LIME: IS BIKE SHARING THE NEXT UBER?*

CASE DESCRIPTION

The primary subject matter of this case concerns the challenges and potential profitability of the bike share/e-scooter market, focusing on industry standout, Lime. Secondary issues examined include an overview of the current landscape and competition within the bike share/e-scooter space. This case has a difficulty level of five, appropriate for first year graduate level. The case is designed to be taught in two (2) class hours and is expected to require two (2) hours of outside preparation by students.

CASE SYNOPSIS

Bike-sharing/e-scooters have been gaining popularity in many cities and across college campuses, as well as around the globe as an environmentally friendly, low-cost method of transportation, however, there are growing concerns regarding sustainability of a profitable model. Due to issues with local government compliance and regulations, vandalism, and market saturation, will consumer complaints ultimately kill the future of the industry? The case provides an in-depth look at Lime and discusses the strengths and weaknesses of competing models.

CASE BODY

Since Lime launched in January of 2017, and the bike share company has managed to gain popularity among the rental transportation market, with more than a thousand competitors around the globe. “If you ask me what the vision for the next 3 to 5 years will be, we want to become the default short-trip, on-demand service for getting people around cities” said Toby Sun, founder of Lime1. While Lime is one of the leading companies that created the market for cost-effective bike sharing systems in the United States, it faces several hurdles with neck and neck competitors, municipal pushback, vandalism, and establishing a strong survival strategy for the long run.

Bike share in the U.S. has continued its brisk growth, with around 35 million trips taken in 2017, a 25% increase from 20162. Lime entered the marketplace with a goal of eliminating docking stations, in order to make bikes more affordable in comparison to traditional bike sharing models. The idea of saving millions per year for cities that invested in expensive stations and overpriced bikes appealed to both consumers and the government. The Lime dockless bike share company operates in over 80 cities in the United States, on 22 college campuses, and in 7 countries. The mobile app charges $1 to unlock and 15cents/min to ride after the user unlocks the bike (See Exhibits 1 and 2).

Exhibit 1. Lime Electric Bike

Source: Lime Press Release. https://www.li.me/press

Exhibit 2. Lime App and Lime Electric Scooter

Source: Lime Press Release. https://www.li.me/press

Moving into 2019, Lime is poised for another great year. It introduced dockless electric scooters in 2018, and is valued at a whopping $1.1 billion. The startup received a $335 million bid from Uber and Alphabet. In August 2018, Lime signed a deal with Uber to provide e-scooters, as Uber plans to expand its service to bikes and scooters. Uber’s partnership with Lime may surprise some close watchers of the brewing scooter wars, especially considering one of the company’s main competitors in dockless scooter-sharing, Bird, was founded by a former Uber executive.3 What is Lime’s long term strategy in a market with almost more rental business competitors than bikes or scooters to rent?

WORLD OF BIKE SHARING

Bike sharing can be traced all the way back to 1965 when the White Bicycle Plan was launched in Amsterdam, where free white bicycles were placed in various locations. This was introduced by Luud Schimmelpennink, a Dutch industrial designer, who intended to reduce air pollution in the city and facilitate public use of bicycles. While the idea was quite ahead of its time, the plan collapsed within days due to theft and damage of bikes. The problem of theft was first addressed in 1996, when Bikeabout, a small bike share system limited to students at Portsmouth University in the UK, introduced an individualized magnetic-stripe card to borrow a bike4. Over the next 15 years, many major cities across the globe introduced bike share systems, with 2013 witnessing 65 new bike share launches in China alone. By 2015, the number of bike share bicycles hit 1 million, with China leading the bike share market. 5

Dockless bikes go back only a few years. The market for bike sharing had increased rapidly throughout the world by then. The third generation of bikes consisted of the automated station-based bikes, which could be borrowed from one docking station and returned at another station of the same system. With the automated biking stations, individuals could unlock their bikes with a smartcard or their phones. As of June 2014, public bike sharing programs existed on five continents, including 712 cities, operating approximately 806,200 bicycles at 37,500 stations.6 This led companies to invest additional time and effort into creating a more cost-effective system, which led to a dockless bike sharing system. In the US, during the second half of 2017, dockless bike share companies introduced around 44,000 bikes in cities across the country. Station-based systems added approximately 14,000 bikes to their fleets, bringing the 2017 total to 54,000 station-based bikes. As of the close of 2017, dockless bike share bikes accounted for about 44% of all bike-share bikes in the U.S.7 (see Exhibit 3).

