Three exits and a failure: Motorway's Tom Leathes on how to disrupt big industries

0:02Hello and welcome to the Sifted podcast supported by Vanter. Vanter is the fast frictionless way for growing companies to get compliant, stay secure and earn and maintain the trust of vendors and customers. I'm Amy, Sifters Editor, and today I'm joined by serial entrepreneur Tom Leith. Tom's the co-founder and CEO of Motorway, a used car marketplace. Think of it as eBay for used cars. Private sellers post details of their cars online and dealers bid against each other to buy them. Since launching in 2017 and being bootstrapped for its first couple of years, the platform has helped over half a million people sell their cars and was last valued at 1 billion euros in its 2021 Series C.

0:46It's raised$272 million today from investors including Iconic, Local Globe, BMW iVentures and Index and has over 400 employees based in offices in London and Brighton. Before Motorway, Tom successfully exited three startups including a broadband and mobile phone comparison site, an office space aggregator and a startup doing lead generation for loans and life insurance. He also, as most serial entrepreneurs have under their belt, a failed startup called Top 10, a London-based hotel ranking app backed by the likes of Axel and Borderton. We'll get into what went right this time, what it was like watching Motorway's biggest competitor going into administration last year, and why the UK struggles to attract and retain tech talent.

1:34Tom, welcome to the Sifted podcast. Thanks for having me, Amy. This is a fun one for me because I don't even know if you remember this, Tom, but in my previous job, I'm pretty sure I met you and one of your co-founders at like a bench in Camden when Motorway was a tiny startup working out of a, I think, old mental hospital. Is that right? Yes, I do remember that actually. And I remember, I think you reached out to us and we arranged to meet and then we realized that we couldn't possibly bring you into our office because it was just too embarrassing. And so I think we went to, yeah, to a bench or something.

2:12So yeah, it was a long time ago. Yeah, we've both come a long way. So you and your co-founders, Alex Buttle and Harry Jones have started four companies together before this one as I mentioned in the intro what led you to go into used cars this time yes good question everyone thought we were a bit crazy at the time but I think as you mentioned earlier our last company didn't work out we had three really successful well moderately successful startups prior to that all of which were bootstrapped and then we had one that didn't work out and that was tough and that was really the origin story for motorway because we knew we wanted to do another startup and in fact we wanted to do a startup that would define the rest of our careers not just be something that we do for a few years so we actually spent quite a long time working out what to do next and the car market was just something that really grabbed us from the very beginning because most major sectors have made that shift online but when we started and when we met, the used car market was still almost entirely offline.

3:22And we thought that was just an enormous opportunity. And the big opportunity we saw was there are 8 million cars sold every year. The used car market in the UK is enormous. The total GMV, which is gross market value, value of all the cars sold in the UK, is projected to be 180 billion in 2027. And And to put that in context, the entire retail industry in the UK is 500 billion. So that's how big it is. But it was and still is to a large extent, pretty much offline. And so we wanted to change that. And so, as he said, Motorway helps people to sell their car. You profile it with your phone. And then we run a daily auction where car dealers bid for your car.

4:07And yeah, we've come a long way. It's been nearly a decade since we started that. And there's been enormous amounts of change. but we're now growing faster really than than ever before and coming into a very exciting week this week we had a very large record last week where we sold 2 000 cars in a single day and i remember when we had our first 50 car sale and that was a huge landmark so doing 40x that is yeah it's quite a landmark and we also launched a new advertising campaign last week which is our biggest ever hopefully you'll see some tv ads and taxis and stuff so um so yeah we are very excited about what's ahead but that does seem like a long time ago now yeah what have been the kind of the the pros and cons of going into I guess a bunny quote old school industry to disrupt it like what what is kind of pleasantly easier than going into something that's already quite online and what is quite hard to wrap your head around as a tech founder yeah it's a really good question I think we are not from the car industry obviously and that was both a massive advantage but also a real challenge the the advantage is you just aren't encumbered with all of the reasons not to do things and you see it in a really naive way we just saw it in a in a way as consumers we just thought why is it so hard to sell your car for a good price it shouldn't be like that and it should be able to be done online so we should just make that happen i think if we knew everything that we've learned along the journey, we never would have started.

