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The Brilliance of the Uber Business Model

Uber is undoubtedly the king of the rideshare app business model. Founded in 2009 by Travis Kalanick, Uber came through fifteen rounds of investor financing and $12 billion in total investment, to become a dominant force in the US and global, local transportation services.

Uber has seen its fair share of challenges during its rapid expansion all over the globe. Both clients and drivers have issued reports of abuse and sometimes violent physical attacks. Recently it has been reported in the media that there have been issues relating to Kalanick and his management style, resulting in Kalanick stepping down as CEO.

Wherever the direction of the company goes into the future, the fact remains that Uber has achieved success in its mission to establish ridesharing as a viable business model. Although it recorded a $2.9 billion loss in 2016 and further losses are said to be incurred in 2017, according to this article on CBNC based on a report which appeared on the WSJ, here are five things that Uber got right with its business model on its way to its $68 Billion paper valuation.(1)

#1 Create Clever Solutions for Huge Problems

The idea for the world’s first online ridesharing service was born out of the San Francisco taxi problem. The congestion and lack of cab services led Kalanick and his team to create a unique solution to the problem.

Uber was birthed out of necessity and the power of ingenuity at identifying a problem with huge demand for an easy solution. Uber revolutionized private sector transport by connecting mobile devices to its cab-hailing service. This saved its clients time and money and added convenience to an otherwise inconvenient travel experience.

It wasn’t long before Uber swept from the west into the east and was readily adopted by New Yorkers for the same reasons of convenience and saving time. Social entrepreneur, Gary Vaynerchuk, who self-regrettably passed on Uber’s first round of financing, state Uber’s number one USP is that it saves people time.

#2 First Mover Advantage & Low Infrastructure Costs

Uber’s success relies on the fact that it identified a problem and developed a solution, and then executed on that solution to develop a technology that changed the world. Uber was the first to market, even in the wake of its recent corporate scandals and past driver and client issues, it has remained the market leader in the ridesharing industry.

Today there are many ridesharing apps, such as the rising ‘Lyft’ that are modeling themselves after the original market maker, however, they are further improving the service at both the client and driver level, creating innovation and improving competition in the market, forcing Uber to stay alerted of its encroaching market share.

#3 Attracting Employees with Outstanding Compensation

Uber has always prided itself on creating employment. With over 160,000 jobs created in the US alone, Uber has become a major global employer that has reach across the entire globe. Part of Uber success has been offering attractive compensation for drivers, allowing them to work in the business at their own pace, earning a primary, or secondary income.

Various finance programs allow Uber drivers the ability to arrange leases and get driving straight away. Uber has always had a solid line of support to both the consumer and employee markets.

#4 Letting Go of Local Decision Making & The Art of Scaling

Uber’s growth over the last seven odd years since its birth has been nothing short of astounding. Uber has gone from a small startup office to a global enterprise used by citizens of countries all over the world. Uber offices can be found in the Southern and Northern hemispheres, on every continent and most major cities.

The secret to Uber’s scalability comes in the form of the decision to leave management operations and decision making to the local offices, decentralizing them from the system. Affiliates run under a set of guidelines and conduct the rest of their business as they see fit, giving them the flexibility to conduct their operations without being held down by a central operations management team.

#5 Adapting to Change

This piece of management ingenuity has enabled Uber to scale their business model with frightening speed and efficiency. This has actually been one of the biggest drawbacks to the Uber model, growth has come so rapidly that it has not had sufficient time to properly outline the rules and guidelines of its affiliates operations and responsibilities. However, Uber continues to develop its model in conjunction with client, affiliate, and driver feedback.

Uber into the Future

With the current management concerns and shake up, the future of Uber may be unclear to investors. Whether or not this will hurt their potential IPO valuation remains to be seen. Whatever the future holds for Uber, it remains a classic case study of an ingenious idea that came to life through the power of entrepreneurial execution.(2)

   
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