Public Goods: What a US Startup can Learn From China Sidewalks of Death
The greatest threat to modern China comes not from foreign invasion, but in the form of bicycles, millions of bicycles.
Chairman Xi Jinping take notice, the greatest threat to China is not from America, it is from the bazillion bicycles you’ve permitted to infest your sidewalks. Bicycles now cover pretty much every vacant piece of concrete and asphalt from Beijing to Urumqi. What am I talking about? The billion or so bike share start-ups that are now brilliantly exploiting what every entrepreneur should know about: public goods.
Look around anywhere in China lately and you’ll quickly see scads of bike-share bikes everywhere. There are ten or so leading companies, each with its own distinctive paint scheme and bike design. These bike services allow anyone to make either a large, one-time upfront payment (say $500 for life-time usage rights) or to make monthly subscription payments, like $20 a month, for unlimited use of that companies bikes. After subscribing or becoming a member, the user can take any bike from that company that they find, from any location, and ride it to wherever they want, then just leave it there. It is bikes on demand.
The bikes automatically lock themselves and can be opened by taking a picture of the bike’s individual ID tag using the bike-sharing application on their phone. To make the service convenient, the bikes are ubiquitous and deposited along almost every street, all over town. Their presence on sidewalks, now impassable, and other areas around the city have become a blight and a danger (tell me about it, I had to jog in the street sometimes to avoid both stationary and moving bikes that formed a dynamic death maze on the sidewalk).
However sketchy to pedestrians, this business model is proving to be very popular in the smog and traffic-choked cities of the middle kingdom. In cities where parking is very hard to find and the sheer number of cars causes massive disruption akin to the plagues of Egypt, bike-sharing solves an important human need for cheap and reliable local transportation. And in that success lies a powerful lesson for the eagle-eyed entrepreneur: leverage public goods to get a free lunch.
Public goods are things that we commonly share, like roads, sidewalks and schools. They are typically free to use for the public. A free asset to leverage is more than just nice for start-ups that can utilize these public goods rather than invest in the same resource for themselves, often at very great expense. In the case of China’s bike menace, the public good is the sidewalks all around town where their bikes can be parked. If the bike start-ups had to build their own bike parking lots across the entire city, the whole venture would be too cost-prohibitive. By leveraging a public good, they dramatically lower their cost structure and have a viable path to market.
Other start-ups can learn from this model. For example, if you’re starting a night school for adult learners, why build a school building and invest a lot in capital expenditure when you could just lease unused classrooms at night from your local school district? Using that public good is a lot cheaper for you to get started, even if you have to pay a nominal fee for it.
Another good example of this is the interstate highway system. This public good is a boon to car manufacturers and transportation companies that don’t have to bear the full cost of their complementary asset. So if you can find a novel way to use public goods to solve a social problem, you could be on to the next big thing.
Start-ups that have innovative ways to discover and use public goods save capital that can be redeployed into more productive, value-creating work.
Just please remember, don’t block the sidewalks. Runners need space too.
Joe Merrill is a partner and CFO at the Linden group of funds and Sputnik ATX in Austin, TX. For more articles like this, check out his blog.