5 steps to building scale in the on-demand economy (Part I)

For this week’s member profile, Veyo’s EVP of Technology, Michael Singer, has written a two-part guide to growth in the on-demand world.

With the rise of the on-demand economy over the past five years, it feels like there’s now a service for every chore on your to-do list and a few you didn't even know existed.

There’s now a group of people just waiting to pick up your laundry, put your IKEA furniture together , feed you, clothe you and, at the end of the day, give you a massage (because who doesn’t need a nice rest after a long day of tasking other people with your life?). Not only is there a service for anything you can dream of, but in most cases there are multiple competing services.

Why are so many of these on-demand services popping up? One big reason is that the barrier to entry into this new marketplace is relatively low. Create an app for consumers and another one for your providers, then create a server side that matches them to each other, and you are ready for your big launch party.

Better yet, instead of having to build your own platform to get started in the new on-demand niche that no one’s yet tapped….you guessed it! There is a service for that too! You can simply start using a platform that already has everything figured out: the apps, the server, and the matching.

And yet….if the technological barriers are so low, why do many of these startups fail to achieve scale? Is it possible that there is more to it than just having an app? Is it about more than just getting users to sign up?

Veyo believes it is. We are dispatching more than 15,000 trips a day in a variety of areas, from bustling downtown Phoenix to rural Idaho. Every member that we transport has to make it to their healthcare appointment on time. Many have special needs and can’t just jump in a taxi or order a car on their phone.

Each region is different. Is dispatching a trip the same in downtown Denver as it is downtown Tucson? Is dispatching a trip at 9:00 AM the same as dispatching at 10:00 PM? Technology is a major enabler in solving these questions, but it is by no means a replacement for the detailed understanding of the supply and demand efficiencies involved in truly providing a solution for the on-demand market.

Veyo’s come up with Five steps that can be used as guidelines to understand the true challenges of the on-demand market:

  1. Understand the true value dynamics created by your service.

  2. Achieve scale in a limited geography and prove the value exists.

  3. Identify ways to increase value within your ecosystem.

  4. Learn how to predict value and identify what influences value.

  5. Automate and scale.

Value Dynamics

Every product starts with a simple question: “Why?” Why does the customer need this service? In order to understand the value you’re creating, it’s important to have solid answers to these 10 questions:

  1. Who is the customer?

  2. Why does the customer need this service?

  3. What is the customer doing today without your service?

  4. Hopefully the answer to #3 is complicated. So how are you planning to make your customer’s life easier? (Sidenote: Answering this question is really key to the rest of our discussion. We shall start referring to the delta in happiness between the life before service [or BS] to the customer’s new found purpose as… wait for it… VALUE.)

  5. Who generates this value today?

  6. Who will generate this value in the new world?

  7. How does value get from the value provider to the value consumer?

  8. Who affects the value generation by increasing or decreasing it?

  9. What other influencers can I expect to find in this ecosystem?

  10. And finally, are there efficiencies I can improve through my model, i.e. is there any economic benefit to doing this?

Value is that thing we do that makes the world a better place. By identifying who needs it, who makes it, and how we facilitate the transaction, we identify all the places we can improve the customer's world. By naming the various players in our ecosystem and understanding the motives that drive them, we can create tools that facilitate and sometimes outright revolutionize these transactions.

Prove the Value

What did your customer do before you were there to heal their pain? If you are providing healthcare trips, how did members get to healthcare appointments before? Ask yourself how you’ll be creating value. Are you providing an incremental improvement by making things a little better, or are you completely reinventing this space?

Henry Ford once said “If I had asked people what they wanted, they would have said faster horses.” Customers tend to look for solutions within their sphere of knowledge. New products are difficult to explain because by their very nature, they are NEW. The solution you are creating has never existed before. You may understand the value you are generating, but you HAVE to prove your model works in the real world.

This isn’t always easy since most on-demand economies are truly revolutionary only at scale. Without enough trips, your drivers will sit idle and eventually leave the platform. Without enough drivers, members will not get to appointments on time. This vicious cycle will threaten to erode the true value that you are trying to prove. However, there are ways around this problem.

When creating an on-demand service, you do have to achieve scale, but you do not have to achieve it all over the world at once. Your backyard will suffice to prove the model. Find a small area you are familiar with - preferably a small metro area that has some densely-populated neighborhoods vs. low density suburbs - and build out your model. This approach ensures your marketing efforts are focused, you can work in a familiar area, and you can start with an existing fan base. Use census data to learn about the economics, demographics and general statistics in your area, and use that information to determine where you should advertise and how you should build your deployment.

[End of Part One. Click here to go to Part Two]