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Infrastructure As Code

New Year’s Eve is notorious for being amateur celebrity night. Millions of people around the world descend upon restaurants, clubs, and bars willing to spend highly inflated prices for one of the most popular nights of decadence and celebration all year. Money is bandied about left,right and center, with premiums placed on nearly everything: New Year’s Eve menus, New Year’s Eve entry charges, New Year’s Eve cocktails, New Year’s Eve parties, even New Year’s Eve transportation.

It’s that last one – transportation – that some credit with the inception of what we now call the on-demand economy. After having parted with $800 with friends for a taxi on New Year’s Eve, the wheels started turning for one particular entrepreneur in San Francisco. Rather than pay exorbitant prices for black car services, Garrett Camp started to brainstorm ways in which riders could pay a lower price by sharing the ride with multiple people.

And thus, Uber was born.

Since Uber was founded in 2009, the number of on-demand companies has exploded. This new type of economy goes by many names – gig economy, sharing economy, on-demand economy, peer economy, platform economy – but the idea is the same: offer products and services delivered incredibly fast and at a low price, and all with just a few taps on a mobile screen. Some of the more notable on-demand companies include TaskRabbit, “an online and mobile marketplace that matches freelance labor with local demand, allowing consumers to find immediate help with everyday tasks,”; Wag, an on-demand dog walking and dog sitting marketplace; Airbnb, “an online marketplace and hospitality service, enabling people to lease or rent short-term lodging including vacation rentals, apartment rentals, homestays, hostel beds, or hotel rooms”; Instacart, an online grocery delivery service; and Postmates for on-demand local delivery.

It’s apparent that the on-demand economy can be hugely profitable for businesses, but what are the common elements that lead to success? And can the gig economy be applied to all businesses, or are there some products and/or services that could actually benefit from delayed gratification?

What does work mean to you?

The on-demand economy has already changed the face of the U.S. workforce. There were approximately 55 million freelancers in the U.S. in 2016, making up over a third of the population. In a country that has in recent history heralded the 9 to 5 schedule as the gold standard in workdays, the rise in freelancers signals not only a shift in workforce statistics, but also in the collective mindset. Sara Horowitz writes for the Monthly Labor Review, U.S. Bureau of Labor Statistics, “Online work platforms, such as Uber, Airbnb, Etsy, and Elance, that connect workers directly to consumers and clients are completely reimagining the work relationship.”

If we were to use the chicken-and-egg argument, it could be hard to pinpoint which came first, on-demand companies or the rise in freelancers. Either way, the concurrent increase of each shows that not only are there more opportunities for freelancers in the modern economy, but there is also a surplus of workers who prefer this type of employment.

Global investment experiences recent boost

The number of investors allocating capital to on-demand companies took a dive in the first half of 2017, but with 87 deals in Q2 alone, the on-demand marketplace is experiencing a resurgence, as shown in the graph below by CB Insights. This most recent boom was led by Chinese ride-hailing startup Didi Chuxing, which received $5.5 billion in investment. Other companies that led the funding rise include, and US ride-hailing company and Uber rival Lyft.

Investments in new companies, however, have started to decline. CB Insights reports, “Looking at on-demand global deal share by quarter, there is a clear decline in seed and angel deals to the space, falling from 45% of all deals in 2016 to only 39% in H1’17. This is indicative of a maturing industry, in which later-stage companies are increasingly receiving more investor attention and dollars.” Startups in the on-demand space will have a harder time getting investment, as well as facing significant competition from companies that have been around for some time. Companies that wish to start afresh may find it more difficult to gain traction in a market that is starting to become saturated, especially in certain industries.

Leading the charge

Certain types of on-demand businesses are more popular in the on-demand market, forcing recent startups to become more innovative with their concepts. The Harvard Business Review writes that the more popular types of on-demand businesses is reflected in the amount that consumers spend, the majority of which is in online marketplaces, which on average totaled $35.5 billion per year in the U.S. This is followed by transportation with $5.6 billion, food grocery/delivery at $4.6 billion, and the remainder of the on-demand economy bringing in $8.1 billion.

