How (not) to start an eBike subscription business
A subscription business with monthly recurring revenue and customer retention of 100%? so what’s wrong?
Like so many other people, during the first lock down I decided to take the plunge and set up a new business. An e-bike subscription service.
The Inspiration
During my time studying for an Executive MBA at I was inspired by so many causes and people that business ideas were a dime a dozen. I was involved in a couple of initial ideas (more on these later) that didn’t get off the ground but one particular source of inspiration stuck.
These images of bicycle graveyards made me sick to the stomach. I love bicycles generally, so figured this could be an opportunity to marry my hobby, the possibility of making a positive impact and a potentially good circular-business around the needs and time commitments of home life.
Bike share schemes are good but there is evidence to suggest they cause more environmental harm than good. In fact, some researchers suggest that the embodied carbon in a new bicycle mean that they need to be used for at least 2 years before becoming carbon neutral. One way that I wanted to address this was to up-cycle pre-loved bicycles and convert them to eBikes.
During early research I came across this amazing charity and spoke to one of the nicest people you could imagine about my initial feelings about the bicycle graveyards and the emerging eBike subscription sector. During this call it started to become clear that this charity could be a great supplier for New Bike Team. The bikes would be bought at a standard rate (the same that anyone can get one for) so that they can continue to support the work they do in Malawi, we get very well priced donor bicycles for our eBikes with a great story. Everyone is a winner.
The bikes have already travelled thousands of miles as postal service bikes, therefore have already offset their embodied carbon before we introduced them to our fleet. Not only that, for every bicycle we put on the road, through Cycle of Good, one would get sent to Malawi to support social enterprise on the ground.
I’d learned about real world examples of the elusive profit with purpose at London Business school and was totally inspired and believed I could do it too.
I service my own bicycle(s) and those of my partner and kids, have built a few from scratch and renovated one or two. I’m not a mechanic by trade, but fuelled by enthusiasm and inspiration to make the world a better place through cycling I had to see if I could take one of these machines and convert them to an eBike. This was, in my mind an obvious place to start. If it was not possible to create a great eBike from up-cycling pre-loved bikes then the whole concept would fall on its face.
Hypothesis: We believe it is possible to build a great quality eBike by up-cycling a pre-loved regular bicycle.
So I had proven the first hypothesis. This was my first mistake.
The bike build did not take very long, however, had I focussed on looking at the market first my focus would have been more on whether this business could work as opposed to, now we have a bike, let’s make it work. I was slowly building in a sense of bias and setting myself up to fall victim to the sunk cost fallacy.
At the time I didn’t think that was the case. In fact, now I had a quality eBike what I needed to do now was to carry out user research to try and understand peoples problems. Recognising that I needed to bring some order to what had so far been a rather unstructured process I decided to carry out some user research.
Customer Research
My screener was very broad — including people who cycle or are interested in cycling either as a functional mode of transport or leisure riding.
Through face to face (Zoom) interviews and a quantitative online survey I gleaned for following insights:
eBikes allow ‘older’ riders to get back to cycling or to cycling in hilly areas
People who ride non-electric bikes are eBike curious
eBikes are considered expensive
Maintenance is a hassle and service provided by local bike shops can be hit and miss
This customer profile represents end users of the service as opposed to businesses who may wish to hire fleets of eBikes and led to the core value proposition:
eBike experience as a service using up-cycled bicycles
Hassle-free all inclusive month-to-month membership for an affordable price
High quality, eBike using an up cycled heritage bicycle
Lock, insurance, maintenance and roadside recovery included
First paying Customer!
It was during the initial research phase that my second mistake was made: Once the interviews under ‘research conditions’ were over, conversation turned to more incidental matters including, what sparked the research and inspiration. Once participants’ heard the story a few decided they wanted to order a bike and sign up for a subscription. Arguably, I allowed myself to get carried away, flattered even, by the desirability of the product and go ahead and set up my initial subscriptions.
Desirability, Feasibility and Viability
In more than one case, research led to making some great connections and sales leads with larger organisations including last mile delivery company’s, local councils and schools. It was clear that there was scope for making a success of the business and it was desirable but was it feasible or viable? I needed to run some experiments to find out.
Early on we had established that it was feasible to build eBikes from up-cycled bicycles but there were many other questions left unanswered. The green labels represent viability and red labels represent desirability.
