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Upwardly Mobile: Postmates Readies for Battle with Tech Giants

By Thomas Schulz in San Francisco

Photo Gallery: Turning the Old Economy Upside Down Photos
Winni Wintermeyer/ DER SPIEGEL

Founded by German entrepreneur Bastian Lehmann, on-demand courier service Postmates is going head-to-head with Uber and Amazon. The company has big ambitions but faces stiff competition.

Rush hour in San Francisco is just getting started when an algorithm decides that Bastian Lehmann is to pick up a burger with garlic fries from a nearby fast food restaurant and deliver it downtown.

The message arrives via Lehmann's iPhone, which he's attached to the dashboard of his VW Golf. He'd only just signed in to the Postmates app on his smartphone. It works out that Lehmann is the closest to the pick-up and drop-off addresses, can therefore deliver the goods the fastest and thus earn the most. Twenty-five minutes later, the app tells Lehmann that he's earned $5.80 (€5) plus a $4 tip.

It's an expensive treat for the customer. But Postmates, which launched three years ago, is banking on plenty more people being willing to dig deep into their pockets and trade money for time, efficiently and elegantly delegating every job they can with the help of smartphone apps.

Lehmann, who sports a beard and a close-shorn haircut, black t-shirt and jeans, is just one of Postmates' over 10,000 couriers in dozens of cities in the United States. They deliver everything from supermarket groceries and pizza to aspirin or even a newly purchased iPad, all within an hour. The app allows the customer to track the rider's precise whereabouts and how long the delivery will take.

Postmates has set itself an ambitious goal -- to be the Uber of goods, with a vast network of couriers, linked, like Uber's drivers, via a sleek app, waiting for users to hit a button on their smartphones and send them forth to pick up anything that money can buy. Like Uber's drivers, Postmates couriers aren't employees but "independent contractors." Anyone with a bike, car, truck, scooter or motorcycle can register and decide exactly when they want to work.

Lehmann usually signs in about once a week, and normally just to check and make sure the app is running smoothly. Now 37, the founder and CEO of Postmates grew up in Bielefeld and Munich. At the moment, he seems to be winning a fight in which the odds were stacked against him -- and making a dream come true that was born 20 years ago in his childhood bedroom. The German entrepreneur is well on his way to making it big in the Silicon Valley with a business hailed in the US as one of the most exciting start-ups around.

Game-Changing

Postmates currently takes 70,000 orders a week. Available in 26 major metropolitan areas, the company has raised nearly $60 million in venture capital and presides over the world's third largest network of couriers, after Uber and Lyft. A few weeks ago, Starbucks announced it would be teaming up with Postmates so that customers can now have their skinny lattes delivered to their door.

The loft premises in a brick building in downtown San Francisco, where the company has been headquartered for the last eight months, are already getting too small. A total of 198 staff members -- many of whom boast IT degrees from Ivy League universities -- sit at back-to-back computers crammed into two floors. Lunch is eaten al desko.

The start-up's rise has been so meteoric that many in Silicon Valley thought Postmates could be the next addition to the Unicorn List -- one of those rare companies that prove to be game-changers or build whole new markets, such as Airbnb and Uber.

Graphic: Deliveries made by Postmates Zoom
DER SPIEGEL

Graphic: Deliveries made by Postmates

But it's also possible that the good times could soon be over. Failure can happen just as fast as success in the Silicon Valley. It's littered with the corpses of many once-thriving companies, like Groupon, Foursquare and Fab. Slain unicorns, every one of them.

But Lehmann has spied what he calls a "historically unique opportunity." He recognized earlier than most the potential of the still nascent digitalization of the retail sector, prophesizing that the smartphone revolution would soon reach every last corner store. Lehmann understood the importance of having one brilliant idea in order to stand out from the sprawling ranks of start-ups, all clamoring for funding and fame.

