The last ten years have seen an entirely new form of marketplace emerge, brought on by the increased prevalence of smartphones and increasing trust in online platforms. More and more businesses are establishing themselves around the ‘peer-to-peer’ model, otherwise known as the sharing economy.
You’ll no doubt have heard of a number of sharing economy businesses. Champions of the industry include Uber and Airbnb, the former allowing car owners to function as a cab service and the latter allowing owners of spare rooms and beds to let them out a la B&B. They may vary in their niches, but they are both focused on harnessing excess capacity and bringing together
They’re both well-known for their astronomic growth over the last five years, both of them fundamentally disrupting the established their respective spheres. They’ve had to overcome problems unique to them, but many of their the innovative solutions are worth noting for any startup.
Problems of growing in the sharing economy
When a business is facilitating the meeting of two strangers, safety is an absolutely key consideration. Your users need to be able to trust the service, and that fundamentally means they need to be able to trust the users that are on the other side of the transaction. The problem to resolve is developing a strong, structured security system which needs to be implemented perfectly by a well trained team. And furthermore this needs to happen at scale…
A recent study by Lloyd’s has revealed the necessity of insurance for sharing economy platforms for fostering comfort in new users to the platform. Fat Lama, a new player in the sharing economy, has been able to develop this, and serves as a great example for how the simple fact of having insurance can generate the necessary trust your platform needs for people to list their stuff.
Another problem to overcome for marketplaces is balancing supply with demand. In the sharing economy, everyone is a customer except the business, who acts as middleman.
This results in user-base growth needing to happen on both sides together. If Uber had had too many customers, not enough drivers, customers would have lost interest pretty quickly. If Airbnb had had too many flats and not enough renters, owners would have given up with using the app in no time. The growth must happen together, and occurs on a knife edge to balance on.
These are two of the fundamental problems facing sharing economy companies – how they are resolved will determine the potential success of a platform.
Scaling the Fundamentals
Planning out the very fundamentals of the business to be able to scale is absolutely critical to a sharing economy company’s success. The first thing to nail down is an understanding of the market you are entering. As mentioned earlier, you need to find a market for two types of clients, so making sure that your business idea satisfies both sides of your clientele is key to your success.
The next thing to get right is managing Operations. When you are just starting out, as with any business, your team will be a skeleton crew of the bare essentials. You won’t have the luxury of multiple departments to do specific jobs – you and your limited staff will have to do it all.
Nailing down a great Content Management System, whether developed in-house or purchased, will automate and simplify many of the tasks you have to undertake. But in addition to that, you need to be hiring communicative, alert individuals who can handle any situation… quickly. Hiring is the making or the breaking of almost any idea.
Growing and Expansion
Growth-hacking is a phrase that’s only been around for a few years, but it’s fast become an essential part of a company looking to be disrupt and grow quickly at the same time. You need to be ready to do things that don’t scale as well as building procedures with mass reach.
Airbnb’s growth story is well worth noting.
Founders Joe Gebbia and Brian Chesky used Cragslist to kick-start their own user-base. The bulletin-board style website had a number of users offering their own homes for temporary accomodation, hotel style. Obviously, this was exactly what Airbnb wanted to leverage, and so they messaged user after user listing their properties, essentially suggesting to them to book their listing through Airbnb instead. Within a couple of months, they had a sizeable user-base.
Good growth-hacking essentially requires leveraging existing user behaviours to the best effect. It also ties in with the idea that you need to do your research before you head into the business you desire to grow.
And remember: always keep an eye out for new markets for your business to expand to as well. A case in point is the rental marketplace for anything, Fat Lama. Their early traction amongst creative professionals with high-end equipment didn’t stop them expanding to peer-to-peer campervan rentals. Other examples include Uber’s development of its Deliveroo competitor, UberEats..
Funding and Investment
The last thing to note is that, as with any business, securing the right funding at the right time to grow is absolutely essential to growing a sharing economy business. There are oodles of articles out there for this, but here are the essentials – know your metrics, know your forecasts and most importantly know who you’re pitching to. Successful sharing economy businesses are exciting to investors because they are disruptive and grow incredibly quickly.
One of the strongest things to show an investor is that you are not only growing at huge rates, but that you also have an unlimited pool of ideas to keep growing as well. If you can demonstrate that your model isn’t about to cap out, you’re well placed to raise proper money.
We’ve looked at how sharing economy startups have solved their problems from the basics up. It’s important to foster a culture of trust in your platform through rigorous security, while also making sure your operations team are handling every task and potential problem quickly and efficiently. Additionally, keen awareness of your market, your competitors and how to leverage existing behaviours will be the factor that determines the rapid growth of your business. Finally, getting the right investment by carefully demonstrating the long term potential of your business is absolutely key.
No matter what business or market you start up in, make sure you learn these lessons from businesses in the sharing economy.