Q&A: Figuring out a role in a mega-funded world of ground transportation

Splitcab

There are countless local startups providing ground transportation services in cities around the world - many of which never get any attention due to their bootstrap-led strategy.

We spoke to the founder of Splitcab, Davide Machado, to find out how the company competes against such giant competition.

It's easy to think that the ground transportation sector has evolved from a heavily regulated, taxi-driven market to one where the likes of Uber now dominate.

This is wrong, obviously.

Local taxis still exist, and other players are hard at work in other markets (Lyft, Grab, et al.), but the focus tends to go on those that have raised multimillion (even billion level) dollar investment rounds.

So how do smaller players compete against these mega-funded brands?

And do they have to keep their ambitions in check?

As our Ground Transportation theme month comes to an end, we wanted to get the perspective of a local service that is in that predicament.

Splitcab, based in the U.K. capital of London, started out as a transfer service and now operates a multi-brand business, with a B2B and consumer-facing operation.

We spoke to its founder, Davide Machado, who created the company in 2009.

What would you say are the biggest challenges that SplitCab and other consumer-facing ground transportation apps face, especially in the face of fierce competition?

Supply chain acquisition and brand/product differentiation, I would say.

Unlike a lot of the transport apps, we plug in to companies rather than directly to drivers, so the business-end operations are handled by our partners.

Drivers have a plethora of opportunities for work in the current market, so it is a daunting and hugely expensive task scaling supply piecemeal via individual drivers. We get around this by aggregating fleets and rolling out our dispatch system to partners, as well as integrating with third-party dispatch partners. 

This route to supply came about as we had inventory and supply chain set up under our B2B brand City Transfers, so it was a cheeky hack to roll the tech out to the B2C domain as well.

It has worked fantastically well for us in terms of being able to scale supply relatively quickly and affordably.

In terms of keeping the brand differentiated, we have done this largely by focusing solely on low-cost airport transfers in all our marketing and communications - you can also book local rides, but our aim is to own the airport transfer piece with local routes offering ancillary revenue if and when they are booked. 

The last point would be to choose your battles; taking on a heavily funded behemoth head-to-head is suicidal.

Keep it niche!

How do you position yourself as an alternative to existing cab services, car rental and the well-funded ride-hailing brands?

We would like to be what Easybus should have been: door-to-door, cheap and cheerful.

I am actually a HUGE fan of the airline. They have done superbly well on the customer service front over the past few years, and their revamped site and apps are phenomenally user-friendly, they've done a seriously great job on the platform, their UI/UX game is tight.

So hat’s off to it, keep doing what you do. At the moment, in the B2C domain, it’s currently a price point-driven service, and we are one of, if not the cheapest, door-to-door airport services in London and have the volume between the two brands that enables us to turn a profit. 

Tell us about any themes around the questions that you get from investors that look at the deck when you're looking for funding?

It’s been a while, but "keep it simple" is something that I have been told many times.

It can be hard for founders (me, especially) to separate the nuts, bolts and myriad business development ideas and opportunities you have on the go from the core and, genuinely, very basic detail that investors are actually looking for.

Essentially, they want a scalable, proofed concept, a strong team and a big potential market. Everything outside of that is certainly not for an initial discussion … or so I have been told.

Investors usually can't get over how we manage to keep our burn rate so low given the amount of tech we have built and continue to build.

So that comes up regularly, and then I show them our numbers to prove it.

I think the fact that we have been able to combine our decades of industry experience and a traditional business ethic with our in-house tech knowledge means we have not made many wrong and costly tech decisions.

We reverse engineered the tech to the business needs rather than building a business around the tech.

Essentially we became the first customer of our own tech.

Marketing - how does that get figured out for a local brand, not least if the focus is on customers looking for airport transfers?

Most of our marketing has thus far been very organic - we have the ubiquitous referral system and also a loyalty point system built into the app that have done wonders for our user acquisition.

Again, being an unfunded entity means that we have to be creative with our marketing rather than throwing money at it.

We have done a lot of partnerships with the travel trade, hotels, accommodation providers, student-focused businesses and London’s universities, amongst others.

We also partner with our network of fleets with affordable, local campaigns which helps us focus locally and build hot spots of use which is vital for a grouped service.

How do you approach an expansion strategy, given the size and capital expenditure capabilities of the company?

With caution ... We still have a long way to go in terms of user and geographic growth for the Splitcab brand in London, let alone anywhere else.

We carry over 500,000 passengers a year in London via the B2B service, but are nowhere near those numbers on the consumer side, so our priority at the moment is consolidating and expanding area by area within London.

Logistically, it helps for us to saturate areas and routes to and from the airport then move on.

In the future we could theoretically scale overnight across Europe via the shared supply chain, given the right funding and business case, but it is not something that is on our short- or mid-term timeline though.

Should we presume that all things being equal you'd probably like to be one of the mega-funded brands?

In all honesty ... no. Funding or expansion for the sake of it is not something that we would look to do.

Our ethos has always been to build sustainable, profitable businesses that provide quality, economically priced services to our passengers without burning through investment cash.

If we can’t turn a profit with local volumes what is the point expanding out? I know that is an old-school methodology but it’s just how we roll as a business unit.

There is no point expanding at pace until the service is nailed, the tech is fully developed and automated and the business model has been validated.

Having said that, when we launched, we had a lot of early interest from strategic partners which is the route we would be amenable to. It was just a little too early for us at the time.

We chose to stay in touch but continue as an independent, at the very least until the above key criteria were fulfilled.

The support we are looking for is a shared vision and experience serving the core travel industry verticals rather than a straight cash conversation. 

So, to follow up on that question: What's stopping you?

At the time of those conversations the tech was only part-built, plus the London demand structures and logistics of running a low-cost service were in test mode.

We are at a point now that we are happy with the tech, the service has proved extremely popular across all sales channels and operations are ticking along nicely.

Do you believe you're located and concentrated in the right city (London), or are others perhaps now more attraction to both market conditions and the startup world?

If I wasn’t on the transport tech side of things, I would like to be involved in the Lisbon startup scene as it is starting to gather some real momentum, in no small part thanks to the influence of its hosting of Web Summit.

Lisbon always had a thriving creative scene and a small, niche tech community, but that has exploded over the past few years.

But in regards to transport, I can’t really think of a better city to be doing what we do - it’s the perfect base in terms of size and potential market as well as home to a populace that are all taste-makers.

Plus with arguably the number two airport on the planet, by traffic, it suits us down to the ground.

I am also a Londoner born and bred so aside from a business mission, my team and I are committed to doing our bit to ease the strain on London’s heaving roads and reduce the emissions in this great city.

The road network is hugely inefficient, and over the coming years I can see there being huge growth in people-, goods- and freight-sharing transport.

Q: One word answers, please. Respond to each of the following words or phrases:

• Uber? Necessity
• Grab? All in one
• Venture capital? Growth
• Silicon Valley? Stanford
• Bootstrap? Splitcab
• Growth? Organic

Realistically, where do you see the company in, say, five years?

Powering transport for an OTA.