‘You’ve got to have a high pain threshold’ to work in a fast-moving private equity-backed business, says Addison Lee’s CEO Andy Boland. As a Manchester United fan, he must be pushing that threshold a lot at the moment.
Formerly CFO of the AA, since last year Boland has had the unenviable task of squaring up to Uber, one of the most well-funded private companies in the world – and one that’s known to take no prisoners in its relentless pursuit of market share. The San Francisco tech firm (can you call it a start-up when it’s been valued at more than $60m?) is growing fast the world over and has caused massive headaches for minicab firms and regulators alike.
Formerly a family business, Addison Lee was bought out by private equity firm Carlyle in 2013. After initially joining as CFO, Boland replaced the founder’s son, Liam Griffin, in the top job last year. ‘When I took over as chief executive I had a tremendous feeling of no longer being the back-seat driver,’ he says. ‘Good CFOs actually have involvement right across commercial decision-making in businesses – it wasn’t quite the leap in change that you might envisage.’
Barring its capitulation in China, a few upsets in continental Europe and its exile from Austin, Texas, Uber’s expansion has been rapid and unrelenting. It has 10s of thousands of drivers using its app in London alone, making it a formidable foe for ‘Add Lee’, which used to be the capital’s largest private hire firm by far. You can see that in its latest results – it managed to maintain roughly flat revenues in the year to last August but profits were down around two thirds to £11.6m. That’s seemingly £11.6m more than Uber made in London in the same period, but it does suggest it’s a challenging market to be in at the moment.
While Boland admits Uber’s entry to the market has ‘had an impact’ on the company, its finances have been insulated to an extent by its dominance of the capital’s lucrative B2B contracts. ‘Add Lee serves the London economy,’ he tells MT. ‘Banks, financial services institutions, professional services, lawyers, accountants, management consultancies, 70 of the FTSE 100, right down to the core SME economy. Behind those customer names are many millions of potential passengers.’
Of course Uber would like a slice of the B2B pie. Its Uber for Business service is already available in London, it has signed up clients including Barclays and Deutsche Bank and is also offered as an option by business travel booking companies like Carlson Wagonlit. Its cheap prices are sure to be a lure for some but Boland is sceptical that Uber can become the go-to for business travellers - at least for so-called ‘managed spend’ (booked centrally by the business itself rather than taxis expensed by employees).
‘We haven’t lost a customer to Uber,’ he says. ‘I think they’ve got a financial problem going head on in the business market because they’re not providing a managed service. They are an app that matches up drivers and customers. What they don’t say is they are taking responsibility for that customer from start to finish.’
Of course there’s a danger that Uber could offer a more premium service to B2B customers in the future. But its whole modus operandi, and what makes it so valuable to investors, is keeping costs as low as possible. It has plenty of investor dollars to spend on product development and marketing (as well as lobbying and legal fees...) but good luck getting hold of someone on the phone if your car doesn’t show up and you miss that important meeting as a result.
Boland wants a bigger bite of the B2C market too. Though competition there might be fiercer he says underlying growth in Addison Lee’s consumer business is now around 10-15% year on year, which isn’t too shabby at all. He credits that largely to its embracing of new technology. ‘Before the acquisition by Carlyle we were probably spending £2m-3m per year on tech development. Now our run rate’s about £12m.’
While the many small private hire firms that existed in the capital before Uber are now in great peril, Addison Lee was fortunate in that it was already operating at scale, making it easier to take advantage of new technologies. Most of the 25,000 rides it provides each day are allocated automatically - ‘If we didn’t have that system we’d need an aircraft hangar to do it’ and it’s able to cover the whole of London in a way that a local firm with 50 drivers on its books simply wouldn’t be able to.
The changes Uber has brought to the market have created a headache for the people in City Hall and at Transport for London, which is responsible for regulating private hire vehicles. Drivers of black cabs have been pushing for greater regulation of the private hire market and particularly of Uber, which they argue is undercutting them by flouting the rules. Earlier this year TfL capitulated to some of their demands, saying it intended to force private hire drivers to pass tests of their English skills and knowledge of London’s geography, and to hold commercial insurance even for times they are not working – all of which Uber has complained about in the strongest possible terms. You might expect Addison Lee to resist tighter regulations too, but Boland says Uber is ‘on the wrong side of the public safety argument.’
‘Our colleagues at Uber are objecting to that because frankly they don’t meet those standards so it would make their business model difficult,’ he says, not missing an opportunity to tout the supposed quality of Add Lee’s drivers all of which, he adds, are trained for two or three weeks. ‘We invest a lot in driver recruitment, training and management – they don’t have that because they just see themselves as a technology platform.’ That also helps it to retain drivers. Some were lured away to Uber, which offered big incentives for new starters, but’ ‘our driver numbers have been in growth for some time now.’
Read more: Will Uber destroy traditional minicab firms?
Of course there are plenty who think the days of taxi drivers are numbered. Most of the big vehicle manufacturers are ploughing cash into autonomous cars and just last week Uber began trialling driverless taxis in Pittsburgh, Pennsylvania. Could Add Lee’s drivers soon find themselves out of a job?
‘Not for a while, I don’t think,’ says Boland. The company hasn’t been ploughing tonnes of its own cash into the technology as Uber has, but has been working in consortium with some manufacturers and consultancies to look at how it could change the taxi market. ‘Clearly the raw tech is ahead of the application of that technology at the moment. Give or take, driverless cars are here today. How they get deployed on the road in a hybrid world of drivers and driverless cars, how they’re insured, who takes responsibility, those are facets that will need to play out over time.
‘Clearly brand, customer relationships, ability to deploy vehicles and maintain them are all relevant for a world where that technology evolves and comes into play. I don’t think Uber or anybody else has got any greater credentials to say they’re going to be the beneficiaries of the technology than Addison Lee.’