Public transit 101: read a “how to start a business” book

May 22, 2013 — Visitors to the United States are often shocked by the paucity of robust public transportation systems in most of its cities. In many places, there is no public transportation system at all. In others, automobile travel remains a superior way to get around for many, if not most, types of trips.

Taking a bus to travel between two different dense and walkable neighborhoods in Pittsburgh, Pennsylvania’s booming East End, for example, may require waiting 25 minutes or more (if, indeed, there is a bus route that connects a rider’s planned origin and destination.)

Transit planners and advocates in the U. S. see such waiting times and other structural barriers to convenient service — hardly atypical — as a principal reason that, in most cities in the U. S. where public transit exists, it has not been more widely adopted either by potential riders (many cities, of course, have no public transit to speak of). In turn, evidence of low ridership tends to reinforce negative attitudes towards public transit.

Jeff Wood is the chief cartographer at Reconnecting America, an organization that advocates for improved public transit services and transit-oriented development in the United States. Wood told Remapping Debate that critics of transit investment argue, “Well, nobody uses transit, so why should we fund it?”

What doesn’t seem to have been done very much by those thinking about the building and maintaining of public transit systems is to take account of a key characteristic in the birth and subsequent life of an array of other goods and services. It is costly to make an offering (like a restaurant meal or a mobile-phone app) sufficiently appealing to attract increasing market share, but the failure to invest enough toward presenting a desirable dining experience or an accurate mapping service to consumers guarantees that they won’t adopt it. As such, companies understand that there is an initial period during which the hope of future consumer adoption means significant pre-adoption losses.

Could such a “jumpstart” of much more substantial and convenient public transit service (with an initial operating and capital “super-subsidy”) convince car owners to give transit a chance, and result in greater adoption of public transit after an initial startup period (and thereafter return to a lower operating subsidy)?

How do you make it attractive enough in the first instance?

“A real truth is that all the transit agencies are incrementalists,” Graham Currie, professor  and chair of public transport at Monash University in Melbourne, Australia, told Remapping Debate. “They have no choice…They are hamstrung by lack of funding [and], politically, have very little power.”

The result of such an approach is that “when tinkering around the edges of an existing system, [it] doesn’t really raise you to the point…of beginning to form a [real] network, so you [have spent] extra money and nothing appears to happen [to ridership],” said Paul Mees, an associate professor of transport planning at Royal Melbourne Institute of Technology (RMIT University) in Australia. Critics of transit funding, Mees added, will look at such a result and say, “We told you so. We put an extra service at 3 o’clock on Saturday afternoon on [bus] route 274…and still nobody is using it!’”

In contrast, one way to build a public transit system that could result in substantial adoption would be to create significantly improved networks at the outset as “new products” that would then show people that public transit systems can function well.

Venture capital firms and investors in startups know this intuitively. When a new product is being developed, depending on the industry, it may take years before a company sees a return on its investment. “You have to invest before you are going to get to a point where you are going to make money, and where you get to break even,” said Ari Ginsberg, professor of entrepreneurship and management at New York University’s Stern School of Business.

Companies and analysts call the rate at which a business launching a new product or service consumes cash a “burn rate.” Yoav Farbey, the editor of the U.K.-based website, The Startup Magazine, told Remapping Debate, “In the beginning [of a company’s existence], obviously your burn rate is really high because you are trying to get something ready for market, and then when it is launched your burn rate is still relatively high because now you are spending a lot to make sure that it fits the market.” It is crucial, he added, for companies to understand the “minimum investment” that is needed to “make things work.”

Dave Neal, the managing director of the Triangle Startup Factory, a supporter of early stage startup technology firms based in Durham, N.C., works with companies that are still refining their ideas and building products, and agreed that having adequate investment was crucial for long-run success. “The cases in which you have a business that is cash flow positive immediately are quite rare.” Even after developing a product, he said, “You would expect to have some period of time where you would have to expend more money, perhaps a lot more money than you are taking in each month in order to get to your desired state of the business.”

Businesses know, Neal added, that “it would take some time” to reach a “self sustaining point.”

In an Internet company, much of the “burn” will go towards developing the new product; in other kinds of enterprises, the money may be spent heavily once the business is “open,” as with a restaurant.

Regardless of how many people come to that restaurant on its first day, the business needs to have invested in all of things that are necessary to make it operate — produce, stoves, chefs, and waiters — and have a “minimal viable service” available.

A real risk for many smaller businesses, Dave Neal noted, is undercapitalization. “People start a restaurant,” he said, but “they don’t have enough cushion money in order to make it through the first ‘x’ months…one of the areas that they would be shorting would be investing in making their service as good as possible.” Under such conditions it is possible that they will either fail or never reach their desired customer base.