Engie- Hardware is Hard

Exiting One Way or the Other





Fast facts:

Headquartered in Tel Aviv, Israel
Operated in : Israel, UK, LATAM
Uri Levine, co-founder of Waze, was a founder and investor in the company
Raised a total amount of $10.5 million dollars in total over three funding rounds
Table of content

How Engie Began

A car, all things considered, is hardware technology and wheels. Driving one does not require any knowledge of its inner workings, but when something is malfunctioning, most people do not have a clue as to how to fix it or even the slightest idea of the problem’s cause. It was in this space that Gal Aharon and her team members Alon Hendelman and Yarden Gross from the Zell Entrepreneurship Program settled on a business concept. Their goal was to bridge the disparity of knowledge, so that car owners would have a better understanding of what was happening under the hood. They felt that this knowledge could empower consumers ahead of their next visit to the car repair shop. It was Gal and her team members’ belief that if car owners could have simple information at their fingertips that explained their cars’ issues, it would solve the information gap and foster better communication between car owners and repair shops. Once that was in place, they took the idea one step further and paired drivers with trusted mechanics nearby, providing not only the information, but also real time quotes and a direct connection to a good repair shop.

Halfway Between Hardware and Software

It was 2014, and neither Gal, nor her team members, knew much about cars. They weren’t exactly sure how to build the solution, but they did have a high-level plan. If they could find a way to retrieve car data from a car's computer and analyze it, they would be able to detect many issues that frequently arose with cars. From there, they would translate the data into simpler language for car owners. How hard could it be? 

As luck would have it, through preliminary research, Gal and her team members learned that an off-the-shelf solution to retrieve car data already existed in the form of a dongle that connected to a port in the car and accessed the vehicle’s computer. The automotive dongle was mainly used by repair shops themselves, or professionals from the automobile industry, and detected most of the faults communicated to the car’s computer. Apparently, this capability existed in every car manufactured after 2001. The information scraper was just the shortcut for which Gal and her team were looking. Upon graduation, Gal and her team members finished their basic research phase and were hungry for more. The whole team stayed intact and decided to execute on their business idea full-time, and so, they got to work.

The team didn’t need to build a hardware product from scratch afterall. They started by building an initial version to prove out their concept and make sure that they were headed in the right direction. With this MVP version, Gal and her co-founders scanned their friends' cars and explained the data to them.

Everyone they spoke to related to the problem they were solving and expressed interest in the solution. Some shared their fears of being scammed at car repair shops, while others complained about their communication issues with car mechanics. The consistent feedback was the validation Gal and the team were looking for in order to continue building Engie.

Ready, Set, Launch

Between their extensive market research during their Zell year, and the feedback they received from their initial version, Engie was able to raise a Pre-Seed funding round of a few hundred thousand dollars from Uri Levine, a mentor in the program, who joined them as a co-founder.133 Their first initiative was to design the software experience and hire the right engineers to develop it. By December 2014, In just six months, they had a working product and launched Engie to consumers in Israel. The reaction was positive, but overwhelming, with about 15,000 sign-ups in the first few days – far more than their small team of six expected or were able to manage. They had bit off more than they could chew. 

Instead of opting to hire a marketing agency, Gal prepared Engie’s launch strategy with a PR expert who had many connections to journalists in Israel. Articles were published in various major media channels across the country, and the first few thousand devices were given for free. This brought a large wave of new users to Engie. Gal reminisced about those first launch days and explained with a remorseful tone that they simply weren’t prepared to handle so many users in terms of hardware availability. “I think it was actually too much. We had thousands of people signing up and we didn't have a stock of hardware devices to supply,” said Gal. It wasn’t so much that she regrets planning for a big launch, as it was launching at the point in time that they did. Hindsight is 20/20, but Gal emphasizes that it is critical to be as prepared as possible for a product launch. The way she sees it, it’s best to go big or not go at all. Doing a soft launch or half of a launch would be a waste of momentum. “It’s a really good opportunity that you don't want to miss, you just need to be more prepared,” said Gal.

Market Education

Plenty of learnings came from the Engie product launch. The device was shipped to consumers all over Israel, but given its novelty, people needed more than basic instructions in order to use it. While logically it made sense that the device had to be connected to a car in order to acquire its data, consumers needed safety assurances. What was to stop people from thinking that somehow connecting it incorrectly wouldn’t lead to breaking the car's computer? Apparently some consumers were even wary of their cars exploding.

