These types of startups will continue to be built, whether we like it or not. Well, why not, when investors too are keen on funding the next Uber for X or on-demand startups like Eaze or Glamsquad.
When a startup like Homejoy, symbolic of the Uber for X or an on-demand model, collapses, you bat more than an eyelid. Why? Because that's just one of the many Uber for X startups that thrive across different sectors today.
And these types of startups will continue to be built, whether we like it or not. Well, why not, when investors too are keen on funding the next Uber for X or on-demand startups like Eaze or Glamsquad.
So much has been the demand for setting up Uber for X companies that it fueled a parallel business--clone scripts. There are so many development shops that have cropped up offering clone scripts for Uber for X apps. On the other hand, we’re helping several startups develop their version of the Uber for X or on-demand startup.
There's nothing wrong in either of this. As long as you're serving a niche, based on a problem you or your audience has encountered, it's perfectly legit. There's no harm using the two- or multi-sided marketplace principle.
Whether it's Uber for X or Snapchat for X, be careful not to infringe on any copyrights, trademarks or patents before you venture out though. Here are a few more things you should keep in mind while building the next Uber for X.
#1 - Don't copy the business model
One can understand taking inspiration in the form of bringing together multiple stakeholders onto the application in a similar fashion that Uber does, but copying it completely including the business model could paralyze your startup rather quickly.
Uber has its own reasons to build the business model the way it has. Your market insight, customer problem, audience, etc should and will be different from Uber's and that's one reason why you shouldn't blatantly copy their business model.
One thing you should know is that Uber isn't anywhere close to turning a profit, according to this report in Gawker. Therefore, look to your own market and its needs to assess what your solution is worth to YOUR customers. Be creative and be willing to experiment different models until you find one that works for you.
#2 - Technology is only an enabler
The real business is not the app, but in servicing your customer offline. Did you think the founders of Uber simply built an app and the various stakeholders flowed to the app?
Absolutely not. You have to manually onboard your suppliers and at the same time the end users and ensure both stakeholders continue to have a great user experience. The app part is the easiest to build. But creating and managing the logistics, managing the suppliers, managing financial transactions between all stakeholders--that's what the on-demand business is all about operationally.
Did you know that the $40 million funded Homejoy shut citing worker misclassification lawsuits?
#3 - Fix a niche and be prepared to battle competition
The first golden rule of starting any company is to identify a niche or a specific customer segment for which your product will mean the go-to solution for their problems.
Don't cast a wide net because that would mean a nightmare getting different categories of suppliers onto one platform and ensuring all get enough traction and are able to deliver a great experience.
Instead, focus on solving one problem, at least to start with and establish a front-running position in that niche. For example, you may want to start with just a window-cleaning service.
On the other hand, if your model proves to be successful, be prepared to battle numerous competitors vying for the same pie. For the customer, if they've had a bad experience with your company, they can quickly shift to another provider. Loyalties take a much longer time to build.
#4 - On-demand is an operationally expensive business to build
The cost of building and running a business isn't just the technology. For reasons stated above, technology is a very small component of the business and its expenses.
Companies have failed simply because they expanded or scaled up too quickly and ran out of cash. Take for instance Good Eggs, an on-demand grocery delivery company that had to scale back its operations and lay off 140 employees because they grew too quickly.
Similarly, Rivet and Sway, which provided eyeglasses for women had to shut shop because of high customer acquisition costs as one of the key reasons.
#5 - Failure to scale will ensure failure of the company
While scaling up too quickly can be hazardous, not being able to scale at all can ensure failure of the company altogether.
On-demand businesses have thin margins and bank on a high volume of transactions to make ends meet. Also, scaling up is that much harder for a business where they have to establish a presence physically. And that's the reason why Cherry, an on-demand car wash service failed.
There are two ways to increase transaction volume--repeat and frequent business from existing customers and acquiring new customers across different territories. It's not one or the other, but your on-demand startup needs to do both successfully to grow.
Rahul Varshneya is the co-founder of Arkenea LLC, a mobile app consultancy helping startups in mobile product strategy and development, and the author of How To Build A Mobile App Business With No Technical Background.