How a $5k Lemon Fueled An Auto Industry Innovation

Silicon 66, December 18th, 2016

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When Steve Soroosh owned a used car dealership in 2012, he learned the hard way that even when a vehicle looks perfect, it can be fatally flawed.

Buying cars at auction is always a crapshoot, he admits. Dealers have mere minutes to evaluate a vehicle before bidding on it, trusting that their knowledge is enough to catch whether a vehicle is treasure or trash.

A sparkling little 2006 Mini Cooper proved to be Soroosh’s downfall.

It looked perfect. It was as bright and shiny as a new penny, and it was only $5,000.

“It was too good to be true,” he said. “Turns out the transmission was shot. The owner must have driven it like he was Dale Earnhardt. It looked like no maintenance was ever done on the car. The new transmission ended up costing me $5,000. But, there was no way to know.”

Soroosh grew up in the auto industry and knew what people thought when getting their cars serviced. They don’t trust what they are being told, and have a deep fear of being taken advantage of. Every person has the story of going in for a $40 oil change only to be hit with $600 worth of repair and maintenance.

Soroosh and his company, Oklahoma-based startup Driven Analytics, has come up with a solution. They use data available on every car to provide car owners with real-time information specific to their vehicle usage, make and model.

The Driven Analytics technology includes a piece of hardware that plugs into a vehicle’s diagnostic port, and then links that data to an app that is free for consumers to use. Because that data is unbiased and fact based, the information about upcoming or needed repairs and maintenance loses that “up sell” or pressured feeling that people sometimes get from mechanics.

“Everyone knows someone who feels they were taken advantage of,” said Soroosh said. “Because the app monitors a vehicle’s operating systems and understanding the way that individual vehicles are driven, Driven Analytics is now a third-party source of information to car owners, and the information is trusted.”

Soroosh, a University of Oklahoma graduate in aerospace and mechanical engineering, has had a passion for cars all his life. His father worked in the automotive industry when he grew up in Michigan, and in high school, Soroosh won an automotive design contest that led to four internships with Ford. He also spent a year working in research and development for Honda before attending OU on an aerospace and engineering scholarship.

After he graduated, Soroosh worked in telemetry and data collection for National Instruments in Austin, before working for the automotive consulting firm MillenWorks headquartered in Tunstin, Calif.,that solved difficult automotive problems. That California company offered Soroosh opportunities to work with the Department of Defense, Disneyland and more.

When Soroosh finally returned to Oklahoma in 2012 to work on his MBA, he not only met future co-founder Jake Elliott, a fellow MBA candidate, he also established that fateful dealership. Saroosh admits it was a complete failure, but recognizes that failure was a catalyst for the next phase.

“It was there that I noticed a chronic problem in the auto industry that we could solve with technology,” he said.

That bum 2006 Mini Cooper may have cost Soroosh and his partners thousands of dollars, but it also led to a great idea.

“I began to draw on my experience. The aerospace industry tracks all the data on the airplanes, and they have precise data so they know when an engine needs preventative maintenance,” he said. “Why doesn’t the auto industry have the same thing?”

Soroosh and Elliott began working on technology that would plug into a vehicle’s OBD2 port to collect all the data on a vehicle. It’s the port used by mechanics when diagnosing a car.

“The technology was out there, because insurance companies are doing it to track driving data,” said Soroosh. “We knew we could come up with a device that tracks all that for consumers – like a super advanced version of Carfax.”

Soroosh and his used-car partner, Eric Paysnoe, sold the dealership in 2014, and Paysnoe became the third partner for Driven Analytics, which was officially founded in May 2014.

“We gained tremendous insight from using the Lean Launchpad methodology from OU,” Soroosh said. The Lean Launchpad methodology encourages entrepreneurs to repeatedly test their product ideas with consumers during the design process, with the ultimate goal of creating products that are well-informed by user insights across both the functional and emotional aspects of the design.

“The biggest thing we learned was to go talk to customers so you really understand their true concerns and needs. Car owners, for instance, have a deep emotional problem with paying for maintenance or mechanical repairs. They don’t know if what they are being told is true – whether it’s fix or farce.”

On the dealership side, the entrepreneurs found that mechanics want to educate their consumers on how to properly care for the car, but are met with suspicion and resentment.

“Car dealers had a huge problem they couldn’t fix. They aren’t making money any more on new car sales, so financing and insurance is carrying the profit,” Soroosh said. “When they sell an insurance product, that makes up 30 percent of their profits. The largest part of the profit, 50 percent, is in parts and service. We saw that dealerships have well-trained technicians who are impeccable with really competitive rates, but they have less than 50 percent retention of consumers.”

With Driven Analytics, which is sold to dealerships and then offered as a free added value app to buyers, consumers are not only educated on what maintenance is needed for their vehicle, but are given offers and features like one-click scheduling based on the needs of their particular vehicle.

So far, the company has introduced the pilot program at three dealerships in Oklahoma City after earning $900,000 in seed money from i2e and angel investors in 2015. The product was beta tested for six months.

“The biggest challenge was to educate investors on a two-sided market,” Soroosh said. “A two-sided market is one that has one product that serves two different markets. One market gets it free while the other market purchases the device. We honestly struggled on how to convey the nuances of a two-sided market or how scalable technology can be.”

After extensive testing and research, nearly 90 percent of people in the dealerships said they would download the app.

“The biggest advantage is that consumers never feel like they’ve been ‘upsold’ again,” said Elliott. “They come to the service department with knowledge about what their car needs. In fact, they check the app every 17 days on average. That’s awesome for a maintenance app.”

Now, Driven Analytics is actively pursuing paying customers. So far, the app and technology is being used in 19 locations in Oklahoma, and the company hopes to have two to five paying customers by year’s end.

Driven Analytics is also pursuing Series A investments of $5 million to $10 million that would allow the company to hire additional software experts and direct sell the product to dealerships while gaining a distribution channel as well.

“In five years, we’d like to be in 1,000 to 2,000 dealerships in the U.S.,” said Soroosh. “We would be extremely profitable at that level. But our short-term goal is to be in 100 dealerships by the end of 2017.”

Soroosh said that while investments would have been easier in Silicon Valley, he plans to keep the company in Oklahoma.

“We have families here,” Soroosh said. ”I love the values here, and the cost of living is so much more affordable. We can bring top talent here and not break the bank.”