Why 'Uber of' startups fail

Uber is the latest poster child for technological disruption. The company found an industry stagnated by anti-competitive regulations and, with the simple addition of a mobile app that enabled its users to provide what only taxis and limousines could do before, it stood that industry on its ear. And ever since, we have faced a litany of startups that call themselves the "Uber of" something or other.

There’s just one problem: not everyone can be an Uber.

The Uber Formula

Initially, Uber found a niche industry -- black car transport -- and put it in the palm of your hand with a mobile app. No longer would you need to deal with calling a limo, you could simply open a mobile app and one would be on its way. Furthermore, Uber added a layer of transparency. Where’s my car? It’s right there, on the map, in real-time. But this formula alone would not have arrived at the multi-billion pound company we see today. Next, Uber expanded its value proposition to attract a broader audience, by expanding its service to include not just high-end black car service, but rides for your average taxi-hailing urban denizens.

If you ever spent time in a city before Uber, looking to hail a cab at rush hour or after the bars let out for the night, then you well know the soul-crushing futility of such a task. Uber immediately solved that problem -- and it did it to the tune of 40 percent cheaper. Furthermore, Uber created a virtually unlimited workforce to draw from -- anyone with a driving license and a vehicle -- ensuring that no matter how quickly the demand increased, it would be met with a fresh supply. Finally, Uber managed to raise capital -- enough to quickly expand to other markets and make sure anybody and everybody knew the name "Uber".

Obviously, this strategy was a success, but it is difficult at best to recreate. Let’s take a look at how many startups are attempting -- and failing miserably -- to replicate it.

How to Become the Uber of Nothing

Many of the "Uber of" startups of recent years have already failed and, with venture capital quickly drying up, many of the rest will shutter as well. Here are some of the quickest ways to veer off the path of becoming the next Uber and join the long list of now gone Uber wannabes.

Keep Your Focus Niche

Had Uber remained a service for high-end cars, it would not be the household name it is today. Instead, the company moved quickly from its initial audience to a much more broad customer base. While some companies may succeed in targeting and solving a small problem, sharing economy startups often rely upon economies of scale. Be myopic and your "Uber for kayaks" will quickly be overtaken by an "Uber for sporting equipment". The logistics of some verticals may make it such that a niche focus can work for some, but more often than not, the more broadly targeted the market, the more likely you will succeed in the realm of Uberization.

Fail to Meet Demand

Key to Uber’s success was the fact that it raised massive amounts of venture capital to grow quickly and market itself far and wide. Additionally, it lowered the barrier of entry for supply so that it would be able to meet any demand.

When the on-demand sharing economy first erupted, everyone thought we would be sharing yard tools and cups of sugar in our newly smartphone enabled utopia of peace and sharing. Instead, we soon realized that, without enough people on these services, suddenly that drill we wanted to borrow was 30 miles away if we were lucky and it would cost us just as much in gas and time as it would to stop at the local Home Depot and buy one we could use next time too. Sharing economy apps require adoption and critical mass to become useful.

Forget About Real-World Logistics

The on-demand sharing economy appears to have a compelling value proposition -- it looks compelling, but in fact it isn’t compelling. Delivery, for example, adheres strictly to the laws of physics, geography, and time, which means that without careful route planning, money is going into the petrol tank and out the exhaust, instead of into the pockets of drivers and the companies paying them. Ignoring logistics in the name of disruption is a trap that many startups have fallen into.

Rely on False Assumptions

When you look at many of the Uber-esque startups, they all make a similar promise that, while seemingly compelling, fails to deliver (quite literally) on its promise. The hot trend in on-demand startups these days is the idea that we now live in a tech-enabled society that demands instant gratification -- and that we’re willing to pay. There are startups to instantaneously deliver you everything from cash to laundry to groceries. The thing is, these startups purport to solve a non-existent problem.

Internet Retailer’s 2016 Delivery Survey, for example, found that 93 percent of respondents said that 50 percent or more of their customers choose standard or free shipping. Meanwhile, another poll from Deloitte LLP tells us that 87 percent say free shipping is more important than fast shipping. Similarly, only 29 percent of US online shoppers say they’re interested in guaranteed same-day delivery, according to Forrester Research, and fewer still are willing to pay for that delivery.

Target Highly Regulated Industries

While Uber may have, so far, had success in upending a regulated industry in countries across the globe, many startups taking a similar path have found less in the way of success. Uber’s rhetoric of providing a platform for people to share rides, and not a taxi service, has eked past many local laws, but other industries -- such as healthcare or financial services -- are not so easily fooled (or "disrupted" as some like to say).

In ten years, everyone will forget what Uberization was, but they will know who is delivering their food, where their packages are coming from and who is doing their trucking. And that will have been the result of successful Uberization, a task dedicated not to the lucky, but to the smart few.

Dick Metzler is the CMO of uShip.

Published under license from ITProPortal.com, a Net Communities Ltd Publication. All rights reserved.

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