Regional Snowplow SWAT team

So the recent snowfalls in the DC / mid-atlantic region of the US have kinda shocked everyone in the whole region. A BoltBus driver admitted to me yesterday that their services to DC/Baltimore were shut off for "up to 6 days". The Federal Government shut down. Clearly, billions of dollars were lost in worker productivity, never to be regained. And this happens every time there's a nontrivial snowstorm in North Carolina, Virginia, DC, or anywhere used to occasional but not yearly blizzards.

At the same time, it would be hugely uneconomical for any of those areas to maintain and coordinate a fleet of professional snowplows, such as the ones that often have Boston-area school systems opening on the day after a 10-inch dumping. Those fleets require not just the trucks, not just the plow hardware, but also trained drivers willing to drive all night to plow an area. Doing multi-lane freeways requires even more coordination, typically a series of big plow trucks going in series to drive all of the snow off the entire highway rather than just a lane. Last year, London was hit by a fairly large snowstorm which shut the city down and resulted in an outcry for why the City was unprepared. And to his credit, the Mayor basically told everyone "it's not worth keeping all that stuff around for the one time every 4 years that we would need it". And he's right.

But when that storm comes, a place like DC would be willing to spend almost any amount - at least tens, perhaps millions of dollars - to avoid a regional shutdown of all commerce and non-emergency services.

So, I (and my friend Sasha, who debated this with me) wonder whether there isn't SOMEONE for whom it's economical to have such a system around. Consider the following proposal:

1. We pay, on a small retainer, a number of pickup truck drivers to be on the ready for a storm. But these guys aren't in the mid-atlantic, they're in Minneapolis, or Buffalo, or Vermont, or anywhere a plow will be needed more frequently. And we have hundreds of them - some of them trained to operate the really big machines that do the highways and main streets.
2. We give them plow hardware, and the right to use it for their own purposes (read: plowing driveways for cash) as much as they want, as long as they keep it tuned and repaired
3. When a major storm hits an area that ISN'T used to a big snowfall - I don't care if it's Kansas City, Cleveland, Seattle or Washington DC - we are the first-responders. Everyone in the network drives down to where we're needed. We will be there within 12-15 hours of snowfall hitting pavement, we will be there until it stops snowing and we've cleared the highways and streets of a region, and then we leave.
4. We charge not by some hourly rate but by a % of the amount of economic activity (= tax dollars) we save by having businesses open. States are the ones paying us, based on which municipalities want in. Smaller areas (say, Toledo OH) will get fewer plows sent to them, but something like North Carolina getting 6 inches will result in statewide efforts. And then we pay our snowplow respondents pretty good coin for their troubles.
5. Oh, sure, these states already have SOME plows. But they can't cover everything, and you can't work the drivers 72 hours straight until the state is open for business. There's not enough No Doz to make that happen. That's where we come in - we're a nationwide service, and function almost like Snowplow Insurance. We have large numbers of guys who (A) are used to doing this all the time, and (B) have signed contracts saying that they will drop everything and drive to the point of necessity at whatever day and time they're required. That's worth a lot, to avoid a 6-day shutdown of the federal government.

So now let's think about this harder. Clearly, a fundamental characteristic of this business is that it's dependent on there being bad storms at unpredictable intervals in unusual locations. In a year without much snowfall, we're going to lose money, and in a year where El Nino goes on a bender, we're going to be shoveling it in (sorry). We assume risk in exchange for an expected value that is highly profitable, like any insurance company.

However, what's different about this business is that we have the ability to keep fixed costs low. Aside from basic retainer fees (whose purpose is mostly to make the drivers feel obligated to come across the country - their contracts say that they have to give all that money back if they flake on us for something other than a family emergency), some space for field ops and coordination when we're "live", and a very small sales staff, we have no fixed costs. Even one big storm along the eastern seaboard probably makes us turn a profit, and other smaller jobs may still be very profitable if there isn't a big opportunity at the same time.

The bigger problems with this business are:

(1) Setup costs. We have to find the guys with willingness and ability to be part of our plow network. We have to make them understand exactly what they'll be responsible for, and we need them in a critical mass.
(2) Sales complexity. Oh, you want to plow our region when we need it? And we only have to pay when it actually snows? That's fine, but now you have to learn our entire street network, coordinate with the local plow jobbers, set up optimized routes, deliver timely information to authorities on progress, and be 100% reliable so that school districts can count on your promises. Oh, and we want references. What? We're your first client? Where's your credibility, then?
(3) Limitations of scope. There's only so many places which could conceivably be profitable clients for this business. The obvious ones - Washington DC, Virginia, North Carolina - are all close together, and while others exist across the country, the ease of "sending in the troops" will decrease the farther you get from New England, the Rockies, and the parts of the mid-west north of Chicago, where plows and plow guys exist in abundance. And the smaller the population centers, the less profitable this will be.
(4) Demand events are highly correlated. A blizzard sweeping a region probably creates lots of clients, but they're not spread out. Fill in the blank: We should be prepared to handle snow removal simultaneously for a combined population of _____ people. Got a number handy? What happens if a blizzard hits the whole east coast and we can't fulfill our obligations to a client? Do you start segmenting them by priority? Do you purchase insurance for this at Lloyds for this specific scenario, to cover your liability? In the short-term, I imagine you wing it and drive your guys as hard as you need to.

So despite all those obvious and semi-obvious problems, this still has the potential to be massively, massively profitable if the logistical considerations can be worked around. Let's do a back-of-the-envelope: Consider the greater DC area. The population of the Baltimore-Washington Metroplex is about 8.2 million. Let's assume half of them work, at an average economic value of $50,000 a year, they each pay an average of 20% taxes (including sales taxes to the State), and the average storm would disrupt 80% of economic activity for 3 out of 250 working days. Lastly, assume that by plowing, we allow economic activity to go from 20% up to 60% of normal for the duration of when the streets would otherwise be un-driveable. There may be only 0.5 or fewer such storms per year, but let's calculate the impact of a single storm merely half as vicious as last week's.

Year-long regional GDP = 8.2M people * 50% working * $50,000 each = $205 Bn.
GDP loss for duration of storm = $205 Bn * (3/250) days * 80% disruption = $1.97 Bn.
Taxes lost from that activity = 20% of $1.97 (=~2) Bn = $400M.
And we can save half of that loss by going from 80% disruption to 40% disruption, aka $200M in tax savings.

Even if we further suppose that these cities and states keep enough plow capacity to save 1/4 of that value by plowing more slowly (because they can't just trust the safety of their people ENTIRELY to a for-profit company), and we offer to work in conjunction with them, that's $150M of taxes still lost. Suppose we price our services to charge 33% of just the taxes saved - to say nothing of the economic activity - then we're at a $50M charge for 3 days of work by, what, several hundred people? We can pay them ludicrous amounts and it still would only add up to 10% or less of what we charge. The margins on this would be obscene, for both us and the network of semi-employees.

Or we could just give the kids a snow day and let mom and dad telecommute. But the grocery stores and doctors offices and malls and restaurants will still not be amused.

This would require the expertise of someone with high-end FEMA operations experience or running the snowplow network for, say, upstate NY or Colorado or something. But a good enough entrepreneur might be able to get some letters of intent from states or municipalities ("you show that you can deliver X subject to SLAs Y, and we will pay you $Z based on these metrics"). And with those LOIs, I bet a good private equity shop would fund your setup costs.