This execution of the assumption mapping exercise created more challenges than it solved and became mistake number 3
Firstly, when you use questions on your assumptions map, you lose focus. When testing desirability (Do they want this?) For example “Do people like the idea of a hassle free sustainable eBike subscription” is far too broad and becomes difficult to test. If you want to hear from one of the masters of assumption mapping check out David Bland’s post on the topic.
Assumptions should be stated as hypotheses. So, if that had been the case here I could break down that question in to at least 3 testable hypotheses.
- We believe that our customers will sign up to an eBike subscription service that includes servicing and maintenance
- We believe that our customers will sign up to an eBike subscription service that includes insurance and lock
- We believe that our customers value sustainability
Exactly how these statements should be tested are not the subject of this post but definitely check out Alex Osterwalder and David Bland’s book on Testing Business Ideas if you are keen to read more about best practice.
Broadly, this demonstrates that my overall testing approach was flawed. I was trying to test the overall business, by starting the business in its entirety, because I allowed myself to get carried away with the challenge and the fun of it. This goes against testing best practice, however, I bet many 000’s of businesses are started in this way!
Viability
We spent a great deal of time pouring over spreadsheets trying to model the business from a financial perspective. The monthly subscription fee went up 3 times — with customers brought on at each level. It was very clear that the business was always going to be operating a very low profit margin and would take quite some time for each bicycle to break even. The costs were higher than initially thought once every thing was taken in to account such as electric motors, fully comprehensive insurance, roadside assistance, locks, regular maintenance upgrades and local mechanic fees. We also looked at other competing services for comparison. By this point we had a very clear view on the costs associated with an eBike subscription business, but not comprehensive. Driven by a need to provide this service at the lowest possible cost meant that there was always going to be very little room for unforeseen issues and that cashflow was going to look very bad for the first 3 years at least, which would make it difficult to seek funding. Funding of some kind was going to be essential at some point for this business which by its nature was very capital intensive.
Feasibility
As the customer base built up so did the network of bicycle mechanics. In theory it made sense — customer service had to be central to the proposition and so to support our customers, we needed to have local bike shops that were willing and able to take customer bikes and service them with clinical precision and top notch customer service. This was one of the areas of the business that was very difficult to test theoretically.
At one end of the spectrum there was an excess of local bike shops, the challenge was finding ones with capacity to take bicycles in for servicing and at the other end of the spectrum was a lack of local bike shops and geographical challenges of getting bicycles to customers and mechanics.
We had customers the length of the UK from the Outer Hebrides to Bristol as well as in London.
The geographical spread of customers was mistake number 4
Starting hyper local would have given us a chance to test some of the assumptions without all the overhead of connecting with local bike mechanics around the UK. However, if we had done that and hit some of the geographical challenges at a later stage, say, after taking investment, that could have ended up in the business failing in any case.
Gathering Evidence
I carried out 3 experiments beyond the initial building of bike #1 and the research phase. Each experiment tested the entire business in one go, they either took the form of adverts or direct conversations on LinkedIn. While it is possible to test desirability, feasibility and viability in one experiment, the difficulties arise from understanding why or why not the experiments do not get the results you expect. For example, the advert placed in a local school newsletter didn’t get any responses. Was this because the price was too expensive? Or because people do not want an eBike? Or something else?
The fact that one of the experiments got zero responses should have been enough to stop and take stock of the situation to look in to the Why, to understand what was going on and why the hypothesis was wrong, however, by this point I had customers who were very happy and ignored the warning signs.
Being clear and as granular as is appropriate with your hypothesis is critical.
External Validation
The world of start-ups is full of people and organisations who can help you on your way be it, pre-accelerators, accelerators, incubators, grant programs and investors. If you know where to look there are always opportunities to get your start-up out there. New Bike Team was fortunate enough to get a place on the Better Futures program which provides support to young businesses across a variety of areas. It was indeed helpful and inspiring. The biggest benefit for me personally being part of a program like that is that you are part of a community of like minded individuals and it feels like validation of your start-up. If other organisations believe enough in your idea then it spurs you on, however, this may not be the most appropriate outcome if you need to stay objective whilst running scientific like experiments. A continued sense of confirmation bias builds and reluctance to let an idea go if it is not returning the results you know are needed to build a sustainable business.
All our customers seemed to love the idea and were strong early adopters and we thank them all, of course. Due to the early stage of the business they all received a very personal service, which was not going to be sustainable long term, so our energy had to turn to looking at how would we support the customers if and when it started to grow, a critical question for any business. Another major factor in our next step was to understand where funding would come from.
