Welcome to Scaled and Failed! My name’s Amil Naik and I’m an aspiring VC and founder at The University of Texas at Austin. I write about startups that scaled and startups that failed to draw insights about the patterns of startup failure and how to avoid them. Everything is clearer in hindsight, so it’s worth looking back.
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TLDR
Today’s Topic: Parking
Scaled: FlashParking; Tackling the stagnant supply side of the market with modern technology, an increasing variety of solutions to serve the broader parking market, and a focus on serving the future of the industry has led to extensive growth.
Failed: Luxe; On-demand valet service had unit economics that got worse with scale because of the absolute control parking operators had over the supply of spaces and the lack of alternatives for users besides parking their car.
Lessons Learned: Build your business with the future of the industry in mind so you can develop your product towards the long-term vision while adding value at each iteration. Understand what players in a space you will rely on to launch your business and make sure they get some benefit from working with you, as they will ultimately be needed to serve consumers.
Today’s Topic: Parking
If you ever take your own vehicle into a city, especially crowded ones, you know the pain of spending a good chunk of your trip looking for parking. Nothing brings out the primal savagery in people like competing for parking spaces when there are none open, and the search for parking wastes around $345 per person each year. Transportation, parking, and mobility overall are spaces I sincerely hope are completely overhauled in the coming years to deal with the pains of hunting for a parking spot and the monotony of traffic when commuting. Luckily, we’ve got plenty of startups and some amazing technology looking to tackle those issues. Tesla Autopilot grows more advanced each day, and hopefully having cars that drive and park themselves will remove human error from driving and decrease congestion, travel time, and headaches for everyone. Ridesharing startups like Uber and Lyft have already overhauled the on-demand transport landscape, and self-driving cars are only going to accelerate those changes. Further up the chain of technology, plenty of startups are helping develop the software and hardware needed to further develop computer vision for cars. For now, before autonomous vehicles become viable everywhere and parking spaces are no longer coveted, plenty of companies are vying for a piece of the parking industry. It’s a massive pie, worth about $30B in the United States in 2018. Some parking startups hope to take advantage of the existing parking infrastructure with technology and tools to support providers, and others are looking to disrupt the space with services that directly compete with the current status quo.
FlashParking is one of the former, a B2B startup that provides solutions to a variety of operators of parking areas, whether it be commercial parking garages and airports or hospitals and condos. Founded in 2011 and headquartered in Austin, the company raised a $60M round early in 2020, made several acquisitions, weathered the pandemic that decimated the parking industry, and recently merged with the Chicago startup, Arrive, to provide a more seamless mobility management service for both businesses and consumers. Luxe was one of the latter, providing an on-demand valet service that could have a driver service and park your car for you and have it ready to go when you needed to leave. Founded in 2013 and drawing over $75M in funding over its life, it managed to outlast many of its competitors but fell as many other on-demand startups did too. The company was acquired by Volvo after it had shut down its core product (no price for the deal was released, but it’s unlikely investors saw any returns).
Scale: FlashParking
Over the years, many parking spaces have transitioned from actual attendants and paper tickets to digital payments and electronic gates. The tech-enablement comes in varying degrees, with some lots having license plate recognition and apps to handle the entire process, sensors providing information about empty spaces, and analytics about macro trends in traffic over time. FlashParking has been a part of this tech-enablement that has reduced the friction for consumers and boosted revenues to operators. Launching first in 2011, the company has expanded far beyond their initial product, the Flash Valet revenue management service that made it simple for consumers to pay for spots and tip over the phone. FlashParking now offers a variety of parking systems and software, hardware, integrations with various other mobility services, and totally touchless experiences for consumers for all kinds of parking areas. Their solutions have been implemented at thousands of parking areas across the country and the company was cash flow positive in 2018, making it about scaling the game plan from that point rather than getting runway to create one. The CEO, Juan Rodriguez, has his eyes looking to the future of the parking industry as well:
FlashParking’s CEO and co-founder, Juan Rodriguez, envisions his company’s software and services as the cornerstone for a new kind of hub encompassing several different modes of transportation and autonomous or robotic vehicles. The company’s payment, monitoring, and management software can extend beyond app-enabled parking or valet services to electric vehicle charging; vehicle servicing and cleaning; drone launch, landing and maintenance; and hubs for ride-hailing services.
This forward-looking approach is important given how much new technology is shifting the mobility landscape overall. Autonomous ridesharing vehicles won’t need parking, but they will need charging and maintenance, and many other mobility solutions will need physical space for at least some part of the value chain. The pandemic has accelerated these types of changes, and parking operators that get stuck in the past are likely to lose out on huge opportunities as the space evolves. FlashParking’s solutions will help enable this transition and push parking into the future. The company’s merger with Arrive is another step in this direction; with the addition of Arrive’s consumer-facing solutions that include real-time parking spot recommendations and “tap to pay parking” and its enterprise demand management offerings, the two are poised to create a seamless platform that handles both the demand and supply side of parking operations to increase revenue for businesses and convenience for consumers. With the two together, these forward-looking features in parking can be brought to the market faster, as a single platform will make it easier for parking operators to launch operations tied to the future of mobility and get the business intelligence necessary to make sure they work from a business perspective.
