Is Uber Really Disruptive Technology?

I attended a technology awards event a few nights ago. The speaker extolled technology as the engine of change and economic development, while attendees posted pictures of each other for the Pinterest feed on the screens to either side of the stage . He referred several times to Uber, saying that it was disrupting a business that had remained unchanged for a hundred years.

Is it really? Is the ability to book a ride on your cell phone all that different from when taxi companies installed telephone lines, or from advertising on the doors of cabs that they were “radio dispatched?” Both represented the implementation of technology to increase productivity and convenience to the customer.

NY TaxisTech advocates, however, defend Uber’s right to operate outside of the common carrier regulatory structure as the moral equivalent of Internet neutrality. Its opponents (admittedly led by the traditional taxi industry) characterize it as merely a way to allow unlicensed gypsy drivers to operate illegally.

I’m not a fan of increased government regulation by any stretch of the imagination, but citizens have a reasonable expectation that their elected officials will oversee public safety. When they hail a cab on the street, or call for pick-up, they do so with the understanding that there are certain regulatory standards that apply to the driver and vehicle they will use.

Uber says that they assume that oversight role for those who utilize their service. Many industries, including airlines and trucking, are largely self-policing, but they don’t make up their own standards for regulation. I doubt that I would be comfortable booking on an airline that advertised “We will decide just how safe our planes need to be.”

Amazon was disruptive, as was Wal-mart, by using technology to revamp logistics. Ebay and social media created new marketplaces, but that was no guarantee of success (e.g. MySpace). Uber is simply the use of a technology in the interests of efficiency. Touching a screen isn’t all that different from dialing a seven-digit number.

Uber is shaking up an industry. It increases competition, provides opportunities for part-time income, and (at least theoretically) makes more efficient use of resources. All those things are desirable, and should be encouraged. That doesn’t mean Uber should be exempted from the same public safety oversight as its competitors. It’s a traditional taxi service utilizing current technology.

Many business owners make a similar mistake when implementing new technology. A business website has clearly replaced the telephone book for prospective customers. Facebook, Twitter and Pinterest are effective marketing tools for certain products to specific demographics. Merely spreading your company name around the Internet, however, is neither disruptive nor differentiating.

 

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  2. David Basri says:

    I am generally in agreement with Awake at 2 O’clock articles, but respectfully disagree with this one. What Uber has done is clearly disruptive to the traditional taxi industry. Previously the only phone number that would connect someone who wants a ride with someone who could provide one, was to a taxi company. Taxi company are a silo or vertical business model. Uber, and the other ride-share companies, have made it much more horizontal. The barrier to becoming part of a ride-share fleet is very low.

    John correctly identifies that as a serious issue that will need to be dealt with. The barrier is very low and government is largely out of the dynamic (which is both good news and bad news). Of course one could argue that it is a classic case of a consumer accepting increased risk in return for decreased cost. The industry will have to evolve to deal with the issues, but it has pretty clearly been a disruptive shift in a long’standing business model.

    • John F. Dini says:

      Thanks David, but I still don’t see how Uber inherently does more than a taxi company (match people wanting a ride with affiliated drivers who are willing to do so for pay.) Some folks read my article as an argument against Uber. Not at all. I’ve used the service, will again, and think it is terrific. The artificial market constraints of medallions that cost hundreds of thousands of dollars in return for a middle-class wage should be removed. Uber is shaking up the industry, and I applaud them. Like you, I worry about the impact of claiming a right to work outside the public safety system. Working outside other regulations that exists merely to stifle competition? Go for it!

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Holiday Terminations: It’s Not “Just Business.”

Yesterday, I received a comment from a woman on my column from 2012, “Holiday Terminations: Scrooge or Chicken?”. She had been unexpectedly terminated from her position, and said in part “Employee termination during the holidays is an act of spiritual robbery that has a devastating impact which is farther reaching and longer lasting than termination at any other time of year.”

My response included the following caveat: “If the termination is because an employee didn’t respond to progressive discipline or a performance improvement plan, then I don’t see an obligation to carry someone in the “spirit of the season.” You say that you didn’t see it coming, so I assume either it was due to overall business performance, or your former employer didn’t follow fair and equitable HR practices.”

If you read the original post, I strongly recommended that termination due to business conditions be accompanied by severance that will carry the employee through until the hiring doldrums subside in January. On the other hand, I don’t think an employee who has earned termination by documented poor performance has any vested right to the extra paid holidays and bonuses that typically come with the season.

