I think most people underestimate what it takes to turn an idea into a real business. I know, because I get a lot of pitches about the latest and greatest rideshare companies to hit the scene but, more often than not, they’re more of an idea than an actual company. Turning an idea into a business is where the real challenge begins.
How To Start A Successful Rideshare Company
Do you have a great idea for a rideshare business and are ready to take the next step?
I can’t tell you how many people have e-mailed me about their cool new company that will put Uber out of business. But when I go to their website and Google their name, I see a landing page. Putting a landing page up is not the same as starting a company.
We specialize in everything from assessing the competition and potential market share to pricing and marketing strategies and business plans and investor decks.
In addition to branding your rideshare company, you’ll need rideshare software. That’s not something in my wheelhouse, but I can refer you to an excellent company I trust. I can make the introduction for you. They have rideshare software (iOS and Android) ready for immediate license/purchase/white labeling.
Steps to Starting a Rideshare Company
So let’s say you agree with my line of thinking and you’re ready to start the next Uber competitor – how would you do it?
Define Your Niche
Now that the rideshare market is more than a few years old, it wouldn’t make a lot of sense to create a company exactly like Uber and try to compete with them. If you have nothing to differentiate yourself by, there’s no reason for customers or drivers to use your service.
But when companies like Uber get big and bloated, it often creates opportunities for faster, more agile start-ups. Uber prioritizes growth above all else, which means the company will have to reallocate resources away from anything that isn’t central to the current mission.
One big example of that would be in the ‘Uber for kids’ niche.
There’s a huge market in metro areas like Los Angeles and San Francisco where busy parents have to spend a lot of time driving their kids around. But it’s actually against Uber’s Terms of Service for minors under the age of 18 to travel by themselves on an Uber ride.
Sure, it still happens all the time, with some drivers in LA telling me that 10-20% of their rides these days are unaccompanied minors (get a dash cam if you’re going to do these rides). But there are also a ton of parents with kids out there who refuse to put their kids in an Uber because they’ve seen news stories or understand how lax Uber’s background check requirements can be.
Uber could easily create an option for kids and require increased screenings for those drivers, the ability to schedule pick-ups, etc, but it’s just not a priority for them.
That’s why you have a company like Hop Skip Drive that’s able to raise $10 million to serve this very need. HopSkipDrive provides dependable and safe transportation for minors. Parents or schools can use the app to book rides for kids when they get out of school at 3:15 every day or for soccer practice at 5 pm. Drivers are carefully vetted and parents can track each trip’s progress.
These added safety measures are there because they make parents more comfortable, but they also differentiate themselves from Uber. In fact, more and more rideshare apps for kids, are popping up all over.
Rideshare company Alto had to pivot their strategy when Covid hit. Ridership was down, so to remain profitable and make it worthwhile for drivers, they upped the cost to passengers. But also, since they provide the vehicles, all money going to the drivers is profit.
There aren’t any expenses that the drivers have to consider when driving with Alto, and that’s a big difference between Alto and Uber or Lyft.
Group rideshare is another niche that’s developing in the realm of rideshare. One such group rideshare company is Fetii. Group rideshare is exactly what it sounds like. It’s carting around groups of people as opposed to individuals. Fetii utilizes a network of 15-passenger vans to move groups and businesses.
Determine Your Market Strategy
Uber has taken a very passenger-centric approach to the rideshare industry, and it’s worked out pretty well so far. Uber is worth north of $45.7 billion and is far and away the market leader despite lots of competition. Early on, one of their core tenets was to provide a frictionless experience for passengers and to always put the customer, not the driver, first.
But instilling a culture of passenger-centric thinking creates two big problems. First, it alienates your drivers since. Remember how Uber didn’t have tipping options for the longest time? Some passengers still think it’s okay not to tip because of that. Second, it makes it harder to reverse course later on.
Even though Uber is still in growth mode, they’re anything but a start-up. Uber has thousands of employees and between 3-4 million active drivers, but that means they also have a bureaucracy of thousands of employees – things move a lot slower once you get this big, and even a small change has to be approved by many different people since it could potentially affect many different groups.
Conversely, you had companies like Juno, which took the exact opposite approach. They recognized a big problem with driver sentiment toward Uber, and Juno aimed to build a company that treated drivers better. Juno Rideshare launched with lower commissions, 24/7 phone support and equity for drivers just to name a few benefits. Another example of that was Juno’s approach to self-driving cars. It’s pretty obvious self-driving cars are coming, but Juno reserved half of the founder’s shares for drivers so that at least when drivers are out of a job, they’ll own a piece of the company.
So, what actually went wrong? The funny thing is, nothing went wrong. The acquisition by Gett was profitable for Juno. Juno started out well and with good intentions, but their initial passenger acquisition strategy was expensive. Gett was a bigger company, but eventually partnered with Lyft as an effort to expand outside of New York.
Other startups have tried to compete with Uber and Lyft, but it’s proven difficult. Uber and Lyft have such a high share in the market, it makes it extraordinarily difficult for others to join the market.
Perhaps one of the most successful is Alto (mentioned above as a niche competitor). Alto is a Texas-based company that hires their drivers as employees and provides the vehicles used for ridesharing. It’s membership-based for their passengers. Unfortunately, Alto is not fully nationwide yet, as it’s only available in Dallas, Houston, Los Angeles, Miami, DC, and Silicon Valley.
