July 29, 2014
Business@redOrbit – You’re Wrong. Accept It And Be Ready For Change
George Malone for redOrbit.com - Your Universe Online
If there is one ever-present lesson in business, it is that rarely, if ever, will you just get it right. Go to a top MBA program and you will constantly hear the word “pivot.” Pivot, adapt, adjust, change. Whatever you call it, as you develop your product or service and a better understanding of your customer, your business model will change, or might become obsolete all together. Don’t worry, that doesn’t necessarily mean you will fail at your mission, but you will only survive if you let go of the notion that what you have now is exactly what the market wants.
In the last two weeks I have met with two companies less than five years old who are rapidly growing in their respective fields, technology and financial services. In conversations with their founders and senior leaders, each company explained that the core business model they employed when they started their business less than five years ago is not their business model today. Why? Because both companies found that their models were not what the market responded to, and the management teams are smart enough to adapt instead of holding onto their preconceived notions. Both companies are still fulfilling their respective mission statements, but neither is doing so with the technology or service they originally conceived.
Since I can’t discuss those companies by name, let’s look at two highly visible companies to see how their business models have changed. Since I live in downtown Chicago, public transportation is a part of my everyday life. So I’ll talk about Uber and Lyft, both groundbreaking technology companies that are for all intents and purposes relatively young. Let’s look at how both companies have morphed since their founding.
Uber started in San Francisco in 2009 as a premium transportation service that allowed customers to book a black car with ease. Lyft, originally started as Zimride in San Francisco, provided a peer to peer platform for ridesharing where drivers only received donations for their transportation services.
Two different missions and management teams built two separate companies with their own focuses. Would you expect these two companies to now share the same underlying business models when both started with such specific models tailored to their own purposes? Let's have a look.
Uber began as a platform for black cars, and soon found that customers wanted the ease of e-hailing taxi cabs. Uber introduced taxis onto their platform, adding a service charge for the consumer. As peer to peer transportation grew and Uber continued to gain integral investors, its business model shifted again to introduce UberX, opening itself to the peer to peer transportation industry. Once in the field, Uber wanted to guarantee it always had cars on the road when your “eyeballs” scanned the app. To incentivize drivers, Uber introduced dynamic pricing allowing for higher rates during peak demand times to make sure it could fulfill its customer requests. Although there has been consumer backlash against the dynamic pricing model, it's one thing to say greedy and another to sit outside in Chicago in -5 degree weather waiting on a taxi. What Uber found is that consumers are willing to bear the costs and it increased its inventory by incentivizing drivers. So here is Uber, the former black car company, operating a peer to peer transportation service with a dynamic pricing model. Who knew this is where it would be after five years?
Lyft has to be different, though. Today, if you sign into the Lyft app, you’ll find that the company has transitioned away from its donation-based model and to the same dynamic pricing model that Uber employs. Why? It's what the market bears. Now, Uber and Lyft compete for drivers. Uber incentivizes drivers to work during high demand times by showing them the financial reward on Uber’s app. Since more Uber drivers are on the road, customers will easily find them during those high demand times, which increased app demand for the company's drivers. Lyft could have stuck to its original business model, focused on donations with no surge pricing, and maybe it did for too long. Lyft had a noticeable jumpstart on Uber in the peer to peer transportation industry and should lead market share, but it doesn’t. It did, however, change to survive. Both companies need drivers on the road and they have to compete for them.
So two companies, one with a foundation in premium services and the other in collaborative consumption, are now essentially brokerage platforms between individuals willing to pay for transportation.
The two companies are battling to serve overlapping customers because their business models have pivoted to address similar customer needs, ending with the two companies providing almost identical services, albeit each with its own feel. Uber plays up its sexy side while Lyft plays up its fun loving quirkiness, illustrated with the pink mustache.
These two companies have adapted to a number of market forces. While both companies face more significant legislative market forces than a lot of businesses that you or I may work on, their growth and success have been products of their adaptation as companies and management team up to meet their customers’ needs and interests. Their continued success will also be just as thirsty for the “pivoting” they have shown up to this point.
Every week for the next month we will discuss an aspect of successfully starting or managing a company, but this week we have started with the foundation.
If you want to succeed, don’t shelter yourself from change, but seek improvement through the market and be ready to change.