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4 Fatal Sharing Economy Mistakes Uber and Airbnb are exalted examples of sharing-economy success. Many more companies you've never heard of illustrate what not to do.

By Tx Zhuo Edited by Dan Bova

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Opinions expressed by Entrepreneur contributors are their own.


When entering a shared marketplace, you have to consider the keyword there -- "shared." To partake in the benefits, you need to make it a win-win for everyone involved.

That means catering to those who have a stake in its performance, including supply, demand and the marketplace platform itself. Uber is successful because it covers its bases. It vets drivers, provides consistent, flexible work and delivers an outstanding customer experience.

If supply falls short when the demand comes calling, you run the risk of developing an "empty room" problem. Curate high-quality supply on your platform before you take it up to the demand so you can prevent the tipping point where demand outweighs supply.

Balance this with a focus on demand when you are ready to launch. Building the consumer-facing side of your business with demand in mind can make or break your business. Just look at Uber, which grew rapidly thanks to its seamless interface.

Finally, you have to consider the marketplace itself. If there's no room for you to grow, why enter in the first place?

Related: Researchers Find Uber Use Leads to a Decrease in DUI Deaths

Businesses tend to fall flat in a sharing economy for four main reasons:

1. They don't solve a problem.

Just because an idea seems good to you doesn't mean it will seem good to other people. If it doesn't make things cheaper, more convenient or better quality than the alternative, no one will care.

2. The focus is too broad.

Too many companies try to solve an array of problems poorly rather than providing one excellent solution.

3. The consumer experience is bad.

If a consumer has a bad experience once, at any point in the process, she probably won't give you another shot. Lack of interest will kill a business in a heartbeat.

4. They don't reach sufficient scale.

This can happen for a number of reasons. Maybe the value proposition isn't strong enough, leading to a jagged user experience. Or maybe the value in the marketplace is too low, leading to insufficient revenue.

Related: What a Sharing Economy Startup Does to Build Trust in Its Community

Consider Cup of Teach, a defunct online marketplace for peer-to-peer lessons. It failed in March 2014 because it not only didn't improve fast enough, but it also ventured into a market that people use infrequently. As a result, it simply couldn't bring in enough revenue to be scalable.

So how can an entrepreneur avoid these problems in a sharing economy?

Success is three steps away.

Keeping everyone happy is not an easy feat. These three tips will get you started as you consider your relationships.

First, you have to create a trusted brand. That means the demand has to believe that you'll come through with the supply. Consistency also drives trust, so provide a delightful user experience, and make sure your stock is curated and vetted for secure use. Integrating seamless payments and collecting credit card data are great indicators of trust.

Next, focus on vertical rather than horizontal. Look for large, fragmented marketplaces that haven't been streamlined yet, then apply a two-sided marketplace model that will disrupt the status quo. Uber and Airbnb show how this can be a home run, while newcomers such as Fin & Field demonstrate that a niche approach can mean higher engagement and propensity to purchase.

Finally, seek novel ways of maintaining your supply line beyond basic lead generation. Consider how Airbnb strives to build a community for its hosts, offering tools to keep them happy and engaged.

The lesson is in the name – it's a "shared" economy, so everyone involved needs to receive some benefit. If you can find a way to make it a win-win all the down the line, you're on your way to a victory dance.

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

Tx Zhuo

Managing partner at Karlin Ventures

 TX Zhuo is a managing partner of Karlin Ventures, an L.A.-based venture capital firm that focuses on early-stage enterprise software, e-commerce, and marketplaces. Follow the company on Twitter.

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