Exhibit 3 Percent of Total Bikes and Trips: Dockless v. Station-Based Bikes

Source: nacto.org

Station-based to dockless bikes is the transition that is keeping investors on their toes, as companies are looking at higher revenues with lower expenses; the only downside of dockless bikes might include expenses in theft, vandalism, and fines. The four major dockless bike-sharing companies in the U.S. include Lime, Jump, Mobike, and Spin. Starting in 2018, Ofo, a tough competitor, is beginning to withdraw from many U.S. markets, as it plans to expand its

global reach. Another company, BlueGoGo, which was the first to introduce dockless bike share bikes in the U.S., declared bankruptcy during the summer of 2018. 8

LIME BACKGROUND

In 2015, Chinese startups such as Ofo developed a new bike sharing model without the need for docking stations. 9 This concept of dockless bikes led the San Mateo-based startup, Lime, to introduce dockless bikes in the US in mid-2017. In March 2017, the company had managed to gather around $12 million of funding from investors such as Andreessen Horowitz and DCM. Lime launched its first market in Greensboro, North Carolina in June 2017. By November 2017, it had reached over 300,000 users and penetrated 25 markets, including 16 cities and 9 college campuses.

Lime was founded by Toby Sun, Brad Bao, and Adam Zang on the simple idea that all communities deserve access to smart, affordable mobility. Their initial belief that electric bikes would be preferred over classic bikes and electric scooters for long-distance trips led Lime to surpass over 6 million rides in just over 12 months. Twenty-seven percent of riders in major urban markets reported using Lime to connect to or from public transit during their most recent trip. Twenty percent of riders in major urban markets reported using Lime to travel to or from a restaurant or shopping destination during their most recent trip.9 In February 2018, with the recognition that there was market demand for scooters, Lime added electric scooters to its product mix. Riders can locate and unlock scooters using the company’s smartphone app, and after paying the $1 unlocking fee are charged 15 cents per minute of use. By 2018, the company had $6 million in revenues with total employees at 400, up from just 50 employees in 2017.

POLICIES AND REGULATIONS

Over the past decade, shared active transportation systems in the U.S. have begun to thrive. These systems are highly dependent on the assistance and cooperation of the government and the public. In many places, coordination between cities, operators, and other community stakeholders has allowed bike share practitioners to grapple with complex issues around access and equity, expanding transportation options for low-income individuals, and focusing investments among communities with history of chronic disinvestment.10

The National Association of City Transportation Officials (NACTO) is a non-profit coalition of 63 major North American cities and 10 transit agencies formed to exchange transportation ideas, insights, and practices to cooperatively address national transportation issues. The NACTO Policy 2018 states the guidelines for the regulation and management of shared active transportation. These guidelines include policies regarding small vehicle parking, community engagement, and equity programs.

Some of the general provisions include: 1. Relevant local government or city authorization is required for bike share companies and other mobility service providers to operate in the public right-of-way.

2. Cities should reserve the right to limit the number of companies operating (e.g. cap the number of permits or licenses issued, issue exclusive contracts, permits, or licenses).3. Cities should reserve the right to revoke permits, licenses, or contracts from specific companies (e.g. when a company fails to comply with permit, contract, or license terms, or fails to meet national accreditation standards if applicable).4. Cities must reserve the right to prohibit specific companies from operating in the public-right-of way based on conduct or prior conduct (e.g. when a company deploys equipment prior to applying for a permit, license or contract, or fails to comply with permit, contract, or license terms).5. Cities are required to reserve the right to establish operating zones and fine companies for bikes and equipment found outside of those designated areas.

With regard to the Operations Oversight by NACTO, cities should require companies to remove small vehicles (e.g. damaged, abandoned, improperly placed, etc.) within contractually agreed-upon time frames and assess penalties for failure to do so (see Exhibit 4). Each city is also required to have a limited number of shared small vehicles allowed. Los Angeles allows a minimum of 500 bikes and a maximum of 500 bikes per company, while Washington DC, which recently witnessed a few cases of vandalism, allows a minimum of 50 bikes and a maximum of 2500 bikes per company.

Exhibit 4 Permit Fees in the US, June 2018

Source: NACTO.org

INTENSE COMPETITION

With 84 million trips in 2019 and strong year-on-year growth since 2010, bike share is gaining hold as a transportation option in cities across the U.S. High venture capital funding, coupled with generally low ridership, raises questions regarding the overall sustainability and volatility of the dockless bike share market. The big four dockless bikes in the US are Lime, Jump, Mobike and Spin. In less than a year of existence, one U.S.-focused company, BlueGoGo went under. Similarly, a number of China-based companies have filed for bankruptcy, merged with other companies, or ceased operations.11

Lime believes it can fend off rivals with a city-friendly approach. That includes investing in higher-quality bikes (including safety features like solar-powered lights), sharing aggregated usage data with cities, and educating riders about where to leave their bikes.12 Cities are proceeding cautiously, watching the results of pilot efforts, and encouraging dockless companies to share more data so that cities can better evaluate and understand how dockless bike share can further city goals of safety, equity, and sustainable mobility.

