In this age of technology where consumers are demanding immediate response on service requests, companies need to act fast. And this became popular with Uber although Lyft was the first player to enter the market.

Uber was the first business which claimed to be an on-demand solution for cab service. It hardly took a couple of years to get this model implemented in other service areas. And that’s how came Uber for beauty service, Uber for food delivery, Uber for massage, Uber for laundry, Uber for grocery, and so on.

That’s how we coined the term Uber for X which equates to on-demand business model.

on-demand-business model

When Uber revenue figure leaked to ValleyWag in December 2013, it was found that on-demand car service was pacing at a $1 billion gross revenue and $200 million net revenue run rate annually.

Many small businesses inspired by Uber plunged into on-demand business model.

If you are also thinking to give a try to this new business model, then you need to read this!

According to financial information leaked to Gawker, in 2013, Uber lost $56 million in $104 million in revenue. By the first half of 2014, the figure had leapt to $160 million in $101 million in revenue.

uber-loss

Another document shows that in 2012, Uber’s losses totaled sum of $20.4 million; from the first quarter of 2012 until mid-2013, quarterly losses more than doubled from $3.5 million to $8.1 million.

uber loss 1

This leaked report shows that the Uber new business model just tends to be a problem for Uber. Holes are starting to show in the new on-demand business model.

Although Uber is growing fast now. But everyone is backed by a team of generous investors.

In this article, we will look some pitfalls involved in on-demand business model using some examples and how you can avoid them.

So let’s start by looking at a few examples.

Homejoy

homejoy

Homejoy is an online platform which provides cleaning services to its customer. It charge s$85 for a 2.5 hour of house cleaning.

To acquire customers, it uses deal sites like Groupon. After using a promotional offer from Groupon, the customer usually don’t book a Homejoy service. Only 15% to 20% of customers book again within a month which according to many analysts is quite low.

To sustain it, Homejoy need to acquire customers on the go increasing customer acquistion cost. Plus, Homejoy’s service was of poor quality. The cleaners were often independent contractors who lacked professional knowledge to clean a house.

Exec

exec

Exec. provides companies and individuals access to on-demand personal assistance such as delivery, furniture assembly, research, cleaning services etc.

Instead of focusing on niche job, Exec. decided to provide assistants for all possible jobs which made them hire employees for all different types of skills which proved costly at the end.

For Exec, the profit margins were less due to high cost of customer acquisition and high cost of recruiting assistant for specific jobs.

Rivet and Sway

rivet and sway

Rivet & Sway is an online retailer which provides stylish and fashionable eyeglass for women.

It offered customers to try glass frame before they made an actual purchase. The result? The shipping of eyeglasses back and forth increased the cost.

As happens in an emerging market, Rivet & Sway faced serious competition in generating funding due to which they face the problem in hacking growth in a mass market.

Tutorspree

tutorspree

Tutorspree is an online platform which provides on-demand tutor on various subject to students or people in general. It acts as a mediator between students and tutors.

Tutorspree found it difficult to acquire new customer since it uses single channel (a website) to communicate with their customer. And they did not have the enough budget to switch on other channels.

The result? It failed miserably!

Helloparking

helloparking

Hello parking enables people to share parking space with other people.

The challenge Helloparking faced was the inability to close too many deals. Their hypothesis was not really true. And they did not had meaningful conversation with the target end users which made them difficult to understand that whether people were liking the product or not.

Helloparking failed to provide the right value proposition to its target customers. Plus, there were moments the folks demanding the parking space were higher than the parking space shared by the owner.

99 Dresses

rivet and sway

99Dresses is an online platform for trading, buying, and selling rarely used articles of clothing for a small fee based on the value of the item.

The competition in the segment was already high. So they struggled with customer acquisition. 99Dresses also failed to build a rocking team. The worst was when two of the co-founders left the company without giving a hint.

Standout Jobs

standout jobs

StandoutJobs provides on demand career platform for HR managers and  prospective employees.

The launch timing of the product was the reason it would go to disaster. They launched the product in the fall of 2008. Just about 5 minutes before the economy would collapse. Needless to say further why they failed.

Task Rabbit

rabbit

It is an online marketplace that allows user to outsource small jobs and task to others in the neighborhood.

