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Free market forces reliably do one thing very well: they crush weak companies. That is good for the economy and scary for entrepreneurs. Thankfully there are a million books for entrepreneurs about how to cope with failure, but that is not what this article is about.
Creative destruction is changing the on-demand landscape. Creative destruction is the innovation mechanism by which old business models and products are replaced by newer, more efficient models. Creative destruction replaced Blockbuster Videos with Netflix and digital cameras with smartphones.
But it is not always so obvious that the process is taking place. Most often, the transition is iterative, taking a million small, nearly invisible steps. I draw our attention to the on-demand landscape because just a few years into the market-wide adoption of the model, it is already experiencing significant alterations that are hard to miss.
These are three changes to the on-demand business model to watch:
America’s love affair with Uber is on the rocks. That is not to say Uber is going away, but the days of eagerly waiting for a clean car with nice air freshener and free bottles of water to pull up to the curb seems like a distant memory. Now the phrase “experiences may vary” seems more appropriate.
One major contributing factor is that Uber uses independent contractors, people working on 1099 contracts, to deliver their service. That practice may be going away. Scot Wingo, founder and CEO of Spiffy, an on-demand car wash service that was recently funded with $5 million. Wingo W2s all of their workers, conducts background checks and trains them to deliver better service.
“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,” explains Wingo. “It is hard to foster an engaged and professional workforce if they are independent contractors.
That is why many of the on-demand companies are changing the model and using full employment contracts. Some VCs are calling this a ‘full-stack’ model.”
2. Targeted consumers.
Many on-demand services have failed to understand who their best clients really are. That challenge is understandable. You can imagine anyone using any number of services — house cleaning, food delivery, pet grooming — and that is what an on-demand smartphone app is for. But just because it is an app that can be on anyone’s phone does not mean that everyone is equally likely to use it.
Modern on-demand companies are positioning their brands to micro-target consumers. Instead of food delivery for everyone, brands are focusing on corporate clients, events, specific kinds of cuisine, and so on. This makes them the logical go-to in specific situations and prevents them from being lost in the litany of apps that clutter smartphones.
3. Focus on service.
Of course, the worst thing that can happen to a brand is an extremely negative interaction between an employee and a consumer. While not worth describing in detail, the horror stories are out there. And those stories are difference makers for many companies fighting to survive in a very competitive field.
That is why one of the changes occurring in the on-demand world is an increased focus on who is providing the service. “Background checks are ubiquitous in most service industries that require people to visit clients in their homes or at their place of work,” says Wingo. “And that is for good reason.”
“The client trusts the company to send a reputable individual to perform a service. On-demand companies should operate the same way 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.”
These changes are happening just a few years into the lifecycle of on-demand-model companies. It could be a signal that major shakeups are coming or that the industry is simply finding its feet.
Either way, the creative destruction that is taking place is good for consumers because it is empowering real entrepreneurs to build quality businesses that deliver real value. That is how the free market is supposed to work.