The ‘Uber for X’ Model: Opportunities and Challenges
On-demand business models are very powerful as they cater to the constant changes in customer behavior and offers great convenience and speed. The success of the Uber model of business has paved a way for all other on-demand services and inspired Uber of everything or Uber for X revolution. The sharing economy is one of the most recent trends in the last few years. With the rapid growth of brands like Uber, many startups are looking towards building Uber for X model, where both buyers and sellers come together to do business.
What is Uber for X?
For those who are new to the concept, Uber for X is simply generating demand on the mobile app which is then offered to customers by service providers. It has the power to completely transform the way users interact with service providers as it happened in the taxi industry with Uber.
What is its potential?
Uber disrupted the already existing taxi systems. There are over hundreds of startups labeled as Uber for X startups from core conventional apps like doctors, laundry, flowers, and groceries to niche ones like tennis buddies and dating. These industries have already started to see the healthy reception along with home services, beauty, food delivery, health, and travel.
The on-demand business Uber has made the tough task of initiating an enterprise more straightforward. Let’s take the example of Uber for a better understanding. When Uber entered the industry, it started with minimal investment, and they were likely to earn the right amount with just the help of their mobile app. Therefore, it can be concluded that the sharing economy has made it easy for small investors to work on a huge platform with minimal investment and great marketing efforts.
Challenges faced by Uber for X Businesses
Just as Uber for X comes with a broad range of revenue earning opportunities, it also comes with several challenges as well. Uber for X apps comes with failing points like standardization, service professionals, etc. that can be challenging for any business. Some of the major challenges include the following.
Productivity issues are the major challenge on-demand service apps face. Every company, be it small or big has to go through losses or a drop in profit. The main reason for the failures is that the business runs entirely based on mobile apps. Some apps might be impressive to users, but it fails to reap profit when implemented. Such apps fail to make an impact and hence doesn’t generate desired profit. Productivity is one of the main challenges most on-demand services face.
Technology is booming right now, but what is brand new today becomes old in quite some time. Therefore, to remain in the game, all on-demand services have to face the competition. If you are looking forward to how to build an app like Uber, you have to ensure that your application includes all essential functionalities. To beat the competition, they have to work continually on useful updates and properly maintain the app to remain in the industry despite all the competition.
Laws and regulations
When started out, Uber worked well on all the rules and regulations, but still had a problem regarding particular laws and rules. This also came in the form of pressure from rivalry businesses and other taxi companies. Similarly, businesses working on Uber for X model have to act based on the existing laws and regulations.
10 reasons why Uber for X startups fail and how to overcome the odds
The success of on-demand service business models like Uber inspired many other players in service industries. However, not all of them could manage to be stable like Uber. Why startups are not able to achieve the level of success that Uber has? The reasons are many. Like any other startup, on-demand service-based startups also face a lot of challenges, probably more.
So let’s look into detail why Uber for X startups fail and how to avoid these.
- Difficulties to retain customers
Most on-demand services get customers easily through various unsustainable methods like offers and deals, but they struggle to retain them later. For instance, take the case of HomeJoy, a home cleaning marketplace that offers cleaning services using independent contractors. They relied heavily on offering deals through Groupon to obtain new customers. However, after the initial promotions ended, very few customers made their second booking.
Advice: It is good to use promotional offers to acquire new customers, even the Uber business model followed the same initially. But to gain new customers, you can use other channels like paid marketing, social media, referrals, etc. so that it helps with customer retention.
- Expansion to other markets before being grounded
On-demand services that are backed by investors who put in millions expecting large growth. To meet these expectations, they try to expand quickly to other markets by opening more offices or outlets in a short span of time. HomeJoy also made this mistake of expanding soon before getting grounded in the market. It opened in 30 cities in less than 6 months and finally ended up struggling as the expansions were very costly.
If you wish to start your own Uber business model, stay away from premature scaling. Premature scaling kills over 75% of startups as they try to expand before setting their foundation. Make sure that you don’t invest more money on customer acquisition before you are stable. It is recommended to start on a small scale and then expand as you grow.
- Not able to train independent contractors
In general, almost all on-demand services hire independent contractors to fulfill client requirements. However, the problem is that they are not allowed to offer basic training to contractors. This results in the business struggling with offering a reliable service to customers. If your first-time customers are not satisfied with the services, your business will suffer last-minute cancellations and you won’t be able to deliver high-quality service consistently.
Most Uber-like businesses work on the contractor model, but if you see it doesn’t work well for you, try changing your on-demand service business model. You can switch to an employee model as it gives you control over the quality of the service offers and various other aspects.
