Techinance

7 minute read

About David Chou

“My name is David Chou, I am the owner here at Motorenn. I founded this company with my business partner, Austin. I went to the United States Military Academy, West Point, where I got a Bachelor of Science in mechanical engineering. I later earned my MBA at MIT, as well as my Master’s in mechanical engineering. A key to my business development was spending a couple of years at McKinsey & Co.”

Finding the Right Business Idea

As with many business ventures, it is best to have it grounded in some experiences that you’ve had or passions that you’ve had. We have seen successes come from sources of strength, and people who are unsuccessful tend to do it in something that they are not confident about.

I have done a lot of work in the automotive industry. I managed corporate strategy at Edmunds.com, then at Carmax, which is the US’s largest used car retailer. It gave me an appreciation for how the used auto industry worked. I was also a major car enthusiast. Growing up, supercars and sports cars were always very exciting for me.

Mirroring all that together, it came down to: “hey, we can open up our own kind of online, used car dealership, but focus on exotic sports car, luxury car segment, and bring in a really cool new experience of things.”

The Power of Passion

Absolutely. I think it does because entrepreneurship is very hard. It is extremely hard. People who are really good at it have to have a lot of dedication, flexibility and intellectual curiosity, and endurance, and that is hard if you don’t have passion for the subject.

If you are just doing it because it just makes money, that’s fine, but it is hard to be super successful because when you get tested, you have to have resolve. I think if it is something that you really care about, you have more resolve in trying to figure it out.

Financial Challenges in Starting a Business

I’d say the number one issue of building a business early on is money. Business classes tend not to really teach you how to start a business. You need money, and how you get that money comes from a variety of ways.

One, you saved it yourself, you work a normal career for a couple of years, maybe tens of years. You self-fund, and you have an idea that works, you test the idea. That is always the best: testing the idea before you leave your financial security somewhere else.

Some people can get business loans. Those are very hard to get unless you have a track record. Even if you’re smart, you have a 4.0 GPA, Valedictorian, scholarships, all that doesn’t mean anything to Chase Bank. Chase Bank cares if you’re the principal engineer at Google, working on some kind of 3D glasses widget, and now you’re trying to start a business selling 3D glasses on your own. That’s a real financial track record they will loan against.

Another way is friends and family. At the end of the day, it’s good to be born in the right family. It just is what it is. Having a rich uncle, a rich mom, and a dad who helps out. But it doesn’t mean you’ll be successful, because if you don’t go with the right approach, you’re just going to waste that money.

Getting that money is very, very hard. You have to be smart when you do that. Make sure you have a good idea, it’s based on experience or some real intuition. But ideally, you can test it before you cut the cord and just focus on it completely. You don’t want to be leaving a job that’s putting food on the table, especially as you’re older and you have a family to support.

Importance of Financial Literacy

I think having good financial literacy becomes more and more important, the more complicated your business is. If you bought an apple for a dollar and you sell an apple for two dollars, I made a dollar. It’s pretty straightforward.

But as you get to a more complicated business and now you’re employing people and now you’re making big investments, having a couple of courses where you really understand what are some of the ways to think about how money moves becomes very important.

Understanding the difference between gross profit and operating profit, how much money do you actually make at the end of things, not accounting for interest? If you borrowed money from the bank, you have to pay interest. That interest doesn’t really show how good your business is, but it still costs you money. You want to know both numbers. What’s EBIT look like? What’s EBITA look like?

If you’re learning those terms, those are terms that you live with in the business world. Knowing all that helps you manage a more and more complicated business.

Key Financial Metrics

Every business is going to be different. If you are doing a tech startup and you fundraise and you have Venture Capital funding, they expect you to show customer growth, usage growth. You need to know what your funders are looking for and make sure you’re delivering on that.

In my business, we deal with car sales. It’s very important for us to know what our costs are for the cars. What are our repair costs on those cars? How long does it take us to sell those cars? All of that goes into just how much money we’re actually making on a routine basis with these cars.

Just make sure that the metrics you look at make sense to measure success. If it’s not measuring success, it’s not a useful metric. It has to be measurable and it has to be something that you can control.

Managing Investor Relationships

We raised a little bit with venture capitalists. They check in with us every quarter or so, but now that Venture Capital is kind of focused on AI in particular, and we’re not really AI focused, we’re kind of not raising any more of them. They will have their metrics. They will say, “Hey, look, we want to see how many users you’re getting, how much revenue you’re generating, what’s that growth percentage look like?”

We also have friends and family investors. That’s the easiest. Borrowing some money from your uncle or your mom, or dad, especially because they believe in you, you want to show them that you can do something with the family money. There’s a level of trust there.

