This is an excerpt from the book, Start-Up City: Inspiring Private and Public Entrepreneurship, Getting Projects Done, and Having Fun. © 2015 Gabe Klein. Reproduced by permission of Island Press, Washington, D.C.
On August 13, 2014, the City of Boston held a public hearing on a controversial new mobile application called Haystack. Haystack, an on-demand parking application modeled on Uber, had launched in Boston only twelve days before at a lavish party described by one journalist as something out of the HBO sitcom Silicon Valley. The twenty-four-year-old CEO Eric Meyer found himself at odds over the app with City of Boston legislators within a matter of days. He struggled to refute accusations that the app was profiting off public space, as opposed to selling “information” about parking space availability. At the hearing for legislation banning the app, Meyer warned the city that “to prohibit the app would be a signal from the city against innovation,” calling the decision “ominous” for young entrepreneurs such as himself involved in the city’s nascent tech scene.
Haystack’s demise, although a caricatured portrait of private- and public-sector dynamics, provides a window into how their interests can stand at odds, and why the two sides now need to understand one another’s perspective more than ever, rather than work against one another. By monetizing government property, in the eyes of the city, Haystack failed to see the city’s basic obligation to ensure fair and equal access to public space. The city, meanwhile, was not prepared with a comprehensive vision for how to collaborate and leverage private-sector mobile technologies to increase parking turnover and revenue and make life better for citizens.
ULI Fall Meeting: Meet the Authors: The Convergence of Leadership, Community Building and Real Estate
In this book, I devote a lot of room to discussing how to infuse the public sector with the urgency and energy of a startup. Now, I want to shift my focus toward how to bridge the divide between the private and the public sectors. My goal here is to demonstrate that by understanding the incentives and the cultures that drive each side, the public and private sectors can partner more constructively, and ultimately, work together to create better cities. This chapter begins with a discussion of Zipcar as an example of a successful partnership with government and ends with a discussion of D.C.’s Capital Bikeshare system as a successful partnership, led by the government, with the private sector.
Zipcar: Private-Public collaboration
When I joined Robin Chase at Zipcar at the end of 2002 as regional vice president in the Washington, D.C. region, the company was still tiny. We had twenty-eight vehicles in D.C., three employees, and, I would estimate, a few thousand customers total across the three cities in which we operated at the time (Cambridge/Boston, New York, and D.C.). Our main competitor, Flexcar, was a West Coast company that had launched in D.C. in partnership with the Washington Metropolitan Area Transit Authority, a.k.a. Metro, the local transit system. Metro had a formal partnership with Flexcar and would not give Zipcar the time of day. Our Seattle-based competitors seemed to have car-sharing vehicles at every Metro station with an available parking lot, but were lacking density of vehicles in the city, as was Zipcar in its earliest incarnation.
At the time, most of the stations with Flexcars were suburban, because those were the Metro locations with spacious park-and-ride lots, even though, based on our research, the biggest demand for car sharing was in the densest areas of the urban core, where parking was most difficult. City dwellers, especially those without cars or with only one car to a household, were most willing to try this new type of service. Keep in mind that in the early days of car sharing, gas was hovering around $1.25 per gallon and people had only recently started streaming back into the city centers and their surrounding, older neighborhoods.
Although we take car sharing for granted today, at that time, it was a new idea—not a slam-dunk value proposition by any means. Zipcar prided itself on its entrepreneurship and was proud to operate without government sponsorship like Flexcar had. Because of that, we had to work harder, market ourselves more aggressively, and fight for the most desirable parking lots and individual spaces for our vehicles. Like Uber and Lyft today, supply and demand were the name of the game, and matching the two represented the holy grail.
Over a number of years, we fine-tuned an internal planning system that broke every city down by neighborhood and then census tract, then drilled into the density data by block, car ownership, transit ridership, parking availability, median price, and other factors. Once we decided to enter or grow a geography, we applied an extremely rigorous and well-timed marketing plan, over which we laid out our vehicle plan. Our strategy was to create the demand and then increase the supply very carefully to maximize profits and minimize customer frustration. At the time, Flexcar, in my opinion, was far too reliant on its government partnership, and was not terribly responsive to customer needs. As we started ramping up our vehicle fleet with new vehicle types, including pickup trucks for hauling and convertibles for fun, Flexcar remained relatively stagnant and committed to hybrid Honda Civics in less dense areas, addressing the “last mile” solution rather than catering to multimodal users in the urban core.
