InvestmentsMay 9 2013

In the driving seat

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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.