Investment Case Study

by Adam on June 16, 2013

I was thinking recently about a potentially interesting case study in how business models are developed and honed, which coincidentally occurred while riding in an UBER taxi. It is not food-related, but it presents a lesson in evaluating potential investments and entrepreneurial opportunities in an impartial light (because, after all, we never know what a mass audience will truly want).

Consider the taxi. While new services have offered ways to revolutionize what has become a basic urban service, the idea of a taxi service as an entrepreneurial endeavor seems quite ludicrous on the face of it. The pitch would be something akin to:

“The company will lease cars out to accredited drivers, similar to a franchise model. Drivers will be scheduled in shifts to drive around particular cities across the country, and customers can either schedule a ride by calling a dispatcher directly or hailing a passing cab from the fleet of drivers in the city. All payments will be handled through individual taxi drivers who then split their revenues with the company.”

The thought of it, having a fleet of drivers who mill about the city in rather random fashion seems fairly outmoded as far as startups go, but provides some good insight into building startups in today’s environment:

  • A startup just starting up is very different than a company at scale. Many times, companies fail to recognize the challenges and opportunities inherent in the question of scalability, tackling it more as a milestone in their growth, rather than an ongoing evolution. In the example above, a “taxi startup” doesn’t provide a clear value proposition, but at scale, we see that it does work.
  • Don’t try to second guess what customers will want, or assume that one size fits all. If I were approached with the above idea, I would think that customers would never waste time standing on a corner for a cab to appear, but it happens everywhere we go.
  • Automation is not always the key. I love UBER, but technology is not always a replacement for a high-touch environment. One could argue that taxis are very high-touch, by the nature of their hailing and payment systems. But, even with all the innovation around digital platforms, the old ways still work.
  • But branding is key. The only way that a customer would know they were getting into a taxi is because of the branding that is a cornerstone of yellow cabs (now they come in all colors, but you know what I mean). Clear branding to attract new customers is always part of a successful company.

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