It was clear that education was a must, and a simple how-to manual wasn’t going to cut it. This is where the road got tough. Unlike a regular software that someone can download and try for free on his or her computer or smartphone, the Engie dongle was purchased upfront. The moment a user’s wallet opens, expectations and judgments are par for the course. When buying a product, especially one that costs about $20 dollars, there’s a natural expectation for quality customer service. Gal knew this and upon launching offered a live chat on their website, by email, and via a Facebook channel with quick response times. In the beginning, it was only the original six team members who were managing inquiries and complaints, but as Engie’s customer base grew, so did its customer service features. The company eventually had a customer success team of seven, who were fully dedicated to helping customers have a quality experience using the device. Over time, the team also developed video tutorials that helped bridge the device’s education gap. 

Launching in New Countries

By 2016, Engie had raised $3 million dollars and expanded into the United Kingdom.134 After one year, the team boldly decided to grow into two other markets, so they raised another $4 million dollars and started selling devices in Brazil and Mexico.135 While far from Israel and difficult to manage between time zones, Brazil and Mexico were a great choice because of the sheer size of their older automobile markets. One of the key learnings early on had been that cars under warranty were not as much of a part of the target market. They shied away from the United States due to competition, more new cars, and the high cost of user acquisition. While Gal applied the same launch strategy she had used in Israel to those three locations, the challenges and results were very different from one another. 

As foreigners, Gal and her team wanted to avoid any bottlenecks caused by sales regulations, so they hired logistics services in each country. Gal described it as a kind of Amazon fulfillment center, but a local, scaled- down version. These local companies managed all of the importation and logistics. This simplified the expansion process, leaving the Engie team to prepare the stock inventory and focus on the PR and marketing materials.

Even though Engie launched in the U.K. first, and therefore had more time in the market, both Brazil and Mexico outperformed it. According to Gal, the British consumer market responded conservatively to their online and print outreach. “It didn’t work as well as it had in Israel – I think in Israel, like in Latin America, digital PR works a lot better, Israelis are a lot more open to technology,” said Gal.

By 2017, Engie was making sizable revenue. For every device sold, they had a $5 dollar profit margin. In order to maintain growth, Gal rolled all of the company’s revenue forward into sales. Since Engie’s main business model was its affiliation to repair shops, not its revenue from devices sold, it was decided that the device revenues would be reinvested back into growth. Brazil came in first place for the highest growth, and for a while, Engie maintained a healthy rhythm. The team released software updates with new features, including a referral program to help accelerate the growth of their user base. As Engie’s product spent more time in the market, the team found new and improved ways to make the product more accessible. “We had to make it easier to buy, so they could shop for it next door. For example, making it available in a local home improvement department store like Home Center in Israel, so customers can go and buy it,” said Gal. Availability is vital for hardware and  Gal admits that the logistics of this became more and more challenging as Engie entered new markets. “We tried with local shops and with different group buying websites like Groupon in order to make the online funnel as easy as possible. For example, we started selling on Amazon and using payment methods that were more well-known in Latin America,” said Gal.

In sum, Gal learned that launching a product is only the beginning of the battle – the hard part is finding the right distribution channels to get it into people’s hands. From immediate availability to press coverage, and then on to even greater customer service, Gal persisted, weathering each speed bump throughout the course of the company’s growth.

In 2018, the company made a pivot in its business model and focused on a business-to-business- to-consumer (B2B2C) approach. The company sold its remote maintenance technology as a SaaS solution to dealerships and mechanic chains. The change made the business model a lot easier and the product more sellable because customer growth was through their partners, causing acquisition costs to drop dramatically. The shift required a myriad of changes to the Engie team, from marketing and customer support experts to BD and Sales managers, but Gal and her co-founders were confident in their decision.

Company Closure

Despite the effective pivot and seemingly clearer path to viability, the company closed at the beginning of the COVID-19 pandemic.

Engie had secured an investment from a large Asian automotive player, which would have been a strategic move to expand into Asia. However, after concluding terms over many meetings and back-and- forth visits, and a few weeks shy of the closing of the deal, the outbreak of COVID-19 changed everything. The Asian company was hit hard and ultimately put a hold on the process. At this late stage, and as the whole investment community froze in wait and see mode, Engie was out of cash. It was the worst timing for Engie, and Gal and her co-founders had no choice but to close its doors.

Discussion Questions

1. What made Engie’s business different from your typical software startup’s business?

2. What was the main problem with the launch? What problems immediately followed the launch? What lessons did Engie learn from their initial market validation?

3. What markets did Engie choose to focus on and what drove this decision? What were the pros and cons of choosing these markets? Which market ultimately performed the best and why?

4. How did Engie expand into new markets without hiring a local team? What were the advantages and disadvantages of this strategy?

5. What distribution channels did Engie use? Why do you think it was as “difficult” as Gal suggests?

6. What are some possible alternatives when a company is faced with having to shut down?