RESPONDING TO THE LATEST DRAMA
When the history of the industry (personal transport – taxis and PH) is written the events of the last week (Autocab/Uber) will warrant a chapter of its own. Not maybe for the reasons that are expressed in the various chat rooms, WhatsApp groups and growing number of webinars but for the way it exposed some very core weaknesses in the industry. None of which are fatal if addressed but if the industry continues to sit around like a boat with no engine bobbing about in a stormy sea then they could easily become so.
DEALING WITH THE ELEPHANT IN THE ROOM
I have set this section out in an interview style to deal with the questions I have been asked
Is the purchase (or whatever the deal was) of Autocab by Uber fatal to the industry?
In my view it is not. I say this confidently based on the evidence. There are many despatch companies in this industry, it is a healthy and functioning market and if you don’t like how your technology provider rolls then you have a choice; stay and enjoy, stay and moan or move. Alternatively if you like a provider personally, like a company’s tech, want to be part of their network (Igo, soft merger etc) or find someone cheaper and the price differential is sufficient you can choose to move. At the moment, a theme I will return to, there is choice and frankly lots of it. So if the despatch market persists – no this deal is not fatal to the industry.
Were Autocab right to accept this deal?
There seems to be a lot of words, energy and excitement expressed around this subject. All the old clichés are out there ‘sold down the river, ‘Judas’, ‘took the silver’, ‘sleeping with the enemy’ etc etc. Well lets go back to basics a CEO’s role is to create shareholder value – that is pretty much it. Now how that value is cretaed opens up a whole world of options, ethics, strategies and approaches. I am not here as an apologist for what Autocab and Uber did but what I passionately believe is that everyone running their own business however small, however big and with whatever potential would do well to a. remember what their role actually is and b. to have their strategy in place to do so and not to be blown off course every week when the next crisis hits town.
‘every business is only one decision from disaster’
Should I move, sue, or stay?
Lawyers get rich dealing with angry people – forget suing! Don’t waste your money, any lawyer with a better house than yours will tell you that you have a good case – forget it this is not a television programme it is you running a cab company with a decision to make. Firstly never forget the maxim that every business is only one decision from disaster – a maxim that I frequently weigh against important business decisions. You need to think what is best for your business now, your business in the future and what your strategy is and how this helps/hinders it. Dodging the bullet? No! Different businesses with different strategies at different levels of development/maturity will have very different considerations. Competitors will play a role so you need to think carefully about what they will do. And ultimately what will Uber and the rest of the taxi/PH despatch system world do? Hopefully the rest of the article will assist your thinking and consideration of what you should do for your business as that is what you are paid to do.
THE FUTURE REVEALED
Do I have all the answers or even all the questions? No! But dispassionately I have been thinking about what advice I would give to a number of organisations if asked;
If I advised Uber (I don’t)
I’d advise them to make nice noises, calm everyone down and see what is left of the deal. If a significant chunk of customers started to leave I’d advise them to forget charging for the system and give it away free – after all this is rounding in the grand scheme of things. I might even advise them to give loyalty bonuses – if you stay for two years it’s free plus you will get £xx’s. I’d advise that they do nothing very much until the dust settles then I would try and tie operators in for the long term. Lock the doors and stop people leaving. None of this is very original and is frankly obvious. Uber like everyone else needs to work out what business they are in – if they have bought this business to do what they say and they are successful then they should be earning their income from millions of transactions and frankly not from puny despatch system charges from 400-600 companies.
‘forget charging for the system and give it away free’
Next I would advise them to hoover up the rest of the despatch industry. I heard someone say that Uber could not buy their competitors (iCabbi, Cordic, Catalina, Cab Treasure et al) as the ‘monopolies’ people (I think they meant the Competition and Markets Authority (CMA)) would stop it happening………er I don’t think so. Were the CMA not the people who came out quite astonishingly in favour of Uber (Competition Chief Attacks TfL’s Plans to Curb Uber 1) don’t expect much help there. Also isn’t iCabbi an Irish (soon to be ‘offshore’) company and aren’t we leaving/left the EU (remember Brexit)? So the CMA has little impact there – if you are in any doubt look at the multi nationals and where they are domiciled and see what the CMA impact on any of them is. In fairness to the CMA they see their role as protecting the consumer – a free system doesn’t really sound like a misuse of a monopoly does it? Neither do quick cabs! Neither do cheap/free cabs! In any event if you want to build your own system you can, this is not a utility company in a monopoly situation threatening to cut you off, it is technology and there is lots of it and there is nothing stopping you from going elsewhere or doing it yourself or with others.
