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The Scooter Wars In San Francisco -- Real Disruption?

Contributor: Jim Champy
Posted: May 6, 2018

disruption

I was surprised on a recent return to my apartment in San Francisco by the electric scooters cluttering the sidewalks. Where did they come from?

The question was quickly answered by numerous articles in the local and national press. Three new start-ups were out to “disrupt” transportation by foot. 

Electric scooters had been scattered around the city and were readily available for a base fee of about a dollar plus 10-15 cents a minute. 

There are no docking stations. Riders just pick up scooters from where they are left and leave them on the sidewalk when riders reach their destination.

The scooters are maintained and charged at night by “independent contractors” who roam the streets looking for the abandoned scooters.

Citizens Revolt

The backlash in the communities where the scooters appeared has been severe. Riders have tended to stay on sidewalks, not bike lanes or roadways. 

I sensed the danger myself, walking on sidewalks as scooters zipped by at 15 miles an hour. 

One older San Francisco resident called the scooters “a plot of the young people to kill off all us oldies so they can have our rent-controlled apartments” 

She also saw the scooters as a symbol of “entitlement and arrogance”.

Locals have been just throwing the scooters into dumpsters or the San Francisco bay. 

City Governments Join the Revolt

The presence and use of the scooters violate local ordinances. The startups never sought permits or permission to use sidewalks or roadways. 

Cities have issued cease and desist orders, and the City of Santa Monica filed a criminal complaint against one of the scooter companies. That company agreed to a settlement and fine of $300,000. 

Where did the money come from? The three startups received a combined $250 million from venture funds, proving that venture funds have so much money they don’t know what to do with it. 

Copying Uber and Lyft

Not surprisingly, some of the founders of these scooter companies had worked at Uber or Lyft, copying their launch approach: seek no government permission, ignore local ordinances, build consumer support for your service, then take on government regulators. 

The difference here is that young riders may like the scooters but thousands of pedestrians do not.

Two Questions

The scooter “business model” raises two questions: is this real “disruption” as the company founders would have us and their investors believe and is the “let the regulators be damned” approach a legitimate business strategy?

Real Disruption

Peter Drucker never used the term disruption the way it is used today. But he did recognize in his book “Management”, written in the 1970’s, that a round of business disruption was on its way. 

Drucker wrote, “From now on, management will have to concern itself more and more with creating the new in addition to optimizing the already existing.”

The term was popularized by Clayton Christensen in his book, “The Innovator’s Dilemma”, published in 1997. 

Christensen argued that technology was enabling startup companies to build new business models that challenge larger existing, or “incumbent”, companies. 

He also argued that “incumbent” companies would be frozen in their own behaviors, practices, and policies, and that they would have to create new and separate enterprises in order to compete with these startups. 

(Interestingly, Drucker argued the same in 1970: “Management will therefore have to learn to run, at one and the same time, an existing managerial organization and a new innovative organization”)

Related Reading: Startups Fail Because They Don't Ask These 3 Drucker Questions

Examples of Real Disruption Abound

Christensen’s and Drucker’s predictions have come true. The classic examples of real disruption are Uber, Lyft, and Airbnb. 

Uber and Lyft have disrupted all modes of local transportation, particularly the taxi industry. Airbnb provides a whole new business model for providing overnight and short term stays, disrupting the the hotel industry. 

And many digital financial services companies have emerged to disrupt “brick and mortar” banks.

In other industries, incumbent companies are competing by forming independent business units with new business models, just as Drucker advised Google, Amazon, and Microsoft have created new business units to provide cloud computing, disrupting in-house models of computation.

When compared to such innovators, the scooter venturers hardly appear to be business disruptors. The only things they are disrupting: the peace and safety of a quiet walk. 

Scaling their businesses will also provide no barriers to entry. Anyone will be able to start a scooter business - now with permits - by just dumping scooters on sidewalks.

But What About the “Regulators be damned strategy”?

I think the strategies of Uber, Lyft, and airbnb - and now the scooter companies - have made governments wary of new venturers who cross a regulatory line. 

Local regulation is generally in place to protect the health and welfare of the local population. Governments are going to be watching new forms of business more closely to be sure they are compliant.

There should also be a price for commercial ventures using public facilities - like sidewalks. Someone has to pay for sidewalks, bike lanes, and roadways. So if your venture wants to use public facilities, be prepared to step up and pay your fair share.

I must say, however, that I am a little less sympathetic with local regulations that were put in place to protect specific commercial interests. 

The best example are regulations that municipalities put in place to protect taxi businesses. Ride sharing businesses should not be frozen out by these types of regs, but the Ubers of the world should still have to comply with those regulations that protect passengers.

Challenging government bureaucracies is never easy, but disruptors will now have to take on bureaucracy sooner rather than later and be more thoughtful in creating their business models. 

More By Jim Champy:

In The Age Of The Unicorn Bubble, The Real Valuation Of A Business Matters More Than Ever

Trees Die From The Top: A Formula For Fixing Company Culture

Advice For The Ambitious