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Part Three: Tech startups

Not all startups are created equal Add to ...

The first thing Andrew Tai and his partners did – before hiring engineers, before looking for startup funding – was talk to people.

Last year, Mr. Tai had an idea for a Web-based business. He saw that people could now do all the research needed to pick a new vehicle on-line, thanks to a slew of helpful Web sites. But in many cases, actually buying the new car still involved going to a dealership and haggling with a salesperson. Mr. Tai decided to launch a site, Unhaggle.com, that allows consumers to let multiple dealerships vie for their business.

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Since the site went live April, it has expanded from servicing Toronto to just about every major urban centre in Canada, and has garnered numerous press mentions.

But as a startup, Unhaggle had a slightly different creation story than most new tech businesses.

In previous installments of this series, we’ve looked at the growing wave of tech entrepreneurs, and how they’re getting a variety of new businesses off the ground. In most cases, those businesses tend to follow a well-defined trend: coming up with a great idea, looking for funding and building up a user base, before trying to generate profits.

Mr. Tai did things differently. For years, the commerce grad worked a lucrative day job on Bay Street. Indeed, he readily admits he didn’t know all that much about the car or technology industries when he quit his day Job in January to focus full-time on Unhaggle. So he started consulting with everyone in the industry he hoped to enter – from car dealers to manufacturers to people in the financing industry.

“At first we thought our idea was brilliant. We thought, OK, let’s get some engineers and get started,” he said. “But the more we did this initial diligence, the more of our assumptions turned out to be false.”

Take, for example, the startup’s fundamental business model. Mr. Tai said he and his co-founders initially wanted Unhaggle to be free to consumers, just like countless other Web-based services. However, multiple car dealerships told him the idea didn’t work when similar startups in the U.S. tried it. Because there’s no cost for filling out an application form, users rarely followed through on their applications, and dealers found the conversion rate to actual car sales was frustratingly low. As such, Mr. Tai decided to make Unhaggle a fee-based service – users pay $47 per car.

Unhaggle is also unique in the way it was funded. Even now, as the site picks up traction around the country, it is still funded entirely by its founders, who maintain as lean a budget as they can. Mr. Tai said the company is only just starting to look for external funding “Ultimately you need money to grow and scale, but it’s a very different conversation when you walk into an investor’s office and say, here are the results,” Mr. Tai said. “We’ve got some great initial validation.”

Still, the funding process can be challenging because Unhaggle falls into a sort of no-man’s land – it’s no longer a very early-stage startup, nor is it a well-established company looking to raise massive rounds of investment. Additionally, a lot of the big money is south of the border, where Unhaggle is yet to gain a foothold.

“You get significantly discounted when you mention that all the great validation you talked about happened in Canada,” Mr. Tai said.

Still, Mr. Tai added that an increasing number of young people in his situation – with great day jobs and career prospects in large companies – are starting to consider going out on their own as a viable alternative, whereas before, such an option may have seemed too expensive or risky.

“There’s a shift in the attitude toward entrepreneurship,” he said. “It’s easier than ever to start a company now, there’s a new lustre to it.”

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