What you need to know about Lyft’s IPO

Let’s talk (again) about “ecosystems” and “ecosystem-thinking”

“Déjà vu.”

- a feeling of having already experienced the present situation.

Lyft recently filed documents to become the first publicly-traded “ride-sharing” / “ride-hailing” company and there are a lot of articles, blog posts and videos posted about the proposed IPO.

So, why do we need yet another article?

Well, based on several discussions I had with business founders and investors last week, I feel like we are running in circles. We are asking the wrong questions. We need a fresh perspective on the decision to “go public.”

And, as I noticed last week, founders, investors, and other stakeholders can all benefit significantly from a new and more digital-oriented take on this issue.

A feeling of déjà vu

“Should I invest in Lyft?”

This is a perfectly legitimate question. And, as usual, much of the conversation revolves around three issues that always arise when a “tech company” confirms its intention to go public.

The first topic of discussion is the leadership and governance structure. What say will the investors’ have in the company after the IPO?

When an IPO is imminent, high-tech companies tend to structure corporate control in such a way that the founders maintain control of “their” companies even post-IPO. In this way, Lyft wants to introduce dual class shares with the founders’ shares having multiple (20X) voting rights and the investors having only one vote per share.

Such a founder-oriented governance structure always raises a lot of questions. Why would you choose to invest in a company that guarantees founder-control?

The second topic concerns the “burn rate” of Lyft (defined as the amount of money that Lyft has spent in excess of its revenues per month). The revenues and revenue growth rate are promising, but in their registration documentation, they reported a net loss of almost US$1 billion.

Several people have voiced their worries about Lyft’s burn rate (which has become a familiar refrain during tech-IPO discussions). Will Lyft’s “unprofitable IPOs” be the first sign of a tech bubble (similar to the one we experienced in 2000)?

This brings me to the third and last concern that I heard last week. So far, I have been considering Lyft as technology stock. But, for valuation purposes, it was deemed essential to get a better understanding of the industry that the company operates in.

This raises a fundamental question: Is Lyft a tech-company or should they be viewed as a transportation company or a platform company, or some combination of both?

Of course, I could just give the same “vanilla” answer to these questions I have always given over the last decade.

“A founder-oriented governance structure ensures short-term “investor” pressure doesn’t take over and “kill” the long-term relevancy of companies like Lyft.”

“Since unprofitable IPOs are not reaching anywhere near the numbers we saw before the Internet bubble burst, another bubble is not likely to happen in the current IPO market soon.”

“Also, Lyft and other IPO companies are more mature than most of the early-stage companies that pursued an IPO in the late 1990s and 2000s.”

“And, anyway, in a digital age, every company is a tech company.”

But these answers would only have added to the “déjà-vu” feeling.

So, I decided to bring a different view to the table; a perspective that helps me when advising companies and making (my own) investment decisions.

So, what’s the “value” of Lyft as an ecosystem?

In a world that is characterized by the exponential growth of technology, companies cannot operate as hierarchical organizations with planned R&D and production processes anymore.

That much is obvious.

The digital world is changing faster than we realize. Companies understand that innovation and disruption are unplanned and spontaneous events. It has become necessary for a company to behave “as if” it were an ecosystem.

In an earlier piece, I identified the six crucial elements in any business ecosystem. My argument was that unless these six elements are working together it can become very difficult for a business to achieve sustained innovation and success.

So, let’s look briefly at these elements in the context of Lyft.


The founders of Lyft are convinced that car ownership will gradually be replaced by “Transportation-as-a-Service” (or TaaS) in a digital age.

The technology platform connects drivers with riders. The platform is algorithmically-driven. Big data, data science, and machine learning algorithms are used to improve user-experience continually and anticipate new market demands. The Lyft apps are user-friendly and arguably add value to both the driver and rider experience (with Express Pay, In-app Tipping. Dashboards, etc.).

Lyft is aware of the need of free and open source software. Application programming interfaces (APIs) are used to provide windows to new and other ecosystems and communities. The Lyft platform interoperates across third-party applications and services, such as Google Maps Navigation, Concur, etc.

Finally, Lyft is investing directly in autonomous vehicle technology. It also allows other developers of autonomous transportation access to its network. The purpose is to give Lyft a prominent position in possibly new ecosystems.

From the perspective of the technology, Lyft seems to understand what they are doing.


Lyft uses its technology (including the new technologies) to create a multimodal platform, focusing on ridesharing, bikes and scooters, public transportation, and autonomous vehicles.

Also, Lyft provides transportation (as a service) solutions to businesses and other organizations, and it offers subscription plans for easy access.

In terms of the technology content the revenue appears to be highly concentrated, focusing particularly on transportation.


Lyft’s technology and content has brought together a highly respectable “transportation community” in North America with 30.7 million active riders and 1.9 million drivers in 2018.

