What does it take to start a rideshare company? There’s a lot of interest out there in Uber or Lyft alternatives. I get a ton of emails from drivers saying, “Harry, you should start this company,” or, “Harry, check out this cool company I found.”
I want to give you guys the full picture about what it actually takes to start a rideshare company. Hint: it’s a lot more work, a lot more time, a lot more energy, and probably a lot more money than you’d realize. But at the same time, I also want to give you a behind-the-scenes look to see what’s going on. You guys obviously interact with the Uber and Lyft passenger and driver apps, but there’s a lot that goes on behind the scenes.
Take a look at my video on what it takes to start and run a rideshare company, then read the video transcript below to see all the points I make in the video.
It would be very difficult to compete directly with Uber and Lyft
The first thing I guess I would say is that for companies or individuals looking to start a company right now, it’s going to be pretty tough to compete straight up with Uber, or to create a product that’s exactly the same as Uber or Lyft and does exactly the same thing. They have that first-mover advantage. They’ve been around for years. They already have an established customer base, and when you think about it, the reason why Uber and Lyft became so popular was because taxis were so terrible. That created this huge opportunity for Uber and Lyft to come in where, “Hey, now you can pay via credit card. Now you can request a driver through the app.”
There are opportunities to compete in niches where Uber and Lyft fail
When you think about it like that, if you’re a company looking to disrupt Uber and Lyft, your best bet is to focus on the areas that they do poorly. Now, on the passenger side, frankly, they’re a very consumer-friendly product. Passengers do love the service, right? On the driver side, we obviously know there’s some challenges, but that’s really, I think, the best way to think about it for a lot of these companies that are looking to start up. They need to find their niche. They need to find their angle. What can they do better than Uber and Lyft? That’s why I think from a general kind of high level, competing with Uber and Lyft, it’s very tough, but at the same time, I think there are some opportunities.
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You need a ton of money!
The first thing I should probably say, what you need to start a rideshare company is money. Starting these companies is not cheap. Uber lost three billion dollars last year. Now, obviously, they’re a giant, giant company, but that should sort of put things in perspective for you. Even though they’re that successful, they’re losing a ton of money. You’ve seen how much they pay in bonuses, how much they pay in incentives, how many free rides, how much free stuff they give away. You can imagine that that costs them a lot of money to operate everything, to buy the app, which I’ll talk about, or to get the technology developed is expensive, insurance is expensive. Money is super important in this game.
You need a niche
The next thing that I would talk about is to figure out what’s the niche. I’m sure someone can do it, and there may be a couple companies sort of trying to compete just straight up with Uber and Lyft, but I don’t think they’ll do too well. Really what you need to do, what a lot of companies that are sprouting up these days are trying to do is find a niche. Examples would be like HopSkipDrive. That’s a company that only does rides for minors. What they do is they provide extra screening, extra background checks. They do in-person interviews with their drivers, and you can imagine that if I’m a parent, I would rather have some highly vetted driver transferring my kids around as opposed to just someone who can sign up from their computer or their couch, and they don’t even do an in-person meeting or anything like that. I don’t have kids yet, but I know that when I do, I probably would feel a lot safer with someone like that.
There’s other services like Wingz, which really try to focus on airport rides. I met with a company the other day called SilverRides that focus on seniors, so there’s all these niches which seem pretty small, but especially as rideshare gets bigger, these niches you can carve out some pretty successful multimillion-dollar businesses. That’s one area that I think sort of what it takes is figuring out, “Hey, what’s our niche going to be,” or alternatively, “Hey, what’s our market strategy going to be?”
This sort of lines up with the niche, but at the same time you look at a company like Juno, who is looking to compete with Uber and Lyft, but their market strategy is that they’re going to treat drivers better.
They’ve realized, “Hey, the customer experience is pretty damn good, but on the driver side there’s all these things they can improve.” They can put a tipping app. They can give equity, half of the founding shares to drivers in the form of equity, 24/7 customer support phone line. All these things that Uber and Lyft frankly don’t do and/or don’t do very well, that’s their angle. That’s their market strategy. You see this in other industries too, right? Like in the airline industry. Southwest isn’t necessarily trying to compete with those business travelers who are flying LAX to New York every week, but they are trying to compete or capture that entire market of passengers who are very price-sensitive, right, who just want to get a safe and reliable ride from LAX to some local place two or three hours away or one hour away. LA to San Francisco. No fees, no baggage fees, all that stuff that a lot of the other airlines charge. That’s sort of their market strategy in another industry.
