Converting a Service Company into a Service Platform Startup
Many entrepreneurs are attempting to use technology to broker services. Seriously, I get at least a few emails a week from them asking for advice.
I receive emails from African entrepreneurs who are developing ride-hailing apps. I receive emails from entrepreneurs in Mexico who are using the internet to monetize artists. I get emails from entrepreneurs in the Midwest looking for invention assistance.
And I believe in each and every one of you.
But this shit is difficult. Each service business is unique, with its own set of problems and constraints. So here’s my advice to the hundreds of you who’ve written in, as well as the (likely) thousands more who haven’t.
Platform Learnings from 20 Years of Service
Don’t get me wrong: I’m just as enamored with the service platform as the rest of you.
After my startup, Automated Insights, was acquired, I left to join Spiffy, a fledgling but promising mobile car wash. That was a little more than two years ago, and since then, we’ve grown Spiffy into a mini-empire, performing everything from basic washes to high-end details to oil changes and even windshield replacement in over 20 cities. More to come as soon as we figure it out.
ExitEvent, a startup network and information source, was also being built at the same time as Automated Insights. Right before selling that, I successfully piloted a services marketplace, allowing developers, lawyers, recruiters, and other service providers double-blind access to the startups, so that service providers could offer their services to startups at reduced rates without harassing the entrepreneurs. Fire.
My first solo venture, Intrepid Media, was a content marketplace (similar to Medium) in which readers and writers paid me to use technology to create a home for really good content on a variety of topics.
It was a crazy time, I know.
In fact, Intrepid began operations in 1999. That was 20 years ago, so I’ve been pursuing this dream for quite some time. I’ve learned a lot about the evolution of service platforms. Here are some musts and mistakes to avoid.
Build a better service first, then build the platform.
When a founder writes in and says they’ve already spent thousands of dollars building out their tech, I cringe. This is essentially building your company backwards.
I come from a technical background. I wrote the code for both Intrepid Media and ExitEvent myself. This has taught me not only what to code, but also when to code. I will not build the technology to automate a service until my company has worked out every kink in that service and improved it.
Here’s the first blunder. When you build tech to fit existing customer flows, no matter how many flows you lump in or how flexible you make that tech, you’ll still run into multiple scenarios where you have to either serve the customer manually or turn away the business. If you build your technology without first establishing a functioning service company, you won’t be able to even catch the outlier business, let alone serve it.
The second error is far more serious. You can manually serve a few outliers, but if those outliers become a trend and you’re not prepared for it, you’ll find yourself losing money on a significant portion of your new business. When the cost of acquiring and serving additional customers outweighs the price point, most service platforms fail.
Finally, if you are not evolving the service and are simply rebuilding a shinier wheel, someone will beat you. Either the old business you’re attempting to disrupt will recognize your technology and reverse engineer it, or someone will build a better mouse trap and disrupt you along with the old business.
Hire Hustlers rather than Experts.
The standard operating procedure for these service platforms is to gather a few industry experts, build the platform (as mentioned above), and then go find more experts to execute the service.
The first mistake I’ve seen is that when you build out the platform side of the company with expert resources, you’re going to have to reduce a needlessly expensive headcount at some point.
You don’t need a slew of platform builders with years of experience applying technology to old-school methods. You only need a couple of people who can look at the old way of doing things and come up with more efficient, less expensive, and more customer-rewarding alternatives.
Then you’ll need a lot of runners.
On the platform side, you need high-energy people who can handle multiple tasks at once, communicate effectively, and solve problems on the fly. These individuals will experiment with new ways of doing things in order to make the new service more profitable in a new market. When they figure it out, you automate them out of their job and place them in charge
Intrepid Media, for example, did not require editors from Random House or the New York Times. I needed editors who could quickly edit a lot of crap for the web and encourage writers to write better stuff for the web.
The second error is contracting out service work to established industry experts. If you do this, you are not solving a problem; rather, you are creating a niche search engine.
I’ll use an example to demonstrate this as well. When I built out the startup services section of ExitEvent, I quickly realized that the established, high-dollar attorneys didn’t need it, despite their avowed desire to work with startups.
The services platform enabled the entrepreneurs to find up-and-coming attorneys who could perform tasks such as incorporation for a fraction of the cost. The hustler-type attorneys understood not only what the customer required, but also how they preferred to be engaged, and the platform accommodated that engagement at a reduced rate.
ExitEvent also provided the engagement rules, ensuring that each entrepreneur had a positive experience. The high-priced lawyers laughed when they saw my terms of engagement. It’s not worth their time.