An on-demand startup called Peach began delivering lunch to my office recently. Depending on the day, I can order mango chicken curry, mushroom tacos, or eggplant rollatini, and Peach will deliver it at lunch time for about 10 bucks.
I don’t know about you, but $10 a day for lunch is a bit steep — have you seen the cost of daycare lately? But when the only other option is a mediocre on-site cafe, Peach starts to look better by comparison and has great customer service: When a colleague’s lunch was stolen, Peach refunded her the money — no questions asked. I predict that Peach will succeed — at least at Forrester — because it provides the convenience that on-demand companies are known for, paired with great customer experience.
Unlike Peach, though, recent on-demand failures:
- Didn’t understand their customers. Helloparking, a Boston startup for finding parking, failed despite multiple pivots. Upon reflection, the founders acknowledged that they “never defined clear hypotheses, developed experiments, and rarely had meaningful conversations with target end users.” What’s worse, they “rarely got out of the building.”
- Neglected to hire and train customer-centric employees. On-demand cleaning service HomeJoy raised more than $60 million from investors before failing spectacularly in 2015. There have been lots of post-mortems dissecting the reasons for failure, but one stands out: poor customer retention. Like most on-demand companies, HomeJoy used contractors to deliver its cleaning services, but those contractors weren’t screened or trained properly. This resulted in poor service that customers weren’t eager to come back for.
- Chose the wrong niche market. I don't care if my gabby UberX driver picks me up in his beige 1997 Toyota Corolla because it's still better than half of the Boston cabs I've been in. But while Uber chose an industry that’s ripe for the picking, not all startups are as lucky. Instacart is competing with customers going to the grocery store. If the parking lot is always full, the shopping carts are missing a wheel, and the cashiers are disgruntled, customers would likely rethink Instacart's value proposition — and many have. But not enough, which is part of the reason that Instacart had to raise its delivery price by 50% last December.
Instacart’s not the only company raising prices — on-demand parking service Luxe is too, so it’ll have to deliver an experience to match. While customers are willing to pay more in return for a better customer experience, they’ll surely balk at paying more for worse or even parity. And when a better experience translates to more customers, businesses can get the scale and efficiency that they were counting on in the first place.
If you’re wondering if one of these Uber-wannabes is going to succeed, kick the tires hard and discover whether they are focused on mastering:
- Customer understanding of both service providers and end users. Many on-demand companies serve two populations: Get to know them both. When digital consultancy Vokal partnered with a startup to develop a cashless valet parking app, employees got out of the office to watch diners and club-goers use the app at valet stands around Chicago. They also witnessed the degree to which the valet stands welcomed the new cashless system, which was the major hurdle to growing the business. They found that valets were more accepting of the new app if the company provided them with a companion enterprise platform to track pricing, wait times, and revenue. The startup reprioritized its road map to shift focus to valet companies while gradually adding end user features.
- Customer-obsessed cultures that will deliver a consistent quality experience. To compensate for the contractor workforce model, successful on-demand businesses prioritize customer-centric values when recruiting and hiring. Dog boarding company DogVacay thoroughly vets its hosts — it accepts only 15% of applicants — and uses ongoing customer feedback to control quality. Similarly, it hires customer care staff members who don't necessarily have contact center experience and instead display a passion for dogs and the business. Both practices contribute to its enviable Net Promoter Score of 93.
- Customer experience measurement that will drive course correction. After each stay, Airbnb requests feedback from hosts about guests, feedback from guests about hosts, and feedback about Airbnb itself. Hosts with poor ratings appear near the bottom of the list of options, making it less likely that they’ll get chosen again. And because ratings are prompted after each interaction, it’s more likely that customers will fill them out, giving companies a wealth of information to constantly tweak and improve their experience.
On-demand companies are just one of the sectors now falling victim to what my Forrester colleagues Ted Schadler and James McQuivey have termed “unicorn carnage.” As the blood gets mopped up, companies should use this moment to double down on customer obsession as a way to catch up to those disrupters that survived. Now, excuse me while I go order my lunch.