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Tech Startups with a Service Model

, March 17, 2017, 0 Comments

tech-startups-service-model-marketexpress-inThe difference between a tech company and a services company is fast diminishing. I was talking to one of my friends running a travel & ticketing services firm from Bangalore. He said that he is no longer a travel services company, but a technology company. Such instances are increasing day by day. Would you consider Flipkart a technology company or a retail business? Is Food Panda a food service provider or a technology company? It is difficult to decide. While the services being delivered are retail and food, the whole backbone is technology and hence we can also safely say that these are technology companies.

The big surge in this area has happened due to the growing popularity of the aggregation model. Everyone wants to “uberize” something or the other. This is where the traditional services model is being empowered by the technology platforms, whether it is a food tech or other tech company. This has opened up interesting possibilities for the entrepreneurs.

A traditional service can now be scaled up fast to cover a large geographic area and target much larger customer base. The promotion of the service has also become much easier using social media and targeted campaigns. The technology platforms are also lending themselves to data collection and collation for further analytics, which can generate strong customer insights into buying patterns and behavioural traits. This makes marketing and service provision that much more interesting. The ease of launching additional services and promotional schemes has increased tremendously due to the captive customer information. The business can now send emails and messages directly to their customer base which has improved the customer communication and engagement opportunities.

As mentioned above, one of the biggest opportunities in tech driven service offering is the data analytics. If the business model is well defined, data analytics can become a very powerful revenue source, sometimes much larger than the basic service.

We are already seeing such products like Whatsapp and Google. The real deal is the consumer insights drawn from the huge data pool of millions of transactions which are of immense value to the businesses. Concepts like sensitivity analysis are redefining the way businesses measure customer feedback and sentiments.

The other side of the story is much more interesting and disturbing. If we look at the failure patterns of these tech-service companies it is becoming increasingly evident that there are large gaps in their operating models. Many entrepreneurs think that if they build an App or a web platform, they can deliver the services. They are blind to the operational side of the story and just assume that they can deliver. This has led to a spate of failures in the tech-service startup space.

As some of these companies do not actually own the delivery process and usually outsource the whole value chain except the transaction management, it is very difficult for them to take care of customer SLAs and ensure proper service delivery. Many times the last mile delivery goes missing, which renders the entire service non-operational. The areas of service delivery are not clearly specified and hence they also attract a lot of missed opportunities and unsatisfied customers.

There is another interesting angle to this story. I have seen many investors pushing the entrepreneurs for building a technology solution for faster scale up, without really understanding the business and operational model. During one of the pitch events one entrepreneur wanted to sell snacks within large gated communities. The angels listening to his pitch insisted that he build a technology platform for faster scale up. The entrepreneur’s explanation that he did not need one as he would be catering to captive customers within the communities fell on deaf ears. This is another confusion created by the so called investors who just want to ape someone else without really understanding either the opportunity or the business model.

Yet, the biggest problem is with the MVP and test marketing. Many of these entrepreneurs burns all their time and money in building the platform, usually because they can, without ever delivering the service to even a single customer. Then they go around for funding with the platform and yet to be tested operational model. Obviously, very few succeed. The concept of MVP is usually neglected by these entrepreneurs, thus missing a great opportunity to understand and improve their true value proposition and aligning the same to the target customers.

While technology offers a great opportunity to scale up faster and become accessible to a large customer base, the related operational challenges must be tested and streamlined before hitting the larger market. Also, as someone said, a technology platform makes sense only when the frequency of consuming the service is high, at least once or twice every week. Else, the technology platform does not become viable. There are exceptions to this rule, like Redbus, but it is supported by a large user base. Hence, spending money on the app and the platform where the customer uses the service once in six months is thus a waste and should not be done blindly.