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5 Variables Make It Tough to Be the Next Uber of Whatever

5 Variables Make It Tough to Be the Next Uber of Whatever
Image credit: REUTERS | Kai Pfaffenbach
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Ever since Uber raised a large round of funding, hundreds, if not thousands of new business ideas are launching around the world to be the next, "Uber for X." Many of these companies, however, have failed to think about the implications of building a location-based service model.

New mobile apps are popping up with very specific services in very specific locations to serve a niche clientele. Most are bound to fail because founders of on-demand services often overlook a few crucial things.

Here are crucial elements your startup needs to become the next Uber:

1. Frequency.

How often are people likely to use your service or product? With location-based services such as ride sharing, riders in large cosmopolitan areas like San Francisco or New York will utilize the service frequently, perhaps several times a day. Budding entrepreneurs who are thinking about creating an on-demand service model need to think about how often users would need and use the product.

If it's a few times a week, it's worth thinking about and go after. A niche service useful once every few months, or even in a lifetime, will require too much marketing spend. It's not going to scale or drive billion dollar investments from VCs. Customers cost too much to acquire for a one-time service.

2. Personalization.

Does the service require the provider to have a personality or customer service oriented mentality? Driving a car and keeping quiet takes some skill, but performing and being a great wedding DJ requires entertainment qualities that you don't want to merely depend on someone nearby.

Do you want the nearest babysitter, or a good one who will care for your children? Some services require being matched with the right professional, not just the closest one. So ask yourself, does my customer want good quality (like dating to marry) or something fast and easy (like Tinder.) Whatever it may be, your app needs to be personalized to your customer as they'll be using it often.

Related: Airbnb and Uber Are Just the Beginning. What's Next for the Sharing Economy.

3. Value.

What's the value you'll be offering your clientele? Are you offering something high end or affordable? Uber offers both options to their clientele. However some industries and user experiences don't and shouldn't give those options.

Keep in mind, if the product is a high-end service, frequency can be slightly less, but personalization has to be far higher, allowing the customer to determine what parameters meet their criteria. If the value is small, the frequency has to be far higher, and the personalization much lower.

4. Scalability.

An app or service that is on demand and location based requires users who need the matched with providers, all in the same city. You will need to make revenue and scale into other cities quickly enough to keep competitors at bay. How much revenue does it take to enter new markets? Which markets should you target next? Some verticals can't scale into other markets due to the fact there aren't service providers in another market, or it's just not worth the cost.

You need to know how much it costs to acquire a new customer so that you can raise enough money to open an area. What is that number? Right now, depending on location and area, Uber pays up to $500 for a referral of a new driver and $25 for a new rider. I don't know the exact numbers, but if your app isn't making that type of money in the first year off every customer, you need to find other ways to scale your business. Bottom line, you have to have the right type of sales and acquisition going on to get your new Uber for x business to scale.

Related: What's Next for the Sharing Economy?

5. Competition.

Have you ever heard of Lyft? It's one of Uber's biggest competitors in the US. They are both amazing apps. What I like and think that every business in this space should have is a large competitor. Now there are two big players that can blaze the path and open more doors together. Uber opens several areas and the doorway for Lyft. Same with Lyft in certain areas and opens the door to others. Competition makes both companies work smarter... and harder. It also makes things cheaper in new areas and gets the ideas out there.

What should I build? 

If you're already building a location-based, on-demand product or service, or you are thinking about building one, the biggest indicator of success is to pinpoint the problem you're trying to solve. First, build a MVP (minimal viable product), then find your audience and test it to see if it gets traction.

One of the biggest mistakes entrepreneurs make is focusing on building a product they and their friends would use, without thinking about the totality of the customer experience. Get uncomfortable, talk to your customer. Don't build a company based off the feedback of friends and family. Only get feedback from people you don't know so that it won't have a bias behind it. It'll be true feedback.

Seeking an understanding of every problem your potential customer faces, and working to build a solution to solve those specific pain points, will push your product into the right matchmaking service for service providers and customers.

Related: 5 Entrepreneurial Lessons From Uber on Its 5-Year Anniversary