While they were busy fulfilling their contract with Metro, we locked up all five universities in Washington, D.C., under a contract for parking on campus, marketing to students and securing corporate accounts. Meanwhile, I partnered with Flexcar to work on an on-street parking program with Arlington County that we later expanded to Washington, D.C.’s city streets. Some senior management at Zipcar was opposed to this, and Flexcar was surprised that we would initiate such a partnership. By that time, though, we already had the upper hand, so I saw no reason not to work together to make car sharing an extension of the public transportation system. The key to beating Flexcar was to be better in every way we could, but most importantly, to attack on every front versus just falling back on the prospect of public sector support. In a nutshell, we needed to be able to operate profitably with no government support.
Arlington, Virginia, an extremely progressive “urban village” adjacent to Washington, D.C., had an innovative, risk-taking transportation culture and little patience for bureaucracy. Chris Hamilton led (and continues to lead, as of this writing) the city’s transportation demand management efforts as Arlington County commuter services chief. Chris not only wanted to place car sharing on the streets in dedicated spaces around the city, but he wanted to make it happen with both companies in less than ninety days! A month or so after the Arlington launch, I met with Dan Tangherlini, who ran the D.C. Department of Transportation (DDOT) at that time. Dan asked me why Zipcar had done its original pilot with Arlington County rather than D.C. The reality was that Arlington was open to doing the pilot, and doing it quickly. Dan replied, “I like Arlington looking at my back, not looking at theirs, so let’s make this happen.”
Launching Zipcar in D.C. took more than a year, but when we finally did, there were eighty-three dedicated spaces for car sharing on D.C. city streets to be split between Zipcar and Flexcar. This was a game changer for Zipcar, and for Washington, D.C., as a progressive city. We were now a high profile, government-sanctioned extension of the public transportation system catering to an increasingly multimodal population in the D.C. region’s densest neighborhoods rather than to suburban commuters at the Metro’s fringe.
At this point, Flexcar, which had failed to reinvent its business model or grasp the coming demographic and cultural shift, was looking at our backs. We owned the urban market. We owned the university market, and, on the backs of a recent contract with Metro alongside Flexcar, we had balanced the playing field on the government side. We had also built a fleet of pickup trucks, MINI Coopers, Mazda minivans, and BMWs that were sitting next to their aging Honda Civics. On top of all this, we now had access to free advertising on the subways and buses and in the transit stations as part of the Metro contract. Our branded vehicles were sitting in public parking spaces all around the city.
As part of the agreement with Metro, we were required to place Zipcars in low-income, less-dense neighborhoods. Although the vehicle use in these areas started out slow, after a short period, our vehicles east of the Anacostia River often produced the highest revenue in the fleet. The city’s equity requirement ended up teaching us an important lesson—that your perceived market is not always your actual market, and that there is a lot to be gained by both the city and private companies in diversifying your geographic reach and taking an unconventional approach. By engaging with the private sector, the government shaped the rollout of the service, ensuring equity and data sharing, and that we worked for the greater good.
As Zipcar grew as a whole, we worked to master the operations side of the business. This is where I learned about and used Lean Six Sigma and continuous process improvement techniques to fine-tune the efficiency of an operations-intensive business. In D.C., we even worked with an outside vendor called Kangaroo Car Care to customize their offerings to externally service Zipcar’s very specific needs around cleaning, bodywork, and other maintenance. This resulted in the highest customer service scores in the company.
We had two primary issues with government in D.C. proper. The first was that they had no business license for “car sharing,” so we were technically operating as a rental-car company. This had to be resolved for our business proposition to work for customers. Otherwise, a one-hour, $8 rental would have had a $9 convention center surcharge, negating the value of the service and the simplicity of the concept. A second obstacle we encountered while working with the government was the registration and taxation of our vehicle fleet. Zipcar was being charged a considerable fee for sales/excise taxes even though our vehicles gave all of the benefits of a hybrid vehicle owned by one person, who would be exempt from taxation for fuel efficiency standards. Our vehicles were shared by hundreds of people, saving much more on fuel and emissions than a typical car or hybrid. After a few conversations with the mayor’s office, DDOT, and D.C. Department of Motor Vehicles, we were able to get this tax, which was 6–8 percent per vehicle, waived. The average price of a vehicle is $25,000, and we were in-fleeting one hundred vehicles per year at 7 percent, which translated to $175,000 per year. These cost savings went straight to the bottom line, which in turn allowed us to keep our prices lower for consumers, thereby getting more people to give up their cars and use car sharing. We also were able to get the Department of Consumer and Regulatory Affairs to adopt a new car-sharing business license under which we could operate with standard sales taxation. These two resolutions are examples of win-win-wins for government, the private sector, and the consumer.