5:44And the biggest challenge was getting people to change behavior. All industries take a long time to shift, but the car industry is super complicated. And used cars move between multiple parties, there's depreciation, they're really high value assets, people really care about them. And all of that means that it just hasn't changed as quickly as some other markets. and in our first few years we really ran up against a lot of friction to shift but there were early adopters and those early adopters found that this was a way better experience and they were getting much greater outcomes so we really lent into that and through those kind of you know early dealers and sellers that did really well on the platform we started to have proof points that we could really drive home to those people that were that were kind of unwilling to shift to an online method.

6:36So we got there in the end, but it did take three, four, five years before we really reached that point of inflection. And I think that inflection is still happening. The vast majority of the used car market is offline, but it is shifting really fast. And we're really proud to be leading that charge. Were the sellers or the dealers the hardest part of the marketplace to get on board? I think actually the dealer side was the more challenging, partly because it's just not how things have been done before. And lots of businesses have been built and there are lots of longstanding relationships in how they would acquire stock.

7:13And you add to that the kind of challenge of buying cars without seeing them. And that's obviously a lot to get over. But what we've seen is really exciting now because they definitely have changed. And COVID was also a big accelerant to that because for eight months, a lot of the places where they bought cars were shut. And so that kind of accelerated them trying this new model, then finding out it was actually much better and then scaling that up, which has kind of happened ever since. And what's been really exciting for us to see is we're now seeing car dealers that started post-Motorway and have built on Motorway from the ground up.

7:52and we have one or two of those that are now major car supermarkets that have really built on our platform and yeah that's a really exciting thing to see that shift happening. You mentioned that you're launching a new ad campaign soon and you have run you know a whole bunch of kind of traditional media tv radio ads and you've also had quite a bit of kind of press in national and local media. I think I've sometimes got press releases from you that are kind of clearly a bit more aimed at the kind of national or local press in terms of you know the kinds of stories do you know how much business you can actually attribute to that and have you kind of learned any lessons that might be useful for other founders listening to this who maybe haven't considered that trade press local media radio might actually be a good way for them to grow their business yeah yeah it's been a really interesting journey for me because we in any of the previous businesses I've been in, we never had traditional brands like TV advertising.

8:55And me and my co-founders come from a background of performance marketing. We want to know how much did every click cost and how much revenue did that drive? And so it is a kind of new scary world to be doing something which is much more of an investment and it pays off over the long term. I guess my biggest learnings of it is that I've been on quite a journey of wanting to track every single TV ad and kind of check Google Analytics to see exactly what the spike was. And we've definitely done that and learned a lot through it. But where we are now, I think, is much more of an understanding that it is a mass media product.

9:32We're also trying to drive educating a market of a new way to do something. So that comes with its own challenges. and so it takes long-term investment it's not something you do for one burst and then kind of come back to it another time you have to kind of keep keep going but it also does get more efficient over time because you do learn not quite as easily as you can through paid search but you can do a lot of retrospective research you can see some spikes and you just start to learn what really works and so now we actually spend probably you know a good budget on it but it's much more efficient than it's ever been.

10:08And we're seeing more and more customers just coming to us directly, whether we're on TV or not on TV. And so it is a bit of a leap of faith. But if you really believe in the product, and you also really feel like you need to educate beyond people that are searching for what you do online, then it can be an amazingly powerful channel. And talking of other businesses that went big on TV and other advertising, during COVID, you weren't the only startup in the UK doing selling used cars there was Kazoo which was had a different business model was actually founded by one of your angel investors Alex Chesterman and made like a huge splash didn't it sponsored football teams it sponsored a whole bunch of other sports team ran tv ads raised millions listed on the New York Stock Exchange at seven billion dollars and then collapsed into administration what would you say from you know being in the same industry what what were some of the key things that business did wrong well i think the first thing to say is motorway is quite a different business to a lot of other global kind of globally used car startups particularly ones that bought cars and sold them online very different to what we do because we are a marketplace so we we are asset light we don't own the cars we don't own the inventory and we focus purely on delivering value to both sides of the marketplace.

