On Thursday, Brad Bao, the CEO of San Mateo, California-headquartered shared electric-scooter company Lime, announced
in a blog post that the company has decided to halt its accelerated global expansion and pull out of 12 markets. In the process, Lime would likely lay off dozens of people. In his post, Bao set Lime’s goal at achieving financial independence and stated the company had shifted its primary focus to profitability. Lime is not alone. Its biggest rival, Los Angeles-headquartered Bird Rides Inc., already announced 5% cutbacks in personnel last year, but without forgoing any of its markets.
Lime and Bird’s downsizing can be seen as the lesson they took away from Uber. Over the past three years, the ride-sharing giant has raised billions of dollars in investments for swift expansion, which resulted in a disappointing initial public offering (IPO).
In the growing micro-mobility sector, Lime, founded in 2017, is considered a veteran. It started as a shared-bicycle service but was quick to pivot a year later to follow the growing e-scooter trend led by Bird. Lime quickly became a significant player in the sector, fueled by significant investments and exceedingly high valuations. Like Uber, Lime and its rivals used the money thrown at them by investors for rapid entrance into new markets, valuing the notion of being pioneers over bottom-line profitability.
Uber may not have invented this method, but it was undoubtedly one of its most prominent practitioners. And, when shared e-scooters took city streets by storm two years ago, it appeared to be working out perfectly, with Uber—which operates its own shared e-scooter service, Jump—being at the top of its game. But, unlike Uber, Bird, Lime, and their rivals had to fend off not just small-time local competitors in their new markets but also each other.
By now, it is evident that this reckless expansion model is not sustainable. Perhaps the biggest hit to the sector happened as more and more cities pushed back against the e-scooters’ blitz attack, by imposing restrictions on shared micro-mobility services. New regulations now include limiting the number of vehicles per operator, restricting parking, and requiring license plates to be installed. Complete with strict enforcement, fines, and confiscation of vehicles, these elements made indiscriminate entrance to new markets impossible and activity in existing markets more difficult and expensive.
But the real deal-breaker came with Uber’s IPO in May. Uber came into the endeavor at a valuation of $120 billion and soon plummeted, finally reaching its current market capitalization of just $58 billion. The lukewarm reception Uber got on the New York Stock Exchange was a direct result of its prospectus. The document showed that behind the massive growth was a shaky financial model, based on large cash infusions meant to cover billions of dollars in losses, without offering a clear path to profitability, barring another massive investment.
Uber was not the only company to be caught red-handed in this way. Its main adversary, Lyft, suffered a similar fate on the exchange. Shared real estate company WeWork was nearly run down to the ground by its prospectus, forcing it to cancel its planned IPO, fire its founding CEO, and eliminate all non-core business. Eventually, it was sold for parts to its largest investor SoftBank Group at a fraction of the market cap it hoped to reach.
Uber was, however, the most significant role model for Lime and other micro-mobility companies, and its failed strategy had the most direct effect on them. These companies have likely found it more challenging to raise funds in the last year. Even if their investments did not suffer, Uber’s downfall was enough to demonstrate that speedy growth with a damn-the-loss attitude is not a sustainable model. It is time for these companies to switch to a more conservative strategy that includes a business plan with actual profitability goals and a realistic cap on expenses. Lime is the first in the sector to take a significant first step to transform its operations. It will likely not be the last.