There are major legal requirements for rideshare companies
Now, after you figure out the niche, after you make sure you have the money, and after you think about some market strategy, what are the legal and sort of logistic requirements of starting a rideshare company? Because I think that’s what a lot of drivers don’t understand. When you go out and drive for Uber or Lyft, they’ve done a lot on the backend to actually become an improved TNC, a Transportation Network Company. What that means is that in California, for example, you need to register with the CPUC, the California Public Utilities Commissions, and that involves sort of this big application where Uber and Lyft apply to be a TNC, and now they can provide rides on an app basis.
There’s all these different requirements, but basically, depending on the state, most states you go to the Public Utilities Commission and fill out this huge application form, maybe pay a fee, but typically they require a lot of the same stuff. You have to have some type of app. You have to have some type of insurance, and you have to meet, your drivers have to go through background checks, sort of all the stuff that’s already happening on Uber and Lyft, but in order to legally give rides and to sign up drivers so they can give rides, you have to be an approved TNC.
Insurance may be the biggest project, and expense
Insurance is a huge thing when you’re starting a rideshare company. We’ve worked with a bunch of companies that are looking to start rideshare companies, and this is always one area where they’re surprised to find out that insurance is hugely expensive. I talked to an agent the other day. He told me that just the starting up costs are 100 to $150,000, plus 10 cents to 50 cents a mile, which is about in line with what I’ve heard from other people that, “Hey, it’s around 25% of the revenue of each ride.” You can imagine that, “Hey, sometimes these insurance costs are pretty expensive,” just depending on what you’re offering, what liability you’re offering, what level of coverage you’re offering. Uber and Lyft provide commercial insurance while you’re on a trip, and that costs them a lot of money.
Building a rideshare app is becoming easier
The other thing that you really need as far as the logistics side is someone to build the app. Because that’s the area where if you don’t have an actual app that works, you won’t be able to get passengers, you won’t be able to get drivers. I will say, out of all the things I mentioned, I think the app is becoming easier. You do still need a lot of money to get it funded. In some cases you might be able to work out a deal with a developer for equity or things like that, but the app is actually becoming a lot easier, since the Uber and Lyft technology, five years ago it was super new, super innovative. They were the only ones that had it.
Now, every single company has their own developers building these apps. The technology is much more open source, so you can use and leverage a lot of the different code. I interviewed the founder of a mobile app development company, his name was George Grama, on my podcast, and he is a person who actually works with a lot of these startups to develop on-demand technology, whether you’re a carpool or delivery or even a rideshare app. I actually tested his app in person, and it looked just like Uber. They had uberPOOL, a version of uberPOOL just like Uber. I will say that, on technology side, getting someone to build the app is definitely becoming more easy, and this is sort of what we saw in Austin. When Uber and Lyft pulled out of Austin, 12 different companies came in there.
I think some of them are obviously doing better than others, but I think if that would have happened three or four years ago, some of the challenges, whether around insurance or getting set up, and especially the app, would have just been too much. These days, it’s a lot easier to get started with an app. There’s developers who will do it for you. If you’re interested, I can connect you with someone like George or talk about it and give you some recommendations. Feel free to leave a comment below or shoot me an email. Just so you know, we do work with some of these companies too, so on our consulting, we’ve been doing some consulting with some of these companies, sort of educating them on what it’s like to be a driver, what are these pain points. That’s something I’m obviously definitely passionate about, trying to help these companies be more driver-friendly.
To sum it all up, if you’re looking to start a rideshare company or if you’re just curious about what it takes, I’m assuming that it’s a lot more than you expected, and there’s a lot that I didn’t even cover in this video, but hopefully that gives you the basics. If you do have any questions, don’t hesitate to reach out, and as always, feel free to like, comment, subscribe. Let me know if there’s any apps that you see that are up and coming that you think are going to be, right, great rideshare companies. Feel free to leave a comment below, and I’ll talk to you soon.
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