Are you looking to create an on-Demand platform that is going to disrupt the existing way of doing business in your geography? Many entrepreneurs have taken the plunge inspired by the Uber for X model that has given rise to many successful On-Demand startups in the last few years. But against every such successful initiative there have been many failures.
Uber for X startups: Why they failed
Below is a compilation of 11 On-Demand ‘Uber for X’ startup postmortems that explore why the startup tanked. The causes for the failures have been explained by the founders themselves. They are not in any particular order, and there is something to learn from each and every one of them. We have also gone ahead and based generic advice for founders looking to act on Uber for X ideas.
The list has been chosen such that startups in different stages of evolution – discovery, validation, efficiency and scale are represented.
Concept: A home-cleaning marketplace company who provide cleaning services by using independent contractors.
Fatal problem 1: Customers only used the initial promotional offer.
Homejoy relied heavily on deal sites like Groupon to gain new customers. After the initial promotion offer had been used, very few customers made another booking. Only about 15-20% of the customers booked again within a month, compared the larger rival Handy who states that 35% of their customers booked again within the same time period.
Advice: using promotional offers is a good way to start acquire customers. However, to gain new customers you also can use other channels such as social media, paid marketing, word-of-mouth etc.
Fatal problem 2: Expansion to other markets happen too fast.
Homejoy received a funding of $38 million in 2013 and with this large amount the investors expect an equally large growth. To meet these expectations, Homejoy expanded quickly- At one point opening in 30 cities in six months. The expansions was costly as Homejoy customer acquisitions was through discounted deals.
Advice: Studies have shown that “Premature scaling” is killing startups. One aspect of this concept is putting too much money on customer acquisition before the product is ready. To start in a smaller scale could had helped Homejoy.
Fatal problem 3: Not allowed to train the independent contractors.
Homejoy’s cleaners were independent contractors which meant they were banned from giving them any basic training of how to clean a house. Even though they had never cleaned professionally before. This restrain lead to an uneven quality of the service.
Advice: The New York based on-demand cleaning service MyClean used a contractor model at start. However, as they received bad reviews they changed their approach to an employee model. Homejoy could had considered changing their approach and hired employees instead to easier control the quality of their service.
Result: Shut down
Concept: Exec was meant to provide errand runners to do any kind of random jobs.
Fatal Problem 1: Serve all possible jobs.
The company adopted a model to provide errands for all possible jobs. This made them hire errand runners for different skills which proved costly in the end. Moreover the demand was spiky and maximum transactions took place on weekends. Due to unavailability of errand runners on weekend’s employees had to be sent to serve the customers.
Advice: Focus majorly on niche jobs before expanding to serve other jobs. Amazon, Ebay, Etsy and almost every huge marketplace started by servicing a niche, reached the critical mass and expanded thereafter.
Fatal Problem 2: Unit Economics gone wrong.
“Actual COGs (bandwidth and servers) were only 30% of our gross revenue – most of our expenses were software engineers working on improving the product. With Exec Errands, we paid out 80% of the $25 / hour that we billed for errand runner time on job. That means that all marginal customer acquisition, customer service, and recruiting sufficient supply of errand runners had to be paid for out of that remaining 20%. Paying for mistakes (workers messing up a job) or customer refunds quickly ate up any profits “.
Advice: Although it’s difficult to accurately predict the unit economics to begin with, but a rough analysis of where the cut from every transaction is going to go before hitting the critical mass and after hitting the critical mass helps to decide the viability of the model.
Result: Acquired by HandyBook in Jan 2014.
Rivet & Sway: Purchase behavior of trying before Buying
Concept: Rivet and Sway provided eyeglasses for women who were stylish and fashionable.
Fatal Problem 1: High customer acquisition costs.
“Women want to try frames on before purchasing, but it’s an expensive marketing program to ship frames back and forth,” explained Bryar. “Our economics were improving, and we had plans to introduce hyper-efficient showrooms to attract customers not yet shopping online, but our progress wasn’t strong enough to attract additional capital”.
Advice: Customer Acquisition costs play an important role in deciding how much each customer’s LTV is going to be for the platform.
Fatal Problem 2: Heavily funded competitor.
“Rivet & Sway — which raised more than $3 million in funding — did face serious competition from heavily-funded Warby Parker”.
Advice: Try to differentiate your offering – heavily funded competitor can always burn a lot more cash to cut you out of the market. Differentiation doesn’t always involve entering a different vertical but you can excel on a certain aspect – growth hacking your way to critical mass or making the logistics platform efficient, or portraying yourself as a premium brand.
Result: Shut Down.
Concept: Provide tutors on various subjects to students or people who demanded one. They acted as a medium between the students and tutors.