Mobike Although taller riders may find Mobike’s saddle doesn’t go high enough to accommodate

much more than a 30-inch inseam, the Beijing-based silver bike with orange wheels is among the popular dockless bikes in the United States. They started out of Washington DC in the U.S., and by 2018, had over 9 million bikes in some 200 cities in 14 countries around the world. In 2018, Mobike revealed an Apple Watch shortcut at the Apple Worldwide Developers Conference in San Jose.

Spin Founded in 2016, Spin began with the idea of introducing Chinese dockless bikes to the

U.S. It first launched in Seattle, and further expanded to over 12 cities and 7 college campuses in the United States, and had over 1 million rides. In November 2018, Ford Motor Company acquired Spin for an estimated value of $80-$90 million. With regard to the safety concerns of electric bikes, Spin offered an anonymous tip-line and promoted helmet usage in 2018. They also initiated pilot partnerships with safe street groups, where Spin works with local community leaders who identify protected bike lane networks that are needed, and advocate for them to be built.

Jump DC Jump’s bikes have an electric motor in the front wheel with a battery in the frame. When

a rider pedals a little, the bike senses the effort and adds some of its own. Jump’s bikes are the only dockless entry in Washington D.C. that use pneumatic tires, so their ride is less harsh.13 Jump was originally founded as Social Bicycles and has been creating the hardware and software behind some of the greatest innovations in bike share since 2010.14 The company soon partnered with Uber, and in 2018 was acquired by Uber Technologies Inc.

ELECTRIC SCOOTERS

While many cities now have bike sharing services, electric scooters, which cost less than $2 per ride, are the next innovation in mobility. Investors rooting for the next Uber Technologies, Inc. and Lyft, Inc.15, the app-based car-hailing services, are adding to the scooter-frenzy by pouring money into Bird and Lime, which are competing on a city-by-city basis to become the premier electric scooter brand.

Bird, started by a former executive of Lyft and Uber in September 2017, is operating scooter services in about 40 U.S. cities, while Lime launched its scooters towards the end of 2018, and offers its services in 23 U.S. cities. Bird has reached 1 million total scooter rides in less than a year (See Exhibit 5).

Exhibit 5 Growth of Bird and Lime Total Rides

Source: Crunchbase news, company reports

This year, Bird expanded to France and Israel. Lime has established a presence in France, Germany and Spain. Scooters are even more prevalent in parts of China, an early pioneer of the market. No company has been able to break into the U.K., however, because of strict laws that classify the electric scooters as motor vehicles requiring drivers’ licenses and subject to tax and insurance. Even then, regulators won’t allow scooters because they don’t comply with “normal vehicle construction rules.”

The scooter industry is experiencing some of the same problems as ride-hailing, with aggressive startups butting heads with local governments. But there are key differences: with ride-hailing, entrenched taxi industries argued that unregulated startups had an unfair advantage. There is no such incumbent industry opposing scooters. Urban congestion and climate change have also made alternatives to automobiles more popular with city governments.

VANDALISM

There have been quite a lot of cases of vandalism reported for shared bikes around the world. Dockless bike sharing company Gobee bike had to pull out of Paris after 60% of the bikes were stolen, vandalized, or "privatized" (the practice of renting the bike on a permanent basis, thereby removing it from the co-sharing space).16 Not long after that, the Hong Kong based company announced its close due to losses and high maintenance costs.

In the United States, cases of vandalism have been on the rise since companies have been trying to introduce measures to keep their bikes safe. Washington, D.C. witnessed a couple of cases this year. Kimberly Lucas, the city’s bike program specialist spoke with a group of regional transportation officials at a dockless share workshop, indicating that companies report that they have lost up to half of their fleets. This is significant because each company is allowed to operate a maximum of 400 bikes in the city.17

Four companies are currently operating within D.C.:  Mobike, Spin, LimeBike and Jump.18 Critics say that if the city allows more bikes, it could become a larger concern.19

In Arizona, dozens — if not hundreds — of Lime bikes were spotted last week at a scrapyard just northwest of Phoenix. A company spokesman said the bikes “were damaged beyond repair” and were being recycled. Mary Caroline Pruitt, a spokeswoman for Lime, said the company takes “meaningful steps” to prevent vandalism and theft. “All our bikes and scooters have anti-theft locks and audible alarms that sound if someone tries to tamper with them,” she said. “If we find someone has vandalized one of our products, we do our best to make sure they are held responsible, including working with local authorities when appropriate.”20

While Bird scooters have faced vandalism in San Francisco, Lime experienced trouble when they left several hundreds of their scooters on the streets without the permission of municipal authorities: People started acting against the company when they discovered that the scooters were programmed to play the message "Unlock me to ride me, or I'll call the police" repeatedly, at high volume, when their controls were touched. These cases, documented on social media and neighborhood blogs, are igniting complaints.