‘increase commissions to a point where operators can survive but just’
I would then tell them to gradually dominate individual cities and towns. I would advise them to cut fares to free if necessary to either get operators to change to them or send them bust. I would advise them to engineer fares to give drivers on their system bigger earnings, a bigger share of the fare and once they had the supply side in their hands (i.e. connected to their system) jack up prices, carefully and slowly but inevitably increase commissions to a point where operators can survive… but only just. I would also advise them to identify other areas of the value chain that they could take over and remove from operators and drivers – e.g. vehicle insurance, free/cheap cars, credit card handling, accounts, driver benefit packages, and offer them free to take the market. The outcome if they followed my advice and were really successful and as economists say ‘all things being equal’ they would take 100% of your customers and sell them to you for a hefty commission. Your role would be the mucky end of the business recruiting drivers and placating local licensing authorities. Your exit (if you planned one and if you didn’t you should have some kind of plan e.g. pass it onto the kids or similar) is smashed to bits as you have no customers and probably before long even drivers are a mere formulaic management function as they have to work for you.
‘…ever heard of deregulation’
But, you might say, all things are never equal and new competitors will spring up offering despatch software but without Uber’s might but…. You might say that to unshackle myself I might decide to pay for software. Perhaps but what if Google, Apple and others decide………we can do that? What if the big players (they will come) enter the market offering free systems and put untold pressure on Government to get rid of archaic rules (aka public safety) and enable direct to driver despatch – bye, bye operators? Can’t happen? Have you ever heard of deregulation? Speak to operators in Holland, Sweden, Ireland and anywhere else that has deregulated – it didn’t sound much fun to me. Don’t rely on legislation to keep you in business – politicians are fickle and London is a prime example of that even without legislation the London market was roasted through political influence/interference – it started like most mistakes with good intentions (we want London to be the start-up capital of Europe) and ended with cab companies struggling for survival.
Now you don’t need to be a Doctor of Business Administration to dream the above up. It’s all fairly obvious BUT it does rely on everyone in the industry rolling over, running around like headless chickens whilst strategic big business eats their lunch, dinner and tea, and the industry continuing to have no credible plan to enable self-determination. In fairness I don’t advise Uber and they may take advice elsewhere that won’t give them the above outcomes.
SYSTEMIC WEAKNESSES CAN BE ADDRESSED
So what are the systemic weaknesses in this industry that cause its participants to scrabble around for solutions to what are everyday business challenges and problems?
‘the industry is fiercely independent enabling agility, it is fragmented which makes it a harder target’
Before I answer that question could I spend a little time on our industry’s systemic strengths? This industry has been hit with a maelstrom of challenges over the years and has not only survived but thrived. The recent hit, Covid 19, has probably been the worse but even so look at the innovation, entrepreneurship and grit that has seen most companies come through. Some are even doing better now than before Covid. The structure of the industry is fiercely independent enabling agility, it is fragmented which makes it a harder target (or had until now) and it is low margin, low cost and requires significant skills to manage a self-employed and very mobile workforce. Outside of London the disparate and often idiosyncratic nature of licensing is an effective barrier to entry as Uber and others have seen – it doesn’t scale easily. These are real strengths within the environment that we frequently operate.
So what are the systemic weaknesses? To answer this I think I need to talk at two levels here – the micro and the macro. Taking the micro first; individual businesses in the industry often do not see their value. Without being patronising; it’s a lifestyle, it’s a dream come true, it pays a decent income and its mine! That’s fine but the people running these businesses have immense and broad skills but don’t often realise that.
They often work very hard their whole lives without realising their worth and the worth of their businesses. In the process they are often engaged in huge personal and financial risk. Gut feel decision making and getting through another day is seen as an achievement and a mark of success. Now if you have eighty or a hundred drivers and you and your wife or husband run the business with a few staff you are not going to spend days every week developing a formal strategic plan but maybe now and again you should take time out and look at where you are, where you want to get to and how you are going to get there aka strategy. Likewise while you are doing that just list down the top three/five/ten things that stop you doing it and then fix/mitigate them. That’s how small businesses get bigger. Bigger businesses should be doing this formally already. The successful ones will certainly be doing it.
