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Not all on-demand companies are created equal — This is why some die off

Source | LinkedIn : By Aaron Hirschhorn

It’s no secret that not all on-demand apps are created equal. Nowhere is this more obvious than in the on-demand food delivery space, where startups are facing all sorts of headwinds from employee turnover, to disloyal customers and heavy competition. Just last month the once-buzzy and very well funded Bay-area startup SpoonRocket abruptly shut its doors, selling the company in scraps to a Brazilian food conglomerate. Given this intensive competition it’s no coincidence that one of the largest IPOs in the sector — Grubhub — was also the product one of the sector’s largest mergers. 

While on-demand is an exciting space, it’s not a one-size-fits-all business model for every sector. There are several factors that can doom an on-demand company before it even begins.

 Charging a premium for convenience

There’s a significant distinction between an on-demand business that charges a premium for convenience and those that offer a better service at a competitive or lower price. Well before iPhones, wealthy people have always been able to pay for better, faster service. If you’re an on-demand company that charges more just for convenience you’re not going to be as successful.

Uber’s truly meteoritic growth began not with their original black car service, but with UberX – an experience that is still far better than a taxi at a fraction of the price. The most successful on-demand companies will be those that offer a better experience (e.g., convenience) and something else. That something else might be:

  • Price: DogVacay (where I am CEO), charges rates that are about 40% less than an average kennel.
  • Trust: UrbanSitter uses social connections and reviews to surface highly-trusted babysitters.
  • Accessibility: Heal gives you access to a doctor-on-demand, even on nights and weekends, and bills your insurance.

 Placing too great a premium on convenience is also arguably part of why companies like Postmates may be struggling. When all you offer is convenience, it’s very easy for competitors to copy you, forcing you to take on negative margins to gain share, and increasing your burn rate to unsustainable levels.

Trying to ‘disrupt’ a service that’s normally scheduled in advance

 A lot of the best opportunities in the on-demand space fall within the realm of travel, and there’s a reason for that. When we travel, a lot of our needs are unpredictable and last minute.  Whether you decide last minute to try a new restaurant across town, or decide to suddenly extend your trip an extra day, the ability to get a ride or book a room instantly is very powerful.

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