The future of excessive bikes can be predicted from what China has experienced with its bikes. A decade ago, bike sharing seemed to be an ideal solution and millions of bikes were poured into China’s streets by the private sector without proper regulations. But today, as the companies fail, unused units pile up in bicycle graveyards, and queues of angry users demand their deposits back.21 Ofo, a Chinese bike-sharing firm, was flush with cash until it faced a chaotic expansion, which resulted in bankruptcies and huge piles of impounded bikes,22 prompting protestors to gather outside its headquarters demanding refunds.

THE FUTURE OF LIME

Lime’s multi-modal fleet has played an integral role in the international expansion of micro-mobility, with December’s year-end report announcing that riders had already taken over 26 million rides on their bikes and scooters.23 Equipped with a durable, all-aluminum frame and footboard, the new Lime-S promises to be the first shared scooter built for city streets in 2019. The senior director of policy and public affairs, Emily Warren, addressed the Consumer Electronics Show (CES) 2019 conference by saying, “We find that the majority of cities we speak to have spent years and taxpayer dollars trying to develop the mobility solution that Lime offers.” Addressing Lime’s future plans to work with the government, she added, “We want to work with governments and be transparent with our data to show them the benefits that Lime can have for their communities.” 24 Although dockless bike sharing sounds like a promising future for the rental transportation market, is it viable in huge cities and will Lime be able to penetrate the market?

The company expanded its senior leadership in 2018 by appointing Duke Stump and Li Fan as Chief Marketing Officer and Chief Technology Officer respectively. Although Lime is limitlessly taking on new initiatives to explore and innovate, and while some investors see a promising future for the bike sharing business, analysts who witnessed the rise and fall of some of the Chinese bike share companies disagree. These days, people want to use one app where "you can hail a scooter or a bike or a car," said Tu Le, founder of consulting firm Sino Auto

Insights. "That's where the sweet spot's going to be."25 With car hailing services like Uber and Lyft entering the bike share market, do startups like Lime and Bird have a future?

ENDNOTES

1 https://www.forbes.com/sites/scottbeyer/2017/11/17/an-interview-with-toby-sun-co-founder-of-limebike/#273230111075 2 https://nacto.org/wp-content/uploads/2018/05/NACTO-Bike-Share-2017.pdf 3 https://www.theverge.com/2018/7/9/17548848/uber-investment-lime-scooter-alphabet4 https://www.nctr.usf.edu/jpt/pdf/JPT12-4DeMaio.pdf 5 https://www.citylab.com/city-makers-connections/bike-share/ 6 http://transweb.sjsu.edu/research/public-bikesharing-north-america-during-period-rapid-expansion-understanding-business 7 https://nacto.org/bike-share-statistics-2017/ 8 https://nacto.org/wp-content/uploads/2018/05/NACTO-Bike-Share-2017.pdf 9 https://www.theguardian.com/cities/2017/mar/22/bike-wars-dockless-china-millions-bicycles-hangzhou10 https://nacto.org/wp-content/uploads/2018/07/NACTO-Shared-Active-Transportation-Guidelines.pdf 11 https://nacto.org/bike-share-statistics-2017/ 12 https://www.wired.com/story/why-investors-are-betting-that-bike-sharing-is-the-next-uber/ 13 https://www.washingtonpost.com/news/dr-gridlock/wp/2017/09/22/we-rode-all-four-of-d-c-s-dockless-bike-share-so-you-wouldnt-have-to/?utm_term=.eefd7f2bc1e5 14 https://jump.com/about/ 15 https://www.bloomberg.com/news/articles/2018-09-07/are-electric-scooters-the-future-of-urban-transport-quicktake 16 https://www.treehugger.com/green-investments/can-lessons-be-learned-vandalism-dockless-bike-sharing-bicycles.html 17 https://www.washingtonpost.com/news/dr-gridlock/wp/2018/07/01/theft-and-destruction-of-dockless-bikes-a-growing-problem/?noredirect=on&utm_term=.d3b92b0c927618 https://www.washingtonpost.com/news/dr-gridlock/wp/2017/10/05/abandoned-vandalized-and-illegally-parked-bike-share-bikes-now-a-d-c-problem/?utm_term=.c83071591d2f19 https://www.digitaltrends.com/cars/san-francisco-e-scooter-permit/

