When the business model doesn’t ring true – it often isn’t

 

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Last week I wrote about the need to monetise.  An innovation is only valuable if you can monetise …. generally that means creating a business model that gets more than eyeballs or customer visits and makes money.

From a customer point of view, convenience is great. Nothing better than have an Uber turn up to your door or a meal delivered by a courier booked through a site such as Menulog.  But I have looked at a lot of the services that ‘deliver’ to your door and thought “how do they make money?” People are expensive and that last mile of delivery is not cheap.

Obviously I’m not the only one that has thought this and we are seeing an increasing number of startups that set up with a key component being ‘the last mile of delivery to the customer’ go out of business or forced to change their model.

Even Amazon has been addressing the cost of delivery by introducing Prime as a service cost/subscription and looking at buying physical stores as a way of reducing distribution costs.

Below is an article from Fortune by Kia Kokalitcheva talking about “The Great Business Model Correction continues”.

Earlier this week, Munchery, one of San Francisco’s many meal delivery startups, finally began to serve lunch in addition to its dinner service— but it’s expanding conservatively. While other so-called “on-demand” food delivery services let customers order food on a whim and deliver it as soon as it’s ready, Munchery customers will have to pre-order lunches the night before, at the latest. What’s more, the company is only making lunch available to office workers whose employers have signed up to regularly order through Munchery, and each day it will deliver the meals all at once—all in the name of efficient operations and predictability.

In other words: Munchery wants to minimize any losses on its new endeavor, unlike competitors that ferry burritos, salads, and everything in between to individual customers.

Thanks to Uber’s success, we’ve seen an explosion of startups over the last several years that let consumers order anything from a ride to groceries to flowers by merely tapping an app.

But these business models have proven much more challenging than they seem. Several have closed shop, and many of the remaining ones are now making significant adjustments in the search of more sustainable businesses—and hopefully, someday, profitability.

With investor appetite for these startups seemingly declining, according to data published in July by CB Insights, it’s no surprise that many are looking for an exit from the venture capitalist subsidy-driven growth that was once popular.

The only remaining question is whether the startups can do it without hiking the price of their services and alienating customers who are not young, Silicon Valley dwellers with a lot of disposable income.

 

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