@andrewchen

Subscribe · Featured · Recent · The Cold Start Problem 📘

Why “Uber for X” startups failed: The supply side is king

Remember all the “Uber for x” startups?
A few years ago a ton of “Uber for x” startups got funded, but very few of them – maybe none? – worked out. It sounds good but ultimately most failed on the supply side. Let’s explore why.

Rideshare has better economics, at the same acquisition cost
Rideshare is special. Acquiring a broad base of labor for driving is expensive, often $300+. But then they can get requests all day. You can work 20 hours and even 50 hours a week if you want. You continually need the driver app to find new customers

Where a lot of “Uber for x” companies fall down – valet parking, car washing, massages, etc – is that demand is often infrequent and there’s spikes at a few points in the day. What’s your supply side supposed to do the rest of the time?

In other words, “Uber for x” cos often have the same cost of acquisition and cost of labor as rideshare, but can’t fill their time with work as smoothly / profitably

Marketplace outcomes are sensitive to unit economics
Rideshare networks are fickle and require a long period of being unit economic negative before they can break even, with enough scale/density. But a lot of “Uber for x” cos can never dig out of that hole, and stay unprofitable forever

This is one of the reasons why I’m bearish on food delivery as a stand-alone business in the long run. Uber can tap into their supply side and augment with food delivery earnings. Pure food companies have to get the same drivers but can’t pay as well

💌 Are you up to date?

Get new updates, usually once a week – featuring long-form essays with what’s going on in tech.

The key is to go for a different pool of workers
So what kind of “Uber for x” ideas can work? Ultimately the ones that go for a completely different pool of labor. Folks who prefer to work from home. People who don’t live near a city with rideshare. People who don’t own cars. Etc.

If you can find a different pool of labor, they still have the same motivations around flexible schedules and easy earning potential. You can use the same techniques as Uber – simple UX, transparent pricing, etc – and apply them to these marketplace opportunities

In that way, the lessons from “Uber for x” are a subset of best practices you can learn from marketplaces. You need a strong strategy to get the supply/demand flywheel going. A big market with a defensible moat. Fragmentation that can be solved w transparency and aggregation

Don’t emulate – approach from first principles, starting from the workers’ POV
IMHO “Uber for x” cos failed to become a thing because they sought to emulate ridesharing when they should have just approached their particular market from first principles. There’s still a ton of marketplace opportunities out there and am excited to see what people do!

Because all these marketplaces tend towards supply constrained, you should evaluate each opportunity/company from the POV of the supply side. Does it work for them? Can they do it 40 hours/week and stay sticky? When can you pull away subsidies? These are the key questions

The key lesson!
Supply side is 👑.

If you’re interested in more reading about Uber and marketplaces, I collected my favorite 20 links here

First published on Twitter here!

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.