They say that the first one through the door always has it the hardest. He takes the tough blows and falls but paves the way for others to find their way in. The history of business is littered with such examples.
The biggest example would be Amazon, which broke through in the global e-commerce game, refused to let go, and is still at it trying to break into new markets. A newer example is Uber, which in the face of significant regulatory and populist challenges, has become the go-to alternative to car ownership in many countries around the world.
A much smaller home-grown example of this is a startup we have been tracking here in Inc. Arabia’s headquarters in Dubai.
Launched in late 2015 and live by early 2016, UDrive started out as a short-term car rental service in Dubai that allowed its customers to rent cars by the minute.
This was an astounding development for the Emirate’s many residents who loathe being car owners due to the costs, lack of parking, safety, and do not want to give into over-priced monthly car rentals either.
On top of it, the costs of using a UDrive car were favored comparably with that of using public transport like taxis and limos. But the hurrahs didn’t last long. No sooner had the service started, that it was blocked by Dubai’s Road and Transport Authority (RTA) from offering the by-the-minute car rental service, while still being allowed to offer day rentals.
To those in the journalist community, this seemed like a body blow for a startup that ticked all the right boxes.
Back From The Dead
“There was a regulation that was in the books from before we started that did not allow car rental companies to rent out cars for less than a day. We did not see it…it was our oversight,” says UDrive’s 25-year-old founder and managing director Hasib Khan, recalling that period in the startup’s growth cycle.
Hitting regulatory and administrative hurdles is something many startups go through, but in the case of UDrive, it seemed to be quite the obstacle given how early it was in the growth stage. And how, unlike the likes of Careem and Uber, it did not seem to have have the financial or lobbying muscle to break through regulatory hurdles.
However, after what one can only assume were multiple behind-the-scenes discussions, Dubai’s transport regulator seemed to see the utility of this alternative pay-as-you-go concept, which has been successful in many other countries. Zipcar in the US is one that comes to mind instantly—it had a fleet of over 10,000 cars operating in 31 cities and over 900,000 subscriptions to its service as of early 2016.
Less than six months after being suspended, the doors opened again for UDrive. It started with Dubai Crown Prince H.H. Sheikh Hamdan bin Mohammed Al Maktoum issuing a new resolution in September 2016 allowing cars to be rented by the hour provided they are not rented for more than six hours a day and aren’t taken outside the UAE. A more formal announcement came almost a month later when the RTA announced that it would be working with UDrive and Ekar (a rival service, which joined the fray a little later than UDrive) to offer pay-as-you-go car rentals in the emirate of Dubai.
For Khan, the RTA association has been nothing but beneficial. “We are under RTA oversight now with being licensed by them, as it wants to make sure that the customer is a priority and is satisfied,” he says.
Passenger and road safety seems to be one of the key requirements that the RTA seems to have made UDrive adhere to. Earlier, it was possible to book a UDrive car without disclosing too much of one’s self. Now, one needs to upload pictures, identification, driving license, etc., to register for the service before renting out a UDrive car.
“The whole thing is more secure now,” says Khan. “But what has also happened after the RTA association is that we are able to offer better fares for our customers.”
Earlier, UDrive offered only one fare—50 fils ($0.27) per minute for taking a car from point A to B (excluding Salik or fines). After the RTA association, which has also opened the use of RTA-authorized parking lots across Dubai, UDrive is also offering a much lower fare of 40 fils per minute for a trip starting from point A and bringing the car back to it.
“I am giving you a 20% benefit if you bring the cars back to me,” Khan explains.
The idea behind this is to promote last-mile connectivity—the RTA has been keen to address connectivity with Dubai metro stations. Cars that set off from the metro station and come back to the metro station fit in perfectly with its transport targets for the city and helps UDrive too, as it can spend fewer man-hours retrieving cars from all over Dubai.
“It really has improved our offering for customers,” Khan says of the RTA relationship. “There is no new or extra charge for our customers.”
This is in contrast to the ongoing issues with Careem, the Uber-like homegrown service, which began charging Dhs3 as an RTA fee not too long after it inked a co-operation deal with the regulator back in late 2016—only for the RTA to clarify immediately that it has nothing to do with such a fee.
Customer is King
Khan understands for his business to be successful even in a high per capita income city like Dubai or any of the other major population centers that are next on his target, affordability for the customer is key.
And this is experience talking—don’t be fooled by his age.
Afghan by origin, Khan is the son of migrants who left Afghanistan for German shores when the troubles there intensified in the 90s. As is with young boys from that part of the world, he started helping with the family at an early age. By 13, he was helping his father with his business. By 16, he had opened a car dealership in his mother’s name. By 19, he had his own dealership showroom and was moving on to other avenues.
Eventually, moving to Dubai in 2011, he got involved with his father’s business (AIMEX Group), which had interests in food trading in Afghanistan.
