Continuing from where we stopped on our discussions on demand model marketplace business success principles we started last week.

Growth Model: How Uber finds customers - In less than 6 years, Uber has managed to become the best example of a city-by-city mobile service company roll-out. Many generic pointers discussed here regarding scaling User Acquisition efforts for On Demand platforms borrows elements right from Uber’s playbook.

Let’s try to decode Uber’s Playbook and how it plays out as it launches in a new city or a country: The underlying principle here is that for every city it launches, it faces the same chicken and egg problem. The advantages that Uber has as compared to new startups in this space are:

Lot of money to incentivise both drivers and customers. Rock solid processes or playbooks that have evolved through experience launching Uber in 311 cities till date.

Already known brand that gets early curious adopters – Everything starts with a small city launch team. Every city has a general manager who heads the customer acquisition as well as driver acquisition. The first cabs to come on board are generally professional drivers who are already associated with local taxi companies and have their own cars.

First customers come from various local advertising channels like FM radio, newspapers, online advertising etc. Uber is such a large name that people are already waiting for the cab company to start services in their city.

Uber Business Model Canvas

4-step model about how Uber works – Uber’s Business Model –

Step 1 (Request a cab): The first step in the business model of Uber is about creating a demand. People have a smartphone app which lets them request a cab instantly or schedule it for some time later.

Step 2 (Matching): As soon as the request is made, a notification about your details is sent to the nearest driver. Cab driver has the option to accept or reject the ride. In case he rejects, notification is sent to another driver in that area.

Step 3 (Ride): Customer can track the cab when it is arriving and the ETA is also shown to the customer. The metre starts as soon as the customer sits in the cab, which can be tracked through the customer side app as well. Friendly drivers make sure that the ride is comfortable for the passenger.

Step 4 (Payment & Rating): Once the ride is over, customer gets an option to rate the driver. Rating system is an important part of Uber’s business model as it lets a person know about the driver before booking a ride and helps him trust the driver.

UBER BUSINESS MODEL CANVAS

How and why Uber became so successful – Uber’s business and revenue model just can’t be stated as complete if this widely asked question about Uber’s successful journey is not answered. There were certain factors that led to Uber’s success. Here’s a brief journey that Uber went through when it launched. Similar journey can be followed by any startup which aims to make it as big as Uber.

The problem with local Taxis – Earlier, people had to stand on the street side and wave their hand in order to signal a taxi to stop. The wait time, the inconvenience and high rates were a problem for everyone. Quite a few taxis were available and drivers/taxi companies used to charge whatever they thought was right. There was no control on prices and people were left with no other option. Apart from this, the situation was worse during the peak hours as it was quite hard to find an empty cab.

The launch of Uber – Uber recognised the ongoing problem in regard to booking a taxi and gave a technological solution through a mobile app. The solution to book a cab by tapping a smartphone brought a revolution in the taxi industry. Uber app was officially launched in 2010 and soon became popular due to the value it provided to people.

The early adopters – It is quite difficult to market a newly launched product or service in any geographical area. What gave Uber the edge is that it launched in San Francisco, a city which is home to tech savvy people. The first drivers on the platform came through cold calling. Many of them were professional drivers with other cab companies or were self employed as a taxi driver.

To get their first customers – Uber took to social media and other mass marketing means. It offered discounts, free rides and rates that were too less as compared to other cab services in the city. The first customers for Uber were those who enthusiastically wanted to try the new service. Uber offered rides from club venues to user’s doorstep so the party people were amazed. It offered rides to the corporate sector who worked in offices helping them to save time.

Word of mouth advertising – Whosoever took a ride in Uber was baffled by the first hand experience. This made the early users to become regular customers and they also helped spread the name by word of mouth advertising. This word of mouth advertising was one of the major driving force

Main Growth opportunities tapped by Uber – The service appealed to party people who go to clubs, parties or events, business travellers and tourists, providing cabs at doorstep in bad weather conditions, serving the city’s Nightlife.

Problems Uber still faces:

Lawsuits – Uber has pending lawsuits in courts of New York and San Francisco. According to Uber, all drivers working for it are its partners while the court says that they are employees. Uber is not the only company facing such a problem but in fact almost all companies who hire 1099 workforce are under the scanner.

Chicken & egg problem (New city Launch): Uber faces the chicken and egg problem whenever it launches in a new city. Acquisition of customers as well as partnering with new drivers is not an easy task. To solve this problem, a marketing team starts working in the new city by reaching out to professional drivers. Soon, online and offline marketing is initiated. Discounts are always the main USP to woo customers in the starting stage.

Trust and safety issues: There have been cases where Uber drivers have acted rude to passengers. Some cases where Uber drivers have outraged the modesty of female passengers have come to the limelight. This is a big challenge for Uber. Although the company takes all steps such as police verification of drivers and their ID details but still such cases cannot be ruled out completely.

TAKEAWAYS FROM UBER’S BUSINESS MODEL

Go for less ownership model. Uber does not own any cab but still provides over 1 million rides a day through its partner network.

Choose an industry, Think about the most common problem it has. Find a solution and disrupt the existing model through technological infrastructure. That is what Uber did in the cab industry.

Treat your initial users as kings. They are really important for the growth of your business.

Expand step by step. Do not add everything in your business model in the first go. Uber started with cabs but now even has boats, helicopters, bikes and other means.

Opportunity won’t come to you, You have to look for them. Uber created an opportunity by offering discounted rides for particular events / party venues and hence got its first customers.

Treat your workforce as an important part of your business. Uber calls its drivers partners and gives them a decent 80% of the total fare.

There’s no doubt in the fact that Uber has brought a revolution not just as a taxi company but as a business model where businesses reach out to serve customers at their location. A lot of startups have already copied the exact business model of Uber and many others have made small alterations to launch startups in various industry verticals.

This article will continue next week as we discuss further the subject in question. Send me an SMS/WhatsApp message or call for more details and training opportunities.

•Lawrence Nwaodu is a small business expert and enterprise consultant, trained in the United Kingdom and the Netherlands, with an MBA in Entrepreneurship from The Management School, University of Liverpool, United Kingdom, and MSc in Finance and Financial Management Services from Rotterdam School of Management, Erasmus University Netherlands. Mr. Nwaodu is the Lead Consultant at IDEAS Exchange Consulting, Lagos. He can be reached via nwaodu.lawrence@hotmail.co.uk (07066375847).

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