Limits to Uberizing – Luxe’s Flexibility Challenge

Luxe

Luxe is a valet parking service provider that offers a cheaper parking solution on demand in big cities. How it works is as follow: A driver tells where she is going through the Luxe app when she gets into the car, then the system tracks the driver using GPS on her phone and gives the information to available agents so that one of the agents meets her at the destination just in time. In short, Luxe’s business model is basically to uberize the valet parking service in big cities. Although this uberizing business model has been attractive to many investors, it faces various operational challenges as a startup to become the next Uber. One of the main challenges is how to manage its capacity flexibilities. Flexible capacity allocation in terms of geography and time is required to provide timely service to customers – how many agents should be allocated in a certain time and location. However, as a startup firm that has limited reputation and resource, it is not always easy to secure a certain level of capacity without additional expenses. As efforts to deal with this challenge, Luxe has implemented surging pricing, just as Uber did, to increase the agents’ discretionary participation in the peak time. Yet, this pricing policy is not enough, particularly for a startup, to secure a certain capacity level when the demand is very high, so the firm also decided to hire full-time agents as employees whose capacity it actually can control.

However, could the buildup these two flexibilities to address the demand management create an investment tradeoff, especially early in the life of a startup like Luxe? There is another angle that is unique to the underlying startup problem: growth and its link to firm valuation. Luxe, for instance acquired $20M in new funding in 2015 to invest making on-demand valet service available in other cities around the U.S. Does such a startup scaling strategy (across multiple geographies) exacerbate demand uncertainty, and in turn make the ability to manage of multiple flexibilities a central issue in establishing successful shared economy startups?