I Like Spothero, But They Aren’t Going To Make It
Congratulations to Spothero on raising money, from two great programs. Too bad the investors are going to lose their money.
This will come off as a negative post knocking the business. It’s not. I’m happy that the founders raised, AND I’m a happy customer of Spothero. I want them to succeed. I just don’t think they will.
I don’t have any privileged information, have any idea what their pitch deck looked like, know what their future plans are, or how much they make.
As a consumer, I love it. As an ignorant, backseat driver, wannabe investor speaking out of turn with incomplete information — I think it’s a dog.
Why They Won’t Make It
Unsubstantiated (but I think generous) assumptions:
- They make 50% of the revenue of every parking spot sold.
- No other costs like rent, servers, accountants, attorneys, marketing, etc.
They have 11 employees.
They need to clear $1.1 million a year to just cover employee costs.
Let’s say they just need to *gross* 1.1 million a year.
How many spots would that be in Chicago?
In hourly spots, lets give them $22 per parking spot. Why $22? Because that’s higher than the average listed spot and makes math easy for me. At 50%, their cut is $11. To make cost, they need to move 100k spots in Chicago this year. 274 spots a day.
$1.1 million target / $11 per spot / 365 days =~274 spots sold
Another unsubstantiated claim, but I am just going to say they can’t sell 274 spots a day in Chicago.
But there are millions of drivers!
It’s a mistake to think that the market size is “people with cars”. It’s people with cars who:
- can’t find street parking or need more than 2 hours
- don’t have a regular spot (so excluding regular drivers or familiar destinations)
- exclusively in areas where parking is scarce (in the suburbs you can park anywhere for free).
So I can’t prove it, but I’m betting against 274.
But Wait, They’re Going To Expand Across The Country!
Awesome. Let’s first just grant them zero employee or cost growth for expanding nationwide.
What’s the US total market? Chicago metro is population ~10mm and the US is ~315mm, so did the market opportunity get 30x bigger? Doubtful.
Paid for, on-demand parking from a mobile app only matters in places that have the right intersection of (a) lots of people driving, (b) scarcity of free parking.
San Antonio, Texas — top 10 city in the US by population — Texas is big. They have plenty of free parking.
Manhattan, NY — scarcity of parking — most people don’t drive. people who drive in Manhattan are mostly rich or professional drivers who have an arrangement.
San Francisco, CA — SF proper is a good market. Sunnyvale or mountainview? mostly not so.
Columbus, OH — plenty of cheap or free parking
Of course, there are areas in most cities where spot hero would make sense. Minneapolis, MN, for example — big city, lots of work commuters, but outside of downtown, there’s little/no need for parking apps. And even if they were to explore it, the meters are only $.25 an hour and all day parking is less than 5 bucks. New Orleans, LA — outside the French Quarter, most places have parking lots.
Unless its a pervasive problem in the city as a whole, it won’t be WORTH it for Spothero to explore the market. Trying to edge in to a place with 25 cent street parking will be a negative ROI proposition for Spothero (printing up signs and getting a street presence and advertising isn’t ACTUALLY free). Trying to move into a city just because a 9 block square of downtown has scarce parking is also a bad move.
Ultimately, the majority of the revenue will come from people like salespeople who go on calls to various unfamiliar areas of their city but don’t know the parking spots. These will be regular users who install the app. There will also be the occasional users like me, but that’ll be a long tail of infrequent users who contribute a minority of revenue.
So they need to sell 274 spots per day nationwide priced at the Chicago rate, with no expansion of expenses. However, almost everywhere else has cheaper parking, so they actually need to sell a lot more spots than the stated 274.
Distribution is Tough
If you haven’t heard of spot hero, the next time you’re looking for a parking spot you don’t think “Hey let me google it” or “Maybe i should search the app store”. You drive around. That’s what people do. I’m not saying it’s optimal, I’m just saying it’s established driver behavior. So unless the user has heard of Spothero previously, it won’t even be an option. So Spothero has the fun task of educating all drivers in their market. That’s generally difficult and not cheap.
An Incomplete Analysis
As I’ve stated above, this is just raw, back of the envelope number crunching that uses no privileged information.
To get closer:
- Include the fact that Spothero sells monthly parking (I excluded this revenue model), which has a higher ticket price (though I suspect a smaller cut and unlikely recurring revenue). (Good for Spothero)
- Find out what the real split is. I suspect the 50% split I assumed above is more than they actually get. (Bad for Spothero)
- There are actually costs other than employee costs. (Bad for Spothero)
- Nationwide expansion will probably increase costs (Bad for Spothero)
- I used an average sale of $22.00, which is almost certainly too high (Bad for Spothero)
- There are a handful of competitors in this space (Bad for Spothero)
If you have more complete information for this, access (and permission to share) any of these parking companies’s investor decks, I’d love to see it. If you want me to do this for your company or someone else’s, email me.