April 22nd, 2018 | By: The Startups Team | Tags: Stories
Several years ago, we joked that Lyft’s investors— a motley crew that includes Japanese conglomerates, billionaire hedge funds, other ride-sharing startups, sharp elbowed activists like Carl Icahn — and major venture capitalists like Andreessen Horowitz, Founders Fund and Floodgate — as the coalition of billionaires investing against Uber as much as they were investing in Lyft.
On October 19, another one joined the ranks: Alphabet — Google and Waymo’s parent company — lead a new $1 billion Lyft round. The same one embroiled in a multi-billion trade theft lawsuit with Uber. The same one that was once also an investor in Uber. This has never been an industry where allies stay allies forever. And Lyft’s co-founders John Zimmer and Logan Green have long been “the nice guys.”
The nice guys have certainly seized on the moment as Uber’s scandals have mounted. When stories of sexism and misogyny at Uber began to hit the mainstream — we sat down with Zimmer to discuss the company’s early days and how those “nice guys” survive in such a cut-throat industry.
The Startups Team: Ride sharing is the most fascinating part of mobile first. It is the most fascinating part of certainly, the sharing economy. It is the most fascinating part, and one of the most highly valued and highly funded part of Silicon Valley now.
We want to talk about Lyft’s story. A lot of people don’t know the whole back story. It started as Zimride, which was actually not named after you, correct?
John Zimmer: That’s right, yeah.
The Startups Team: What was the whole early genesis of the company?
John Zimmer: Logan Green, my co-founder, and I didn’t know each other at first. Logan grew up in LA. He hates traffic because he grew up in LA. From an early age wanted to eliminate traffic.
He went to UC Santa Barbara, where he got really into transportation. He was always into tech and building things. He built the first car-sharing program at UC Santa Barbara, before Zipcar was there. He built it from scratch. He got the attention of the local transit board and they elected him to the transit board. He was the youngest member and he was the only person who rode the bus on the transit board.
The transit board decides the budget for the buses, a multi-million dollar budget. He quickly realized it is the worst business imaginable — public transportation. The amount you pay to get on the bus in general across the country covers about 30 percent of the operating costs to run it, and so it’s subsidized by taxes.
It’s broken, because it’s not going to get better. It’s not politically feasible to continue to raise tax revenue to fund public transportation.
That’s really frustrating. Then he goes to Zimbabwe. He finds people, like in many developing countries, sharing rides out of necessity — private micro-entrepreneurs in their private vehicles — and gets inspired and starts building a website he calls Zimride, after Zimbabwe.
On my side, I grew up on the East Coast. Grew up in Greenwich, Connecticut. It’s a very finance-oriented town.
As a kid, I was trying to figure out…everyone’s like, “You should go to Wall Street.” My parents weren’t in banking or finance, but a lot of people in Greenwich are. I was conflicted from an early age of “Do I do this supposed path that you’re supposed to go down, or do I do something different?”
I’d always been interested in people and hospitality. My first job was at the Hyatt Regency in Greenwich. I was a phone operator.
After working at a Hyatt I got really interested in hospitality, because there’s this great combination of business and people and service. I went to Cornell Hotel School, studied hospitality there. Really enjoyed the program, and then by my senior year had finished up most of the hotel courses.
There was a wines class…There was a culinary theory class where we had to cook for three hours in the morning. But there was also a lot of finance classes and real estate classes.
In my senior year, I took a class outside the Hotel School in the School of Architecture, Art, and Planning called Green Cities. I had this amazing professor who became a close friend. He officiated my wedding seven months ago.
His first lecture was “The History of the World in 30 Minutes.” I don’t know how many of you have read the book “Guns, Germs, and Steel“, by Jared Diamond, but it was very similar to that book in that in his first 30-minute lecture, he tells you world history in the most simplistic form, talking about disease, resources.
And at the end of the lecture, he says, “We’re at a turning point in world history. Our resources are becoming more and more limited. Our population density in our cities is rising rapidly. For the first time in history, today more people live in cities than not. The infrastructures that exist in our cities were built decades before these two patterns were true, and if we don’t do something about it, we’re going to have major economic, environmental, and social challenges going forward.”
“And if you don’t think this is the most important thing you do this semester, taking my class, don’t come back.”
That’s how he ends his first lecture. Total mic drop.
The Startups Team: That sounds like something Shonda Rhimes would write. Did he write on a chalkboard angrily?
John Zimmer: Yeah, he was slamming it. It was neat, because he was so passionate, not just about the academic nature of the class, but about us taking what he was teaching and doing something about it, so I got really fired up. I went back. 30 percent of the people didn’t show up for the next class.
He also scared you with how much work he was going to give you. We didn’t have enough seats, so he had to scare off 30 percent.
