Why On-demand Start-ups have Failed in India
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
In the last few years, we have seen a lot of start-ups emerging in the area of on-demand services. With the advent of technology & app-based services, everything from cabs to groceries is being delivered to your doorstep with a click of a button; but still, the market for on-demand services like plumbers, electricians & other maintenance services remained un-cracked. We have also witnessed a considerable number of shutdowns along the way.
So is it a Failure?
Well, I wouldn’t declare it a failure right away, but the simpler explanation behind this is good old unit economics. Take a case study: An average plumbing service costs about INR 400. While on-demand marketplaces operate within the margin of 10-20% commission from third party service providers to cater to these requests. Assuming the maximum commission of 20%, the company is earning only INR 80 per lead while the present customer acquisition cost is somewhere in the range of INR 700-1000. Simply put, in order to break-even on a particular lead, a customer should come back for at least 10 jobs around the year averaging INR 400. This is, of course, ignoring the administrative & infrastructure costs on top.
Now the question is: Would he? Most likely, not. There are a lot of factors in play. First of all, expecting every customer to come back to your platform for a minimum of 10 times/ year is pretty high, to begin with. Secondly, for maintenance services like plumber, electrician, there is a considerably low loyalty factor due to lack of personal connection & customers are mostly motivated by cheaper cost points & discounts; which is definitely not a sustainable strategy for any company. This is unlike an on-demand beauty service, which ensures a good repeat as well loyalty among customers. Hence you see a lot of on-demand services startups focusing on beauty services instead.
Is This the End of On-demand Startups?
But this by no way means the end of on-demand startups in India as it still remains one of the largest disorganized industry which holds a market opportunity ranging from $100 Bn- $400 Bn as quoted by an article. With this space getting so much interest by all communities, there was a lot of pressure to grow quickly & companies began focusing on metrics such as onboarding more & more vendors, increasing queries per day by discounting. Sure these parameters imply growth & market opportunity but they didn’t bring us any closer to the objective of the organization of this industry. The first step towards organizing an industry as big as maintenance is to understand the pain points of all the concerned parties. After doing a thorough market study, we concluded that customers complained about the lack of standardization in quality & prices; while vendors, on the other hand, were unhappy with inconsistent income.
Unlike the cab industry where Uber & Ola had to create demand by leveraging on discounts so that the customer is accustomed to this new lifestyle; maintenance industry on the other hand already has a pre-existing influx of demand. So instead of focusing on creating demand, the focus should rather be to meet this demand efficiently. One such solution was ‘productisation’ of these services into subscription packages to offer a standard experience in terms of prices & service delivery quality regardless of the type of infrastructure, service, customer or vendor.
Making use of special delivery and using technology as an enabler to enhance one's software to operate and provide services best suited according to the customers’ needs rather than opting for a first come - first serve basis also enhances the service experience. Focusing on performance-based earnings will prove to the on-demand startup's advantage in the long run as it brings home customer loyalty. This means attention must be given to the importance on the service delivery thereby increasing the number of jobs for vendors, smarter use of technology for automation and analytics so as to make the operations and in-turn overhead expenses leaner thereby building a sustainable solution for both the customers and service providers.
But the most important piece of advice to keep in mind is that success is a slow and steady process and achieving this is not an overnight process. One has to keep the right parameters in mind and it is natural to tweak and enhance ones product to fit the needs of the market. This principle can be fundamentally applied to all business models and start-ups should prioritize on creating a sustainable as well as scalable solution for their industry.