FlashParking has maintained a competitive advantage through its lead in technology. Given that the company is ready to tackle the future of parking and mobility, it’s not a surprise they’ve been ahead in terms of technology in the industry. The company was one of the first to build a cloud architecture for parking, and it remains among the few that have a fully cloud-based platform. Cloud-based technology has made many industries more efficient, and given the costs of maintaining servers on-site, the staff to manage them, and the risks of disruption or data loss with on-site storage in a parking lot or garage, the parking industry was a great space to transform. Cloud architecture is also what will make it easier for FlashParking to help deploy new mobility solutions as the needs of society change in the coming years, pushing its vision for parking to adapt to the future of mobility.
Fail: Luxe
Luxe sought to ease the issues with parking directly by providing on-demand valet service to consumers that would find parking for them away from their destination and bring it back when needed. The company launched in 2013 and many still remember when their blue-uniformed valets were a common sight in cities they operated in. They gained traction and grew in popularity though they faced competition from other startups like Zirx, and from 2015 to 2016 started offering features beyond the simple on-demand model. The company added scheduled drop-offs, monthly subscription tiers that included a specific number of valet calls and other perks, and even offered their services directly to events and businesses with some added functionality. Later on in the spring of 2016, the company secured a $50M Series B led by the rental car company, Hertz. By this point, most of its competitors had shuttered or pivoted out of the on-demand space for consumers. Things seemed to be on track for Luxe to continue growing rapidly, as it had achieved profitability in some of its cities.
By the same time in 2017, things were starting to unravel. The company announced the end of its original valet service, with the promise of something new coming that summer. That new service never came to fruition. Luxe was in talks with Uber for an acqui-hire that summer after it had been struggling for some time. Ultimately, the company was acquired by Volvo instead in the fall of 2017. Although the company was trying to pivot as originally intended, Curtis Lee, the CEO of Luxe said that it wouldn’t be feasible to gain further investment to sustain the company.
For some time, on-demand startups were fueled by the Uber craze and seemed to be in business for just about any industry. While there have been some real successes, the on-demand market has seen many casualties like Homejoy and Washio in the last few years, and interest in the space has cooled. For Luxe and many of its competitors, the problem appeared to be the same: the unit economics of a consumer valet service didn’t make sense and weren’t more profitable at scale. While on-demand rideshare companies like Uber could increase the supply by having more drivers or getting them to drive longer, parking has a finite supply. The more spaces a company needed, the more expensive it became to run the service as costs would rise rather than decline with scale. There were no bulk discounts when renting parking spaces, and raising the prices people paid to the point needed would defeat the purpose of a mass-market, on-demand service. Parking operators held all the cards here, and the model of on-demand parking wasn’t viable without being able to cut the costs of parking.
Lessons Learned
FlashParking’s attention to the future of the parking industry is a good lesson for anyone starting a business. Growing a startup and finding the right business model can take years, and some spaces may have a completely different landscape in that span of time. Ideally, build something that adds value now and is poised to dominate any new trends that are likely to become mainstream in the near future. If you build for just the present, you’re likely to become old news quickly in fast-moving industries. That doesn’t mean you should ignore creating value for customers right now in favor of sinking deeper into development for the future; early iterations of your product need to be useful in the present. FlashParking started with a few basic services a decade ago and slowly grew those into an enterprise platform capable of supporting the future of mobility. These early iterations should be just a piece of what the product could be in the future and serve as a launchpad for the long-term vision. Keep your feet grounded in reality and the present, but keep your eyes looking forward.
Luxe’s business model serves as a reminder that on-demand startups can’t all function as an “Uber for [Insert Industry]” business model. Ridesharing had a number of unique characteristics that made the opportunity possible; there’s a constant demand for it, the market lacked a good alternative, and economies of scale could kick in. Not every space has these characteristics and may often have other negative traits impacting operations. Many industries can’t support pricing viable for the mass-market and make money. On-demand valet parking for the average urban American is burdened by the fact that expenses rise with demand. The parking industry is consolidated and wouldn’t want to lose out on revenue, and Luxe really didn’t have any leverage with players in the space to get better pricing. If the company didn’t provide convenience and good pricing, users would just find parking themselves in lots, garages, and streets. The operators of parking spaces get their money in the end either way, so they have no reason to give any sort of discount. There was no real alternative for Luxe but to pay for the parking spaces since they couldn’t just create their own lots and garages. Users wouldn’t just stop driving into the city because they couldn’t use the app, so the unit economics were doomed. Don’t get caught in the same situation where your entire business model falls apart at scale. Find these things out early in the course of business then pivot away with the runway you’re left with. Understand what entrenched players you’ll have to work with in a space and understand what incentives they could have to cooperate. If you don’t need them at all, you’re in a good position. If you do need them and you can’t present any concrete benefits of working with your company, things become exponentially more difficult and a different solution may need to be created.
Although Luxe wasn’t able to create a long-term shift in the landscape of the parking industry, things are changing regardless. Ownership of cars is falling, and with the rise of ridesharing and other mobility alternatives, parking spaces won’t be filled in the future. FlashParking’s push for the support of other mobility solutions isn’t just a way of adding new revenue; it’s imperative for long-term survival in a congested world where people don’t want to drive or park anymore. The way we move is changing, and parking operators will have to adapt or die.
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Thanks for reading! If you hate driving in a city as much as I do, let me know of any startups making it easier. If you found this interesting, consider sharing it with friends and subscribing if you haven’t already!
Cheers,
Amil