Fatal Problem 1: Single channel dependency to acquire new customers
“Tutorspree didn’t scale because we were single channel dependent and that channel shifted on us radically and suddenly. We acquired users for practically nothing by using the content and site structure generated as a by-product of our tutor acquisition. However, that success was also a trap. It convinced us that there had to be another channel that would perform for us at the level of SEO. On the one hand we had a channel bringing in profitable customers. On the other hand, we did not have the budget within our model and product to push hard enough on other channels.”
Advice: Focus on creating multiple User Acquisition channels. A brief plan of possible channels in the business plan can help figure out viability.
Result: Shut Down.
Concept: Enable people to share parking spaces with other people in demand of it
Fatal Problem 1: Lived in the bubble away build.
“The truth is, as co-founders of HelloParking we huddled together to decide on ideas that sounded nice, built prototypes, put on our salesman hats, and didn’t understand why we weren’t closing deals. We never defined clear hypotheses, developed experiments, and we rarely had meaningful conversations with our target end-users. And while we had some wonderful advisors in the parking industry, we should have met with everyone we could get our hands on”.
Advice: This is the golden rule in developing any product – BUILD SOMETHING USERS WANT. Closer you are to fulfilling an unmet need closer your chances to succeed. In my view Uber for Tennis Buddies and such niche implementations can work only in SF and will have a hard time finding that critical mass.
Fatal Problem 2: Inability to scale up.
“More folks are hunting for parking spaces than exist parking space owners who are willing to share. This is the problem we weren’t able to solve, and a problem that still exists today for folks taking their own stab at the driveway sharing business. That’s not to say it’s a problem that can’t be solved, but rather it’s a tough one that has yet to be solved at scale”.
Advice: Marketplaces are complicated entities as you need to scale and provide a value proposition to both supply and demand side to embrace the solution. Once you start on this road you are in it for a long haul.
Result: Shut Down
Concept: Based on same day ingredient delivery service. One needed to select a recipe and pre-measured items along with printed instructions were delivered at their doorstep.
Fatal Problem 1: Market research gone wrong.
“We were not solving anyone’s problem. I should have found that out in my initial market research, especially in my 1–1 interviews. However, we committed the big mistake of presenting people with the idea and asking them if they liked it and would buy it”.
Advice: Harping back on the golden rule described earlier
Fatal Problem 2: Made assumptions about the market.
“Our surveys had indicated big demand coming up (70% of 250 target market respondents had said they would buy the product), our alpha test group gave us thumbs up, and in-depth 1 on 1 interviews also showed that we’re on to something. People really liked the idea! So on the first day, we stacked the veggies and herbs, bought from wholesalers (not from supermarkets! We were taking advantage of economies of scale!). We expected a torrent of orders. The torrent ended up being a trickle and we got knocked out of La-La land back into reality. On the first day, we had exactly… 3 orders, 12 orders in the first week”.
Advice: Premature scaling on any of the dimensions kills 74% of the startups per the research of 3200 startups under the Startup Genome Project. The 5 dimensions identified were – customers, product, team, business model and funding.
Result: Shut Down.
99Dresses: Founders backed off coupled with artificial money
Concept:It is a platform for trading, buying, and selling rarely-used articles of clothing for a small fee based on the value of the item.
Fatal Problem 1: Difficult to acquire new customers.
“The next hurdle in the 99Dresses gauntlet was acquiring new users, which proved surprisingly difficult despite enthusiasm from early adopters and long-term users, the most active of which were making dozens or hundreds of trades yearly on the platform”.
Fatal Problem 2: Co founders bailed out.
“I had to fly back to Australia to get a working visa as soon as the funding paperwork was signed, and the next day my two “co-founders” decided to tell me they were leaving the company without even a hint of warning”.
Advice: A generic advice and challenge for any entrepreneur – build a rockstar team that you can trust. Be sure you can trust your co-founders, and think through your business model.
Result: Shut down
Concept: It provided an on demand career platform for HR managers and prospective employees.
Fatal Problem 1: Timing of launch was wrong.
“We launched the paying version of our application in the fall of 2008 about 5 minutes before the economy collapsed. Very few companies were hiring. I got feedback on sales calls like this: “That’s a great product, really love it, but we won’t be hiring for another 18 months or so. You have anything to help us fire people?”.
Fatal Problem 2: Domain knowledge missing
“I didn’t have a strong enough understanding of the HR / Recruitment market going in. I’ve written about this before and I see countless entrepreneurs make the same mistake. They look at a market objectively and think, “I can fix that!” only to realize when they get neck-deep into it that there are a whole bunch of issues they didn’t understand. I just didn’t do enough homework. And doing homework while you’re writing the test as fast as you can is pretty damn hard.”
Advice: With most of the On-Demand solutions you are trying to disrupt the current way of doing things in a particular vertical.
