This sponsored post is produced by Juggernaut.
I recently attended the first edition of the On-Demand Conference and it was difficult not to be thrown back by the pace at which the On-Demand Economy is maturing. It was claimed that “more than 40 percent of the American workforce will be independent within the next five years.”
Imagine the potential when we start seeing a similar level of online and offline integration in developing economies.
These platforms are disrupting the industry value chains across verticals by making the most basic transactions between buyers and sellers much more efficient. The new on-demand models are moving us closer to real-time fulfillment that consumers are embracing at an unprecedented speed and frequency.
Launching an on-demand business
The stakeholders creating and finding these platforms are either entrepreneurs looking to solve real problems or enterprises looking to tap into demand side/supply side trends. With either, it makes sense to take on a startup-based approach, creating a solution to a problem by employing specific business models that over time become repeatable, scalable, and profitable.
Two key components need to be determined during the first stage: 1) accurately pinpointing the problem that we want to solve for customers and 2) developing the modus operandi to do so. Failure to achieve either can be seen in this analysis of on-demand initiatives that have already folded or pivoted — the cause of which is an incorrect problem statement, or fatal flaws within the business model.
Choosing the problem
At the end of the day, it boils down to whether there is an unmet need for a solution that’s being proposed. Here are factors you need to consider across the markektplace, the buyer side of the equation, and the supplier side.
- The current product/service you are trying to organize is being run inefficiently.
- Total Addressable Market (TAM) size is large enough to warrant the efforts. Your initial target market can be a subset of the TAM.
- Users engage in repetitive high-value transactions.
- There is value attached to optimizing the convenience and time aspects of the transaction.
- There exists a large number of freelancers eager to tap into the marketplace without starting their own full-fledged company.
Assuming you’ve now factored the above in, and are satisfied you’ve pinpointed the problem, you need to design and decide on an appropriate business model.
Designing the solution
It is a statistical fact that 9 out of 10 startups fail. The jury is out, but this number is going to be even higher for on-demand startups. I recall hearing Shervin Pishevar — co-founder at Sherpa Ventures and investor in Munchery, Shyp, Getaround, and Washio among others — remark that ‘on-demand founders need to have true grit.’
The multi-sided nature and the offline-online integration brings with it a lot of complexities from a technology, operations, and scale perspective; you’ll have to be in this for the long haul as your idea evolves from hypothesis/discovery, validation, efficiency, and scale phase. So spending a sizable amount of time chalking out and deliberating the specifics of your model based on secondary information is definitely a sound investment.
Business model development involves conscious selection amongst many alternative choices for the technology and operations side of the product, customer development, revenue models and so on. While you can definitely base your model on the specifics of other successful startups, there is no one-size-fits-all formula. You’ll need to understand the dynamics at play in your market, ranging from cultural, political, and economic influences in addition to your own form of financing (i.e. boot-strapping or VC war chests).
Four crucial areas to lock down for your on-demand startup
1. Scheduled vs Instant
One common misconception equates the on-demand model with instant. Instant (a 15-45 minute wait time) and scheduled are both equally viable business options, depending on your situation and the service being provided.
The choice of one versus the other should be guided by the nature of the demand that you are aggregating and the logistics of the supplier side infrastructure. The Instant gratification model puts a lot of pressure on your supply and you need to ensure that the added value to your customers offsets the additional headaches.
Related Reading: The Case Against Everything On Demand
2. Marketplace — aggregated freelancers vs contracted supply
For interactions to happen in on-demand marketplaces, both buyers and sellers must be able to see continuous value-add.
Freelancers help in scaling the platform fast while the contracted supply helps in keeping the reliability of the supply side high. This is not an either/or discussion; I have seen many platforms start with a contracted supply, set the standards for the initial demand in the evolutionary phase and slowly add freelancers. Once the critical mass has been reached, reliability automatically increases as there will always be a sizeable amount of readily available supply.
3. Choice vs Anonymity
Another question to consider is whether your customers will be able to select a certain service provider, or have your platform automatically match one to them. As a rule of thumb, the more standardized the service, the less choice matters. For example, where service quality differs a lot — for example, an AirBnB type marketplace — selection is more likely to work versus automatic matching which works with an Uber model.
From an operational perspective, optimized matching increases the efficiency of your supply, ensuring a majority of your service providers are being used. On the downside, you may need to invest more in training and vetting them.
4.Standardized vs non-standardized product or service offering
One way of deciding between selection or automatic matching is to determine if you’re offering a standardized or non-standardized service/product. For standardized services, only a few variables can vary and the user experience should reflect this. Other services such as renting out apartments involve deliberating over a number of variables. This is one of the reasons AirBnB focuses on search and discovery while Uber focuses on seamless transactions and automatic matching.
There are also a number of variables that can require an open channel between the supplier and the buyer during the selection phase.
One recent pivot relevant to this discussion is TaskRabbit when it changed its business model from an eBay type auction house to an Uber type direct-match model focused on multiple verticals. When Taskrabbit established its first international market in London, important changes across geographies exemplified the importance of a strong, sustainable business model, even in marketplaces that have already attained liquidity.
The On-Demand Economy is still in its youth, but there is a lot of room for innovation. Soon, everything we need will be available at the press of a button. Be ready to be amazed.
For detailed insights into making these design choices while finalising your business model, download the free ebook On-Demand Economy Business Model 101
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