I think it was like his eighth lecture, he gave a talk on transportation history, and this, to me, was the spark that got me really excited about transportation. He talked about the history, and he had these images of canal infrastructure, railroad infrastructure, highway infrastructure. This was in 2006. I was a senior.
I started thinking, “OK, he lays it out again, just like he did the history, the first lecture.” He lays it out so simply, you start thinking, ‘What is the next slide going to be 10 years from now?’ I’m sure when they built the canals in the 1800s, the people that are building it weren’t thinking, ‘Hey, no one’s going to use these in a few decades.'”
I’m like, “What’s gonna be that case 10 years from now?” Because I was looking at physical infrastructure, I thought, “It’s gonna be physical infrastructure,” but then quickly realized…I couldn’t imagine Manhattan or a large city not having roads.
I started thinking about hospitality. The main metric we always talked in the Hotel School was occupancy. I asked him, “What is the occupancy of the seats in cars on our highways?” He said, “It’s under 20 percent. Over 80 percent of the seats are empty.”
In a hotel, that’s failure. I thought, “Maybe instead of physical infrastructure, the next evolution of transportation is going to be filling those empty seats, and is efficiency-based and is information infrastructure.”
I started thinking, “That’s carpooling, but carpooling sucks.” I was like, the first reaction, “It’s not mainstream. It’s not convenient.” The three main problems I thought about, or the three things that needed to be solved is, “What is my motivation to do this? Could you find a financial incentive that would be legal to get people to share rides?”
“Could you get a critical mass of people doing it at the same time such that it’s convenient? Could you create an extremely safe and trusted environment so people could do it?” They all kind of play off each other.
I started writing a business plan for this idea. I got an offer to go work at Lehman Brothers after school, and so it’s this moment of choice, of there’s this path that you’re supposed to go to Wall Street.
I also had the opportunity to work with a friend on a sustainable development project in Georgia that was like the living, breathing version of Green Cities, the class I was taking. I asked the professor, because I wanted to get his thoughts. He, surprisingly, thought it was a good idea to go to Lehman Brothers. His point was that, “If you go to Lehman, you could learn for a couple of years, and you could try to challenge from within a large organization, and maybe have a large impact.” I started an organization within Lehman Brothers to invest in green real estate.
But then a year into it, I’m on Facebook one night, and Logan — again, who I didn’t know — posts on Facebook, “Hey, check out this website that I’m building, Zimride.”
It was this idea that I was obsessed and really excited about and had been writing a business plan on, and I was, “Why the hell did someone call this Zimride? This is really bizarre.”
The mutual friend, I reached out, and he connected Logan and I. I probably said something similar to that on the phone, and it was something corny like, “Hey, let’s share the ride.”
The Startups Team: Oh, we thought the mustache was bad.
John Zimmer: He came out to New York, and then we started working together in 2007. My second year at Lehman, we were working on Zimride. I would be at work, and then at home, and not sleeping much, then decided to move to Palo Alto to go full-time with Logan on Zimride.
A woman in the building said, “How could you leave a sure thing like Lehman Brothers to do a crazy carpool startup?”
And then three months later, Lehman was bankrupt.
The Startups Team: You come out here. The company then is still focused on ride-sharing and carpooling, right? What ended up happening from that?
John Zimmer: We came out here. It was now 2008, summer, and there was this financial collapse. We operated Zimride from 2008 to 2012, and raised about seven million dollars.
We were selling to universities and companies. It was software as a service. We were selling them a private network for people to share rides going home for fall break or Thanksgiving break. We completed over 200 million miles traveled on Zimride, so we saved, if you do like 50 cents a mile, users over $100 million. These were for long-distance trips, a few-hour-long trips.
Then we looked at ourselves in the middle of 2012, Logan and I, and we said, “How are we doing? If our goal is to eliminate traffic and to bring people together to get rid of 80 percent of seats that are empty, or make a real dent in that,” we weren’t really succeeding in that.
The business was profitable. Zimride became profitable. The universities were paying us for the networks. We were saying, “If we were going to start over today…” It was maybe May of 2012. “If we were going to start over fresh, today, what would Zimride look like?” and clearly, it was a pink mustache.
We said, “What have we learned? What technologies are here today that weren’t?” Mobile technology was not prolific when we were thinking about Zimride originally. We said, “Well, it’s going to be mobile, first. Let’s play with the brand a little bit, and let’s play with the experience. What if we could get everyday people using their personal vehicles to give each other rides?”
That had never been done before. UberX wasn’t around for a while until after we launched.
The Startups Team: Wasn’t SideCar sort of doing that? Other people were doing things like that, weren’t they?
