Don't Uberize, Strategize! 3 Steps to a Better Business Model.
Another month, another Uber-like startup that fails to please. This time, Uber-for-anything delivery startup Postmates is embroiled in controversy for breaking its promise to make instant-anything affordable.
Under the right circumstances, Uber’s model makes sense: Let's say you've had a few too many whiskey shots, so you need a ride home. But these days, a few too many entrepreneurs are running their businesses off the road by mindlessly applying this same “Uber for X” template to their own businesses [sert any industry here]. And that's proved to be a bad decision in many cases.
To understand why, consider the history of Uber's business model: The company's success may have popularized the sharing economy, but the startup-turned-superpower certainly didn’t invent it: Sharing idle resources for unmet demand has been the battle cry of Enterprise Rent-A-Car since 1957. Fleet vehicles have been tracked by GPS for more than 20 years. And Pizza Hut wouldn’t exist if it weren’t for the good ol’ on-demand model we call pizza delivery.
So, what, exactly is “revolutionary” about Uber's marketplace business model? Well, eBay has been connecting supply and demand and taking a cut since 1996.
And the use of independent contractors? That idea is much, much older than Uber CEO Travis Kalanick. Avon has been doing it since 1886.
None of Uber’s characteristics or practices, considered individually, is, in fact, new. Uber’s business model has succeeded, frankly, because it's blended together old ideas in order to solve people's frustrations with an even older problem: multiple cities' crappy taxi systems.
Uberizing gone bad
In all, I’m sorry to tell you that not only is Uber’s model not magic in and of itself: It's certainly not magic for every business.
“Uber for X” clone Shuddle, for example, failed because that kid-chauffeuring service was essentially an Uber add-on, not a stand-alone business. ZIRX went bust because it had to pay on-demand valets to wait for text alerts. Homejoy learned the hard way that customers would rather schedule their cleaning services themselves.
Likewise, Cherry failed because it incorrectly assumed vehicles needed bathing as often as humans do.
All of these fails are not to say that on-demand is always a bad strategy. The key is to understand when, how and why customers want a service. Then, pick your tools accordingly.
Cherry may have been a sexy, Uberesque business, but it discovered that the model wasn't right for car washes. Alternatively, subscription-based Mister Car Wash gave customers unlimited washes at brick-and-mortar locations, a formula that got it scooped up for nearly half a billion dollars.
ZipSit, a startup we built at Coplex, found a winning recipe by taking a few tools from Uber’s caddy but tailoring them for the baby-sitting business. We realized that nobody wants to call a random stranger as a last-minute baby sitter, so we used technology and close-knit social circles to tailor an on-demand service for watching kiddos.
Related: 10 On-Demand Services to Watch 2016
Disrupt without going belly-up
Chomping at the bit to change your industry? Here are three strategies to make the trip pleasant and prosperous:
1. Find out where it hurts.
The biggest flaw with the “Uber for X” concept is its one-size-fits-all approach. It drives entrepreneurs to build businesses backward, starting with the solution before diagnosing the needs and nuances of the individual industry involved. In the car wash industry, for instance, Cherry offered pricey on-location services -- an unattractive option compared with Mister Car Wash’s unlimited DIY model.
So, get out of your head and into the real world. Observe customers’ sticking points, and let your findings fuel your solution.
2. Go lean to test the waters.
A startup is nothing more than a set of untested assumptions. Maybe you’ve seen that some people hate waiting in line for coffee, but is it fair to assume they would pay for coffee delivery?
Before phoning even one investor, get out there and test, test, test. Uber, for instance, relied on SMS before it shipped an app. Talk to real customers -- not your friends -- and ask for a monetary commitment to your solution. No takers? Back to the drawing board.
If you find you’re on the right track, iterate on your experiments. At ZipSit, we confirmed that parents were willing to schedule a baby sitter via an app before we started writing thousands of lines of code. Only then did we build and grow.
3. Dump the price-dumping strategy.
Creating a business model built on price-dumping for market penetration is an incredibly risky idea. To keep investors happy, entrepreneurs should prepare for profitability, “so that it occurs much sooner than may have been accepted historically,” according to consulting firm KPMG.
Planning for the stars to align is a plan for failure, as yet another company, Instacart, found out. The grocery startup kept prices artificially low, banking on future revenue from supermarkets. When that didn’t happen, Instacart was forced to raise prices and slash wages.
Related: 4 Fatal Sharing Economy Mistakes
In the end, Uber hit on the right blend of business tools to disrupt the transportation industry -- high-fives all around. But the model is far from plug-and-play, so before you go forth making Uber for ice cream cones, remember: Most of us don’t like melted ice cream.