These numbers should be a clear signal to entrepreneurs who have the twinkle of an on-demand business in their eyes. Unless backed by a large amount of funding or corporate partner, it will be very difficult to infiltrate the parts of the on-demand economy in which consumer spending is already concentrated. Instead, it would be better to focus on new ideas that are still in their infancy, as these stand a better chance at becoming profitable. James Paine writes for Inc that the B2B space has been an interesting place to watch, with a few startups coming to market to fill a variety of the needs of businesses, including Spiffy, an on-demand company that will wash your car while you’re at work, and ezCater, a catering company with a network of 55,000 restaurants that can handle anything from two people to thousands. Whatever the value proposition, a unique idea will be paramount to starting a business in the on-demand world.

How to build an effective on-demand business

Looking at the bumpy roads of some on-demand startups, a few things rise to the surface as necessary ingredients for a winning on-demand business. First, your business must offer as many options for the product or service as possible, and spare no exceptions. The reason for this is, as mentioned earlier, the on-demand market has started to become saturated, and if a consumer cannot fulfill all their needs with your company, they will quickly search for another one where they can. Establish brand loyalty in the early stages of the customer journey by giving the customer everything they require and then some – give the consumer what they want before they know what they want, and leave no stone unturned.

Second, when building your software, make sure to prepare for future scalability by layering your back end. This will allow for quick enhancements and build-outs to occur if your company starts to expand quickly. Whenever opportunity comes knocking, have your digital infrastructure ready to answer.

Next, research your competition and make sure you’re doing everything better. The on-demand world has already had a few years to find its feet and it’s running at a pace now, so there is a good chance that there’s another company offering something very similar to what you are. Find them, get a clear picture of what they’re doing, and then do all of it better.

When considering the ways in which customers will interact with your business, it is paramount to be excruciatingly precise and consistent with every step, and make everything happen as fast as humanly possible. Again, with a saturated market, if a customer doesn’t receive your product or service in as much or as little time as they expect to, they will go to a competitor. Don’t give them time to consider another company – give them exactly what they want, every single time, and do it faster than they realized was possible. On-demand means now.

Taking this need for speed a step further, make your payment system fast and painless. There are lots of companies out there that offer excellent payment systems, from pocket-sized credit card readers to online wallets. Find which type of system works best for you, then integrate it into your business so that this step happens in the blink of an eye.

As you continue to grow your customer base, keep a constant eye on your analytics trends and implement changes as necessary. It will take a while to aggregate enough data to discern patterns, but you should do this as soon as you can in order to start refining the way your business works. Data is the name of the game in digitally focused businesses, so put it to use to continually improve your business model.

On-demand does not work for everything

One thing upon which online marketplace Etsy has capitalized is the recent demand for handmade goods. Etsy found that despite the fact that you can get almost anything in the blink of an eye, there are certain things that consumers are willing to wait for. The allure of having something made by a person rather than a machine is a recent trend, and although these goods are offered via an online marketplace and thus technically part of the on-demand world, many of them also require time to produce before shipment.

For instance, say you wanted to give someone a handmade quilt. Part of the value in this product is that it is custom made, so no one else will have the same quilt. The other part of the value is that it is made by a person, not a machine, and that the craftsperson invested one of today’s most valuable assets into making this gift: time. Not all products and services are going to benefit from an on-demand model, in some cases simply because it is not feasible to produce them quickly enough. It will be obvious the types of businesses that simply do not belong in this sphere; marketing these types of businesses with a focus on the time and personal approach they have will balance the inability to turn them around in a short timeframe.

The on-demand economy has taken off like a storm for many modern businesses, and can prove very lucrative when it’s done right. However, there are right and wrong ways to go about it, and it’s certainly not for everyone. Consider what your business has to offer that differentiates itself from other on-demand businesses and if the time is right, make the on-demand economy work for you.