11:30So that means we're very sustainable as a business and actually means we can scale much more rapidly. And so we always knew that and that's why we started a marketplace business. So I think that's the core model is one of the reasons why we've seen the growth curves that we have and that those are sustaining. I think the other thing is that we've always remained really focused on one problem and we've just gone deeper and deeper on that problem over time. So we haven't added lots of other services and so on. And I think that is one of the challenges in the car market is people don't really know what that platform's for because it offers so many things.

12:08And so that's another thing that I think we've done well is just keeping really focused on doing the best job for customers, staying focused on one thing. What would the, I imagine there were some sort of negative ramifications for you though, of having a kind of high profile company, even if, you know, you could say, well, it's actually different to us for xyz reasons but people thinking like oh this this must be an industry that doesn't work or spooking investors what impact did you see and how did you kind of cope with it i mean we've had pretty much every objection to motorway along the way in the early days i remember pitching investors and they were saying well i don't think this is going to work because autonomous driving is going to be here in the next few years and so this won't even be relevance.

12:51And then obviously, we've had other stories of companies that have kind of, you know, gone up and down. In the end, it all just comes down to what you're delivering for customers. I mean, our numbers kind of speak for themselves, and they always have. We've now sold over half a million cars across the UK. And so that does tend to just, you know, we just come back to that. Well, you know, you could argue various things about what you think is happening in the market, but we're delivering these amazing outcomes for customers, and more and more of them are coming to us so we would just kind of stick to that at what point would you consider expanding internationally at what point would that make sense for your business because I mean that was another reason lots of people posited for why kazoo went under because it just went really quick across Europe yeah well we absolutely have global ambitions and I hope that in time we will be in every country that we can be.

13:46But we're in no rush. And I hope that we'll still be here in 20 years time. So I feel like we've got a long way, a long road ahead of us. And just to come back to the UK market, the reason we're so focused on the UK market, and we are, is because it's just so large. There's very few industries within the UK where you can build an enormous business without outgoing abroad. But when you have that much GMV, I mean, used cars touch everybody's lives, they're people's second largest asset, and there's 8 million car sales every year. We think we can take a very large share of that because we're the best thing to do in that market.

14:24And so that's why we're just keeping really focused. It allows us also to just really double down on the specific needs of customers here in the UK. And that just improves the product. So until we feel like we've really gone all the way in the UK market that's the point when we would we would go abroad but we've still got a long way to go. So when it comes to I guess the product and the value to customers in the UK how are you thinking about that roadmap is acquiring other companies something you would do are you thinking of moving into area you know I can imagine areas like financing or the payment side of things like how do you think about what makes sense for you to build in-house when to do it and when to actually just buy another company that's already good at that yeah that's a really good question I mean we haven't done much in the way of M &A because we've always preferred to build things ourselves partly because what we've done is so new and it hasn't really been done before we've we've generally found that we have to do it ourselves for that reason I mean one example is when a seller sells a car on motorway and a dealer buys it previously the dealer would go and collect the car from the seller of their house and they would pay the seller for that car and what we were finding was that for dealers that were buying more and more cars through us that was a ton of admin to have to handle and so we've we've actually taken control of that whole part of the last mile part of the transaction and we now handle the payment so the dealers pay us and then we distribute the funds to the seller.

