Why I Will Never Invest in a Scooter Startup

I love riding scooters. They’re ubiquitous in big cities and college towns. Everywhere you walk, there they are — just waiting to be used. 

Electric scooters are perfect for trips that are too far to walk, but too short to drive. It requires almost no effort to ride one. And they’re convenient. You don’t have to worry about parking. Just leave the scooter on the sidewalk when you reach the destination and let the scooter app know your trip is done. The app will then lock the scooter up until another person wants to ride it — or the scooter company moves the machine to a place where it’s more likely to be used. 

They’re also fun to use. Get me in a bike lane where I can ride at top speed (15 mph), and I’m a happy camper.

But as much as I like riding (and will continue to ride) scooters, I will never invest in a scooter company

Scooter startups are set up for failure. Scooters are just popular enough that these startups will almost always gain traction. But that popularity is fool’s gold. Scooters can’t be used outside of dense population centers or in inclement weather. And the operations of scooter companies can’t scale.

“The sun did not shine. It was too wet to play. So we sat in the house. All that cold, cold, wet day.” — Dr. Seuss, The Cat in the Hat

It’s never good when Dr. Seuss can sum up a major problem with your business. Much like bikes, scooters are not a practical choice in cold or inclement weather. So you can only use scooters from May to October in more northern cities. That gives scooter companies just six months to generate a profit in those regions. 

More southern (and some western) cities face a different problem. For a few months a year, it’s just too hot or humid to venture outside. And when people do venture outside, they do so in air-conditioned vehicles.

“Since the Leesburg Pike [at Tyson’s Corner] carries six to eight lanes of fast-moving traffic and the mall lacks an obvious pedestrian entrance, I decided to negotiate the street in my car rather than on foot. This is a problem planners call the ‘drive to lunch syndrome,’ typical of edge nodes where nothing is planned in advance and all the development takes place in isolated ‘pods.’” — Dolores Hayden, Building Suburbia: Green Fields and Urban Growth, 1820-2000

I used to work in Tyson’s Corner. It’s located in northern Virginia near Washington, D.C. When I worked there, it could take 45 minutes to travel just 1 mile for lunch! In theory, this should have been the ideal place for scooters to pop up. But scooters aren’t built to handle suburban sprawl. There are few sidewalks. It’s too dangerous to drive on the shoulder or roads. Plus, there’s free parking everywhere! So scooters don’t provide an added convenience. 

Scooters just don’t work outside of densely populated areas. The demand isn’t high enough. And suburbs and rural areas are built for cars. Everything revolves around having to drive a car to get groceries, go to the doctor, go to the library, etc.

If I’m being extremely generous, about a third of the U.S. population lives in a place where scooters could be viable. But cars, buses and trains aren’t going away. Plus, the scooter rides have to be cheap enough that people are willing to pay for the convenience of getting there faster. Scooters are built for an extremely limited audience. And they’re definitely not luxury goods. That’s a bad combination for startup investors.

The best startup investments address large or growing markets. And if they’re going after a niche, it’s usually an expensive niche that allows them to generate sizable amounts of revenue. Based on market size alone, investing in scooters doesn’t make sense.

But market size isn’t necessarily the biggest problem facing scooter companies.

“I have not failed. I’ve just found 10,000 ways that won’t work.” — Thomas Edison

Scooter companies are great at experimenting. They have to be. Because there isn’t a good way to scale their operations.

The theory behind scooters is great. Ride a scooter to your destination. Leave it there. Eventually, someone else will pick it up and ride it to another destination. Then someone else will pick it up and ride it again. And as long as the scooter is in a place where there’s enough foot traffic, it will always be used.

The reality is very different, though. People often ride scooters to places that have limited foot traffic. That’s the whole point of scooters! You want to be able to ride them to places that are a little further away. Once a scooter ends up in a less-than-desirable spot, scooter companies have to send a car or truck to pick it up and put it back in a spot that has higher demand. This takes time, money and energy. And it frequently results in no scooters being around when you really need one. 

Until we have self-driving scooters (and do we really want that??), this problem can’t be solved. Scooter companies will always have to rebalance their fleets throughout the day.

I have no idea how long the current crop of scooter companies will last. I’m hoping I get at least a few more summers of fun before they go away. But with business fundamentals like these, I wouldn’t count on it.

The post Why I Will Never Invest in a Scooter Startup appeared first on Early Investing.

Source: Early Investing

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