20 https://www.washingtonpost.com/news/dr-gridlock/wp/2018/07/01/theft-and-destruction-of-dockless-bikes-a-growing-problem/?noredirect=on&utm_term=.d3b92b0c927621 https://foreignpolicy.com/2018/12/31/a-billion-bicyclists-can-be-wrong-china-business-bikeshare/ 22 https://www.cnn.com/2018/12/21/tech/ofo-china-bike-sharing-crisis/index.html 23 https://www.li.me/blog/lime-honors-ces-2019-generation-gen-3-electric-scooter-lime-s-10m-riders 24 https://www.li.me/blog/lime-honors-ces-2019-generation-gen-3-electric-scooter-lime-s-10m-riders 25 https://www.cnn.com/2018/12/21/tech/ofo-china-bike-sharing-crisis/index.html

LIME: IS BIKE SHARING THE NEXT UBER?*

INSTRUCTORS’ NOTES

CASE DESCRIPTION

The primary subject matter of this case concerns the challenges and potential profitability of the bike share/e-scooter market, focusing on industry standout, Lime. Secondary issues examined include an overview of the current landscape and competition within the bike share/e-scooter

space. This case has a difficulty level of five, appropriate for first year graduate level. The case is designed to be taught in two (2) class hours and is expected to require two (2) hours of outside preparation by students.

CASE SYNOPSIS

Bike-sharing/e-scooters have been gaining popularity in many cities and across college campuses, as well as around the globe as an environmentally friendly, low-cost method of transportation, however, there are growing concerns regarding sustainability of a profitable model. Due to issues with local government compliance and regulations, vandalism, and market saturation, will consumer complaints ultimately kill the future of the industry? The case provides an in-depth look at Lime and discusses the strengths and weaknesses of competing models.

RECOMMENDATIONS FOR TEACHING APPROACHES

This case is best for a first year graduate level course in strategic management, focusing on the initial stage of the strategic management process: an assessment of the internal and external environment within which an enterprise hopes to achieve a sustainable competitive advantage. The Lime story can also be used to investigate innovation and how the introduction of new ventures into a developing marketplace can create disruption as existing entities try to respond to multiple threats from competitors. In such a dynamic environment, who can survive and thrive?

Theoretical FrameworkStrategy is a process of analysis, decision-making, and actions. It also requires evaluation of

those actions. The goal of a business strategy is to outperform competitors in a way that leads to a sustainable competitive advantage. Many companies establish a position in the marketplace, but are unable to maintain this position over time, because things change. The ability of an enterprise to adapt and adjust to challenges in the external environment is partly driven by those internal assets and operations that the company has developed and can effectively deploy, but some of it is due to timing and luck, and the ability of leaders to recognize those opportunities when they exist.

Strategic Analysis: Harvard professor Michael Porter (1996) has famously answered the question “What Is Strategy?” by explaining that strategy is about creating a position for competing in the marketplace; it is about performing different activities from rivals’ or performing similar activities in different ways. He believes “a company can outperform rivals only if it can establish a difference that it can preserve” (p. 62.) And part of preserving that position requires making sometimes difficult decisions: “strategy is about making choices, trade-offs; it’s about deliberately choosing to be different” (Porter, 2007, p 2-3).

Regarding these choices, Porter (2007) says the following:The essence of strategy is that you must set limits on what you're trying to accomplish. The company without a strategy is willing to try anything. If all you're trying to do is essentially the same thing as your rivals, then it's unlikely that you'll be very successful. It's incredibly arrogant for a company to believe that it can deliver the same sort of product that its rivals do and actually do better for very long (p. 3).

NOTE: in the Lime case, given the number of companies trying to compete in the dockless electric bike/scooter market, does any one of them appear to be carving out a “difference that it can preserve”? The answer is that none of them have yet to emerge as a market leader, and several have left the market, such as BlueGoGo.

In order to do an effective analysis, the basic questions any business must answer include the following:

What business are you in? Who are your customers? How are you going to serve them?

What are your business goals, your mission, your vision/values? What resources do you need in order to accomplish your goals? How many? By when? What are your operational needs? What are your inputs, transformation processes,

outputs? (What raw materials will be transformed into what products or services for which ultimate customers?)

How will you assess your capability to deliver quality products or services to these customers? (Will you have adequate feedback systems in place to monitor performance?)

To answer that first question, the enterprise must understand the industry in which it operates. Porter is famous for defining the five forces industry framework, a depiction of the elements that affect an industry’s operation and determine the amount of profit potential in that industry (see Porter, 2008).

