Premature scaling on any of the dimension kills 74% of startups as per a research done on 3200 startups under the Startup Genome Project. The 5 dimensions identified were – customers, product, team, business model and funding.
The rules of the game are no different for On Demand startups. For the uninitiated, On Demand marketplace based platforms have been challenging the status quo by disrupting established industry value chains across many verticals. The platforms make the connection between buyers and sellers, consumers and service providers, etc. by bringing the information required for an offline transactional exchange online. Owing to the offline and online elements scaling these platforms can be an operational nightmare. But startups like Airbnb, Uber, Didi Kuaidi, Instacart etc. have come out of the shell and have become the unicorns in the business world. Every on demand startup has the potential to grow as big as them.
Let’s try to analyze the challenges and explore some best practices for new initiatives looking to scale. I have structured this discussion as a four part series with each post concentrating on one of the dimension talked about earlier.
On Demand Marketplace generally serves 2 or more customer sets or stakeholders that need to work together. This happens to be the biggest challenge for any On Demand Marketplace.
How do you overcome the traditional chicken and egg problem and reach the liquidity stage?
A) Seed the marketplace
The first thing to decide in this regard is to figure out where to start working – demand side or supply side. As a rule of thumb, seeding the marketplace by providing a minimum guarantee to the initial contractors is a good strategy. Even if the ultimate goal is to aggregate and loosely associate with the supply; partly owning the supply gives you more control on the service quality. In addition if the supply side shows symptoms of underutilization, it is easier to sell the value proposition to them by promising additional demand, viz. a viz., the demand side for your area of operation.
B) Start small
“Liquidity is a stage when marketplace reaches self-sustaining viability.” On Demand Marketplaces are generally characterized by network effects.
Let’s take Uber’s example – From the demand perspective, Uber needs to ensure that they are able to create a reliable system characterized by taxis being available at any time of the day with ETA’s below a given threshold. While the supply needs to be promised above a certain threshold to ensure that they see a lot of value through additional revenue. Knowing these thresholds, we can calculate the demand and supply required to reach the critical mass in a certain geographic area.
Start small suggestion is associated with ensuring that these demand and supply targets are kept to a minimum. One way of doing this is starting with a smaller service/operation area. Another important consideration will be to keep the focus area constrained or in other words ensure the razor sharp focus on a certain vertical (products/services) and adding related demand and supply side demographics slowly.
Related reading – For a more mathematical approach to this problem, that talks about how to reach the critical mass.
c) Tap into an existing network
You are trying to provide a more efficient platform for doing certain type of transactions. This basically implies that these transactions are already happening albeit with a lot of friction involved. So invariably there is an avenue to tap either on the supply or on the demand side. Identification of such opportunities can help in the initial growth. AirBnB did this by piggy backing on Craigslist’s demand. It doesn’t always need to be this fancy though. For instance, a platform providing A to B rides can identify the places with maximum demand (airports, bus stops, taxi stands, etc.) in order to find the initial power users.
What are some typical user acquisition channels on the demand side?
Any discussion on acquisition has to begin with absolute clarity on the pain point that you are solving for both the demand and supply side. As long as the pain points are substantial there will always be users interested in your platform. We have already established some ways to solve the initial chicken and egg problem, let’s take a step further to explore the general demand acquisition channels.
It’s important to remember that there is a fundamental difference between the demand acquisition approach for On Demand platforms as compared to other technology based startups. Digital marketing with all its related channels – content marketing, paid marketing, SEM and social media needs a completely different orientation with focus on local searches, forums where users from a certain area frequent and so on. While this can give you a certain number of users the approach is limited in its ability to guarantee success. So in addition to these channels some other fruitful channels will be –
A) High touch acquisition
This happen to be a carry forward from our discussion in the previous section. Owing to the local orientation of marketing, an FOS (Feet on Street) team placed strategically in areas where the traditional means of transaction take place can provide the maximum ROI. Clubbing this with promotional offers can often help in creating a sizable pool of highly engaged users.
B) Growth Hacking the product
Convenience, quality and cost – trifecta that can never be expected together according to traditional wisdom is brought together by many of the On Demand platforms. While convenience comes with the ability to tap a button to summon the products and services at your place, quality is baked into the platform with in-built feedback loops based on the review systems. When it comes to cost – the fact that these platforms bring the underutilized assets into play, continuously evolving technology capabilities reducing the operational costs and bullishness of investors ensures that on demand service is no longer a premium.
What I Want, When I Want, How I Want It (WIWWIWHIWI) nature is thus the best lever to open the taps for new users coming on to the platform. Referral loops often account for 30-50% of new downloads. Optimizing this loop can thus be the most significant channel for demand side acquisition.
Related viewing – How AirBnB completely redesigned its referral feature?
C) Identifying the accelerants
Taking a cue directly from Uber’s user acquisition strategy, “accelerants” defined as an event that leads to a greater demand of the said product/service is a great way of acquiring new users. Uber identified weather, sports, restaurants and nightlife as accelerants that dramatically boost their growth, sometimes doubling the virality.
These accelerants where the existing infrastructure becomes even more shaky or your value proposition shines through can be used as a cue for positioning the product.
D) Partnerships with local brands
If you are not going too niche with your implementation you can always identify complimentary local brands that constantly attract your biggest target market.
E) Marketing Automation
Although not strictly a way of getting new users, but a user retained is a user gained. Its an established fact that its always cheaper to get more transactions from the existing user base than to invest in new user acquisition. Same holds true for On Demand platforms as well. From all the secondary data that I have come across, LTV (Lifetime Value of Users) numbers when compared to a single transaction value are generally high for these platforms owing to the value they bring to the users.
Marketing automation helps build relationships with your customers via segmenting them according to their behavioural interaction with the platform. Tools of the trade include multi-channel delivery of promotional messages, automatic triggers, intelligent personalised messaging campaigns etc.
Hope above mentioned points will help you gain traction as you get more users for your startup.
In case you need any help in technology part of your product, do not hesitate to get in touch with us.