John Zimmer: Around the same time, I think they launched a beta of the service. We went to the board meeting, and we said, “Hey, we have this idea. We want to do this service, and we want to build this whole new mobile app.” The board was like, “Do you think people will want to use this?”
We were like, “We have no question that a low-priced, on-demand service built around community will work really well. The only question is regulatory.” We decided to take that risk and take that challenge, launched in the middle of 2012. We launched LA at the beginning of 2013. We had 30 people, and now we have 400 people in 65 cities.
The Startups Team: We’re curious how much Airbnb already being out in the market and being successful impacted that argument of, “Will people really want to do this?”.
We remember being backstage with the judges at Disrupt the year Getaround won. It was like every investor who we interviewed on stage that year was like, the big regret was missing Airbnb, because everyone was like, “No one’s going to want people to be in their houses. No one’s going to rent their houses out.”
They were wrong.
The big reason the judges gave it to Getaround over another company that I think was slightly more deserving was because it was this view of, “It could be a transportation Airbnb.”
Do you feel like that had somewhat been proven by them by that point?
John Zimmer: It was definitely helpful. We had investors…I remember even it helped Zimride, prior to Lyft. I think Mike Maples had wished he had invested in Airbnb. And we met with him soon after that. Everyone realized how big Airbnb was, and so I think it was definitely helpful.
The Startups Team: Also, the pivot is really interesting, because a lot of times when you hear about pivots, a company is almost out of money, and it’s like, “This is our Hail Mary.”
You say you guys were profitable. You weren’t an outright failure. Obviously, looking back, this was the right call. Did it take a long time for you guys to come to that conviction? Were you both on that page? Was the board on that page?
John Zimmer: Yeah. Logan and I are somehow typically very close to how long it takes us to process a decision like that, and we’re both on the same page, but it was really emotional. I’ve said before, I had a headache for several weeks, and I didn’t know why. I went to doctors.
It was the stress of making that hard decision, about, “We have this business. It’s really all we ever wanted to do was build a business and get people to love it,” and it had happened to a certain degree. But we were also really, really committed and are committed to a bigger goal, a bigger mission than just building a company and getting a few people to use the service. That’s what was the North Star was, “We haven’t completed what we’re trying to do, and if there’s a better way to do that, then we should do that.”
I don’t think I’ve talked about this before. There was a point where we actually ended up getting the Zimride assets acquired by Enterprise Rent-A-Car, but there was a point where we were going to say, “If this doesn’t go through, if we don’t find a buyer for the Zimride business, then the hard decision, but the right decision is to shut it down completely and to go all in on Lyft.”
The Startups Team: So you guys make that pivot. Were you surprised at how quickly it started taking off? You guys were this typical Silicon Valley overnight success story where it seems like this thing came out of nowhere, and certainly surpassed Sidecar and some other ride-sharing companies, but really, there was all this backstory in the making. Did it accelerate that quickly after launch, and did that feel weird?
John Zimmer: It didn’t feel weird. It felt exciting. We had to create a wait list in the early days on the passenger side, because Logan and I were interviewing every driver.
The Startups Team: What did you ask them?
John Zimmer: That’s a good question. We asked them about why they wanted to be part of the Lyft community, and what they were going to bring to the Lyft community. What are they passionate about? We were looking for passionate people.
That kind of seeded some of the early Lyft creatives and people that were bringing something more than just a ride to the experience. I think that helped us get our start.
The Startups Team: In those early days, was anyone a professional driver?
John Zimmer: No. If someone came with a black car or like some TCP license, we didn’t, in the early days, allow them to be on the platform.
The Startups Team: That was because you wanted this community feel, or you were worried about the regulations?
John Zimmer: It was a mix of both. I’d say both. Our goal is that all of you become Lyft drivers. If we were to ask everyone, “How many of you are willing to be somewhat like a taxi driver where everyone sits in the back seat,” or, “How many of you are willing to be the friend with the car?” You’re going to get a lot more people willing to be treated like the friend with the car.
The Startups Team: One of your early investors told us that when you guys were raising, they were very impressed with what you’d done. This person was fielding a lot of calls from interested investors.
The one thing that these investors were concerned about, the one negative about you and Logan that made them not want to invest was they were worried you were too nice. You would not possibly be able to compete in this market because you were too nice.
Has that been a problem?
John Zimmer: I don’t think so. The company has grown incredibly fast.
The Startups Team: You can say what you will about the way Uber’s run. It’s effective. It’s a huge company. Many of their investors will excuse that behavior by saying, “You have to be that way to beat up on taxi lobbies, to break regulation, to do this much efficient…”
We’re not going to be someone else. This is who we are and I think it’s been helpful.