The obvious “force” that affects profitability is the degree of rivalry among existing competitors. If there are multiple and aggressive competitors, any incumbent must position itself carefully, as noted above, in order to carve out any advantage. However, there are two other elements that must be considered, as an understanding of these forces can be critical to defending against threats from new entrants into the industry, and substitute products or services that siphon off customers by providing a solution to a given problem that’s cheaper, easier, or more socially desirable.

NOTE: the Lime case states that the industry, the “business” being analyzed, is the bike-sharing/e-scooter market. In this industry, the dockless electric bike or scooter is a substitute for the automobile as an option for transportation in urban areas. It’s possible to include the car-sharing market here as well, since both of these operate with similar business models, with similar infrastructures, and are transportation options that appropriate “share” from the traditional taxi or private car market.

Two other forces are important, with the degree of their influence dependent on the industry: bargaining power of suppliers can affect a rapidly growing industry that depends on certain raw materials; bargaining power of customers mainly affects those industries that use intermediaries to deliver to the end users.

NOTE: in the Lime case there are multiple suppliers of components for creating the bike or scooter, and the end user, the consumer, doesn’t bargain, so these forces are less of an issue.

In 2008 Porter made an important point about the presence of complements, those products or services that can be used together with an industry’s product: “complements arise when the customer benefit of two products combined is greater than the sum of each product’s value in isolation. Computer hardware and software, for instance, are valuable together and worthless when separated” (Porter, 2008, p. 86.) Other factors that need to be considered when evaluating the interaction among the five forces are industry growth rate, the degree of technology and innovation in the industry, and the influence of government and public policy.

NOTE: in the Lime case none of the dockless electric bike or scooter businesses would be able to function without the complement of a smart phone and an app, and they are all subject to public policies established in various urban municipalities, all of which must be negotiated individually. (See Case Exhibit 4.)

Porter stresses that an industry analysis is essential to strategic planning because this analysis provides an overall, systemic view, answering such questions as: “which forces are underpinning (or constraining) today’s profitability? How might shifts in one competitive force trigger reactions in others?” (p. 87.)

NOTE: in the Lime case, changes in technology or consumer needs may create an opportunity for new entrants, who can easily set up shop given the low cost of a startup in this space. Also, as the substitutes from bikes and scooters affect the automobile ride-sharing industry, it creates opportunities for mergers – see Uber’s acquisition of Jump DC, and Ford Motor’s acquisition of Spin. Uber’s partnership with Lime’s scooter business has implications for Bird as well as providing an additional revenue stream for Lime.

In addition to the five forces, the larger macro or general environment cannot be ignored when doing strategic analysis. Peter Drucker was famous for stating the obvious and challenging the status quo. In 1994 he admonished organizational leaders for not understanding their “theory of business”: what assumptions had they made about the environment of the organization, the political-legal, economic, social, and technological realities of the larger context within which they chose to operate (sometimes referred to as a P.E.S.T. analysis); what assumptions had they made about their stated mission and how they envisioned this “making a difference in the economy and in the society at large” (p. 100); and, finally what assumptions had they made about the skills and abilities that needed to be developed in order to attain and sustain leadership in their chosen market?

These assumptions need to be continually challenged. Dess, McNamara, and Eisner (2019) stress that “a firm’s strategy may be good at one point in time, but it may go astray when management’s frame of reference gets out of touch with the realities of the actual business situation” (p. 36). So there’s a need to do continual scanning of the external environment, monitoring those PEST elements and taking action on those opportunities or threats that are most critical to the organization’s future success. Drucker (1994) suggested organizations should periodically challenge “every product, every service, every policy, every distribution channel with the question, If we were not in it already, would we be going into it now?” (p. 102) In addition, Drucker thought it was important to study “noncustomers”, those who get their problems solved outside of the market in which the organization currently functions. A lot can be learned by monitoring market shifts.

NOTE: in the LIME case, the dockless electric bike/scooter market was created by a social shift in urban dwellers – they didn’t want to own cars, and so the rideshare market developed by Uber & Lyft became very attractive, while the increasing congestion on the streets opened an opportunity for personal transportation options like the bike/scooter. This was also attractive to city managers who were wondering how dockless bike/scooter shares could further their goals of safety, equity, and sustainable mobility. On the other hand, the established and entrenched taxi owners had made it difficult for Uber and Lyft by noting the unfair advantage of using “contract” labor rather than directly paid employees. Then the political-legal policy movement toward creating bike lanes made it more attractive and safer to ride; while simultaneously making it challenging for municipalities to determine appropriate regulations – drivers’ licenses and insurance requirements? And what to do about abandoned or damaged vehicles cluttering city lots? In addition the technological advances of smartphones and apps made it easy to engage with these services, while the development of smaller and more efficient batteries made it possible for the electric bikes and scooters to work for everyone. Finally, the price wars made consumers see the economic sense of using the least expensive option.