To look at the macro – where is the leadership of this industry? Yes there are lots of organisations to help you out with the local council, to get a rank, to stop a rank being taken away and to get a driver’s badge back. They will huff and puff about bigger decisions, the Deregulation Act for example, and try with futility to get well documented and legally formulated decisions reversed BUT where is the horizon scanning? What are we doing to influence the three/five year strategy, who is feeding into the labour manifesto for the next election? Who will stop Uber or anyone else if they decide to get local licensing washed away and enable direct to driver despatch – where in our industry is that body? It’s no secret that it is nowhere. Likewise it will stay nowhere because no one wants to pay for it. By pay I am talking a thousand pounds a month or something meaningful not the odd tenner a month and a heroic £100 if there is a special box rattling exercise to launch a judicial review.
You will pay your employer’s liability insurance, you will pay your licence, you might even insure your building but when it comes to your business……..possibly your most valuable asset (worth more than your house if nurtured properly) you don’t want to pay. Do you know your local MP? Do you speak to the press? Do you involve yourself in the local community? Often the answer is no. That may be lack of time, lack of confidence/competence or a myriad of other reasons BUT big business will. Not only will they, but they are and they are doing it now!
If you look at the successful industries they all face existential threats from time to time. Some fall by the wayside, some come together and buy the representation and other things that they need to thrive. The Road Haulage Association is a prime example. There are many others.
‘further turmoil to an industry that is ill placed to deal with it’
Our industry’s key systemic threats are; leadership, technology and distribution. People like Riide are in a prime position to take up this mantle but have they got the aspiration, infrastructure, available competences and resources to do so? Has the LPHCA or NPHTA? Has anyone in this industry? I am not here to judge others just to make the point that unless the industry starts to get itself organised and into a position where it has a clear strategy, where big and small can not only survive but thrive and it develops the infrastructure to project, protect and deliver then every week, month and year will bring further turmoil to an industry that is ill placed to deal with it. Maybe when we talk about consolidation we should talk about institutions merging instead of fighting each other for members and be properly answerable to their members who in turn are prepared to pay proper fees for a proper service.
Back to the Future
So to return the original question – is this development good or bad for the industry? Without sitting on the fence……it depends. If you are happy with your lot, if you have no vision to grow exponentially, no exit plan, no hope of longevity and want a third parent I don’t see it will do you any harm and in the short and medium term it may be very good for you. You might get a free/cheap system, more work with no effort and enjoy the rest of your career administrating drivers and placating local licensing authorities.
It could be good for businesses which are on their knees if they need a short term tactical influx of business to get them through the next eighteen months – it could mean short term gain and long term pain but hey survival is good. If they can wean themselves off of the easy money after the crisis maybe its fine.
But what of those who want to grow, to retire to a beach, to buy bigger houses, smarter cars or pass a thriving business onto their kids? It may still have a place if 10% of your business comes through Uber or even 20% then you can still call the shots, unless your competitor takes your drivers because he is taking everything that is thrown at him by Uber. Remember your competitor may not even be in your town – Uber et al don’t have to worry any more about making provision they will be outside of the regulatory regime.
The true answer is a simple one – what is it you want your business to do? Where do you want to be in five years? Will this help you or not?
SPARE A THOUGHT FOR OUR NEW SILLICON VALLEY FRIENDS
Whilst we are talking about victims lets spare a thought for Uber. This is a brave decision, yet another twist and turn in what appears to be a catalogue of strategic confusion. What do they do if everyone leaves? Do they buy someone else? Do they give up? How many more directions are there to spend billions on?
Trying to operate at scale in licensing areas with hundreds or very low thousands of drivers is very different to New York, London etc. The secondary cities in the UK are relatively small, people like cash, they already have cheap prices, they are brand loyal, cabs already arrive quickly and drivers know that if they leave an operator they probably won’t be welcomed back.
I honestly believe that there is little to show for the money (a fortune by anyone’s standards) that has been spent – customers are fickle another promo code from someone else and they are off. Setting fares to a level where you can take passengers off the bus and tube in London was never sustainable. What about ride sharing – even before Covid that was going nowhere and now……..
The UK industry has despite the weaknesses mentioned above remained resolute and survived and still has 90+% of its customers still using it. I despair every time I sit on a panel and am asked ‘why has Uber been so successful’……………….if you call this success what does failure look like?
Dr Michael S Galvin
1 https://www.ft.com/content/48bf3b40-983e-11e5-95c7-d47aa298f769