Funding & Tough Decisions
In order to scale it was imperative that we could build a network of quality mechanics. I spoke to many different local bike shops across the UK in an attempt to build this network and while we did connect with some quality mechanics it soon became clear that our ability to do this was impacted by geography. If I could spend time visiting local bike shops and getting to know the proprietor a stronger relationship would be built — obvious really!
Funding was also key. The business was bootstrapped all the way, so to grow to a point where the number of bikes on the road get to a critical mass — and the monthly revenue was able to support incremental growth there first needed an investment of cash.
There was no shortage of people and organisations who were keen to have conversations about providing investment — and when you get approached by investors it is easy to get carried away and view this as more external validation, however, there was always the catch, some kind of a fee or subscription that needed paying in order to access their ‘investor network’. Furthermore, I was keen to avoid taking VC cash because I knew that the chances of finding an investor who would accept that my priority was my family — not the business (e.g. dropping kids off, picking them up, doing dinner, bedtime etc) giving just a few hours each day would be slim. Even if there was such a VC at the time, it would mean giving up such a large portion of the business that my motivation would be impacted.
There are other options to finance a business of course, for example, Grants and Loans including asset based financing. Asset based financing is where you borrow money against the value of the assets you are purchasing with the cash. Whilst sitting through Asset Based Finance presentation the subject of financing up-cycled products emerged. Some financiers may require security for a loan if the assets you are securing are outside the norm (including up-cycled products that are hard to value).
Was I willing to bet our family home on the business? The answer in this case was no.
And this was the beginning of my journey to finalising my decision. We’d have to build the business very slowly and incrementally — however there were already warning signs that the business wasn't working…More than expected costs to visit customers, mechanics and spare parts eating in to the margin. As more bicycles were on the road, the more things we noticed needed attention for each bike. The technical challenges were easily solvable but at this point the reliance on 3rd parties to provide the best possible customer service was becoming unsustainable. I often found myself having to pick up issues directly and in one case a made a 250mile round trip to a local bike shop only to be told that the parts they I had ordered had been lost; parts we needed for a customers new bike order.
Our options were to brush these issues off as growing pains, or face the music.
These operational challenges became the final straw when there was already such tight margins. As a profitable business, it wasn’t going to work.
The mistake #5 was building the business so that I could prove or disprove the hypotheses:
Hypothesis: We believe we can rely on 3rd party bicycle mechanics to provide a timely and quality service.
Summary & key learnings
Mistake #1 Building something real before doing any market/customer testing.
Mistake #2 Selling subscriptions during the research phase.
Mistake #3 Mis-stated assumptions.
Mistake #4 Too geographically spread.
Mistake #5 Building an entire business to prove or disprove operational hypotheses.
It was over a year ago that I had some advice about breaking down assumptions to smaller testable hypotheses and it was clear back then that my approach, unless I changed it (and listened to the advice!) was unlikely to prove fruitful. If you are interested in seeing my journey to that point and the advice given to me in front of a panel of a couple of thousand people (aka getting grilled) it’s here:
However, since that point the customer base grew organically — inbound requests included enquiries from businesses and a council for fleets of eBikes. This proved to be a distraction and allowed the dream to carry on without facing some hard truths around operational issues that may have come out sooner had I ran smaller tests around operational side of the business.
It got to the point where we were servicing a growing customer base without stopping to ask ‘Is this really working?’.
My single piece of advice if you have an idea for a business
Despite the mistakes along the way, I do not regret getting out there and having a go. Don’t be shy — get out there, talk about what you're doing and go for it. Be careful not to get too close to your idea like I did. The journey was fun, I learn’t a lot but now I am taking a moment to consider what’s next.
Methods and processes provide frameworks, but don’t be dogmatic. I spoke to so many people who mirrored my enthusiasm which makes objective consideration difficult. I like to think I am not a complete beginner at this stuff, but even if I am, everyone has to start somewhere, and that is what you should do if you have an idea.
Nothing ventured nothing gained, right?
This article doesn't contain every detail of the journey, if you are interested in chatting in more detail about any of this, get in touch. I’m always up for sharing my learnings!
Thanks
There are so many people and organisations that have had an influence on the journey of New Bike Team but mainly I would like to thank all our customers.
Together we tried to show that e-Bike rentals did not have to rely on pulling more raw materials out of the ground only to end up in landfill.