Lehmann has a vision. He wants to develop a logistics giant for urban areas, one which will bring together retailers on one platform, thereby giving them the "combined clout of Amazon." As he sees it, Amazon's strength is based on the vast amount of goods in its warehouses, so why not make the city itself a warehouse? Its product range is the accumulated inventory of all the retailers listed on Postmates, each product available to be ordered at the touch of a button and delivered by courier within an hour for just a few bucks.

Hockey Stick Growth

Lehmann is well aware that it will take time to reach his goal and he's playing on a crowded field. There are many others whose companies either could be or already are the next unicorn, and who are bigger, stronger, more formidable. But Lehmann also knows that in an age when digital technology makes it possible to turn the world upside down overnight, crazy-sounding ideas can be pulled out of thin air and turned into reality in just a matter of years.

Lehmann went to the US to put his plan into action because he felt he had no choice. "In Germany, if you have an idea like mine, people think you're deluded," he says. Germany doesn't nurture entrepreneurs, he believes. "I have friends who've been looking to start a company for years, but they can't break out of old mindsets," he says. "Not least because no one there believes in you, no one will write you a check."

At this point, a lot of people in Silicon Valley believe in Bastian Lehmann. Mainly because of a hockey stick. That's what the line chart which all start-ups want to see describing their development looks like: A long, straight line -- that's the pre-launch development phase -- to begin with, which morphs into a short, sharp upwards curve when business starts to boom.

This is the very graph that Lehmann draws on a board in the conference room of his company when he outlines Postmates' trajectory so far. It took the business 116 weeks to reach the 500,000 deliveries mark. After that, the line starts a steep climb, with the next 500,000 deliveries mark reached in 20 weeks and the next in just 10.

Lehmann laughs as he makes his sketches, but he sounds more nervous than jubilant. His life has been a rollercoaster ride for the last three years, veering between sleep deprivation and adrenaline rushes. He knows the hockey stick doesn't mean anything, at least not in terms of his master plan, which is to create a global brand, "a company that has genuine significance."

'See You in The Trenches'

Lehmann is on edge, loud, restless. He swears a lot. He never wanted to be a company man, he says, and doesn't bother disguising his disdain for the "leaden pace" of the old economy. "With big companies you're a nobody," he says. "You spend your whole day at a desk and you're powerless." He's completely at home in Silicon Valley, where speediness is everything, where ideas are hatched, developed, tested, and rejected in the wink of an eye. It's a world where there are few precedents and no blueprints. Lehmann loves nothing more than spending his days mulling a new digital platform "where the world is synchronized, and all you have to do is hit a button and everything happens in real time."

Lehmann isn't some geeky engineer. He's a can-do kind of guy, bossy and uncompromising. He recently ousted his second-in-command. No one gets to the top being nice. It can sometimes look like everyone in Silicon Valley is working toward the same goal, closing ranks against analog, mechanical, and electronic technology in a push to bring about the digital revolution. But below the surface, competition is tough, vicious, and anyone who isn't careful can easily end up steamrolled.

In the summer of 2012, just a few months after Postmates was founded, Lehmann met Travis Kalanick, the founder of Uber. At that point it was already a unicorn and Lehmann was looking for advice. He introduced himself to Kalanick and said he was a big fan. The Uber CEO snubbed his outstretched hand and turned on his heel. "See you in the trenches," he said to Lehmann over his shoulder.

Today, Uber is worth around $40 billion and is looking to expand its services from transporting people to moving goods. Does Postmates stand a chance against these sorts of rivals? Will it ever be able to compete with Amazon?

"If there's one thing I believe, it's that Amazon won't win this fight," says Lehmann. As he sees it, the dominance of the online giant is highly problematic for small retailers, and sworn enemies are unlikely to turn into allies. While "Amazon is destroying inner cities," Lehmann is devoting a lot of time to positioning Postmates as a partner that will give retailers new buoyancy.

So far he's signed up 40,000 partners. For the time being, 75 percent of orders are for food. If the business wants to go head-to-head with Amazon, this will have to change though -- and soon. Postmates started out with a focus on eateries because their menus rarely change and are easy digitalized. A real-time app that allows users to see the product range of retailers is far more complex. Postmates has spent the past year gradually introducing new categories, such as supermarkets, electronics stores and drugstores.