The D.C. Zipcar model combined aggressive business development efforts with partners ranging from governments to universities, developers, and even the Washington Nationals baseball team to expand our physical footprint, our marketing reach, and our membership. We also employed aggressive guerrilla marketing to directly reach consumers on the streets, and on a budget. Finally, we finely tuned and maintained highly efficient operations to stay as competitive as possible, and the D.C. model ultimately became the preferred model for expansion nationally and globally. Zipcar soon purchased Flexcar and became the largest car-sharing company in the world.
There are four takeaways here, but perhaps the most important one is that competition only makes you better in the long run. D.C. was the only market with a car-sharing competitor in the early days, and by most metrics, it was also the most successful city experimenting with car sharing at the time.
Another takeaway is that although government partnership was ultimately very important to Zipcar, we consistently maintained a focus on the customer and responded primarily to those needs. A strong, amicable partnership with government pushed us over the top, helped us scale while keeping marketing costs low, and ultimately made us profitable. Fundamentally, a company needs to have the best quality product or service to win the customer, and to win period. I know what you might be thinking—that it’s not government’s role to ensure that a private company stays afloat, right? Well, maybe. The alternative would have been for the government to start its own car-sharing program and run this very complex business themselves to get the public benefit. By empowering private companies to make the business work in partnership with the government, the public sector effectively eliminated any financial risk to the taxpayer, fostered a new industry that created jobs, and saw the shedding of so many cars that vehicle registrations dropped by 6 percent in D.C. while the population grew by 3 percent. Why should the government take on something the private sector is willing to do on their own? There are now no less than five car-sharing companies in Washington, D.C., with new peer-to-peer entrants such as Getaround hitting the market this year. This is a direct result of an entrepreneurial government fostering a smart public-private partnership in the interest of their mutual consumers. Moreover, following this success, D.C. now charges market rates to the car-sharing companies for parking.
Takeaway three is that the urban core is the most viral place to grow a business because of its density and energy. By sticking to last-mile suburban commuter stops, Flexcar missed the big opportunity standing right in front of them.
And the final takeaway: even though we don’t typically think this way, governments are also in competition. As a private-sector manager, I tended to think of government as slow, bureaucratic, and monopolistic. Although I learned that this remains the case in many places, there are people such as Chris Hamilton and his team in Arlington County, Virginia, who have the ambition and the ability to make change happen quickly. Finding those people helped to create demand for more change elsewhere in the region, and ultimately nationally.
The Capital Bikeshare story: Public-private collaboration
When I took over at DDOT, I was intrigued with the new SmartBike program that had launched in D.C. just prior to my arrival. SmartBike was the first bike-share program in North America. Although only a small fraction of the size of the successful European bike-sharing systems at the time (one hundred as opposed to a few thousand bikes), and perhaps even dinkier in terms of the bikes themselves, the concept was right up my alley.
Some people say that the SmartBike program was a failure, but I beg to differ. The system was a pilot with an uninterested vendor, and unfortunately or fortunately, depending on how you choose to look at it, it was too small at ten stations and one hundred bikes to work well as a transit system. The public got a taste of what a system like this could be, although neither the city nor its private partner, the mass media company Clear Channel, invested heavily enough in what quickly became antiquated technology and required capital construction to implement at scale.
Having said that, from the moment I set foot in my new job, I was excited to grow the program. When I was finally able to come up for air after my first few weeks at DDOT, I started to talk to the bike division about the public-private partnership that had resulted in SmartBike. As it turns out, like the much larger Vélib bike-share system in Paris, which was run by advertising giant JCDecaux, our SmartBike program had been launched and operated by Clear Channel, who also contracted with the city to advertise on bus shelters. SmartBike was only one component of a much larger contract. Unfortunately for the city, one line at the end of our agreement outlined the private partner’s lackluster commitment to the program. It stated that Clear Channel agreed to set up and operate a bike-share program in Washington, D.C. That’s it! Oh no, I thought, this was not terribly sound footing on which to expand our partnership, but let’s meet them and see.