What is even more impressive is that riders appear to be very loyal to Lyft. For instance, the riders that started to use Lyft in 2015 became more intense users of the platforms in 2016, 2017, and 2018 respectively. We see similar trends for the 2016 and 2017 cohorts of riders.


Leadership is about mission, vision, and values (as well as the ability to get the message across). Lyft’s core values are “Be Yourself, Uplift Others and Make it Happen.” Its mission is to “improve people’s lives with the world’s best transportation.”

In a letter (which is included in the registration document), Lyft’s founders (Logan Green and John Zimmer) explain the mission in more detail.

They write that “improve people’s lives” consist of a social, economic, and environmental component. They also write that Lyft’s mission has been and continues to be “essential to establishing an enduring brand and successful business.”


The founders also realize that a clear and shared mission and living by the core values will lead to a healthy culture. Such a culture will, in turn, lead to greater loyalty and a sense of community that attracts and helps retain talent, drivers, and riders. A strong culture ensures that the ecosystem is unified and its stakeholders working together to achieve its mission.

And it worked!

In contrast to some of its bigger competitors, Lyft has established itself as a sustainable, trustworthy, and ethical company.

Earlier this year, my students in Minneapolis explained that Lyft’s culture played an essential role in their choice to choose Lyft over their competitors.


Lyft operates in a hyper-competitive market against a background of the exponential growth of technology, fast-moving business developments and continuously evolving consumer demand.

The company needs partners to experiment, innovate, and collaborate. Lyft has established relationships with over 10,000 business and government organizations.

So, can the Lyft ecosystem attract investors (and counterbalance its burn rate)?

Or, stated differently, is Lyft’s ecosystem sufficiently unique to retain the current users, attract new users, find new revenue streams, and create new ecosystems?

The founders of Lyft are convinced: technology has helped redefine the “transportation” industry. Car ownership isn’t necessary any longer. We are moving from an ownership model to a service model. This market hasn’t reached its full potential.

They have a point, but the number of competitors will also increase. Other ridesharing companies have emerged, and the traditional car manufacturers are making plans to enter the market. If, as has already been argued, ride-sharing will become a commodity and competition will mainly be driven by price, Lyft should expand its ecosystem to other areas.

Also, Lyft can quickly lose its appeal in a relatively short period. User migration is a constant risk.

Traditional and social media are quick to portray ride-sharing platforms in a bad light. Notably, the dominant ride-sharing ecosystems attract a lot of attention.

Seeing the value in controlled chaos

So, what is the final ingredient? The “magic sauce” that allows the six elements described above to operate in synergy with one another and give Lyft its competitive advantage.

This brings me to what’s missing in Lyft’s IPO registration document. It’s acknowledged that the “continuous interaction across the entire Lyft community creates a virtuous cycle which further reinforces its culture and fuels its growth.”

But to be a winner tomorrow (and beyond), Lyft should usefully learn from its “Indonesian counterpart” Go-Jek. Its founder — Nadiem Makarim — has a vision on how to manage and grow a business. It is a vision of a company that seeks to minimize those things that kill energy and ideas (think bureaucracy, hierarchy, rules):

“The bigger we grow, the looser our control is. We allow different teams and leaders to run their teams their own way. The team leaders are free to develop their own management approach, so long as they can achieve their targets.”

The results are astonishing.

Go-Jek has become a thriving and dynamic ecosystem without settled vertical or horizontal distinctions, or even a clear distinction between the inside and outside of the Go-Jek business. It has become a SuperApp which offers a portal to numerous services in the areas of ride-sharing and transportation, food delivery, FoodTech, FinTech, etc.

And this is really important.

After all, a sense of deja-vu will rarely result in a prosperous ecosystem. Constant innovation requires an element of chaos — the uncontrolled interaction between the various elements: technology, content, community, leadership, culture, and relationships.

But it is also difficult as it means giving up control and handing things over to chance or serendipity. Unleashing chaos is never easy. Especially for founders and other stakeholders who have so much (both emotional and material) invested in a business. Re-thinking their role as steering, guiding or nudging the ecosystem is difficult, but vital.

They must remember that in a digital world, a business really is an ecosystem

And this metaphor should be taken quite literally. The constituent elements — the technology, content, community, leadership, culture, and relationships — are the producers at the base, the consumers in the chain and decomposers that connect and interact with each other to create a complex environment.

These elements and their connections provide a powerful framework to study the more complex behavioral and biological interactions that make up a business system and allows us to evaluate the success and health of a business dynamically over time.

They allow us to see the extraordinary complexity of any large organization and the often-unseen processes that are so important for the success of any organization.

In this way, we are able to identify the interventions — in this case the social behaviour — that allows an ecosystem to flourish. It allows us to see how loosening control is one way that a company is able to creatively combine and recombine the elements to produce something genuinely extraordinary.

And this is what “ecosystems” are really about. Technology, content, a community, leadership, culture, and relationships working in synergy to seize the opportunities of emerging technologies and change the world.

Professor & Ultra Runner

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