This article is an edited excerpt from Gabe Klein’s new book Start-Up City, published October 2015.
When I took over at the Washington, D.C., Department of Transportation in 2008, I was intrigued with the new SmartBike program that had launched just prior to my arrival. SmartBike was the first bikeshare program in North America. Although only a small fraction of the size of the successful European bike-sharing systems at the time (100 as opposed to a few thousand bikes), and perhaps even dinkier in terms of the bikes themselves, the concept was right up my alley.
Some people say that the SmartBike program was a failure, but I beg to differ. The system was a pilot with an uninterested vendor, and unfortunately or fortunately, depending on how you choose to look at it, it was too small -- at 10 stations and 100 bikes -- to work well as a transit system. The public got a taste of what a system like this could be, although neither the city nor its private partner invested heavily enough in what quickly became antiquated technology and required capital construction to implement at scale.
Having said that, from the moment I set foot in my new job, I was excited to grow the program. When I was finally able to come up for air after my first few weeks at DDOT, I started to talk to the bike division about the public-private partnership that had resulted in SmartBike. As it turns out, like the much larger Vélib bikeshare system in Paris, which was run by advertising giant JCDecaux, our SmartBike program had been launched and operated by the mass media company Clear Channel, who also contracted with the city to advertise on bus shelters. SmartBike was only one component of a much larger contract. Unfortunately for the city, one line at the end of our agreement outlined the private partner’s lackluster commitment to the program. It stated that Clear Channel agreed to set up and operate a bikeshare program in Washington, D.C. That’s it!
In my first meeting with Clear Channel, a few things became clear. They felt that the district had gotten a very rich, 15-year deal and associated revenue stream for the bus-shelter contract. Furthermore, they had recently been purchased by Bain Capital and had little interest in “municipal street furniture,” as they saw the program. Lastly, they had no contractual obligation to expand the program, which was true. We were victims of minimal planning for success by government, and an amorphous contract that gave the private sector an easy out. At the end of the day, our incentives were not aligned, and the SmartBike program died as a result. However, this ended up being a blessing in disguise in the long run.
Luckily, Arlington County, Virginia, was planning to launch a bikesharing program around the same time. Because I had a history of partnering with the county, Capital Bikeshare became the first of many projects that we would work on across borders during my tenure. Arlington had already put a procurement process in motion for a bikesharing system and was in the process of receiving bids from vendors. We combined our efforts with Arlington’s procurement process to save time and build a regional program. In terms of financing the system, we wanted to use federal money for 80 percent of the cost and applied for Congestion Mitigation Air and Quality funds through the regional metropolitan planning organization. All we needed now was the mayor’s agreement to put $1 million into a revamped bikeshare program.
My entire conversation with Mayor Adrian Fenty about Capital Bikeshare was less than 10 minutes. I told him what I wanted to do, and he asked me three simple questions:
- Could our system be the biggest in the United States? Yes.
- Will it be the best? Yes, absolutely.
- Can we minimize the capital D.C. puts in and could it break even or be profitable operationally? I said, “I think so,” and aimed to make that happen.
Working groups were established as small, cross-functional, and efficient units to manage everything from permitting to public relations, and to cross-cut D.C. and Arlington. All of our departments, with the exception of engineering, were given responsibilities related to the bike program. In D.C., finance, legal, and the CFO’s office were all intricately involved in setting up this new operating business. Our overarching goal was to launch the system so smoothly, and have our marketing so tight, that people would be shocked that the government ran it.
As we got closer to launch, the consumer-facing aspects of the program became a priority, and being a marketing-focused executive from the private sector, I was hyperfocused on those aspects. As our efforts came to a close, I returned to the basics, the four P’s -- product, place, promotion, pricing -- but the most important P was, of course, the people. The DDOT bike team was doing a lot of the planning and outreach for the system’s initial 90 planned stations in D.C. proper. We set up a website and crowdsourced public input about where people wanted bike stations in their D.C. and Arlington neighborhoods.
In keeping with our strong outward communications plan, we partnered with local blogs like the influential and widely read Greater Greater Washington and crowdsourced the name for the system, which became Capital Bikeshare. The system’s website went through multiple iterations until it felt more like a polished private-sector offering, rather than a stale and opaque city website. I wanted it to be sleek and easy to understand and for the value proposition to stand out and be clear within seconds of loading the site. This became the simple “Join, Take, Ride, Return” that still graces the front page of the system.
By the time we opened the system in September 2011, there was a palatable level of excitement from the public. At our launch event at the U.S. Department of Transportation in Southeast D.C., we brought all the bikes out and had the public sign up to ride them back to stations throughout the city. Throughout the bike share process we had involved the public at every stage, and we wanted them to feel ownership.
We were careful to gradually launch stations for Capital Bikeshare, and I later followed the same pattern with Divvy in Chicago, when I became transportation director there. It’s crucial for a system to be operationally sound, if not close to flawless, the first time a user tries it. Like any service, you are only as good as the first experience a customer has. Starting with 50 stations in D.C., we ramped up to 110 stations regionally before the end of 2011 when Adrian Fenty left office. The reviews were in, and the public loved Capital Bikeshare. Today there are more than 350 stations spanning D.C., Maryland, and Virginia, making it, as of this writing, the second-largest bikeshare in the United States by number of stations, with more than 10 million trips taken!
In D.C., the system broke even on an operations basis (give or take a few thousand dollars) from Day 1. Keep in mind that this is with zero advertising until 2014 and no sponsorship agreement, two conditions that would be highly unusual today. On top of that, it is one of the more expensive systems to run, in part because it was the first large contract in the United States. How did we pull it off? The user experience was solid. The locals were loyal and signed up in droves. More than 30 percent of initial usage was by tourists and visitors. Without any advertising at all, the system could foreseeably generate enough profit to fund the 20 percent match needed for capitalization of new equipment for expansion or replacement of old bikes and stations down the road. With advertising and sponsorship this was virtually assured. Fundamentally though, I credit the relationships among all of the parties involved and the collaboration as being the most important factors in the system’s financial stability and success.
What should you do?
- A public-private partnership needs to be built on clear expectations, S.M.A.R.T. goals, and a solid contract, but equally important is a healthy, respectful working relationship among all parties.
- Align all of your stakeholders’ incentives as much as possible, both financially and otherwise. Although Capital Bikeshare may be one of the most “expensive” bikeshare systems to operate in the country, the return is also higher. Customer satisfaction and profitability are the envy of other cities. Again, it’s not about how much it costs, it’s the return on investment that matters.
- Let the public give input on as many aspects of the project as possible.
- Gradually ramp up operations of any large initiative, public or private.
- A focus on profitability drives a better quality of service. Pretty immediately, D.C.’s portion of the Capital Bikeshare system was near breakeven and on its way to making a small profit, with no sponsor or advertising.
- Marketing is critical to success if you have the operations right.