Is Lyft going bankrupt? 3 strategies to stay in the pink
On March 4th, 2020 CA Governor Newsom declared a state of emergency in CA. 2 weeks later, on March 19th, 2020, the first stay-at-home order was declared in California.
With little to no notice, individuals and businesses alike were thrown into the uncertainty of COVID-19 and the beginning of the pandemic. It is important to recognize that now, the reality of what this would mean was still surreal to most leaders. Yet, it will be the decisions, made by these same leaders that will and have shaped the future of many lives, businesses, and consequently employment and livelihood. As an advisor, one such example I want to take is the journey of Lyft, a ride-sharing company, the impact of the pandemic, and how it may still be able to innovate its way out of the current crisis.
Lyft went public in 2019 at ~$25 billion in valuation with nearly 1 billion rides per year and 25 million active riders. Its business value relies on its ability to build a strong community focus ridesharing company that is built on a technological platform that facilitates cab-like transportation services real-time by offering drivers a chance to make additional income at one’s convenience and users to be able to travel at short notice in an accessible, affordable way. Their only notable competitor is Uber, which has a larger revenue-based and footprint.
A two-sided platform business like Lyft needs both of its customer segments, drivers & users, to thrive off each other. Therefore, the company tends to spend a significant amount on sales & marketing strategies to be an enabler. But think pandemic — if transportation is going to come to an essential halt for an extended period. This is not something marketing spending will be able to solve. The fundamentals of the business itself are being questioned on the need, existence, market-size, and continuity of the transportation industry as-is today. April 2020, Lyft sees a 75% decrease in the number of riders. By Q4 2020, Lyft recognized a 44% decrease in revenues with declining growth. In 2020, the company laid off and furloughed a sizeable number of employees. In addition, they also had legal battles with Prop22. Lyft has primarily focused on laying idle by its cost-cutting measures as a way of keeping afloat. But for a business model that thrives in delivering top-line growth, establishing a strong sticky user base, and delivering customer value via disruption. Cost-cutting is only downsizing to keep investors and the balance sheet managed in the interim. As an advisor, I would recommend having an effective long-term plan to innovate itself back into existence.
For Lyft to continue disrupting, I would recommend a combination of 3 strategies to help navigate the pandemic.
1. Recreating a super-flexible enterprise via innovative recycling
2. Diversifying its investments via corporate venturing
3. A culture shift towards disruption and innovation
Recreating a super-flexible enterprise via innovative recycling
For every tree that has fallen, a new evolutionary one has started growing. The pandemic has left a market of opportunities for businesses to thrive. It is important to recognize where one stands and where one is going. For Lyft, it stands as part of the gig economy which for the most part has completely outdone itself in the past year. Globally speaking, companies like Doordash, Swiggy have grown tremendously in the food delivery network. In addition, Fiverr & Upwork, which represent a different segment of the gig economy have grown >10x in valuation. Uber Eats has also recognized this opportunity and held stability with Uber Eats & Uber Works. Technology adoption has been pushed by a decade as individuals across different segments have been forced to adapt. What is important to recognize here is that all of these are recycled pieces of technology like Lyft applied differently (as seen in Figure 2). Each of these companies operates a two-sided marketplace where there is a demand for a measured sizeable task (gig), that is maintained by certain minimum requirements of fulfillment (car to ridesharing, knowledge to skilled labor, tools to handyman, car & restaurant to food delivery, etc.) and facilitated by an accessible, real-time, responsive technological application which mediates seamless end-to-end transaction and post-quality transaction. The Lyft team needs to recognize there is a great opportunity by recycling their knowledge, technology funnel elsewhere. This might lead to a spin-off or a restart. They can consider partnering with another struggling Gig-Company for cross-pollination. The past year has created core business failure points that need to be iterated on. Prior to COVID, 2027 was predicted to be the year when most US workers will be contract workers. COVID-19 will have accelerated this growth significantly. Lyft has already scaled for effective engineering and has the technology backbone to support a pivot. Furthermore, with its existing userbase, it already has a huge market opportunity for any new offer. The risk it poses without recycling is possibly losing its existing users for a more central player to the gig-economy. Post-pandemic, it is less likely that individuals want to rely on a platform that provides only a singular form of income that an external factor may dissipate. That is to JUST drive for Lyft for ridesharing. The pandemic has not just put a temporary halt on transportation, but it has created long-term effects in psychological interactions in the way individuals may want to contract work and operate in the gig economy. And this is where Lyft if it continues to focus on just cost-cutting / management may be losing sight of the bigger picture and long-term recovery. To kick-start this effort, the Lyft executive team needs to resource, fund, and move quickly on this thought of recycling its way back to disruption.
