a three-speed shift on the steering column.

Number of car purchases Perry has made through AutoTrader.com: Four

Prior experience: Before joining AutoTrader.com, Perry was vice president of corporate development for the Times Mirror Co. and vice president of new business development for the Los Angeles Times. While there, he launched TimesLink, one of the first major online newspaper services, which later became known as LATimes.com. Earlier in his career, Perry worked as a management consultant at McKinsey & Co.