Too Many Gas Stations

I’ve been watching the gas issues we’ve been having in Atlanta with some interest.  For those of you not in Atlanta (or the southeast U.S.), you may not realize or know that we’ve had some issues in getting a regular supply of gasoline since Hurricane Ike came through the Gulf of Mexico.

We’re still dealing with a shortage of gasoline in Atlanta (and other places).  When the shortage was at its worst there were maybe 20% of the gas stations that had fuel of some kind (most ran dry of regular first and then people started buying up the grade scale as supplies ran out).  A lot of people were reporting where gas was, and wasn’t, on Twitter.  When the shortage was at the worst point people were waiting in lines for as long as an hour or two to get rationed gasoline.  For many, this was like reliving the 1973 oil embargo and the lines that people sat in back then.

A lot of supplies have now recovered and about half of the local gas stations seem to have fuel based on my unscientific guess while driving around.  A lot are still totally dry.  But even with a lot of stations still without gasoline, the lines have disappeared.  It has probably been 3 or 4 days since I’ve seen a line for a gas pump.  In fact, I’ve seen some stations with gas and no one is at any of the pumps.

So what does this all mean?  To me, it means that we have too many gas stations.  If the number of gas stations that are currently serving fuel were not sufficient to fulfill demand, there would be lines.  Since there aren’t lines, that means there is a sufficient amount of fuel, and more importantly, enough available distribution locations for the current level of consumption.

So your immediate response should be – well, if that really were true then market forces should cause gas stations that aren’t necessary to not do well financially and then shut down.  I agree, if we were dealing with businesses that sold only one product – gasoline.

In fact, “gas” stations sell a lot more than just gasoline.  They sell food, drinks, and a bunch of other products and services.  Most (All?) of which provide greater profit margins than gasoline sales.  So really “gas” stations are really convenient stores that happen to sell gasoline as a way of getting customers in the door.

They’ve all realized that they can’t make enough money to cover costs on one commodity product (gasoline) and so have decided to sell other commodity products (candy bars, drinks, etc.) that have higher profit margins in the hopes of having a self sustaining business.

So Why Should I Care About Gas Stations?

Note: I’m assuming you read this post because you’re either an entrepreneur or someone interested in startups.  If you aren’t, the rest of this post may not be too interesting for you.

Gas stations and the market issues around them mirror what often happens in startups.  A new industry or niche launches and there is a rush of time and money poured into the field.  The industry becomes commoditized.

So why do companies in the same space get funded over and over again leading to product/service commoditization?  Well, a lot of investors, honestly, are lemmings.  Money keeps getting poured into sectors that are “hot” while very valid and exciting advances in technology are under funded because a lack of excitement or understanding on the part of investors.

But really, this isn’t the investors’ fault.  The fault lays at the feet of the entrepreneur.  If there weren’t as many companies vying to be the eBay/Amazon/PayPal/Google/Microsoft/whatever of this new industry/niche, there wouldn’t be so many companies that investors could fund.  As entrepreneurs, we are the ones that start the lemmings in their run towards the cliff.

So What Can I Do?

So think about the startup that you’re at or that you want to start.  Are you really doing something that is unique?  Be honest – if not to others, at least to yourself.  Are you entering an already crowded field with the hopes of doing what everyone else is doing and then try to sell some lottery tickets and candy bars along with it?  If so, you’re just trying to provide a commodity product/service with add-ons that are also (or will become) commodities.  That’s a very difficult situation to succeed in.  Besides, if your initial thought was to go into an industry to make it big (gasoline sales) but you diversified (candy bar sales) to keep it going, do you really think you’ll succeed wildly or just limp along for years to come?  More importantly, are you going to enjoy that business?

If you’re going to launch a startup you need to think about two things.  First, are you launching a startup into a field that is already well served or even over served (partially or fully commoditized)?  In other words, are you going to set up a gas station where no more gas stations are needed or are only marginally needed?  If so, doing the same thing and selling some candy bars isn’t going to lead you to the success you seek.

Second, look around and see if there is another underlying problem/issue that you can solve instead.  Success is much easier to attain when you create a novel solution to a universal problem that no one else realizes is fixable.  Sometime people don’t even realize they have a problem until you present the solution.  Sure you may have a harder time raising money or educating potential users as to why they care but in the end, you’ll deliver a new worthwhile solution to a market that you’ve created.  Selling a unique solution to others who are selling commodity products/services doesn’t make you a commodity as well.  It actually makes you smarter than the commodity players.

Of the companies I’ve heard about recently (locally or not), the most interesting ones are attacking a problem that no one else is doing anything about.  They still have a lot of challenges in terms of market education and adoption as well as fundraising, but I’m way more excited about their prospects than another company doing the same old thing with some candy bars thrown into the mix.

Tagged as: fundraising, gas stations, gasoline, marketing, startups