The business mainly involved dealing with catering companies that were serving the foreign military bases there.
He saw first-hand how these catering companies were struggling with logistics of the trade, and got into it himself. This eventually led him deep into the logistics business, and multi-million dollar contracts with foreign military deployments including one $192 million contract with the US military.
However, as foreign troop deployments in Afghanistan have wound down over the last past few years, volumes from this part of the business reduced too. That interest in logistics stayed with Khan, however, as he looked for new avenues to expand the group into.
The idea for UDrive started when he looked at renting a car for his employees. Finding out that renting a basic car, a Toyota Yaris, could cost him around Dhs1,700 led him to crunch some numbers as he toyed with the idea of setting up a car rental company.
“I have always liked to play with numbers, and numbers gave me my path to my success,” he says.
“I called somebody from the local Toyota dealership to ask how much a car would cost me and they said it would be around Dhs50,000. Running the numbers over three years, considering the car rental firm will use a car for maximum three years, I realized that there is a big gap between the dealer price and the car rental rates…an opportunity.”
Starting a car rental then was a no-brainer—AIMEX Rent-a-Car did quite well, Khan says, but he was always ideating what more he could do to stand out in the sea of car rental agencies that dot Dubai’s landscape, mostly serving its tourists and new arrivals.
Khan had been familiar with car sharing concepts in US, Canada, and in his adopted homeland of Germany, where car2go, a subsidiary of Daimler AG, has been providing car sharing services since 2008.
“I say without hesitation that the concept and idea are not mine,” says Khan. “But what I am really good at is taking a proven concept from one market and then tweaking and adapting it to suit another.”
According to Khan, the market for UDrive has always been there in Dubai. By his research, there is a significant population of people in Dubai that cannot commit to a car whether it is rented, leased, or purchased.
“Take air stewardesses as an example,” he explains. “They are here for two days and then they travel again. They can’t rent or buy a car because sitting in the garage for one out of three days, it is a financial loss.”
A broader target demographic are the families that cannot have a second car—either because of costs or because of the lack of a parking space.
Such families exist in Dubai, Doha, Riyadh, and almost all the Middle East’s metro cities, he stresses.
A car around the corner from their building that is efficient, cheaper, and more flexible will always be of more value to them than a full blown car ownership, Khan points out.
But would that segment be large enough and can UDrive wean them off their current habits such as using taxis, Uber, or Careem? Khan is confident that he can, and that even if he is not able to soon enough, there are other avenues.
To date, the startup has approximately 2,000 registered users and is executing over 100 rides a day—a figure that he says is growing rapidly.
“Our next target segment is the corporates,” Khan says. “We will shortly start offering corporates the ability to get a business account with us, which their employees can use as and when they need it…instead of renting long-term from car rental agencies.”
Companies operating in Dubai, he says, are always in need of cars—be it for the managers, PROs, or regular employees. “It will be like running an expense account, where they can get one invoice with details of what trips were taken, by whom and when.”
Depending on permissions, Khan is also looking at advertisements as a source of steady revenue for UDrive, in the markets it will enter and operate in. Apart from in-car advertisements, that one can find in Dubai taxis as well, Khan is also looking at external advertising like stickers, etc.
“Something decent that doesn’t discourage the customer from driving the car or disturb other cars on the road either,” he explains.
For now, the short-term goal is to expand in Dubai and then more of the UAE. “Geographically, with more cars, we are covering more of Dubai,” he says.
“We are also, with our relationship with the RTA, getting access to more of Dubai in terms of parking lots, for example.”
As more and more user data comes in, Khan says he will be able to identify with better precision the core hubs from where his cars are rented as well as those zones where the demand is there, but no cars are readily available.
Accordingly, he will expand the number of cars in his fleet—of which 100 are fully owned by them right now.
“We have a strategy as to how we analyze where to park cars,” he details. “We have broad and impersonal user data, which is growing, that lets us see where our customers live, where our cars are going, and where they are being dropped back. That coupled with a feature that can let customers request cars where there are none will help give our strategy some structure going forward.”
Once Dubai is completely covered and sustainable, Khan and his current staff of 20 (and a technology center in Germany with Invers, the car sharing technology provider that owns the patented technology underpinning UDrive) will look to expand to population hubs like Cairo, Sharjah, Doha, and Riyadh over the long-term.
For that to happen, though, Khan is looking at external investors to come and join him. Having invested about Dhs7 million of his own to start and set up UDrive in Dubai, Khan knows that other centers would need that and much more.
“We are looking at investors to come in and join us,” he says. “To be honest, we are looking for an investor who can also be a strategic partner. While I don’t see regulatory hurdles in other markets, the support of strategic investors in specific markets will help us in targeting such markets faster.”
I see no other roadblocks, Khan declares.
Photograph by: Anna Nielsen