Like it or loathe it, Uber changed the face of modern urban transportation by providing a relatively pain-free way to order a car to take you from A to B. But the company’s growth has done more than catapult Uber into the ranks of the biggest (and most-watched) tech companies: it’s helped open the door to a new raft of transportation startups.
But while Uber’s aggressive growth has been fueled by huge fundraises and hefty losses, its approach is not the only way ahead. Blacklane, a transportation-on-demand startup from Berlin, provides a template for another kind of strategy, one based on minimal outside funding, a focus on very specific customer segments and slow growth that relies on partner ecosystems to achieve global reach.
“We’ve never been distracted. We have always wanted to be a channel player, largely playing a local game,” said CEO Jens Wohltorf in an interview in Berlin earlier this month.
Some have described Blacklane as something similar to what Uber was like when it first started out, and on the surface, there is some truth to that: users order cars through its app, and the vehicles are always “black cars;” larger sedans and comfort-oriented vehicles. But unlike Uber, which from its earliest days always traded on the idea of providing five-star service at an affordable price, Blacklane aims at the higher end of the market, targeting corporate workers, executives and those who have the means to pay extra for higher levels of service when they travel.
And its success has led to a whole new level of interest in the company.
“In the first couple of years, VCs always asked me the question of how we would react to the big ride-hailing players. How do we compete, and how could we be more similar?” said Wohltorf. “Today, it’s changed 180 degrees. Now the question is ‘what’s your strategy to be different?'”
Indeed, for those building or thinking about building or investing in a transportation-on-demand startup, it’s worth considering Blacklane’s example: for all of the outsized nature of biggies like Uber and Didi, Blacklane, with around $77 million in funding, is much closer to the average player in the world of transportation-on-demand.
Collectively, nearly $81 billion has been raised by 428 ride-sharing startups, according to data from Crunchbase. But it’s a very uneven spread: about 75% of that has been highly concentrated in about ten companies led by Uber and Didi (respectively raising around $25 billion and $21 billion), with the list rounded out by the likes of Grab, Lyft, Ola, Chinese trucking company Manbang, and bike companies like Ofo, HelloBike and Meituan.
If you take the rest of the funding and distribute it equally among the rest of the field, it works out to a significantly more modest $48 million per startup — with many raising far less than that (and some still significantly more, if not $25 billion more).
The most recent financials for the company cover 2017, when it reported revenues of 44 million euros and a net loss of 10.5 million euros. From what we understand, it’s managed to keep that net loss rate steady in 2018 and 2019 while revenues have continued to grow.
This also makes Blacklane a relatively rare thing in the ride-sharing world: a quiet but healthily growing startup.
The message here is that for the rest of the field, and for any other founders looking at building a transportation or on-demand-distribution-of-anything startup, there is an interesting lesson to be learned about whether it’s possible to build a long-term company in this space without going large like an Uber, and if so… how.
The concept for Blacklane first came to cofounders Jens Wohltorf and Frank Steuer in 2009 — the same year Uber was conceived, as it happens.
The two were working for Boston Consulting in Chicago, where they were using a lot of black car services to get to airports, meetings and more. Similar to Uber’s beginnings, they saw an opportunity for tapping into the power of the smartphone and the use of apps to make ordering and tracking rides significantly easier. They also spotted an opportunity early on for targeting the service to businesses as much as individuals to play to the idea of economies of scale.
“We were using black car services wherever we travelled with Boston Consulting,” Wohltorf said. And while these can be expensive, “the service became quite affordable and consistent because of the Boston Consulting volumes.”
The company may have been thought of originally in the Windy City, but it was only when they returned to Germany that the two got down to the business of building the service. Their timing dovetailed well with an inflection point for startups in Europe: Berlin was becoming a key tech hub in Germany, boosted by fast communications infrastructure, low real estate costs, its strategic location in the middle of the continent and a large population of technically literate young people for whom English was the lingua franca.
Setting up in Berlin, Blacklane started out in a low gear, raising its first seed round only in 2011 (undisclosed amount) when it was officially founded and only taking a Series A in 2013, a couple of years after it launched. Although Germany is its “home” market, in keeping with what a lot of startups find, it is not Blacklane’s biggest: it accounts for just 6% of its business. In contrast, the U.S. accounts for 30%.
“We never pushed so hard, but it became our largest market,” Wohltorf said.