'Focus, Focus, Focus'

One strategic move is to partner with leading retailers. The collaboration with Starbucks -- one of the world's best-known companies -- is a single step, albeit a giant one. Before Starbucks got on board, a number of its managers registered with Postmates as couriers and spent weeks examining its technology and logistics. They wanted to see for themselves that Postmates does indeed have the capacities to deliver hundreds of thousands of cappuccini a day.

The pilot project with Starbucks is being launched in Seattle and Postmates executives hope it will serve as a catalyst for similar partnerships with other leading brands. Holger Lüdorf, head of business development, is in charge of these deals. Originally from Germany's Rhineland, Lüdorf used to work for the New York start-up Foursquare, which looked poised to become a unicorn, but never quite made it. Lüdorf knows all too well that a spectacular fall from grace can happen in as little time as a few months.

So Lüdorf and Lehmann are making sure that staff are concentrating on a few key priorities. "Focus, focus, focus," says Lehmann. Lüdorf nods his head in agreement. "It's really easy to waste a whole week on small stuff that isn't important."

Lehmann taught himself everything he needs to know about management. He dropped out of vocational college in the late 1990s and joined a start-up. It tanked but Lehmann learned valuable lessons and took them with him to various other tech start-ups.

Postmates is aiming to be operational in 50 major metropolitan markets in the US by the end of the year, and will start looking at international expansion after that. Hundreds of new couriers are taken on every week. Finding drivers is increasingly difficult in many cities because Uber is also seeking to hire the same students, freelancers, part-time workers and random people with cars and bikes looking to earn some extra cash. Fewer than 40 percent of Postmates' couriers do the job full-time.

Some say that the business models eingineered by Postmates and Uber turn the clock back on the labor rights that workers have managed to secure in the last half a century. For all their flexibility, these "independent contractors" amount to little more than a growing army of underpaid McJobbers.

Building a Lasting Business

Does Lehmann understand the criticism? He does. A few months ago, Postmates and a number of other start-ups were sued by labor lawyers endeavoring to get these riders and drivers made staff. "We think we provide a fair model for people who want to decide for themselves when and how much they work," he says. But Lehmann also knows that the company would need an alternative business model in Europe, "such as flexible part-time work, perhaps." Right now this wouldn't be tenable for Postmates, given that in some cities, such as Los Angeles, the company is taking on up to 40 new riders a day to meet demand.

Growth on this scale is costly, and Postmates is planning on drumming up new capital in the next few months. This hasn't been hard in the past. The first check for more than $250,000 was written by a venture capitalist five minutes into an initial meeting. Lehmann hadn't even finished his pitch.

So far, Postmates has been cautious about raising venture capital. Possibly too cautious. A total of 16 investors have injected $60 million into the company. Last December saw rival start-up Instacart raise $220 million in one fell swoop. Instacart has thus far concentrated on supermarkets but with that sort of capital, it's well-positioned to expand. "That really bugged me," says Lehmann.

He's currently working on a new pitch-deck for investors. This time it needs to include at least a hundred slides comprising facts and strategies illustrating revenue potential. "I have no doubt whatsoever that we can raise $200-300 million one day," says Lehmann.

What happens then? Will he do what so many other entrepreneurs in the Valley do and sell the company when it is most highly valued -- cashing in chips rather than risking abject failure for another year?

"I grew up poor, I don't need money," says Lehmann. "But what I do think is exciting is building a business that has a lasting, positive influence on society. That's what I think is really fantastic."

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1. Great article!
rsigan 05/22/2015
I really enjoyed reading it. Quite informative and insightful.
2. Borderline
afrikaneer 05/22/2015
Fantastic story. I like the Uber owner response " see you in the trenches". Make sure Bastian your trenches are not that deep or the walls may fall on you. An interconnected foundation in shallow trenches is done faster and is as strong. Good luck!
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