15:55And that makes it much easier for the dealer, much faster, and much more secure for sellers. But we've now transacted over£4 billion through that, through what's called Motorway Pay. And that's just an example of how, rather than trying to look for innovation and additional products in other ancillary services, we're going deeper and deeper into our own model and seeing how we can innovate there to make the outcomes even better. And we are still a relatively small percentage of all cars sold in the UK and we still have a lot of headroom where we can grow so we feel pretty vindicated that that's the right thing to do just keep making the product better and keep growing our market share and and the kind of rest will take care of itself what are some of the other areas that might make sense for you to sort of build at some point I mean, at this point, we're really just focused on, again, just our core product.

16:51But within that, I mean, we have 7 ,500 car dealers now using Motorway to acquire stock, which makes us by far one of the preferred stock sources for them. But we're moving around, you know, often over 1 ,000 cars a day around the country from people's houses to dealers. So there's all sorts of complexity in there, not just on payments, but also in logistics and moving cars around. and so we just see loads of opportunity there to build things that haven't been done before because it's a model that that no one's ever done and we find that really exciting and motivating as well that there's still so much to be done and yeah that that's kind of how we think about it and is that is is motorway now responsible for actually physically moving the cars or is that something the sellers do and drop it off somewhere it's always the car is always collected from the seller's house and then delivered to the dealer.

17:41And some dealers do that themselves. So they're able to go and they often have their own logistics where they can do that. But we also offer our own logistics service called Motorway Move. And so yes, we will then send a driver on behalf of the dealer, they'll do an on-site inspection and then deliver the car to the dealer. And that's been another journey. And one of the great things we've been able to do is bring in talent from lots of other industries that we've been able to learn from. And so for example, our COO, James, was running a lot of Amazon Prime across Europe. So bringing that kind of like large scale logistics experience to something like this, where it hasn't been tackled before, we're able to learn from those other markets, other industries and other online platforms, take those learnings and then apply them, which has been really fun.

18:24What's one like cool, interesting way you could use that logistics network you're effectively building for like a, you know, another source of income or to boost motorway even further? There's still just like, we're still focused on trying to deal with the demand that we've got in our core. But I'm sure over time, as the industry matures, other things will crop up. But for the time being, we're just focused on serving the dealers and the sellers and making sure they get the best experience. Okay, so there's no partnerships with Amazon or Deliveroo? We're not currently planning to move into fashion distribution or anything, no.

19:00Okay, yeah, I could see it though. It might happen. Okay. So with top 10 that we mentioned in the intro, the startup that didn't work out, what did you learn from that? I know, you know, lots of founders like to like to say that it's the things that don't work out. You learn more from them than things that do. Yeah, it was a really tough journey. I mean, that was we were we built a company for four years. It was a hotel price comparison app. And I think the biggest learning was we weren't differentiated enough from the major players in travel that were already really huge. and already had really well-known brands.

19:37And we've always come from the position of, if we build a better product, we'll win. That's what had always worked for us in the past. But when it came to travel, it was a really tough lesson that takes more than a great product. You actually have to deliver more value to customers. And we weren't sufficiently doing that. It was a kind of nicer UX, really, than platforms like Booking.com or TripAdvisor. but these were enormous companies with enormous budgets and really trusted brands. So that was really our biggest learning when we started Motorway was, if you're going to try and disrupt an industry, you don't just build a nicer version of it.

20:14And in travel, as an example, if you're going to try and beat Expedia and Booking.com, you don't build a better version of that, you build Airbnb. And that's really the framing that we took into Motorway, which was here's a massive industry, but what is a model that actually changes the way that the industry transacts and delivers more value to people because that's the kind of battering ram you need in order to kind of attack an industry that's big with really entrenched incumbents. Let's talk about something that might be keeping you up at night, cybersecurity. According to Vanta's latest State of Trust report, it's the number one concern for UK businesses and that's where Vanta comes in.