Blacklane’s rise and gradual success in markets like the U.S. hasn’t been mirrored across the board. Hailo — which eventually got acquired by Daimler, rebranded to MyTaxi, and has now rebranded to FreeNow — had big plans to go head to head with Uber and Lyft in the market, only to retreat two years later citing too-high-costs as a barrier to entry. Gett, the European ride-hailing startup backed by Volkswagen and others, also recently pulled out of the U.S. market after even a very focused effort in New York City failed to tip into profitability (it’s now in a partnership with Lyft).
In addition to the customer segments being different, there are other notable contrasts between Uber and Blacklane around their growth strategies. Uber has aimed to own the whole experience, from capturing customers to transporting them and providing other services around that — it’s even been known to pull out of markets and services when it’s found that fighting for pole position with that model has proven to be too expensive.
Blacklane, on the other hand, works on a mixed-model of either being the primary contact, via its app, winning deals where third parties are the primary interface, and others where it works with local networks of drivers and services where it hasn’t built up its own fleet.
One example of how this works is a deal that Blacklane has with Emirates. The Dubai-based airline originally tried to build its own chauffeur network, which it offers as a special service for business and first-class customers. It quickly realized that this wasn’t a core competency and now outsources to ridesharing and on-demand transportation companies.
Emirates works with Blacklane to manage its chauffeur services in multiple cities (but not all: in London, for example, another company provides the rides). Blacklane, in turn, either has drivers on its own books who are providing the rides, or in far-flung cases, it will work with third-parties to provide the people and vehicles who interface with the customers and Emirates via Blacklane’s platform.
In essence, having these three options gives Blacklane more flexibility in how it expands, with overall operational costs being much lower, but retail costs being higher. These offset the fact that Blacklane typically takes a smaller cut on the overall ride, compared to Uber’s owning of the whole experience.
“We see ourselves somewhere between the legacy limousine business, the likes of Addison Lee (an older London-based car service that owns its own fleet of cars), and the big tech-based Ubers of the world,” Wohltorf said. “Strangely, there hasn’t been much in between all of those that properly addresses both innovation and the ‘service’ mindset. We think of ourselves as an animal somewhere in the middle of all that.”
Blacklane today is backed by a mix of strategic and financial investors that include B-to-V (a firm based in Berlin), the automotive giant Daimler, and the Al Fahim Group, which sounds like it was instrumental in securing that Emirates deal. Daimler, meanwhile, has been a prolific investor, and eventual acquirer, of other ride-hailing services so you could see how it might be a possible buyer here, too.
This is not something that Blacklane is looking at as it drives forward, though. Wohltorf noted that the company is “always in discussions for funding,” but that since it’s burning cash slowly, has good unit economics and is getting close to being profitable on the expansion model it already has, it’s not in a hurry to do this, or to sell up.
“We never planned to build a startup that’s growing through the roof only to sell it to a strategic investor,” he said. “We wanted to build a company that could last forever. Besides, the market has realized that burning cash for the sake of market share has not led anywhere.”
Focusing on slow and healthier growth in its specific market segment, incidentally, doesn’t mean that Blacklane is not thinking of how it will expand. There are new business lines in the works, around how to build additional services for passengers while and after they take their journeys, concierge options to help with dinner reservations, suggestions of things to do in a person’s downtime from work, taking them on those trips and more.
Wohltorf explains Blacklane’s concierge interest as akin to how the likes of Uber have gone into food delivery. “If you have grown and matured your business, you can look at the technology and see if it can apply to other segments: who is my customer and can I offer her/him something else. This is why Uber and others are going into courier and food services: they have created a logistics mesh comprising passengers, packages and pizza.
“We have highly qualified chauffeurs. They have emotional intelligence to help you with the city or pick up a passenger for a city tour the next day. You could think about 10,000 or 20,000 chauffeurs and a fully equipped call centre in Brisbane or LA to help them. That is what we are building.” The company acquired a YC startup called Solve in 2017 that’s forming the basis of that effort, which is expected to go live next year after smaller pilots this year.
One area Blacklane is not exploring is the costly endeavor of building any part of the stack that goes into the complicated and costly area of autonomous vehicle technology.
“In the past there was a lot of hope on autonomous vehicles, because for the larger players that subsidise rides, it provided a possible path to profitability at some point, since you could cut out labor,” Wohltorf said. “Now with timelines extending far into the future for these services” — and the economics looking very challenging alongside that, I’d add — “this concept that been thrown under the bus.”