How Uber cracked the chicken and egg problem
A look at what fuelled Uber’s early growth engine - building a $113B giant🔥
Founded in 2009 by CEO Travis Kalanick, Uber started as a luxury car service in San Francisco, expanding to a platform connecting people who need rides with people who have rides to offer. Uber successfully cracked the chicken and egg problem, becoming a $113B company
Strategy 1: Product Led-Growth
Before Uber, very few people viewed finding/using a taxi as an enjoyable process. Uber completely changed the game with their app allowing people to tap a bottom to hail a car with a seamless payment process. Uber removed the friction from the typical taxi cab transaction and made it a “no sweat experience.” No more waiting outside to hail a cab, paying cash, meter charges, or stressful negotiations.
Uber disrupted the taxi industry with a more convenient service. The user experience was so amazing that it turned any new user into brand advocates. This led to huge word of mouth, fuelling early growth. In fact, in Uber’s early years, for every 7 Uber rides, word of mouth generated a new user.
Strategy 2: Provide a Special Experience
In the beginning drivers didn’t use their own cars. The company started with black cars driven by pro drivers, ensuring customers would have a great experience. This helped Uber become confident in relying on customers to spread the news. They engineered word of mouth by making the initial user experiences as good as they possibly could.
In the chicken and egg dilemma, Uber focused on the supply side first (acquiring customers/users). They believed if you get the right customers they’ll experience high quality service, then do the marketing for them (acquire the demand). It was important to choose their first customers carefully to fuel their growth engine.
A key takeaway is that in any marketplace model, you must focus on one side more than the other in the beginning. They focused on the supply side and took great measures to ensure they would generate the demand in more drivers.
Strategy 3: Local Growth
They launched their MVP in San Francisco in 2010, focusing on the tech community who are continually looking for new tools to improve their quality of life. Uber targeted these people by sponsoring a variety of tech and VC events. They provided free rides for event attendees.
They knew attendees were well connected and highly likely to share experience with friends, tech press, and social media. By seeding this audience, they created a growth engine by placing the bet that these early adopters would show their friends, leading to a network of passionate users.
By January 2011, they had between 5000 users and had done 15,000 rides across San Francisco. After this they began their country wide expansion, reproducing their experience city by city, eventually country by country.
Strategy 4: Strategic Launches
Uber didn’t launch in all cities right away. They identified which cities had the widest gap in terms of supply and demand for taxis. They also leveraged real life situations to spur growth, which Kalanick referred to as “accelerants.”
These were concentrated, temporary needs for Ubers services including restaurants/nightlife, events/holidays, weather, sports. Each of these makes driving yourself problematic. They focused on cities where those problems were more constant to drive accelerated adoption. For example, In Chicago—a city with great nightlife, intense weather, and tons of sporting events. They ranked potential cities based on these criteria to plan the direction of their future launches.
In 2011 Uber expanded to New York City, Chicago, even expanding beyond the U.S into Paris. In the same year they raised Series A and Series B rounds. They then launched in Canada and the United Kingdom in 2012.
Strategy 5: Referrals
In 2012 they offered $20 dual-sided rewards if a rider referred someone. What made them so effective was that this amount usually covers one free ride, which is how the program was advertised. Each customer had a unique referral code and could share with friends and track their referral status/rewards.
They also used referrals for drivers. When the driver refers someone using their code and the referred person becomes a new driver, the referrer earns a reward. They also offered dual incentives, giving the new drivers a “starting bonus” once they start driving for Uber.
Key factor: First Market Entrant
Uber was the first ride sharing company, which allowed it to carve out a large share of the whole market. While they eventually faced competition, they had a strong brand presence. As a result consumers almost always think of Uber first when they think of ride sharing companies.
Uber today:
$3.2B revenue
71% market share
Available in 10k cities across 71 countries
93M customers, 3.5M drivers
Keys to growth success:
Amazing product experience
Initial focus on ideal customers
Strategic launches
Referral programs
I hope you like this breakdown of how Uber built their early stage growth engine!
Subscribe to my SubStack for more in depth startup growth breakdowns every week and follow me on twitter @growth_student for my weekly growth threads!
https://twitter.com/growth_student