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21:58We were very much bootstrapped at the start. We grew very rapidly on very little funding for the first few years. And then we did some quite significant funding in 2021. And then we've really been growing rapidly since then, but also working on the underlying economic model to make sure we're sustainable and we can continue that growth over the long term, which is really what we've been doing. So looking forward on that, I mean, we'll obviously always look at what is right for the business at the right time. But our focus in the last few years has been on trying to balance that, making sure we're still growing really rapidly, but also really improving on the unit economics to the point where, of course, we want to be profitable and ensure that we're sustainable for the long term.

22:42So, yeah, I don't have anything to announce right now on funding. But, of course, we'll always consider that as we continue to grow the business. So when it does come to unit economics, what are the main kind of levers you can pull? So two things that we've spent a lot of time focusing on and we still focus on a lot is conversion rates. So that means in our case, a seller comes to our website and gets a valuation and they have to profile their car, which is quite a multi-step thing involved in going outside and taking photos and all of that. So we put a lot of our product focus into just that metric of how do we increase it, make it as easy as possible for people to get from A to B, because you find then just that conversion rate has outsized impacts on everything down the funnel.

23:24So that would be one thing. And the other thing, which I think is, is a newer opportunity which companies are able to look at is how AI can make your business more efficient. Give you an example for us. We have, everyone has to take photos of their car. If there's anything wrong with those photos, we used to have to send the seller back to take more because we wanted the profile that the dealer sees to be really really accurate and that was super painful for us about 40 percent of people were having to go back and retake photos and so we used ai to look at all of the millions of photos that have been uploaded and be able to analyze when a photo is right or wrong and so now when someone takes a photo of their car and they've got their thumb in the photo or it's blurry it will automatically analyze the photo and say your thumbs in the photo retake it so they're then able to take take the photo there and then there's no going back and forth massively increased conversion also reduced our costs in customer service so there are so many things like that that you have to really get into the granular detail of where the costs are stacking up and then how can you break it down to kind of reduce those while improving the product experience can you are you a year more off profitability it's been a really big it's been an important focus for everybody particularly since the markets changed a lot over the last few years but i think we came from a good grounding in that the first few years we were you know really not burning much money at all we've invested very heavily in in brand as we talked about earlier but we've also got that to a really sustainable model so so yeah the next few years are really critical for us but we are as I said growing faster than we ever have and also from a business model point of view in the best position we've ever been in.

25:16What are the kind of hot topics for discussion at your board meetings at the moment? That's a really good question we try and work out what those are well in advance of board meetings so that I'm prepared for them but our board we're very lucky we have a really supportive board and they've all been working with us for a long time and they all know the business super well. So we typically look at, you know, it sounds cheesy, but we typically look at where are we winning for customers and where are the challenges? And for example, when we have really big spikes of volume, sometimes that can cause crunches at any point in our funnel or for dealers.

25:56And so we'll typically look at that, like what's glowing red at the moment, where are we going to have to refocus or put more time into? and then it can get relatively kind of tactical about how we're going to do that and what the quickest route to solve it is but then of course we also look at the long term and what i've been trying to do you know it's been hard i the biggest business i was ever in prior to motorway was about 30 people and motorway is now a team of over 400 and it's quite a different framing when you think about that because we still think we're really early actually and we've got a long way to go So I'm trying to get more and more focused on what that future looks like.

26:35So what are we going to look like in 2026, 27, 28? And what do we need to be doing now to make that future happen? And so I'm lucky to have people like Danny Reimer, the partner at Index Ventures on our board. He's obviously seen really big internet companies grow to global scale. And so he's able to look around some of those corners and kind of guide us when we're thinking about those and make sure we're making the right calls. That's really interesting. Does that mostly come down to having the right talent in the business at the right points in time? Or is it, what else does that involve when you're kind of thinking about where a business might be in two, three years time and preparing for that?

27:20Yeah. So I think it's both those things. The talent point is really critical. And what we've found is we start coming across across challenges that none of us in the founding team have ever come across before. And we've brought in people into the business that are way more experienced in those areas. We're able to learn from them and kind of give it to people that really understand that problem. So that is absolutely critical. And we've had some really great people join the team at the leadership level in the past few years. We've got Naomi, our CMO, joined us from Bumble. Tanya is our CPO, who was previously at Instagram.

