Education

The Financial Secret Behind the ‘Uberization’ Business model.

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The business model used by Uber has inspired other companies to implement it in their own companies. However, few people understand the financial secret behind uberization.

No doubt we are in a new industrial revolution where any business idea that comes from now on, will no longer be the same, a department store, a manufacturer, a car factory or a simple cart hot dogs, will no longer suffice.

Unless you’ve been living under a rock, you’ll know about Uber. Uber is a company that was born in 2009 but that was really released publicly in 2012 with an unusual and successful business model: being a taxi company that does not have taxis. How? Basically the company does not have assets (the cars that serve as taxis), but rather, has created an application where it serves as an intermediary between drivers and passengers.

What did the founders, including Travis Kalanick he do well? Eliminated having Fixed Assets and Fixed Expenses that are a great financial and operative load for companies.

People refer ro these companies that really do not have assets as those in the “Sharing Economy.” Airbnb is the hotel company that does not have hotels. Loggap is the international courier company that has no airplanes or pickup trucks and uses travelers in exchange for a commission to deliver the packages to their customers; Getaround is the company that does not have its own cars and gives the car rental service etc…

I remember talking with a colleague, who shall remain nameless but he’s pretty well known in the VC community. He gave me the best tip that one can know in business: a company will actually generate profits where it does not depend on fixed expenses, but rather, all its costs are variable.

Did I explain myself? I know I did not. A fixed cost or expense is one in which regardless if  you independently sell one or a million products you must pay: rent, payroll, health care, maintenance, etc. However, a variable cost, is the cost or expense per unit, for example, the raw material, the raw material required to make 1 unit of the product/service.

Moral of the story. This business model is predicated on being able to eliminate as many fixed cots as possible and working to optimize your variable costs. If you can achieve scale, the sky’s (or market size). the limit.

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