Given the current intense competition, might existing companies benefit from considering if they should abandon this business, or pivot into another area where the “noncustomers” go? What other options might there be for efficiently and safely moving around in an urban environment, especially for the very young or the very old? What about providing opportunities for low-income individuals and other marginalized communities? An article in The Atlantic in May 2018 reported on “Bird hunting,” a sometimes very lucrative side hustle for teens and young professionals who sign up with Bird as a contract workforce, collecting and charging the electric scooters overnight, returning them to their “Bird Nest” designated pickup areas in the morning – an unexpected and sometimes cutthroat new sideline business, a complement to the scooter enterprise. An ongoing assessment of the factors in the general environment, and developing the capability of responding appropriately to both the opportunities and the threats that emerge – this might be critical to future success for Lime.

Formulation of Strategy: The assessment of the external environment, specifically competition from rivals, drives an organization’s decision about how to compete. Porter (1996) points to the two basic competitive strategies: low-cost leadership and differentiation. The low-cost leader is able to compete on price because it is skilled at keeping costs lower than the competition

while the differentiated competitor can deliver an experience that is unique and hopefully highly valued. The choice of how to compete is also dependent on organizational attributes, those that may be valuable, unique or rare, or difficult for others to copy. Given those attributes that might represent an organization’s capabilities or core competencies, other options might present themselves as operational strengths, such as the ability to compete on timely delivery of products or services, or ability to quickly assess and respond to changing market conditions.

C. K. Prahalad and Gary Hamel pointed out in 1990 that “in the long run, competitiveness derives from an ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products” (p. 81, emphasis added). And these competencies are developed over time and can include proprietary engineering expertise that can be applied as solutions to multiple problems; skillful allocation of key resources to the most promising products or services; integrating activities so that economic value can be created and maintained as products and services move along the “chain” from raw material to consumer use; well-developed and nurtured relationships among alliance partners; and visionary leadership that inspires innovation.

Organizations need to effectively manage the value-creating activities in order to attain a competitive advantage. Ability to control costs leads to the choice of a low-cost leadership strategy, while ability to quickly assess consumer needs and respond with unanticipated products that delight customers allows a company to create a differentiated advantage. If a firm can provide unique value to the customer in an efficient manner, this can be the best of all possible worlds. On the other hand, failing to adequately control costs, or being unable to create a distinctive brand image in the mind of the consumer, therefore always having to adjust prices and struggle to stand out from the crowd – this can result in a firm being “stuck in the middle”, unable to break out of a declining death spiral. What might it take to become the product or service of choice in a given market? As Porter said, there must always be trade-offs.

NOTE: in the Lime case, it seems none of the existing competitors have been able to establish a break-out position. Lime, like many similar businesses, started in California where the weather and laid-back lifestyle was welcoming to the idea of an affordable, efficient transportation option. Although it’s not clear from the case, it appears Lime had the financial resources and connections to equipment and infrastructure to rapidly expand to multiple markets. In addition, Lime had the foresight and resources to respond to the market demand for scooters, allowing it to directly compete with Bird. However, the rapid growth and increase in its employee base from 50 to 400 in just one year may mean difficulty in managing the human resource, resulting in uncertain priorities and uneven service response.

The case mentions how Lime has invested in higher-quality bikes – and the lime color helps establish brand recognition – while the company is also aware of the need to partner with municipalities, helping them achieve their goals by sharing aggregated usage data. In addition, outreach to the riders with education about safety and bike drop-off may help with the image among non-riders in the neighborhood. All these may mean Lime can signal its added value to the market, but the price wars, i.e. scooters that cost the consumer less than $2 per ride, may make it difficult to realize any significant profit, especially when vandalism and bike theft erode Lime’s assets’ value.

Has Lime fully acknowledged the shifts in its market, and is it positioned to adapt to the future where people can use “one app” to hail either a scooter, a bike or a car? Its partnership with Uber may be a way for both companies to find a competitive niche.

Discussion QuestionsSince this is best presented in the initial weeks of a strategy course, the questions should

revolve around an assessment of the current industry environment and provide students an opportunity to decide whether Lime is adequately positioned relative to its competition.

1. What business is Lime in? What appears to be Lime’s mission, its vision and values? Who are its customers and other stakeholders, and how does Lime intend to serve them?

2. Assess the influence of industry forces on Lime’s business model.

3. Has Lime done an adequate job of assessing the factors in its overall environment? What are those factors and how has Lime responded to them?

4. Does Lime appear to be able to outperform rivals by establishing a difference that it can preserve? Does it have a sustainable strategy?

