A Lesson About Sharing –The Shared Economy
Working at an accelerator providing capital and resources to startup businesses, I have the opportunity to consider a large number of companies and their business models. In our process of reviewing companies, there are noticeable patterns that develop in the startup community. Not too long ago marketplace apps, like GrubHub, an app connecting the consumer to their favorite brick-and-mortar eateries, became a trend and are still now popular. Now we have noticed more and more “shared economy” companies, such as Uber and Airbnb. These “shared economy” companies use a web based platform for peer-to-peer consumption and transactions.
Shared economy companies may be red hot in the market right now, but many struggle to overcome fundamental difficulties. Each “shared economy” company is attempting to use an unregulated workforce to run their business and make a profit. For example, “shared economy” delivery companies use drivers, similarly to Uber, to deliver food or drinks. While such companies have grown and received venture capital investments, the profit margins are very small. The part time work force must be compensated for driving on top of paying for the food. This leaves little for the companies to profit on while keeping prices low. After all, there are only so many people with expendable income to pay for such conveniences. Upping the price point solved some issues but drove away more customers. In many cases, the venture capital disappeared along with them.
Another difficulty faced by “shared economy” companies is the lack of committed work force. The unregulated and part time work force is often unreliable for companies. At times the tasks asked of employees go unfulfilled especially for companies that use their platform to provide work like laundry service, cleanings, or maintenance. Problems materialize when service providers take too much time and money to perform the tasks. This coupled with an unpredictable task schedule make matters more difficult. Without the consistent work force needed for any successful “shared economy” company, many just can’t make money.
Trends for Success
Relying on the delivery of above-par service from a part-time and unregulated workforce seems to pose too many challenges to be profitable. In saying so, you might assume that we doubt the validity of shared-economy companies and would not consider them for elmspring. That isn’t the case. If a startup is based on the shared economy principles it must fit the model perfectly and overcome the fundamental difficulties of the shared economy. The “shared economy” model isn’t for every business especially if the trend is a detriment to their bottom line. A startup might have to consider devising new rules, adapting regulatory measures, and consider their workers’ long-term job satisfaction and benefits—just as the most successful shared economy businesses have had to do to survive. Jumping on the bandwagon and building a shared- economy business might seem like a sure thing in the moment, but moments are fleeting. And true business success for the long term must always take precedence over trends.
Stay tuned for the next blog in Bob’s series, you can check out the previous one here!