Our Investment in Autolab
Vertical SaaS (software created for a specific industry) has developed into a fast growing market segment and attracted substantial interest and funding from venture capitalists. Despite original skepticism around whether vertical SaaS could achieve venture scale, unicorns have emerged across industries like dining (Toast), banking (nCino), and construction (Procore). There have been several notable acquisitions from private equity players, such as Vista Equity acquiring Mindbody (fitness/wellness) for $1.9B in 2019 and Thoma Bravo acquiring Instructure (education) for $2B in 2020. Additionally, healthy M&A activity has come from strategics looking to enter new markets or expand their reach within their own vertical. ServiceTitan’s series of acquisitions in 2020-2022 is a prime example of the latter.
At Interplay, we are fascinated by the development of vertical SaaS and are excited to discover new ways it can be used to transform different markets. For instance, we believe there is significant opportunity for the application of vertical software in Latin America. Throughout this region, there are still many industries with large market sizes that have not transitioned away from using manual, outdated business processes. This creates an opening for vertical SaaS products to transform old workflows and become entrenched as the go-to software for specific sectors. Despite this opportunity, many Latin American verticals remain untouched by software.
Our interest in this space led us to invest in Autolab, a company developing software for independent auto repair shops in Latin America with the ultimate goal of moving these businesses out of the informal local economy and positioning them for sustainable growth.
Recently, I had the pleasure of interviewing Salvador Zepeda, the founder and CEO of Autolab, to get his perspective on building Autolab and positioning the company as the go-to software for independent auto repair shops. Please enjoy the below interview and feel free to reach out to our team with any questions on the business.
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Q: Let’s start with some background information. What motivated you to become a founder and what specifically attracted you to the auto repair industry?
A: After I graduated from school in Mexico, where I am from, I started my career as a consultant for McKinsey in Mexico.
Through this role, I got to travel to Africa and Dubai. I was really enjoying traveling the world and working as a consultant - I could see myself becoming a partner at McKinsey and making this my career.
But then I went to get my masters from Stanford, and I got involved in the Hasso Plattner Institute of Design, or the “d.school” where they focus on using design to drive innovation across industries.
Among other things, they teach you how to follow and harness your intuition. Before the d.school, I thought that intuition was some kind of noise that you shut down with the use of data. But when I was there, I started seeing the value in following your intuition and using it to drive insightful trial and error while building something from the ground up.
This was a pivotal experience for me, and from there, I wanted to challenge myself to pursue that form of innovation. I started working with IDEO.org, the social consultancy; however, for personal reasons, I returned to Mexico and rejoined McKinsey. This time I was actively looking for new opportunities with a stronger focus on innovation.
I started working on a project in Colombia with Polymath, a venture builder that was doing research on the labor market and unemployment in Latin America with the ultimate goal of building a business that could be an impactful and sustainable solution for developing local economies.
At a high level, the main insight from that research was that the informal economy and social safety nets provide easy opportunities for a source of income; however, finding a quality, consistent source of income with growth potential is very difficult. The two major occupations we identified as being stuck in the informal economy were hairdressers and auto mechanics.
Everyone thinks that we started Autolab because we are big car fans or something, but actually, Autolab started as a solution to provide better opportunities to professional auto mechanics who want to build a quality source of income.
Q: What is the auto repair industry in Latin America like today? What inefficiencies exist, and why is now the best time to be building and scaling Autolab?
A: The main challenge customers are worried about is fraud.
It’s not easy to enforce transparency in this industry. It’s not like going to get a haircut where you can look in the mirror and see the results of what you paid for.
In the car repair industry, when you take your car to get fixed, it’s likely returned to you looking the same as it did when it came in - maybe with a wash. You don't have transparency on what actually happened to the internal mechanics of the car.
This causes customers - whether individuals or businesses maintaining fleets - to be worried about getting a fair price, the necessity of a recommended repair, and even what could be happening to their car while it is at the mechanic. We’ve all heard crazy stories about repair shops abusing their power and using cars for personal entertainment.
The second biggest challenge is consistency. Across independent repair shops, there is a big problem with consistency in terms of repair standards, delivery time, and prices.
Autolab’s software empowers and professionalizes independent repair shops, allowing them to better serve their customers with instant price quoting and booking, objective advice on the urgency of each potential repair, easy to understand car health diagnostics, and real-time updates on a job’s progress. These tools solve many of the transparency and consistency problems, elevating the business of independent shops.
Q: Has it been difficult getting these shops to embrace the transition to becoming tech-enabled? What specific challenges have you encountered?
A: Definitely. Our biggest challenge has been changing the behaviors of the shops because our technology is not only about providing information through an application, it's actually about transforming the way shops operate. If they are going to join our platform, they need to agree to follow a standard procedure to ensure the best experience for the customer.
The transition from not following any formal standards to having a very specific standard that is consistent throughout a network of shops is definitely a big change for these businesses.
This issue is even more apparent when we do this with prices. To gain trust from customers, we have to provide consistent pricing throughout our network, which requires shops to stop their old ways of quoting and to give us the power to price their services.
This has been a huge challenge. Especially with people who are older - they don't want to give us that kind of power. They feel like they are losing agency over their business and do not want to give that up.
This feeling at first is understandable, but the majority of independent shops we target are willing to embrace the change once they realize the value in Autolab’s product. By month 9 of using Autolab, the average shop increases the volume of jobs coming in by 70%+ and increases revenue by 25%-50%. They are taking a big step out of the informal economy and into a model that can make them grow beyond an informal business.
Once we approve a shop based on quality of infrastructure, reputation, etc., the most important filter is to test the willingness of the owner to embrace and utilize the technology. By now, we’ve become very good at screening out the owners who will remain stubborn and will always resist Autolab’s standards. This will remain the most important determinant for a successful relationship with us.
It is difficult initiating this change, but we believe it is worth it in this industry and we’re excited to be ahead of the curve in helping the industry evolve.
Q: If all goes according to plan, what will Autolab look like in five years?
A: The Autolab platform will expand to four or five countries in Latin America, serving as the go-to technology for independent auto repair shops and indicating a clear sign of quality and consistency for customers. Additionally, I hope we will become a standard for the industry in multiple ways. For instance, our prices, which are public, could become a fair standard in the industry. And, that could also happen with service times, warranty policy, and so forth.
With our shops, we expect to help hundreds of shop owners to open multiple locations. Aulolab will also play a role in helping independent repair shops evolve with new technologies in the auto industry. For example, in 3-7 years, there will be a much larger share of electric cars on the road. Cars will have more electric components that will make the repair process a lot different from what exists today, requiring reskilling and new technologies. Connecting shops to cars will also play an important role for shops for cases such as remote diagnostics.
By enabling independent mechanics with better technology and resources, Autolab will give these repair shops the tools they need to grow and evolve with the industry.