Buzzwords come and go quickly in business, but so do the trends they describe. Big data has been replaced by smart data, which is quickly being overshadowed by artificial intelligence and machine learning. Businesses have “pivoted”, created Chief Revenue Officers, and tried a variety of modern business models.
But most trends eventually fizzle out, replaced by something newer and better. What survives are the pieces that worked; the ideas and structures that have lasting value. The on-demand economy, spearheaded by companies like Uber and Airbnb, is hitting a rough patch as well, and that is good for everyone.
“Rough patch” might be a charitable way to describe the graveyard of on-demand companies that closed their doors in 2016 and the 50% cut in funding given to on-demand startups. From food service to lawn service, the “Uber of something” ideas are falling like dominos.
This, believe it or not, is both natural, predictable, and healthy. Competition and mountains of venture capital funding gave entrepreneurs the opportunity to try every angle of the model and find ways to deliver products and services that consumers want. Thomas Edison might say they also found 999 ways not to deliver value as well. The outcome is on-demand 2.0, the next iteration, the surviving companies that have done more than copy and paste Uber into their business.
These are three earmarks of new on-demand companies and why they are winning:
- Create Jobs Not Gigs
Much has been made of the “gig economy”, which is projected to include 43% of the U.S. workforce by 2020. In other words, instead of traditional jobs and W2s, American workers will be freelancers, taking odd jobs through the growing list of umbrella services and on-demand companies. But there is a dark side to this transition and it is already causing problems for companies and workers.
“The gig economy is typified by irregularity, meaning there is no job security and instead of having a boss who trains you and helps you improve, your performance is rated on a scale of 1-5 stars by strangers who have no understanding of your growth as a professional,” explains Scot Wingo, founder and CEO of Spiffy, a modern on-demand company. “That is why many on-demand companies constantly have to deal with their freelancers walking out, protesting, and damaging their brand.”
Instead of gigs, modern on-demand companies are hiring their workers. Spiffy, which is an eco-friendly, on-demand car washing service, W2s its employees to ensure job stability and service reliability for their customers.
- Has a Passion or Purpose
The best companies have a “why”, not just a “what” and a “how”. When companies lead with their why, they engage their customers at an emotional level. Great brands like Apple do this meticulously. Their customers are not the ones who obsess over processing speeds and graphics cards, they are the consumers who simply want the best, most fashionable, fully connected device on the market. Apple doesn’t explain how it has made its devices to be that (and for all a consumer like myself knows, maybe they aren’t the best products at all), but I feel like they are.
Similarly, on-demand companies have to have a why. But because of the overnight success of the model and gold rush to launch companies in that space, many founders forgot to find it. As a result, services offering dog walking and house cleaning simply existed as apps on people’s phones, but never became services they valued.
“Companies that survive the downturn in on-demand hype will be the ones that are doing more than offering a service; they will be pushing a message and acting on a premise that is bigger than convenience and commerce,” explains Wingo.
- Learning from Mistakes
The overnight success of on-demand services did not come without bumps in the road. Some of the early stories were about freelance workers being harassed or customers receiving very low quality service. As a result, newer on-demand companies are innovating and learning how to overcome those problems.
Best practices like background checks for employees are becoming more common. On-demand companies are also being more specific with who they target. Many new food delivery services are targeting corporate clients instead of individual consumers, understanding that the value proposition might be greater at the corporate level.
These issues taken together paint a picture of what future on-demand companies will look like. And there will be further rounds of attrition! By the time the dust settles, the model and the companies that lead that industry will likely be radically different than what we see today.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.