When David Bladow and Matthew Schwab decided to build their floral delivery startup, BloomThat, they thought they’d be helping forgetful guys like themselves scramble to send bouquets to their loved ones.
Never mind that most of their customers ended up being women. “It turned out that women are more thoughtful than men,” Bladow tells Entrepreneur. “Go figure! Who would have thought that? My wife reminds me of that all the time!”
That was minor compared to their other miscalculations.
Once BloomThat expanded from San Francisco to the greater Bay Area, then Los Angeles and finally New York, the company learned that providing on-demand delivery to customers in three of the country’s largest markets was going to put them out of business. BloomThat was losing money on the average order -- and burning $560,000 per month. It only had enough money in the bank to sustain four more months of operations.
“That was the era of, ‘Hey, Uber grew 20 cities last month -- what have you done?’” says Bladow, BloomThat’s CEO. “I think that that’s something you see in a lot of venture backed companies today. They grow quickly, but can they continue to grow if they weren’t subsidized?”
As delivery startups struggle to stay competitive, they seek to keep wait times and prices down and fees out of the picture. The on-demand model is difficult to maintain, especially when navigating aspects such as worker classification and retention on top of, well, demand. The now out-of-business home-cleaning startup Homejoy suffered its fate due to a combination of these challenges. On-demand valet parking startups have also folded or pivoted.
On-demand financing peaked in the third quarter of 2015, in terms of both the number of deals and dollars, and the pace is slowing. In Q3 ‘15, on-demand businesses made 90 funding deals, compared with 54, 66 and 55 in the following three quarters. Still, funding today far exceeds 2012 levels. Total disclosed funding for 2012 amounted to $672 million. Whereas in the first half of 2016, on-demand companies raked in $8.4 billion, according to CB Insights.
Not every company can function on-demand everywhere, and not everyone needs to. BloomThat learned that the hard way, luckily not at the expense of its customer base or core employee team. Today, a year after making some major adjustments and concessions, BloomThat says it is profitable. In June 2015, BloomThat snagged $5.5 million from Forerunner Ventures, which brought its total funding to $7.6 million.
“We’re a company that still believes in on-demand, but it doesn’t unilaterally apply to everything,” Bladow says. "We do it where it makes sense.”
You can’t transcend the laws of economics, but you can adjust your focus and play up your strengths. Following BloomThat’s example, click through to learn how struggling startups can recover from the pitfalls of on-demand thinking.