By the time Mark Lawrence started raising big money for his startup SpotHero — which lets drivers find, reserve, and pay for parking spots on their phones — plenty of investors told him he had “already lost.”
Those were the days of the on-demand valet empire.
In 2015, anyone with a car in San Francisco could summon a valet with just a few swipes of an app. People wearing pink blazers or blue running jackets— the signature looks for startups Carbon and Luxe, respectively — zipped around the city on Razor scooters to take your keys, park your car, and return it on demand for a small fee.
Hundreds of millions of venture capital dollars flowed into these valet businesses that hoped to mimic the success of Uber and provide a service at your fingertips.
Even then, Lawrence held onto the belief that letting drivers book a parking spot on an app was the right path to building a billion-dollar on-demand parking company.
That decision ended up saving his company. The four most high-profile valet services have since shut down or pivoted, leaving SpotHero with the opportunity to take their business. The tale offers a helpful — and somewhat obvious — reminder for any entrepreneur.
“I know why they failed,” Lawrence said. “Whenever you sell a product for less than it costs you, that’s a problem.”
On-demand valet was an incredibly costly business model. Companies like Luxe, Carbon, Zirx, and Valet Anywhere would dispatch a valet at a moment’s notice to park a car in the middle of a city. The margins were thin. They made about $2 to $5 per parking job after paying the valet’s wages and a monthly fee for the parking spot.
As demand for these services grew, the companies had to buy more parking spots. The parking lot and garage owners often denied giving the companies any meaningful discounts at scale. And so, as demand went up, so did their operating costs.
Lawrence said “every bone in my body” told him the business model was doomed.
Still, their early success made it difficult for Lawrence to raise money for SpotHero. He had already left his job as a financial analyst at Bank of America shortly after the worst of the financial crisis to pursue the SpotHero idea. Yet, some of top firms in the Valley, including Bessemer, Lightspeed, and GV, Google’s venture arm, already made their bets in the on-demand parking space, which meant they couldn’t put money into competitors like SpotHero.
By 2015, “half of the growth-stage funds in Silicon Valley invested in on-demand valet. And so, imagine, I’ve only raised $4 million, I’m supposed to go to market, and the pool of people I’m supposed to raise from has shrunk by 50%,” Lawrence said.
Investors told him to consider expanding into valet services, which was climbing in popularity in 2015. On visits from Chicago to San Francisco, he saw the rival startups’ ads and their valets, who served as walking billboards in their colorful outerwear.
“I had major doubt,” Lawrence said of his company’s early chances of survival.
SpotHero briefly considering a pivot to on-demand valet. The company launched a pilot program in Chicago, its home base, and New York City. At the end of the trial, SpotHero had blown through tons of cash to pay valets, and validated Lawrence’s suspicion.
He presented their results of the experiment at a board meeting.
“After five slides, they were like, ‘We’re not doing this,'” Lawrence said.
His perseverance paid off. SpotHero spent three years building the Chicago market and fine-tuning the operation, before expanding to 49 other cities. It links drivers with over 5,000 parking lots, garages, and valets across the US and Canada. SpotHero takes a commission on every reservation made, without having to pay for labor.
According to the company, SpotHero will generate hundreds of millions of dollars in revenue this year, up 52% over 2017. It’s raised $57 million in funding to date.
Ultimately, Lawrence said SpotHero thrived while his competitors failed, because his business model made sense. Plus, he believes it provides a better customer experience.
He said in most cases, it’s faster to walk to your car, sitting in a SpotHero lot or garage, than it is to wait for a valet to get your car, drive through city traffic, and meet you.
“You know what’s more on-demand than on-demand valet?” Lawrence said. “SpotHero.”