July 25, 2017
It was not long ago that the apps on our smartphones were, by today’s standards, basic. They played music, allowed us to text, and the very pioneering apps tracked our daily step count and sent us news alerts.
That all changed with social media, and now everyone is glued to their phone’s screen. The successor to social media, at least in terms of cultural significance, are the on-demand apps that have us reaching for our phones not just to message friends, but to make transactions. On-demand companies broke into the national consciousness as much as a cultural phenomenon as a commercial one. The magic of pushing a button on your phone and having a car arrive or food come to your door was like a moment from the future.
But if the saga of on-demand companies is a foreshadowing of things to come, the future may be a bumpy ride. To begin with, not everyone was ready for the future, an issue that has yet to resolve itself. On top of that, the companies that helm this exciting new business model have not yet figured out what exactly works best.
At the top of the list of the challenges these on-demand companies face is managing the labor pool. Currently, the model that most companies use, including the industry leaders, is to employ independent contractors to deliver their service. That means that individuals with 1099 contracts will deliver food for companies like Postmates, drive cars for companies like Uber and Lyft, or run errands for companies like Taskrabbit.
Scot Wingo, founder and CEO of on-demand car wash service Spiffy says that model is not a one size fits all option and has caused other services to collapse.
“If you look at the short history of on-demand companies, you can see how much damage has been done to various brands because of subpar service, and it is hard to foster an engaged and professional workforce if they are independent contractors,” explains Wingo. “They are the frontline of your brand and they have almost zero supervision, lack training, and sometimes are not even thoroughly vetted. All of that can result in huge catastrophes that ripple out into the media, damage your brand, and have even sunk companies altogether.”
As the on-demand economy matures, its newest members are trying new approaches. Wingo’s company W2s its workers, who are also background checked and trained to deliver their service. The desired outcome is a higher grade service and more reliability.
This slower approach makes it harder to scale, which in itself is not a virtue, but is considered by venture capital firms. The fallout from the last five years of turbulence, which has seen dozens of on-demand companies close their doors, seems to have persuaded VCs that it is okay to try the slow growth approach.
Last year, venture capitalists reduced investment into on-demand startups by 35 percent from 2015 which could indicate a significant slowdown in the industry.
These labor challenges, among other issues such as market segmentation, product to consumer fit, company values and more, are driving entrepreneurs and investors alike to reevaluate how to run on-demand companies.
“On-demand companies should operate like real companies, and increasingly, they are. The old breed of company that only wanted to run a sexy Uber-of-something type of company is quickly dying out,” says Wingo. “You have to run a real company and the on-demand aspect of it cannot be the only selling point. If all you are selling is convenience, your message will get lost. Entrepreneurs in this industry need to ask what else their service is offering.”
Consumers certainly stand to gain from the shakeup and from the improvements made by on-demand 2.0 startups. They promise to be fairer to their workers, boast stronger values and goals, and deliver more reliable services.
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