I wrote recently that making excuses for failure in business, such as the competition created by the internet, is in many cases hiding behind a failure of strategy and accepting the need to adapt to survive. But perhaps even more important than that, in my view, is recognition of the fact that in any industry, well-managed businesses can thrive and dominate: no industry is truly commoditised. I explained this in terms of Moleskine and the company’s ability to create value from something as commoditised as paper. But this was about creating a luxury, premium brand, whereas in this article I am going to focus on a far more commoditised industry – that of the minicab.
I am thinking about minicabs this week because recently Addison Lee was sold to the Carlyle Group for some £300m. This, a business started in the 1970s and now run by a father and son, has sold at a price that many mid-sized fund management firms would dearly love to achieve in a sale of their businesses, and yet the company fundamentally just operates in a crowded industry with few barriers to entry. So why has Addison Lee succeeded, and what lessons can be learnt by companies in other industries?
First, not all cars are created equal, and Addison Lee has realised (perhaps as Premier Inn has with hotel rooms) that the familiar is the best option – having the same car for all drivers makes the business recognisable even without a logo (which is hardly subtly placed on the rear of the cars) but also means you know, as a customer, what to expect. And by regularly changing vehicles, the potential customer can also be certain that they will not get some old and unreliable vehicle transporting them. So consistency is important, and has no doubt helped gain market share from the traditional taxi – which can be much older and in worse condition than the average Addison Lee car.
Second, and perhaps more importantly, Addison Lee understand technology. The single biggest cost to the company is unused vehicles with drivers sitting idle. Using technology to assign vehicles to the nearest available job, and of course to know where they are going and so where, and probably when, they will be somewhere for another pick up, is a means of maximising efficiency. However this is not free: there are substantial costs of investment and it is only the visionary entrepreneur who will accept these costs and reduced profits in the shorter term to deliver long-term efficiency and so higher long-term profits. Too may businesses starve themselves of investment in the short term to deliver returns, when investing for the future would give a substantially better long-term outcome. Addison Lee’s tightly-held ownership helped here – it is much easier for a few large shareholders to agree on a long-term investment plan than for a large and disparate group of owners to do so.
Third, and perhaps most importantly, Addison Lee is not afraid of self-promotion, and certainly seems to believe that “all news is good news” when it comes to growing its business through media coverage. From arguments on the use of bus lanes, to the launch of an Addison Lee private jet chartering service, it has consistently grabbed headlines. And not only has its cigarette bins with large logo become ubiquitous across much of London, it created additional media coverage with Westminster City Council ruling that they could not be used on the grounds that they were “excessive” in their advertising content. Fight-by-media with cyclists has likewise generated a lot of (free) publicity, and the use of an in-house magazine, available in each car, reinforces Addison Lee as a brand and not just as yet another commoditised minicab firm.
The one thing I have not mentioned yet is price, and that is not accidental. The fact is that I do not think Addison Lee is cheap – it is a premium-priced minicab firm, yet dominates the market through other means, such as clever use of technology, product differentiation and relentless self-publicity. Perhaps we in financial services can learn something from Addison Lee. We live in a world in which the pricing of both investment management and financial advice are under increasing pressure. Instead of simply buckling to what we see as the inevitable, those firms which offer a premium investment management service, or premium financial advice, should have the courage to charge what they think is good value, but not cheap. In a race to the bottom on pricing, the only loser is the consumer, as quality will suffer. I have not seen Addison Lee skimping on quality, and that is why it is at the top.
James Bateman is head of multi-manager and multi-asset portfolio management for Fidelity Worldwide Investment