IOU SantaPre-holiday termination can save an employee from incurring excess credit card debt. It puts them in job-search mode at a time when they have the most social connections and support from their family and friends. These factors certainly seem insignificant to someone who is newly unemployed, but they are in fact substantial.

I’ve often said in this space that downsizing due to business conditions is always tough, but an owner’s obligation to the remaining employees and other stakeholders (the owner’s family, customers and vendors) trumps the discomfort of an unpopular decision. Waiting an extra six weeks will never cause an employee to say “Gee, I’m glad he didn’t fire me during the holidays. What a swell guy!”

On the other hand, being unemployed during the holiday season carries a special burden, and obviously puts a damper on customary celebration. It’s not  “just business.” If it is necessitated by financial problems, it should come with compassion and consideration. If it was earned by poor performance, it should never be a surprise. The spiritual robbery referred to by the reader comes from the lack of warning and preparation time as much as the act of termination itself.

We run our businesses all fifty-two weeks of the year. Making the Thanksgiving to New Year’s period (about 12% of the entire working year) an automatic moratorium on necessary personnel changes isn’t “just business.” It’s bad business.

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The Secret to Growing a $1 million company by 5X

In my work with hundreds of small business owners, I’ve noticed that there are two “danger zones” where an owner may, consciously or unconsciously, prevent his or her company from growing any further.

The first zone lies at about $1 million a year in sales. Many owners reach a level of satisfaction with their personal income. The work is hard, but a single owner can do most of the skill-based tasks and still closely oversee what’s done by employees. Income and benefits reach a level that permits a reasonably secure lifestyle. The work week may be long, but the owner has sufficient discretionary funds to spend his or her time off on activities that feel successful (recreational vehicles, a second home, exotic vacations.) After struggling to build a business with meager resources, there is enough cash flow to cover operating expenses and leave a bit for “extras.”

The second zone is between $5 million and $10 million annually, depending on the industry. At that level the owner has at least a few trusted employees who can execute much of the day-to-day functions of the business. Personal income is comfortable. The time requirements of the business have usually fallen to a sustainable number of hours. The company develops a reputation of its own, and the owner begins to be recognized in business and community associations.

Growth PlantsI’ve studied the owners of $5+ million companies to see what was different from those who run businesses a fifth that size. I’ve seen both with creative, big-picture owners and both with micromanager technicians. They represented companies in product and service-based  industries. Some owners have a laissez-faire approach to managing people, and others insist on strong systems and processes that are followed diligently. For almost every industry, I can point to a company that has stayed at $1 million for a long time, and another with strikingly similar offerings, management style and markets that has grown much larger.

I’m convinced that the difference is an owner’s ability to set and achieve goals. In a word, it is implementation. The owner of a continually smaller company has many goals, but they are seldom achieved, or at least achieved on schedule. Everyone is too busy. The daily firefighting of customer and vendor problems pushes other objectives aside. Goals are redirected, excused, or ignored when they interfere with an employee’s “regular” tasks.

The more successful owner approaches goal-accomplishment as a normal part of daily operations. Achieving objectives on a timetable is an expected part of ongoing activity. Small crises and unexpected events are inevitable, but they aren’t allowed to create ever-extending deadlines for the important-but-not-urgent things that move the company forward.

Growing a business beyond the second zone requires a shift from an owner-centric culture to one built around management and systems. It isn’t for everybody, and many owners really don’t want to go there. Taking a business from a million dollars to several times that much, however, really doesn’t demand a complete change in culture. It just requires an owner who makes implementation of growth and improvement goals a core activity of the business, not merely a lucky outcome of its regular activities.

 

 

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  2. Larry Amon says:

    John, Very true. Setting and achieving growth goals as part of every day business is what it takes to grow from a $1 Million a year company to one 5 times larger. This was a practice that we used to grow my company from $100K to $5 Million in less than 5 years and be on the INC 500 list as one of the fastest growing privately held companies in the U.S.
    Larry Amon

  3. John H. says:

    Although occasionally I have run into a business owner with a personal bias with regard to anything perceived as “corporate”. So implementing processes, or giving up tight control, is avoided. But for many SMB’s the observations shared in your post should are exactly what is needed.

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How Can You Sell a Business to a Buyer Who’s Broke?

According to a recent report from the Federal  Reserve Bank, over half (52%) of Americans could not pay for a $400 car repair without borrowing. We can assume that most of these folks would not be legitimate prospects to purchase your business, but what do your qualified prospects actually look like?

