Solving the Chicken and Egg Problem with On-Demand Mobile Apps
Tim Bornholdt
Published on April 24, 2018
Let's say you are building a mobile app which delivers groceries to a customer on-demand. In order for your app to be successful, you need drivers to deliver the groceries.
However, in order to get those drivers, you need money to pay them.
"No problem," you say. "I'll get money from my customers!"
But wait... in order to get money from those customers, you need to deliver the groceries to them.
This circular dependency is what we in the biz would call "the chicken and egg problem." There are many ways to solve this problem, but choosing the correct one is highly dependent on your set of circumstances. Today, we'll go over seven possible solutions that you can apply to your mobile app in order to grow sustainably.
We recently discussed this problem on our podcast Constant Variables. To hear an audio version of this blog post, click here!
Solution 1: Act as the service provider, then add the on-demand aspect later.
Can't afford someone to provide your service for you? Then take it on yourself!
There are three huge benefits in acting as your own service provider:
- You will be directly interacting with your customers. You can ask them what they like and don't like about your service, and use that feedback to improve your product.
- You will learn the processes that a service provider needs to follow in order to properly perform your service. This comes in handy when crafting training materials later down the road.
- You'll save money up front by not hiring a team of service providers right out of the gate.
Solution 2: Start small. Really small.
Rookie on-demand mobile apps make the mistake of trying to be bigger than they can handle at the beginning. Being big requires you to know how to scale your service. The only way you can figure out how to scale is to be able to control all the possible variables in your system, and to do that, you need to think small.
If you're in the Twin Cities, for example, don't try to service both St. Paul and Minneapolis. Don't even try to service Minneapolis. Think even smaller. Start in Loring Park, for example. Once you've been able to work out your processes, begin to move to a neighboring community (like the North Loop).
As you continue into more communities, word should begin to spread and neighboring communities will start to ask you to bring your service to them. Eventually, you'll secure an entire city, at which point you can begin to spread outward into the suburbs.
This strategy is exactly how Facebook became the bohemith that they are today. Facebook started at Harvard, then expanded out to other Ivy League schools, and then expanded to more and more universities. Part of the appeal of Facebook in the beginning was its exclusivity; people at public universities were begging for Facebook to open themselves up to more and more communities.
If Facebook tried to open the doors to everyone at the beginning, they likely would have met a similar demise to the other social network platforms of the time (Friendster, anyone?).
Solution 3: Make your app valuable without the on-demand component to it
Let's be real: the whole "on-demand" concept is simply a nice-to-have addition to most mobile apps. The world got along just fine before Uber (we had taxis) and Postmates (restaurants delivered their own food).
If the on-demand portion of your app is causing you some heartburn, try releasing your product without it.
Let's say you are building a tool for salon owners to book appointments with any stylist at any time. In order to build the on-demand component of it, you will need to have a killer scheduling service in place. Focus on making that scheduling service completely indespensible for salons. Once you perfect that, your customers will be much more accepting of an on-demand feature for that software.
Solution 4: Identify the people who will love your product and get them to use it
Before we released mncraft.beer, we found a few social media beer enthusiast groups and offered to let them test the app out. The result: a huge boost in organic traffic as word of mouth spread to other craft beer enthusiasts around the state.
If you want to build up the customer side of your business, find the early adopters of whatever niche you are in. These come in many forms and by many names: social influencers, nerds, etc.
One theory we've adopted at the JMG is Kevin Kelly's 1000 True Fans. The theory goes that if you can find 1000 die-hard people who will buy every single product you create, you'll be able to make a handsome living. If you can get 1000 true fans and get them to give you $100 per year, for example, then you will have a $100,000 salary.
The same principle applies to mobile apps. If your service doesn't offer something where users will bend over backwards to shove money into your pockets (or worse, if you can't even name one die-hard fan that isn't your mother), refocus your efforts on getting there.
Solution 5: Partner with someone who already has the demand or supply-side covered
Sometimes, outsourcing the tasks to which you are ill-suited can be the best way to grow your audience.
Find a partner who can help you market your product or, even better, fulfill the service portion of your mobile app. Depending on your niche, this piggy-backing strategy can help you quickly grow your userbase.
One of our favorite examples of companies who are successfully using this strategy is Running Tap, a Minneapolis-based growler delivery service. Running Tap partners with breweries to supply the growlers, which makes a lot more sense then having them brew the beer themselves.
Even better, Running Tap uses the breweries to advertise their service by hanging up posters and whatnot inside the taprooms. It's win-win for the breweries, who are able to sell beer they otherwise would not have sold.
Solution 6: Money. Lots of money.
Believe it or not: a strategy that will work more often than not is to spend some money on advertising.
By this point, you've heard of Uber. If you live in a major metropolitan area, you've also probably heard that you can drive for Uber. This is because Uber spends a ton of money on billboards and radio ads to attract new drivers.
Subtle? Not really. Effective? It sure seems so.
If you are fortunate enough to be in the position where you can execute on this strategy, make sure you have a thorough understanding of your target market before spending a dime. The last thing you want to do is market yourself in a place where your customers or service providers are not in the position to listen.
Solution 7: Incentivize people to use your platform
A solid business model is one in which all parties get value. If you are a pizza shop, your customers receive value by receiving a delicious pie. You receive value by taking cash from them. Both sides win.
In a three-sided market place where you are inserting yourself into the mix, you have to work harder to make sure all sides feel like they're winning. In addition, because you are inserting yourself in between the two parties who are performing and receiving the service/product, you need to make sure that the value you provide (which would be facilitating that transaction) is worth the hassle of not just going directly to the provider or customer.
One way to do this is to strategically place incentives for when your customers or service providers act in a way which benefits you.
For example, if you run a delivery on-demand service, you could incentivize your drivers by paying them a bonus for picking up a shift during a busy period.
If you are looking to grow your customer base, you could offer a discount on their first order. Better yet, offer a deep discount on the first order and a smaller discount on the next couple of orders. This would incentivize people to keep coming back into the app and interacting with your service.
On both sides of the marketplace, you could offer discounts or bonuses when a customer or service provider refers somebody new to the platform.
Before you throw around discounts willy-nilly, be sure to consult your numbers before implementing discounts. As Bill Gates once said (in an episode of The Simpsons): "You don't get rich by writing checks."
One of the most challenging parts of running a business is balancing supply and demand. If you don't have enough customers, you won't make any money. If you have too many customers, you risk not being able to provide great service to them.
In a three-sided marketplace, you need to work even harder to grow supply and demand carefully from two different sides while maintaining your position as the person facilitating the transaction.
These seven solutions are ones which we've used on many mobile apps with varying degrees of success. If you are looking for advice on which solution will solve your chicken and egg problem, reach out to us today!
