Reports of the demise of some business models have been exaggerated…
The recent images from China of vast pyramids of abandoned bicycles, cities awash with them, stolen, vandalized or thrown into canals and landfills, have been interpreted by many as the result of overly arrogant business models, poor planning, and an indication of the excesses of the sharing economy that attacks established businesses, undermines traditional rules, and that so many people would love to see fall flat on its face.
In reality, however impressive these images are, the bike-sharing business is not worried, and everything suggests it will play an important role in the future of urban mobility. Of course, there have been failures and bankruptcies, but also acquisitions, growth and many, many investment rounds.
One of the giants of this nascent industry, Mobike, is moving into India, a huge subcontinent with little tradition in the use of bicycles, but where there have been previous moves in its extremely congested and polluted cities to encourage their use. According to the company, authorities in cities across the world are not particularly concerned about the deluge of bicycles that have had to be removed because they are abandoned or incorrectly parked on public roads, and instead have focused on long term issues such as their potential to relieve congestion and pollution in cities.
Do people steal them, abandon them or vandalize them? Obviously, and this costs money. A lot of money. But investors in these companies are not worried, seeing these as problems that will be solved over time, and that after a while, thieves will tire of stealing them because there will be nobody to sell them to, that vandals will eventually cease smashing them up and throwing them in rivers, and that likewise, a more civic-minded approach to their use will develop, and people will stop leaving them in places where they are either a nuisance or a hazard. In other words, an educational process as we move from an economy of shortage to one of abundance, which admittedly, may take some time.
Are these businesses models where short-term profitability is not the point and that seem to violate the rules of capitalism doomed to failure? Obviously not: the shareholders of these companies are like any other and expect a return at some point. In the meantime, they’re willing to invest and finance their growth for a long time, many more years than we would normally expect, with the goal of generating positive cash flows before they become viable.
They’re playing a long game, taking into account scenarios that are only possible if the company emerges as the dominant player in its sector. These companies are not acting out of altruism: they expect to turn a profit, but tomorrow or the day after, and if it takes five years or more, they simply look for more investment to sustain their growth dynamic. As long as there are investors who share their long-term vision and are patient, the model can work and generate changes in the market to make them also successful and profitable.
In other words, beware of dismissing some business models too soon simply because of a few photographs: successive investment rounds, ambitious growth plans and a can-do attitude may well mean that reports of their demise have been exaggerated.
This article was previously published on Forbes
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