I use this space frequently to examine the impact of Boomer retirement, the transition of 60% of the privately held businesses in the US. If you are a regular reader, you’re at least passingly familiar with the demographic, psychographic and sociographic trends that combine to create a seismic shift in the small business landscape between now and 2025.

Overlapping birth charts(If you are not up to speed on this, download my free EBook collection of blogs, Beating the Boomer Bust. You will be shocked by the numbers.)

Another facet of the challenges facing Boomer business sellers is the lack of liquidity in the buyer population. It can’t be shrugged off as “Those kids just don’t save like we did.” As the Fed survey shows, the problem is deeper and wider than that.

Look at the change in household finances since most Boomers were starting out. The average debt for a newly minted college graduate today is $29,400. They’ve likely had multiple credit cards since they were eighteen. They were raised on a brainwashing media diet of instant gratification. Why should you go without something while you save to buy it, when you can buy it now? You have to budget the money anyway, sacrificing  by not enjoying a nice car or big-screen television while you pay for it seems stupid. Personal budgets are built around the ability to make payments.

On the other side of the transaction is a business that has been developed over decades. It has assets and cash flow. Not unreasonably, most Boomer owners expect at least a few hundred thousand dollars for the smallest business, and many are worth millions. How are these already-indebted buyers going to pay for a company when most can’t even muster a substantial down payment?

Yet, most small business owners still say the same things they’ve been saying for the last 20 years.  “When I sell my company, I’ll only accept all cash,” or  “I will never hold a note for my business.” That simply doesn’t jibe with reality. Buyers will expect financing. It is how they’ve purchased everything in their lives. If they don’t have sufficient net worth to attract a third party lender, the seller is the only remaining source.

The numbers don’t lie. Two-thirds of Boomer owners are 55 or older. The remaining third will reach that age by 2019. One alternative to competing with the throngs of sellers is to transfer your business on what is essentially a “layaway plan.” That method allows your buyer to work in the company while he or she purchases equity in small amounts, eventually building enough ownership to qualify for a third-party loan. It takes time and planning, but so does building a valuable entity in the first place.

Most of those who continue to wait for an individual with the financial resources for an all-cash sale are going to be disappointed.

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  2. Neil Arthur says:

    can you identify the source of the chart stats? thanks, N

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Smart Metrics and Dumb Metrics

“We doubled our profit over this month last year!” When I visit a coaching client, that’s a pretty exciting opener. Of course I want to know how and why. Too often the answer is “Well, last year this month had three payrolls,” or “We had two more working days than last year.”

If you have to explain the circumstances of a measurement, it’s a dumb metric. “Manage what you measure” is a pointless axiom when the thing being measured isn’t consistent. If your results vary because of circumstances beyond your control, how can you manage them?

In my most recent book Hunting in a Farmer’s World, I discuss the problems created when we stick to a farming calendar created centuries ago. Few industries (other than agriculture) actually function according to a twelve month cycle, but most continue to measure their results that way.

In the hospitality industry, a thirteen month year makes far more sense. Business volume is higher on weekends, and having a consistent number of weekends (four) in each cycle simplifies comparisons. Other companies in manufacturing and distribution pay attention only to quarterly results, because 13 week periods are far more consistent than 19 to 22 day months, which vary depending only on when the first day falls.

In a cyclical industry, such as those related to capital goods, an even longer cycle makes sense. Comparing numbers over a rolling three or even five-year period permits better analysis of trends and market share.

Fractioned appleThe whole concept of Key Performance Indicators (KPIs) requires that you compare between like things. The availability of big data allows it to be easily confused with actionable information. If 12% of my customers purchase a side order of Brussels Sprouts, and 23% order a Tiramisu, what does that tell me? Nothing. If 12% order the sprouts and 40% want the French fries, I may have information on which to base my menu design.

Useful business ratios don’t begin with the numerator (how many, how much), but with the denominator (of what?). Profit dollars, number of orders and labor costs are pretty useless data by themselves for comparative purposes . Margin percentage, closings per lead, sales per day and output per hour are critical management information.

If you are still reviewing your monthly P&L by mentally adjusting each month’s variables, you are wasting precious time. A twelve month cycle is required by the IRS, but that doesn’t mean you need to run your business by it. Choose ratios and periods that allow real comparison. Only those are smart metrics.

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  1. >>A twelve month cycle is required by the IRS, but that doesn’t mean you need to run your business by it.<<

    While technically correct, IRS does allow 52/53 week years, which includes 13 – 4 week months!

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