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Startup Tips from the Race Track

Auto racing and creating a startup have a lot in common: testing your limits, living with a small margin for error, and keeping ahead of the competition. Ara Malkhassian is doing both. Ara started building race cars out of Mazda MX-5s as a hobby in 1999, but his builds were so popular that he soon quit his job at Compaq to focus on running a startup. Before long, ALARA Racing had built close to forty cars and was providing support for them at tracks throughout the southwest.

In 2005, Mazda approached Ara to join a new race series they were starting, the Mazda MX-5 Cup. Today, ALARA Racing is the longest running team in the series. ALARA drivers Christian Szymczak and Kenton Koch won the 2013 and 2014 championships. Winning on the track is just part of the picture, however. Ara has learned a few vital lessons about how to make a startup successful too.

Don’t meet expectations, beat them. When Ara started building race cars, he delivered a product that was better than what his customers expected. The resulting strong word of mouth advertising was more effective at attracting new customers than any traditional advertising could have been.

Passion is not profit. Loving and being knowledgeable about a topic such as race cars is a good start, but it is only a beginning. You also need to develop a good business model – i.e., the process by which your company will make money. This involves identifying your product or service – such as the racing series you are going to specialize in – and your target market – are you going to be the cheapest race team to join, the best-in-class, or somewhere in between? One approach is to find a niche that doesn’t have a lot of players. The MX-5 Cup, for example, typically includes just 3 or 4 viable teams each season.

Family matters. Szymczak left another team to join ALARA in 2013 in part because, as he puts it, “Ara runs ALARA like a big family. All his drivers want to win and we take that seriously, but at the same time we always have fun.” The family approach runs throughout the operation – even the name ALARA combines Ara’s name and that of his wife and fellow racer, Alison.

Like all good entrepreneurs, the Malkhassians put their customers’ needs ahead of their own. In a recent race, a parts shortage meant that one of the team’s MX-5s had to use an iffy transmission. Ara insisted that the questionable part be installed in his car.

Be lean and mean. Managing costs is vital. ALARA Racing is essentially a two-man operation. Ara handles finance, marketing, and the logistics of getting race cars to tracks around the country. Ara’s partner Ken Murillo (who also owns a well-known BMW racing team, Murillo Racing) is responsible for all of the technical aspects of preparing ALARA cars for the races as well as for managing the team’s part-time race crew.

Consider diversifying. Although Ara’s passion is racing, his most profitable business is ALARA Garage, a storage facility for exotic and classic cars in Houston, Texas. During the recent recession, the race team went through a period of lower car counts. Ara’s racing business would have been in deep financial trouble without the safety net provided by the car storage business.

Find great partners. In addition to its storage business, ALARA Garage houses three other businesses under one roof. Sphere Motorsports repairs and services exotic and classic cars; its specialties are Ferraris and Lamborghinis. M. Brandon Motorcars buys and sells exotic cars. Cavallo Auto Salon, a high-end detailing business, rounds out the offerings. This is a clever approach that allows a specific target market – people who enjoy fast, expensive cars – to satisfy a variety of closely related needs in one facility.

Each of the four businesses is owned by a different partner. ALARA Garage rents the facility; whereas Sphere, M. Brandon, and Cavallo each contribute a share of their revenues in exchange for the space they occupy. To minimize overhead expenses, Ara handles almost all of ALARA Garage’s functions himself with only a single shared employee. The four businesses all refer customers to each other and they cross-promote each other on their websites.

In early May, Mazda recognized Ara’s racing and startup success by giving him the Spirit of Mazda award. He is just the second recipient of this prestigious honor.

 

This article is adapted from Ketchen, D. 2015, June. ALARA Racing: Turning a hobby into a business. Grassroots Motorsports Magazine, p. 20-24.