Have A Competitive Advantage
This somewhat ties into market strategy, but when you’re considering starting a company, you must have some advantage over others.
People always ask me to sign NDAs and keep things confidential, which I do, but that’s also a red flag for me. The execution matters way more than the idea.
Just look at the history of rideshare. It wasn’t Uber that first had the idea for rideshare as we know it today, it was actually Sidecar and then Lyft. They were the first proponents of the ‘friend with a car’ model, and they were the ones who actually had a dominant market share while Uber was doing black car rides for tech bros in the Marina.
But once Uber set its sights on the ‘UberX’ market, the rest was history, and a lot of that has to do with a superior team, not a superior idea.
Driver skepticism is a big roadblock to starting a rideshare company, and something that easily gets in the way of success. Without the approval and trust of your drivers, you’ll have a hard time getting business off the ground.
One company that drivers have taken notice of is Empower. Drivers set their own rates and keep 100% of the fare. Immediately drivers start to think, “Ok, so what’s the catch?” In some drivers’ eyes, the catch is the monthly subscription fee paid to Empower to use their platform.
Drivers learned early on from scams like Tryp to be overly skeptical of a rideshare platform that is subscription based and seems to over-promise what it offers drivers. To be successful and put drivers’ minds at ease, aim for the sweet spot of being better than what’s currently being offered while also being honest and upfront about your intentions and offerings.
Is it Easy to Start Your Own Rideshare Company?
Many things can be on your side when it comes to starting a rideshare company, including financing, demand, and even supply. However, some things are outside of your control!
Listen to this episode of The Rideshare Guy podcast, where I chatted with Vikesh Chandrashekar about his rideshare company, FairShare, what it took to start it, and why it eventually failed.
Legal Requirements for Starting a Rideshare Company
Everything we’ve covered so far is important to getting a rideshare company off the ground, but it’s not essential to operating. I wouldn’t recommend starting a company without all of that down on paper, but here are the things you’ll need to figure out before you give your first ride:
From a legal standpoint, there’s actually not a lot that goes into forming a rideshare company. The rules and regulations vary by state, but at its most basic level, you’d want to form a business entity like an LLC to establish yourself as a real business, provide liability protection and so forth. A name probably would help, too, but a good name is not a requirement of a good business – it just makes it easier.
From there, new TNCs need to register with the public utilities commission in their state. A few years ago, when rideshare companies first popped up on the scene, regulators really didn’t know what to do with them and who was supposed to regulate them. But these days, it generally falls under the responsibility of the Public Utilities Commission in your state. So if you’re looking to get approved, that’s a good place to start.
Uber is also licensed in all 50 states, so you could always look and see what they’ve done/where they registered instead of combing through government websites.
In California for example, you’d have to apply for a TNC permit with the CPUC and here’s some of what they require:
- A smartphone app to facilitate transportation of passengers in the driver’s personal vehicle.
- TNCs are not permitted to own vehicles themselves used in their operation or own fleets of vehicles. However, there is no limit to the number of drivers that utilize the app under one permit.
- TNCs can only do rides on a pre-arranged basis or, in other words, no street hails!
- Filing fee of $1,000 (permit is valid for 3 years).
- The fee to renew an existing TNC Permit is $100
- 0.33% of a TNC’s gross California revenues, plus a $10 administrative fee, will be collected by the CPUC on a quarterly basis. Or a $25 fee annual fee
- TNCs must establish driver training programs.
- TNCs must file insurance policies with the Safety and Enforcement Division
- TNCs must perform national criminal background check including the national sex offender database on drivers utilizing their app.
The requirements aren’t that cumbersome since you’d want to do a lot of that to run a successful rideshare company.
In California and most other states, a big financial requirement is maintaining commercial insurance:
- Insurance during Period One: TNCs shall have primary insurance of at least $50,000 for death and personal injury per person, $100,000 for death and personal injury per incident, and $30,000 for property damage. The TNC shall also have $200,000 in excess coverage (per occurrence).
- Insurance during Periods Two and Three: TNCs shall have primary commercial insurance of $1,000,000 for death, personal injury, and property damage. In addition, TNCs shall maintain $1,000,000 of uninsured motorist insurance from the moment the passenger enters the vehicle until the passenger exits the vehicle.
These requirements still leave drivers without collision coverage during period one, but a host of personal insurers have stepped in to fill that gap coverage (check out our rideshare insurance marketplace here). For most companies, though, the commercial insurance requirement is a big one, which explains why they don’t want to cover period one!
The CPUC requires that each TNC keep their insurance certificate on file.
You can learn more about how coverage works with Uber below.
If you need help with setting up an insurance policy for your rideshare company, look no further than our insurance expert, Ed Walker. You can contact Harry Campbell and Harry will introduce you to Ed, who helps startup transportation and micro-mobility companies create custom insurance policies.
Building An App
The last requirement that I’m going to talk about is the app. I think many people underestimate what it takes to build a rideshare app that will work as well as Lyft and Uber.
As drivers, we occasionally like to complain about the Uber app, but I’ve tried others, and they’re just not as good. Most new rideshare companies actually build their apps from scratch and have to devote entire teams to these projects for months at a time.
Rideshare Consulting Services
If you need help launching a rideshare company, check out our rideshare consulting packages to help you get started.