5. OPTIONAL – do a search in current news and report on the trends you see affecting urban transportation. Which ones do you think have the most potential for a profitable business investment? If you were going to pick a problem to solve, which one would you pick and how would you proceed?

Discussion Responses1. Use the teaching note Strategic Analysis commentary to respond. Lime is essentially in

the business of urban short-distance personal transportation. According to the case, Lime seems to care about being a good “neighbor” and taking care of discarded or vandalized bike/scooters, responding to neighborhood complaints, as well as partnering with municipalities to share data about transportation options to help reduce traffic congestion and give urban residents cost-effective transportation choices. Lime seems aware of the environmental impact of its service, and sees municipalities and local communities as key stakeholders. This willingness to engage with the community might be a way to carve out a differentiated position.

2. See the teaching note Strategic Analysis commentary for the Porter Five Forces Analysis of the bike-sharing/e-scooter market/industry. Key is realizing that the rivalry and threat of new entrants creates a constraint on profitability, and awareness of current or future substitutes may be critical. Include mention of complements.

3. Analysis of the larger general environment shows that Lime needs to be aware of multiple external factors. Use the teaching note Strategic Analysis commentary to point out the influence of political-legal, economic, social, and technological factors. All play a role and need to be continually assessed. Include mention of Drucker’s point about the necessity of unpacking assumptions.

4. Use the teaching note Formulation of Strategy commentary to respond. So far Lime does not appear to have formulated an effective strategy. Although it’s not clear in the case, Lime appears to be maintaining parity on price, but, just like its competitors, it’s suffering from having to deal with the costs of vandalism, theft, and complying with municipal regulations. Regarding its ability to differentiate in the market, the only thing that seems to stand out is the lime green color of its vehicles and the warning message that the scooters play, threatening to call the police, at high volume, when tampered with. It’s not clear Lime has a strategy that will allow it to sustain a competitive advantage.

Teaching StrategiesThis case is about a new approach to urban transportation, one that many students may know

something about. Therefore it’s possible to begin with an icebreaker:Ask students for a show of hands - how many have used Uber or Lyft? It’s likely that most

students are familiar with this ride-sharing business model. Remind them that the app-based car-hailing services companies rapidly gained in popularity, but not without controversy, and outcries from traditional taxi services, and claims of abuse and unfair wage practices from the contract-labor drivers. Now, the dockless electric bike or scooter is adopting the same app-based model but without the need for hailing a driver. Does this seem to be an obvious and attractive transportation option?

Ask students for a show of hands – how many have seen these bikes or scooters in their environment? Depending on where students live, they may have seen these in urban areas, especially big cities such as New York and San Francisco, or on college campuses.

Ask students how many have ridden one? If students have had direct experience, ask them how it’s different from other modes of transportation.

It’s possible to put a list of pros and cons on the board: for personal cars where the driver has full autonomy, to taxis where the system is well-established and regulated (in most cases) to be fair to the taxi driver/owner, to car-sharing where the price is negotiated up front with full transparency and the driver is contracted with little income protection, to bike-sharing/scooters where bikes and scooters share the road with cars and the rider takes all the risks yet the cost to ride is much lower. Categories to assess strengths and weaknesses could include the following:

Comfort, safety (chance of injury to person or property), efficiency (less waste of time or other resources), cost, autonomy (you can decide what to do when), social good (less pollution or congestion), and fun! Which option is most attractive to students, under which circumstances?

This should illustrate to students that although the emergence of companies such as Lime might seem an exciting and novel development, there are trade-offs to be made. Not every option is best for every circumstance, and it’s hard to decide which option has the chance to make the most profit, overall.

REFERENCES AND SUGGESTED READINGS

Dess, G.G., McNamara, G., & Eisner, A. B. (2019). Strategic Management: Text and Cases. 9th edition. New York: NY: McGraw-Hill Education.

Drucker, P. F. (1994). “The Theory of Business”, Harvard Business Review, 72(5): 95-104.Lorenz, T. (2018). “Electric Scooter Charger Culture Is Out of Control”, The Atlantic, May

20, available at https://www.theatlantic.com/technology/archive/2018/05/charging-electric-scooters-is-a-cutthroat-business/560747/ (accessed September 28, 2019).

Porter, M.E. (1996). “What is strategy?” Harvard Business Review, 74(6): 61-78.Porter, M.E. (2007). “Michael Porter’s Big Ideas”, Fast Company, Vol. 44, December 19,

available at http://www.fastcompany.com/magazine/44/porter.html (accessed 6 August 2018).Porter, M.E. (2008). “The five competitive forces that shape strategy”, Harvard Business

Review,86(1): 78-93.Prahalad, C.K. & Hamel, G. (1990). “The Core Competence of the Corporation”, Harvard

Business Review, 68(3): 79-91.