TaskRabbit was using an auction model. Needless to say it was broken and their customers were frustrated with the time taken by the contractor to bid. All in all, they failed to adopt themselves according to a fast changing market.

Cherry

Cheery is on-demand car wash service which allows customers to park anywhere, check online, and have their car washed where they left it.

Cherry simply got stuck with car wash. They could not add any other service to it. Being driven by one business goal, it was difficult for Cherry to scale with time.

It shut down in early 2013!

How to tackle the on-demand business model pitfalls

After reading these examples, you must have understood the challenges that come with an on-demand business model. Of course, there are many more. But to summarize the big affairs in the above examples, it all comes down to:

  1. Reducing customer acquisition cost
  2. Reducing churn
  3. Increasing customer lifetime value
  4. Keep improving service offerings

Here are some ways to be better prepared when you dive into on-demand economy.

1. Research your market and test your product

The main reason failure for many on-demand companies was that they failed test their product and understand customer needs. Approaching an on-demand business model cannot be a leap of faith. You need to do your research first.

If the companies had done the market research before launching the product, the results might have been different.

But before you start with market research, make sure what you’re heading into. Identify goals or objectives of your project. You need to decide what are the problems you are trying to solve.

Then ask these three questions before starting data collection

  1. Who can answer my question?
  2. Who can answer them best?
  3. What may I ask each group?

After designing or developing the research plan, now it’s time to collect the data and information of the project using the mixture mentioned above. Collect the data from all angle and make sure it is valid and unbiased.

Once you have gathered the information, analyze the data and information and look for the trends as opposed to the specific piece of information.

And most importantly, don’t try to find ways to prove your hypothesis right. It’s okay to be wrong because that is the reason you are  doing the market research.

Now it’s time to take action and start developing a marketing campaign.

2. Focus on customer retention (instead of customer acquisition)

Customer acquisition is the cornerstone of the early stage of a start up business. And that is even more important for an on-demand business model based company.

But that’s just one aspect. And focusing only on customer acquisition has not only led to increased cost of customer acquisition, but also led to the demise of many startups.

Instead, focus on customer retention.

customer-retention

If the customer has a purchase history, then the cost of outreach you’ll need to expend to invoke another purchase should be considerably less that the first time acquisition cost.

The customer has experienced the purchase process, you delivered on value, and they are using the product. Most all the barriers to purchase have been crossed, so less capital is needed to influence next purchase.

customer-retention-strategies-that-work

If you are maximizing your customer outreach and preference building, it should be a much narrower target, and thus more cost efficient and relevant to market to your current customers. Messages should be crafted based on current knowledge and successes.

3. Use multiple channels (for reaching a wider audience)

multichannel_marketing

If you want your business to be successful then you need to use different channels to promote your business and to acquire new customers.

According to SAS:

Multi-channel marketing refers to the practice of interacting with customers using a combination of indirect and direct communication channels – websites, retail stores, mail order catalogs, direct mail, email, mobile, etc. – and enabling customers to take action in response – preferably to buy your product or service – using the channel of their choice. In the most simplistic terms, multi-channel marketing is all about choice.

For this you need to familiarize yourself with how different channels work, what kind of audience you can reach through these channels, and  how your business can best use these channels.

Apart from that your marketing team needs to integrate marketing efforts so that you can create and maintain a single view of the customer across all channels and create consistent customer experiences across all channels.

 

multichannel_marketing-benefits

4. Build a rocking team

It is important to have a good team too. Your core team must understand your business model and the intricacies involved. Pursuing on-demand model is a risky business. And a strong team is what you need to tackle its serious challenges. A successful business is created with a good team.

Here are six one line tips to build a rocking team

  1. Be aware of how you work
  2. Fully know your team
  3. Clearly define roles and responsibilities
  4. Be proactive with the feedback
  5. Acknowledge and reward your team
  6. Always celebrate success with them

Conclusion

No doubt on-demand economy is to thrive in the years to come. Plus, it is a great business model for scaling too. But you just need  to be strategic when pursuing it. You just need to understand the pitfalls of this model and build frameworks to avoid mishaps.

We hope we were able to cover most topics. If you feel there’s more to add or you want to leave a suggestion or a feedback, please feel free to write it in the comments below.

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