Diversifying its investments via corporate venturing
Diversifying the portfolio is not necessary to have the leadership team drive the initiative themselves or rely on existing knowledge sources. Although, that can be strategic and tactical to the existing resources. There is another way Lyft can diversify — via corporate venturing. If Lyft is betting its full financial capacity on a business model that was intrinsically halted during a pandemic, as a financial institution, it needs to venture into other ways of doing business. Diversification of a business can be approached in many traditional ways — horizontal integration, vertical integration, or even M&A. However, another way to think is like a venture capitalist. Lyft can launch an accelerator program called “Disrupting Lyft” to recognize the need to do so culturally. We can work with a consulting company (like Mach49) or execute ourselves. But the goal is to fund a portfolio of new businesses that can be supported by Lyft, that justify themselves operationally and financially with the long-term targets for Lyft. I would expect some high-risk investments to come out of this that are sufficiently different from Lyft’s core business model, but I would also expect some that might mimic the nature of recycling the existing business model. But this process itself will break the current guards raised to the pandemic situation with the pandemic. An important part of Lyft’s mission is “Improving people’s lives” and the idea of corporate venturing is to suggest being able to do so in a scalable way without compromising on the core values. Lyft should fund the top 10 initiatives from Disrupt Lyft. In the next 5 years, 5 out of those may fail, the other 3 might help increase revenue by 2–3x, 1 might increase revenue by 10x, and another by 100x. But it is the long-tail that may be more effective at keeping Lyft afloat — who knows if the current model is itself set to fail in the competitive landscape. Let us not forget, post-pandemic — it might be quite easy for DoorDash to pivot ridesharing given their current engagement.
Culture Shift
While there are many ways to change the trajectory of the business, innovation just does not come from ideation. The ability to innovate requires execution. Execution requires people. And people are driven by the culture that shapes their ability to change. For an organization that has ~5700 employees of which 20% were laid off last year and whose business has seen receding value. There is going to be individual & organizational insecurity. In an effort, to keep a balance, a stable sense of calm may exist towards a longer recovery. There might be resilience to efforts and freedom to speak up as the company reconstitutes itself. But innovative culture is paradoxical. Although it is a pandemic, Lyft has not been doing its best to satisfying a key aspect of its mission “Improving People’s Lives” — not to discount the various ongoing efforts. But it is not creating nearly the impact it did once before. And so, as we recognize this, we need to fulfill the drive to innovate at an individual level where risks are taken, bets are taken but also with discipline, individual accountability, and brutal frankness. Lyft needs to recognize the start-up it once was and manifest certain core execution values on the enterprise scale. This may require dedicating a Chief Innovation Officer responsible for driving this intent in a safe way. It can involve organization restructuring or “Tiger-Teams”. And the outcome may be a combination of accidental/engineering innovation. But central to this is the recognition of pushing for a culture shift where innovation might be dying. This culture shift serves to plant the seed to innovating at the enterprise scale, so the business doesn’t reform to a tech company that just became no more important (Many examples like Yahoo, Nokia, etc.)
As an advisor to the executive team at Lyft, I would recommend considering these three strategies independently and collectively with the board. To be effective, we will need to iterate quickly, move carefully and drive intent-fully. As we move ahead, we will need to be data-driven in execution and measure our success effectively (goes without saying for Lyft for its AI investments). By March 2022, Lyft needs to be more than just a ridesharing business.