- Heavily funded competitors
When it started out, on-demand services was completely novel and revolutionary. At this stage, it was quite easy to pull off an Uber-like business and gain profit. However, now with many Uber for X businesses in the industry, the competition is fierce unlike earlier. It is one of the mainstream business ideas. With increasing demand, more investors are willing to fund and many startups raise millions through funding.
Try differentiating your offering. Differentiating yourself doesn’t always mean entering a different niche, but you can excel in a certain aspect. It could be anything like making your logistic platform efficient or bringing in a premium element to your business.
- Single-channel dependency to acquire new customers
For example, TutorSpree was an on-demand business that offered online tutors on different subjects to students. They acted as a third-party platform that connects both students and tutors. They didn’t scale as they depended on single-channel and that channel shifted suddenly. They just used their website structure and content to acquire tutors and students. One reason for single-channel dependency is lack of budget within their on-demand service business model.
Create multiple user acquisition channels like social media or paid marketing if your budget allows. It is good if you can use your existing budget in the right channels to make the most out of your money and reap its benefits.
- Unable to find product-market fit
It is true that most on-demand startup ideas sound interesting, but not all of them will thrive. The first thing to do once you have got an idea is to validate it. Check whether it fits an existing market that is in demand. For instance, an Uber for X Start-up called Hello parking was shut down as it didn’t fit in the market. The founders of Hello parking came with an excellent platform that allowed people to share parking spaces with other people. However, they were not able to close deals. Where they failed was they didn’t define the hypothesis, never developed experiments and rarely had real conversations with end-users.
This is the golden rule for any Uber for X business. Always build something your users want. The more you are able to fulfill an unmet need, you are most likely to succeed.
- Market research has gone wrong
Any Uber model of business will be successful only if it is able to offer a solution to a problem faced by customers. Instead, if you try to develop a product with a brilliant idea and ask customers, whether they would be interested in buying their services, you are most likely to fail.
Marketplaces are complicated entities and if you wish to succeed, it is important to do your market research. Your initial market research will show whether your service is able to solve any existing problem or not. Never make assumptions about the market blindly.
- Inability to maximize revenue
When you take the example of Uber, even the giant struggles with maximizing their revenue at times. However, as they got stable, Uber business model expanded to multiple services like Uber eats that acted as an alternate revenue channel. However, not all businesses succeed in maximizing their revenue. For example, an On-demand car wash service called Cherry got shut down as they experienced low transaction volume and was unable to maximize revenue. Their customers did not need a car wash every day, maybe just once a week was enough. This truth hit hard on them and they were unable to scale up as well, which completely took a toll on the business.
Whatever be the niche you serve, try offering related services to maximize your revenue from a single transaction. If your niche is similar to that of cherry which might not earn multiple sales from a single customer every day, you have to find some other revenue channels as well. If you take Uber, its transaction volume is high because of 2 reasons- repetitive use and high ticket sales.
- Lack of domain knowledge
Having no previous domain experience or adequate knowledge is not a big deal. But if you continue to take your business forward with it, probably you might fail. If you don’t have domain knowledge, you can always consult professionals with the right expertise. Because, for every mistake you make, you pay a price and it hinders the smooth functioning of your business. Looking at a market objectively and thinking, “Yes, I can fix that” is optimistic, but it doesn’t work well for Uber for X businesses.
The lean startup methodology can counter a lack of domain knowledge as these strategies are driven by discovering key problems, engaging customers, and implementing solutions. And at the brighter side, your business sense and leadership qualities matter the most. However, without true domain knowledge, you cannot really ask the right questions and you might be even approaching things incorrectly.
- Faulty unit economics
This is applicable with any startup Uber business and inability to get it right can even lead to your business closure. For instance, take the example of Prim, an on-demand laundry service. It worked in a way a person will pick up the laundry, clean it, and deliver it back at your doorstep. The company had to hire people to do the laundry, gas drive to a customer’s house, pick up the laundry, drive it to the cleaners, pay the cleaners, and deliver it back to the customer. That takes a lot of work, time, and money. Taking into account the cost of a bag of laundry to be done, the returns you get from it is considerably less. The price of the service is not sufficient enough to earn a good margin, but you cannot increase the cost as well.
It is true that getting unit economics right is not easy. However, you must do a rough estimation to figure out whether you can earn good revenue from it after deducting all the costs involved.
Want to create the next Uber for X?
If you want to start an on-demand service based on the Uber model of business, keep in mind that It is no longer sustainable to have a single global strategy. To enjoy sustainable growth in your business, change your strategies, head to adjacent markets, and adopt different measures to make your service convenient for a broad range of customers and to drive profitability. Hope you were able to gain some insights from this blog about the existing opportunities and challenges in the market.