– John Zimmer
John Zimmer: You have to be stern. For example, with that, if you’re talking to government regulators, we’re going to start by being nice. We assume they’re human and they’re people and they are rational. We’ll go in and assume that.
We’ll have a conversation with them and we’ll say, “What do you care about? Do you care about safety or do you care about something else that we should be concerned about?”
A lot of times, they say safety. We say, “Great. Here’s what we do for safety. Here’s what you require for other industries. In most cases what we’re doing is more. Let’s work together, create new rules.” Sometimes they’ll be stubborn and they’ll say no. At those points, we’re stern. We’ll fight back.
We don’t have to be mean to them. We will operate efficiently. We have a government relations team to make sure that we put our case forward. I’ve actually found that it can really benefit you because then later in the process, you’ll have a more easy conversation and you’ll be able to negotiate those final deal points.
We’re not going to be someone else. This is who we are and I think it’s been helpful.
The Startups Team: We know you guys are very focused on running your own race, doing your own thing. We’ve all seen that to the product. Everyone says that and sometimes it’s bullshit, but we think we see it in the way you run the business. That said, it is a competitive dynamic, unlike, say, Facebook and Twitter, which are both social, scratch some of the same itches, but are ultimately very different services.
It is still getting people from one place to another via a very similar looking app at a similar price point. I want to talk a little bit about the competitive dynamic.
There’s definitely been some press reports recently about Uber trying to sabotage your funding round. “The Verge” reported about some incredibly aggressive tactics they were taking on you. We’re sure you know about these things before you read about them in the press.
Does it piss you off?
John Zimmer: It did. It did in the beginning. The one thing that pissed me off in the beginning…we had this driver community event, and they brought U-shaped black cookies at our driver community event and handed them out to our drivers. On the other side it said, “Sign up to be a driver.”
That kind of thing just used to piss me off, but it really doesn’t anymore honestly.
The Startups Team: Does it not because you guys are less vulnerable now or because you’ve gotten used to it?
John Zimmer: Both, of course. We built in our building a really big business that’s true to what we want to build and who we are. It’s not productive. It’s like, “OK. If that’s a good use of others’ time, that’s fine.” Competition is really good for consumers. We’re really competitive, too, and we do that in our own ways.
We’re going after such a big opportunity that’s going to be extremely competitive. What we think is most productive is just continuing to focus on what we’re doing.
The Startups Team: Internally, does it ever rankle the team? Does it ever piss off other executives? “Why don’t we sabotage them? Why don’t we do the same thing? Why don’t we give them a taste of their own medicine?”
John Zimmer: I think everyone has gone through the same cycle that I just explained that I went through with the silly cookies. But I think everyone has gone through that cycle. It doesn’t really distract us anymore.
Again, I think for so long it’s just been part of competing in this market. It just is what it is.
The Startups Team: Over the last couple weeks, as Uber has both raised a massive, gargantuan funding, and so parts of their business are going extraordinarily well. But it’s also been embroiled in scandal after scandal after scandal and has brought the government looking at these things.
People keep looking at this and saying, “This must be a really great couple weeks for Lyft. This has been a gift for Lyft.” But I wonder how much it was, because you and Uber, weird bedfellows as you are, are pioneering a market together. This invites regulation and scrutiny and mistrust of the market. How much of Uber’s scandals are good for you and bad for you?
John Zimmer: Definitely a mix. I think that it’s a reminder that people want choice and want to have options with something as important as how we get around every day. But, I also think that there’s always opportunities. It doesn’t have to be our competitor. I’ve learned a lot from Airbnb’s experiences when they had their tough moment.
We should just take those moments and self-reflect and say, “What can we do better,” and we did that. We took additional steps to add further security to users’ data. It doesn’t have to be within our industry, but I think all these…This technology is brand new and in ways of handling data, we can all learn from each other.
When a competitor does crazy things that hurt you or crazy things that help you, it’s kind of like…I always think about what I can control and what we can do. Spending a lot of time on things that are out of our control is not super productive.
The Startups Team: Do you ever see getting into other logistics like a Postmates, say, transporting goods, other things that Uber’s talked about, that’s a sideshow?
John Zimmer: Like I said, in transportation, we’re so early in the innovation cycle that we are really focused on transportation. We’re focused on the two trillion dollar opportunity, not the $10 billion opportunity. There’s a lot more that we’re going to invest in the transportation side before we get into other things, but we’ll always be open to other opportunities.
The Startups Team: What’s success for you?
John Zimmer: Traffic is eliminated.
The Startups Team: Traffic is eliminated. Come on.
John Zimmer: Yeah. It’s not crazy. In LA, the average car occupancy is 1.1. If it was 1.3, there would be no traffic in LA. It’s possible. That’s a good milestone.