In my first meeting with Clear Channel, a few things became clear. They felt that the District had gotten a very rich, fifteen-year deal and associated revenue stream for the bus-shelter contract. They even mentioned that D.C. had “signed the contract at the height of the market.” My reaction? “Not really the District’s problem.” Furthermore, they had recently been purchased by Bain Capital, of Mitt Romney fame, and had little interest in “municipal street furniture,” as they saw the program. Lastly, they had no contractual obligation to expand the program, which was true. We were victims of minimal planning for success by government, and an amorphous contract that gave the private sector an easy out. At the end of the day, our incentives were not aligned, and the SmartBike program died as a result. However, this ended up being a blessing in disguise in the long run.
Luckily, Arlington County, Virginia, was planning to launch a bike-sharing program around the same time as it became clear that SmartBike’s demise was imminent. Because I had a history of partnering with the county, Capital Bikeshare became the first of many projects that we would work on across borders during my tenure. Arlington had already put a procurement process in motion for a bike-sharing system and was in the process of receiving bids from vendors. As many jurisdictions do, typically through their regional planning authority, we combined our efforts with Arlington’s procurement process to save time and build a regional program. In terms of financing the system, we wanted to use federal money for 80 percent of the cost and applied for Congestion Mitigation Air and Quality funds through the regional metropolitan planning organization. All we needed now was the mayor’s agreement to put $1 million into a revamped bike-share program.
My entire conversation with Mayor Adrian Fenty about Capital Bikeshare was less than ten minutes. I told him what I wanted to do, and he asked me three simple questions:
- Could our system be the biggest in the United States? Yes.
- Will it be the best? Yes, absolutely.
- Can we minimize the capital D.C. puts in and could it break even or be profitable operationally? I said, “I think so,” and aimed to make that happen.
Meanwhile, I had heard about a new bike-share system that had launched in Montreal named Bixi. My wife and I took a vacation to Montreal in our smart-car convertible to check it out firsthand, along with the city’s heralded new separated bicycle infrastructure. The Bixi system represented a major improvement upon the clunky SmartBike and was modeled on the successful European systems in terms of size and station density. Moreover, the hardware was movable, rather than SmartBike’s fixed stations, and could be installed with a small crane, requiring no capital construction whatsoever. Bixi was also solar powered and required no electrical wiring for its utility. The bikes themselves were solid, streamlined, and modern. They offered a smooth ride and felt more or less bombproof. As a bike industry vet, I could see that they were high quality. As a car-sharing expert, I could see the system’s functionality and how well it worked with multiple nodes. When I got back to the United States, I found out that we received only one bid on the procurement, and to my surprise, it was from Bixi, which had partnered with a West Coast planning firm named Alta Planning + Design for the bid. We were a little shocked that there was so little interest, but there was not really an industry yet, and even our existing partner didn’t want to make it work. The two companies that partnered on the sole bid were both startups and were going to need our help and guidance if bike sharing was going to work in the D.C. region, and in the United States.
From the beginning, the bike-share program represented a true collaboration and real public-private partnership. When you are setting up something completely new, at a large scale, there is no room for ego clashes, one-upmanship, or the typical corporate and political wrangling. All five initial partners—the two jurisdictions, our newly shared transportation demand management program (marketing), the manufacturer, and the operator—were aligned in their incentives. We had a goal to launch in one year and there was zero room for error. Why one year? Because neither I nor Arlington had any patience for wasting time, as exhibited by the Zipcar example, and my mayor was running for re-election. What if he didn’t win?
Working groups were established as small, cross-functional, and efficient units to manage everything from permitting to public relations and cross-cut D.C. and Arlington. All of our departments, with the exception of engineering, had responsibilities. In D.C., finance, legal, and the CFO’s office were all intricately involved in setting up this new operating business. My right hand, Leah Treat, proved instrumental on a number of fronts during this process, including in dealing with the federal government. On top of all this, we had a multi-jurisdictional effort and a complex contract with procurement to hammer out. Scott Kubly, a new hire at DDOT who became my other right hand, had been brought in to run the newly minted “Progressive Transportation Services Administration” a year earlier, which housed Streetcar, the Circulator bus, and now Capital Bikeshare. Our overarching goal was to launch the system so smoothly, and have our marketing so tight, that people would be shocked that the government ran it.