It’s about having good awareness and then just being a good communicator and staying ahead of things. It’s better to communicate bad news early, to communicate good news early. I think that is how you can stay pretty healthy in your relationship with the investors.

Managing Cash Flow

In terms of just managing cash flow, who’s more interested in where the money is going but you? You put the money to start the business, you put the blood, sweat, and tears to start the business. None of your employees will ever be as interested.

It’s about having the right software in place. We use QuickBooks. Managing that, staying on top of the bookkeeping, making sure you’re tracking the receipts, it feels like a chore, and it is a chore, and it stinks. It’s not fun to do. It’s probably the least fun part of the job, but you still need to do it.

As you get larger, you hire help. You want to make sure you’re hiring good help, people who are good bookkeepers and accountants and staying on top of it, and who are trustworthy. It’s also trust but verify, always be on top of it.

When you’re dealing with rapid growth, it’s telling you, “Hey, it’s a boom time.” But it’s also dangerous that you can overgrow. I think a lot of businesses overgrew in the post-COVID boom. When the crash came, they couldn’t stop fast enough, and that hurt a lot.

If your business can’t make money when things are bad, then you don’t have a very good business at all. Understand what your business is. Know what you can cut, what is the core to the business, and is that core business sustainable in chaos?

Advice for Young Entrepreneurs

The world is changing a lot. For somebody with the right drive, with the right capability, and good emotional intelligence and overall intelligence, there’s a lot of opportunity out there. But go about it smartly. Think it through, don’t just dive out there and just do it.

Have a good idea of what you’re trying to do, have a good product fit, and then know where your finances are coming from. You can have all that together, then you have a good shot. Because this world is tough, even some of the best people will fail. You can be a really good business person and still fail.

There is no shame in doing a business and then saying, “Hey, I need to go back and get a job.” That’s just life. The key is we’re all trying to live a good life. We have to make smart decisions throughout all of that.

Advice for High School Students

Think about the career path you’re looking to do. That career path will start shutting down on you sooner than you expect. The older you get, the harder it is to make that change. The younger you start in something that you know you can just excel fantastically at, the more money you’re going to make.

If you’re coming from a family business perspective and your parents own some kind of shop that you are probably going to inherit and you don’t hate it, think about classes that will really help your business that you already know. You probably need to take more classes on the trade itself, but you need to understand how finances work.

If you don’t have any family business and you want to go the high-powered business way, you’re aiming to go to Goldman Sachs or McKenzie, BCG, Bane. That’s about getting straight A’s, 1600 on SAT, going to UCLA, MIT, Stanford, and then excelling at those interviews.

Then there’s the aspect of going and figuring something out. Learn things that excite you. Most successful entrepreneurs are the ones who do things that they’re excited about. Learn something you’re excited about, that has a real application, where you can really be a master of the subject matter that can really propel you.

The Value of Higher Education

You do not need higher education to succeed necessarily. But I would highly recommend it. I have employed people who are just really good at making money and doing things, especially for sales. Your EQ can be super high and you don’t learn EQ at Harvard.

But running your business and doing sales as a part of business are two very different things. If you want to actually run the business, it is really good to have education. Especially if you’re going into it fresh.

I would caution against just taking a lot of money, starting a business with zero educational background. Does not mean that you have to go to Harvard, but the point is to educate yourself, know how to run the business, know how to read financials, know the subject you are doing. Know that you will be way more successful than if you are just sitting on the couch at home.

What to Look for in Employees

I think there are probably two ways to think about employees. First is personality fit. You want to make sure you get people that you get along with. They got to be good. But if your personalities clash that is not a good start for anything. Make sure there is a good cultural fit for what your product is, what your company is, and what your customers expect.

Second, are they good at what they do? For some roles, you just want somebody who is just good at that role, like a bookkeeper. But there are other roles where you might be more open to someone who is a good intellectual athlete. They are smart, they are driven. I look for people who are good salespeople, period. And they have good energy and they are smart.

Marketing and Social Media

When I think about advertising it is very business dependent. Think about what your business needs and where your customers are. For us, we are in the luxury car segment. We list all the car listing sites. We are constantly auditing them. Are they effective for us? Are people using them?

I always approach advertisers thinking about how they are making money for me, and how they are being effective for me. You can always say no. They always upsell you on things. I would always approach things with a sense of, let me test if this makes sense before spending a lot of money on it.

We’re always measuring every channel that we think of as marketing. Every marketing channel needs to be ROI effective for us, and that is how you should think about it too.

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Interview conducted and edited by Viktoriia Dmitrieva, published by Krish Sav.

For the full interview transcript, please visit: https://docs.google.com/document/d/1wE4V8f2-u5I0vv4HW86ILf702aIHgtMJh5BxKZwl6y4/edit?usp=sharing