The Uber Start-Up Story
I am sure all of us have heard of Uber, the ride-sharing start-up service disrupting the traditional taxi services industry.
What you may not have heard is that globally Uber reportedly lost US$1.2billion (that is BILLION, not million) in the first half of 2016 and the losses are continuing to grow! Does that mean the “sharing economy bubble is bursting” and that the US$69million valuation of Uber is baseless?
When will Uber make a profit and what is in their strategic plan to get to profit? Are they ‘investing’ in the future rather than ‘making losses’? What will it take to make money in the longer term? In my view they will have to increase prices and fees to become a sustainable business at some point. The likelihood of having fewer taxis on the road driven out by competition of a lower cost disrupting business which may then be followed by hikes in prices by Uber is a scenario I see happening, particularly if the taxi industry cannot get its act into gear.
If a business is not profitable in the medium to longer term, it impacts far more people than just shareholders and investors. There are employees, customers, suppliers, banks and the overall economic impacts that can suffer if a business fails.
What you may not have heard is that Google launched a pilot ride-sharing program in May in California to directly compete with Uber. It is clear that the disruptor Uber is now being disrupted by Google so nothing stays the same for long! Having said that, it is clear that Uber have created a new way of getting from point A to point B and that as such, ride sharing is here to stay. The question is in what form will that take in the future?
Questions to consider?
This leads me to the question; what is your business model? Is it sustainable? Is a profit objective at the core of your strategy? If you are a start-up are you growing too quickly and not managing that growth? If your business model is to disrupt an existing industry via the use of technology or other means, can you and your financiers survive the initial pain of losing money to build your market position?
What’s the take away from all this? Ensure you have a sound strategy in place as a foundation for your business success!
Ross – Virtual/Part-Time CFO