As we got closer to launch, the consumer-facing aspects of the program became a priority, and being a marketing-focused executive from the private sector, I was hyperfocused on those aspects. As our efforts came to a close, I returned to the basics, the four P’s—product, place, promotion, pricing—but the most important P was, of course, the people. The DDOT bike team was doing a lot of the planning and outreach for the system’s initial ninety planned stations in D.C. proper. We set up a website and crowdsourced public input about where people wanted bike stations in their D.C. and Arlington neighborhoods. We had just finished rebooting our transportation demand management (TDM) program, known as goDCgo, and had again partnered with Arlington County to bring their nationally recognized TDM program to D.C. The new program was essentially top-flight marketing, promotion, and outreach for alternative transportation options. This team was put in charge of coordinating the marketing for the new bicycle transit system.
In keeping with our strong outward communications plan, we partnered with local blogs like the influential and widely read Greater Greater Washington and crowdsourced the name for the system, which became Capital Bikeshare. That name organically became “CaBi” for short. The system’s website went through multiple iterations until it felt more like a polished private-sector offering such as Zipcar, rather than a stale and opaque city website. I wanted it to be sleek and easy to understand and for the value proposition to stand out and be clear within seconds of loading the site. This became the simple “Join, Take, Ride, Return” that still graces the front page of the system and mirrored Zipcar’s “Join, Reserve, Tap, Return” that we had refined over the years.
By the time we opened the system in September 2011, there was a palatable level of excitement from the public. At our launch event at the U.S. Department of Transportation in Southeast D.C., we brought all the bikes out and had the public sign up to ride them back to stations throughout the city. Throughout the bike-share process we had involved the public at every stage, and we wanted them to feel ownership. This was the people’s bicycle transit system, CaBi.
We were careful to gradually launch stations for Capital Bikeshare, and later followed the same pattern with Divvy in Chicago. It’s crucial for a system to be operationally sound, if not close to flawless, the first time a user tries it. Like any service, you are only as good as the first experience a customer has, and we aimed to learn the rebalancing patterns from day one to avoid empty or full stations as much as possible, which are the bane of the bike-share user experience. Starting with 50 stations in D.C., we ramped up to 110 stations regionally before the end of 2011 when Adrian Fenty left office. The reviews were in and the public loved Capital Bikeshare. Today there are more than 350 stations spanning D.C., Maryland, and Virginia, making it the second largest bike share in the United States by number of stations as of this writing, with more than 10 million trips taken!
In D.C., the system broke even on an operations basis (give or take a few thousand dollars) from day one. Keep in mind that this is with zero advertising until 2014 and no sponsorship agreement, two conditions that would be highly unusual today. On top of that it is one of the more expensive systems to run based on it being the first large contract in the United States with no benchmarks on which to base it. How did we pull it off? The user experience was solid. The locals were loyal and signed up in droves. More than 30 percent of initial usage was by tourists and visitors. We had projected single-digit percentage visitor use because SmartBike had no daily use option. The $7 daily user fee subsidized the yearly $75 membership for locals (28 cents per day). Without any advertising at all, the system could foreseeably generate enough profit to fund the 20 percent match needed for capitalization of new equipment for expansion, or replacement of old bikes and stations down the road. With advertising and sponsorship this was virtually assured. Fundamentally though, I credit the relationships among all of the parties involved and the collaboration as being the most important factors in the system’s financial stability and success.
Working for the Greater Good
At Bikes USA, Zipcar, and my food-truck company, On The Fly, I learned that doing something positive for people made me feel good. My other interim jobs had left me feeling empty at the end of the day and disconnected from my fellow human beings; I craved the real, tangible results that I could see manifested daily. For all of us, finding work that we are passionate about is key to our success. It has also been essential in getting results working with or in government, no matter how frustrating that can sometimes be. When you are doing something that customers like and fulfilling a real need, you feel great about it and that comes across in your work and personal life.
Today, governments are striving to enhance their services for the public, and they know that they are often not the best at service delivery. Co-opting the energy of private-sector companies and individuals to do work that is aligned with their goals, beyond profitability, is a critical component of how cities can and will reinvent themselves over the next twenty years. Although I may have seemed like a nontraditional candidate to go into government, and I was, I had built a reputation in D.C. for trying to do good things for the city and taking personal risks to achieve results. That risk-to-reward ratio can be a difficult thing to calculate for each of us, but suffice it to say that nothing great is ever easy to accomplish. If you bring a passion to what you are doing and if there is more to it than money, there’s a strong chance that you will be able to bring public and private domains together, and ultimately be successful in your endeavors, often against all odds.
From Start-Up City: Inspiring Private and Public Entrepreneurship, Getting Projects Done, and Having Fun. © 2015 Gabe Klein. Reproduced by permission of Island Press, Washington, D.C.