27:57And so they're bringing all of this kind of high scale marketplace experience so absolutely like talent is the most important thing but i think as you think about the long-term plans we always come back to what the mission is and what what our values are and what we care about and we use those as a filter for those discussions around should we you know launch a fashion marketplace on motorway we're not doing that that would be a crazy idea probably bad example but you know we we really come back to like why we're here which is to try and build a better car market for everyone and and then we we really try and filter everything through that mission because it helps you just kind of kick away the crazy ideas that will actually probably just distract you and it keeps you focused on on on the mission what about changes that might happen to the car industry itself i mean you mentioned And I don't think any of us think autonomous vehicles are coming super, super soon.

28:55But what about like electric vehicles or, I don't know, various like changes the government might make to tax or, you know, diesel or congestion charging or, I don't know, things like that that might impact the market. How do you kind of prepare for that? Well, we have to keep really close to it because even though the car market in general compared to other markets is quite slow to change. So a massive shift like EVs is like a 20-year shift. But it is happening really quickly now. And that is causing some nuances and changes in how people are thinking about their next car. And also from a product point of view, for us to profile an electric car is quite different in some ways to profiling a petrol car.

29:37Because a lot of it is about battery health, like how you assess that and how you make it easy for someone to report on it. So we try and look to what the future is going to be like in the next few years, but then really look at the trends that are happening now. One of the really cool things now is because of the scale that we're at, we're actually seeing changes happening on motorway from dealer behavior and seller behavior and valuations even before it's out in the market or any of the research companies are sending us anything. So we're getting a lot better at using our own data as the best guide, but obviously trying to talk to as many people as we can about what they think the future is going to look like.

30:14when it comes to talent you've been and you actually wrote a piece specific on this kind of outspoken on the issue of attracting and retaining tech talent in the uk and what you wrote for us was about a subject of employee equity and how the kind of the way it works in the uk at the moment isn't so good for scale-ups and not not tiny tiny companies can you talk us through for the listeners a little bit about that and talk through what how you would change that to make it work better for a company like motorway for sure yeah i mean this is a this is a topic i'm really passionate about because ultimately as we just talked about the thing that will drive amazing tech companies to emerge from the uk and we haven't had that many if we're being honest is we need all of the best talent in the uk to be working on some of these crazy ambitious ideas and to be incentivized to do so.

31:11The UK has a share option scheme, which basically allows you to give stock options really cost effectively to all employees. And if the company exits, then they get a really good beneficial tax rate on that, which is super incentivizing. It's called the EMI scheme. And it helps you in the early stages to recruit people from larger companies into one of these risky startups. The problem with this scheme is it's great for small companies, but it's not set up for larger ones. And for example, if you reach 250 staff, you can no longer use this EMI scheme. And anyone you bring in after that, there aren't really any other good options.

31:55So you can't really give them anything better from a tax point of view than they'd get in a large company anywhere else. And so that makes it really hard sometimes to bring in an amazing leader from Amazon that you want to bring in. And what we need to do is to change that to make it actually the opposite, that we want to be encouraging businesses to grow over the long term and build really big businesses. So there's this 250 employee limit, and there's also a 10-year expiry. So if you hire someone at the beginning of your journey, the EMIs will expire after 10 years. And the average time from a company starting up to IPO-ing is 13, which is crazy.

32:39And the final thing we really want to drive is a much more flexible liquidity in equity for employees. So for example, when scale-ups do a large funding round it would be amazing if lots of people within the team with vested equity could sell some of that stock so they have these like mini liquidity events along the journey and that's a great way of making equity really tangible and ensuring that people that are risking their careers sometimes on these startups actually see it as a really you know tangible great outcome. And that's really hard to do under the EMI scheme. So what we really would like to see happen is there are changes to that EMI scheme to expand it to much larger companies.