“The Lean Startup Methodology and Customer Development can most likely counter (somewhat) a lack of domain expertise because these strategies are driven by engaging customers, discovering key problems and then implementing solutions. Their systematic approach to building startups, finding product/market fit and scaling through information gathering & assessment help remove errors that might be caused by not knowing an industry. So you can “learn the market”. But even here, without true domain knowledge, you may not be asking the right questions when speaking to prospects, and you may be approaching things incorrectly (but simply be unaware)”.
Result: Acquired by Talent Technology.
Concept: TaskRabbit is an online and mobile marketplace that allows users to outsource small jobs and tasks to others in their neighbourhood.
Problem 1: Auction Model was broken. Or, perhaps TaskRabbit just outgrew it.
The problem, the company realized, is that it was not being efficient in matching supply and demand effectively.
Symptoms – Lower task completion rate and average number of bids being made per task. Customers were getting frustrated with the long time it was taking for contractors to bid. TaskRabbits complained that they were spending at least 2 hours every week to sift through the tasks looking for a match.
New Model – Post the task and wait, to a model, where you can book and confirm instantaneously. The customers are now matched to Taskers under a transparent pricing and review based system. The new model was tested and applied to a new city London and after comparing the numbers a conscious decision was made to expand the model to the previous markets where TaskRabbit is already established.
Advice – This pivot is a story of how fast things have changed for marketplaces post Uber. Given this fact, new vertically aligned marketplaces based on a direct match Uber based model were getting ahead. This pivot is a reminder of how you need to make bold decisions sometimes to stay relevant even when you have already attained the critical mass.
Cherry: Low transaction volumes and inability to scale up hit the company hard.
Concept:Cherry, an on-demand car wash service, allows customers to park anywhere, check in online, and have their car washed where they left it.
Fatal Problem 1: Inability to maximize revenue.
“Cherry customers did not need a car wash every day, at best once a week. Therefore, to maximize revenue in the Bay Area, where they started, Cherry would have had to either begin to up-sell other car-related services to be delivered at the time of a car wash and/or to maximize the number of bookings made through its service”.
Advice: Cherry needed to provide some other car related services so that it could earn higher revenue from a single transaction. In comparison Uber’s transaction volume is high on two dimensions: repetitive use and high-ticket sales. Companies like Cherry which are looking at venture-scale opportunities will most-likely need to show robust figures in at least one of these two dimensions.
Fatal Problem 2: Scaling in the real world.
“Suppose Cherry worked so well in the Bay Area that they began a plan to expand to other cities. My sense is that in the SF Bay Area right now, and for the past year or so, many folks around here have a tendency to assume “scaling offline” is complex but as controllable as “scaling online.” While scaling an infrastructure and system online is certainly difficult, I would say right now it’s much harder, more expensive, and more time-consuming to scale these types of business offline and into new locations”.
Advice: Each company in these categories would need to build their own playbook in their test market (usually the Bay Area) and then execute against that plan to expand their reach while maintaining quality. And, even if these conditions are met, a VC may be reluctant to invest given the minefield of operational risks any team will surely endure. Pulling of a business like this takes serious time and effort.
Result: Shut Down
Prim: Unit Economics hampered by competitive market
Concept: It worked as as on-demand laundry service wherein a person would come to pick up your laundry and deliver it at your doorstep.
Fatal Problem 1: Faulty unit Economics
“Prim had to find someone available to do your laundry, have them spend time and gas driving to your house, pick up your laundry, drive it to the cleaners, pay the cleaners to wash and fold the clothes, pick them up, and deliver them back to your house. That’s a lot of work, time, and gas if you only had one ($25) or two bags ($40) of laundry done. The price might not have made room for Prim to earn a margin, but if it increased the cost, it might have seen even fewer customers”.
Advice: Unit economics is very difficult to get correct in the first instant but you should do a rough estimation before you reach a MVP and from then on-wards you can pivot it as per the needs of the market.
Fatal Problem 2: Competing against the own supplier
Initially PRIM acted as a bulk customer for the Laundromat. Laundromats were receptive in the beginning but soon started visualizing PRIM as eating their demand. In its 7 month existence PRIM went through 3 laundromats.
Advice: While building your own infrastructure is not a solution for any 2 sided marketplace looking to scale fast but having a stable supply is a sine qua non for reaching the critical mass
Problem 3: Extremely competitive market.
“While I was hopeful Prim could figure it out, and I really enjoyed the service, the outcome isn’t entirely surprising. San Francisco already has laundry services like LaundryLocker (where you drop your clothes in a public locker), SF Wash (a delivery service where you pay by the pound), and Sudzee (which requires special lockable bags). That’s a lot of competition”.
Result: Shut Down
Want to create the next Uber for X?
These 11 companies provide some useful lessons learned for new startups in the on demand economy. To gain useful tips on how to make your startup a success, check out this post: 7 factors that will make your Uber for X startup a success.
Would you rather create an success than repeat the same mistakes as the above examples? Get in touch today to know more about how you can shape your business to a guarantee success.
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