With Tesla’s growing popularity, Uber’s continued global expansion, incessant rumors of Apple’s entry into transit, the ascent of drones, Google’s exploration of self-driving cars and the billion-dollar sale of Cruise Automation to GM, the transport sector has never looked hotter for aspiring entrepreneurs. It’s a market that is measured in trillions, is filled with companies that have a pre-historic approach to software and has a seemingly unbreakable commitment to fuel sources made from dinosaurs.
As that fleet of entrepreneurs direct their attention to this field, I’d like to caution them to think outside the gearbox.
There’s a strong tendency to over-index on one’s own experience. Most entrepreneurs are young urbanites and have felt the pain of trying to hail a cab, so Uber makes sense. This is why we’ve seen more than 100 companies try to tackle the urban transport market in nearly every possible permutation. Likewise, there’s a lot of appeal to following in the footsteps of Henry Ford and Elon Musk and building a consumer transportation brand from scratch.
By all means, if you’re a robotic fanatic with a billion-dollar exit under your belt, like Kyle Vogt, feel free to take on the challenge of building the next self-driving car. If you genuinely think you have the ability to marshal huge sums of capital and lobby the government for loans like Elon Musk, building a new car brand from scratch makes sense.
Despite a small number of entrepreneurs with those characteristics, almost all the focus on transportation startups has to do with the wings, wheels and rotors that propel the core technology. Imagine if everyone kept trying to build the next Cisco or NVIDIA when Facebook, Amazon, Netflix and Google had yet to be built. This leads people to miss the second order effects that might be even larger. Benedict Evans noted this last year:
I totally agree that smart entrepreneurs without specific domain expertise in auto tech should avoid tangling with Tesla and instead consider addressing adjacent businesses, cultural shifts and other societal changes that will occur when electric, self-driving, software-powered cars become mainstream over the next 5-10 years.
It can be hard to imagine what idiosyncratic startup opportunities will be available in the future, but it’s worthwhile to take a look back at the oddball businesses that emerged from the disruption caused by automobiles in the 20th century.
Six odd “auto-powered” startups
Interstates and suburbanization enabled by automobiles have transformed retail. Take the humble drive-through window, a fixture of suburban life and the butt of jokes for foodies — yet it is also responsible for up to 70 percent of McDonald’s $25 billion in revenue. Americans make more than 12 billion stops at drive-through restaurants, banks, pharmacies, mailboxes and even wedding chapels each year.
Auto racing is a $13 billion business worldwide. The sport, especially elite levels like Formula One, began as an outlet for wealthy auto enthusiasts and auto manufacturers, but it’s managed to permeate all strata of culture. NASCAR, a $3 billion business unto itself, started like many startups — in a garage. Would-be racers without the means to compete at the elite levels set up a system where they could race stock cars, a homebrew alternative to the Apple-esqe F1 circuit. We’ve already seen the rise of two drone racing leagues — it’s not hard to imagine computer-assisted Indy cars in the offing.
Fortunes have been made on the back of freight transport since the Roman Empire and Silk Road, yet the most recent example of the trend is based in Bentonville, Arkansas. Long-haul trucking made it possible for Sam Walton to thoroughly dominate retail in regions that were not well-served by rail, and allowed the company to grow to the point where it now has a $219 billion market cap.
We’re living through a massive transformation that creates opportunities in so many ways.
The birth of the interstate highway system allowed people to criss-cross the country and created demand for hotels that would offer uniform service. Holiday Inn was the first of what would become a series of chains, and today offers road-weary travelers 3,000 locations, provides shelter for 100 million guests per year and generates more than $1.8 billion in annual revenue.
Perhaps the most important influence of cars has been the birth of the suburbs. An entrepreneur name Abraham Levitt started the trend in the 1940s with his eponymous project Levittown. Seventy years later, national homebuilders like Pulte and Toll Brothers have turned suburban home building into major business, but this fateful development led to even more profound changes.
Prior to the wide availability of cars, Americans lived in densely packed urban centers. Today, according to the U.S. Census, more than 81 percent of Americans describe where they live as suburban. With existing semi-autonomous cars already clearly pointing the way to self-driving cars, it’s not crazy to see a mass bifurcation where people choose to either live in expensive city centers or move even farther out of urban cores in the knowledge that they’ll be able to work or relax en route.
Shopping malls are a natural outgrowth of suburbs, but big box stores, or category killers as they’re sometimes called, are even more impressive. Home Depot and Lowe’s combined sell more than $150 billion worth of merchandise every year. (To put that in perspective, that’s about $40 billion more than Amazon.) These businesses would not be possible if there were not millions of suburban homes that need tending and, more importantly, a fleet of privately owned pickup trucks that allow individual customers to transport the bulky and heavy merchandise.
Respect second order effects
None of these businesses thrive by selling automobiles, or services for them. Instead, they are reactions to a world where cars are common. There will be a similar reinvention based on emerging transportation technologies. For instance, we already see drive-through windows losing some traction because of the rise of mobile ordering.
A change in transportation will be an engine for entrepreneurship.
Also consider there’s a wide world of planes, ships, trains, drones and yet to be invented forms of transit that will similarly reshape our landscape. Container ships are an innovation that have been compared to the microchip in terms of their influence, yet only Haven seems to be chasing this opportunity. Urban CCTV surveillance manufacturers have surged in the wake of awful terror acts — what happens to them when four drones can be dispatched to “squat” on a ledge in low-energy mode focused on a building’s entrance?
Clearly the list above is by no means exhaustive — suburbanization and the rise of retail that accompanied it have changed our economy and society in ways that are hard to fully comprehend. The forthcoming change is equally hard to forecast. The simple point is that we’re living through a massive transformation that creates opportunities in so many ways.
Ray Kroc, Abraham Levitt and Arthur Blank were all arguably more successful “auto entrepreneurs” than Preston Tucker and John DeLorean. A change in transportation will be an engine for entrepreneurship, but it will not be confined to companies that are building motors. Those that are able to correctly identify and execute on this era’s second order opportunities will surely be just as well-rewarded.