Lyft, a startup enabling P2P ride-sharing recently received $60 Million from leading VCs. Do you live in an open market prime for Lyft? Start your own ride-sharing company and get acquired this year.
Remember ‘Attack of the Clones’? Attack of the Groupon Clones that is. In 2011, Groupon was the fastest growing company ever and yet hundreds of clones were popping up around the globe. A fairly high percentage of these clones captured VC funding (and we wonder why VC is power law’d) and many were acquired by Groupon during its massive expansion.
Now why would someone want to copy the business model of the fastest growing company in the world?
Turns out it’s quite simple: profitable market + low barrier to entry.
Back in 2011, I met freshly former investment bankers that within 2 weeks had a Groupon clone with a handful of small businesses on board, a site built by a highly-paid Wordpress ‘expert’, and a small mention in the paper. Now that’s what I call low barrier to entry. Demand grew. Supply grew. Alas, they didn’t get acquired or the unit economics right, and the business ran out of fuel.
Now enter Lyft. Lyft’s model is very similar to Groupon:
- Both companies have two-sided markets.
- Both companies win on strong marketing/sales and understanding local communities.
- Both companies succeed by the strength of their brand and how soon they can move up the experience curve, and build network effects.
- Both companies needed big funding fast to achieve critical mass to render competitors ineffectual.
But Lyft has even weaker barriers to entry than Groupon:
- Although both businesses need to tackle two-sided markets, with on-demand ride-sharing an entrepreneur can focus entirely on demand while him and a few friends provide the supply. No need to convince outsiders right away. In addition, with Lyft you can concentrate much of your supply and demand-side marketing on the same audience. For instance in Chicago, Lyft markets to the trendy Wicker Park area because they believe the same hipsters that will drive will also choose to be driven.
- Although both businesses need strong community knowledge, Lyft has nothing tying its communities together. With Groupon, something can be said about the occasional ‘National Deal’ where having a nationwide audience produced value. Lyft doesn’t have this common thread which can be monetized. See the funeral-home roll-ups of the 90’s for an example of tying community-focused businesses together with no synergies. Spoiler alert: it leads to Chapter 11.
- Although both businesses will win by building the biggest, strongest brand as quickly as possible, Lyft is going to have trouble moving up the experience curve because driving preferences are likely more varied across the US than leisure shopping preferences - there’s at least more varying regulation around it.
I hate to say it but Lyft is more clonable than Groupon.
So as the fledgling business cloner, what do you need to know?
Lyft just raised $60 million dollars from Andreessen Horowitz. A16z doesn’t do that much often. Given their investments, it’s not a stretch to note that Andreessen Horowitz has 100% bought into the vision of a P2P economy, especially for cars and homes (they invest in AirBnB). Given their experience, they know Lyft needs to gain scale asap (hence the huge investment now) to build its brand, achieve network effects, and beat out competitors like Sidecar. If Lyft becomes the Groupon of P2P ride share, they create ownership of the market through its brand. Of course, they’re not going to keep people out based on their technology, it’s all about speed.
That sounds awfully lot like Groupon’s big funding rounds. The $60M will go directly into Lyft building huge infrastructure and sales forces around recruiting new drivers, reaching new cities first, as well as to marketers to build customer awareness and demand. They need speed and scale. They need you.
So here’s the call to action. Open up a Lyft clone in a city where they haven’t entered yet. Build your app and start driving with a group of friends. If there’s traction, find the local community that’s most likely to drive and want to be driven. Build awareness, get drivers, get the unit economics working. Of course it’s not really that easy but if you build the local network, there’s an easy business case at Lyft to acquire. For those in an already ‘Lyfted’ city, find your differentiation. I’ve seen people start a ‘Tesla’-only service. Find your niche and build your market.
Cloning Groupon made quite a few people rich. It’s not easy for Lyft, but it’s definitely easier. I welcome our Lyft-Clone overlords and may the force be with you.
Original Post:http://katsenblog.com/post/56180811242/clone-yourself-a-million-dollars-this-year-with-lyft
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